<PAGE>
As filed with the Securities and Exchange Commission on May 28, 1999
Registration No. 333-
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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MISSION CRITICAL SOFTWARE, INC.
(Exact name of Registrant as specified in its charter)
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Delaware 7372 76-0509513
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction of Classification Code Number) Identification Number)
incorporation or
organization)
Mission Critical Software, Inc.
720 North Post Oak Road, Suite 505
Houston, Texas 77024
(713) 548-1700
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
Stephen E. Odom
Chief Financial Officer
Mission Critical Software, Inc.
720 North Post Oak Road, Suite 505
Houston, Texas 77024
(713) 548-1700
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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Copies to:
Robert P. Latta John S. Watson
Paul R. Tobias Brian M. Moss
Julia Reigel Vinson & Elkins L.L.P.
Matthew J. Esber First City Tower
Wilson Sonsini Goodrich & Rosati Suite 2300
Professional Corporation 1001 Fannin Street
8911 Capital of Texas Highway North Houston, Texas 77022-6760
Suite 3110 (713) 758-2222
Austin, Texas 78759
(512) 338-5400
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Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this Registration Statement
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If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 145 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 delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
Proposed Maximum
Aggregate
Title of Each Class of Offering Amount of
Securities to be Registered Price(1) Registration Fee
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<S> <C> <C>
Common stock, $0.001 par value............... $60,375,000 $16,785
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</TABLE>
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(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.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to such Section 8(a),
may determine.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this preliminary 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 +
+preliminary prospectus is not an offer to sell these securities, and it is +
+not soliciting an offer to buy these securities in any jurisdiction where the +
+offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED MAY 28, 1999
PROSPECTUS
Shares
[LOGO OF MISSION CRITICAL SOFTWARE APPEARS HERE]
Common Stock
This is an initial public offering of common stock by Mission Critical
Software, Inc. Of the shares of common stock being sold in this
offering, shares are being sold by Mission Critical Software and
shares are being sold by the selling stockholders. Mission Critical
Software will not receive any of the proceeds from the sale of shares by the
selling stockholders. We estimate that the initial public offering price will
be between $ and $ per share.
------------
Prior to this offering, there has been no public market for our common stock.
We have applied to have our common stock approved for quotation on the Nasdaq
National Market under the symbol MCSW.
------------
<TABLE>
<CAPTION>
Per Share Total
----------- -----------
<S> <C> <C>
Initial public offering price......................... $ $
Underwriting discounts and commissions................ $ $
Proceeds to Mission Critical Software, before
expenses............................................. $ $
Proceeds to selling stockholders, before expenses..... $ $
</TABLE>
Mission Critical Software has granted the underwriters an option for a period
of 30 days to purchase up to additional shares of Common Stock. The
underwriters are severally underwriting the shares being offered. The
underwriters expect to deliver the shares in New York, New York on ,
1999.
------------
Investing in the common stock involves a high degree of risk.
See "Risk Factors" beginning on page 8.
------------
The Securities and Exchange Commission and state securities regulators have
not approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
HAMBRECHT & QUIST
BANCBOSTON ROBERTSON STEPHENS
SOUNDVIEW TECHNOLOGY GROUP
, 1999.
<PAGE>
[Graphical depiction of the extended enterprise. Textual summary description of
our eManagement software solutions and our strategy.]
2
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 4
Risk Factors............................................................. 8
Forward-Looking Statements............................................... 19
Use of Proceeds.......................................................... 20
Dividend Policy.......................................................... 20
Capitalization........................................................... 21
Dilution................................................................. 22
Selected Financial Data.................................................. 23
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 24
Business................................................................. 36
Management............................................................... 49
Certain Transactions..................................................... 60
Principal and Selling Stockholders....................................... 63
Description of Capital Stock............................................. 65
Shares Eligible for Future Sale.......................................... 68
Underwriting............................................................. 70
Legal Matters............................................................ 72
Experts.................................................................. 72
Additional Information................................................... 72
Index to Financial Statements............................................ F-1
</TABLE>
----------------
Mission Critical Software was incorporated in Delaware in July 1996, and we
began operations in September 1996. References in this prospectus to "Mission
Critical Software," "we," "our" and "us" refer to Mission Critical Software,
Inc., a Delaware corporation.
We maintain a web site at www.missioncritical.com. Information contained on
our web site does not constitute part of this prospectus.
We use the following trademarks:
. Active Administration . OnePoint Administrator . OnePoint Exchange
. Active Knowledge . OnePoint Directory Administrator
. Channel One Administrator . OnePoint File
. MCS . OnePoint Domain Administrator
. Mission Critical Administrator . OnePoint Resource
Software . OnePoint Event Administrator
. Mission Critical Administrator . OnePoint logo
Software logo . OnePoint Event Manager . SeNTry--the Enterprise
Event Manager
Each trademark, trade name or service mark of any other company appearing in
this prospectus belongs to its holder.
Except as otherwise noted, all information in this prospectus assumes the
conversion of all outstanding shares of preferred stock and no exercise of the
underwriters' over-allotment option.
3
<PAGE>
PROSPECTUS SUMMARY
This summary highlights selected 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 the entire prospectus carefully, including our financial statements
and the risks of investing in our common stock discussed under "Risk Factors"
before making an investment decision.
MISSION CRITICAL SOFTWARE, INC.
We are a leading provider of systems administration and operations management
software products for corporate and Internet-based Windows NT networks. Our
OnePoint product suite is designed to improve the reliability, performance and
security of even the most complex computing environments by simplifying and
automating key systems management functions. Our products can be deployed
quickly, are based on an open and extensible architecture and are easy to use.
In today's corporate networks, organizations are installing Windows NT
servers in greater quantities and are using these servers to address a
broadening scope of business needs. For example, Windows NT servers are
increasingly being used to run web sites and web server farms--Internet-based
networks composed of hundreds of thousands of tiered Windows NT servers--and to
support e-business and application hosting initiatives. In a survey of Fortune
1000 information technology managers, Forrester Research found that, on
average, those managers expected 60% of their servers to run on Windows NT by
the year 2000.
The growing complexity of corporate and Internet-based Windows NT networks
has placed increasing pressure on systems managers to maintain reliable network
operations. To improve both the efficiency and effectiveness of such networks,
businesses are increasingly using systems management software solutions.
International Data Corporation projects that the market for products that
manage 32-bit Windows platforms will grow from $1.8 billion in 1998 to $8.1
billion by 2003.
Our OnePoint product suite is designed to facilitate eManagement--the
centralized management of critical systems infrastructure and applications for
the extended enterprise. Customers can use our products to monitor, manage,
administer and secure a wide range of resources in the Windows NT environment
including web server farms, e-commerce and corporate servers, firewalls,
workstations and applications. OnePoint enables companies to automate labor-
intensive tasks, such as security monitoring and administration, and to
minimize the need for customization by embedding industry best practices.
OnePoint is also designed to ease the transition from other operating system
platforms, such as Novell Netware, to Windows NT by providing systems
administrators with the ability to test implementations and convert systems
incrementally.
Our primary strategic objective is to maintain and strengthen our position as
a leading provider of systems management software for corporate and Internet-
based Windows NT networks. Our product strategy focuses on expanding our
OnePoint suite and facilitating migration to and management of the Windows 2000
platform. In addition, we intend to expand our operations management
capabilities and to increase our product's ability to administer and monitor
other platforms. Our sales strategy focuses on selling new and existing
products to existing customers, large corporations and international
organizations. We intend to build on these selling efforts by targeting mid-
sized companies as well as e-businesses, Internet service providers, commerce
service providers and other companies for which Windows NT and Windows 2000
systems management products are a growing operational necessity. To support
these strategic efforts, we intend to leverage and expand our Microsoft
relationship. We currently have an extensive relationship with Microsoft that
includes the sharing of technology, joint marketing and sales efforts and
Microsoft's use of our OnePoint Event Manager product for its global Internet
and corporate datacenters. We believe we
4
<PAGE>
are well positioned to anticipate Microsoft's evolving product strategy and to
capitalize on joint sales and marketing programs.
As of March 31, 1999, our products had been installed by over 600 customers,
including more than 40 of the 1999 Fortune 100 companies and some of the
largest Internet data centers in the world. We market and sell our products
worldwide through a network of sales offices and distribution partners. Our
products have been adopted in a wide variety of industries, including banking
and finance, energy, healthcare, insurance and pharmaceuticals. Representative
customers include Compaq Computer Corporation, DuPont, Johnson & Johnson,
Lockheed Martin, Merck & Co., Inc., Prudential Insurance Company of America,
Shell Services International, Sprint Corporation and Wells Fargo & Company.
Our principal executive offices are located at 720 North Post Oak Road, Suite
505, Houston, Texas 77024, and our telephone number is (713) 548-1700.
5
<PAGE>
The Offering
<TABLE>
<S> <C>
Common Stock offered by Mission Critical
Software..................................... shares
Common Stock offered by the selling
stockholders................................. shares
Common Stock to be outstanding after this
offering..................................... shares
Use of proceeds............................... For general corporate purposes,
principally working capital and
capital expenditures.
Nasdaq National Market symbol................. MCSW (application pending)
</TABLE>
The number of shares of common stock outstanding after this offering is based
on 9,914,270 shares outstanding as of March 31, 1999. This number excludes
3,935,084 shares of common stock issuable upon exercise of stock options and
433,333 shares of common stock issuable upon exercise of warrants outstanding
as of March 31, 1999 with weighted average exercise prices of $1.99 and $1.38
respectively. This number also excludes 4,355,648 shares of common stock
available for future issuance under our 1997 Stock Option Plan, 250,000 shares
reserved for issuance under our 1999 Director Option Plan and 600,000 shares
reserved for sale under our 1999 Employee Stock Purchase Plan.
6
<PAGE>
Summary Financial Information
The following table sets forth summary financial data for our company. Our
total operating loss reflects amortization of stock option compensation of
$236,000 and abandoned lease costs of $1.0 million for the nine months ended
March 31, 1999 and a write-off of acquired in-process research and development
of $1.5 million in the period ended June 30, 1997.
The information under "As Adjusted" reflects the application of the net
proceeds from the sale by us of the shares of common stock in this
offering at an assumed initial public offering price of $ and the
deduction of the underwriting discount and estimated offering expenses.
<TABLE>
<CAPTION>
July 19, 1996 Year Ended Nine Months
(inception) June 30, Ended March 31,
to June 30, ---------- ----------------
1997 1998 1998 1999
------------- ---------- ------- -------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Statement of Operations Data:
Revenue........................... $ 4,267 $14,376 $ 9,234 $16,901
Operating loss.................... (3,500) (2,379) (2,396) (428)
Net loss.......................... $(3,323) $(2,316) $(2,334) $ (222)
Basic and diluted net loss per
share............................ $ (1.44) $ (2.47) $ (2.37) $ (0.40)
Pro forma basic and diluted net
loss per share................... $ (0.53) $ (0.02)
</TABLE>
<TABLE>
<CAPTION>
March 31, 1999
--------------------
Actual As Adjusted
------- -----------
(in thousands)
<S> <C> <C>
Balance Sheet Data:
Cash and cash equivalents................................ $ 9,458 $
Working capital.......................................... 3,542
Total assets............................................. 15,056
Long-term debt, less current maturities.................. 148
Redeemable convertible preferred stock................... 13,179
Total stockholders' equity (deficit)..................... (8,265)
</TABLE>
7
<PAGE>
RISK FACTORS
Any investment in our common stock involves a high degree of risk. You
should consider the risks described below carefully and all of the information
contained in this prospectus before deciding whether to purchase our common
stock. The risks and uncertainties described below are not the only risks and
uncertainties we face. Additional risks and uncertainties not presently known
to us or that we currently deem immaterial may also impair our business
operations. If any of the following risks actually occur, our business,
financial condition and results of operations would suffer. In such case, the
trading price of our common stock could decline, and you may lose all or part
of your investment in our common stock.
Our business and prospects are difficult to evaluate because we have a limited
operating history
Our company was founded in July 1996. We have a limited operating history.
An investor in our common stock must consider the risks and difficulties we
may encounter as an early stage company in a new and rapidly evolving market.
These risks and difficulties include our:
. ability to develop competitive products;
. need to expand our sales and support organizations;
. reliance on our strategic relationship with Microsoft;
. competition;
. need to manage changing operations;
. dependence upon key personnel; and
. general economic conditions.
We cannot be certain that our business strategy will be successful or that
we will successfully manage these risks. If we fail to address adequately any
of these risks or difficulties, our business would likely suffer.
We have a history of losses and may experience losses in the future
Since our inception, we have incurred significant net losses and as of March
31, 1999 had an accumulated deficit of $8.8 million. We expect to continue to
incur significant sales and marketing, product development and administrative
expenses. As a result, we will need to generate significant revenue to
maintain profitability. We cannot be certain that we will achieve, sustain or
increase profitability on a quarterly or annual basis in the future.
We anticipate that our expenses will increase substantially in the
foreseeable future as we:
. increase our direct sales and marketing activities, by expanding our
North American and international direct sales forces and extending our
telesales efforts;
. develop our technology, expand our OnePoint product suite and create and
market products that operate with the commercial release version of
Windows 2000;
. expand our indirect distribution channels; and
. pursue strategic relationships and acquisitions.
Any failure to significantly increase our revenue as we implement our
product and distribution strategies would materially adversely affect our
business, quarterly and annual operating results and financial condition.
Although our revenue has grown rapidly in recent years, we do not believe that
we will maintain this rate of revenue growth. In addition, we may not
experience any revenue growth in the future, and our revenue could in fact
decline. Our efforts to expand our software product suites, sales and
marketing
8
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activities, direct and indirect distribution channels and maintenance and
support functions and to pursue strategic relationships or acquisitions may not
succeed or may prove more expensive than we currently anticipate. As a result,
we cannot predict our future operating results with any degree of certainty.
There are many factors, including some beyond our control, that may cause
fluctuations in our quarterly operating results and our stock price
Our quarterly operating results may vary significantly from quarter to
quarter depending upon a number of factors described elsewhere in this
prospectus, including many that are beyond our control. Our ability to
accurately forecast our quarterly sales is limited, which makes it difficult to
predict the quarterly revenue that we recognize. As a result, we believe that
quarter-to-quarter comparisons of our financial results are not necessarily
meaningful, and investors should not rely on them as an indication of our
future performance.
Historically, a majority of our revenue has been attributable to the licenses
of software products. Changes in the mix of our revenue, including the mix
between higher margin software products and somewhat lower margin maintenance,
could adversely affect our operating results for future quarters.
As a result of our limited operating history, we cannot forecast operating
expenses based on historical results. If we have a shortfall in revenue in
relation to our expenses, we may be unable to reduce our expenses quickly
enough to avoid lower quarterly operating results. Many of our costs are fixed
in the short-term. For example, we have signed a five year lease for 70,000
square feet of new office space in Houston, Texas that will commence in August
1999. We do not know whether our business will grow rapidly enough to absorb
the costs of this facility. In either case, lower quarterly results could
adversely affect the market price of our common stock.
We have relied and expect to continue to rely on sales of licenses for our
OnePoint Administrator products for our revenue and a decline in sales of
this product could cause our revenues to fall
Historically, we have derived the substantial majority of our license revenue
from the sale of our OnePoint Administrator products. During the period from
inception to June 30, 1997, the fiscal year ended June 30, 1998 and the nine
months ended March 31, 1999, sales of OnePoint Administrator products accounted
for approximately 100%, 88% and 83% of our license revenue, respectively. We
expect that this product will continue to account for a large portion of our
license revenue for the foreseeable future. Our future operating results depend
on the continued market acceptance of our OnePoint Administrator products and
future enhancements to our OnePoint Administrator products. Any factors
adversely affecting the pricing of, demand for or market acceptance of our
OnePoint Administrator products, including competition or technological change,
could cause our business to suffer.
We introduced a new version of our OnePoint Event Manager product in June
1998. To date, this product has accounted for only a limited portion of our
revenue. However, our future growth and profitability will depend on our
ability to increase sales of our OnePoint Event Manager product.
Our revenue could decline substantially if our existing customers do not
continue to purchase new licenses from us
We rely on sales of additional licenses for our products to our existing
customers. In the nine months ended March 31, 1999, additional sales to our
existing customers represented 50% of our total revenue. If we fail to sell
additional licenses for our products and maintenance to our existing customers,
we would experience a material and adverse decline in total revenue. Even if we
are successful in selling our products
9
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to new customers, the rate of growth of our revenue could be materially and
adversely affected if our existing customers do not continue to purchase a
substantial number of additional product licenses from us.
Risks Related to Microsoft
Our business is dependent on the continued adoption of Windows NT and Windows
2000 for corporate and Internet-based networks and a decrease in their rates
of adoption could cause our business to suffer
For the foreseeable future, we expect that substantially all of our revenue
will continue to come from sales of our Windows NT systems management
products. As a result, we depend on the growing use of the Windows NT platform
for corporate and Internet-based networks. If the role of the Windows NT
platform does not increase as we anticipate, or if it in any way decreases,
our business would suffer. In addition, if users do not accept Windows 2000,
or if there is a wide acceptance of other existing or new platforms that
provide enhanced capabilities, our business would likely suffer.
Windows 2000 may not gain market acceptance if its launch is delayed beyond
its expected release date. In addition, users of previous versions of Windows
NT may decide to migrate to another operating system platform due to the
delays or to improved functionality of some other vendor's operating system
platform. Windows 2000 may address more of the needs of our customers for
systems administration and operations management, in which case our customers
would not need to purchase our products to perform those functions. In
addition, we cannot be sure that we will be able to successfully redevelop our
products to work with Windows 2000 at the same or better levels of
functionality than our products work with the current version of Windows NT.
Even if we successfully develop products for the Windows 2000 platform, our
customers may not choose our OnePoint product suite for technical, cost,
support or other reasons. If users of large corporate and Internet-based
Windows 2000 networks do not widely adopt and purchase our OnePoint product
suite, our business, financial condition and results of operations will be
materially adversely affected.
If our introduction of new OnePoint products for Windows 2000 is not
successful, our business would suffer
We are currently expanding our OnePoint product suite to support the
commercial release version of the Windows 2000 platform, which has been
announced by Microsoft but is not currently available. Our OnePoint product
suite currently supports the Beta 3 version of Windows 2000 Server. If we do
not successfully develop, market and sell products that support the commercial
release version of Windows 2000, our business and future operating results
would suffer. In addition, we must introduce new versions of our products to
support the commercial release version of Windows 2000 shortly after its
release by Microsoft. If we fail to introduce our new products within a short
time after the commercial release of Windows 2000, the delay may cause
customers to forego purchases of our products and purchase those of our
competitors.
We depend on our relationship with Microsoft and if this relationship suffers,
our business would likely be damaged
We believe that our success in penetrating our target markets depends in
part on our ability to maintain our strategic relationship with Microsoft. We
believe our relationship with Microsoft is important in order to validate our
technology, facilitate broad market acceptance of our products and enhance our
sales, marketing and distribution capabilities. If we are unable to maintain
and enhance our existing relationship with Microsoft or develop a similar
relationship with another major operating system vendor, we may have
difficulty selling our products.
We rely heavily on our relationship with Microsoft and attempt to coordinate
our product offerings with the future releases of Microsoft's operating
systems, particularly the commercial release version of Windows
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2000. Microsoft may not notify us of feature enhancements prior to new releases
of its operating systems in the future. In that case, we may not be able to
introduce products on a timely basis that capitalize on new operating system
releases and feature enhancements.
Risks Related to Our Sales Efforts
If we experience any changes in our sales cycle, our quarterly operating
results could fluctuate
To date, our customers have taken an average of three months to evaluate our
products. Our customers tend to deploy our products by purchasing licenses for
one product at a time and for a small number of servers and clients. We
anticipate that the sales cycle for other OnePoint products will be similar to
the sales cycle we previously experienced for OnePoint Administrator products
and OnePoint Event Manager. If customers begin to evaluate our products for an
enterprise-wide initial deployment, our sales cycle could lengthen and our
license revenue and operating results might vary significantly from period to
period. In addition, enterprise-wide initial deployments could also erode per-
user license fees even though our average sales price might increase.
If we are unable to expand our sales and support organizations, we may not be
able to expand our business
In order to increase market awareness and sales of our products, we will need
to substantially expand our direct and indirect sales operations, both
domestically and internationally. To date, we have relied primarily on our
direct sales force to sell our products. Our products and maintenance require a
sophisticated sales effort targeted at several people within our prospective
customers' information technology departments. We have recently expanded our
direct sales force and plan to hire additional sales personnel. Competition for
qualified sales people is intense, and we might not be able to hire the kind
and number of sales people we are targeting.
To date, we have not licensed our products to, nor partnered with, systems
integrators to sell our software products. We intend to explore relationships
with systems integrators but have little or no experience negotiating
agreements with systems integrators, engaging in joint selling activities with
systems integrators or providing support to such systems integrators' end-user
customers. Our business and sales may suffer if we fail to enter into
agreements with systems integrators or if we fail to successfully and
profitably perform our obligations under such agreements. In addition, our
revenue could be adversely affected if selling our products through systems
integrators results in lower margins and those sales replace a substantial
portion or our direct sales.
Similarly, the complexity of distributed computing systems requires highly
trained customer service and support personnel to assist the customer with
installation and deployment. We currently have a small customer service and
support organization and will need to increase our staff to support new
customers and the expanding needs of existing customers. Hiring customer
service and support personnel is very competitive in our industry due to the
limited number of people available with the necessary technical skills and
understanding of the Windows NT and Windows 2000 operating environments.
Our expansion to international markets could reduce our operating margins
During the period from inception to June 30, 1997, the fiscal year ended June
30, 1998 and the nine months ended March 31, 1999, we derived 15%, 18% and 20%
of our total revenue, respectively, from sales outside of North America. We
only recently hired direct sales staff outside of North America. We have
historically generated substantially all of our total revenue outside of North
America through distributors. We believe that our future success is dependent
upon establishing successful relationships with a variety of distribution
partners. To date, we have entered into agreements with only a small number of
distribution partners. We are expanding our indirect distribution channels
outside of North America. We cannot be certain that we will be able to attract
distributors that market our products effectively or provide timely and cost-
effective customer support and service. We cannot be certain that any
distributor will continue to represent our products or that our distributors
will devote a sufficient amount of effort and resources to selling our products
in their territories.
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If we are unable to generate increased international sales through an
indirect distribution model, we will incur higher personnel costs by hiring
direct sales staff. We may not realize corresponding increases in revenue from
such direct international sales staff, and our operating margins may decline.
If we elect to establish more direct sales staff outside the United States,
varying employment policies and regulations among countries may reduce our
flexibility in managing headcount and, in turn, managing personnel-related
expenses.
Even if we are able to successfully expand our direct and indirect
international selling efforts, we cannot be certain that we will be able to
create or increase international market demand for our products. We also
expect that if we increase our sales in Europe substantially, our operating
results may be lower in our quarters ending September 30 due to the summer
slowdown in Europe.
Our business and prospects are difficult to evaluate, because we have
historically experienced seasonality
In the quarter ended September 30, 1998, our revenue and operating results
were lower relative to the prior quarter. We believe this decline resulted
from the substantial number of transactions our sales staff closed in the
prior quarter, our fourth fiscal quarter, and because there were fewer selling
opportunities in the summer months. If this seasonality were to continue in
the future, our quarter-to-quarter operating results could be affected.
Our revenues may suffer if customers demand extensive consulting or other
support services with our software products
Our products are designed to require little or no support from us to be
implemented quickly and effectively by our customers. Many of our competitors
offer extensive consulting services in addition to software products. If we
introduced a product that required extensive consulting services for
implementation or if our customers wanted to purchase from a single vendor a
menu of items that includes extensive consulting services, we would be
required to change our business model. We would be required to hire and train
consultants, outsource the consulting services or enter into a joint venture
with another company that could provide those services. If such events were to
occur, our revenues would likely suffer because customers would choose another
vendor or we would incur the added expense of hiring and retaining consulting
personnel.
Our industry is highly competitive, and we face competition from Microsoft
We face competition from different sources.
Existing Competition. Currently, we compete principally with:
. internal systems management departments;
. providers of point solutions for Windows NT directory administration,
domain consolidation and migration and event management such as Master
Design & Development, Inc., Micromuse, Inc., Fastlane Technologies, Inc.,
Entevo Corporation, NetIQ Corporation, Systems Options, Ltd. and Aelita
Software Group;
. providers of security and audit products for Windows NT such as BindView
Development Corporation and Netwise Systems Limited; and
. providers of broad systems management suites and/or frameworks such as
Computer Associates, Inc., Hewlett-Packard Company, Tivoli Systems, Inc.
and BMC Software, Inc.
In addition, certain features included in our products compete with the
native tools from Microsoft.
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We expect competition in the systems management software market to increase
significantly as new companies enter the market and current competitors expand
their product lines and services. Many of these potential competitors are
likely to enjoy substantial competitive advantages, including:
. greater resources that can be devoted to the development, promotion and
sale of their products;
. more established sales channels;
. greater software development experience; and
. greater name recognition.
Future Competition. We also believe that Microsoft, or systems management
software vendors, each of which are also currently competing with us, could
enhance their products to include the functionality that we currently provide
in our products. If these vendors include such functionality as standard
features of their products, our software solutions could become obsolete. Even
if the functionality of the standard features of these products is more limited
than ours, we face a substantial risk that a significant number of customers
would elect to keep this limited functionality rather than purchase additional
software.
We may face competition in the future from established companies who have not
previously entered the Windows NT systems management software market or from
emerging software companies. Barriers to entry in the software market are
relatively low. Increased competition may materially adversely affect our
business and future quarterly and annual operating results due to price
reductions, higher selling expenses and a reduction in our market share.
Microsoft and systems management software vendors may not only develop their
own systems management solutions, but they may also acquire or establish
cooperative relationships with our current competitors, including smaller
private companies. Because Microsoft and these vendors have significant
financial and organizational resources available, they may be able to quickly
penetrate the Windows NT systems management software market by leveraging the
technology and expertise of smaller companies and utilizing their extensive
distribution channels. We expect that the software industry, in general, and
providers of systems management solutions, in particular, will continue to
consolidate. It is possible that new competitors or alliances among competitors
may emerge and rapidly acquire significant market share.
Bundling or Compatibility Risks. Our ability to sell our products also
depends, in part, on the compatibility of our products with other vendors'
software and hardware products, particularly those provided by Microsoft.
Developers of these products may change their products so that they will no
longer be compatible with our products. These other vendors may also decide to
bundle their products with other systems management products for promotional
purposes. If that were to happen, our business and future operating results may
be materially adversely affected as we may be priced out of the market or no
longer be able to offer commercially viable products.
To be competitive, we must respond promptly and effectively to the challenges
of technological change, evolving standards and our competitors' innovations by
continuing to enhance our products and sales channels. Any pricing pressures or
loss of market share resulting from our failure to compete effectively could
materially adversely affect our business.
We may not succeed in developing and marketing new products for our OnePoint
suite
We are planning the release of additional products for our OnePoint suite
that function with Windows NT and the commercial release version of Windows
2000. Developing these capabilities and other required features for the release
of new products will require significant additional expenses and development
resources. For example, we cannot be certain that our entry into the file
administration segment of the systems management software market with our
OnePoint File Administrator product will be successful or that our customers
will widely accept and adopt this product.
Our products are subject to rapid technological change and could be rendered
obsolete by new technologies
The systems management software market is characterized by rapid
technological change, frequent new product introductions and enhancements,
uncertain product life cycles, changes in customer demands and
13
<PAGE>
evolving industry standards. Our products could be rendered obsolete if
products based on new technologies are introduced or new industry standards
emerge.
Client/server computing environments are inherently complex. As a result, we
cannot accurately estimate the life cycles of our software products. New
products and product enhancements can require long development and testing
periods, which depend significantly on our ability to hire and retain
increasingly scarce and technically competent personnel. Significant delays in
new product releases or significant problems in installing or implementing new
product releases could seriously damage our business. We have, on occasion,
experienced delays in the scheduled introduction of new and enhanced products
and cannot be certain that we will avoid such delays in the future.
Our future success depends upon our ability to enhance existing products,
develop and introduce new products, satisfy customer requirements and achieve
market acceptance. We cannot be certain that we will successfully identify new
product opportunities and develop and bring new products to market in a timely
and cost-effective manner.
Any failure by us to protect our intellectual property could harm our
competitive position
Our success and ability to compete are substantially dependent upon our
internally developed technology, which we protect through a combination of
copyright, trade secret and trademark law. We have not, however, registered
any of our trademarks under applicable law. We generally enter into
confidentiality or license agreements with our employees, consultants and
corporate partners, and generally control access to and distribution of our
software, documentation and other proprietary information. However, we believe
that such measures afford only limited protection. Others may develop
technologies that are similar or superior to our technology or design around
the copyrights and trade secrets owned by us. We license our software products
primarily under shrink wrap licenses (i.e., licenses included as part of the
product packaging). Shrink wrap licenses are not negotiated with or signed by
individual licensees, and purport to take effect upon the opening of the
product package. Despite our efforts to protect our proprietary rights,
unauthorized parties may attempt to copy or otherwise obtain and use our
products or technology. Policing unauthorized use of our products is
difficult, and we cannot be certain that the steps we have taken will prevent
misappropriation of our technology, particularly in foreign countries where
the laws may not protect our proprietary rights as fully as those in the
United States. Our means of protecting our proprietary rights may be
inadequate.
We may infringe the proprietary rights of others and be liable for significant
damages.
Substantial litigation regarding intellectual property rights exists in the
software industry. We expect that software products may be increasingly
subject to third-party infringement claims as the number of competitors in our
industry segment grows and the functionality of products in different industry
segments overlaps. We are not aware that we are infringing any proprietary
rights of third parties. However, third parties may claim that we infringe
their intellectual property rights. Any claims, with or without merit, could
be time-consuming to defend, result in costly litigation, divert our
management's attention and resources, cause product shipment delays or require
us to enter into royalty or licensing agreements. These royalty or licensing
agreements, if required, may not be available on terms acceptable to us, if at
all. A successful claim of product infringement against us or our failure or
inability to license the infringed or similar technology could adversely
affect our business.
We have experienced significant growth and change in our business and our
failure to manage this growth and any future growth could harm our business
We continue to increase the scope of our operations domestically and
internationally and have grown our headcount substantially. At June 30, 1998,
we had a total of 92 full-time employees, and at March 31, 1999 we had a total
of 136 full-time employees. Our productivity and the quality of our products
may be
14
<PAGE>
materially adversely affected if we do not integrate and train our new
employees quickly and effectively. We also cannot be sure that our revenues
will continue to grow at a sufficient rate to absorb the costs associated with
a larger overall headcount, as well as recruiting-related expenses.
We face risks from our international operations
We have no experience in developing foreign language translations of our
products and little experience marketing and distributing our products
internationally. In addition, our international operations are subject to other
inherent risks, including:
. the impact of recessions in economies outside the United States;
. greater difficulty in accounts receivable collection and longer
collection periods;
. unexpected changes in regulatory requirements;
. difficulties and costs of staffing and managing foreign operations;
. reduced protection for intellectual property rights in some countries;
. potentially adverse tax consequences; and
. political and economic instability.
Our international sales are generally denominated in the United States
dollar. We do not currently engage in currency hedging activities. Although
exposure to currency fluctuations to date has been insignificant, future
fluctuations in currency exchange rates may adversely affect our future revenue
from international sales. We may also be less competitive than a vendor whose
products are sold in the local currency during times of exchange rate
instability. We expect that if our international sales operations increase
substantially, we will be required to price our products and pay our expenses
in foreign currencies and may be subject to currency exchange risk.
Potential year 2000 problems with our products or our internal systems could
adversely affect our business
Many currently installed computer systems and software products are coded to
accept only two digit entries in the date code field. As a result, software
that records only the last two digits of the calendar year may not be able to
determine whether "00" means 1900 or 2000. This may result in software failures
or the creation of erroneous results.
We are in the early stages of assessing our Year 2000 readiness. We have only
conducted a preliminary investigation and performed limited testing to
determine whether each component of our OnePoint product suite and our products
in development are Year 2000 compliant. Our software products operate in
complex system environments and directly and indirectly interact with a number
of other hardware and software systems. Despite preliminary investigation and
testing by us and our partners, our software products and the underlying
systems and protocols running our products may contain errors or defects
associated with Year 2000 date functions. We are unable to predict to what
extent our business may be affected if our software or the systems that operate
in conjunction with our software experience a material Year 2000 failure. Known
or unknown errors or defects that affect the operation of our software could
result in delay or loss of revenue, cancellation of customer contracts,
diversion of development resources, damage to our reputation, increased
maintenance and warranty costs, and litigation costs, any of which could
adversely affect our business, financial condition and results of operations.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
If we are unable to attract and retain key personnel, our business would be
harmed
We intend to hire a significant number of additional sales, support,
marketing and research and development personnel in calendar 1999 and 2000.
Competition for these individuals is intense, and we may
15
<PAGE>
not be able to attract, assimilate or retain additional highly qualified
personnel in the future. Our future success also depends upon the continued
service of our executive officers and other key sales, marketing and support
personnel. In addition, our products and technologies are complex and we are
substantially dependent upon the continued service of our existing engineering
personnel, and especially Thomas P. Bernhardt, one of our founders and our
Chief Technology Officer. The loss of any of our key employees could adversely
affect our business and slow our product development processes particularly
since neither our Chief Executive Officer nor our Chief Financial Officer is
bound by a noncompetition or nonsolicitation agreement. We do not have key
person life insurance policies covering any of our employees.
To achieve our business objectives, we may recruit and employ skilled
technical professionals from other countries to work in the United States.
Limitations imposed by federal immigration laws and the availability of visas
could materially adversely affect our ability to attract necessary qualified
personnel. This may have a material adverse effect on our business and future
operating results.
Errors in our products or the failure of our products to conform to
specifications could result in our customers demanding refunds from us or
asserting claims for damages against us
Because our software products are complex, they could contain errors or bugs
that can be detected at any point in a product's life cycle. While we
continually test our products for errors and work with customers through our
customer support services to identify and correct bugs in our software, we
expect that errors in our products will continue to be found in the future.
Although many of these errors may prove to be immaterial, certain of these
errors could be significant. Detection of any significant errors may result
in, among other things, the loss of or delay in market acceptance and sales of
our products, diversion of development resources, injury to our reputation, or
increased maintenance and warranty costs. These problems could materially
adversely affect our business and future operating results. 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 version and product
update releases. To date none of these delays has materially affected our
business. However, product errors or delays in the future, including any
product errors or delays associated with the introduction of our new products
or the versions of our products that support Windows 2000 could be material.
In addition, in certain cases we have warranted that our products will operate
in accordance with specified customer requirements. If our products fail to
conform to such specifications, customers could demand a refund for the
software license fee paid to us or assert claims for damages.
Moreover, because our products administer critical distributed computing
systems services, we may receive significant liability claims if our products
do not work properly. Our agreements with customers typically contain
provisions intended to limit our exposure to liability claims. These
limitations may not, however, preclude all potential claims. Liability claims
could require us to spend significant time and money in litigation or to pay
significant damages. As a result, any such claims, whether or not successful,
could seriously damage our reputation and our business.
We will face risks if we undertake acquisitions
We may make investments in complementary companies, products or
technologies. If we buy a company, we could have difficulty in assimilating
that company's personnel and operations. In addition, the key personnel of the
acquired company may decide not to work for us. If we make other types of
acquisitions, we could have difficulty in assimilating the acquired technology
or products into our operations. These difficulties could disrupt our ongoing
business, distract our management and employees and increase our expenses. We
also expect that we would incur substantial expenses if we acquired another
business or technologies. Furthermore, we may use the proceeds of this
offering, incur debt or issue equity securities to pay for any future
acquisitions. The issuance of additional equity securities could be dilutive
to our stockholders.
16
<PAGE>
Risks Related to this Offering
Our stock will likely be subject to substantial price and volume fluctuations
due to a number of factors, certain of which will be beyond our control
The securities markets have experienced significant price and volume
fluctuations and the market prices of the securities of software companies
have been especially volatile. This market volatility, as well as general
economic, market or political conditions could adversely affect the market
price of our common stock without regard to our operating performance. In
addition, our operating results could be below the expectations of public
market analysts and investors. If this were to occur, the market price of our
common stock could decrease significantly. Investors may be unable to resell
their shares of our common stock at or above the offering price. In the past,
companies that have experienced volatility in the market price of their stock
have been the object of securities class action litigation. If we were the
object of securities class action litigation, it could result in substantial
costs and a diversion of management's attention and resources.
We have broad discretion in how we use the proceeds of this offering, and we
may not use such proceeds effectively
Our management could spend most of the proceeds from this offering in ways
with which our stockholders may not agree. We cannot predict that the proceeds
will be invested to yield a favorable return. Our primary purpose in
undertaking this offering is to create a public market for our common stock.
As of the date of this prospectus, we do not plan to use the proceeds from
this offering other than for working capital and general corporate purposes.
We may also use the proceeds in future strategic acquisitions. Until the need
arises to use the proceeds, we plan to invest the net proceeds in investment
grade, interest-bearing securities.
Our officers and affiliates of certain of our directors influence our business
and hold a substantial portion of our stock
We anticipate that our directors, officers and entities affiliated with
certain of our directors will, in the aggregate, beneficially own
approximately % of our outstanding common stock following the completion
of this offering. These stockholders, if acting together, would be able to
significantly influence all matters requiring approval by our stockholders,
including the election of directors and the approval of mergers or other
business combinations.
Certain provisions of our charter documents may inhibit potential acquisition
bids; this may adversely affect the market price of our common stock and the
voting rights of the holders of common stock
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. The 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. As a result, the market price of our common stock and the voting
and other rights of the holders of our common stock may be adversely affected.
The issuance of preferred stock may result in the loss of voting control to
others. We have no current plans to issue any shares of preferred stock.
Our charter documents specify certain procedures for electing only one of
the three classes of directors each year, limiting the ability of the
stockholders to remove directors without cause, eliminating the right of
stockholders to act by written consent, eliminating the right of stockholders
to call a special meeting of stockholders and requiring advance notice to
nominate directors or submit proposals for consideration at stockholder
meetings. These provisions could discourage potential acquisition proposals
and could delay or
17
<PAGE>
prevent a change in control transaction, and they could have the effect of
discouraging others from making tender offers for our common stock. 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.
Delaware law may inhibit potential acquisition bids; this may adversely affect
the market price of our common stock and prevent changes in our management
Certain provisions of Delaware law may inhibit potential acquisition bids for
our company. Upon completion of this offering, we will be subject to the
antitakeover provisions of the Delaware General Corporation Law, which
regulates corporate acquisitions. Delaware law will prevent us 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 unless our board of directors or a supermajority of our
uninterested stockholders agree. For purposes of Delaware law, a "business
combination" includes, among other things, a merger or consolidation involving
us and the interested stockholder and the sale of more than 10% of our assets.
In general, Delaware law defines an "interested stockholder" as any entity or
person beneficially owning 15% or more of the outstanding voting stock of a
corporation and any entity or person affiliated with or controlling or
controlled by such entity or person. Under Delaware law, a corporation may "opt
out" of the foregoing antitakeover provisions. We do not intend to "opt out" of
these antitakeover provisions of Delaware Law.
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 (including shares
issued upon the exercise of outstanding options and warrants) in the public
market following this offering could adversely affect the market price of the
common stock. Such sales also might make it more difficult for us to sell
equity or equity-related securities in the future at a time and price that we
deem appropriate. Upon completion of this offering, we will have outstanding
shares of common stock based upon shares outstanding as of March 31,
1999. All of the shares sold in this offering will be freely tradable unless
held by our affiliates. The remaining shares of common stock outstanding after
this offering will be restricted as a result of securities laws or lock-up
agreements signed by the holder and will be available for sale in the public
market as follows:
<TABLE>
<CAPTION>
Number of
Date of Availability for Sale Shares
----------------------------- ---------
<S> <C>
At various times between March 31, 1999 and January 27, 2000... 343,136
January 28, 2000............................................... 8,071,134
</TABLE>
At March 31, 1999, options to purchase 3,935,084 shares of our common stock
were outstanding of which options approximately 778,508 shares were then vested
and exercisable. Warrants to purchase 433,333 shares of common stock that were
immediately exercisable were also outstanding. Beginning January 28, 2000,
approximately 1,630,443 shares issuable upon the exercise of vested stock
options and 433,333 shares issuable upon the exercise of warrants will become
eligible for sale in the public market, if such options and warrants are
exercised. The issuance of our common stock pursuant to these options and
warrants could adversely affect the market price of our common stock.
Hambrecht & Quist LLC may, in its sole discretion and at any time without
prior notice, release all or any portion of the common stock subject to lock-up
agreements.
We do not intend to pay dividends.
We have never declared or paid any cash dividends on our capital stock. In
July 1997, we repurchased 950,000 shares of our Series A Preferred Stock from
one holder for which the excess of the redemption price over the carrying value
of the related Series A Preferred Stock is classified as a dividend for
financial reporting purposes. We currently intend to retain any future earnings
for funding growth and, therefore, do not expect to pay any dividends in the
foreseeable future.
18
<PAGE>
FORWARD-LOOKING STATEMENTS
This prospectus, including the sections entitled "Prospectus Summary," "Risk
Factors," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business," contains forward-looking statements.
These statements relate to future events or our future financial performance
and involve known and unknown risks, uncertainties and other factors that may
cause our or our industry's actual results, levels of activity, performance or
achievements to be materially different from any future results, levels of
activity, performance or achievements expressed or implied by such forward-
looking statements. Such risks and other factors include, among other things,
those listed under "Risk Factors" and elsewhere in this prospectus. In some
cases, you can identify forward-looking statements by terminology such as
"may," "will," "should," "expects," "plans," "anticipates," "believes,"
"estimates," "predicts," "potential," "continue" or the negative of such terms
or other comparable terminology. These statements are only predictions. Actual
events or results may differ materially. In evaluating these statements, you
should specifically consider various factors, including the risks outlined
under "Risk Factors." These factors may cause our actual results to differ
materially from any forward-looking statement.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Moreover, neither we nor any other
person assumes responsibility for the accuracy and completeness of such
statements. We are under no duty to update any of the forward-looking
statements after the date of this prospectus to conform such statements to
actual results.
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<PAGE>
USE OF PROCEEDS
We estimate that the net proceeds from the sale of the shares of
common stock that we are selling in this offering will be approximately
$ ($ if the underwriters exercise their over-allotment
option in full) based on an assumed public offering price of $ per share
and after deducting the estimated underwriting discount and estimated offering
expenses payable by us. We will not receive any proceeds from the sale of the
shares being sold by the selling stockholders.
The principal purpose of this offering is to create a public market for our
common stock. We expect to use the net proceeds from this offering for working
capital and general corporate purposes. We may use a portion of the net
proceeds to acquire complementary products, technologies or businesses when the
opportunity arises; however, we currently have no commitments or agreements and
are not involved in any negotiations with respect to any such transactions.
Pending such uses, we intend to invest the net proceeds in interest-bearing,
investment-grade securities. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
DIVIDEND POLICY
We have never declared or paid any dividends on our capital stock. In July
1997, we repurchased 950,000 shares of our Series A Preferred Stock from one
holder for which the excess of the redemption price over the carrying value of
the related Series A Preferred Stock is classified as a dividend for financial
reporting purposes. We currently expect to retain future earnings, if any, for
use in the operation and expansion of our business and do not anticipate paying
any cash dividends in the foreseeable future.
20
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of March 31, 1999. The
as adjusted information reflects the sale and issuance of shares of
our common stock by us in this offering at an assumed public offering price of
$ per share. The information under "As Adjusted" reflects the applications
of the net proceeds from the sale by us of the shares of common stock in
this offering at an assumed initial public offering price of $ and the
deduction of the underwriting discount and estimated offering expenses. You
should read the information presented below in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the financial statements and the related notes appearing elsewhere in this
prospectus.
The outstanding share information includes shares issued under restricted
stock agreements that are subject to our right to repurchase the shares as of
March 31, 1999. The outstanding share information excludes 8,290,732 shares of
common stock reserved for issuance under our 1997 stock option plan, of which
3,935,084 shares were subject to outstanding options as of March 31, 1999 at a
weighted average exercise price of $1.99 and 433,333 shares of common stock
issuable upon exercise of outstanding warrants at a weighted average exercise
price of $1.38. In addition, in connection with this offering, our board of
directors and stockholders have approved:
. an increase of 4,000,000 shares in the number of shares reserved under
our 1997 Stock Option Plan;
. a reserve of 250,000 shares for our 1999 Director Option Plan; and
. a reserve of 600,000 shares for our 1999 Employee Stock Purchase Plan.
<TABLE>
<CAPTION>
March 31, 1999
------------------------------
Actual Pro Forma As Adjusted
------- --------- -----------
(in thousands)
<S> <C> <C> <C>
Long-term debt, less current portion........... $ 148 $ 148 $148
Redeemable convertible preferred stock, Series
A; $0.001 par value; 868,650 shares
authorized, issued and outstanding--actual;
no shares authorized, issued or
outstanding--pro forma and as adjusted...... 179 -- --
Redeemable convertible preferred stock, Series
B; $0.001 par value; 2,650,000 shares
authorized, issued and outstanding--actual;
no shares authorized, issued or
outstanding--pro forma and as adjusted...... 2,650 -- --
Redeemable convertible preferred stock, Series
C; $0.001 par value; 3,450,000 shares
authorized, issued and outstanding--actual;
no shares authorized, issued or
outstanding--pro forma and as adjusted...... 10,350 -- --
Stockholders' equity (deficit):
Preferred stock, $0.001 par value; no shares
authorized, issued and outstanding--actual;
5,000,000 shares authorized, no shares
issued or outstanding--pro forma and as
adjusted.................................... -- -- --
Common stock, $0.001 par value; 13,083,333
shares authorized, 2,945,620 issued and
outstanding--actual; 50,000,000 shares
authorized, 9,914,270; shares issued and
outstanding--pro forma; 50,000,000 shares
authorized, shares issued and
outstanding as adjusted..................... 3 10
Additional paid-in capital................... 1,651 14,823
Deferred stock compensation.................. (1,153) (1,153)
Accumulated deficit.......................... (8,766) (8,766)
------- ------- ----
Total stockholders' equity (deficit)....... (8,265) 4,914
------- ------- ----
Total capitalization..................... $ 5,062 $ 5,062 $
======= ======= ====
</TABLE>
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<PAGE>
DILUTION
Our net tangible book value as of March 31, 1999 was $9.2 million or
approximately $0.93 per share. Net tangible book value per share represents the
amount of our total tangible assets reduced by our total liabilities, divided
by the number of shares of common stock outstanding, assuming conversion of all
of our outstanding preferred stock. Dilution in net tangible book value per
share represents the difference between the amount per share paid by purchasers
of shares of common stock in this offering and the net tangible book value per
share of common stock immediately after the completion of this offering. After
giving effect to the receipt of the estimated proceeds from our sale of the
shares of common stock at an assumed public offering price of $
per share, our net tangible book value at March 31, 1999 would have been $
million or approximately $ per share. This represents an immediate
increase in net tangible book value of $ per share to existing
stockholders and an immediate dilution of $ per share to new investors.
The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed public offering price per share........................... $
Net tangible book value per share as of March 31, 1999.......... $0.93
Increase per share attributable to new investors................
-----
Net tangible book value per share after the offering..............
-----
Dilution per share to new investors............................... $
=====
</TABLE>
The following table sets forth, as of March 31, 1999, the differences between
the amounts paid by existing holders of common stock and the new investors,
with respect to the number of shares of common stock purchased from us, the
total consideration paid and the average price per share paid by new investors
before deducting the underwriting discount and estimated offering expenses
payable by us, at an assumed public offering price of $ per share.
<TABLE>
<CAPTION>
Average
Shares Purchased Total Consideration Price
-------------------- ---------------------- Per
Number Percentage Amount Percentage Share
--------- ---------- ----------- ---------- -------
<S> <C> <C> <C> <C> <C>
Existing stockholders... 9,914,270 % $13,444,000 % $1.36
New investors...........
--------- --- ----------- ---
Total................... % $ %
========= === =========== ===
</TABLE>
Sales by the selling stockholders in this offering will reduce the number of
shares of common stock held by existing stockholders to or
approximately % (approximately %, if the underwriters' over-allotment
option is exercised in full) of the total number of shares of common stock
outstanding upon the closing of this offering, and the number of shares held by
new public investors will be or approximately % (
shares, or approximately %, if the underwriters' over-allotment option is
exercised in full) of the total number of shares of common stock outstanding
after this offering. See "Principal and Selling Stockholders."
The above tables excludes 9,140,732 shares of common stock reserved for
issuance under our stock option and stock purchase plans, of which 3,935,084
shares were subject to outstanding options as of March 31, 1999, and 433,333
shares of common stock were issuable upon exercise of outstanding warrants. To
the extent any additional shares of our common stock are issued upon the
exercise of options, that additional options are granted or reserved for
issuance under our stock plans, new investors will experience further dilution.
22
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data set forth below should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and our financial statements and the notes thereto included
elsewhere in this prospectus. The statement of operations data set forth below
for the period from July 19, 1996 (inception) to June 30, 1997, the fiscal year
ended June 30, 1998 and the nine months ended March 31, 1999 have been derived
from our audited financial statements included elsewhere in this prospectus.
The statement of operations data for the nine months ended March 31, 1998 are
derived from unaudited financial statements included elsewhere in this
prospectus. Such unaudited financial statements have been prepared on the same
basis as the audited financial statements and, in the opinion of management,
contain all adjustments consisting of normal recurring adjustments necessary
for a fair presentation of our financial position. The historical results are
not necessarily indicative of results to be expected for any future period.
<TABLE>
<CAPTION>
Year Ended Nine Months Ended
July 19, 1996 June 30, -------------------
(inception) to March 31, March 31,
June 30, 1997 1998 1998 1999
-------------- ---------- --------- ---------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Statement of Operations Data:
Revenue:
License...................... $ 4,087 $12,767 $ 8,159 $14,441
Maintenance.................. 180 1,609 1,075 2,460
------- ------- ------- -------
Total revenue.............. 4,267 14,376 9,234 16,901
Cost of revenue:
Cost of license.............. 206 392 294 291
Cost of maintenance.......... 142 933 680 681
------- ------- ------- -------
Total cost of revenue...... 348 1,325 974 972
------- ------- ------- -------
Gross margin................... 3,919 13,051 8,260 15,929
Operating expenses:
Sales and marketing.......... 3,554 9,590 6,591 8,952
Research and development..... 1,317 3,612 2,470 4,274
General and administrative... 973 2,228 1,595 1,861
Amortization of deferred
stock compensation.......... -- -- -- 236
Abandoned lease costs........ -- -- -- 1,034
Acquired in-process research
and development............. 1,575 -- -- --
------- ------- ------- -------
Total operating expenses... 7,419 15,430 10,656 16,357
------- ------- ------- -------
Operating loss................. (3,500) (2,379) (2,396) (428)
Other income, net.............. 2 63 62 206
------- ------- ------- -------
Loss before income taxes....... (3,498) (2,316) (2,334) (222)
Income tax benefit............. 175 -- -- --
------- ------- ------- -------
Net loss....................... (3,323) (2,316) (2,334) (222)
Excess of consideration paid to
redeem preferred stock and
dividends in arrears.......... (181) (3,714) (3,446) (791)
------- ------- ------- -------
Net loss applicable to common
stockholders.................. $(3,504) $(6,030) $(5,780) $(1,013)
======= ======= ======= =======
Basic and diluted net loss per
share......................... $ (1.44) $ (2.47) $ (2.37) $ (0.40)
======= ======= ======= =======
Pro forma basic and diluted net
loss per share (unaudited).... $ (0.53) $ (0.02)
======= =======
</TABLE>
<TABLE>
<CAPTION>
June 30, March 31,
---------------- ---------
1997 1998 1999
------- ------- ---------
Balance Sheet Data: (in thousands)
<S> <C> <C> <C>
Cash and cash equivalents......................... $ 299 $ 4,575 $ 9,458
Working capital (deficit)......................... (2,523) 3,241 3,542
Total assets...................................... 4,595 10,958 15,056
Long-term debt, less current maturities........... 33 352 148
Redeemable convertible preferred stock............ 3,189 13,179 13,179
Total stockholders' deficit....................... (3,520) (8,516) (8,265)
</TABLE>
23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis in conjunction with the
our financial statements and the notes thereto beginning on page F-1 of this
prospectus and the Selected Financial Data above. Except for historical
information, the discussion in this prospectus contains forward-looking
statements that involve risks and uncertainties. Such forward-looking
statements include, among others, those statements including the words
"expects," "anticipates," "intends," "believes" and similar language. Our
actual results could differ materially from those discussed herein. Factors
that could cause or contribute to such differences include, but are not limited
to, the risks discussed in the section titled "Risk Factors" in this
prospectus.
Overview
We are a leading provider systems administration and operations management
software products for corporate and Internet-based Windows NT networks. Our
OnePoint product suite is designed to improve the reliability, performance and
security of even the most complex computing environments by simplifying and
automating key systems management functions. Our products can be deployed
quickly, are based on an open and extensible architecture and are easy to use.
We derive our revenue from the sale of software product licenses and
maintenance. Currently, all of our product license revenue is derived from our
OnePoint suite and principally our OnePoint Administrator products. In the
periods from July 19, 1996, our inception, to June 30, 1997 ("fiscal 1997"),
the fiscal year ended June 30, 1998 ("fiscal 1998") and the nine months ended
March 31, 1999, sales of OnePoint Administrator products accounted for
approximately 100%, 88% and 83% of our license revenue, respectively. We expect
that these products will continue to account for a large portion of our license
revenue for the foreseeable future.
We recognize product license revenue when persuasive evidence of an agreement
exists, customer acceptance periods, if any, have been completed, the product
and the permanent license key have been delivered, we have no remaining
significant obligations, the license fee is fixed or determinable and
collection of the fee is probable. Customization or extensive on-site
implementation services are generally not required for our customers to install
and use our products. Sales transactions generally include one year of
maintenance. Our customers typically purchase maintenance agreements annually,
and we price maintenance agreements based on a percentage of the product
license fee. Customers purchasing maintenance agreements receive unspecified
product upgrades and electronic, Internet-based technical support and telephone
support. We recognize revenue from maintenance agreements ratably over the term
of the agreement, typically one year. We record cash receipts from customers
for renewal maintenance agreements as deferred revenue. The timing and amount
of cash receipts from customers can vary significantly depending on specific
contract terms and can therefore have a significant impact on the amount of
deferred revenue in any given period.
Any factors adversely affecting the pricing of, demand for or market
acceptance of our OnePoint product suite, such as competition or technological
change, could materially adversely affect our business, operating results and
financial condition. Of particular importance is the continued acceptance of
Windows NT as a server operating platform in corporate and Internet-based
networks. We believe that Windows NT and Windows 2000 Server, once released,
will continue to be an integral part of the corporate and Internet-based
client/server environments.
Cost of revenue consists of the following:
. amortization of acquired technology;
. costs to manufacture, package and distribute our products and related
documentation;
. personnel; and
. other expenses related to providing maintenance.
24
<PAGE>
Since our inception in 1996, we have incurred substantial costs to develop
our technology and products, to recruit and train personnel for our
engineering, sales and marketing and technical support departments, and to
establish an administrative organization. As a result, we incurred net losses
in fiscal 1997, fiscal 1998 and the nine months ended March 31, 1999. As of
March 31, 1999, we had an accumulated deficit of $8.8 million. We anticipate
that our operating expenses will increase substantially in the future as we
increase our sales and marketing operations, develop new distribution channels,
fund greater levels of research and development, broaden our technical support
and improve our operational and financial systems. Accordingly, we will need to
generate significant quarterly revenues to achieve and maintain profitability.
In addition, our limited operating history makes it difficult for us to predict
future operating results and, accordingly, there can be no assurance in future
quarters that we will achieve or sustain revenue growth or profitability.
We apply Statement of Financial Accounting Standards No. 86 ("SFAS 86"),
"Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise
Marketed" to software technologies developed internally. We include internal
development costs in research and development, and those costs are expensed as
incurred. SFAS 86 requires the capitalization of certain internal development
costs once technological feasiblity is established, which, based upon our
development process, generally occurs upon the completion of a working model.
As the time period between the completion of a working model and the general
availability of our products has not been significant, we have not capitalized
any software development costs to date.
We have grown rapidly, and our total revenue has increased from $4.3 million
in fiscal 1997 to $14.4 million in fiscal 1998 and $16.9 million in the nine
months ended March 31, 1999. Historically, our revenue has been attributable
primarily to sales in North America. In fiscal 1997, fiscal 1998 and the nine
months ended March 31, 1999, revenue attributable to sales outside of North
America accounted for approximately 15%, 18% and 20% of our total revenue,
respectively. We plan to expand our international operations significantly as
we believe international markets represent a significant growth opportunity.
Consequently, we anticipate that international revenue will increase as a
percentage of total revenue in the future. Our expansion of our international
operations will be subject to a variety of risks that could materially
adversely affect our business, operating results and financial condition. Our
sales are generally denominated in United States dollars and as a result our
current exposure to foreign exchange fluctuations is minimal. As our
international sales and operations expand, we anticipate that our exposure to
foreign currency fluctuations will increase.
In view of the rapidly changing nature of our business and our limited
operating history, we believe that period to period comparisons of our revenue
and operating results are not necessarily meaningful and should not be relied
upon as indications of our future performance. Additionally, despite our
revenue growth for all but one quarter since inception, we do not believe that
historical growth rates are necessarily sustainable or indicative of future
growth.
In June 1997, we acquired in-process research and development from our United
Kingdom distributor, Serverware, Ltd. The total consideration paid in
connection with the acquisition was $2.6 million. We capitalized $1.1 million
as acquired technology and recorded a one time charge of $1.5 million for the
write-off of in-process research and development. Since the beginning of fiscal
1998, we have amortized $52,500 of the acquired technology per quarter as a
cost of revenue. The remaining $630,000 will be amortized quarterly until 2002.
During the nine months ended March 31, 1999, we recorded deferred stock
compensation of $1.4 million in connection with certain stock option grants. We
amortize deferred stock compensation over the 48 month vesting period of the
related award. We record this amortization as a noncash expense in accordance
with Accounting Principles Board Opinion No. 25.
We had 136 full-time employees at March 31, 1999, a substantial increase from
92 and 50 at June 30, 1998 and 1997, respectively. This rapid growth has placed
significant demands on our management and
25
<PAGE>
operational resources. In order to manage our growth effectively, we must
implement and improve our operational systems, procedures and controls on a
timely basis. In addition, we expect that future expansion will continue to
challenge our ability to hire, train, motivate and manage our employees.
Competition is intense for highly qualified technical, sales and marketing and
management personnel. If our total revenue does not increase relative to our
operating expenses, our management systems do not expand to meet increasing
demands, we fail to attract, assimilate and retain qualified personnel, or our
management otherwise fails to manage our expansion effectively, there would be
a material adverse effect on our business, financial condition and operating
results.
Historical Results of Operations
The following table sets forth the results of our operations expressed as a
percentage of total revenues. Our historical operating results are not
necessarily indicative of the results for any future period.
<TABLE>
<CAPTION>
Percentage of Revenue
------------------------------------
July 19,
1996 Nine Months
(inception) Ended
to Year Ended March 31,
June 30, June 30, -------------
1997 1998 1998 1999
----------- ---------- ----- -----
<S> <C> <C> <C> <C>
Revenue:
License............................... 95.8% 88.8% 88.4% 85.4%
Maintenance........................... 4.2 11.2 11.6 14.6
----- ----- ----- -----
Total revenue..................... 100.0 100.0 100.0 100.0
Cost of revenue:
Cost of license....................... 4.8 2.7 3.2 1.7
Cost of maintenance................... 3.3 6.5 7.3 4.0
----- ----- ----- -----
Total cost of revenue............. 8.1 9.2 10.5 5.7
----- ----- ----- -----
Gross margin.......................... 91.9 90.8 89.5 94.3
Operating expenses:
Sales and marketing................... 83.3 66.7 71.4 53.0
Research and development.............. 30.9 25.1 26.7 25.3
General and administrative............ 22.8 15.5 17.3 11.0
Amortization of deferred stock
compensation......................... -- -- -- 1.4
Abandoned lease costs................. -- -- -- 6.1
Acquired in-process research and
development.......................... 36.9 -- -- --
----- ----- ----- -----
Total operating expenses.......... 173.9 107.3 115.4 96.8
----- ----- ----- -----
Operating loss.......................... (82.0) (16.5) (25.9) (2.5)
Other income, net....................... -- 0.4 0.6 1.2
----- ----- ----- -----
Loss before income taxes................ (82.0) (16.1) (25.3) (1.3)
Income tax benefits..................... (4.1) -- -- --
----- ----- ----- -----
Net loss................................ (77.9)% (16.1)% (25.3)% (1.3)%
===== ===== ===== =====
</TABLE>
Comparison of Nine Months Ended March 31, 1998 and 1999
Revenue
Total revenue increased 83% from $9.2 million for the nine months ended March
31, 1998 to $16.9 million for the nine months ended March 31, 1999. This
increase was attributable to an increase in our customer base resulting in
substantial growth in product license and maintenance revenue. No single
customer accounted for more than 10% of total revenue during the nine months
ended March 31, 1998 or 1999.
26
<PAGE>
License. License revenue increased 77% from $8.2 million for the nine months
ended March 31, 1998 to $14.4 million for the nine months ended March 31, 1999,
and license revenue represented 88.4% and 85.4% of total revenue in those
periods, respectively. The increase in license revenue in absolute dollars was
generally attributable to increased unit sales of our products. The decrease of
license revenue as a percentage of total revenue stemmed from the growth of
maintenance revenues as the number of customers that renewed maintenance
agreements increased.
Maintenance. Maintenance revenue increased 129% from $1.1 million for the
nine months ended March 31, 1998 to $2.5 million for the nine months ended
March 31, 1999, and maintenance revenue represented 11.6% and 14.6% of total
revenue in those periods, respectively. These increases resulted from the
growth in software license revenue, as new software licenses are generally sold
with one year of maintenance, and renewals of maintenance agreements by
existing customers.
Cost of Revenue
License. License costs consist of the amortization of acquired technology and
of the expenses we incurred to manufacture, package and distribute our products
and related documentation. License cost remained relatively constant and was
$294,000 for the nine months ended March 31, 1998 and $291,000 for the nine
months ended March 31, 1999. License costs as a percentage of license revenue
represented 3.6% and 2.0% of license revenue in those periods, respectively. A
majority of license costs related to the amortization of acquired technology
that is being expensed over periods ranging from three to five years. The
decrease as a percentage of license revenue was a result of increased unit
sales of our products compared to the amortization of acquired technology which
was constant from period to period. We expect license costs to increase in the
future in absolute dollar terms due to the expected increase in license
revenue.
Maintenance. Maintenance costs include salary expense and other related costs
for our technical support. Maintenance costs remained relatively constant and
were $680,000 and $681,000 for the nine months ended March 31, 1998 and 1999,
respectively. The cost of maintenance as a percentage of maintenance revenue
represented 63.3% and 27.7% in those periods, respectively. The decreases
resulted from increased maintenance revenue and increased utilization of
technical support staff. We expect maintenance costs to increase in absolute
dollars in the future as we continue to add infrastructure.
Operating Expenses
Sales and Marketing Expenses. Sales and marketing expenses consist primarily
of salaries, commissions, payroll taxes and employee benefits as well as
travel, entertainment and discretionary marketing expenses. Sales and marketing
expenses increased 35.8% from $6.6 million for the nine months ended March 31,
1998 to $9.0 million for the nine months ended March 31, 1999, and sales and
marketing expenses represented 71.4% and 53.0% of total revenue in those
periods, respectively. The increase in absolute dollars was due primarily to
our expansion of our direct sales and marketing organization. The decline in
sales and marketing expenses as a percentage of total revenue resulted from
increased productivity of the sales force. We expect sales and marketing
expenses to increase in absolute dollar terms as we continue to hire additional
sales and marketing personnel.
Research and Development Expenses. Research and development expenses consist
primarily of salaries, bonuses, payroll taxes, employee benefits and other
costs attributable to research and development activities. Research and
development expenses increased 73.0% from $2.5 million for the nine months
ended March 31, 1998 to $4.3 million for the nine months ended March 31, 1999,
and research and development expenses represented 26.7% and 25.3% of total
revenue in those periods, respectively. The absolute dollar increase was
attributable to the hiring of additional research and development staff. We
expect research and development expenses to increase in absolute dollar terms
as we continue to hire additional research and development personnel to develop
new OnePoint products and to develop products for Windows 2000 Server.
27
<PAGE>
General and Administrative Expenses. General and administrative expenses
consist primarily of salaries, bonuses, payroll taxes, employee benefits and
certain non-allocable administrative costs. General and administrative expenses
increased 16.7% from $1.6 million for the nine months ended March 31, 1998 to
$1.9 million for the nine months ended March 31, 1999, and general and
administrative expenses represented 17.3% and 11.0% of total revenue in those
periods, respectively. The absolute dollar increase was primarily related to
costs associated with the expansion of our administrative infrastructure in
order to support our increased sales, marketing and maintenance activities. The
decline in general and administrative expenses as a percentage of total revenue
reflected the absorption of certain fixed costs over a larger revenue base. We
expect general and administrative expenses to increase in absolute dollar terms
as we expand our infrastructure and incur additional costs as a result of being
a public company.
Amortization of Deferred Stock Compensation. We amortized approximately
$236,000 of deferred stock compensation in the nine-month period ended March
31, 1999. There was no deferred stock compensation amortization in the nine
months ended March 31, 1998. We expect to amortize the remaining $1.2 million
through fiscal 2002.
Other Income, Net
Other income, net is generated primarily from the interest earned on cash and
cash equivalents. Other income, net increased from $62,000 for the nine month
period ended March 31, 1998 to $206,000 for the nine month period ended March
31, 1999. The growth in other income, net was principally the result of
increased cash and cash equivalents.
Income Taxes
We did not record a provision for federal or state income taxes in either the
nine months ended March 31, 1998 or 1999, because we generated net operating
loss carryforwards of approximately $3.2 million from inception to March 31,
1999. Our net operating loss carryforwards begin to expire in 2012. In the
future, our utilization of the net operating loss carryforwards may be subject
to substantial annual limitations due to the ownership change regulations
contained in the Internal Revenue Code of 1986 and similar state provisions.
These annual limitations may result in the expiration of the net operating loss
carryforwards and other tax credits before we are able to use them. As of March
31, 1998 and 1999, we recorded a full valuation allowance for the deferred tax
assets related to the future benefits, if any, of these net operating loss
carryforwards.
Comparison of Fiscal Years Ended June 30, 1997 and 1998
Revenue
Our total revenue increased 237% from $4.3 million for fiscal 1997 to $14.4
million for fiscal 1998. This increase was attributable to an increase in our
customer base resulting in substantial growth in product license and
maintenance unit sales. No one customer accounted for greater than 10% of total
revenue during fiscal 1998. In fiscal 1997, one customer accounted for
approximately 11% of total revenue.
Licenses. License revenue increased 212% from $4.1 million for fiscal 1997 to
$12.8 million for fiscal 1998, and license revenue represented 95.8% and 88.8%
of total revenue in those periods, respectively. The decrease of license
revenue as a percentage of total revenue was due to an increase in the number
of customers that renewed maintenance agreements increased.
Maintenance. Maintenance revenue increased 794% from $180,000 for fiscal 1997
to $1.6 million for fiscal 1998, and maintenance revenue represented 4.2% and
11.2% of total revenue in those periods, respectively. These increases resulted
from the growth in software license revenue, as new licenses are generally sold
with one year of maintenance, and renewals of maintenance agreements by
existing customers.
28
<PAGE>
Cost of Revenue
License. License costs increased 90.3% from $206,000 for fiscal 1997 to
$392,000 for fiscal 1998, and license costs represented 5.0% and 3.0% of
license revenue in those periods, respectively. A majority of license costs
related to the amortization of acquired technology. The increase in the
absolute dollar amount was attributable to additional amortization of newly
acquired technology. Acquired technology is amortized over three to five years.
The decrease as a percentage of revenue was a result of increased growth of
revenues relative to the growth in amortization expense for acquired
technology.
Maintenance. Maintenance costs increased 557% from $142,000 for fiscal 1997
to $933,000 for fiscal 1998, and maintenance costs represented 78.9% and 58.0%
of maintenance revenue in those periods, respectively. The increase in the
absolute dollar amount was attributable to the increase in our technical
support department headcount. The decline in maintenance costs as a percentage
of maintenance revenue related to improved productivity of our technical
support staff.
Operating Expenses
Sales and Marketing Expenses. Sales and marketing expenses increased 168%
from $3.6 million for fiscal 1997 to $9.6 million for fiscal 1998, and sales
and marketing expenses represented 83.3% and 66.7% of total revenue in those
periods, respectively. The increase in the absolute dollar level of sales and
marketing expenses was due primarily to the expansion of our direct sales and
marketing organizations. The decrease in sales and marketing expenses as a
percentage of total revenue reflected the increased productivity of our sales
force.
Research and Development Expenses. Research and development expenses
increased 174% from $1.3 million for fiscal 1997 to $3.6 million for fiscal
1998, and research and development expenses represented 30.9% and 25.1% of
total revenue in those periods, respectively. The increase in the absolute
dollar level of research and development expenses was attributable to the
hiring of additional research and development staff. The decline in research
and development expense as a percentage of total revenue reflected the increase
of revenue at a faster rate relative to the increase in research and
development expenses.
General and Administrative Expenses. General and administrative expenses
increased 129% from $973,000 for fiscal 1997 to $2.2 million for fiscal 1998,
and general and administrative expenses represented 22.8% and 15.5% of total
revenue in those periods, respectively. The increase in the absolute dollar
level of general and administrative expenses was primarily related to costs
associated with the expansion of our administrative infrastructure in order to
support our increased activities. The decrease in general and administrative
expenses as a percentage of total revenue reflected increased absorption of
fixed costs over a larger revenue base.
Other Income, Net
Other income, net increased from $2,000 for fiscal 1997 to $63,000 for fiscal
1998. The growth in other income net was principally the result of increased
cash and cash equivalent balances.
Income Taxes
In fiscal 1997, we recorded an income tax benefit of $175,000 related to the
purchase of our OnePoint Administrator product line. No tax provision or
benefit was recorded for fiscal 1998, as we recognized a net loss for income
tax purposes. As of June 30, 1997 and 1998, we recorded a full valuation
allowance for the deferred tax assets related to the future benefits, if any,
of these net operating loss carryforwards.
29
<PAGE>
Write-off of Acquired In-Process Research and Development.
In June 1997, we acquired from Serverware, Ltd. certain in-process research
and development for $2.7 million consisting of cash of $100,000, a $2.5 million
note payable, a warrant to purchase 333,333 shares of our common stock at an
exercise price of $1.50 per share and $75,000 of direct costs incurred. No
value was allocated to the warrant as such amount was not significant.
We intended to utilize the acquired in-process research and development to
develop a shrinkwrap event management product for Windows NT that we did not
possess at the time. In order to capitalize on the event management market, our
intention was to complete the in-process research and development as quickly as
possible and sell and market that product (under the name SeNTry). From the
date of acquisition to June 30, 1998, we expended approximately 80 person
months, or approximately $800,000, to complete and enhance the in-process
research and development. In June 1998 we completed SeNTry, which represented
the first completed and enhanced version of the acquired technology. We then
began internal development of an entirely new event management product
(OnePoint Event Manager) the design of which was to be more consistent with our
long-term product strategy.
A significant amount of uncertainty existed surrounding the successful
development and completion of the research and development acquired, which was
estimated to be 70% complete at the date of the acquisition. This was our first
attempt to develop event management technology. We were uncertain of our
ability to complete the development of a new product within a timeframe
acceptable to the market and ahead of competitors. The in-process research and
development effort, at the time of purchase, had not reached technological
feasibility as it lacked many key elements including: standardized
implementation capabilities, a scalable and extensible architecture, enhanced
user interfaces, broad functionality and extensive reporting capabilities.
We assigned a value to the in-process research and development of $1.5
million and to the core technology of $1.1 million based on a discounted cash
flow model. We based the cash flow projections for revenue on the projected
incremental increase in revenue that we expected to receive from the completed
acquired in-process research and development. Revenue derived from the
completed in-process research and development was expected to commence after
completion of the SeNTry product. We expected revenue from the in-process
research and development to continue until the release of OnePoint Event
Manager, which was expected to be released in fiscal 2000. We deducted
estimated operating expenses and income taxes from estimated revenue to arrive
at estimated after-tax cash flows. Projected operating expenses included: cost
of revenue and general and administrative, customer support and sales and
marketing expenses. We estimated operating expenses as a percentage of revenue
and based such estimates primarily on projections we prepared.
The cash flow projections attributable to the core technology included 50% of
the net income before tax expense anticipated to be generated from the
completed in-process technology and 15% from the net income before tax expense
anticipated to be generated from OnePoint Event Manager, an entirely new and
internally developed product. Revenue derived from OnePoint Event Manager was
estimated through 2004. We deducted estimated operating expenses and income
taxes from estimated revenue to arrive at estimated after-tax cash flows.
Projected operating expenses included: cost of revenue and general and
administrative, customer support and sales and marketing expenses. We estimated
operating expenses as a percentage of revenue and based such estimates
primarily on projections we prepared.
The rate used to discount the net cash flows to present value was based on
the weighted average cost of capital ("WACC"). We used a discount rate of 35%
for valuing the in-process research and development and 25% for the core
technology. These discount rates are higher than the implied WACC due to the
inherent uncertainties surrounding the successful development of the acquired
in-process research and development, the useful life of such in-process
research and development, the profitability levels of such in-process research
and development, and the uncertainty of technological advances that were
unknown at the time.
30
<PAGE>
Quarterly Results of Operations
The following table presents our operating results for each of the seven
quarters in the period ending March 31, 1999. The information for each of these
quarters is unaudited and has been prepared on the same basis as the audited
financial statements appearing elsewhere in this prospectus. In the opinion of
management, all necessary adjustments consisting only of normal recurring
adjustments have been included to present fairly the unaudited quarterly
results when read in conjunction with our audited financial statements and the
notes thereto appearing elsewhere in this prospectus. These operating results
are not necessarily indicative of the results of any future period.
<TABLE>
<CAPTION>
Quarter Ended
----------------------------------------------------------------
Sept. 30, Dec. 31, Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31,
1997 1997 1998 1998 1998 1998 1999
--------- -------- -------- -------- --------- -------- --------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue:
License................ $2,040 $2,795 $3,324 $4,608 $4,052 $4,744 $5,645
Maintenance............ 235 339 501 534 613 760 1,087
------ ------ ------ ------ ------ ------ ------
Total revenue.......... 2,275 3,134 3,825 5,142 4,665 5,504 6,732
Cost of revenue:
Cost of license........ 98 98 98 98 96 96 99
Cost of maintenance.... 155 280 245 253 226 215 240
------ ------ ------ ------ ------ ------ ------
Total cost of revenue.. 253 378 343 351 322 311 339
------ ------ ------ ------ ------ ------ ------
Gross margin........... 2,022 2,756 3,482 4,791 4,343 5,193 6,393
Operating expenses:
Sales and marketing.... 2,015 2,282 2,294 2,999 2,479 2,912 3,561
Research and
development........... 822 932 716 1,142 1,223 1,418 1,633
General and
administrative........ 598 504 493 633 576 621 664
Amortization of
deferred stock
compensation.......... -- -- -- -- 32 46 158
Abandoned lease costs.. -- -- -- -- -- -- 1,034
------ ------ ------ ------ ------ ------ ------
Total operating
expenses.............. 3,435 3,718 3,503 4,774 4,310 4,997 7,050
------ ------ ------ ------ ------ ------ ------
Operating income
(loss)................. (1,413) (962) (21) 17 33 196 (657)
Other income (expense),
net.................... 17 38 7 1 43 80 83
------ ------ ------ ------ ------ ------ ------
Income (loss) before
income taxes........... (1,396) (924) (14) 18 76 276 (574)
Provision (benefit) for
income taxes........... -- -- -- -- -- -- --
------ ------ ------ ------ ------ ------ ------
Net income (loss)....... $1,396 $ (924) $ (14) $ 18 $ 76 $ 276 $ (574)
====== ====== ====== ====== ====== ====== ======
</TABLE>
Revenue has grown in each quarter, except the quarter ended September 30,
1998, as demand for our products increased. The increases in each quarter were
due to the increased unit sales of licenses for our products. Revenue declined
in the quarter ended September 30, 1998 because our sales staff closed a
substantial number of transactions in the prior quarter, the last quarter of
fiscal 1998, and selling opportunities decreased in the summer months.
Cost of revenue has increased each quarter in conjunction with our increases
in total revenue. Operating expenses have generally increased in absolute
dollars each quarter as we have increased staffing in sales and marketing,
product development and general and administrative functions. Sales and
marketing expenses increased in the quarter ended June 30, 1998 primarily due
to the sales staff achieving sales quotas for fiscal 1998, which resulted in
sales commissions and incentives being paid in the fourth quarter and increased
levels of discretionary marketing expense. Research and development expenses
increased during the quarter ended December 31, 1997 due to contract
development costs in conjunction with the purchase of in-process research and
development in fiscal 1998 and decreased in the quarter ended March 31, 1998
due to a reduction in development activity as we conducted a search for new
corporate management. We hired new management during the quarter ended June 30,
1998 and implemented a new business plan. As a result, all costs increased in
the quarter ended June 30, 1998 due to increases in headcount and increased
sales and marketing expenditures. We recorded total deferred stock compensation
of $1.4 million in
31
<PAGE>
connection with stock options granted during the nine months ended March 31,
1999. We are amortizing these amounts over the vesting periods of the
applicable options, which resulted in amortization expense of $32,000, $46,000
and $158,000 in the quarters ended September 30, 1998, December 31, 1998 and
March 31, 1999, respectively.
As a result of our limited operating history, we cannot forecast operating
expenses based on historical results. Accordingly, we base our expenses in
part on future revenue projections. Most of our expenses are fixed in nature,
and we may not be able to quickly reduce spending if revenue is lower than we
have projected. Our ability to forecast accurately our quarterly sales is
limited which makes it difficult to predict the quarterly revenue that we
recognize. We would expect our business, operating results and financial
condition to be materially adversely affected if revenues do not meet
projections and our operating results would then be less than expected.
We expect that our revenue and operating results may vary significantly from
quarter to quarter, and we anticipate that our expenses will increase
substantially in the foreseeable future as we:
. increase our direct sales and marketing activities, including expanding
our North American and international direct sales forces and extending
our telesales efforts;
. develop our technology, expand our OnePoint product suite and create and
market products that operate with the commercial release version of
Windows 2000;
. expand our indirect distribution channels; and
. pursue strategic relationships and acquisitions.
Accordingly, we believe that quarter to quarter comparisons of our operating
results are not necessarily meaningful. Investors should not rely on the
results of one quarter as an indication of future performance.
Liquidity and Capital Resources
We have funded our operations primarily from license revenue received from
inception to March 31, 1999 and the proceeds of approximately $10.2 million
from the sale of common stock, preferred stock and warrants. At March 31,
1999, we had cash and cash equivalents of $9.5 million. As of March 31, 1999,
we had an accumulated deficit of $8.8 million and working capital of $7.0
million, net of a short-term component of deferred revenue of $3.5 million.
Our operating activities used net cash of $1.7 million in fiscal 1997,
$439,000 in fiscal 1998 and provided net cash of $6.0 million in the nine
month period ended March 31, 1999. Net cash used by operating activities in
fiscal 1997 and fiscal 1998 was due primarily to our investments to create our
internal infrastructure and purchase of equipment. Our operations generated
net cash in the nine months ended March 31, 1999 primarily due to increased
revenue, improved accounts receivable collection efforts and increased
deferred revenue.
Our investing activities used net cash of $1.2 million, $492,000 and
$900,000 in fiscal 1997, fiscal 1998 and the nine months ended March 31, 1999,
respectively. Our investing activities consisted primarily of net purchases of
property and equipment.
Our financing activities provided $3.1 million and $5.2 million in fiscal
1997 and fiscal 1998, respectively. In fiscal 1997 and fiscal 1998, financing
activities consisted primarily of sales of redeemable convertible preferred
stock partially offset in fiscal 1998 by the repurchase of 950,000 shares of
Series A Preferred Stock for $2,850,000 and net repayments on debt facilities.
In the nine-month period ended March 31, 1999, we used $238,000 of net cash
for financing activities as the repayments on the debt facilities exceeded the
generation of cash from the sales of our common stock to employees in
connection with the exercise of stock options.
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We anticipate spending at least $1.1 million for office lease payments and
approximately $1.5 million for capital expenditures over the next 12 months.
From inception, we have made capital expenditures of $4.5 million, less
accumulated depreciation and amortization of $1.8 million, to support our
research and development, sales and marketing and administrative activities. We
expect capital expenditures to increase over the next several years as we
expand facilities and acquire equipment to support our planned expansion in
sales and marketing. We expect to utilize cash resources to purchase additional
equipment over the next 12 months.
In January 1998, we obtained a revolving credit facility of $3.0 million from
a commercial bank that we renewed in March 1999. The credit facility expires on
February 5, 2000. Borrowings under the credit facility bear interest at the
bank's prime rate. Under the terms of the loan agreement, all borrowings are
collateralized by substantially all of our assets, and we must maintain certain
financial ratios and other covenants. At March 31, 1999, we had no borrowings
outstanding under the credit facility, and the unused amount of $3.0 million is
available for drawdowns through February 5, 2000. We were in compliance with
all covenants as of March 31, 1999 but we cannot assure you that we will be
able to continue to comply with such covenants in the future.
We intend to continue to invest heavily in the development of new products
and enhancements to our existing products. Our future liquidity and capital
requirements will depend upon numerous factors, including the costs and timing
of expansion of product development efforts and the success of these
development efforts, the costs and timing of expansion of sales and marketing
activities, the extent to which our existing and new products gain market
acceptance, market developments, the costs involved in maintaining and
enforcing intellectual property rights, the level and timing of license
revenue, available borrowings under line of credit arrangements and other
factors. We believe that the proceeds from this offering, together with our
current cash and investment balances and any cash generated from operations and
from available or future debt financing, will be sufficient to meet our
operating and capital requirements for at least the next 12 months. However, it
is possible that we may require additional financing within this period. We
have no current plans, and we are not currently negotiating, to obtain
additional financing following the completion of this offering. Our forecast
period of time through which our financial resources will be adequate to
support our operations is a forward-looking statement that involves risks and
uncertainties, and actual results could vary. The factors described in this
paragraph will affect our future capital requirements and the adequacy of our
available funds. We may be required to raise additional funds through public or
private financing, strategic relationships or other arrangements. We cannot
assure you that such funding, if needed, will be available to us on terms
attractive to us, or at all. Furthermore, any additional equity financing may
be dilutive to stockholders, and debt financing, if available, may involve
restrictive covenants. Strategic arrangements, if necessary to raise additional
funds, may require us to relinquish our rights to certain of our technologies
or products. If we fail to raise capital when needed, our failure could have a
material adverse effect on our business, operating results and financial
condition.
Recent Accounting Pronouncements
In March 1998, the American Institute of Certified Public Accountants, the
AICPA, issued Statement of Position No. 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use." Statement of
Position No. 98-1 requires entities to capitalize certain costs related to
internal use software once certain criteria have been met. We expect that the
adoption of Statement of Position No. 98-1 will not have a material impact on
our financial position or results of operations. We will be required to
implement Statement of Position No. 98-1 for our fiscal year beginning July 1,
2000.
In April 1998, the AICPA issued Statement of Position 98-5, "Reporting on the
Costs of Start-up Activities." Statement of Position No. 98-5 requires that all
start-up costs related to new operations must be expensed as incurred. In
addition, all start-up costs that were capitalized in the past must be written
off when Statement of Position No. 98-5 is adopted. We expect that the adoption
of Statement of Position No. 98-5 will not have a material impact on our
financial position or results of operations. We will be required to implement
Statement of Position No. 98-5 for our fiscal year beginning July 1, 2000.
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In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging activities." SFAS No. 133
establishes methods for derivative financial instruments and hedging activities
related to those instruments, as well as other hedging activities. Because we
do not currently hold any derivative instruments and do not engage in hedging
activities, we expect that the adoption of SFAS No. 133 will not have a
material impact on our financial position or results of operations. We will be
required to implement SFAS No. 133 for the fiscal year beginning July 1, 2001.
In December 1998, the AICPA issued Statement of Position 98-9, "Modification
of SOP 97-2, Software Revenue Recognition, With Respect to Certain
Transactions." Statement of Position 98-9 amends Statement of Position 98-4,
"Deferral of Effective Date of SOP 97-2" to further defer the application of
certain passages of Statement of Position 97-2, "Software Revenue Recognition"
through fiscal years that begin on or before March 15, 1999. We do not believe
that the adoption of Statement of Position 98-9 will have a material effect on
our results of operations or financial condition.
Qualitative and Quantitative Disclosures About Market Risk
We develop products in the United States and sell those products primarily in
North America and Europe. As a result, our financial results could be affected
by factors such as changes in foreign currency exchange rates or weak economic
conditions in foreign markets. As all of our sales are currently made in U.S.
dollars, a strengthening of the dollar could make our products less competitive
in foreign markets.
Our interest income is sensitive to changes in the general level of U.S.
interest rates, particularly since the majority of our investments are in
short-term instruments. Due to the nature of our short-term investments, we
have concluded that we do not have material market risk exposure.
Our investment policy requires us to invest funds in excess of current
operating requirements in:
. obligations of the U.S. government and its agencies;
. investment grade state and local government obligations;
. securities of U.S. corporations rated A1 or P1 by Standard & Poors or
the Moody's equivalents;
. money market funds, deposits or notes issued or guaranteed by U.S. and
non-U.S. commercial banks meeting certain credit rating and net worth
requirements with maturities of less than two years.
At March 31, 1999, our cash and cash equivalents consisted primarily of
demand deposits and money market funds held by large institutions in the U.S.,
and our short-term investments were invested in corporate debt maturing in less
than 60 days.
Year 2000 Readiness
Many currently installed computer systems and software products are coded to
accept only two digit entries in the date code field. As a result, software
that records only the last two digits of the calendar year may not be able to
distinguish whether "00" means 1900 or 2000. This may result in software
failures or the creation of erroneous results.
We are currently conducting a review of the current versions of our products
to determine Year 2000 compliance. We have searched through the software code
for each of these applications and believe that we have identified all
instances where date specific information is required. We have further
investigated whether these date fields contain two or four digits, and have
initiated efforts to upgrade our software when date fields that contain only
two digits are discovered. Based on our preliminary review and the results of
limited testing, we believe that our OnePoint product suite, when configured
and used in accordance with their documentation, correctly recognize and
function when used with Year 2000 date codes. We further intend to conduct
extensive tests on all of our applications during this same time period to
identify areas of deficiency and to develop action plans to correct and upgrade
our software code.
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Our software applications run on several hardware platforms and associated
operating systems, including those provided by Sun Microsystems, Digital
Equipment and Silicon Graphics. In addition, our software operates in
accordance with several external Windows NT protocols, such as HTTP and NNTP.
Our software is therefore dependent upon the correct processing of dates by
these systems and protocols. We have reviewed information made publicly
available by our hardware platform partners regarding Year 2000 compliance and
researched the date handling capabilities of applicable Windows NT protocols.
Based on this research, we do not believe that the underlying systems and
protocols that operate in conjunction with its software applications contain
material Year 2000 deficiencies. However, we have not conducted our own tests
to determine to what extent its software running on any of our hardware
platforms and in accordance with any of its supported Windows NT protocols
fails to properly recognize Year 2000 dates.
We use multiple software systems for internal business purposes, including
accounting, email, development, human resources, customer service and support,
and sales tracking systems. All of these applications have been purchased
within the preceding 18 months. We have made inquiries of vendors of the
systems that we believe are critical to our business regarding their Year 2000
readiness. Each of these vendors has indicated to us that it believes its
applications are Year 2000 compliant. However, we have not received affirmative
documentation in this regard from any of these vendors, and we have not
performed any operational tests on its internal systems.
We are in the early stages of assessing our Year 2000 readiness. To date, the
costs for conducting our assessment have not been material, and we expect total
costs incurred in connection with our year 2000 project to be less than
$100,000. Despite preliminary investigation and testing by us and our partners,
our software applications and the underlying hardware systems and protocols
running the software may contain undetected errors or defects associated with
Year 2000 date functions. Our software applications operate in complex network
environments and directly and indirectly interact with a number of other
hardware and software systems. We are unable to predict to what extent our
business may be affected if our software or the systems that operate in
conjunction with our software experience a material Year 2000 failure. Known or
unknown errors or defects that affect the operation of our software could
result in delay or loss of revenue, cancellation of customer contracts,
diversion of development resources, damage to our reputation, increased service
and warranty costs, and litigation costs, any of which could adversely affect
our business, financial condition and results of operation.
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BUSINESS
The following business section contains forward looking statements relating
to future events or the future financial performance of Mission Critical
Software, which involve 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.
Overview
We are a leading provider of systems administration and operations management
software products for corporate and Internet-based Windows NT networks. Our
OnePoint product suite is designed to improve the reliability, performance and
security of even the largest and most complex computing environments by
simplifying and automating key systems management functions. Our products can
be deployed quickly, are based on an open and extensible architecture and are
easy to use.
As of March 31, 1999, our products had been installed by over 600 customers,
including more than 40 of the 1999 Fortune 100 companies and some of the
largest Internet datacenters in the world. We market and sell our products
worldwide through a network of sales offices and distribution partners. Our
products have been adopted in a wide variety of industries, including banking
and finance, energy, healthcare, insurance and pharmaceuticals. Representative
customers include Compaq Computer Corporation, DuPont, Johnson & Johnson,
Lockheed Martin, Merck & Co., Inc., Prudential Insurance Company of America,
Shell Services International Inc., Sprint Corporation and Wells Fargo &
Company.
Industry Background
The evolution of enterprise computing from centralized, mainframe-based
computing to distributed, client/server and Internet-based computing has added
substantial complexity to the management of computer network infrastructures.
Today's information technology environments are characterized by distributed
information systems, applications and networks. Many of these environments have
been further complicated by the increasing use of the Internet as a medium for
connecting businesses with customers, suppliers and employees. In the
increasingly competitive business world, effective use of corporate and
Internet-based networks has become a necessity, particularly for companies
pursuing e-business strategies. For companies such as online retailers or
Internet service providers that generate most of their revenue through
electronic communication, systems issues such as network scalability, security,
availability and performance are critical business considerations.
In today's corporate networks, organizations are installing Windows NT
servers in greater quantities and are using these Windows NT servers to address
a broadening scope of business needs. Adoption of the Windows NT platform has
accelerated as Windows NT servers are increasingly being used to run Internet
sites and web server farms -- Internet-based networks composed of hundreds or
thousands of tiered Windows NT servers -- and to support e-business and
application hosting initiatives. In a survey of Fortune 1000 information
technology managers, Forrester Research found that, on average, those managers
expected 60% of their servers to run on Windows NT by the end of 2000.
International Data Corporation projects that the installed base of Windows NT
servers will increase from 2.2 million in 1998 to 6.3 million in 2002.
The growing complexity of corporate and Internet-based Windows NT networks
has placed increasing pressure on systems managers to maintain reliable network
operations. These networks must be kept secure and available 24 hours per day,
7 days per week and must be able to support widely distributed global
organizations. Failure to ensure these service levels could result in heavy
penalties, including a loss of internal productivity and, with the increasing
prevalence of e-commerce, corporate revenue. Although Windows NT servers are
flexible and powerful operating systems, they require ongoing management
support. To keep Windows NT networks running smoothly, companies have employed
large departments of skilled systems administrators. This approach has proven
costly and ineffective as the scarcity of skilled systems administrators has
made these personnel very expensive. To improve both the efficiency and
effectiveness of corporate and Internet-based Windows NT networks, businesses
are increasingly using systems management
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software solutions. International Data Corporation projects the size of the
market for 32-bit Windows systems management software--the market for software
that manages Windows NT and other 32-bit Windows platforms--will grow from $1.8
billion in 1998 to $8.9 billion by 2003. To date, these software solutions have
addressed two primary functions:
. Systems Administration. The primary function of systems administration is
to create and maintain the data that directs and secures the network
operating system. Because of the volume, complexity and importance of the
data produced by the operating system, its proper management is critical.
Another key role of systems administration is to determine appropriate
policies, including those that are designed to secure access to the
network, data and applications, and to audit adherence to those policies.
The automated application of policies benefits corporate and Internet
networks by ensuring consistency in outcomes and reducing the systems
administrator hours needed to maintain the network.
. Operations Management. The primary function of systems operations
management is to identify and respond as early as possible to problems
such as breaches in security, hardware failures, software crashes and
insufficient capacity. These activities are critical to the ongoing
operation of corporate and Internet-based networks. For example, security
operations management provides mechanisms for notification and response
to unauthorized access or policy violations. Another role of systems
operation management is to continually monitor the performance,
responsiveness and availability of network services so that systems
administrators can plan and budget for the frequently needed additions,
upgrades and configuration changes.
Several systems management software companies have attempted to provide this
functionality for Windows NT and other operating system platforms. Their
products fall into three general categories:
. Utilities. Point applications and utilities focus on a specific systems
administration problem and attempt to amplify systems administrator
efforts. While these often are helpful in workgroup and small network
situations, many of them have not been designed and tested to scale to
larger networks. The need to evaluate and procure point applications and
utilities one by one is costly. Many of these utilities also require
substantial systems administrator time for integration with other systems
management tools used on the networks.
. Cross-platform point suites. Cross-platform point suites have broader
applications than the point product solutions or utilities because of
their ability to support multiple platforms (e.g., different operating
systems such as Unix, Windows NT and MVS). However, we believe that these
cross-platform point suites typically provide a limited depth of
functionality due to the demands of functioning on multiple platforms. In
addition, these suites are often more difficult to implement and manage
than point applications or utilities.
. Frameworks. Frameworks attempt to solve most systems management problems
on most platforms. Although they offer the promise of a "one-stop-shop"
for all enterprise systems management needs, they are complex, require a
significant amount of knowledge and training to manage, and require a
lengthy implementation. As with cross-platform point solutions, we
believe that these framework solutions typically provide limited depth of
functionality for Windows NT systems management given their broad scope.
We believe that products in these categories have exhibited a variety of
shortcomings in addressing Windows NT systems management requirements. They
have either proven to be too narrow in scope, limited in terms of Windows NT
functionality, overly difficult and costly to implement or some combination of
the above. We believe that companies increasingly want software solutions that
provide end-to-end integrated functionality for systems administration and
operations management, can be rapidly deployed and are easy to use. Such a
comprehensive product offering should enable companies to better utilize their
skilled systems administrator resources and support the security, availability
and performance demands of large distributed corporate and Internet-based
networks. The solution should deliver embedded best
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practice knowledge, particularly that which relates to the increasing
complexity of e-business related systems management, but should be customizable
to meet specific customer needs. Finally, the solution should fully support and
extend the existing capabilities of the Windows NT platform.
The Mission Critical Software Solution
We are a leading provider of software products that enable scalable systems
administration and operations management for corporate and Internet-based
Windows NT networks. Our OnePoint product suite is designed to improve the
reliability, performance and security of even the most complex computing
environments by simplifying and automating many key systems management
functions. Our products are based on an open and extensible architecture, can
be deployed quickly and are flexible and easy to use and enable quick
deployment, flexibility and ease of use. Our software products provide the
following features and benefits:
Integrated, end-to-end eManagement. OnePoint is designed to facilitate
eManagement -- the centralized management of critical systems
infrastructure and applications for the extended enterprise. Customers can
use OnePoint to monitor, manage, administer and secure a wide range of
resources in the Windows NT environment including web server farms, e-
commerce and corporate servers, firewalls, workstations, applications and
the Windows 2000 Active Directory. OnePoint enables companies to automate
labor-intensive tasks, such as security monitoring and administration, and
to minimize the need for customization by embedding industry best
practices. OnePoint is also designed to ease the transition from other
operating system platforms, such as Novell Netware, to Windows NT by
providing systems administrators with the ability to test implementations
and convert systems incrementally.
Designed to manage and enable e-business. Our software solutions enable
systems administration and management of Windows NT servers that power e-
business applications. OnePoint enables e-businesses to provide continuous,
secure systems availability (24 hours, 7 days per week) and high
transaction throughput to their customers, thereby increasing the level of
overall customer satisfaction. OnePoint permits routine systems
administration functions to be conducted without interruption of services
and reduces the cost of eManagement by establishing policy-based rules,
which automate specific systems management tasks. For example, OnePoint can
respond to a hacker attack while the attack is in progress by reconfiguring
the impacted web server to deny further communications from the
unauthorized intruder.
Highly scalable, extensible architecture. Each of our products is
designed to operate in complex, enterprise-scale Windows NT environments.
OnePoint centrally manages a large number of interlinked Windows NT servers
and facilitates the expansion of the number of servers under management
without time-consuming implementation. In addition, our products can be
deployed rapidly and be implemented incrementally either by product or by
department. The modular architecture of our products enables users to
customize these products to meet their networks' specific needs.
Lower total cost of ownership. We reduce the total cost of ownership by
providing a single point of systems administration and operations
management, which simplifies systems management processes and limits the
skilled systems administrator resources required. We believe that our
policy-based approach further reduces the number of required personnel by
enabling businesses to automate many systems management tasks. Unlike many
other alternatives, our software products enable systems administrators to
implement network-wide policy-based rules without extensive programming or
customization. Our solutions also reduce total cost of ownership by
permitting departmental self administration for routine tasks, such as
entering changes in user profile information, and by providing products
that facilitate the transition from other operating system platforms
without costly consulting services or extensive customization.
Rapid and cost-effective self deployment. Our products are designed to
be easy to install and use. Their automated implementation capabilities
allow them to be installed in minutes, configured in hours and deployed
worldwide in days. In addition, our products offer a familiar Windows look
and feel that accelerates user adoption and minimizes the need for formal
training. As a result, our products can be
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deployed without the need for extensive professional services or internal
implementation support staff, thus increasing the potential return on
investment for customers. For example, systems administrators can use our
ActiveKnowledge modules to incorporate Windows NT-specific problem solving
into their systems administration tools without extensive scripting on-
site. We believe our rules-based technology is not only many times more
scalable than simplistic script-based approaches but makes our products far
easier and faster to deploy.
The Mission Critical Software Strategy
Our objective is to maintain and strengthen our position as a leading
provider of systems management software for corporate and Internet-based
Windows server networks. Key elements of our strategy include:
Extend our OnePoint product suite. We plan to increase the functionality
of our OnePoint product suite through internal development and,
potentially, strategic acquisitions. We will continue to extend our
existing technology in systems administration and operations management and
broaden our platform migration modules. For example, we intend to
commercially release a new OnePoint product, File Administrator, in late
1999. We also intend to release products that facilitate migration from
Windows NT and Netware to the commercial release version of Windows 2000.
We have already released products that enable customers to transition from
Windows NT to Windows 2000 (beta 3 version) and from Netware to Windows NT.
We will continue to research and develop new products, examine the use of
agents for administering and monitoring other operating platforms from a
centralized Windows 2000 console and enhance integration of our products
with framework solutions.
Target companies and service providers conducting e-business. We believe
that the growth of the Internet is accelerating demand for Windows NT
servers. Our products are designed to support high volume, Internet-based
networks and are currently being used to manage web server farms and e-
commerce sites. We intend to expand our eManagement business by
specifically targeting online retailers, Internet service providers,
commerce service providers and other companies for which Windows NT systems
management products are an operational necessity.
Increase sales to existing customer base. Our variable license fee
structure, which is based on the number of users and servers, allows
customers to try our products without committing to a full enterprise-wide
implementation. To date, a substantial portion of our revenues have come
from additional sales of the same products within an existing customer's
organization. We believe that there is a large market for selling new
licenses for the same products as well as other products to our existing
customers. We intend to continue our current incremental selling strategy.
We will also pursue enterprise-wide initial sales whenever appropriate.
Expand our customer base. Our products have been deployed by many of the
largest organizations in the world. While we intend to expand our direct
sales efforts to these large organizations, our variable license fee
structure makes our solution viable for smaller enterprises as well.
Through our ChannelOne partnership program and targeted telesales
campaigns, we intend to increase our selling efforts to mid-sized companies
that often are aggressive adopters of Windows NT because these smaller
organizations often suffer most acutely from the lack of highly skilled
systems management personnel. We believe these customers' business and
computing needs are growing rapidly due to their adoption of Internet-based
applications and other software solutions.
Leverage and expand Microsoft relationship. We are currently a leading
vendor of Windows NT-based systems management software, both in product
sales and technology. We have developed an extensive relationship with
Microsoft that includes the sharing of technology, joint marketing and
sales efforts, Microsoft's use of our OnePoint Event Manager product for
its global Internet and corporate datacenters and support for migration
strategies for Windows 2000. We intend to continue to work with Microsoft
to provide and jointly market solutions that exploit the full value,
flexibility and depth of the Windows NT and Windows 2000 operating
environments. Our Vice President of Strategic Alliances works closely with
Microsoft at its Redmond campus to help us manage and expand our
relationship. In addition, we have sales engineer and developer personnel
located on Microsoft's Redmond campus.
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Expand global distribution channels. We believe that the international
marketplace provides a significant growth opportunity as organizations
worldwide adopt the Windows NT and Windows 2000 platforms. To date, we have
sold our products domestically through our direct sales force and
internationally through a limited number of distributors. We believe that
the ease of deployment and use of our products and our pricing model make
our products well suited for resale through indirect channels such as
international distributors and strategic partners. We intend to expand
indirect selling of our products through strategic partner arrangements and
to engage international distributors with substantial market penetration in
the enterprise systems software segment. In addition, we intend to expand
our direct sales presence in key international markets.
Products and Technology
Our OnePoint product suite provides scalable systems administration and
operations management for even the largest and most complex computing
environments in a manner that is quick to deploy, flexible and easy to use.
OnePoint currently consists of the following products:
. Directory & Resource Administrator
. Domain & Migration Administrator
. Exchange Administrator
. Event Manager
. Framework Integration
The OnePoint product suite's open and extensible architecture is designed to
provide stability, high performance and scalability. The OnePoint suite is
modular and allows organizations to add functionality as their corporate or
Internet-based Windows NT networks expand. Each generation of OnePoint
products has introduced additional functionality, such as our May 1999 Release
5.0 that added a migration tool for Windows 2000 (beta 3 version).
Our OnePoint product suite provides rich systems administration, operations
management and security functionality along with a reduction in the total cost
of network operations by:
. Providing an out-of-the-box solution that does not require extensive
customization;
. Automating systems management functions by using policy-based rules to
reduce the number of expensive systems manager hours needed to manage Windows
NT systems;
. Applying centrally determined rules to Windows NT systems throughout
the enterprise to increase system reliability and security;
. Delegating systems management tasks to business department personnel to
improve response time and limit systems administrator hours required; and
. Facilitating more rapid security audits through monitoring and logging
capabilities.
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The major components of the OnePoint suite are illustrated and summarized
below.
[Graphic showing components of OnePoint suite including Functions--Systems
Administration, Security, Operations Management; Products--Directory & Resource
Administrator, Domain & Migration Administrator, Exchange Administrator, Event
Manager, Framework Integration; Infrastructure--Active Knowledge Library, Active
Administration & Operations Engine]
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OnePoint Suite--Products
Products Features and Benefits
- --------------------------------------------------------------------------------
OnePoint Directory & Resource
Administrator
. Central definition of security
Provides unified, policy-based policies and rules
administration of directory content . Secure distribution of
and non-directory resources for administrative tasks to line of
increased security, data integrity business departments to increase
and reduced administrative effort. service levels and reduce systems
administrator workload
. Monitoring and logging facilities
for comprehensive security audit
- --------------------------------------------------------------------------------
OnePoint Domain & Migration
Administrator
. Domain consolidation and
Simplifies networks by reducing the reconfiguration to simplify
number of domains and platforms systems administration, reduce
required. systems administrator workload
and reduce the amount of hardware
required to run a Windows NT-
based network
. Design, modeling, testing and
implementation of Windows 2000
(currently in beta) Active
Directory structures to enable
flexible, efficient responses to
organizational change
. Simplified and rapid migration
from Windows NT 4.0 to Windows
2000 (currently in beta)
. Simplified and rapid migration
from Novell Netware to Windows NT
4.0 and Windows 2000 (currently
in beta)
- --------------------------------------------------------------------------------
OnePoint Exchange Administrator
. Unified administration of the
Enables secure, distributed and Exchange and Windows NT
synchronized administration of directories to insure data
Microsoft Exchange mailboxes and consistency and integrity
distribution lists. . Central definition of security
policies and rules for mailbox
administration
. Distribution of mailbox
administration tasks to line of
business departments to increase
service levels and reduce systems
administrator workload
. Comprehensive security audit
through monitoring and logging
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Products Features and Benefits
- --------------------------------------------------------------------------------
OnePoint Event Manager . Real-time system availability and
performance monitoring
Enables operations management and . Comprehensive security monitoring
monitoring of a wide range of and intrusion detection
network components by providing . Comprehensive monitoring of
real-time event and problem operation, performance and security
detection and automated problem for web farms
resolution. . Automated problem resolution via
execution of ActiveKnowledge
modules and integration with
OnePoint administration products
. Real-time console, pager and email
alerts
. High performance, low overhead,
data collection and filtering
. Continuous monitoring of tens of
thousands of servers and
applications
- --------------------------------------------------------------------------------
OnePoint Framework Integration . Continuous monitoring of a
OnePoint-managed network through
the Tivoli management console
Enables OnePoint to integrate with
existing frameworks and systems
management environments.
OnePoint Suite--Infrastructure Components
Component Features and Benefits
- --------------------------------------------------------------------------------
ActiveKnowledge Library . Designed to eliminate the need for
service intensive implementations
Library of pre-built rules based on . Pre-defined event filters,
Windows NT systems management best performance counters, alerts and
practices that enables out-of-the automated responses for a wide
box automation of systems range of events and problem
administration and operations conditions
management tasks. . Over 25 modules for most Windows NT
components and applications such as
Windows NT Security Logs and
Microsoft Internet Information
Server
. Customizable and extensible modules
- --------------------------------------------------------------------------------
Active Administration & Operations . High performance and scalability
Engine due to three-tier client-server
architecture
Provides common infrastructure . Complete extensibility and
services for all OnePoint modules. customization of OnePoint products
through scripting engine
. Integration with third party
products
. Comprehensive support for
Microsoft's Active Directory
Services Interface
OnePoint Architecture
OnePoint is based on a three tier client-server architecture as illustrated
below. OnePoint exploits Microsoft's Distributed interNet Application ("DNA")
architecture technologies to provide increased security, simplicity and
performance in the system management arena. These technologies enable
simplified component level programming, multi-part transactions, support for 3-
tier and n-tier distributed components, extended security and integration with
the Internet and the web. We believe that DNA technologies are important in the
area of securing and managing complex systems infrastructure components and
their data and that they provide a point of differentiation between our
products and those of other vendors.
43
<PAGE>
[Graphic description of tools, system and application services and the three
layers that includes the presentation layer, the business logic layer and the
data layer]
Presentation Layer--provides the interfaces that systems administrators and
managers use to perform systems management functions. Multiple interfaces are
provided to meet the unique needs of specific types of users:
. Microsoft Management Console--OnePoint products are provided as snap-ins
that integrate into the Microsoft Management Console and are designed for
use by professional systems managers to provide rich functionality.
. Web client--A task-oriented thin web client, requiring no workstation
installation, provides a simple and effective tool for non systems
professionals, such as a line of business department assistant, to
perform administrative activities efficiently, securely and safely.
. Application programming and scripting interfaces--These interfaces enable
professional administrators to customize or extend the functionality of
OnePoint products to meet the unique needs of a specific organization.
Business Logic Layer--provides a layer of common services that manages the
communication between the data and presentation layers. The business logic
layer ensures that administrative and operational policies are enforced, that
transactions across multiple data stores are managed and that the integrity of
data store content is maintained.
Data Layer--dynamically manages the collection and update of data from a wide
range of Windows NT and Windows 2000 data sources including the Windows NT 4.0
Security Access Manager, Windows 2000 ActiveDirectory, Exchange, application
event logs, Windows NT system services and the Windows Registry.
44
<PAGE>
Customers
Our products have been sold to over 600 corporations, governmental agencies
and other organizations worldwide including more than 40 of the 1999 Fortune
100 companies. The following table lists our customers that each accounted for
more than $100,000 in total revenue from July 19, 1996 to March 31, 1999.
ABN Amro Securities Dow Chemical Ontario Hydro Services
(UK) Ltd. DTO Maasland N.V. Company
Advanced Micro Devices DuPont Pacific Gas & Electric
ALCOA, Inc. Eastman Chemical Company Pharmacia & Upjohn,
Allied Signal Equitable Life Insurance Inc.
Allstate Insurance Federal Deposit Insurance Philip Morris EFTA
Company Corporation
Anheuser-Busch F. Hoffman-LaRoche Ltd. Procter & Gamble
Applied Materials First Union National Bank Company
ASZ N.V. Glaxo Wellcome PricewaterhouseCoopers
Banque Paribas Hennepin County LLP
Bayerisch Landesbank Honeywell The Prudential Insurance
Bechtel Houston Independent School Company of America
BellSouth Cellular District Public Service Electric
British Aerospace Johnson & Johnson & Gas Co.
British Nuclear Fuels Kadena AFB, Japan Raychem Corporation
British Petroleum Kaiser Foundation Health Republic Industries,
Carlson Companies Lehman Brothers Inc.
Carnival Cruise Lines LM Ericsson AB Rogers Cable TV
The Chubb Corporation Lockheed Martin Schering-Plough
Citigroup Marathon Oil Company Corporation
CNF Service Company MCI Systemhouse Shell Services
Coca Cola Company Merck & Co., Inc. International Inc.
Columbia Healthcare Merrill Lynch, Pierce, SHL Computer Innovation
Compaq Computer Fenner & Smith SHL System House--Amoco
Corporation Microsoft Corporation Division
Computacenter Ltd Ministerie van Landbouw Social Security
Countrywide Home Loan Morgan Stanley & Co., Inc. Administration
Cox Communications Motorola, Inc. Sonnenschein Nath &
Credit Suisse NationsBank Rosenthal
CSC Computer Sciences Nationwide Building Society Sprint Corporation
Cummins Engine Co. Nike Sutter Health
Defense Intelligence Nortel Swisscom AG
Agency Norwest Banks Texas Department of
Dell Computer Novartis Argentina SA Transportation
Corporation Trellis Network
Department of Foreign Services, Inc.
Affairs TRW Inc.
Detroit Edison U.K. Ministry of
Deutsche Morgan Grenfell Defence
Digital Equipment Union Bank of
Corporation Switzerland
USAA
Washington State
Department
of Corrections
Wells Fargo & Company
Western Wireless
Weyerhauser Company
Customers often buy for a single location, department or division, and then,
based upon the initial success of the products in that location, department or
division, later expand their use of our products into other parts of the
organization. We believe we can sell our existing products more deeply within
our existing customer sites and sell new products as we expand our product
line. We will continue to pursue enterprise wide sales as appropriate. In
fiscal 1997, fiscal 1998 and the nine months ended March 31, 1999, no single
customer comprised more than 10% of our revenue.
Microsoft Relationship
Currently Microsoft is a supplier, partner and customer.
45
<PAGE>
Supplier. Our products are focused on the Windows NT marketplace. We have
relationships with Microsoft's Developer Relations Group and Windows 2000
Product Management Group. We believe that these relationships enable us to
anticipate Microsoft's evolving product strategy in advance of the market and
to create products designed to increase the value of Microsoft's operating
systems. In addition, we believe that the relationship enables us to have early
access to technologies and/or influence the development of special
requirements.
Partner. We are a member of numerous Microsoft program partnerships. We
participate as partners in the Microsoft Certified Solution Provider, ADSI
Partner and Security Partner programs. We also participate in Microsoft's
BackOffice program, whereby Microsoft tests and certifies our products as
BackOffice compatible. We have been chosen as one of the vendors whom Microsoft
promotes through both its internal and external marketing programs. The
objectives of these programs are to increase Windows NT server sales by
informing both Microsoft field personnel as well as potential customers about
the added value of our solutions. We also participate in numerous Microsoft
sponsored events such as COMDEX, Windows 2000 Rapid Deployment Conferences and
TechEd. At some of the tradeshows we attend, we demonstrate and/or present as a
member of the Microsoft Partner Pavilion. In addition to the above, we
participate in extensive joint field work with Microsoft account
representatives, systems engineers and consultants through a concerted program
of awareness, joint presentations, briefings and sales calls.
Customer. Microsoft's Information Technology Group became our customer in
June 1998 when Microsoft licensed our OnePoint Event Manager product. Microsoft
selected OnePoint Event Manager to perform strategic event management of its
global Internet and corporate data centers. Microsoft has five primary
datacenters, including three Internet datacenters (in Redmond, Washington, the
United Kingdom and Japan) and two main corporate data centers (in Redmond and
Ireland). The Microsoft Information Technology Group uses the OnePoint Event
Manager product to centrally monitor and provide alert notification for
proactively managing the health status of more than 3,000 critical business
systems.
Sales and Marketing
We sell our products primarily through our direct sales force and
distributors. Historically our sales efforts have focused on companies with
more than 3,000 employees. We intend to continue these efforts and to expand
our sales efforts to middle-market companies. We have relied on systems
integrators and consulting service providers for only a limited number of
sales, but we intend to explore opportunities to work with systems integrators
and consulting service providers in the future.
Direct Sales. We sell our products primarily through a direct sales force
using a team approach. We believe this approach allows us to achieve control of
the sales process and respond rapidly to customer needs. Each sales team
consists of three persons: a sales manager, an inside sales person and a sales
engineer. The sales manager is responsible for coordinating the efforts of the
sales team and for finalizing customer requirements and closing the sale. The
inside sales person is responsible for maintaining contact with existing
customers as well as prospecting for and qualifying potential new customers.
The sales engineer is a highly skilled technical employee responsible for
supporting products sales, including all technical aspects related to sales of
our products. Our typical sales cycle has averaged three months.
As of March 31, 1999, we had 43 persons in our direct sales organization
worldwide. The direct sales force for North America is distributed throughout
the United States and Toronto, Canada and accounts for substantially all of our
North American revenues. During 1999, we established direct sales activities in
Germany and France. We also have sales representatives based in London,
England. We have increased the size of our direct sales organization from 29 to
43 individuals over the past year and expect to continue hiring sales personnel
over the next 12 months, primarily in North America.
Distributors and Resellers. In addition to our direct sales strategy, we have
established indirect sales channels through distributors and other resellers.
Outside North America, we have historically relied heavily on our indirect
sales channel. We have established a network of resellers and distributors in
Europe, Australia and Brazil, with the concentration of such distributors being
located in Europe.
46
<PAGE>
Our international distributors and other resellers typically perform
marketing, sales and technical support functions in their country or region.
Each one may distribute direct to the customer, via other resellers or through
a mixture of both channels. We actively train our international distributors in
both product and sales methodology.
Systems Integrators and Service Providers. To date, we have yet to
significantly utilize systems integrators or service providers in our selling
efforts. We are currently evaluating opportunities for and plan to expand joint
sales with systems integrators and consulting service providers, particularly
with respect to the implementation of Windows 2000.
Marketing Programs. To support our growing sales organization and channel, we
have devoted significant resources in the past year to building and launching a
series of marketing campaigns. Our marketing efforts have included a number of
programs, such as seminars, industry trade shows, mailings, analyst and press
tours, advertising and public relations. We believe these marketing programs
have resulted in a number of sales leads.
Customer Service and Support
We believe that a high level of customer service and support is critical to
the successful marketing and sale of our products. We are developing a
comprehensive service and support organization to manage customer accounts and
expect to provide an increasing level of support as our products are deployed
across a range of customers. We provide support for our products and services
primarily from our Houston, Texas location. We plan to establish additional
service and support sites internationally commensurate with customer needs.
Our products are designed to be implemented quickly and effectively by our
customers and to require minimal support from us. We provide technical support
to our customers through maintenance and support agreements. This support
includes assistance with product installation, configuration and initial set-
up, run-time support and support during extended hours. We generally provide
our support via e-mail, the Internet, facsimile and telephone. We make software
upgrades available to customers with maintenance agreements as the upgrades are
released.
Research and Development
We believe that strong product development capabilities are essential to our
strategy of enhancing our core technology, developing additional applications
and increasing the competitiveness of our product offerings. We have invested
significant time and resources in creating a structured process for undertaking
all product development projects. This process involves all functional groups
within our company and is designed to provide a framework for defining and
addressing the steps, tasks and activities required to bring product concepts
and development projects to market successfully. In addition, we have actively
recruited key computer engineers and software developers with expertise and
degrees in computer science. Our product development strategy emphasizes rapid
innovation and product releases. As of March 31, 1999, our research and
development staff consisted of 52 full-time employees. To date, none of our
development staff has left our company since inception.
We are currently preparing our OnePoint product suite to support the
commercial release version of Windows 2000. Our research and development
expenses totaled $1.3 million for fiscal 1997, $3.6 million for fiscal 1998 and
$4.3 million for the nine months ended March 31, 1999.
Competition
We compete in markets that are new, intensely competitive, highly fragmented
and rapidly changing. We face competition primarily from systems management
software vendors that provide solutions for distributed computing systems. We
have experienced and expect to continue to experience increased competition
from
47
<PAGE>
current and potential competitors, many of which have significantly greater
financial, technical, marketing and other resources.
Companies offering competitive products vary in scope and breadth of the
products and services offered and include:
. internal systems management departments;
. providers of point solutions for Windows NT directory administration,
domain consolidation migration and event management, such as Master,
Design & Development, Micromuse, Fastlane, Entevo, NetIQ, System Options
and Aelita Software Group;
. providers of security and audit products for Windows NT such as BindView
and Netwise; and
. providers of systems management suites and/or frameworks such as Computer
Associates, Hewlett-Packard, Tivoli and BMC Software.
We believe the principal factors that will draw end-users to a systems
management software product include depth of product functionality, ability to
work natively with Windows NT, scalability, product quality and performance,
conformance to industry standards, competitive price and customer support.
Proprietary Rights
We rely primarily on a combination of copyright, trademark and trade secret
laws, confidentiality procedures and contractual provisions to protect our
proprietary rights. However, we believe that such measures afford only limited
protection. We license our software products primarily under shrink wrap
licenses (i.e., licenses included as part of the product packaging). Shrink
wrap licenses are not negotiated with or signed by individual licensees, and
purport to take effect upon the opening of the product package. We believe,
however, that these measures afford only limited protection. Despite our
efforts to protect our proprietary rights, unauthorized parties may attempt to
copy aspects of our products or to obtain and use information that we regard
as proprietary. Policing unauthorized use of our products is difficult and we
are unable to determine the extent to which piracy of our software products
exists. In addition, the laws of some foreign countries do not protect our
proprietary rights as fully as do the laws of the United States.
We are not aware that we are infringing any proprietary rights of third
parties. We expect that software product developers will increasingly be
subject to infringement claims as the number of products and competitors in
our industry segment grows and the functionality of products in different
industry segments overlaps. Any such claims, with or without merit, could be
time consuming to defend, result in costly litigation, divert management's
attention and resources, cause product shipment delays or require us to enter
into royalty or licensing agreements. Such royalty or licensing agreements, if
required, may not be available on terms acceptable to us, if at all.
Employees
As of March 31, 1999, we had 136 full-time employees, 52 of whom were
engaged in research and development, 53 in sales and marketing, 10 in customer
support, and 21 in finance, administration and operations. None of our
employees is represented by a labor union. We have not experienced any work
stoppages and consider our relations with our employees to be good.
Facilities
We lease approximately 32,000 square feet in a single office building
located in Houston, Texas pursuant to a lease that expires in August 2003. We
have signed a five-year lease for approximately 70,000 square feet of office
space in Houston, Texas. We also lease space in Lakewood, California; Atlanta,
Georgia; Austin, Texas; McLean, Virginia; and London, England. The term of any
one of these leases is not more than 12 months.
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<PAGE>
MANAGEMENT
Executive Officers And Directors
The following table sets forth certain information with respect to our
executive officers and directors of and their ages as of March 31, 1999.
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Michael S. Bennett...... 47 Chairman of the Board, President and Chief Executive Officer
Thomas P. Bernhardt..... 46 Chief Technology Officer and Director
Stephen E. Odom......... 47 Chief Operating Officer, Chief Financial Officer, Treasurer and Secretary
Brian J. McGrath........ 60 Vice President of Sales
Richard J. Pleczko...... 41 Vice President of Marketing and Product Management
Stephen Kangas.......... 46 Vice President of Strategic Alliances
Olivier J. Thierry...... 43 Vice President of Marketing Communications
Michael Rovner.......... 29 Director of Business Development
Douglas L. Ayer(2)...... 62 Director
Michael J. Maples....... 56 Director
John J. Moores(1)....... 54 Director
Scott D. Sandell(2)..... 34 Director
John D. Thornton(1)..... 34 Director
</TABLE>
- ---------------------
(1) Member of audit committee
(2)Member of compensation committee
Michael S. Bennett has served as President, Chief Executive Officer, and as a
member of the board of directors of our company since May 1998. He was
appointed Chairman of the Board in February 1999. From August 1996 until April
1998, he served as President and Chief Executive Officer of Learmonth &
Burchett Management Systems plc ("LBMS"), a provider of process management
tools for software development. Prior to joining LBMS in August 1996, Mr.
Bennett served as President and Chief Executive Officer of Summagraphics from
June 1993 to July 1996, until its acquisition by Lockheed Martin's CalComp
subsidiary. Prior to that time, Mr. Bennett served as a senior executive with
Dell Computer Corporation and as chief executive officer of several high
technology organizations.
Thomas P. Bernhardt is a founder of our company and has served as a director
since July 1996. Mr. Bernhardt was a consultant to our company from September
1996 to January 1997, when he joined us on a full time basis as its Chief
Technology Officer, which is his current role. From February 1998 to May 1998,
he also served as our interim President and Chief Executive Officer. From
January 1989 to December 1996, Mr. Bernhardt was a consultant with RCG
International, an information technology consulting services company. Mr.
Bernhardt holds a B.S. degree in Experimental Psychology from the University of
Notre Dame.
Stephen E. Odom has served as our Chief Financial Officer, Treasurer and
Secretary since May 1998. In January 1999, Mr. Odom was also appointed our
Chief Operating Officer. From April 1995 until April 1998, he served as Chief
Financial Officer, Senior Vice President Finance, and Secretary of LBMS. From
July 1988 to April 1995, Mr. Odom was a Partner with PricewaterhouseCoopers
LLP. Mr. Odom holds a B.B.A. degree in Accounting from Georgia State
University.
Brian J. McGrath joined our company as a consultant in January 1997 and has
served as our Vice President of Sales since January 1998. From June 1980 until
present, Mr. McGrath also served as a principal of McGrath & Associates, a
contract software selling firm.
Richard Pleczko has served as our Vice President of Marketing and Product
Management since December 1998. From May 1998 to December 1998, Mr. Pleczko
served as Senior Vice President of World
49
<PAGE>
Wide Marketing at PLATINUM technology, inc., a software company. From April
1985 until May 1998, Mr. Pleczko served in various managerial positions with
LBMS, the most recent of which was Senior Vice President--Marketing and Product
Development.
Stephen Kangas has served as our Vice President of Strategic Alliances since
February 1999. From May 1998 to February 1999, Mr. Kangas was the President,
Chief Executive Officer, and a founder at SendDocs.com, an Internet-based
services company. From August 1996 to May 1998, Mr. Kangas served as the
President, Chief Operating Officer, and a founder of Exodus Technologies, Inc.,
a software company. From December 1995 to August 1996, Mr. Kangas served as the
Vice President of Marketing for Intertech Imaging, Inc., a software company.
From January 1994 to December 1995, Mr. Kangas served as the General Manager of
Wall Data, Inc., a software company.
Olivier J. Thierry has served as our Vice President of Marketing
Communications since February 1998. Mr. Thierry also served as our Vice
President of Product Management from February 1998 to December 1998. From
December 1993 until joining our company, Mr. Thierry was Vice President of
Antares Alliance Group, a provider of enterprise development tools jointly
owned by Amdahl Corporation and EDS.
Michael Rovner has served as our Director of Business Development since March
1999. From June 1998 to February 1999, Mr. Rovner served as the Director of
Product Management at ClearCommerce Corporation, an e-commerce software
company. From July 1997 to June 1998, Mr. Rovner served as a consultant to
Federal Express Corporation specializing in global logistics and e-commerce
strategies. From November 1995 to June 1997, Mr. Rovner served as Product
Manager for Data Warehousing and Online Analytical Processing at Informix
Software, Inc., a database software company. From June 1993 to November 1995,
Mr. Rovner served as a product manager for Empart, Inc., a software company.
Mr. Rovner holds B.A. degrees in English and Political Science from the
University of California at Los Angeles.
Douglas L. Ayer has served as a director of our company since September 1996.
Mr. Ayer has served as President and Managing Partner of International Capital
Partners, Inc., a venture capital firm, since 1989. Prior to joining
International Capital Partners, Mr. Ayer was the Chief Executive Officer of
Cametrics, Inc., a manufacturer of engineered metal components. Mr. Ayer also
serves as a member of the boards of directors of Biopool, Inc., a medical
diagnostic test kit company, and Coffee People, Inc., a coffee retailer and
franchise company. Mr. Ayer holds a B.S.E. degree in Aeronautical Engineering
from Princeton University and an M.B.A. degree from Harvard University.
Michael J. Maples has served as a director of our company since April 1999.
Mr. Maples manages private investments. From April 1988 to July 1995, Mr.
Maples held various management positions at Microsoft Corporation, the most
recent of which was Executive Vice President of the Worldwide Products Group
and a member of the office of the president. Prior to that, he served as a
Director of Software Strategy for IBM. He also serves as a director of J.D.
Edwards & Company, an enterprise software company, Lexmark International, Inc.,
a laser and inkjet printer company, and PSW Technologies, a software company.
Mr. Maples is also a member of the Board of Visitors for the Engineering School
at the University of Oklahoma and the College of Engineering Foundation
Advisory Counsel at the University of Texas at Austin. Mr. Maples holds a B.S.
degree in electrical engineering from the University of Oklahoma and an M.B.A.
degree from Oklahoma City University.
John J. Moores has served as a director of our company since June 1997. Mr.
Moores has served as owner and Chairman of the Board of the San Diego Padres
Baseball Club, L.P. since December 1994, and since September 1991 as Chairman
of the Board of JMI Services, Inc., a private investment company. In 1980, Mr.
Moores founded BMC Software, Inc., a vendor of system software utilities, and
served as its president and Chief Executive Officer until 1986 and as its
Chairman of the Board until 1992. Mr. Moores also serves as Chairman of the
Board of Peregrine Systems, Inc., an infrastructure management software company
and of Neon Systems, Inc., an enterprise middleware and systems management
software company, as well as numerous privately held companies. Mr. Moores
serves as a director of BindView Development
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<PAGE>
Corporation, a systems management software company. Mr. Moores is a member of
the Board of Regents of The University of California, The Carter Center of
Emory University and of Scripps Research, Inc. Mr. Moores holds a B.S. degree
in Economics and a J.D. degree from University of Houston.
Scott D. Sandell has served as a director of our company since September
1996. Mr. Sandell has served as a partner of New Enterprise Associates, a
venture capital firm, and in other capacities at such firm since January 1996.
Prior to joining New Enterprise Associates, Mr. Sandell was the President of
Yankee Pacific Company, a marketing and business strategy consulting firm from
March 1994 to December 1995. He is also a member of the boards of directors of
several privately held companies. Mr. Sandell holds a B.S. degree in
Engineering Sciences from Dartmouth College and a M.B.A. degree from the
Stanford Graduate School of Business.
John D. Thornton has served as a director of our company since June 1997. Mr.
Thornton has served as a general partner of Austin Ventures, a venture capital
firm, where he has been employed since 1991. Prior to joining Austin Ventures,
Mr. Thornton was a consultant with McKinsey & Co., an international consulting
firm. Mr. Thornton also serves on the board of directors of Vignette
Corporation, an Internet relationship management software company, and is also
a member of the boards of directors of several privately held companies. Mr.
Thornton holds a B.A. degree in Economics from Trinity University and an M.B.A.
degree from the Stanford Graduate School of Business.
Prior to the closing of this offering, our board of directors will be divided
into three classes, as nearly equal in number as possible, with each director
serving a three-year term and one class being elected at each year's annual
meeting of stockholders. Messrs. Bennett, Sandell and Thornton will be in the
class of directors whose term expires at the 1999 annual meeting of
stockholders. Mr. Moores will be in the class of directors whose term expires
at the 2000 annual meeting of the stockholders. Messrs. Ayer, Bernhardt and
Maples will be in the class of directors whose term expires at the 2001 annual
meeting of stockholders.
Our board of directors currently consists of seven members. At each annual
meeting of stockholders, the successors to each class of directors will be
elected to serve for three year terms from the time of election and
qualification until the next annual meeting at which such director's class
stands for election. Our bylaws provide that the authorized number of directors
may be changed only by resolution of the board of directors.
Executive officers are elected by the board of directors on an annual basis
and serve until their successors have been duly elected and qualified.
Mr. Sandell is Mr. Ayer's son-in-law. There are no other family relationships
among any of our directors, officers or key employees.
Board Committees
We have established an audit committee and a compensation committee. The
audit committee reviews our internal accounting procedures and consults with
and reviews the services provided by our independent accountants. The
compensation committee reviews and recommends to the board of directors the
compensation and benefits of all of our officers and establishes and reviews
general policies relating to compensation and benefits of employees.
Compensation Committee Interlocks and Insider Participation
Our board of directors established its compensation committee in December
1997. Prior to establishing the compensation committee, the board of directors
as a whole performed the functions delegated to the compensation committee. 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.
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<PAGE>
Director Compensation
Directors do not currently receive any cash compensation our company for
their service as members of our board of directors, although they are
reimbursed for certain expenses in connection with attendance at board and
committee meetings. Under our 1997 Stock Plan, nonemployee directors are
eligible to receive stock option grants at the discretion of the board of
directors, and, after this offering is completed, all nonemployee directors
will receive stock options pursuant to the automatic option grant program in
effect under the Director Plan. See "--Incentive Stock Plans."
Executive Compensation
Summary Compensation Table. The following table sets forth the compensation
earned for services rendered to us in all capacities by our Chief Executive
Officer and our four next most highly compensated executive officers who earned
more than $100,000 (collectively, the "Named Executive Officers") for the nine
months ended March 31, 1999:
<TABLE>
<CAPTION>
Long-Term
Annual Compensation
Compensation Awards
------------------ ------------
Securities
Underlying All Other
Name and Principal Positions Salary($) Bonus($) Options(#) Compensation(1)
- ---------------------------- --------- -------- ------------ --------------
<S> <C> <C> <C> <C>
Michael S. Bennett
President and Chief Executive
Officer...................... $150,012 $ 99,167 -- $ 326
Thomas P. Bernhardt
Chief Technology Officer..... 129,167 20,000 160,000 326
Stephen E. Odom
Chief Operating Officer,
Chief Financial Officer,
Treasurer and Secretary...... 150,005 8,000 -- 326
Brian McGrath
Vice President of Sales(2)... 150,012 305,235 -- 1,316
Olivier J. Thierry
Vice President of Marketing
Communications............... 131,262 36,667 -- 80,197
</TABLE>
- ---------------------
(1) Represents excess compensation associated with premiums for life insurance
with respect to $326 for each of Messrs. Bennett, Bernhardt, Odom and
Thierry and $1,316 for Mr. McGrath. $79,871 represents moving expenses paid
in connection with Mr. Thierry's relocation agreement. See "Certain
Transactions."
(2) Bonus represents sales commissions paid to Mr. McGrath. See "Employment
Agreements and Change in Control Agreements."
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<PAGE>
Option Grants in Current Fiscal Year. The following table sets forth certain
information with respect to stock options granted to each of the Named
Executive Officers during the nine months ended March 31, 1999.
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Number of Annual Rates of Stock
Securities Percent of Total Appreciation for
Underlying Options Granted Option Term(3)
Name and Principal Options to Employees Exercise Price Expiration ---------------------
Position Granted(#)(1) During Period(2) ($/share) Date 5% 10%
- ------------------ ------------- ---------------- -------------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Michael S. Bennett
President and Chief
Executive Officer..... -- -- -- -- -- --
Thomas P. Bernhardt
Chief Technology
Officer............... 160,000 14.4 2.75(4) 08/27/03 149,600 339,456
Stephen E. Odom
Chief Operating
Officer, Chief
Financial Officer,
Treasurer and
Secretary............. -- -- -- -- -- --
Brian McGrath
Vice President of
Sales................ -- -- -- -- -- --
Olivier J. Thierry
Vice President of
Marketing
Communications........ -- -- -- -- -- --
</TABLE>
- ---------------------
(1) 25% of the shares subject to the option vest one year after the date of
grant and the remaining 75% of the shares subject to the option vest
monthly over the next three years.
(2) We granted options to purchase an aggregate of 1,091,660 shares during the
nine months ended March 31, 1999 to employees of and consultants.
(3) The 5% and 10% assumed annual rates of compounded stock price appreciation
are mandated by rules of the Securities and Exchange Commission and do not
represent our estimate or projection of our future common stock prices.
(4) The exercise price per share of the option was equal to 110% the fair
market value of the common stock on the date of grant as determined by the
board of directors.
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Option Exercises in Current Fiscal Year and Most Recent Quarter-End Option
Values. The following table sets forth information with respect to the Named
Executive Officers concerning option exercises for the nine months ended March
31, 1999 and exercisable and unexercisable options held as of March 31, 1999:
<TABLE>
<CAPTION>
Number of Securities
Shares Underlying Unexercised Value of Unexercised
Acquired Options at In-the-Money Options at
on Value March 31, 1999 (#) March 31, 1999 ($)(2)
Name and Principal Exercise Realized ------------------------- -------------------------
Positions (#) ($)(1) Exercisable Unexercisable Exercisable Unexercisable
- ------------------ -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Michael S. Bennett
President and Chief
Executive Officer..... -- -- 275,979 660,669 3,311,748 7,928,028
Thomas P. Bernhardt
Chief Technology
Officer............... -- -- 15,000 175,000 180,000 2,100,000
Stephen E. Odom
Chief Operating
Officer, Chief
Financial Officer,
Treasurer and
Secretary............. -- -- 46,002 154,734 552,024 1,856,808
Brian McGrath
Vice President of
Sales................ 70,625 67,500 11,250 98,125 135,000 1,177,500
Olivier J. Thierry
Vice President of
Marketing
Communications........ 60,000 180,000 15,000 105,000 45,000 1,260,000
</TABLE>
- ---------------------
(1) "Value realized" is calculated on the basis of the fair market value of
the common stock on the date of exercise minus the exercise price. It does
not necessarily indicate that the optionee sold such stock for such
amount.
(2) The value of "in-the-money" options represents the positive spread between
the exercise price of the stock options and the fair market value of the
common stock on the date of exercise as determined by our board of
directors. The per share fair market value of the common stock was $12.50
per share as of March 31, 1999.
Incentive Stock Plans
The following summaries assume we have obtained stockholder approval of the
amendments to our 1997 Stock Option Plan and the adoption of our 1999 Employee
Stock Purchase Plan and 1999 Director Option Plan. We expect to obtain such
approval in June 1999.
1997 Stock Option Plan. The 1997 Stock Plan was adopted by our board of
directors in March 1997 and approved by our stockholders in July 1997. The
1997 Plan was amended in May 1999. A total of 8,795,000 shares of common stock
has been reserved for issuance under the 1997 Plan, together with an annual
increase in the number of shares reserved thereunder beginning on the first
day of our fiscal year (commencing July 1, 2000) in an amount equal to the
lesser of (i) 750,000 shares, (ii) five percent of our outstanding shares of
common stock on the last day of the prior fiscal year or (iii) such amount as
determined by our board of directors. The 1997 Plan provides for grants of
incentive stock options to our employees (including officers and employee
directors) and nonstatutory stock options to our consultants (including
nonemployee directors). The purposes of the 1997 Plan are to attract and
retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to our employees and
consultants and to promote the success of our business. At the request of the
board of directors, the compensation committee administers the 1997 Plan and
determines the optionees and the terms of options granted, including the
exercise price, number of shares subject to the option and the exercisability
thereof.
The term of options granted under the 1997 Plan is stated in the option
agreement. However, the term of an incentive stock option may not exceed ten
years and, in the case of an incentive or nonstatutory
54
<PAGE>
stock option granted to an optionee who, at the time of grant, owns stock
representing more than 10 percent of our outstanding capital stock, the term of
such option may not exceed five years. Options granted under the 1997 Plan vest
and become exercisable as set forth in each option agreement.
With respect to any optionee who owns stock possessing more than 10 percent
of the voting rights of our outstanding capital stock, the exercise price of
any stock option granted must equal at least 110% of the fair market value on
the grant date.
No incentive stock options may be granted to an optionee, which, when
aggregated with all other incentive stock options granted to such person, would
have an aggregate fair market value in excess of $100,000 becoming exercisable
in any calendar year. No employee may be granted, in any fiscal year of our
company, options to purchase more than 500,000 shares (or 1,000,000 shares in
the case of an employee's initial employment).
The 1997 Plan will terminate in March 2007, unless the board of directors
terminates it sooner.
As of March 31, 1999, 504,268 shares of common stock had been issued upon the
exercise of options granted under the 1997 Plan, options to purchase 3,935,084
shares of common stock at a weighted average exercise price of $1.99 per share
were outstanding and 4,355,648 shares remain available for future option grants
under the 1997 Plan.
1999 Employee Stock Purchase Plan. Our 1999 Employee Stock Purchase Plan was
adopted by our board of directors in May 1999 in contemplation of, and to
become effective upon, the closing of this offering. A total of 600,000 shares
of common stock have been reserved for issuance under the Purchase Plan,
together with an annual increase in the number of shares reserved thereunder
beginning on the first day of our fiscal year (commencing July 1, 2000) in an
amount equal to the lesser of (i) 500,000 shares, (ii) four percent (4%) of the
outstanding shares of our common stock on the last day of the prior fiscal year
or (iii) such amount determined by the board of directors.
The Purchase Plan, which is intended to qualify under Section 423 of the Code
is administered by the board of directors. Our employees (including our
officers and employee directors, but excluding our five percent stockholders)
are eligible to participate if they are customarily employed for at least 20
hours per week and for more than five months in any calendar year. The Purchase
Plan permits eligible employees to purchase common stock through payroll
deductions, which may not exceed the lesser of 15% of an employee's
compensation, where compensation is defined on Form W-2, or $25,000.
The Purchase Plan will be implemented in a series of overlapping offering
periods, each to be of approximately 24 months duration. The initial offering
period under the Purchase Plan will begin on the effective date of this
offering and subsequent offering periods will begin on the first trading day on
or after February 1 and August 1 of each year. Each participant will be granted
an option on the first day of the offering period and such option will be
automatically exercised on the last date of each semi-annual period throughout
the offering period. If the fair market value of our common stock on any
purchase date is lower than such fair market value on the start date of that
offering period, then all participants in that offering period will be
automatically withdrawn from such offering period and re-enrolled in the
immediately following offering period. The purchase price of our common stock
under the Purchase Plan will be equal to 85 percent of the lesser of the fair
market value per share of common stock on the start date of the offering period
or at the end of the purchase period. Employees may end their participation in
an offering period at any time during that period, and participation ends
automatically on termination of employment with our company.
The Purchase Plan will terminate in May 2009, unless sooner terminated by our
board of directors.
55
<PAGE>
1999 Director Option Plan. Our 1999 Director Option Plan that will become
effective upon the closing of this offering was adopted by the board of
directors. A total of 250,000 shares of common stock has been reserved for
issuance under the Director Plan, together with an annual increase in the
number of shares reserved thereunder beginning on the first day of our fiscal
year (commencing July 1, 2000) in an amount equal to the lesser of (i) 250,000
shares, (ii) two percent of the outstanding shares of our common stock on the
last day of the prior fiscal year or (iii) such amount determined by the board
of directors. The option grants under the Director Plan are automatic and non-
discretionary, and the exercise price of the options is 100% of the fair market
value of the common stock on the grant date.
The Director Plan provides for an initial grant to a nonemployee director of
an option to purchase 37,500 shares on the date on which a nonemployee director
becomes a member of the board of directors following the effective date of the
Director Plan.
Subsequently, each nonemployee director shall automatically be granted an
additional option to purchase 12,500 shares of common stock at the next meeting
of the board of directors following the annual meeting of stockholders in each
year beginning with the 1999 annual meeting of stockholders, if on such date,
such director has served on the board of directors for at least six months.
The term of such options is ten years, provided that such options shall
terminate three months following the termination of the optionee's status as a
director (or twelve months if the termination is due to death or disability).
The initial 37,500 share grants shall become exercisable at a rate of one-third
of the shares subject to the option on the first anniversary of the date of
grant and at a rate of 1/36th of the shares subject to the option per month
thereafter. The subsequent 12,500 share grants shall become exercisable at the
rate of one-half of the shares subject to the option on the first anniversary
of the date of grant and at a rate of 1/24th of the shares subject to the
option per month thereafter.
401(k) Plan. In September 1996, we adopted a Retirement Savings and
Investment Plan, the 401(k) Plan, covering our full-time employees located in
the United States. The 401(k) Plan is intended to qualify under Section 401(k)
of the Internal Revenue Code, so that contributions to the 401(k) Plan by
employees or by us, and the investment earnings thereon, are not taxable to
employees until withdrawn from the 401(k) Plan. If the 401(k) Plan qualifies
under Section 401(k) of the Internal Revenue Code, contributions by us, if any,
will be deductible by us when made.
Pursuant to the 401(k) Plan, employees may elect to reduce their current
compensation by up to the statutorily prescribed annual limit ($10,000 in 1999)
and to have the amount of such reduction contributed to the 401(k) Plan. The
401(k) Plan permits, but does not require, additional matching contributions to
the 401(k) Plan by us on behalf of all participants in the 401(k) Plan. To
date, we have not made any contributions to the 401(k) Plan.
Employment Agreements and Change in Control Arrangements
Michael S. Bennett, our Chairman of the Board, Chief Executive Officer and
President, is entitled to acceleration of 100% of his then unvested option
grants if after the first anniversary of his employment and prior to the fourth
such anniversary, we are acquired by another company and he is (1) terminated,
(2) assigned a position of lesser responsibility or compensation in the
resulting organization or (3) required to relocate. Mr. Bennett will have
twelve months following his separation from our company or its successor,
regardless of whether his termination is voluntary or involuntary, to exercise
his vested options. Mr. Bennett is also entitled to severance payments of
$200,000 in the event that he is terminated other than for cause.
Stephen E. Odom, our Chief Operating Officer, Chief Financial Officer,
Treasurer and Secretary, is entitled to acceleration of 100% of his then
unvested options if after the first anniversary of his employment
56
<PAGE>
and prior to the fourth such anniversary, we are acquired by another company
and he is (1) terminated or (2) assigned a position of lesser responsibility or
compensation in the resulting organization, Mr. Odom will have twelve months
following his separation from our company or our successor regardless of
whether his termination is voluntary or involuntary, to exercise his vested
options. Mr. Odom also entitled to severance payments of six months of his
then-current salary in the event that he is terminated other than for cause.
Thomas P. Bernhardt, our Chief Technology Officer, is entitled to severance
equal to six months salary in the event he is terminated without cause by us.
Mr. Bernhardt has agreed that for a period of one year after his separation
from our company, regardless of the reason, he will not (1) engage in direct
competition with us, (2) conduct a business of the type or character engaged in
by us at the time of his separation or (3) develop, market, sell and/or
distribute products or services directly competitive with ours. Mr. Bernhardt
has also agreed to not employ any of our employees or induce or attempt to
influence any of our employees to voluntarily terminate his or her employment
with us other than those employees not directly involved in the development,
marketing, sales and or distribution of our products or services during Mr.
Bernhardt's employment.
Brian J. McGrath, our Vice President of Sales, entered into an employment
agreement dated August 6, 1997 with us. Mr. McGrath entered into a letter
agreement dated January 13, 1999 with us intended to clarify the terms of his
employment agreement. The January 1999 letter agreement provides that from the
date of the agreement until June 30, 1999, Mr. McGrath is entitled to salary of
$16,667 per month, a two percent commission on all license fees, a one percent
commission on all initial maintenance fees (other than from those customers
listed in the agreement) and a 15% commission on revenue generated by customers
as specified in the agreement as "Named Accounts." Mr. McGrath's commission on
revenue from Named Accounts may be reduced, but such reduction shall not exceed
six percent of the related commission revenue, by payments of commissions to
other account managers assigned to such Named Accounts. Effective July 1, 1999,
Mr. McGrath's compensation will consist of a base salary of $200,000 and
additional $200,000 contingent upon meeting specified operating targets.
The January 1999 letter agreement also provides that if Mr. McGrath were to
voluntarily terminate his employment without "good reason" prior to July 1,
1999, the exercise price of a warrant to purchase 100,000 shares of common
stock granted to him on January 1, 1998 would increase to $2.00 per share from
$1.00 per share. "Good reason" is defined in the letter agreement as an
assignment to duties inconsistent with his prior position, status or
responsibilities, a material change in his reporting responsibilities, the
failure to reappoint Mr. McGrath to his office (except in the event of an
acquisition of our company with respect to any of the foregoing), a reduction
by us in Mr. McGrath's total compensation package as defined in the letter
agreement, a requirement that Mr. McGrath relocate to anywhere other than Texas
or our failure to secure an agreement by its successor in interest, if any, to
perform our obligations set forth in the letter agreement.
We have agreed with Mr. McGrath that for a six month period after his
separation from our company, he shall not compete with us and shall not solicit
a list of customers set forth in the January 1999 agreement as amended by us
from time to time. Mr. McGrath agreed that for a period one year not to employ
any of our employees or induce or attempt to influence any of our employees to
voluntarily terminate his or her employment with our company.
In the event Mr. McGrath is terminated without cause, his warrant to purchase
shares of our common stock shall continue to vest during the notice period and
severance periods set forth in the August 6, 1997 agreement.
57
<PAGE>
Olivier J. Thierry, our Vice President--Marketing Communications, is entitled
to severance equal to six months salary upon his termination by us, other than
for cause. Mr. Thierry has agreed that for a period of one year after his
separation from our company, regardless of the reason, he will not (1) engage
in direct competition with us or (2) develop, market, sell and/or distribute
products or services directly competitive with ours. Mr. Thierry has also
agreed for a period of two years not to employ any of our employees or induce
or attempt to influence any of our employees to voluntarily terminate his or
her employment with us. In connection with his employment with us, Mr. Thierry
also received a relocation loan that we are required to forgive in certain
circumstances. See "--Certain Transactions."
Richard Pleczko, our Vice President of Marketing and Product Management, is
entitled to an advance equal to $31,250, which will be forgiven over his first
twelve months of employment with our company, if his quarterly bonus from
PLATINUM technologies inc. is not paid to him due to Mr. Pleczko's start date
with our company. Mr. Pleczko is also entitled to (1) severance payments of six
months of his then current salary in the event he is terminated without cause
and (2) acceleration of 25% of his then unvested options in the event he is
terminated without cause during his first twelve months employment with our
company. Mr. Pleczko has agreed that for a period of two years, in the event of
any voluntary or involuntary termination or resignation, he shall not directly
or indirectly compete with us. Mr. Pleczko also agreed for a period of two
years not to employ any of our employees or induce or influence any of our
employees to voluntarily terminate his or her employment with us.
Stephen Kangas, our Vice President of Strategic Alliances, is entitled to
acceleration of options to purchase 25% of his then unvested options to
purchase shares of our common stock in the event that Mr. Kangas is terminated
without cause as a result of a merger or acquisition of our company prior to
the first anniversary of his employment with our company. Mr. Kangas also
entitled to severance payments of six months of his then-current salary in the
event that he is terminated other than for cause. Mr. Kangas has agreed that
for a period of two years, in the event of any voluntary or involuntary
termination or resignation, he shall not directly or indirectly compete with
us. Mr. Kangas has also agreed for a period of two years not to employ any of
our employees or induce or influence any of our employees to voluntarily
terminate his or her employment with us.
Leslie D. Willard, our Vice President--Finance, is entitled to acceleration
of 100% of his then unvested options if after the first anniversary of his
employment, our company is acquired by another company and he is (1) terminated
or (2) assigned to a position of lesser responsibility or compensation in the
resulting corporation.
Michael Rovner, our Director of Business Development, is entitled to (1)
acceleration of 25% of his then unvested options and (2) severance payments of
six months of his then current salary, in the event he is terminated without
cause as a result of a merger or acquisition of our company during the first
twelve months of his employment. Mr. Rovner has agreed that for a period of two
years, in the event of any voluntary or involuntary termination or resignation,
he shall not directly or indirectly compete with us. Mr. Rovner has also agreed
for a period of two years not to employ any of our employees or induce or
influence any of our employees to voluntarily terminate his or her employment
with us.
Limitations On Directors' Liability And Indemnification
Our certificate of incorporation limits the liability of our directors and
executive officers 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 (i) any breach of their duty of loyalty to the corporation or its
stockholders, (ii) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) unlawful payments
of dividends or unlawful stock repurchases or redemptions or (iv) 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.
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<PAGE>
Our certificate of incorporation together with the bylaws provide that we
must indemnify our directors and executive officers and may indemnify our other
officers and employees and other agents to the fullest extent permitted by law.
We believe that indemnification under our bylaws covers at least negligence and
gross negligence on the part of indemnified parties. Our bylaws also permit us
to secure insurance on behalf of any officer, director, employee or other agent
for any liability arising out of his or her actions in such capacity,
regardless of whether the bylaws would permit indemnification.
We expect to enter into agreements prior to the effective time of this
offering to indemnify our directors and executive officers, in addition to
indemnification provided for in our bylaws. These agreements, among other
things, provide for indemnification 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 our company, arising out of such person's services
as a director or executive officer of our company, one of our subsidiaries or
any other company or enterprise to which the person provides services at our
request. We believe that these provisions and agreements are necessary to
attract and retain qualified persons as our directors and executive officers.
59
<PAGE>
CERTAIN TRANSACTIONS
In September 1996, we issued 2,431,350 shares of common stock to six
individuals for aggregate proceeds of $3,000. Of such shares, we issued
1,045,480 shares to Thomas P. Bernhardt and 1,045,480 shares to Louis R.
Woodhill. We acquired our OnePoint Administrator software product from Mission
Critical Software I, Inc., an entity held by James R. Woodhill, in September
1996 in exchange for 1,697,082 shares of its Series A Preferred Stock. We also
issued 121,568 shares of Series A Preferred Stock to E. Alexander Goldstein for
aggregate proceeds of $25,000. In September 1996, we issued 2,650,000 shares of
Series B Preferred Stock for aggregate proceeds of $2,650,000. We redeemed
950,000 shares of the Series A Preferred Stock issued to Mission Critical
Software I, Inc. in July 1997 for an aggregate of $2,850,000. In July 1997, we
issued 3,450,000 shares of Series C Preferred Stock for aggregate proceeds of
$10,350,000. Upon effectiveness of this offering, all shares of outstanding
preferred stock will be automatically converted into shares of common stock.
Listed below are those persons who participated in such financings who are our
executive officers, directors or stockholders who beneficially own five percent
or more of our securities.
<TABLE>
<CAPTION>
Aggregate
Common Series A Series B Series C Consideration
Stockholder Stock Preferred Preferred Preferred Paid
- ----------- --------- --------- --------- --------- -------------
<S> <C> <C> <C> <C> <C>
Austin Ventures
Entities(1)............ -- -- -- 1,250,000 $3,750,000
Thomas P. Bernhardt..... 1,045,480 -- -- -- 1,045
E. Alexander Goldstein.. -- 121,568 -- 30,000 90,000
International Capital
Partners, Inc. (2)..... -- -- 62,500 27,333 144,499
JMI Equity Fund III,
L.P.................... -- -- -- 666,667 2,000,001
Brian J. McGrath........ 70,625 -- 50,000 20,000 145,313
Mission Critical Soft-
ware I, Inc. (James R.
Woodhill).............. 97,254 1,697,082 -- -- 349,187
New Enterprise Associ-
ates
Entities (3)........... -- -- 1,250,000 683,333 3,299,999
Louis R. Woodhill....... 1,045,480 -- -- -- 1,045
Zesiger Capital (4)..... -- -- 1,140,000 656,000 3,764,000
</TABLE>
- ---------------------
(1) Includes Austin Venture Partners V, L.P. and Austin Ventures V Affiliates
Fund, L.P. Mr. Thornton, a director of our company, is a general partner of
each of the entities. Mr. Thornton disclaims beneficial ownership of the
shares held by each entity, except to the extent of his pecuniary interest
therein.
(2) Mr. Ayer, a director of our company, is a managing partner of International
Capital Partners, Inc. Mr. Ayer disclaims beneficial ownership of the
shares held by such entity, except to the extent of his pecuniary interest
therein.
(3) Includes New Enterprise Associates VII Ltd. Partnership NEA President's
Fund and NEA Ventures 1996. Mr. Sandell, a director of our company, is a
partner of each of the entities. Mr. Sandell disclaims beneficial ownership
of the shares held by each entity, except to the extent of his pecuniary
interest therein.
(4) Includes 1,796,000 shares over which Zesiger Capital has voting and
dispositive power.
Employment Agreement with Louis R. Woodhill. On September 4, 1996, we entered
into an employment agreement with Louis R. Woodhill, then its Chief Executive
Officer and President. Pursuant to the September 4, 1996 agreement, Mr.
Woodhill was entitled to severance payments equal to six months of his salary
in the event he was terminated without cause.
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<PAGE>
Mr. Woodhill agreed that for a period of one year after his separation from
our company, regardless of the reason, he will not (1) engage in direct
competition with us, (2) conduct a business of the type or character engaged in
by us at the time Mr. Woodhill's employment ceased or (3) develop, market, sell
and/or distribute products or services directly competitive with ours.
Mr. Woodhill also agreed that for a period of two years not to employ any of
our employees or induce or attempt to influence any of our employees to
voluntarily terminate his or her employment with us other than those employees
not directly involved in the development, marketing, sales and or distribution
of our products or services during Mr. Woodhill's employment. Mr. Woodhill
agreed that for a two year period after his separation from our company he
would not solicit, divert or take away or attempt to divert or take away the
business or patronage of any clients, customers or accounts, or prospective
clients, customers or accounts that were contacted, solicited or served by Mr.
Woodhill during his employment by us in connection with the products or
services that were developed or under active development, consideration for
development, marketed, sold and/or distributed by us.
On May 21, 1998, we entered into an amended and restated employment agreement
with Mr. Woodhill. The May 1998 employment agreement provided for a term of
employment of six months and required Mr. Woodhill to serve in the position of
Chairman of the Board of Directors of our company during that six month period.
Mr. Woodhill was entitled to salary payments of $13,750.00 per month during the
six month period plus benefits customary benefits and an office rental
allowance of $1,000 per month.
In connection with the May 1998 agreement, Mr. Woodhill was also entitled to
receive a lump-sum severance payment of six months salary plus accrued and
unused vacation time and unreimbursed travel expenses upon termination of his
employment. In connection with the May 1998 employment agreement, Mr. Woodhill
received gross salary payments of $82,500, health and dental benefits of $534
and a lump-sum severance payment of $82,500.
We also agreed to grant Mr. Woodhill an option to purchase 15,000 shares of
our common stock at an exercise price of $0.50 per share. One-fourth of the
shares subject to such option will vest on November 28, 1999 and the remaining
shares vest as to 1/48th per month thereafter.
Mr. Woodhill is also bound by noncompetition, nonsolicitation and nonhiring
provisions similar to those set forth in the September 1996 agreement.
Employment Agreement with James R. Woodhill. On September 4, 1996, we entered
into an employment agreement with James R. Woodhill, then our Vice President--
Marketing. Pursuant to the September 4, 1996 agreement, Mr. Woodhill was
entitled to severance payments equal to six months of his salary in the event
he was terminated without cause.
Mr. Woodhill agreed that for a period of one year after his separation from
our company, regardless of the reason, he would not (1) engage in direct
competition with us, (2) conduct a business of the type or character engaged in
by us at the time Mr. Woodhill's employment ceased or (3) develop, market, sell
and/or distribute products or services directly competitive with ours.
Mr. Woodhill also agreed for a period of two years not to employ any of our
employees or induce or attempt to influence any of our employees to voluntarily
terminate his or her employment with us other than those employees not directly
involved in the development, marketing, sales and or distribution of our
products or services during Mr. Woodhill's employment. Mr. Woodhill agreed that
for a two year period after his separation from our company, he would not
solicit, divert or take away or attempt to divert or take away the business or
patronage of any clients, customers or accounts, or prospective clients,
customers or accounts that were contacted, solicited or served by Mr. Woodhill
during his employment with us in connection with the products or services that
were developed or under active development, consideration for development,
marketed, sold and/or distributed by us.
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We terminated Mr. Woodhill on May 15, 1998 and paid him severance and related
payments of $50,000.
Employment Agreement with Paul F. Koffend, Jr. On September 4, 1996, we
entered into an employment agreement with Paul F. Koffend, Jr., then our Chief
Financial Officer. Mr. Koffend agreed that for a period of one year after his
separation from our company, regardless of the reason, he would not (1) engage
in direct competition with us, (2) conduct a business of the type or character
engaged in by us at the time Mr. Koffend's employment ceased or (3) develop,
market, sell and/or distribute products or services directly competitive with
ours.
Mr. Koffend also agreed not a period of two years not to employ any of our
employees or induce or attempt to influence any of our employees to voluntarily
terminate his or her employment with us other than those employees not directly
involved in the development, marketing, sales and or distribution of our
products or services during Mr. Koffend's employment. Mr. Koffend agreed that
for a two year period after his separation from our company, he would not
solicit, divert or take away or attempt to divert or take away the business or
patronage of any clients, customers or accounts, or prospective clients,
customers or accounts that were contacted, solicited or served by Mr. Koffend
during his employment by us in connection with the products or services that
were developed or under active development, consideration for development,
marketed, sold and/or distributed by us.
Mr. Koffend was terminated by us effective June 30, 1998 and received
severance and related payments of $60,000.
Relocation Loan Forgiveness to Olivier J. Thierry. On February 23, 1998, we
entered into an employment agreement with Olivier J. Thierry, our Vice
President--Marketing Communications, pursuant to which we agreed to grant Mr.
Thierry a relocation loan of $80,000. The noninterest bearing relocation loan
is due and payable in February 2002. We agreed to forgive the principal and
interest due on the relocation loan in the amount of 1/48th per month for each
month Mr. Thierry remains an employee. In addition, we also agreed to provide
additional payments to make Mr. Thierry whole for any taxes payable upon the
income realized from the loan forgiveness net of any deductions Mr. Thierry is
entitled to claim for moving expenses. In the nine months ended March 31, 1999,
we paid $79,871 to Mr. Thierry for loan forgiveness and tax gross-up. We also
agreed to forgive the balance of the relocation loan in the event that (1) Mr.
Thierry is terminated other than for cause or he voluntarily leaves us, (2) we
are acquired by another entity and Mr. Thierry's position is eliminated,
downgraded, modified or geographically transferred or (3) new senior management
replaces Mr. Thierry with another individual in the same position other than
for cause.
Effective April 16, 1999, May 21, 1999 and May 21, 1999, Paul F. Koffend,
Jr., Louis R. Woodhill and E. Alexander Goldstein resigned as directors of our
company and entered into a form of consulting agreement pursuant to which they
would provide continued services to us for a period of two years, one year and
one year, respectively. During the term of the consulting agreements, each
individual's stock options shall continue to vest in accordance with the terms
of their respective option agreements.
All future transactions, other than compensation, stock options pursuant to
the plans and other benefits available to employees generally, including any
loans from us to our officers, directors, principal stockholders or affiliates,
will be approved by a majority of the board of directors, including a majority
of the independent and disinterested members of the board of directors or, if
required by law, a majority of disinterested stockholders, and will be on terms
no less favorable to us than could be obtained from unaffiliated third parties.
62
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth information known to us with respect to the
beneficial ownership of our Common Stock as of March 31, 1999, and as adjusted
to reflect the sale of common stock offered hereby by (i) each stockholder
known by us to own beneficially more than five percent of the common stock,
(ii) each of the Named Executive Officers, (iii) each director of our company,
(iv) all directors and executive officers as a group and (v) all other selling
stockholders.
<TABLE>
<CAPTION>
Shares of Common
Stock Beneficially Shares Beneficially
Owned Prior to Owned After
Offering (2)(3) Offering(2)(3)
-------------------- --------------------
Number
of
Shares
Being
Name of Beneficial Owner(1) Number Percentage Offered Number Percentage
- --------------------------- --------- ---------- ------- --------- ----------
<S> <C> <C> <C> <C> <C>
New Enterprise Associates
Entities (4)............... 2,018,456 20.3 -- 2,018,456
2490 Sand Hill Rd.
Menlo Park, California
94025
Austin Ventures Entities
(5)........................ 1,310,393 13.2 -- 1,310,393
114 W. 7th St., Suite 300,
Austin, Texas 78701
JMI Equity Fund III, L.P.
(6)........................ 707,421 7.1 -- 707,421
12680 High Bluff Drive
San Diego, California 92130
International Capital
Partners, Inc. (7)......... 129,487 1.3 -- 129,487
300 First Stamford Place
Stamford, Connecticut 06902
Zesiger Capital Group LLC
(8)........................ 1,837,242 18.2 -- 1,837,242
320 Park Avenue
New York, New York 10022
Mission Critical Software I,
Inc. (9)................... 1,010,586 10.2
Louis R. Woodhill (10)...... 565,480 5.7
Paul F. Koffend, Jr......... 84,741 *
E. Alexander Goldstein...... 193,426 1.9
Serverware Group plc (11)... 333,333 3.4 --
Denton House
40-44 Wicklow Street
London WCIX 9HL
England
Michael S. Bennett (12)..... 322,977 3.2 -- 322,977
Thomas P. Bernhardt (13).... 1,061,730 10.7 --
Stephen E. Odom (14)........ 76,303 * -- 76,303 *
Oliver J. Thierry (15)...... 84,999 * -- 84,999 *
Brian McGrath (16).......... 254,753 2.86 -- 254,755
Scott D. Sandell (4)........ 2,018,456 20.8 -- 2,018,276
John D. Thornton (5)........ 1,310,393 13.2 -- 1,310,393
Douglas L. Ayer (7)......... 129,487 1.3 -- 129,487 *
Michael J. Maples........... -- -- -- -- --
John J. Moores (6).......... 707,421 7.1 -- 707,421
All executive officers and
directors as a group (13)
persons (17)............... 5,956,342 57.3 --
Other stockholders who indi-
vidually own less than one
percent....................
</TABLE>
- ---------------------
* Less than 1% of the outstanding shares of common stock.
63
<PAGE>
(1) Except as otherwise noted below, the address of each person listed on the
table is, 720 North Post Oak Rd. Suite 505, Houston, Texas 77024-3835.
(2) Assumes no exercise of the underwriters' over-allotment option. If the
over-allotment option is exercised in full, we will sell an aggregate of
shares of our common stock.
(3) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage ownership of that
person, shares of common stock subject to options or warrants held by that
person that are currently exercisable or will become exercisable within 60
days after March 31, 1999 are deemed outstanding, while such shares are
not deemed outstanding for purposes of computing percentage ownership of
any other person. Unless otherwise indicated in the footnotes below, the
persons and entities named in the table have sole voting and investment
power with respect to all shares beneficially owned, subject to community
property laws where applicable.
(4) Includes 1,910,293 shares held by New Enterprise Associates VII Ltd.
Partnership, 82,682 shares held by NEA President's Fund, L.P. and 5,169
shares held by NEA Ventures 1996, L.P. Mr. Sandell disclaims beneficial
ownership of these shares except to the extent of his pecuniary interest.
Also includes 20,312 shares subject to options exercisable within 60 days
from March 31, 1999 held by Mr. Sandell.
(5) Includes 1,231,617 shares held by Austin Venture Partners V, L.P. and
61,589 shares held by Austin Ventures V Affiliates Fund, L.P. Mr. Thornton
disclaims beneficial ownership of these shares except to the extent of his
pecuniary interest. Also includes 17,187 shares subject to options
exercisable within 60 days from March 31, 1999 held by Mr. Thornton.
(6) Mr. Moores disclaims beneficial ownership these shares except to the
extent of his pecuniary interest. Also includes 17,187 shares subject to
options exercisable within 60 days of March 31, 1999 held by Mr. Moores.
(7) Mr. Ayers disclaims beneficial ownership of these shares except to the
extent of his pecuniary interest. Also includes 20,312 shares subject to
options exercisable within 60 days from March 31, 1999 held by Mr. Ayers.
(8) Includes 1,837,242 shares over which Zesiger Capital has voting and
investment discretion.
(9) Includes 897,082 shares held by Mission Critical Software I, Inc., and
7,501 shares subject to options exercisable within 60 days from March 31,
1999 held by Mr. Woodhill. James R. Woodhill is the sole stockholder of
Mission Critical Software I, Inc.
(10) Includes 20,000 shares subject to options exercisable within 60 days from
March 31, 1999 held by Mr. Woodhill.
(11) Includes 333,333 shares subject to warrants exercisable within 60 days
from March 31, 1999.
(12) Includes 301,039 shares subject to options exercisable within 60 days from
March 31, 1999 held by Mr. Bennett.
(13) Includes 16,250 shares subject to options exercisable within 60 days from
March 31, 1999 held by Mr. Bernhardt.
(14) Includes 54,366 shares subject to options exercisable within 60 days from
March 31, 1999 held by Mr. Odom.
(15) Includes 15,000 shares subject to options exercisable within 60 days from
March 31, 1999 held by Mr. Thierry.
(16) Includes 100,000 shares subject to warrants exercisable within 60 days of
March 31, 1999, and 11,250 shares subject to options exercisable within 60
days from March 31, 1999 held by Mr. McGrath.
(17) Includes 472,903 shares subject to options exercisable within 60 days from
March 31, 1999.
64
<PAGE>
DESCRIPTION OF CAPITAL STOCK
GENERAL
We are authorized to issue 50,000,000 shares of common stock, $0.001 par
value, and 5,000,000 shares of undesignated preferred stock, $0.001 par value.
The following description of our capital stock does not purport to be complete
and is subject to and qualified in its entirety by our certificate of
incorporation and bylaws, which are included as exhibits to the registration
statement of which this prospectus forms a part, and by the provisions of
applicable Delaware law.
COMMON STOCK
As of March 31, 1999, there were 9,914,270 shares of common stock outstanding
that were held of record by approximately 107 stockholders.
The holders of common stock are entitled to one vote per share on all matters
to be voted upon by the stockholders. Subject to preferences that may be
applicable to any outstanding preferred stock, the holders of common stock are
entitled to receive ratably such dividends, if any, as may be declared from
time to time by the board of directors out of funds legally available for that
purpose. See "Dividend Policy." In the event of our liquidation, dissolution or
winding up, the holders of common stock are entitled to share ratably in all
assets remaining after payment of liabilities, subject to prior distribution
rights of preferred stock, if any, then outstanding. The common stock has no
preemptive or conversion rights or other subscription rights. There are no
redemption or sinking fund provisions applicable to the common stock. All
outstanding shares of common stock are fully paid and nonassessable, and the
shares of common stock to be issued upon the closing of this offering will be
fully paid and nonassessable.
PREFERRED STOCK
Upon the closing of this offering, our board of directors will have the
authority, without action by our stockholders, to designate and issue preferred
stock in one or more series and to designate the rights, preferences and
privileges of each series, any or all of which may be greater than the rights
of the common stock. It is not possible to state the actual effect of the
issuance of any shares of preferred stock upon the rights of holders of the
common stock until the board of directors determines the specific rights of the
holders of such preferred stock. However, the effects might include, among
other things, restricting dividends on the common stock, diluting the voting
power of the common stock, impairing the liquidation rights of the common stock
and delaying or preventing a change in control of our company without further
action by the stockholders. We have no present plans to issue any shares of
preferred stock.
WARRANTS
As of March 31, 1999, we had outstanding warrants to purchase (i) 333,333
shares of common stock issued to Serverware Group plc at an exercise price of
$1.50 per share and (ii) 100,000 shares of common stock issued to Brian
McGrath, our Vice President of Sales at an exercise price of $1.00 per share.
If Mr. McGrath voluntarily terminates his employment with us prior to July 1,
1999 other than for good reason, the per share exercise price of Mr. McGrath's
warrants will increase to $2.00 per share.
REGISTRATION RIGHTS
The holders of 6,100,000 shares of common stock and the holder of warrants to
purchase 333,333 shares of common stock (the "registrable securities") or their
permitted transferees are entitled to certain rights with respect to
registration of such shares under the Securities Act of 1933, as amended. These
rights are provided under the terms of our agreement with the holders of
registrable securities. Under these registration rights, holders of at least a
majority of the then outstanding registrable securities may require on
65
<PAGE>
two occasions that we register their shares for public resale. We are obligated
to register these shares if the holders of a majority of such shares request
registration and only if the shares to be registered have an anticipated public
offering price of at least $1,000,000. In addition, holders of registrable
securities may require on three separate occasions that we register their
shares for public resale on Form S-3 or similar short-form registration,
provided we are is eligible to use Form S-3 or similar short-form registration,
provided we are eligible to use Form S-3 or similar short-form registration and
provided further that the value of the securities to be registered is at least
$1,000,000. Furthermore, in the event we elect to register any of its shares of
common stock for purposes of effecting any public offering, the holders of
registrable securities are entitled to include their shares of common stock in
the registration, subject however to our right to reduce the number of shares
proposed to be registered in view of market conditions. All expenses in
connection with any registration (other than underwriting discounts and
commissions) will be borne by us.
Delaware Anti-Takeover Law and Certain Charter and Bylaw Provisions
Certain provisions of Delaware law and our certificate of incorporation and
bylaws could make more difficult the acquisition of our company by means of a
tender offer, a proxy contest or otherwise and the removal of incumbent
officers and directors. These provisions, summarized below, are expected to
discourage certain types of coercive takeover practices and inadequate takeover
bids and to encourage persons seeking to acquire control of us to first
negotiate with our board of directors. We believe that the benefits of
increased protection of our potential ability to negotiate with the proponent
of an unfriendly or unsolicited proposal to acquire or restructure our company
outweigh the disadvantages of discouraging such proposals because, among other
things, negotiation of such proposals could result in an improvement of their
terms.
We are subject to Section 203 of the Delaware General Corporation Law, an
anti-takeover law. In general, Section 203 prohibits a publicly held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years following the date the person became
an interested stockholder, unless (with certain exceptions) the "business
combination" or the transaction in which the person became an interested
stockholder is approved in a prescribed manner. Generally, a "business
combination" includes a merger, asset or stock sale, or other transaction
resulting in a financial benefit to the interested stockholder. Generally, an
"interested stockholder" is a person who, together with affiliates and
associates, owns (or within three years prior to the determination of
interested stockholder status, did own) 15% or more of a corporation's voting
stock. The existence of this provision would be expected to have an anti-
takeover effect with respect to transactions not approved in advance by the
board of directors, including discouraging attempts that might result in a
premium over the market price for the shares of common stock held by
stockholders.
Certain Provisions of the Certificate of Incorporation and Bylaws
Our certificate of incorporation provides for our board to be divided into
three classes, as nearly equal in number as possible, serving staggered terms.
Approximately one-third of the board will be elected each year. See
"Management." The provision for a classified board could percent a party who
acquires control of a majority of the outstanding voting stock from obtaining
control of the board of directors until the second annual stockholders meeting
following the date the acquiror obtains the controlling stock interest. The
classified board provision could have the effect of discouraging a potential
acquiror from making a tender offer or otherwise attempting to obtain control
of us and could increase the likelihood that incumbent directors will retain
their positions. The certificate of incorporation provides that directors may
be removed (i) with cause by the affirmative vote of the holders of at least a
majority of the voting power of all of the outstanding shares of voting stock
or (ii) without cause by the affirmative vote of the holders of at least 66 and
2/3% of the voting power of all of the then-outstanding shares of the voting
stock.
66
<PAGE>
Our bylaws establish an advance notice procedure for stockholder proposals to
be brought before an annual meeting of our stockholders, including proposed
nominations of persons for election to the board of directors. Stockholders at
an annual meeting may only consider proposals or nominations specified in the
notice of meeting or brought before the meeting by or at the direction of the
board of directors or by a stockholder who was a stockholder of record on the
record date for the meeting, who is entitled to vote at the meeting and who has
given to our Secretary timely written notice, in proper form, of the
stockholder's intention to bring that business before the meeting. Although the
bylaws do not give the board of directors the power to approve or disapprove
stockholder nominations of candidates or proposals regarding other business to
be conducted at a special or annual meeting of the stockholders, the bylaws may
have the effect of precluding the conduct of certain business at a meeting if
the proper procedures are not followed or may discourage or defer a potential
acquiror from conducting a solicitation of proxies to elect its own slate of
directors or otherwise attempting to obtain control of our company.
Under Delaware law, a special meeting of stockholders may be called by the
board of directors or by any other person authorized to do so in the
certificate of incorporation or the bylaws. Our bylaws authorize a majority of
the board of directors, the chairman of the board or the chief executive
officer to call a special meeting of stockholders. The elimination of the right
of stockholders to call a special meeting means that a stockholder could not
force stockholder consideration of a proposal over the opposition of the board
of directors by calling a special meeting of stockholders prior to such time as
a majority of the board of directors believed such consideration to be
appropriate or until the next annual meeting provided that the requestor met
the notice requirements. The restriction on the ability of stockholders to call
a special meeting means that a proposal to replace the board could be delayed
until the next annual meeting.
Under Delaware law, stockholders may execute an action by written consent in
lieu of a stockholder meeting. Delaware law permits a corporation to eliminate
such actions by written consent. Elimination of written consents of
stockholders may lengthen the amount of time required to take stockholder
actions since certain actions by written consent are not subject to the minimum
notice requirement of a stockholder's meeting. The elimination of stockholders'
written consents, however, deters hostile takeover attempts. Without the
availability of stockholder's actions by written consent, a holder or group of
holders controlling a majority in interest of our capital stock would not be
able to amend the our bylaws or remove directors pursuant to a stockholder's
written consent. Any such holder or group of holders would have to obtain the
consent of a majority of the board of directors, the chairman of the board or
the chief executive officer to call a stockholders' meeting and wait until the
notice periods determined by the board of directors pursuant to our bylaws
prior to taking any such action. Our certificate of incorporation provides for
the elimination of actions by written consent of stockholders upon the closing
of this offering.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is BankBoston, N.A.
BankBoston, N.A. is located at 150 Royall Street, Canton, Massachusetts 02021,
and its telephone number is (508) 575-3120.
67
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Future sales of substantial amounts of our common stock in the public market
following this offering or the possibility of such sales occurring could
adversely affect prevailing market prices for our common stock or could impair
our ability to raise capital through an offering of equity securities.
After this offering, we will have outstanding 12,414,270 shares of common
stock (based upon shares outstanding as of March 31, 1999), assuming no
exercise of the underwriters' over-allotment option and no exercise of
outstanding options or warrants after March 31, 1999. All of the shares sold
in this offering will be freely tradable without restriction under the
Securities Act except for any shares purchased by our "affiliates" as that
term is defined in Rule 144 under the Securities Act. The remaining 8,414,270
shares of common stock held by existing stockholders are "Restricted Shares"
as that term is defined in Rule 144 under the Securities Act. We issued and
sold the Restricted Shares in private transactions in reliance upon exemptions
from registration under the Securities Act. Restricted Shares may be sold in
the public market only if they are registered under the Securities Act or if
they qualify for an exemption from registration, such as Rule 144 or 701 under
the Securities Act, which are summarized below.
Our officers, directors, employees the selling stockholders and certain
other stockholders, who collectively hold an aggregate of 8,071,134 Restricted
Shares, and the underwriters entered into lock-up agreements in connection
with this offering. These lock-up agreements provide that, with certain
limited exceptions, our officers, directors, employees, selling stockholders
and such other stockholders have agreed not to offer, sell, contract to sell,
grant any option to purchase or otherwise dispose of any of our shares for a
period of 180 days after the effective date of this offering. Hambrecht &
Quist LLC may, in its sole discretion and at any time without prior notice,
release all or any portion of the shares subject to these lock-up agreements.
We have also entered into an agreement with Hambrecht & Quist LLC that we will
not offer, sell or otherwise dispose of our common stock until 180 days after
the effective date of this offering.
Taking into account the lock-up agreements, the number of shares that will
be available for sale in the public market under the provisions of Rules 144,
144(k) and 701 will be as follows:
<TABLE>
<CAPTION>
Number of
Date of Availability for Sale Shares
----------------------------- ---------
<S> <C>
At various times between March 31, 1999 and the date 180 days
after the effective date of this offering.................... 343,136
At various times thereafter upon the expiration of applicable
holding periods.............................................. 8,071,134
</TABLE>
Following the expiration of the lock-up period, certain shares issued upon
exercise of options granted by us prior to the completion of this offering
will also be available for sale in the public market pursuant to Rule 701
under the Securities Act.
Rule 701 permits resales of shares in reliance upon Rule 144 but without
compliance with certain restrictions, including the holding period
requirement, of Rule 144. In general, under Rule 144 as currently in effect, a
person (or persons whose shares are aggregated) who has beneficially owned
Restricted Shares for at least one year (including the holding period of any
prior owner except an affiliate) would be entitled to sell within any three-
month period a number of shares that does not exceed the greater of:
. one percent of the number of shares of common stock then outstanding
(approximately shares immediately after this offering) or
. the average weekly trading volume of the common stock during the four
calendar weeks preceding the filing of a Form 144 with respect to such
sale.
68
<PAGE>
Sales under Rule 144 are also subject to certain manner of sale provisions
and notice requirements and to the availability of current public information
about us. Under Rule 144(k), a person who is not deemed to have been an
affiliate of our company at any time during the three months preceding a sale,
and who has beneficially owned the shares proposed to be sold for at least two
years (including the holding period of any prior owner except an affiliate), is
entitled to sell such shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144.
We intend to file a registration statement on Form S-8 under the Securities
Act covering shares of common stock reserved for issuance under the stock plans
and subject to outstanding options under the 1997 Plan. See "Management--Stock
Plans." Such registration statement is expected to be filed and become
effective as soon as practicable after the effective date of this offering.
Shares of common stock issued upon exercise of options under the Form S-8 will
be available for sale in the public market, subject to Rule 144 volume
limitations applicable to affiliates and subject to the contractual
restrictions described above. At March 31, 1999, options to purchase 3,935,084
shares of common stock were outstanding of which options approximately 761,783
shares were then vested and exercisable. Beginning 180 days after the effective
date of this offering, approximately 1,630,443 shares issuable upon the
exercise of vested stock options will become eligible for sale in the public
market, if such options are exercised.
Following this offering, the holders of an aggregate of 6,433,333 shares of
outstanding common stock will have the right to require us to register their
shares for sale upon meeting certain requirements. See "Description of Capital
Stock--Registration Rights."
69
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the underwriting agreement, the
underwriters named below, Hambrecht & Quist LLC, BancBoston Robertson Stephens
Inc., and SoundView Technology Group, Inc. have severally agreed to purchase
from us the following respective number of shares of Mission Critical Software
common stock:
<TABLE>
<CAPTION>
Number of
Name Shares
---- ---------
<S> <C>
Hambrecht & Quist LLC...........................................
BancBoston Robertson Stephens Inc...............................
SoundView Technology Group, Inc.................................
---------
Total...........................................................
=========
</TABLE>
The underwriting agreement provides that the obligations of the underwriters
are subject to certain conditions precedent, including the absence of any
material adverse change in our business and the receipt of certain
certificates, opinions and letters from us, our counsel and independent
auditors. The nature of the underwriters' obligation is such that they are
committed to purchase all shares of common stock offered in this offering if
any of such shares are purchased.
The underwriters propose to offer the shares of common stock directly to the
public at the public offering price set forth on the cover page of this
prospectus and to certain dealers at such price less a concession not in excess
of $ per share. The underwriters may allow and such dealers may reallow a
concession not in excess of $ per share to certain other dealers. After the
public offering of the shares, the offering price and other selling terms may
be changed by the underwriters.
We have granted to the underwriters an option, exercisable no later than 30
days after the date of this prospectus, to purchase up to additional
shares of common stock at the public offering price, less the underwriting
discount, set forth on the cover page of this prospectus. To the extent that
the underwriters exercise this option, each underwriter will have a firm
commitment to purchase approximately the same percentage thereof which the
number of shares of common stock to be purchased by it shown in the above table
bears to the total number of shares of common stock offered in this offering.
We will be obligated, pursuant to the option, to sell shares to the
underwriters to the extent the option is exercised. The underwriters may
exercise such option only to cover over-allotments made in connection with the
sale of common stock offered in this prospectus.
The following table summarizes the compensation that we and the selling
stockholders will pay to the underwriters in connection with this offering:
<TABLE>
<CAPTION>
Total
-------------------
Without With
Per Over- Over-
Share allotment allotment
----- --------- ---------
<S> <C> <C> <C>
Underwriting discounts and commissions paid by
Mission Critical Software..........................
Underwriting discounts and commissions paid by sell-
ing stockholders...................................
</TABLE>
The offering of the shares is made for delivery when, as and if accepted by
the underwriters and subject to prior sale and to withdrawal, cancellation or
modification of the offering without notice. The underwriters reserve the right
to reject an order for the purchase of shares in whole or in part.
70
<PAGE>
We and the selling stockholders have agreed to indemnify the underwriters
against certain liabilities, including liabilities under the Securities Act,
and to contribute to payments the underwriters may be required to make in
respect thereof.
Certain of our stockholders, including all executive officers and directors
and the selling stockholders, who own in the aggregate shares of
common stock have agreed that they will not, without the prior written consent
of Hambrecht & Quist LLC, offer, sell, or otherwise dispose of any shares of
common stock, options or warrants to acquire shares of common stock or
securities exchangeable for or convertible into shares of common stock owned by
them until the date 180 days after the offering is effective. We have agreed
that we will not, without the prior written consent of Hambrecht & Quist LLC,
offer, sell or otherwise dispose of any shares of common stock, options or
warrants to acquire shares of common stock or securities exchangeable for or
convertible into shares of common stock until the date 180 days following the
date after this offering is effective, except that we may issue shares upon the
exercise of options granted prior to the date hereof, and may grant additional
options under our stock option plans, provided that, without the prior written
consent of Hambrecht & Quist LLC, such additional options shall not be
exercisable during such period.
Prior to this offering, there has been no public market for our shares. The
initial public offering price has been negotiated among our company and the
underwriters. Among the factors to be considered in determining the initial
public offering price of the shares, in addition to prevailing market
conditions, will be our historical performance, estimates of its business
potential and earnings, prospects, an assessment of management and the
consideration of the above factors in relation to market valuation of companies
in related businesses.
We have applied to have our common stock quoted on the Nasdaq National Market
under the symbol "MCSW."
In connection with the offering, the underwriters may purchase and sell
shares of common stock in the open market. These transactions may include short
sales, stabilizing transactions and purchases to cover positions created by
short sales. Short sales involve the sale by the underwriters of a greater
number of shares than they are required to purchase in the offering.
Stabilizing transactions consist of certain bids or purchases made for the
purpose of preventing or retarding a decline in the market price of the common
stock while the offering is in progress.
The underwriters also may impose a penalty bid. This occurs when a particular
underwriter repays to the underwriters a portion of the underwriting discount
received by it because the representatives have repurchased shares sold by or
for the account of such underwriter in stabilizing or short covering
transactions.
These activities by the underwriters may stabilize, maintain or otherwise
affect the market price of the common stock. As a result, the price of the
common stock may be higher than the price that otherwise might exist in the
open market. If these activities are commenced, they may be discontinued by the
underwriters at any time. These transactions may be effected on the Nasdaq
National Market, in the over the counter market or otherwise.
We estimate that the total expenses of the offering, excluding underwriting
discounts and commissions, will be approximately $875,000.
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<PAGE>
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for us by
Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo Alto,
California and Austin, Texas. Certain legal matters will be passed upon for the
underwriters by Vinson & Elkins L.L.P., Houston, Texas.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our financial
statements at June 30, 1997, June 30, 1998 and March 31, 1999, and for the
period from July 19, 1996 (date of inception) to June 30, 1997, the fiscal year
ended June 30, 1998 and the nine months ended March 31, 1999, as set forth in
their report, which is included in this prospectus. Our financial statements
are included in this prospectus and in reliance on their report, given on their
authority as experts in accounting and auditing.
ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission (the "Commission"),
Washington, D.C., a registration statement on Form S-1 under the Securities Act
with respect to the shares of common stock offered hereby. This prospectus does
not contain all the information set forth in the registration statement and the
exhibits and schedules thereto. For further information with respect to our
company and such common stock, reference is made to the registration statement
and to the exhibits and schedules filed therewith. Statements contained in this
prospectus as to the contents of any contract or other document referred to are
not necessarily complete, and in each instance reference is made to the copy of
such contract or other document filed as an exhibit to the registration
statement, each such statement being qualified in all respects by such
reference. A copy of the registration statement may be inspected by anyone
without charge at the Public Reference Section of the Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. Copies of all
or any portion of the registration statement may be obtained from the Public
Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.C.
20549, upon payment of prescribed fees. The Commission maintains a web site at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission.
Upon completion of this offering, we will become subject to the informational
requirements of the Exchange Act and, in accordance therewith, files reports,
proxy statements and other information with the Commission. Such reports, proxy
statements and other information filed by us can be inspected and copied at the
public reference facilities maintained by the Commission at Room 1024, 450
Fifth Street, N.W., Washington, D.C. 20549 and at the Commission's regional
offices located at 7 World Trade Center, Suite 1300, New York, New York 10048
and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of
such material can also be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. The Commission also makes electronic filings publicly available on the
Internet within 24 hours of acceptance. The Commission's Internet address is
http://www.sec.gov. The Commission web site also contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission.
We have also applied to include its common stock for trading on the Nasdaq
National Market. Copies of our filings with the Nasdaq National Market are
available at its offices at 1735 K Street, N.W., Washington, D.C. 20006.
72
<PAGE>
MISSION CRITICAL SOFTWARE, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Auditors.............................................. F-2
Balance Sheets.............................................................. F-3
Statements of Operations.................................................... F-4
Statements of Stockholders' Equity (Deficit)................................ F-5
Statements of Cash Flows.................................................... F-6
Notes to Financial Statements............................................... F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Mission Critical Software, Inc.
We have audited the accompanying balance sheets of Mission Critical Software,
Inc. (the "Company") as of March 31, 1999, June 30, 1998 and June 30, 1997, and
the related statements of operations, stockholders' equity (deficit), and cash
flows for the nine months ended March 31, 1999, the year ended June 30, 1998,
and the period from July 19, 1996 (date of inception) to June 30, 1997. 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, the financial statements referred to above present fairly, in
all material respects, the financial position of Mission Critical Software,
Inc. at March 31, 1999, June 30, 1998 and June 30, 1997, and the results of its
operations and its cash flows for the nine months ended March 31, 1999, the
year ended June 30, 1998, and the period from July 19, 1996 (date of inception)
to June 30, 1997, in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Austin, Texas
May 21, 1999
F-2
<PAGE>
MISSION CRITICAL SOFTWARE, INC.
Balance Sheets
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
Pro Forma
Stockholders'
June 30, Equity at
ASSETS ---------------- March 31, March 31,
1997 1998 1999 1999
------- ------- --------- -------------
(unaudited)
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents........... $ 299 $ 4,575 $ 9,458
Accounts receivable, net of
allowance of nil, $150 and $395,
respectively....................... 1,613 3,912 2,845
Prepaid and other current assets.... 74 202 304
------- ------- -------
Total current assets.............. 1,986 8,689 12,607
Note receivable from stockholder.... 350 -- --
Property and equipment, net......... 843 1,199 1,744
Acquired technology, net of
accumulated amortization of $206,
$598, and $889, respectively....... 1,360 968 678
Other assets........................ 56 102 27
------- ------- -------
Total assets...................... $ 4,595 $10,958 $15,056
======= ======= =======
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
<S> <C> <C> <C> <C>
Current liabilities:
Revolving line of credit and current
maturities of long-term-debt....... $ 507 $ 536 $ 265
Note payable........................ 2,450 -- --
Accounts payable.................... 506 288 651
Accrued liabilities................. 422 2,154 4,685
Deferred revenue.................... 624 2,470 3,464
------- ------- -------
Total current liabilities......... 4,509 5,448 9,065
Long-term debt, less current
maturities......................... 33 352 148
Deferred revenue, less current
portion............................ 384 495 929
------- ------- -------
Total liabilities................. 4,926 6,295 10,142
Redeemable convertible preferred
stock, Series A, $0.001 par value,
authorized and outstanding--
1,818,650, 868,650 and 868,650,
respectively; no shares outstanding
on a pro forma basis at March 31,
1999 ($.205647 per share
liquidation preference)............ 374 179 179 $ --
Redeemable convertible preferred
stock, Series B, $0.001 par value,
authorized and outstanding--
2,650,000 shares; no shares
outstanding on a pro forma basis at
March 31, 1999 ($1 per share
liquidation preference)............ 2,650 2,650 2,650 --
Redeemable convertible preferred
stock, Series C, $0.001 par value,
authorized 3,450,000 shares,
outstanding--55,000, 3,450,000 and
3,450,000 shares, respectively; no
shares outstanding on a pro forma
basis at March 31, 1999 ($3 per
share liquidation preference)...... 165 10,350 10,350 --
Stockholders' equity (deficit):
Common stock, $0.001 par value,
authorized--13,083,333 shares,
outstanding 2,431,350, 2,484,971
and 2,945,620 shares, respectively;
9,914,270 shares outstanding on a
pro forma basis at March 31, 1999.. 2 2 3 10
Additional paid-in capital.......... 1 26 1,651 14,823
Deferred stock compensation......... -- -- (1,153) (1,153)
Accumulated deficit................. (3,523) (8,544) (8,766) (8,766)
------- ------- ------- -------
Total stockholders' equity
(deficit)........................ (3,520) (8,516) (8,265) $ 4,914
------- ------- ------- =======
Total liabilities and
stockholders' equity (deficit)... $ 4,595 $10,958 $15,056
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
MISSION CRITICAL SOFTWARE, INC.
STATEMENTS OF OPERATIONS
(in thousands, except per share data)
<TABLE>
<CAPTION>
Period From Year Nine Months Ended
July 19, 1996 Ended March 31
(date of inception) June 30, -------------------
to June 30, 1997 1998 1998 1999
------------------- -------- ----------- -------
(unaudited)
<S> <C> <C> <C> <C>
Revenue:
License.................... $ 4,087 $12,767 $ 8,159 $14,441
Maintenance................ 180 1,609 1,075 2,460
------- ------- ------- -------
Total revenue................ 4,267 14,376 9,234 16,901
Cost of revenue:
Cost of license............ 206 392 294 291
Cost of maintenance........ 142 933 680 681
------- ------- ------- -------
Total cost of revenue........ 348 1,325 974 972
------- ------- ------- -------
Gross margin................. 3,919 13,051 8,260 15,929
------- ------- ------- -------
Operating expenses:
Sales and marketing........ 3,554 9,590 6,591 8,952
Research and development... 1,317 3,612 2,470 4,274
General and
administrative............ 973 2,228 1,595 1,861
Amortization of deferred
stock compensation........ -- -- -- 236
Abandoned lease costs...... -- -- -- 1,034
Acquired in-process
research and development.. 1,575 -- -- --
------- ------- ------- -------
Total operating expenses..... 7,419 15,430 10,656 16,357
------- ------- ------- -------
Operating loss............... (3,500) (2,379) (2,396) (428)
------- ------- ------- -------
Interest income.............. 35 149 98 261
Interest expense............. (6) (59) (33) (42)
Other expense, net........... (27) (27) (3) (13)
------- ------- ------- -------
Loss before income taxes..... (3,498) (2,316) (2,334) (222)
Income tax benefit........... 175 -- -- --
------- ------- ------- -------
Net loss..................... (3,323) (2,316) (2,334) (222)
Excess of consideration paid
to redeem preferred stock
and dividends in arrears.... (181) (3,714) (3,446) (791)
------- ------- ------- -------
Net loss applicable to common
stockholders (Note 8)....... $(3,504) $(6,030) $(5,780) $(1,013)
======= ======= ======= =======
Basic and diluted net loss
per share................... $ (1.44) $ (2.47) $ (2.37) $ (0.40)
======= ======= ======= =======
Pro forma basic and diluted
net loss per share
(unaudited)................. $ (0.53) $ (0.02)
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
MISSION CRITICAL SOFTWARE, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(in thousands, except share data)
<TABLE>
<CAPTION>
Common Stock Additional Deferred
---------------- Paid-in Stock Accumulated
Number Amount Capital Compensation Deficit Total
--------- ------ ---------- ------------ ----------- -------
<S> <C> <C> <C> <C> <C> <C>
Common stock issued
for cash............. 2,431,350 $ 2 $ 1 $ -- $ -- $ 3
Effect of deferred tax
liability recorded
for acquired technol-
ogy.................. -- -- -- -- (175) (175)
Cost of issuance of
Series B Preferred
Stock................ -- -- -- -- (25) (25)
Net loss.............. -- -- -- -- (3,323) (3,323)
--------- --- ------- ------- ------- -------
Balance at June 30,
1997................... 2,431,350 2 1 -- (3,523) (3,520)
--------- --- ------- ------- ------- -------
Common stock issued
upon exercise of
stock options........ 53,621 -- 25 -- -- 25
Redemption of Series A
Preferred Stock in
excess of issue
price................ -- -- -- -- (2,655) (2,655)
Cost of issuance of
Series C Preferred
Stock................ -- -- -- -- (50) (50)
Net loss.............. -- -- -- -- (2,316) (2,316)
--------- --- ------- ------- ------- -------
Balance at June 30,
1998................... 2,484,971 2 26 -- (8,544) (8,516)
--------- --- ------- ------- ------- -------
Common stock issued
upon exercise of
stock options........ 460,649 1 236 -- -- 237
Deferred stock compen-
sation relating to
stock options........ -- -- 1,389 (1,389) -- --
Amortization of de-
ferred compensation.. -- -- -- 236 -- 236
Net loss.............. -- -- -- -- (222) (222)
--------- --- ------- ------- ------- -------
Balance at March 31,
1999................... 2,945,620 $ 3 $ 1,651 $(1,153) $(8,766) $(8,265)
========= === ======= ======= ======= =======
Pro forma stockholders'
equity at March 31,
1999 (unaudited)....... 9,914,270 $10 $14,823 $(1,153) $(8,766) $ 4,914
========= === ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
MISSION CRITICAL SOFTWARE, INC.
STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Period From Nine Months Ended
July 19, 1996 Year Ended March 31,
(date of inception) June 30, ------------------
to June 30, 1997 1998 1998 1999
------------------- ---------- ----------- ------
(unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating
activities:
Net loss................... $(3,323) $(2,316) $(2,334) $ (222)
Adjustments to reconcile
net loss to net cash
provided by (used in) op-
erating activities:
Depreciation and amortiza-
tion..................... 332 860 627 651
Deferred tax benefit...... (175) -- -- --
Noncash compensation ex-
pense.................... -- -- -- 236
Acquired in-process re-
search and development... 1,400 -- -- --
(Gain) loss on disposal of
assets................... 3 18 -- (5)
Changes in operating as-
sets and liabilities:
Accounts receivable...... (1,613) (2,298) (1,715) 1,067
Prepaid and other current
assets.................. (37) (128) (127) (102)
Other assets............. (55) (46) (45) 75
Accounts payable and ac-
crued liabilities....... 786 1,514 270 2,894
Deferred revenue......... 1,008 1,957 796 1,427
------- ------- ------- ------
Net cash provided by (used
in) operating activities... (1,674) (439) (2,528) 6,021
Cash flows from investing
activities:
Proceeds from sale of prop-
erty and equipment........ 5 18 -- 50
Purchase of property and
equipment................. (821) (860) (732) (950)
Payment from (loan to)
stockholder under promis-
sory note................. (350) 350 350 --
------- ------- ------- ------
Net cash used in investing
activities................. (1,166) (492) (382) (900)
Cash flows from financing
activities:
Net payments (borrowings)
on revolving line
of credit................. 500 275 1,300 (275)
Borrowings on long-term
debt...................... -- 642 681 --
Payments on long-term
debt...................... (4) (3,020) (2,972) (200)
Redemption of Series A pre-
ferred stock.............. -- (2,850) (2,850) --
Issuance of common stock,
net of cost............... 3 25 25 237
Issuance of Series B pre-
ferred stock, net of
cost...................... 2,475 -- -- --
Issuance of Series C pre-
ferred stock, net of
cost...................... -- 10,135 10,135 --
Subscription of Series C
preferred stock........... 165 -- -- --
------- ------- ------- ------
Net cash provided by (used
in) financing activities:.. 3,139 5,207 6,319 (238)
------- ------- ------- ------
Net increase in cash and
cash equivalents........... 299 4,276 3,409 4,883
------- ------- ------- ------
Beginning cash and cash
equivalents................ -- 299 299 4,575
------- ------- ------- ------
Ending cash and cash equiva-
lents...................... $ 299 $ 4,575 $ 3,708 $9,458
======= ======= ======= ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
MISSION CRITICAL SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS
March 31, 1999
1. Description of Business and Summary of Significant Accounting Policies
Mission Critical Software, Inc. (the "Company") is a leading provider of
software products that enable scalable system administration and operations
management for Corporate and Internet-based Windows NT networks. The Company
was incorporated on July 19, 1996, as a Delaware corporation, and commenced
operations on September 4, 1996.
Revenue Recognition
The Company derives revenue from the sale of product licenses and
maintenance.
The Company recognizes product license revenue when persuasive evidence of an
agreement exists, the product and permanent license key have been delivered,
the Company has no remaining significant obligations, customer acceptance
periods, if any, have been completed, the license fee is fixed or determinable
and collection of the fee is probable.
The Company recognizes revenue from maintenance agreements ratably over the
term of the agreement, typically one year. Customers purchasing maintenance
agreements receive unspecified product upgrades and electronic, Internet-based
technical support and telephone support. Such agreements are purchased
separately by customers, at their discretion.
The Company adopted Statement of Position ("SOP") 97-2, Software Revenue
Recognition, and SOP 98-4, Deferral of the Effective Date of a Provision of SOP
97-2, Software Revenue Recognition, as of July 1, 1997. Prior to July 1, 1997,
the Company recognized revenue in accordance with SOP 91-1, Software Revenue
Recognition. The adoption of SOP 97-2 and SOP 98-4 did not have a material
impact on the Company's financial results.
In December 1998, the American Institute of Certified Public Accountants
("AICPA") issued SOP 98-9, Modification of SOP 97-2, Software Revenue
Recognition, With Respect to Certain Transactions. SOP 98-9 amends SOP 98-4 to
extend the deferral of the application of certain passages of SOP 97-2 provided
by SOP 98-4 through fiscal years beginning on or before March 15, 1999. All
other provisions of SOP 98-9 are effective for transactions entered into in
fiscal years beginning after March 15, 1999. The Company believes that the
adoption of SOP 98-9 will not have a material effect on the Company's results
of operations or financial condition.
Cash and Cash Equivalents
The Company considers instruments with an original maturity date of three
months or less when purchased to be cash equivalents.
Property and Equipment
Property and equipment are recorded at cost. Depreciation is provided on the
straight-line method over the estimated useful lives of the assets. Leasehold
improvements are amortized on a straight-line method over the shorter of the
estimated useful life or the lease term. The cost of ordinary maintenance and
repairs is charged to expense as incurred.
Research and Development
Research and development expenditures are expensed as incurred. Statement of
Financial Accounting Standards ("SFAS") 86, Accounting for the Costs of
Computer Software to be Sold, Leased or Otherwise Marketed, requires
capitalization of certain software development costs subsequent to the
establishment of
F-7
<PAGE>
MISSION CRITICAL SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
technological feasibility. Based on the Company's product development process,
technological feasibility is established upon completion of a working model.
Costs incurred by the Company between completion of the working model and the
point at which the product is ready for general release have been
insignificant. Through March 31, 1999, all software development costs have been
expensed as incurred.
Acquired Technology
Acquired Technology is recorded at cost and amortized on the straight-line
method over the products' estimated useful lives (three to five years).
Stock-Based Compensation
SFAS 123, Accounting for Stock-Based Compensation, prescribes accounting and
reporting standards for all stock-based compensation plans, including employee
stock options. As allowed by SFAS 123, the Company has elected to continue to
account for its employee stock-based compensation in accordance with Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB
25).
Pro-Forma Stockholder's Equity (Unaudited)
If the offering contemplated by this prospectus is consummated, all of the
redeemable convertible preferred stock outstanding will automatically be
converted into common stock. Pro forma stockholders' equity (unaudited) at
March 31, 1999, as adjusted for the assumed conversion of redeemable
convertible preferred stock based on the shares of redeemable convertible
preferred stock outstanding at March 31, 1999, is disclosed on the balance
sheet.
Income Taxes
Income taxes have been provided in accordance with the liability method of
accounting for income taxes. Accordingly, deferred income taxes are recorded to
reflect the tax consequences on future years of temporary differences between
the tax basis of assets and liabilities and their financial amounts. A
valuation allowance is provided, if necessary, to reduce deferred tax assets to
their estimated net realizable value.
Comprehensive Loss
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
130, Reporting Comprehensive Income. SFAS 130 establishes standards for the
reporting and display of comprehensive income and its components. For the
periods ended June 30, 1997, June 30, 1998, and March 31, 1999, comprehensive
loss was the same as net loss.
Advertising Costs
Advertising costs are expensed as incurred. Advertising expense was $181,000,
$613,000, and $707,000 for the periods ended June 30, 1997, June 30, 1998, and
March 31, 1999, respectively.
Concentrations of Credit Risk
Financial instruments that subject the Company to credit risk consist of cash
and cash equivalents and accounts receivable. The Company's investment policy
limits its exposure to credit risk for cash and cash equivalents. The Company
licenses its software products primarily to major corporations in a number of
industries. Collateral or deposits generally are not required from customers
who demonstrate
F-8
<PAGE>
MISSION CRITICAL SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
creditworthiness. Credit risk is considered limited for accounts receivable.
The following table summarizes the changes in allowance for doubtful amounts
for accounts receivable (in thousands):
<TABLE>
<S> <C>
Balance at July 19, 1996 (inception)................................ $ --
Additions charged to costs and expenses............................. --
Write-off of uncollectible accounts................................. --
----
Balance at June 30, 1997............................................ --
Additions charged to costs and expenses............................. 150
Write-off of uncollectible accounts................................. --
----
Balance at June 30, 1998............................................ 150
Additions charged to costs and expenses............................. 290
Write-off of uncollectible accounts................................. (45)
----
Balance at March 31, 1999........................................... $395
====
</TABLE>
The Company's products are sold through a network of sales offices and
distribution partners. Approximately 15%, 18%, and 20% of the Company's
revenues in the periods ended June 30, 1997, June 30, 1998, and March 31, 1999,
respectively, were represented by customers outside of North America. During
the period ended June 30, 1997, one customer accounted for approximately 11% of
total revenue. No one customer accounted for greater than 10% of total revenue
during the periods ended June 30, 1998 and March 31, 1999.
The Company maintains cash demand deposits with major financial institutions.
Balances exceed the $100,000 level covered by federal depository insurance;
however, the Company has experienced no losses.
Net Loss Per Share
The Company follows the provisions of Statement of Financial Accounting
Standards No. 128, Earnings Per Share (SFAS 128). Basic net loss per share is
computed by dividing net loss available to common stockholders by the weighted
average number of common shares outstanding during the period. Securities that
could potentially dilute basic earnings per share in the future were not
included in the diluted computation as they were antidilutive to the Company's
net loss total 1,764,600, 3,906,000 and 4,368,000 for the period ended June 30,
1997, June 30, 1998 and March 31, 1999, respectively. Accordingly, basic and
diluted net loss per share are the same for all periods presented. Such shares,
had they been dilutive, would have been included in the computation of diluted
net loss per share using the treasury stock method.
The Company's historical capital structure is not indicative of its
prospective structure due to the automatic conversion of all shares of
redeemable convertible preferred stock into common stock concurrent with the
closing of the Company's anticipated initial public offering. Accordingly, a
pro forma calculation for the periods ended June 30, 1998 and March 31, 1999
assuming the conversion of all outstanding shares of redeemable convertible
preferred stock into common stock upon the Company's initial public offering
using the if-converted method from their respective dates of issuance is
presented.
F-9
<PAGE>
MISSION CRITICAL SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
The following table presents the calculation of basic and diluted and pro
forma basic and diluted net loss per share (in thousands, except per share
data):
<TABLE>
<CAPTION>
Period From
July 19, 1996 Year Nine Months Ended
(date of Ended March 31
inception) to June 30, -------------------
June 30, 1997 1998 1998 1999
------------- -------- ----------- -------
(unaudited)
<S> <C> <C> <C> <C>
Net loss........................... $(3,323) $(2,316) $(2,334) $ (222)
Excess of consideration paid to
redeem preferred stock over
carrying amount................... -- (2,655) (2,655) --
Increase in cumulative dividends in
arrears on redeemable convertible
preferred stock................... (181) (1,059) (791) (791)
------- ------- ------- -------
Net loss applicable to common
stockholders...................... $(3,504) $(6,030) $(5,780) $(1,013)
======= ======= ======= =======
Pro forma net loss applicable to
common stockholders............... $(4,971) $ (222)
======= =======
Shares used in computing basic and
diluted:
Net loss per share............... 2,431 2,440 2,435 2,563
======= ======= ======= =======
Pro forma net loss per share
(unaudited)..................... 9,409 9,532
======= =======
Computation of basic and and
diluted:
Net loss per share............... $ (1.44) $ (2.47) $ (2.37) $ (0.40)
======= ======= ======= =======
Pro forma net loss per share
(unaudited)..................... $ (0.53) $ (0.02)
======= =======
</TABLE>
Financial Instruments
The Company records all financial instruments at cost. The fair values of
accounts receivable, accounts payable, accrued liabilities and indebtedness
approximate cost due to their short-term nature or adjustable interest rates.
Segments
Effective July 1, 1998, the Company adopted SFAS 131, Disclosures about
Segments of an Enterprise and Related Information. The adoption of SFAS 131 did
not have a significant effect on the disclosure of segment information as the
Company continues to consider its business activities as a single segment.
Management Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
Interim Financial Information
The financial information for the nine months ended March 31, 1998 are
unaudited but include all adjustments, consisting only of normal recurring
adjustments, which the Company considers necessary for a fair presentation of
the financial position, operating results and cash flows for the period.
Results for the nine months ended March 31, 1999 are not necessarily indicative
of the results for the entire year.
Recent Pronouncements
In March 1998, the AICPA issued SOP 98-1, Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use. SOP 98-1 requires
entities to capitalize certain costs related to internal-use
F-10
<PAGE>
MISSION CRITICAL SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
software once certain criteria have been met. The Company expects that the
adoption of SOP 98-1 will not have a material impact on its financial position
or results of operations. The Company will adopt SOP 98-1 for its fiscal year
beginning July 1, 2000.
In April 1998, the AICPA issued SOP 98-5, Reporting on the Costs of Start-up
Activities. SOP 98-5 requires that all start-up costs related to new operations
must be expensed as incurred. In addition, all start-up costs that were
capitalized in the past must be written off when SOP 98-5 is adopted. The
Company expects that the adoption of SOP 98-5 will not have a material impact
on its financial position or results of operations. The Company will be
required to implement SOP 98-5 for its fiscal year beginning July 1, 2000.
In June 1998, the FASB issued SFAS 133, Accounting for Derivative Instruments
and Hedging Activities. SFAS 133 establishes methods for derivative financial
instruments and hedging activities related to those instruments, as well as
other hedging activities. Because the Company does not currently hold any
derivative instruments and does not engage in hedging activities, it expects
that the adoption of SFAS 133 will not have a material impact on its financial
position or results of operations. The Company will adopt SFAS 133 for its
fiscal year beginning July 1, 2001.
2. Note Receivable From Shareholder
At June 30, 1997, the Company held a note receivable of $350,000 from a
shareholder which earned interest at 6% per year. The promissory note and all
remaining accrued interest were collected on July 28, 1997. The Company
recognized interest income of approximately $15,000 and $3,000 for the periods
ended June 30, 1997 and June 30, 1998, respectively.
3. Technology Acquisitions
On September 4, 1996, the Company acquired various assets and liabilities
from a related party through the issuance of 1,697,082 shares of Series A
Preferred Stock. The most significant asset acquired was a developed software
product which had reached technological feasibility. Accordingly, the assets
acquired and liabilities assumed were recorded at their fair values as follows
(in thousands):
<TABLE>
<S> <C>
Property and equipment.............................................. $113
Acquired technology................................................. 515
Other assets........................................................ 37
----
Total assets acquired............................................... 665
Notes payable....................................................... 175
Other liabilities................................................... 141
----
Total liabilities assumed........................................... 316
----
Net assets acquired................................................. $349
====
</TABLE>
On June 27, 1997, the Company purchased in-process research and development
for $2,625,000, consisting of cash of $100,000, issuance of a note payable in
the principal amount of $2,450,000, other direct costs of $75,000 and a warrant
to purchase 333,333 shares of the Company's common stock at $1.50 per share.
The warrant may be exercised at any time up until the termination date of June
26, 2007. No value was assigned to the warrant in determining the total
purchase price since the estimated fair value of the warrant at the purchase
date was insignificant (as determined using the Black-Scholes Model). The
Company allocated $1,050,000 to acquired technology which was capitalized and
the remaining $1,575,000 was allocated to acquired in-process research and
development. See Note 10 for further discussion of Acquired In-Process Research
and Development.
F-11
<PAGE>
MISSION CRITICAL SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
4. Property and Equipment
Property and equipment consisted of the following (in thousands):
<TABLE>
<CAPTION>
Estimated
Useful June 30
Life in ------------ March 31
Years 1997 1998 1999
--------- ---- ------ --------
<S> <C> <C> <C> <C>
Computer software and equipment............... 3 $769 $1,427 $2,229
Furniture and fixtures........................ 7 40 84 150
Leasehold improvements........................ 5 58 152 165
Office and telephone equipment................ 5 102 118 129
---- ------ ------
969 1,781 2,673
Accumulated depreciation and amortization..... (126) (582) (929)
---- ------ ------
Property and equipment, net................... $843 $1,199 $1,744
==== ====== ======
</TABLE>
See also Note 12.
5. Accrued Liabilities
Accrued liabilities are summarized as follows (in thousands):
<TABLE>
<CAPTION>
June 30
----------- March 31
1997 1998 1999
---- ------ --------
<S> <C> <C> <C>
Accrued sales and use and other taxes...................... $ 32 $ 424 $ 548
Accrued compensation and related cost...................... 174 1,080 1,333
Accrued abandoned lease cost............................... -- -- 1,034
Other accrued expenses..................................... 216 650 1,770
---- ------ ------
$422 $2,154 $4,685
==== ====== ======
</TABLE>
6. Indebtedness
Indebtedness consists of the following (in thousands):
<TABLE>
<CAPTION>
June 30
------------ March 31
1997 1998 1999
----- ----- --------
<S> <C> <C> <C>
Revolving line of credit facility with a bank ($750,
$3,000, and $3,000, respectively) which matures in
January 2000, interest payable monthly at prime (7.75%
at March 31, 1999) collateralized by all assets of the
Company............................................... $ 500 $ 275 $ --
Note payable to a bank, monthly principal installment
of $21, interest payable monthly at prime (7.75% at
March 31, 1999), maturing in September 2000, collater-
alized by all assets of the Company................... -- 579 386
Note payable to a finance company, monthly principal
and interest of $1, interest rate of 13%, maturing in
November 2001, collateralized by certain
equipment............................................. 40 34 27
----- ----- -----
540 888 413
Less current maturities................................ (507) (536) (265)
----- ----- -----
$ 33 $ 352 $ 148
===== ===== =====
</TABLE>
F-12
<PAGE>
MISSION CRITICAL SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
The revolving line of credit facility subjects the Company to certain
restrictive and financial covenants including limitations of dividends and
maintenance of certain financial ratios. The Company was in compliance with all
the restrictive and financial covenants at March 31, 1999.
Future principal payments of indebtedness for the fiscal years ending June 30
are as follows (in thousands):
<TABLE>
<S> <C>
1999................................................................. $ 66
2000................................................................. 266
2001................................................................. 75
2002................................................................. 6
----
$413
====
</TABLE>
Total interest paid for the periods ended June 30, 1997, June 30, 1998, and
March 31, 1999 was $6,000, $59,000 and $42,000, respectively.
As described in Note 3, the Company issued a note payable in the principal
amount of $2,450,000 to finance the purchase of in-process research and
development. The note bore interest at 10.5% per year and matured on December
31, 1997. The Company retired the note on July 11, 1997.
7. Income Taxes
At March 31, 1999, the Company had net operating loss carryforwards of
approximately $3.2 million available to offset future taxable income and which
begin expiring in 2012, if not utilized. Special limitations exist under the
tax law related to cumulative changes in ownership that may restrict the
utilization of the regular tax net operating loss carryforwards.
The components of deferred taxes were as follows (in thousands):
<TABLE>
<CAPTION>
June 30
---------------- March 31
1997 1998 1999
------- ------- --------
<S> <C> <C> <C>
Acquired in-process technology................ $ 583 $ 389 $ 243
Net operating loss carryforward............... 626 1,263 1,166
Accrued liabilities........................... 11 324 457
Allowance for doubtful accounts............... -- 55 146
------- ------- -------
Gross deferred tax assets..................... 1,220 2,031 2,012
Purchased software costs...................... (115) (99) (91)
Property and equipment........................ (12) (11) (27)
------- ------- -------
Gross deferred tax liabilities................ (127) (110) (118)
Valuation allowance........................... (1,093) (1,921) (1,894)
------- ------- -------
Net deferred tax asset........................ $ -- $ -- $ --
======= ======= =======
</TABLE>
A valuation allowance has been recorded to completely offset the carrying
value of the deferred tax asset due to the uncertainty surrounding its
realization, including a lack of earnings history and the variability of
operating results. The valuation allowance was increased by $1,093,000 and
$828,000 during the periods ended June 30, 1997 and June 30, 1998,
respectively, and decreased by 27,000 for the period ended March 31, 1999.
F-13
<PAGE>
MISSION CRITICAL SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
The difference between the Company's effective tax rate and the statutory
rate of 34% was as follows:
<TABLE>
<CAPTION>
June 30
----------- March 31
1997 1998 1999
---- ---- --------
<S> <C> <C> <C>
Statutory tax rate............................... (34)% (34)% (34)%
State taxes, net of federal benefit.............. (3)% (3)% (3)%
Nondeductible expenses........................... 1 % 1 % 9 %
Amortization of stock compensation charge on
ISO's........................................... -- -- 36%
Valuation allowance.............................. 31 % 36 % (8)%
--- --- ---
(5)% -- % -- %
=== === ===
</TABLE>
In connection with the acquisition of various assets and liabilities from a
related party on September 4, 1996 (see Note 3), the Company recorded a
deferred tax liability of approximately $175,000 for the tax effect of the
difference in the recorded basis for book and tax purposes. Consequently,
during the period ended June 30, 1997, the Company was able to recognize a
$175,000 tax benefit for deferred tax assets generated subsequent to the
acquisition to the extent of such deferred tax liability.
8. Redeemable Convertible Preferred Stock
On September 4, 1996, the Company's board of directors authorized the
issuance of 1,818,650 shares of Series A Redeemable Convertible Preferred Stock
(Series A Preferred Stock), $.001 par value, of which 121,568 shares were
issued to a member of the board of directors as satisfaction of a note payable
to the board member in the principal amount of $25,000, and 1,697,082 shares
were issued to a related party in exchange for assets and liabilities as
described in Note 3.
On July 2, 1997, the Company entered into an agreement to redeem 950,000
shares of Series A Preferred Stock at $3 per share in cash for a total
redemption price of $2,850,000. The excess of the redemption price over the
carrying amount of the redeemed shares of preferred stock, in the amount of
$2,655,000, has been subtracted from net loss to arrive at net loss applicable
to common stockholders. The redeemed shares were subsequently canceled.
On September 4, 1996, the Company's board of directors authorized the
issuance of 2,650,000 shares of Series B Redeemable Convertible Preferred Stock
(Series B Preferred Stock), $.001 par value, of which 150,000 shares were
issued as satisfaction of a note payable in the principal amount of $150,000,
and 2,500,000 shares were issued for cash of $2,475,000, net of issuance costs
of $25,000.
On July 2, 1997, the Company sold 3,450,000 shares of Series C Redeemable
Convertible Preferred Stock (Series C Preferred Stock) at $3 per share,
resulting in cash proceeds of $10,300,000, after issuance costs of
approximately $50,000. The Company received $165,000 prior to June 30, 1997, as
a cash subscription to 55,000 shares of the stock issued.
Series A, B and C Preferred Stock (the "Preferred Stock") are convertible
into shares of common stock at the option of the holder or in the event the
Company completes an initial public offering of common stock. The conversion
rate is initially one to one and is subject to adjustment if the Company issues
additional shares of common stock.
The holders of the Preferred Stock are entitled to vote upon any matter
submitted to the common stockholders for a vote as though the common stock and
the Preferred Stock constituted a single class of
F-14
<PAGE>
MISSION CRITICAL SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
stock. The holders of Preferred Stock shall have the number of votes per share
which equals the number of shares of common stock into which each such share of
preferred stock held by such holder is then convertible.
The holders of the Preferred Stock are entitled to receive, when and as
declared by the board of directors, cumulative dividends at the annual rate of
$.01645, $.08 and $.24 per share for Series A, B and C, respectively. Such
dividends shall accrue on a quarterly basis commencing with the first calendar
quarter ending after the issuance of the preferred stock. No dividends were
declared or paid on the Company's preferred stock during the periods ended June
30, 1997, June 30, 1998, or March 31, 1999, and dividends in arrears totaled
$181,000, $1,240,000 and $2,031,000 as of June 30, 1997, June 30, 1998 and
March 31, 1999, respectively.
On July 2, 2002, the Company is required to redeem all outstanding shares of
Series A, B and C Preferred Stock at a per share price of $.205647, $1 and $3
per share, respectively, plus cumulative dividends in arrears if not previously
converted into common stock.
9. Stock Option Plan
Effective March 20, 1997, the board of directors adopted the Company's 1997
Stock Option Plan. The 1997 Stock Option Plan provides for the granting of
options to purchase the Company's common stock to officers, employees or
consultants of the Company upon the terms determined by a committee of the
board of directors (the "Committee"). The number of shares of common stock
authorized under the 1997 Stock Option Plan at March 31, 1999 are 4,795,000.
Options have a ten year term and generally vest over four years. Additionally,
in January 1998, in connection with an employment agreement, the Company
granted a warrant to purchase 100,000 shares of the Company's Common Stock at
an exercise price of $1 per share. No amount was allocated to the value of the
warrant as the amount was not significant.
In connection with the grant of certain stock options to employees through
March 31, 1999, the Company recorded deferred stock compensation of $1,389,000
for the aggregate differences between the exercise prices of options at their
date of grant and the deemed fair value for accounting purposes of the common
stock subject to such options. The amortization of deferred compensation cost
of $236,000 is for the nine months ended March 31, 1999 relates to options
awarded to employees in all operating expense categories. This amount has not
been separately allocated to these categories.
F-15
<PAGE>
MISSION CRITICAL SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
The following table summarizes activity under the stock option plan for the
periods ended March 31, 1999:
<TABLE>
<CAPTION>
Weighted
Average Range of
Exercise Exercise
Options Price Prices
--------- -------- ------------
<S> <C> <C> <C>
Options granted............................. 1,495,000 $0.50 $ 0.50
Options forfeited........................... (64,000) 0.50 0.50
Options exercised........................... -- -- --
--------- ----- ------------
Options outstanding, June 30, 1997............ 1,431,000 0.50 0.50
Options granted............................. 2,361,934 0.50 0.50
Options forfeited........................... (266,502) 0.50 0.50
Options exercised........................... (53,621) 0.50 0.50
--------- ----- ------------
Options outstanding, June 30, 1998............ 3,472,811 0.50 0.50
Options granted............................. 1,148,010 5.60 2.50-12.50
Options forfeited........................... (235,090) 0.54 0.50-2.50
Options exercised........................... (450,647) 0.50 0.50
--------- ----- ------------
Options outstanding, March 31, 1999........... 3,935,084 1.99 $0.50-$12.50
========= ===== ============
Exercisable at:
June 30, 1997............................... -- $ --
========= =====
June 30, 1998............................... 338,620 $0.50
========= =====
March 31, 1999.............................. 778,508 $0.50
========= =====
</TABLE>
The following tables summarize information concerning outstanding options as
of March 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- ----------------------------------------------------- ------------------------
Range of Weighted-Average
Exercise Remaining Weighted-Average Weighted-Average
Prices Number Contractual Life Exercise Price Number Exercise Price
- -------- --------- ---------------- ---------------- ------- ----------------
<S> <C> <C> <C> <C> <C>
$0.50 2,791,574 8.6 years $ 0.50 778,508 $0.50
$2.50--
$3.50 798,510 9.5 years $ 2.64 -- --
$12.50 345,000 9.9 years $12.50 -- --
</TABLE>
<TABLE>
<CAPTION>
For the period ended
---------------------------
June 30, June 30, March 31,
1997 1998 1999
-------- -------- ---------
<S> <C> <C> <C>
Weighted-average deemed fair value of stock op-
tions granted during the year:
Exercise price equal to fair value of stock on
date of grant.................................. $-- $0.18 $3.68
Exercise price less than fair value of stock on
date of grant.................................. -- -- 2.42
</TABLE>
F-16
<PAGE>
MISSION CRITICAL SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
The fair value of stock based compensation was calculated in accordance with
SFAS 123, Accounting for Stock-Based Compensation, utilizing the minimum value
option pricing model with the following assumptions:
<TABLE>
<CAPTION>
For the period
ended
---------------
June June March
30, 30, 31,
1997 1998 1999
---- ---- -----
<S> <C> <C> <C>
Expected life (in years).................................. 8 8 8
Risk free interest rate 5.0% 5.8% 5.5%
Volatility................................................ 0% 0% 0%
Dividend yield............................................ 0% 0% 0%
</TABLE>
The Company's pro-forma stock based compensation is as follows (in
thousands):
<TABLE>
<CAPTION>
For the period ended
-------------------------
June June March
30, 30, 31,
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Pro-forma stock based compensation expense... $ -- $ 60 $ 718
Pro-forma net loss applicable to common
stockholders................................ $(3,504) $(6,090) $(1,731)
Pro-forma basic and diluted net loss per
share....................................... $ (1.44) $ (2.50) $ (0.68)
</TABLE>
Because options vest over several years and additional option grants are
expected, the above pro-forma effects of FAS 123 are not likely to be
representative of the effects of reported net income (loss) for future periods.
10. Acquired In-Process Research and Development
In June 1997, the Company acquired from Serverware, Ltd. certain in-process
research and development for $2.7 million consisting of cash of $100,000, a
$2.5 million note payable, a warrant to purchase 333,333 shares of common stock
at an exercise price of $1.50 per share and $75,000 of direct costs incurred.
No value was allocated to the warrant as such amount was not significant.
The Company intended to utilize the acquired in-process research and
development to develop a shrinkwrap event management product for Windows NT
that it did not possess at the time. In order to capitalize on the event
management market, the intention of the Company was to complete the in-process
research and development as quickly as possible and sell and market that
product (under the name SeNTry). From the date of acquisition to June 30, 1998,
the Company expended approximately 80 person months, or approximately $800,000,
to complete and enhance the in-process research and development. In June 1998,
the Company completed SeNTry, which represented the first completed and
enhanced version of the acquired technology. The Company then began internal
development of an entirely new event management product (OnePoint Event
Manager) the design of which was to be more consistent with its long-term
product strategy.
A significant amount of uncertainty existed surrounding the successful
development and completion of the research and development acquired, which was
estimated to be 70% complete at the date of the acquisition. This was the
Company's first attempt to develop event management technology. The Company was
uncertain of its ability to complete the development of a new product within a
timeframe acceptable to the market and ahead of competitors. The in-process
research and development effort, at the time of purchase, had not reached
technological feasibility as it lacked many key elements including:
standardized implementation capabilities, a scalable and extensible
architecture, enhanced user interfaces, broad functionality and extensive
reporting capabilities.
F-17
<PAGE>
MISSION CRITICAL SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
The Company assigned a value to the in-process research and development of
$1.5 million and to the core technology of $1.1 million based on a discounted
cash flow model. The Company based the cash flow projections for revenue on the
projected incremental increase in revenue that it expected to receive from the
completed acquired in-process research and development. Revenue derived from
the completed in-process research and development was expected to commence
after completion of the SeNTry product. The Company expected revenue from the
in-process research and development to continue until the release of OnePoint
Event Manager, which was expected to be released in fiscal 2000. The Company
deducted estimated operating expenses and income taxes from estimated revenue
to arrive at estimated after-tax cash flows. Projected operating expenses
included: cost of revenue and general and administrative, customer support and
sales and marketing expenses. The Company estimated operating expenses as a
percentage of revenue and based such estimates primarily on projections it
prepared.
The cash flow projections attributable to the core technology included 50% of
the net income before tax expense anticipated to be generated from the
completed in-process technology and 15% from the net income before tax expense
anticipated to be generated from OnePoint Event Manager, an entirely new and
internally developed product. Revenue derived from OnePoint Event Manager was
estimated through 2004. The Company deducted estimated operating expenses and
income taxes from estimated revenue to arrive at estimated after-tax cash
flows. Projected operating expenses included: cost of revenue and general and
administrative, customer support and sales and marketing expenses. The Company
estimated operating expenses as a percentage of revenue and based such
estimates primarily on projections it prepared.
The rate used to discount the net cash flows to present value was based on
the weighted average cost of capital ("WACC"). The Company used a discount rate
of 35% for valuing the in-process research and development and 25% for the core
technology. These discount rates are higher than the implied WACC due to the
inherent uncertainties surrounding the successful development of the acquired
in-process research and development, the useful life of such in-process
research and development, the profitability levels of such in-process research
and development, and the uncertainty of technological advances that were
unknown at the time.
11. Employee Benefit Plan
The Company sponsors a defined contribution 401(k) plan to provide
substantially all U.S. employees an opportunity to accumulate personal funds
for their retirement. Under the terms of the plan, employees may make pre-tax
contributions to the plan of up to 20% of their annual salary, subject to
annual limitations imposed by the Internal Revenue Code. The Company, in the
sole discretion of the board of directors, may make contributions to the plan.
The Company made no contributions to the plan during the periods ended June 30,
1997, June 30, 1998 and March 31, 1999.
12. Commitments and Contingencies
The Company has entered into certain noncancelable operating leases for
office space with terms through 2003. Rent expense totaled $104,000, $434,000
and $418,000 for the periods ended June 30, 1997, June 30, 1998, and March 31,
1999, respectively. Remaining future minimum lease commitments related to these
lease agreements for the fiscal years ended June 30 are as follows (in
thousands):
<TABLE>
<S> <C>
1999.............................................................. $ 165
2000.............................................................. 410
2001.............................................................. 408
2002.............................................................. 423
2003.............................................................. 258
------
$1,664
======
</TABLE>
F-18
<PAGE>
MISSION CRITICAL SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
In February 1999, the board of directors approved the relocation of the
Company's corporate offices. As a result, the Company gave notification of its
intent to abandon the related office space lease effective August 1, 1999 in
accordance with a cancellation option in the lease agreement. During the period
ended March 31, 1999, the Company recorded a nonrecurring charge of $1,034,000
for lease abandonment, which represents the required payment for cancellation
of the lease.
The Company is subject to litigation claims and assessments arising in the
ordinary course of business. In the opinion of management, the ultimate outcome
of these claims is not expected to have a material adverse effect on the
financial statements.
13. Segments of Business and Geographic Area Information
The Company considers its business activities to constitute a single segment.
A summary of the Company's operations by geographic area follows (in
thousands):
<TABLE>
<CAPTION>
Periods ended Nine months ended
June 30 March 31
-------------- -------------------
1997 1998 1998 1999
------ ------- ----------- -------
(unaudited)
<S> <C> <C> <C> <C>
Revenue:
Domestic customers........................ $3,609 $11,857 $7,672 $13,599
Customers outside North America........... 658 2,519 1,562 3,302
------ ------- ------ -------
$4,267 $14,376 $9,234 $16,901
====== ======= ====== =======
</TABLE>
14. Subsequent Events
On May 21, 1999, the board of directors authorized management of the Company
to file a registration statement with the Securities and Exchange Commission
permitting the Company to sell shares of its Common Stock and shares held by
existing stockholders to the public (the "Offering"). If the Offering is
consummated under the terms presently anticipated, all of the currently
outstanding redeemable convertible preferred stock will convert to 6,968,650
shares of Common Stock. Pro forma stockholders' equity at March 31, 1999
(unaudited) as adjusted for the conversion of the redeemable convertible
preferred stock is set forth in the accompanying Balance Sheets and Statements
of Stockholders' Equity (Deficit).
1999 Employee Stock Purchase Plan
On May 21, 1999, the board of directors approved the adoption of the
Company's 1999 Employee Stock Purchase Plan (the "1999 Purchase Plan"), subject
to stockholder approval and the closing of the Offering. A total of 600,000
shares of common stock has been reserved for issuance under the 1999 Purchase
Plan, plus, commencing on July 1, 2000, annual increases equal to the lesser of
(i) 500,000 shares, (ii) 4% of the outstanding common shares on the last day of
the prior fiscal year or (iii) such amount as determined by the board of
directors. The 1999 Purchase Plan permits eligible employees to acquire shares
of the Company's common stock through periodic payroll deductions, which may
not exceed the lesser of 15% of an employee's compensation or $25,000, where
compensation is defined on Form W-2. Each offering period will have a maximum
duration of 24 months, comprising four purchase periods of six months each. The
price at which the common stock may be purchased is 85% of the lesser of the
fair market value of the Company's common stock on the first day of the
applicable offering period or on the last day of the respective purchase
period. The initial offering period will commence on the effectiveness of the
initial public offering and will end on July 31, 2001.
F-19
<PAGE>
MISSION CRITICAL SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
1997 Stock Option Plan
On May 21, 1999, the board of directors approved an amendment to the
Company's 1997 Stock Option Plan, subject to stockholder approval. A total of
4,000,000 shares of common stock have been added to the 1997 Stock Option Plan
for issuance to eligible participants under the 1997 Stock Option Plan, plus,
commencing on July 1, 2000, annual increases equal to the lesser of (i) 750,000
shares, (ii) 5% of the outstanding common shares on the last day of the prior
fiscal year or (iii) such amount as determined by the board of directors. The
types of awards that may be made under the 1997 Stock Option Plan are incentive
and nonqualified options to purchase shares of common stock. The exercise price
for incentive stock options may not be less than 100% of the fair market value
of the Company's common stock on the date of grant (85% for nonstatutory
options). In the event of a change in control of the Company, an option or
award under the 1997 Stock Option Plan will become fully exercisable and fully
vested if the option or award is not assumed by the surviving corporation or
the surviving corporation does not substitute comparable awards for the awards
granted under the 1997 Stock Option Plan.
1999 Director Option Plan
On May 21, 1999, the board of directors approved the adoption of the
Company's 1999 Director Option Plan, subject to stockholder approval and the
closing of the Offering. A total of 250,000 shares of common stock have been
reserved for issuance to non-employee members of the board of directors, plus,
commencing on July 1, 2000, annual increases equal to the lesser of (i) 250,000
shares, (ii) 2% of the outstanding common shares on the last day of the prior
fiscal year or (iii) such amount as determined by the board of directors.
F-20
<PAGE>
[ART WORK]
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shares
[Mission Critical Software Logo]
Common Stock
------------
PROSPECTUS
------------
HAMBRECHT & QUIST
BANCBOSTON ROBERTSON STEPHENS
SOUNDVIEW TECHNOLOGY GROUP
------------
, 1999
------------
You should rely only on information contained in this prospectus. We have not
authorized anyone to provide you with information different from that contained
in this prospectus. We are offering to sell, and seeking offers to buy, shares
of common stock only in jurisdictions where offers and sales are permitted. The
information contained in this prospectus is accurate only as of the date of
this prospectus, regardless of the time of delivery of this prospectus or of
any sale of our common stock.
No action is being taken in any jurisdiction outside the United States to
permit a public offering of the common stock or possession or distribution of
this prospectus in any such jurisdiction. Persons who come into possession of
this prospectus in jurisdictions outside the United States are required to
inform themselves about and to observe any restrictions as to this offering and
the distribution of this prospectus applicable to that jurisdiction.
Until , 1999, all dealers that buy, sell or trade in our common stock,
whether or not participating in this offering, may be required to deliver a
prospectus. This requirement is in addition to the dealers' obligation to
deliver a prospectus when acting as underwriters and with respect to their
unsold allotments or subscriptions.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<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 Mission Critical Software 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........................................... $ 16,785
NASD filing fee................................................ 7,860
Nasdaq National Market listing fee............................. 100,000
Printing and engraving costs................................... 175,000
Legal fees and expenses........................................ 350,000
Accounting fees and expenses................................... 179,000
Blue Sky fees and expenses..................................... 10,000
Transfer Agent and Registrar fees.............................. 10,000
Miscellaneous expenses......................................... 26,355
--------
Total.......................................................... $875,000
========
</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. Articles Nine and Ten of
the Registrant's Restated Certificate of Incorporation provides for the
indemnification of directors to the fullest extent permissible under Delaware
law. Article 8 of the Registrant's Bylaws provides for the indemnification of
officers, directors and third parties acting on behalf of the Registrant if
such person acted in good faith and in a manner reasonably believed to be in
and not opposed to the best interest of the Registrant, and, with respect to
any criminal action or proceeding, the indemnified party had no reason to
believe his or her conduct was unlawful. The Registrant has entered into
indemnification agreements with its directors and executive officers, in
addition to indemnification provided for in the Registrant's 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
During the past three years, the Registrant has 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 the Registrant believes 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 the Registrant, to
information about the Registrant.
Since July 1996, (inception), the Registrant has issued and sold (without
payment of any selling commission to any person) the following unregistered
securities:
1. On September 4, 1996, the Registrant issued and sold:
. 2,431,350 shares of Common Stock to employees for $3,000,
. 1,818,650 shares of Series A Preferred Stock to one investor and
one director in exchange for our OnePoint Administrator Software,
and $25,000 and
. 2,650,000 shares of Series B Preferred Stock to seven investors
for an aggregate purchase price of $2,650,000.
II-1
<PAGE>
2. On July 2, 1997, the Registrant issued and sold 3,450,000 shares of
Series C Preferred Stock to twelve investors for an aggregate purchase
price of $10,350,000.
3. From March 1997 to March 31, 1999, the Registrant issued and sold
504,268 shares of Common Stock to employees and consultants at a price of
$0.50 per share, upon exercise of stock options, pursuant to the
Registrant's 1997 Stock Option Plan.
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits
<TABLE>
<C> <S>
1.1* Form of Underwriting Agreement
3.1.1 Amended and Restated Certificate of Incorporation of the Registrant
3.1.2 Form of Certificate of Incorporation of the Registrant to be filed
after the closing of the offering made under this Registration
Statement
3.2.1 Amended and Restated Bylaws of the Registrant
3.2.2 Form of Bylaws of the Registrant to be in effect after the closing of
the offering made under this Registration Statement
4.1* Specimen common stock certificate
4.2* Amended and Restated Investors Rights Agreement, dated as of July 2,
1997, by and among the Registrant and certain stockholders of the
Registrant
4.3 Amended and Restated Stockholders' Agreement, dated as of July 2,
1997, by and among the Registrant and certain stockholders of the
Registrant
5.1 Form of opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation
10.1 Form of Indemnification Agreement between the Registrant and each of
its directors and officers
10.2 Amended and Restated 1997 Stock Option Plan
10.2.1 Form of Option Agreement under the 1997 Stock Option Plan
10.3 1999 Employee Stock Purchase Plan
10.3.1 Form of Subscription Agreement under the 1999 Employee Stock Purchase
Plan
10.4 1999 Director Option Plan
10.4.1* Form of Option Agreement under 1999 Director Option Plan
10.5 Lease Agreement dated October 22, 1996 between Soaring Eagles Orchard,
Inc. and the Registrant for the premises located at 720 North Post Oak
Road, Houston, Texas 77024
10.5.1 First Amendment dated February 13, 1997 to Lease Agreement between
Soaring Eagles Orchards, Inc. and the Registrant
10.5.2 Second Amendment dated April 1, 1997 to Lease Agreement between
Soaring Eagles Orchards, Inc. and the Registrant
10.5.3 Third Amendment dated July 22, 1997 to Lease Agreement between Soaring
Eagles Orchards, Inc. and the Registrant
10.6* Quickstart Loan and Security Agreement dated February 7, 1997 between
the Registrant and Silicon Valley Bank
10.6.1 Amendment dated January 23, 1998 to Quickstart Loan Agreement between
Silicon Valley Bank and the Registrant
10.6.2 Loan and Security Agreement dated January 26, 1998 between the
Registrant and Silicon Valley Bank
10.6.3* First Amendment dated March 19, 1999 to Loan and Security Agreement
between the Registrant and Silicon Valley Bank
10.7 Employment Agreement dated September 4, 1996 between the Registrant
and Paul F. Koffend, Jr.
10.8 Employment Agreement dated September 4, 1996 between the Registrant
and Louis R. Woodhill
10.8.1 Amended and Restated Employment Agreement dated May 21, 1998 between
the Registrant and Louis R. Woodhill
10.9 Employment Agreement dated September 4, 1996 between the Registrant
and James R. Woodhill
10.10 Employment Agreement dated January 1, 1997 between the Registrant and
Thomas P. Bernhardt
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S>
10.10.1 Consulting Agreement dated September 4, 1996 between the Registrant
and Thomas P. Bernhardt
10.11 Employment Agreement dated August 6, 1997 between the Registrant and
Brian McGrath
10.11.1 Letter Agreement dated January 13, 1999 between the Registrant and
Brian McGrath
10.12 Employment Agreement dated February 23, 1998 between the Registrant
and Olivier Thierry
10.12.1 Relocation Agreement dated February 23, 1998 between the Registrant
and Olivier Thierry
10.13 Offer Letter dated April 13, 1998 between the Registrant and Michael
S. Bennett
10.14 Offer Letter dated April 13, 1998 between the Registrant and Stephen
E. Odom
10.15 Offer Letter dated May 28, 1998 between the Registrant and Leslie D.
Willard
10.15.1 Letter Agreement dated May 26, 1999 between the Registrant and Leslie
D. Willard
10.16 Employment Agreement dated December 21, 1998 between the Registrant
and Richard Pleczko
10.16.1 Offer Letter dated December 2, 1998 between Registrant and Richard
Pleczko
10.17* Sub-Lease Agreement between Learmonth & Burchett Management Systems
and the Registrant regarding the premises located at 9009 Mountain
Ridge Drive, Suite 250, Austin, Texas 78759
10.18 Offer Letter dated February 8, 1999 between the Registrant and
Richard Kangas
10.18.1 Employment Agreement dated February 8, 1999 between the Registrant
and Richard Kangas
10.19 Offer Letter dated March 1, 1999 between the Registrant and Michael
J. Rovner
10.19.1 Employment Agreement dated March 24, 1999 between the Registrant and
Michael J. Rovner
10.20 Form of Consulting Agreement
10.21* Lease Agreement dated April 8, 1999 between the Registrant and
EnergyCorp Group LC for the premises located at 13939 Northwest
Freeway, Houston, Texas
23.1 Consent of Independent Auditors
23.2 Consent of Counsel (included in Exhibit 5.1)
24.1 Power of Attorney (see Page II-5)
27.1 Financial Data Schedule
</TABLE>
- --------
*To be filed by amendment
(b) Financial Statement Schedules
Schedules not listed above have been omitted because the information required
to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.
Item 17. Undertakings
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting 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 the Registrant for liabilities arising under
the Securities Act may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the provisions referenced in Item 14 of
this Registration Statement or otherwise, the Registrant has been advised that
in the opinion of the Securities and Exchange Commission such indemnification
is against public policy as expressed in the Securities Act, and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer, or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by a
director, officer or controlling person in connection with the securities being
registered hereunder, the Registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question 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 the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h)
II-3
<PAGE>
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-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Houston, State of Texas,
on the 28th day of May 1999.
MISSION CRITICAL SOFTWARE, INC.
By: /s/ Michael S. Bennett
----------------------------------
Michael S. Bennett
President and Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Michael S. Bennett and Stephen E. Odom 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:
Signature Title Date
/s/ Michael S. Bennett President, Chief May 28, 1999
- ----------------------------------- Executive Officer and
(Michael S. Bennett) Director (Principal
Executive Officer)
/s/ Stephen E. Odom Chief Operating Officer, May 28, 1999
- ----------------------------------- Chief Financial Officer,
(Stephen E. Odom) Treasurer and Secretary
(Principal Financial and
Accounting Officer)
/s/ Thomas P. Bernhardt Chief Technology May 28, 1999
- ----------------------------------- Officer and
(Thomas P. Bernhardt) Director
/s/ Douglas L. Ayer Director May 28, 1999
- -----------------------------------
(Douglas L. Ayer)
/s/ Michael J. Maples Director May 28, 1999
- -----------------------------------
(Michael J. Maples)
/s/ John J. Moores Director May 28, 1999
- -----------------------------------
(John J. Moores)
/s/ Scott D. Sandell Director May 28, 1999
- -----------------------------------
(Scott D. Sandell)
/s/ John D. Thornton Director May 28, 1999
- -----------------------------------
(John D. Thornton)
II-5
<PAGE>
EXHIBIT 3.1.1
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 07/02/1997
971221300--2645676
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
MISSION CRITICAL SOFTWARE, INC.
Incorporated Pursuant to an Original Certificate of Incorporation
Filed with the Secretary of State, July 19, 1996
------------------------------------------------
The undersigned, for the purpose of amending the restating the Certificate
of Incorporation of Mission Critical Software, Inc. (the "CORPORATION") under
the laws of the State of Delaware, hereby certifies as follows:
FIRST. The name of the Corporation is Mission Critical Software, Inc.
SECOND. The address of the Corporation's registered office in the State of
Delaware is 10-13 Centre Road, City of Wilmington, County of New Castle, State
of Delaware. The name of its registered agent at such address is The Prentice-
Hall Corporation System, Inc.
THIRD. The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of Delaware.
FOURTH.
Section 1. CAPITAL STOCK
The total number of shares of all classes of stock which the Corporation
shall have authority to issue is Twenty-One Million, Seventy-Six Thousand, Nine
Hundred Eighty-Three (21,076,983), consisting of Thirteen Million, Eighty-Three
Thousand, Three Hundred Thirty-Three (13,083,333) shares of common stock, par
value $0.001 per share (the "Common Stock"), and Seven Million, Nine Hundred
Ninety-Three Thousand, Six Hundred fifty (7,993,650) shares of preferred stock,
par value $0.001 per share (the "Preferred Stock").
<PAGE>
Section 2. COMMON STOCK
Section 2.1. VOTING RIGHTS. The holders of shares of Common Stock shall
be entitled to one vote for each share so held with respect to all matters voted
on by the shareholders of the Corporation, subject in all cases to Sections 3.5
and 3.7 or this Article Fourth.
Section 2.2. LIQUIDATION RIGHTS. Subject to the prior and superior right
of the Preferred Stock, upon any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Corporation, the holders of
Common Stock shall be entitled to receive that portion of the remaining funds to
be distributed to holders of Common Stock.
Section 2.3. DIVIDENDS. Dividends may be paid on the Common Stock as and
when declared by the Board of Directors; provided however, that no cash
dividends may be declared or paid on the Common Stock unless dividends shall
first have been declared and paid with respect to the Preferred Stock, as
provided in Section 3.6 of this Article Fourth.
Section 3. PREFERRED STOCK
Section 3.1. DESIGNATION. Of the 7,993,650 shares of Preferred Stock
which the Corporation has authority to issue, 1,818,650 shall be designated and
known as "Series A Convertible Preferred Stock" ("SERIES A PREFERRED").
2,650,000 shall be designated and known as "Series B Convertible Preferred
Stock" ("SERIES B PREFERRED") and 3,525,000 shall be designated and known as
"Series C Convertible Preferred Stock" ("SERIES C PREFERRED").
Section 3.2. LIQUIDATION RIGHTS.
(a) AMOUNT. In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the affairs of the corporation each
holder of a share of Preferred Stock shall be entitled to receive, prior and in
preference to any distribution of any of the assets or surplus funds of the
corporation to the holders of Common Stock by reason of their ownership thereof,
an amount equal to the accrued but unpaid dividends on such share of Preferred
Stock to and including the date full payment is so tendered to the holders of
the Preferred Stock with respect to such liquidation, dissolution or winding up,
plus an amount equal to (i) $0.205647 per share of Series A Preferred, (ii) One
Dollar ($1.00) per share of Series B Preferred and (iii) Three dollars ($3.00)
per share of Series C Preferred. The liquidation amounts set forth in this
Section 3.2 shall be subject to equitable adjustment whenever there shall occur
a stock split, stock dividend, combination, reorganization, recapitalization,
reclassification or other similar event involving a change in the Preferred
Stock.
(b) PRIORITY. All of the preferential amounts to be paid to the
holders of the Series B Preferred and the Series C Preferred pursuant to this
Section 3.2 shall be paid or set apart for payment before the payment or setting
apart for payment of any amount for, or the distribution of any assets of, the
Corporation to, the holders of the Series A Preferred or the Common Stock in
connection with such liquidation, dissolution or winding up. If the assets or
surplus funds to be distributed to the holders of the Series B Preferred and
Series C Preferred are insufficient to permit the payment to such holders of
their full preferential amount, the assets and surplus funds legally available
for distribution shall be distributed ratably among the holders of the Series B
Preferred and
2
<PAGE>
the Series C Preferred, in proportion to the full preferential amount each such
holder is otherwise entitled to receive.
After payment to the holders of the Series B Preferred and the Series C
Preferred of the preferential amounts so payable to them, all of the
preferential amounts to be paid to the holders of the Series A Preferred
pursuant to this Section 3.2 shall be paid or set apart for payment before the
payment or setting apart for payment of any amount for, or the distribution of
any assets of the Corporation to, the holders of the Common Stock in connection
with such liquidation, dissolution or winding up. If the assets or surplus
funds to be distributed to the holders of the Series A Preferred are
insufficient to permit the payment to such holders of their full preferential
amount, the assets and surplus funds legally available for distribution shall be
distributed ratably among the holders of the Series A Preferred in proportion to
the full preferential amount each such holder is otherwise entitled to receive.
After payment or the setting apart of payment to the holders of the
Preferred Stock of the preferential amounts so payable to them, all remaining
assets available for distribution (after payment or provision for payment of all
debts and liabilities of the Corporation) shall be distributed to the respective
holders of Common Stock ratably in proportion to the number of shares of Common
Stock they then hold.
A sale of all or substantially all of the assets of the Corporation or the
consolidation or merger of the Corporation shall be regarded as a liquidation,
dissolution or winding up of the affairs of the Corporation within the meaning
of this Section 3.2, but only if the holders of the outstanding stock of the
Corporation immediately prior to the closing of such sale, merger or
consolidation hold, immediately after such closing, less than a majority in
interest of the issued and outstanding shares of voting securities (as measured
by voting power) of the corporation purchasing all or substantially all of the
Corporation's assets or of the corporation (including without limitation the
Corporation) surviving or resulting from such merger or consolidation, as the
case may be; provided, however, that the holders of a majority of the
outstanding shares of Series A Preferred, the holders of a majority of the
outstanding shares of Series B Preferred and the holders of a majority of the
outstanding shares of Series C Preferred may elect acting separately, by notice
to the Corporation no later than 5 days before the effective date of such event,
to cause their respective series of Preferred Stock be treated under the
provisions of Section 3.3(d)(vii) in lieu of this Section 3.2 in connection with
such sale, merger or consolidation. In the event the consideration payable to
the Corporation or to the holders of its outstanding stock in connection with
any such sale, merger or consolidation (the "TRANSACTION CONSIDERATION") does
not consist entirely of cash, then the Corporation may satisfy its obligations
under this Section 3.2 by paying to the holders of Preferred Stock a portion of
the Transaction Consideration with a fair market value equal to the amount
required to be distributed pursuant to this Section 3.2. The fair market value
of the Transaction Consideration shall be determined by mutual agreement of the
Corporation and the holders of a majority of the outstanding shares of Preferred
Stock with respect to which a liquidation preference is being paid hereunder.
If the Transaction Consideration consists of more than one type of
consideration, then each type of consideration shall be distributed to each
holder of Preferred Stock in the same proportions as such type of consideration
represents of the total Transaction Consideration.
3
<PAGE>
Section 3.3. CONVERSION. The holders of Preferred Stock shall have
conversion rights as follows (the "CONVERSION RIGHTS"):
(a) RIGHT TO CONVERT. Each share of Preferred Stock shall be
convertible at the option of the holder thereof at any time after the date of
issuance and without the payment of any additional consideration therefor into
that number of fully paid and nonassessable shares of Common Stock as is
determined by dividing the Purchase Price for such series of Preferred Stock
being converted (as defined below) by the Conversion Price (as defined below) as
adjusted pursuant to this Section 3.3 and in effect at the time of conversion.
The Purchase Price and the initial Conversion Price of (i) the Series A
Preferred shall be $0.205647 (ii) the Series B Preferred shall be One Dollar
($1.00) and (iii) the Series C Preferred shall be Three Dollars ($3.00). The
Conversion Price shall be subject to adjustment (in order to adjust the number
of shares of Common Stock into which the Preferred Stock is convertible) as
hereinafter provided. Each person so converting shares of Preferred Stock shall
not be entitled to accrued but unpaid dividends up to the time of the
conversion.
(b) AUTOMATIC CONVERSION. Each share of Preferred Stock shall
automatically be converted into shares of Common Stock at the then effective
Conversion Price upon:
(i) The closing of a firm commitment underwritten public
offering pursuant to an effective registration statement under the Securities
Act of 1933, as amended, covering the offer and sale of Common Stock for the
account of the Corporation to the public having an aggregate offering price to
the public resulting in gross proceeds to the Corporation of not less than
$20,000,000 and placing a pre-offering market value on the Corporation of at
least $10.00 per share of Common Stock; or
(ii) the consummation of the sale by the Corporation of
substantially all of its assets or of a merger or consolidation with another
corporation which results in the payment of cash consideration with respect to
all of the share of Common Stock then outstanding (assuming the conversion of
the Preferred Stock) of at least $10.00 per share of Common Stock.
(c) MECHANICS OF CONVERSION. No fractional shares of Common
Stock shall be issued upon conversion of Preferred Stock. In lieu of any
fractional shares to which the holder would otherwise be entitled, the
Corporation shall pay cash equal to such fraction multiplied by the then
effective applicable Conversion Price. In the case of a conversion under Section
3.3(a), before any holder of Preferred Stock shall be entitled to convert the
same into full shares of Common Stock, such holder shall surrender the
certificate or certificates therefor, duly endorsed, at the office of the
Corporation or of any transfer agent for the Preferred Stock, and shall give
written notice to the Corporation at such office that such holder elects to
convert the same and shall state therein his name or names of his nominees in
which such holder wishes the certificate or certificates for shares of Common
Stock to be issued, together with the applicable federal taxpayer identification
number. The Corporation shall, as soon as practicable after such surrender and
notice, issue and deliver at such office to such holder of Preferred Stock, or
to his nominee or nominees, a certificate or certificates for the number of
shares of Common Stock to which he shall be entitled together with cash in lieu
of any fraction of a share. In the case of an automatic conversion under Section
3.3(b), such conversion may be effected without surrender of the certificates
representing the Preferred
4
<PAGE>
Stock or the delivery of any new certificates, and the outstanding certificates
shall be deemed to represent the shares of Common Stock into which such
Preferred Stock was converted and the Corporation shall, as soon as practicable
thereafter deliver cash, if any, in lieu of any fraction of a share so
converted. A conversion shall be deemed to have been made, and the person or
persons entitled to receive the shares of Common Stock issuable upon conversion
shall be treated for all purposes as the record holder or holders of such shares
of Common Stock (i) in the case of a conversion under Section 3.3(a),
immediately prior to the close of business on the date of such surrender of the
shares of Preferred Stock to be converted and (ii) in the case of a conversion
under Section 3.3(b) immediately prior to the closing of such offering or the
consummation of such transaction by the Corporation.
(d) ADJUSTMENTS TO CONVERSION PRICE FOR DILUTING ISSUES:
(i) SPECIAL DEFINITIONS. For purposes of this Section 3.3(d),
the following definitions shall apply:
(1) "OPTION" shall mean rights, options or warrants to
subscribe for, purchase or otherwise acquire either Common Stock or Convertible
Securities.
(2) "ORIGINAL ISSUE DATE" shall mean July 2, 1997.
(3) "CONVERTIBLE SECURITIES" shall mean any evidences of
indebtedness, shares (other than Common Stock, Series A Preferred, Series B
Preferred and Series C Preferred), or other securities directly or indirectly
convertible into or exchangeable for Common Stock.
(4) "ADDITIONAL SHARES OF COMMON STOCK" shall mean all
shares of Common Stock issued (or, pursuant to Section 3.3(d)(iii), deemed to be
issued) by the Corporation after the Original Issue Date, other than shares of
Common Stock issued or issuable:
(A) upon conversion of shares of Preferred Stock of
by way of dividend or distribution on shares of Series A Preferred, Series B
Preferred or Series C Preferred;
(B) to officers, directors or employees of, or
consultants to, the Corporation pursuant to action by the Board of Directors
prior to the Original issue Date, pursuant to the Corporation's Stock Option
Plan in existence as of the Original Issue Date or pursuant to any other stock
purchase or option plan or other employee or director stock incentive or
compensation program (collectively, the "Plans") approved by the Board of
Directors; and
(5) upon the exercise of any warrants outstanding on the
Original Issue Date.
(ii) NO ADJUSTMENT OF CONVERSION PRICE. No adjustment in the
number of shares of Common Stock into which any series of Preferred Stock is
convertible shall be made by adjustment in the Conversion Price of such series
of Preferred Stock in respect of the issuance of Additional Shares of Common
Stock or otherwise, unless the consideration per share for such Additional
Shares of Common Stock issued or deemed to be issued by the Corporation is less
than
5
<PAGE>
the Conversion Price of such series of Preferred Stock in effect on the date of,
and immediately prior to, the issue of such Additional Shares.
(iii) ISSUE OF SECURITIES DEEMED ISSUE OF ADDITIONAL SHARES
OF COMMON STOCK.
(1) OPTIONS AND CONVERTIBLE SECURITIES. In the event
the Corporation at any time or from time to time after the Original Issue Date
shall issue any Options or Convertible Securities or shall fix a record date for
the determination of holders of any class of securities entitled to receive any
such Options or Convertible Securities, then the maximum number of shares (as
set forth in the instrument relating thereto without regard to any provisions
contained therein for a subsequent adjustment of such number) of Common Stock
issuable upon the exercise of such Options or, in the case of Convertible
Securities and Options therefor, the conversion or exchange of such Convertible
Securities, shall be deemed to be Additional Shares of Common Stock issued as of
the time of such issue or, in case such a record date shall have been fixed, as
of the close of business on such record date, provided that Additional Shares of
Common Stock shall not be deemed to have been issued unless the consideration
per share (determined pursuant to Section 3.3(d)(v)) of such Additional Shares
of Common Stock would be less than the Conversion Price of any series of
Preferred Stock in effect on the date of and immediately prior to such issue, or
such record date, as the case may be, and provided further that in any such case
in which Additional Shares of Common Stock are deemed to be issued:
(A) no further adjustment in the Conversion Price
of any series of Preferred Stock shall be made upon the subsequent issue of
Convertible Securities or shares of Common Stock upon the exercise of such
Options or conversion or exchange of such Convertible Securities;
(B) if such Options or Convertible Securities by
their terms provide, with the passage of time or otherwise, for any increase in
the consideration payable to the Corporation, or decrease in the number of
shares of Common Stock issuable, upon the exercise, conversion or exchange
thereof, the Conversion Price of any series of Preferred Stock computed upon the
original issue thereof (or upon the occurrence of a record date with respect
thereto), and any subsequent adjustments based thereon, shall, upon any such
increase or decrease becoming effective, be recomputed to reflect such increase
or decrease insofar as it affects such Options or the rights of conversion or
exchange under such Convertible Securities;
(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 of any series of Preferred Stock
computed upon the original issue thereof (or upon the occurrence of a record
date with respect thereto) and any subsequent adjustments based thereon shall,
upon such expiration, be recomputed as if:
(I) 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, is 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
6
<PAGE>
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
(II) 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 3.3(d)(v)) upon the issue 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 the Conversion Price of any series of
Preferred Stock to an amount which exceeds the lower of (i) the Conversion Price
of such series of Preferred Stock on the original adjustment date, or (ii) the
Conversion Price of such series of Preferred Stock that would have resulted from
any issuance of Additional Shares of Common Stock between the original
adjustment date and such readjustment date;
(E) in the case of any Options which expire by
their terms not more than thirty (30) days after the date of issue thereof, no
adjustment of the Conversion Price of any series of Preferred Stock shall be
made until the expiration or exercise of all such Options, whereupon such
adjustment shall be made in the same manner provided in clause (C) above; and
(F) if such record date shall have been fixed and
such Options or Convertible Securities are not issued on the date fixed
therefor, the adjustment previously made in the Conversion Price of any series
of Preferred Stock which became effective on such record date shall be cancelled
as of the close of business on such record date, and thereafter the Conversion
Price of such series of Preferred Stock shall be adjusted pursuant to this
Section 3.3(d)(iii) as of the actual date of their issuance.
(2) STOCK DIVIDENDS, STOCK DISTRIBUTIONS AND SUBDIVISIONS.
In the event the Corporation at an time or from time to time after the Original
Issue Date of any series of Preferred Stock shall declare or pay any dividend or
make any other distribution on the Common Stock payable in Common Stock, or
effect a subdivision of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in Common Stock),
then and in any such event, Additional Shares of Common Stock shall not be
deemed to have been issued, but the Conversion Price of each series of Preferred
Stock shall be adjusted in accordance with Section 3.2(d)(vi).
(iv) ADJUSTMENT OF CONVERSION PRICE UPON ISSUANCE OF
ADDITIONAL SHARES OF COMMON STOCK. In the event the Corporation shall issue
Additional Shares of Common Stock (including Additional Shares of Common Stock
deemed to be issued pursuant to Section 3.3(d)(iii)
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without consideration or for a consideration per share less than the Conversion
Price of any series of Preferred Stock in effect on the date of and immediately
prior to such issue, then and in such event, in order to increase the number of
shares of Common Stock into which such series of Preferred Stock is convertible,
concurrently with such issuance, the Conversion Price of such series of
Preferred Stock shall be reduced to a price (calculated to the nearest cent)
determined by multiplying such Conversion Price by a fraction (x) the numerator
of which shall be (A) the number of shares of Common Stock outstanding
immediately prior to such issue (including shares of Common Stock issuable upon
conversion of any outstanding Preferred Stock or Convertible Securities), plus
(B) the number of shares of Common Stock which the aggregate consideration
received by the Corporation for the total number of Additional Shares of Common
Stock so issued would purchase at such Conversion Price, and (y) the denominator
of which shall be (A) the number of shares of Common Stock outstanding
immediately prior to such issue (including shares of Common Stock issuable upon
conversion of any outstanding Preferred Stock or Convertible Securities), plus
(B) the number of such Additional Shares of Common Stock so issued, provided
that the Conversion Price shall not be so reduced at such time if the amount of
such reduction would be an amount less than $0.05, but any such amount shall be
carried forward and reduction with respect thereto made at the time of and
together with any subsequent reduction which, together with such amount and any
other amount or amounts so carried forward, shall aggregate $0.05 or more.
(v) DETERMINATION OF CONSIDERATION. For purposes of this
Section 3.3(d), the consideration received by the Corporation for the issue of
any Additional Shares of Common Stock shall be computed as follows:
(1) CASH AND PROPERTY: Such consideration shall:
(A) Insofar as it consists of cash, be computed at
the aggregate amount of cash received by the Corporation excluding amounts paid
or payable for accrued interest or accrued dividends;
(B) insofar as it consists of property other than
cash, be computed at the fair value thereof at the time of such issue, as
determined in good faith by the Board of Directors: and
(C) in the event Additional Shares of Common Stock
are issued together with other shares or securities or other assets of the
Corporation for consideration which covers both, be the proportion of such
consideration so received, computed as provided in clauses (A) and (B) above, as
determined in good faith by the Board of Directors.
(2) OPTIONS AND CONVERTIBLE SECURITIES. The consideration
per share received by the Corporation for Additional Shares of Common Stock
deemed to have been issued pursuant to Section 3.3(d)(iii)(1), relating to
Options and Convertible Securities, shall be determined by dividing (x) 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 for a
subsequent adjustment of such consideration until such subsequent adjustment
occurs) payable to the Corporation upon the exercise of such Options or the
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conversion or exchange of such Convertible Securities or in the case of Options
for Convertible Securities, by (y) the maximum number of shares of Common Stock
(as set forth in the instruments relating thereto, without regard to any
provision contained therein for a subsequent adjustment of such number until
such subsequent adjustment occurs) issuable upon the exercise of such Options or
the conversion of exchange of such Convertible Securities.
(vi) ADJUSTMENT FOR DIVIDENDS, DISTRIBUTIONS, SUBDIVISIONS,
COMBINATIONS, OR CONSOLIDATION OF COMMON STOCK.
(1) STOCK DIVIDENDS, DISTRIBUTIONS OR SUBDIVISIONS. In
the event the Corporation at any time or from time to time shall declare or pay
any dividend or make any other distribution on the Common Stock payable in
Common Stock, or effect a subdivision of the outstanding shares of Common Stock
(by reclassification or otherwise than by payment of a dividend in Common
Stock), the Conversion Price of each series of Preferred Stock in effect
immediately prior to such stock dividend, stock distribution or subdivision
shall, concurrently with the effectiveness of such stock dividend, stock
distribution or subdivision, be proportionately decreased.
(2) COMBINATIONS OR CONSOLIDATIONS. In the event the
outstanding shares of Common Stock shall be combined or consolidated, by
reclassification or otherwise, into a lesser number of shares of Common Stock,
the Conversion Price of each series of Preferred Stock in effect immediately
prior to such combination or consolidation shall, concurrently with the
effectiveness of such combination or consolidation, be proportionately
increased.
(vii) ADJUSTMENT FOR MERGER OR REORGANIZATION. Subject to the
last sentence of this Section 3.3(d)(vii), in case of any consolidation or
merger of the Corporation with or into another corporation or the conveyance of
all or substantially all of the assets of the Corporation to another
corporation, each share of Preferred Stock shall thereafter be convertible, at
the option of the holder thereof in the manner described in the last sentence of
this Section, into the number of shares of stock or other securities or property
to which a holder of the number of shares of Common Stock of the Corporation
deliverable upon conversion of such Preferred Stock would have been entitled
upon such consolidation, merger or conveyance. In any such case, appropriate
adjustment (as determined by the Board of Directors) shall be made in the
application of these provisions set forth with respect to the rights and
interest thereafter of the holders of the Preferred Stock, to the end that these
provisions (including provisions with respect to changes in and other
adjustments of the Conversion Price) shall thereafter be applicable, as nearly
as reasonably may be practicable, in relation to any shares of stock or other
property thereafter deliverable upon the conversion of the Preferred Stock. In
the event that such merger or consolidation of the Corporation or the sale of
all or substantially all its assets and properties as such events are more fully
set forth in the first paragraph of this Section 3.3(d)(vii), shall also be
subject to the provisions of Section 3.2 above, each of (i) the holders of a
majority of the outstanding Series A Preferred, (ii) the holders of a majority
of the outstanding Series B Preferred, and (iii) the holders of a majority of
the outstanding Series C Preferred may elect to obtain the treatment of such
series of Preferred Stock, respectively, under this Section 3.3(d)(vii) in lieu
of that described in Section 3.2, notice of which election shall be submitted in
writing to the Corporation at its principal offices no later than five (5) days
before the effective date of such event.
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(e) NO IMPAIRMENT. The Corporation will not, by amendment of its
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 preformed hereunder by the Corporation but will at
all times in good faith assist in the carrying out of all the provisions of this
Section 3 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.
(f) CERTIFICATE AS TO ADJUSTMENTS. Upon the occurrence of each
adjustment or readjustment of any Conversion Price pursuant to this Section 3.3,
the Corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with these terms and furnish to each holder of
Preferred Stock a certificate setting forth such adjustment, readjustment or
conversion and showing in detail the facts upon which such adjustment,
readjustment or conversion is based; provided that the failure to promptly
provide such notice shall not affect the effectiveness of such adjustment,
readjustment or conversion. 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 of any 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 any series of Preferred Stock.
(g) NOTICES OF RECORD DATE. In the event of (i) any taking by
the Corporation of a record date of the holders of any class of securities for
the purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend which is the same as cash dividends paid in
previous quarters) or other distribution, or (ii) any capital reorganization of
the Corporation, any reclassification or recapitalization of the capital stock
of the Corporation, any merger or consolidation of the Corporation, and any
transfer of all or substantially all of the assets of the Corporation to any
other corporation, or any other entity or person, or any voluntary or
involuntary dissolution, liquidation or winding up of the Corporation, the
Corporation shall mail to each holder of Preferred Stock at least 30 days prior
to the record date specified therein, a notice specifying (A) the date on which
any such record is to be taken for the purpose of such dividend or distribution
and a description of such dividend or distribution, (B) the date on which any
such reorganization, reclassification, transfer, consolidation, merger,
dissolution, liquidation or winding up is expected to become effective, and (C)
the time, if any, that is to be fixed, as to when the holders of record of
Common Stock (or other securities) shall be entitled to exchange their shares of
Common Stock (or other securities) for securities or other property deliverable
upon such reorganization, reclassification, transfer, consolidation, merger,
dissolution, liquidation or winding up.
(h) COMMON STOCK RESERVED. The Corporation shall reserve and
keep available out of its authorized but unissued Common Stock such number of
shares of Common Stock as shall from time to time be sufficient to effect
conversion of the Preferred Stock.
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Section 3.4. REDEMPTION.
(a) MANDATORY REDEMPTION. On July 2, 2002 (the "REDEMPTION
DATE"), the Corporation shall offer to each holder of shares of Preferred Stock
to redeem all outstanding shares of Preferred Stock. Each outstanding share of
Preferred Stock for which redemption is requested hereunder shall be redeemed by
the Corporation paying cash, out of funds legally available therefor, an amount
equal to the Purchase Price of such series of Preferred Stock being redeemed,
plus in each case, all accrued but unpaid dividends payable in accordance with
Section 3.6 on each such share (the "REDEMPTION PRICE").
(i) Should the Corporation not have sufficient funds legally
available for redeeming all shares of Series C Preferred and Series B Preferred
to be redeemed on the Redemption Date, the Corporation shall redeem a pro rata
portion (based on the aggregate Redemption Price held by each holder requesting
redemption) of each holder's shares of Series C Preferred and Series B Preferred
who has requested redemption out of funds legally available therefor and shall
redeem the remaining shares of Series C Preferred and Series B Preferred
requested to have been redeemed as soon as practicable after the Corporation has
funds legally available therefor.
(ii) Once all shares of Series C Preferred and Series B
Preferred which have requested redemption have been so redeemed, the Corporation
may redeem all shares of Series A Preferred requesting redemption. Should the
Corporation not have sufficient funds legally available for redeeming all shares
of Series A Preferred to be redeemed on the Redemption Date, the Corporation
shall redeem a pro rata portion (based on the aggregate Redemption Price held by
each holder requesting redemption) of each holder's shares of Series A Preferred
Stock who has requested redemption out of funds legally available therefor and
shall redeem the remaining shares of Series A Preferred requested to have been
redeemed as soon as practicable after the Corporation has funds legally
available therefor.
Not less than forty-five (45) days nor more than sixty (60) days before the
Redemption Date, the Corporation shall offer to redeem shares of Preferred Stock
by giving written notice thereof to each holder of shares of Preferred Stock,
which notice shall state the aggregate Redemption Price for Preferred Stock
eligible to be redeemed by such holder on the Redemption Date. Any holder of
shares of Preferred Stock to be redeemed may redeem all or part of such shares
by giving written notice thereof to the Corporation, no less than fifteen (15)
days prior to the Redemption Date, which notice shall specify the number of
shares of each series of Preferred Stock which such holder wishes to redeem, and
by surrendering to the Corporation on or before the Redemption Date the share
certificates for the number of shares of Preferred Stock to be redeemed in
accordance with such notice. If less than all of the shares represented by such
certificates are redeemed, a new certificate shall be issued for the unredeemed
shares as promptly as possible. Notwithstanding the foregoing, the holders of
eighty percent (80%) or more of the Preferred Stock shall have the right to
postpone for a specified period of time or waive such rights of redemption of
all holders by written notice to the Corporation and to all such holders.
(b) ADJUSTMENTS. The Redemption Price shall be subject to
equitable adjustment whenever there shall occur a stock split, stock dividend,
combination, reorganization, recapitalization, reclassification or other similar
event involving a change in the Preferred Stock.
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Section 3.5. VOTING RIGHTS.
(a) The holders of shares of Preferred Stock shall be entitled
to notice of any stockholders' meeting and to vote upon any matter submitted to
a stockholder for a vote, as though the Common Stock and the Preferred Stock
constituted a single class of stock, except with respect to those matters on
which the Delaware General Corporation Law requires that a vote must be by a
separate class or classes or by separate series, as to which each such class or
series shall have the right to vote in accordance with such law, and except as
provided in Section 3.7. The holders of Preferred Stock shall have that number
of votes per share which equals the number of shares of Common Stock into which
each such share of Preferred Stock held by such holder is then convertible.
(b) The holders of Preferred Stock and the holders of Common
Stock shall vote upon the election of directors in accordance with the Amended
and Restated Stockholders' Agreement dated July 2, 1997, as it may be amended
from time to time.
Section 3.6. DIVIDEND RIGHTS.
(a) The holders of the then outstanding shares of Series C
Preferred shall be entitled to receive, when and as declared by the Board of
Directors concurrently with the payment or setting aside for payment of a
dividend on the Series B Preferred pursuant to clause (b) below and prior to the
payment or setting aside for payment of any dividend on the Series A Preferred
or Common Stock, out of funds legally available therefor, cumulative cash
dividends at the annual rate of $0.24 per share. Such dividends shall accrue on
a quarterly basis commencing with the first calendar quarter ending after the
Original Issue Date. Such dividends shall be cumulative and shall accrue whether
or not declared, from and after such calendar quarter.
(b) The holders of the then outstanding shares of Series B
Preferred shall be entitled to receive, when and as declared by the Board of
Directors concurrently with the payment or setting aside for payment of a
dividend on the Series C Preferred pursuant to clause (a) above and prior to the
payment or setting aside for payment of any dividend on the Series A Preferred
or Common Stock, out of funds legally available therefor, cumulative cash
dividends at the annual rate of $0.08 per share. Such dividends shall accrue on
a quarterly basis commencing with the first calendar quarter ending after the
Original Issue Date. Such dividends shall be cumulative and shall accrue whether
or not declared, from and after such calendar quarter.
(c) The holders of the then outstanding shares of Series A
Preferred shall be entitled to receive, when and as declared by the Board of
Directors and prior to the payment or setting aside for payment of any dividends
on the Common Stock, out of funds legally available therefor, cumulative cash
dividends at the annual rate of $0.01645176 per share. Such dividends shall
accrue on a quarterly basis commencing with the first calendar quarter ending
after the Original Issue Date. Such dividends shall be cumulative and shall
accrue whether or not declared, from and after such calendar quarter.
(d) The dividends provided for in clauses (a), (b) and (c) of
this Section 3.6 shall be payable on liquidation and redemption in accordance
with Sections 3.2 and 3.4 hereof. In the
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event that the Board of Directors declares and/or pays such dividends on any
series of Preferred Stock other than in such events, it shall do so pro rata
within each series of Preferred Stock, based on the aggregate amount of
dividends accrued to each holder of Preferred Stock on the date of such
declaration (or, if the Board makes no declaration, on the date of payment);
provided, that no such declaration and/or payment may be made with respect to
the Series A Preferred until the holders of the Series C Preferred and the
Series B Preferred shall have received payment of all accrued dividends under
Section 3.6(a) and Section 3.6(b), respectively.
Section 3.7. COVENANTS.
(a) In addition to Section 3.5 and any vote which any series of
Preferred Stock may have under Delaware law, so long as any shares of Series B
Preferred or Series C Preferred shall be outstanding, the Corporation shall not,
without first obtaining the affirmative vote or written consent of not less than
66 2/3% of the outstanding shares of Series B Preferred and Series C Preferred
voting together as a single class on an as-converted-to Common Stock basis.
(i) amend or repeal any provision of, or add any provision
to, the Corporation's Restated Certificate of Incorporation or By-Laws if such
action would change the preferences, rights, privileges or powers of, or the
restrictions provided for the benefit of, the Preferred Stock generally or the
Series B Preferred or Series C Preferred in particular, or would otherwise
adversely affect the Series B Preferred or Series C Preferred;
(ii) reclassify any Common Stock or Series A Preferred 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 any series of Preferred
Stock other than the Series A Preferred:
(iii) pay or declare any dividend or distribution on any
shares of Common Stock or Preferred Stock (except as provided in Sections
3.6(a), (b) and (c)) or apply any of its assets to the redemption, retirement,
purchase or other acquisition directly or indirectly, through subsidiaries, if
any, or otherwise, of any shares of Common Stock or Preferred stock except (i)
from officers, directors or employees of, or consultants, to the Corporation
upon termination of their respective service to or employment with the Company
either (A) at a price per share equal to or less than that paid by such officer,
director, employee or consultant, as the case may be, for such shares or (B) for
an aggregate price of no more than $50,000 for all such former officer's,
director's, employee's or consultant's shares, as the case may be and (ii) as
required by this Amended and Restated Certificate of Incorporation;
(iv) create or issue any other class or classes of stock or
series of Preferred Stock having any preference or priority as to dividends or
assets superior to or on a parity with any such preference or priority of the
Preferred Stock; or
(v) authorize (A) any merger or consolidation of the
Corporation with or into any other corporation or entity (except into or with a
wholly-owned subsidiary with the requisite stockholder approval), (B) the sale
of all or substantially all of the assets of the Corporation of (C) the
liquidation or reorganization of the Corporation.
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(b) In addition to Section 3.5 and any vote which any series of
Preferred Stock may have under Delaware law, until January 2, 1999, so long as
any shares of Series C Preferred shall be outstanding, the Corporation shall
not, without first obtaining the affirmative vote or written consent of not less
than a majority of the outstanding shares of Series C Preferred, voting together
as a separate class, sell all or substantially all of the assets of the
Corporation or merge or consolidate the Corporation with and into another
Corporation; provided, that in the event the proceeds of any such sale, merger
or consolidation payable to the holders of Series C Preferred is greater than or
equal to Six Dollars ($6.00) per share of Series C Preferred (subject to
equitable adjustment whenever there shall occur a stock split, stock dividend,
combination, reorganization, recapitalization, reclassification or other similar
event involving a change in the Preferred Stock), this Section 3.7(b) shall have
no effect.
Section 3.8. CONVERTED, REDEEMED OR OTHERWISE ACQUIRED SHARES. Any share
of Preferred Stock that is converted under Section 3.3., redeemed under Section
3.4 or otherwise acquired by the Corporation will be canceled and will not be
reissued, sold or transferred.
Section 3.9. RESIDUAL RIGHTS. All rights accruing to the outstanding
shares of the Corporation not expressly provided for to the contrary shall be
vested in the Common Stock.
FIFTH. The Corporation is to have perpetual existence.
SIXTH. Subject to Section 3.7 of Article Fourth, the Board of Directors
is authorized to adopt, amend or repeal the by-laws of the Corporation.
SEVENTH. Elections of directors need not be by written ballot unless the
by-laws of the Corporation shall so provide.
EIGHTH. Whenever a compromise or arrangement is proposed between the
Corporation and its creditor or any class of them and/or between the Corporation
and its stockholders or any class of them, any court or equitable jurisdiction
within the State of Delaware may, on the application in a summary way of the
Corporation or of any creditor or stockholder thereof, or on the application of
any receiver or receivers appointed for the Corporation under the provisions of
(S)291 of the Delaware General Corporation Law or on the application of trustees
in dissolution or of any receiver or receivers appointed for the Corporation
under the provision of (S)279 of the Delaware General Corporation Law, order a
meeting of the creditors or class of creditors, and/or of the stockholders or
class of stockholders of the Corporation, as the case may be, to be summoned in
such manner as the said court directs. If a majority in number representing
three-fourths in value of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of the Corporation, as the case may be,
agree to any compromise or arrangement and to any reorganization of the
Corporation, as a consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders, of the Corporation, as the case may be, and also on the
Corporation.
NINTH. The Corporation shall, to the fullest extent permitted by the
General Corporation Law of the State of Delaware, as amended from time to time,
indemnify each person who was or is a
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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, by reason of the fact that he is or was, or has agreed to become,
a director or officer of the Corporation, or is or was serving, or has agreed to
serve, at the request of the Corporation, as a director, officer or trustee of,
or in a similar capacity with, 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 or on his behalf in connection with such action, suit or proceeding and
any appeal therefrom.
Indemnification may include payment by the Corporation of expenses in
defending an action or proceeding in advance of the final disposition of such
action or proceeding upon receipt of any undertaking by the person indemnified
to repay such payment if it is ultimately determined that such person is not
entitled to indemnification under this Article, which undertaking may be
accepted without reference to the financial ability of such person to make such
repayments.
The Corporation shall not indemnify any such person seeking
indemnification in connection with a proceeding (or part thereof) initiated by
such person unless the initiation thereof was approved by the Board of Directors
of the Corporation.
The indemnification rights provided in this Article (i) shall not be
deemed exclusive of any other rights to which those indemnified may be entitled
under any law, agreement or vote of stockholders or disinterested directors or
otherwise, and (ii) shall inure to the benefit of the heirs, executors and
administrators of such persons. The Corporation may, to the extent authorized
from time to time by its Board of Directors, grant indemnification rights to
other employees or agents of the Corporation or other persons serving the
Corporation and such rights may be equivalent to, or greater or less than, those
set forth in this Article.
No amendment or repeal of this Article shall deprive any person of the
benefits hereof with respect to any act or omission occurring prior to such
amendment or repeal.
TENTH. A director shall not be personally liable to the Corporation or
its stockholders for monetary damages for breach of fiduciary duty as a
director, except to the extent that the elimination or limitation of liability
is prohibited under the Delaware General Corporation Law as in effect when such
liability is determined. No amendment or repeal of this provision shall deprive
a director of the benefits hereof with respect to any act or omission occurring
prior to such amendment or repeal.
ELEVENTH. Subject to Section 3.7 of Article Fourth, the Corporation
reserves the right to amend, alter, change or repeal any provision contained in
this Certificate of Incorporation, in the manner now or thereafter prescribed by
statute, and all rights conferred upon stockholders herein are granted subject
to this reservation.
This Restated Certificate of Incorporation of the Corporation has been
duly adopted in accordance with the provisions of Section 228, 242, and 245 of
the General Corporation Law of the State of Delaware and written notice of the
adoption of this Restated Certificate of Incorporation has been given as
provided by Section 228 of the General Corporation Law of the State of Delaware
to the stockholders entitled to such notice.
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Signed this 2nd day of July, 1997.
/s/ Louis R. Woodhill
----------------------
Louis R. Woodhill
President
Attest:
/s/ Paul F. Koffend, Jr.
- -------------------------
Paul F. Koffend, Jr.
Secretary
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CERTIFICATE OF AMENDMENT OF
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF
MISSION CRITICAL SOFTWARE, INC.
Michael S. Bennett and Stephen E. Odom certify that:
1. They are the President and Secretary, respectively, of Mission Critical
Software, Inc., a Delaware corporation.
2. Article FOURTH, Section 1 of the Amended and Restated Certificate of
Incorporation is hereby amended to read in its entirety as follows:
" The total number of shares of all classes of stock which the Corporation
shall have authority to issue is Fifty Six Million Nine Hundred Sixty Eight
Thousand Six Hundred Fifty (56,968,650) shares, consisting of Fifty
Million (50,000,000) shares of Common Stock, par value $0.001 per share
(the "Common Stock") and Six Million Nine Hundred Sixty Eight Thousand Six
Hundred Fifty (6,968,650) shares of Preferred Stock, par value $0.001 per
share (the "Preferred Stock").
The corporation shall from time to time in accordance with the laws of
the State of Delaware increase the authorized amount of its Common Stock if
at any time the number of shares of Common Stock remaining unissued and
available for issuance shall not be sufficient to permit conversion of the
Preferred Stock."
3. Article FOURTH, Section 3.1 of the Amended and Restated Certificate of
Incorporation is hereby amended to read in its entirety as follows:
"Section 3.1 DESIGNATION. Of the Six Million Nine Hundred Sixty
Eight Thousand Six Hundred Fifty (6,968,650) shares of Preferred Stock
which the Corporation has authority to issue, Eight Hundred Sixty Eight
Thousand Six Hundred Fifty (868,650) shall be designated and known as
"Series A Convertible Preferred Stock ("Series A Preferred"), Two Million
Six Hundred Fifty Thousand (2,650,000) shall be designated and known as
"Series B Convertible Preferred Stock ("Series B Preferred"), and Three
Million Four Hundred Fifty Thousand (3,450,000) shall be designated and
known as "Series C Convertible Preferred Stock ("Series C Preferred")."
4. The foregoing amendment of the Amended and Restated Certificate of
Incorporation has been duly adopted by the Board of Directors.
5. The foregoing amendment of the Amended and Restated Certificate of
Incorporation has been duly approved by the required of the stockholders in
accordance with Section 216 of the General Corporation Law and Article 2,
Section 2.11 of the Bylaws of the Corporation.
<PAGE>
IN WITNESS WHEREOF, this Certificate of Amendment of Amended and Restated
Certificate of Incorporation has been signed this ______ day of May, 1999.
_________________________________
Michael S. Bennett, President
Attest:
____________________________
Stephen E. Odom, Secretary
-2-
<PAGE>
EXHIBIT 3.1.2
RESTATED CERTIFICATE OF INCORPORATION
OF
MISSION CRITICAL SOFTWARE, INC.
Mission Critical Software, Inc., a corporation organized and existing under
laws of the State of Delaware, hereby certifies as follows:
1. The name of the Corporation is Mission Critical Software, Inc. Mission
Critical Software, Inc. 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 July 19, 1996, and was amended
and restated on September 4, 1996 and July 2, 1997, and further amended on May
24, 1999.
2 Pursuant to Sections 228, 242 and 245 of the General Corporation Laws of
the State of Delaware, this Restated Certificate of Incorporation restates and
integrates and further amends the provisions of the Certificate of Incorporation
of this corporation.
3. The text of the Certificate of Incorporation as heretofore amended or
supplemented is hereby amended and restated to read in its entirety as follows:
FIRST: The name of this corporation is Mission Critical Software, Inc.
SECOND: The address of the corporation's registered office in the State of
Delaware is 10-13 Centre Road, City of Wilmington, County of New Castle, State
of Delaware. The name of its registered agent at such address is The Prentice-
Hall Corporation System, Inc.
THIRD: The purpose of this corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of Delaware.
FOURTH: This corporation is authorized to issue two classes of stock to be
designated, respectively, "Common Stock" and "Preferred Stock." The total
number of shares which the corporation is authorized to issue is 55,000,000
shares. 50,000,000 shares shall be Common Stock, par value $.001 per share, and
5,000,000 shares shall be Preferred Stock, par value $.001 per share.
The Preferred Stock may be issued from time to time in one or more series.
The Board of Directors is authorized to fix the number of shares of any series
of Preferred Stock and to determine the designation of any such series. The
Board of Directors is also authorized to determine and alter the powers, rights,
preferences and privileges and the qualifications, limitations and restrictions
granted to or imposed upon any wholly unissued series of Preferred Stock and
within the limitations or restrictions stated in any resolution or resolutions
of the Board of Directors originally fixing the number of shares constituting
any series, to increase or decrease (but not below the number of shares of such
series then
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outstanding) the number of shares of any series subsequent to the issue of
shares of that series, to determine the designation of any series, and to fix
the number of shares of any series. In case the number of shares of any series
shall be so decreased, the shares constituting such decrease shall resume the
status which they had prior to the adoption of the resolution originally fixing
the number of shares of such series.
FIFTH: "Qualified Public Offering" as used in this Certificate of
Incorporation shall mean the corporation's initial firm commitment underwritten
public offering pursuant to an effective registration under the Securities Act
of 1933, as amended, covering the offer and sale of Common Stock for the account
of the Corporation to the public. For the management of the business and for
the conduct of the affairs of the corporation, and in further definition,
limitation and regulation of the powers of the corporation, of its directors and
of its stockholders or any class thereof, as the case may be, it is further
provided that, effective upon the closing of a Qualified Public Offering:
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 shall constitute the whole Board of Directors shall be fixed
exclusively by one or more resolutions adopted from time to time by the Board of
Directors.
The Board of Directors shall be divided into three classes designated as
Class I, Class II and Class III, respectively. Directors shall be assigned to
each class in accordance with a resolution or resolutions adopted by the Board
of Directors. 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 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.
Any vacancies on the Board of Directors resulting from death, resignation,
disqualification, removal, or other causes shall be filled by either (i) the
affirmative vote of the holders of a majority of the voting power of the then-
outstanding shares of voting stock of the corporation entitled to vote generally
in the election of directors (the "Voting Stock") voting together as a single
class; or (ii) by the affirmative vote of a majority of the remaining directors
then in office, even though less than a quorum of the Board of Directors. Newly
created directorships resulting from any increase in the number of directors
shall, unless the Board of Directors determines by resolution that any such
newly created directorship shall be filled by the stockholders, or 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
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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.
2. 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.
3. The directors of the corporation need not be elected by written ballot
unless a stockholder demands election by written ballot at the meeting and
before voting begins, or unless the Bylaws so provide.
4. 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).
5. 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.
6. Advance notice of stockholder nomination for the election of directors
and of business to be brought by stockholders before any meeting of the
stockholders of the corporation shall be given in the manner provided in the
Bylaws of the corporation.
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.
SIXTH: 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 FIFTH or
this Article SIXTH.
SEVENTH: 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
SIXTH of this Certificate, and all rights conferred upon the stockholders herein
are granted subject to this right.
EIGHTH:
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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 not be personally liable to the Corporation or its
stockholders for monetary damages for breach fiduciary duty as a director.
2. The corporation may 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 I, nor the
adoption of any provision of the corporation's Certificate of Incorporation
inconsistent with this Article EIGHTH, shall eliminate or reduce the effect of
this Article EIGHTH, in respect of any matter occurring, or any action or
proceeding accruing or arising or that, but for this Article EIGHTH, would
accrue or arise, prior to such amendment, repeal, or adoption of an inconsistent
provision.
NINTH: 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.
IN WITNESS WHEREOF, this Restated Certificate of Incorporation has been
signed this ____ day of ____, 1999.
Mission Critical Software, Inc.
By: -------------------------------------
Michael S. Bennett
President and Chief Executive Officer
ATTEST:
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Stephen E. Odom, Secretary
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<PAGE>
EXHIBIT 3.2.1
BYLAWS
OF
MISSION CRITICAL SOFTWARE, INC.
ARTICLE 1
OFFICES
Section 1.1. REGISTERED OFFICE. The registered office of the Corporation
which is required by the state of Delaware to be maintained in the state of
Delaware shall be the registered office named in the charter documents of the
Corporation, or such other office as may be designated from time to time by the
Board of Directors in the manner provided by law.
Section 1.2. OTHER OFFICES. The Corporation may also have offices at such
other places both within and without the state of Delaware as the Board of
Directors may from time to time determine or the business of the Corporation may
require.
ARTICLE 2
STOCKHOLDERS
Section 2.1. PLACE OF MEETINGS. All meetings of the stockholders shall be
held at the principal office of the Corporation, or at such other place within
or without the state of Delaware as shall be specified or fixed in the notices
or waivers of notice thereof.
Section 2.2. QUORUM; ADJOURNMENT OF MEETINGS. Unless otherwise required by
law or provided in the charter documents of the Corporation or these Bylaws,
(i) 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 any meeting of stockholders for the transaction of business, (ii) in
all matters other than election of directors, the affirmative vote of the
holders of a majority of such stock so present or represented at any meeting of
stockholders at which a quorum is present shall constitute the act of the
stockholders, and (iii) where a separate vote by a class or classes is required,
a majority of the outstanding shares of such class or classes, present in person
or represented by proxy shall constitute a quorum entitled to take action with
respect to that vote on that matter and the affirmative vote of the majority of
the shares of such class or classes present in person or represented by proxy at
the meeting shall be the act of such class. The stockholders present at a duly
organized meeting may continue to transact business until adjournment,
notwithstanding the withdrawal of enough stockholders to leave less than a
quorum, subject to the provisions of clauses (ii) and (iii) above.
Directors shall be elected by a plurality of the votes of the shares
present in person or represented by proxy at the meeting and entitled to vote on
the election of directors.
Notwithstanding the other provisions of the charter documents of the
Corporation or these Bylaws, the chairman of the meeting or the holders of a
majority of the issued and outstanding stock, present in person or represented
by proxy and entitled to vote thereat, at any meeting of
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stockholders, whether or not a quorum is present, shall have the power to
adjourn such meeting from time to time, without any notice other than
announcement at the meeting of the time and place of the holding of the
adjourned meeting. If the adjournment is for more than thirty (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 such meeting. At such adjourned meeting at which a quorum
shall be present or represented any business may be transacted which might have
been transacted at the meeting as originally called.
Section 2.3. ANNUAL MEETING. An annual meeting of the stockholders, for the
election of directors to succeed those whose terms expire and for the
transaction of such other business as may properly come before the meeting,
shall be held at such place (within or without the state of Delaware), on such
date, and at such time as the Board of Directors shall fix and set forth in the
notice of the meeting, which date shall be within thirteen (13) months
subsequent to the last annual meeting of stockholders.
Section 2.4. SPECIAL MEETINGS. Special meetings of stockholders may be
called for any purpose (including, without limitation, the filling of board
vacancies and newly created directorships) may be held at such time and place,
within or without the State of Delaware, as shall be stated in a notice of
meeting or in a duly executed waiver of notice thereof. Such meetings may be
called at any time by the board of directors or the president and shall be
called by the president upon the written request of holders of shares entitled
to cast not less than 25% of the votes at such meeting or by the written request
of the holders of not less than 50% of the outstanding shares of any series or
class of the Corporation's stock, such written request shall state the purpose
or purposes of the meeting and shall be delivered to the President. On such
written request, the President shall fix a date and time for such meeting within
10 days of the date requested for such meeting in such written request.
Section 2.5. RECORD DATE. For the purpose of determining stockholders
entitled to notice of or to vote at any meeting of stockholders, or any
adjournment thereof, 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 of the Corporation may fix a date as
the record date for any such of stockholders, which record date shall not
precede the date on which the resolutions fixing the record date are adopted and
which record date shall not be more than sixty (60) days nor less than ten (10)
days before the date of such meeting of stockholders, nor more than sixty (60)
days prior to any other action to which such record date relates.
If the Board of Directors does not fix a record date for any meeting of the
stockholders, the record date for determining stockholders entitled to notice of
or to vote at such meeting shall be at the close of business on the day next
preceding the day on which notice is given, or, in accordance with Article 7,
Section 7.3 of these Bylaws notice is waived, at the close of business on the
day next preceding the day on which the meeting is held. The record date for
determining stockholders for any other purpose (other than the consenting to
corporate action in writing without a meeting) shall be at the close of business
on the day on which the Board of Directors adopts the resolution relating
thereto. A determination of stockholders of record entitled to notice of or to
vote at a meeting of
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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.
For the purpose of determining the stockholders entitled to consent to
corporate action in writing without a meeting, the Board of Directors may fix a
record date, which record date shall not precede the date upon which the
resolution fixing the record date is adopted by the Board of Directors, and
which date shall not be more than ten (10) days after the date upon which the
resolution fixing the record date is adopted by the Board of Directors. If the
Board of Directors does not fix the record date, the record date for determining
stockholders entitled to consent to corporate action in writing without a
meeting, when no prior action by the Board of Directors is necessary, shall be
the first date on which a signed written consent setting forth the action taken
or proposed to be taken is delivered to the Corporation at its registered office
in the state of incorporation of the Corporation or at its principal place of
business. If the Board of Directors does not fix the record date, and prior
action by the Board of Directors is necessary, the record date for determining
stockholders entitled to consent to corporate action in writing without a
meeting shall be at the close of business on the day on which the Board of
Directors adopts the resolution taking such prior action.
Section 2.6. NOTICE OF MEETINGS. Written notice of the place, date and hour
of all meetings, and, in case of a special meeting, the purpose or purposes for
which the meeting is called, shall be given by or at the direction of the
President, the Secretary or the other person(s) calling the meeting to each
stockholder entitled to vote thereat not less than ten (10) nor more than sixty
(60) days before the date of the meeting. Such notice may be delivered either
personally or by mail. If mailed, notice is given when deposited in the United
States mail, postage prepaid, directed to the stockholder at such stockholder's
address as it appears on the records of the Corporation.
Section 2.7. STOCKHOLDER LIST. A complete list of stockholders entitled to
vote at any meeting of stockholders, arranged in alphabetical order for each
class of stock and showing the address of each such stockholder and the number
of shares registered in the name of such stockholder, shall be open to the
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least ten (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 stockholder list
shall also be produced and kept at the time and place of the meeting during the
whole time thereof, and may be inspected by any stockholder who is present.
Section 2.8. PROXIES. Each stockholder entitled to vote at a meeting of
stockholders or to express consent or dissent to a corporate action in writing
without a meeting may authorize another person or persons to act for him by
proxy. Proxies for use at any meeting of stockholders shall be filed with the
Secretary, or such other officer as the Board of Directors may from time to time
determine by resolution, before or at the time of the meeting. All proxies
shall be received and taken charge of and all ballots shall be received and
canvassed by the secretary of the meeting, who shall decide all questions
touching upon the qualification of voters, the validity of the proxies, and the
acceptance or rejection of votes, unless an inspector or inspectors shall have
been appointed by the chairman of the meeting, in which event such inspector or
inspectors shall decide all such questions.
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No proxy shall be valid after three (3) years from its date, unless the
proxy provides for a longer period. Each proxy shall be revocable unless
expressly provided therein to be irrevocable and coupled with an interest
sufficient in law to support an irrevocable power.
Should a proxy designate two or more persons to act as proxies, unless such
instrument shall provide the contrary, a majority of such persons present at any
meeting at which their powers thereunder are to be exercised shall have and may
exercise all the powers of voting or giving consents thereby conferred, or if
only one be present, then such powers may be exercised by that one; or, if an
even number attend and a majority do not agree on any particular issue, each
proxy so attending shall be entitled to exercise such powers in respect of such
portion of the shares as is equal to the reciprocal of the fraction equal to the
number of proxies representing such shares divided by the total number of shares
represented by such proxies.
Section 2.9. VOTING; ELECTION; INSPECTORS. Unless otherwise required by law
or provided for in the charter documents of the Corporation, each stockholder
shall on each matter submitted to a vote at a meeting of stockholders have one
vote for each share of the stock entitled to vote which is registered in his
name on the record date for the meeting. For the purposes hereof, each election
to fill a directorship shall constitute a separate matter. Shares registered in
the name of another corporation, domestic or foreign, may be voted by such
officer, agent or proxy as the bylaws (or comparable body) of such corporation
may determine. Shares registered in the name of a deceased person may be voted
by the executor or administrator of such person's estate, either in person or by
proxy.
All voting, except as required by the charter documents of the Corporation
or where otherwise required by law, may be by a voice vote; provided, however,
upon request of the chairman of the meeting or upon demand therefor by
stockholders holding a majority of the issued and outstanding stock present in
person or by proxy at any meeting a stock vote shall be taken. Every stock vote
shall be taken by written ballots, each of which shall state the name of the
stockholder or proxy voting and such other information as may be required under
the procedure established for the meeting. All elections of directors shall be
by written ballots, unless otherwise provided in the charter documents of the
Corporation.
At any meeting at which a vote is taken by written ballots, the chairman of
the meeting may appoint one or more inspectors; each of whom shall subscribe an
oath or affirmation to execute faithfully the duties of inspector at such
meeting with strict impartiality and according to the best of such inspector's
ability. Such inspector shall receive the written ballots, count the votes, and
make and sign a certificate of the result thereof. The chairman of the meeting
may appoint any person to serve as inspector, except no candidate for the office
of director shall be appointed as an inspector.
Unless otherwise provided in the charter documents of the Corporation,
cumulative voting for the election of directors shall be prohibited.
Section 2.10. CONDUCT OF MEETINGS. The meetings of the stockholders shall
be presided over by the President, or, if the President is not present, by a
chairman elected at the meeting. The Secretary of the Corporation, if present,
shall act as secretary of such meetings, or, if the Secretary is
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<PAGE>
not present, an Assistant Secretary shall so act; if neither the Secretary of or
Assistant Secretary is present, then a secretary shall be appointed by the
chairman of the meeting.
The chairman of any meeting of stockholders shall determine the order of
business and the procedure at the meeting, including such regulation of the
manner of voting and the conduct of discussion as seem to the chairman in order.
Section 2.11. TREASURY STOCK. The Corporation shall not vote, directly or
indirectly, shares of its own stock owned by it and such shares shall not be
counted for quorum purposes. Nothing in this Section 2.11 shall be construed as
limiting the right of the Corporation to vote stock, including but not limited
to its own stock, held by it in a fiduciary capacity.
Section 2.12. ACTION WITHOUT MEETING. Unless otherwise provided in the
charter documents of the Corporation any action permitted or required by law,
the charter documents of the Corporation, any action permitted or required by
law, the charter documents of the Corporation or these Bylaws to be taken at a
meeting of stockholders, may be taken without a meeting, without prior notice
and without a vote, if a consent or consents in writing, setting forth the
action so taken, shall be signed by the holders of outstanding stock having not
less than the minimum number of votes that would be necessary to authorize or
take such action at a meeting at which all shares entitled to vote thereon were
present and voted and shall be delivered to the Corporation by delivery to its
registered office in the state of incorporation, its principal place of
business, or an officer or agent of the Corporation having custody of the book
in which proceedings of meetings of stockholders are recorded. Delivery made to
the Corporation's registered office shall be by hand or by certified or
registered mail, return receipt requested.
Every written consent shall bear the date of signature of each stockholder
who signs the consent, and no written consent shall be effective to take the
corporate action referred to therein unless, within sixty (60) days of the
earliest dated consent delivered in the manner required by this Section to the
Corporation, written consents signed by a sufficient number of holders to take
action are delivered to the Corporation by delivery to its registered office in
the state of incorporation, its principal place of business, or an officer or
agent of the Corporation having custody of the book in which proceedings of
meetings of stockholders are recorded. Delivery made to the Corporation's
registered office shall be by hand or by certified or registered mail, return
receipt requested.
Prompt notice of the taking of corporation action without a meeting by less
than a unanimous written consent shall be given by the-Secretary to those
stockholders who have not consented in writing.
ARTICLE 3
BOARD OF DIRECTORS
Section 3.1. POWER; NUMBER; TERM OF OFFICE. The business and affairs of the
Corporation shall be managed by or under the direction of the Board of
Directors, and, subject to the restrictions imposed by law or the charter
documents of the Corporation, the Board of Directors may exercise all the powers
of the Corporation.
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Notwithstanding anything contained in these Bylaws to the contrary, at any
time that a valid agreement among the stockholders is in force with respect to
the nomination, election and removal of directors or similar matters, such
agreement is hereby recognized and directors shall be nominated, elected and
removed in accordance therewith.
The number of directors which shall constitute the whole Board of Directors
shall be determined from time to time by the Board of Directors (provided that
no decrease in the number of directors which would have the effect of shortening
the term of an incumbent director may be made by the Board of Directors). If
the Board of Directors makes no such determination the number of directors shall
be one. Each director shall hold office for the term for which such director is
elected, and until such director's successor shall have been elected and
qualified or until such director's earlier death, resignation or removal.
Unless otherwise provided in the charter documents of the Corporation,
directors need not be stockholders nor resident of the state of Delaware.
Section 3.2. QUORUM; VOTING. Unless otherwise provided in the charter
documents of the Corporation, a majority of the number of directors fixed in
accordance with Section 3.1 shall constitute a quorum for the transaction of
business of the Board of Directors and the vote of a majority of the directors
present at a meeting at which a quorum is present shall be the act of the Board
of Directors.
Section 3.3. PLACE OF MEETINGS; ORDER OF BUSINESS. The directors may hold
their meetings and may have an office and keep the books of the Corporation,
except as otherwise provided by law, in such place or places, within or without
the state of incorporation of the Corporation, as the Board of Directors may
from time to time determine. At all meetings of the Board of Directors business
shall be transacted in such order as shall from time to time be determined by
the President or by the Board of Directors.
Section 3.4. FIRST MEETING. Each newly elected Board of Directors may hold
its first meeting for the purpose of organization and the transaction of
business, if a quorum is present, immediately after and at the same place as the
annual meeting of the stockholders. Notice of such meeting shall not be
required. At the first meeting of the Board of Directors in each year at which a
quorum shall be present, held after the annual meeting of stockholders, the
Board of Directors shall elect the officers of the Corporation.
Section 3.5. REGULAR MEETINGS. Regular meetings of the Board of Directors
shall be held at such times and places as shall be designated from time to time
by the President, or in the President's absence, by another officer of the
Corporation. Notice of such regular meetings shall not be required.
Section 3.6. SPECIAL MEETINGS. Special meetings of the Board of Directors
may be called by the President, or on the written request of any director, by
the Secretary, in each case on at least twenty-four (24) hours' personal,
written, telegraphic, cable or wireless notice to each director. Such notice, or
any waiver thereof pursuant to Article 7, Section 7.3 hereof, need not state the
purpose or purposes of such meeting, except as may otherwise be required by law
or provided for in the charter
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documents of the Corporation or these Bylaws. Meetings may be held at any time
without notice if all the directors are present or if those not present waive
notice of the meeting in writing.
Section 3.7. REMOVAL. 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.
Section 3.8. VACANCIES; INCREASES IN THE NUMBER OF DIRECTORS. Unless
otherwise provided in the charter documents of the Corporation, and subject to
the provisions of any agreement among Stockholders providing for the election of
directors, vacancies existing on the Board of Directors for any reason and newly
created directorships resulting from any increase in the authorized number of
directors may be filled by the affirmative vote of a majority of the holders of
the Corporation's outstanding stock entitled to vote thereon, and any director
so chosen shall hold office until the next annual election and until such
director's successor shall have been elected and qualified, or until such
director's earlier death, resignation or removal.
Section 3.9. COMPENSATION. Directors and members of standing committees
may receive such compensation as the Board of Directors from time to time shall
determine to be appropriate, and shall be reimbursed for all reasonable expenses
incurred in attending and returning from meetings of the board of Directors.
Section 3.10. ACTION WITHOUT A MEETING: TELEPHONE CONFERENCE MEETING.
Unless otherwise restricted by the charter-documents of the Corporation, any
action required or permitted to be taken at any of the Board of Directors or any
committee designated by the Board of Directors may be taken without a meeting if
all members of the Board of Directors 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 of Directors or committee. Such consent shall have the
same force and effect as a unanimous vote at a meeting, and may be stated as
such in any document or instrument filed with the Secretary of State of the
state of incorporation of the Corporation.
Unless otherwise restricted by the charter documents of the Corporation,
subject to the requirement for notice of meetings, members of the Board of
Directors, or members of any committee designated by the Board of Directors, may
participate in a meeting of such Board of Directors or committee, as the case
may be, by means of a conference telephone connection or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and participation in such a meeting shall constitute presence in
person at such meeting, except where a person participates in the meeting for
the express purpose of objecting to the transaction of any business on the
ground that the meeting is not lawfully called or convened.
Section 3.11. APPROVAL OR RATIFICATION OF ACTS OR CONTRACTS BY
STOCKHOLDERS. The Board of Directors in its discretion may submit any act or
contract for approval or ratification at any annual meeting of the stockholders,
or at any special meeting of the stockholders called for the purpose of
considering any such act or contract, and any act or contract that shall be
approved or be ratified by the vote of the stockholders holding a majority of
the issued and outstanding shares of stock of the Corporation entitled to vote
and present in person or by proxy at such meeting (provided that a quorum is
present) shall be as valid and as binding upon the Corporation and upon all the
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stockholders as if it has been approved or ratified by every stockholder of the
Corporation. In addition, any such act or contract may be approved or ratified
by the written consent of stockholders holding a majority of the issued and
outstanding shares of capital stock of the Corporation entitled to vote, and
such consent shall be as valid and binding upon the Corporation and upon all the
stockholders as if it had been approved or ratified by every stockholder of the
Corporation.
ARTICLE 4
COMMITTEES
Section 4.1. DESIGNATION; POWERS. The Board of Directors may, by resolution
passed by a majority of the whole board, designate one or more committees,
including, if they shall so determine, an executive committee and a compensation
committee, with each such committee to consist of one or more of the directors
of the Corporation. Any such designated committee shall have and may exercise
such of the powers and authority of the Board of Directors in the management of
the business and affairs of the Corporation as may be provided in such
resolution, except that no such committee shall have the power or authority of
the Board of Directors in reference of amending the charter documents of the
Corporation, adopting an agreement of merger or consolidation, recommending to
the stockholders the sale, lease or exchange of all or substantially all of the
Corporation's property and assets, recommending to the stockholders a
dissolution of the Corporation or a revocation of a dissolution of the
Corporation, or amending, altering or repealing these Bylaws or adopting new
bylaws for the Corporation. Any such designated committee may authorize the seal
of the Corporation to be affixed to all papers which may require it. In addition
to the above, such committee or committees shall have such other powers and
limitations of authority as may be determined from time to time by the Board of
Directors.
Section 4.2. PROCEDURE; MEETINGS; QUORUM. Any committee designated pursuant
to this Article 4 shall keep regular minutes of its actions and proceedings in a
book provided for that purpose and report the same to the Board of Directors at
its meeting next succeeding such action, shall fix its own rules or procedures,
and shall meet at such times and at such place or places as may be provided by
such rules, or by such committee or the board of Directors. Should a committee
fail to fix its own rules, the provisions of these Bylaws, pertaining to the
calling of meetings and conduct of business by the Board of Directors, shall
apply as nearly as may be possible. At every meeting of any such committee, the
presence of a majority of all the members thereof shall constitute a quorum,
except as provided in Section 4.3 of this Article 4 and the affirmative vote of
a majority of the members present shall be necessary for the adoption by it of
any resolution.
Section 4.3. SUBSTITUTION AND REMOVAL OF MEMBERS: VACANCIES. The Board of
Directors may designate one or more directors as alternate members of any
committee, who may replace any absent or disqualified member at any meeting of
such committee. In the absence or disqualification of a member of a committee,
the member or members present at any meeting and not disqualified from voting,
whether or not constituting a quorum, may unanimously appoint another member of
the Board of Directors to act at the meeting in the place of the absent or
disqualified member. The Board of Directors shall have the power at any time to
remove any member(s) of a committee and to appoint other directors in lieu of
the person(s) so removed and shall also have the power to fill vacancies in a
committee.
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ARTICLE 5
OFFICERS
Section 5.1. NUMBER, TITLES, AND TERM OF OFFICE. The officers of the
Corporation shall be a President, Treasurer, a Secretary, and such other
officers as the Board of Directors may from time to time elect or appoint
(including, but not limited to, a Chairman of the Board, and or more Vice
Presidents, (anyone or more of whom may be designated Executive Vice President
or Senior Vice President) Vice Chairman of the Board, one or more Assistant
Secretaries and one or more Assistant Treasurers). Each officer shall hold
office until such officer's successor shall be duly elected and shall qualify or
until such officer's death or until such officer shall resign or shall have been
removed. Any number of offices may be held by the same person, unless the
Articles of Incorporation of the Corporation provide otherwise. Except for the
Chairman of the Board and the Vice Chairman of the Board, no officer need be a
director.
Section 5.2. POWERS AND DUTIES OF THE PRESIDENT. The President shall be the
chief executive officer of the Corporation. Subject to the control of the Board
of Directors and the Executive Committee (if any), the President shall have
general executive charge, management and control of the properties, business and
operations of the Corporation with all such powers as may be reasonably incident
to such responsibilities; may agree upon and execute all leases, contracts,
evidences of indebtedness and other obligations in the name of the Corporation
and may sign all certificates for shares of capital stock of the Corporation;
and shall have such other powers and duties as designated in accordance with
these Bylaws and as from time to time may be assigned to the President by the
Board of Directors. The President shall preside at all meetings of the
stockholders and of the Board of Directors.
Section 5.3. VICE PRESIDENTS. Each Vice President shall at all times
possess power to sign all certificates, contracts and other instruments of the
Corporation, except as otherwise limited in writing by the Chairman of the
Board, the President or the Vice Chairman of the Board of the Corporation. Each
Vice President shall have such other powers and duties as from time to time may
be assigned to such Vice President by the Board of Directors, the Chairman of
the Board, the President or the Vice Chairman of the Board.
Section 5.4. SECRETARY. The Secretary shall keep the minutes of all
meetings of the Board of Directors, committees of the Board of Directors and the
stockholders, in books provided for that purpose; shall attend to the giving and
serving of all notices; may in the name of the Corporation affix the seal of the
Corporation to all contracts and attest the affixation of the seal of the
Corporation thereto; may sign with the other appointed officers all certificates
for shares of capital stock of the Corporation; shall have charge of the
certificate books, transfer books and stock ledgers, and such other books and
papers as the Board of Directors may direct, all of which shall at all
reasonable times be open to inspection of any director upon application at the
office of the Corporation during business hours; shall have such other powers
and duties as designated in these Bylaws and as from time to time may be
assigned to the Secretary by the Board of Directors, the Chairman of the Board,
the President or the Vice Chairman of the Board; and shall in general perform
all acts incident of the office of Secretary, subject to the control of the
Board of Directors, the Chairman of the Board, the President or the Vice
Chairman of the Board.
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Section 5.5. ASSISTANT SECRETARIES. Each Assistant Secretary shall have the
usual powers and duties pertaining to such offices, together with such other
powers and duties as designated in these Bylaws and as from time to time may be
assigned to an Assistant Secretary by the board of directors, the President, or
the Secretary. The Assistant Secretaries shall exercise the powers of the
Secretary during that officer's absence or inability or refusal to act.
Section 5.6. TREASURER. The Treasurer shall have responsibility for the
custody and control of all the funds and securities of the Corporation, and
shall have such other powers and duties as designated in these Bylaws and as
from time to time may be assigned to the Treasurer by the Board of Directors or
the President. The Treasurer shall perform all acts incident to the position of
Treasurer, subject to the control of the Board of Directors or the President;
and the Treasurer shall, if required by the Board of Directors, give such bond
for the faithful discharge of the Treasurer's duties in such form as the Board
of Directors may require.
Section 5.7. ASSISTANT TREASURERS. Each Assistant Treasurer shall have the
usual powers and duties pertaining to such office, together with such other
powers and duties as designated in these Bylaws and as from time to time may be
assigned to each Assistant Treasurer by the Board of Directors, the President,
or the Treasurer. The Assistant Treasurers shall exercise the powers of the
Treasurer during that officer's absence or inability or refusal to act.
Section 5.8. ACTION WITH RESPECT TO SECURITIES OF OTHER CORPORATIONS.
Unless otherwise directed by the Board of Directors, the President, together
with the Secretary or any Assistant Secretary shall have power to vote and
otherwise act on behalf of the Corporation, in person or by proxy, at any
meeting of security holders of or with respect to any action of security holders
of any other corporation in which this Corporation may hold securities and
otherwise to exercise any and all rights and powers which this Corporation may
possess by reason of its ownership of securities in such other corporation.
Section 5.9. DELEGATION. For any reason that the Board of Directors may
deem sufficient, the Board of Directors may, except where otherwise provided by
statute, delegate the powers or duties of any officer to any other person, and
may authorize any officer to delegate specified duties of such office to any
other person. Any such delegation or authorization by the Board shall be
effected from time to time by resolution of the Board of Directors.
ARTICLE 6
CAPITAL STOCK
Section 6.1. CERTIFICATES OF STOCK. The certificates for shares of the
capital stock of the Corporation shall be in such form, not inconsistent with
that required by law and the charter documents of the Corporation, as shall be
approved by the Board of Directors. Every holder of stock represented by
certificates shall be entitled to have a certificate signed by or in the name of
the Corporation by the President or a Vice President and the Secretary or an
Assistant Secretary or the Treasurer or an Assistant Treasurer of the
Corporation representing the number of shares (and, if the stock of the
Corporation shall be divided into classes or series, certifying the class and
series of such shares) owned by such stockholder which are registered in
certified form; provided, however, that any of or all the signatures on the
certificate may be facsimile. The stock record books and the blank
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stock certificate books shall be kept by the Secretary or at the office of such
transfer agent or transfer agents as the Board of Directors may from time to
time determine. In case any officer, transfer agent or registrar who shall have
signed or whose facsimile signature or signatures shall have been placed upon
any such certificate or certificates shall have ceased to be such officer,
transfer agent or registrar before such certificate is issued by the
Corporation, such certificate may nevertheless be issued by the Corporation with
the same effect as if such person were such officer, transfer agent or registrar
at the date of issue. The stock certificates shall be consecutively numbered and
shall be entered in the books of the Corporation as they are issued and shall
exhibit the holder's name and number of shares.
Section 6.2. TRANSFER OF SHARES. The shares of stock of the Corporation
shall be transferable only on the books of the Corporation by the holders
thereof in person or by their duly authorized attorneys or legal representatives
upon surrender and cancellation of certificates for a like number of shares.
Upon surrender to the Corporation or a transfer agent of the Corporation of a
certificate for shares duly endorsed or accompanied by proper evidence of
succession, assignment or authority to transfer, it shall be the duty of the
Corporation to issue a new certificate to the person entitled thereto, cancel
the old certificate and record the transaction upon its books.
Section 6.3. OWNERSHIP OF SHARES. The Corporation shall be entitled to
treat the holder of record of any share or shares of capital stock of the
Corporation as the holder in fact thereof and, accordingly, shall not be bound
to recognize any equitable or other claim to or interest in such share or shares
on the part of any other person, whether or not it shall have express or other
notice thereof, except as otherwise provided by the laws of the state of
Delaware.
Section 6.4. REGULATIONS REGARDING CERTIFICATES. The Board of Directors
shall have the power and authority to make all such rules and regulations as
they may deem expedient concerning the issue, transfer and registration or the
replacement of certificates for shares of capital stock of the Corporation.
Section 6.5. LOST OR DESTROYED CERTIFICATES. The Board of Directors may
determine the conditions upon which the Corporation may issue a new certificate
of stock in place of a certificate theretofore issued by it which is alleged to
have been lost, stolen or destroyed and may require the owner of such
certificate or such owner's legal representative to give bond, with surety
sufficient to indemnify the Corporation and each transfer agent and registrar
against any and all losses or claims which may arise by reason of the alleged
loss, theft or destruction of any such certificate or the issuance of such new
certificate in the place of the one so lost, stolen destroyed.
ARTICLE 7
MISCELLANEOUS PROVISIONS
Section 7.1. FISCAL YEAR. The fiscal year of the Corporation shall begin on
the first day of July of each year.
Section 7.2. CORPORATE SEAL. The corporate seal shall be circular in form
and shall have inscribed thereon the name of the Corporation and the state of
its incorporation, which seal shall be in the charge of the Secretary and shall
be affixed to certificates of stock, debentures, bonds and
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other documents, in accordance with the direction of the Board of Directors or a
committee thereof, and as may be required by law; however, the Secretary may, if
the Secretary deems it expedient, have a facsimile of the corporate seal
inscribed on any such certificates of stock, debentures, bonds, contract or
other documents. Duplicates of the seal may be kept for use by any Assistant
Secretary.
Section 7.3. NOTICE AND WAIVER OF NOTICE. Whenever any notice is required
to be given by law, the charter documents of the Corporation or under the
provisions of these Bylaws, said notice shall be deemed to be sufficient if
given (i) by telegraphic, cable or wireless transmission (including by telecopy
or facsimile transmission) or (ii) by deposit of the same in a post office box
or by delivery to an overnight courier service company in a sealed prepaid
wrapper addressed to the person entitled thereto at such person's post office
address, as it appears on the records of the Corporation, and such notice shall
be deemed to have been given on the day of such transmission or mailing or
delivery to courier, as the case may be.
Whenever notice is required to be given by law, the charter documents of
the Corporation or under any of the provisions of 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, including without limitation a director, at 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, directors, or members of a
committee of directors need be specified in any written waiver of notice unless
so required by the charter documents of the Corporation or these Bylaws.
Section 7.4. FACSIMILE SIGNATURE. In addition to the provisions for the
use of facsimile signatures elsewhere specifically authorized in these Bylaws,
facsimile signatures of any officer or officers of the Corporation may be used
whenever and as authorized by the Board of Directors.
Section 7.5. RELIANCE UPON BOOKS, REPORTS AND RECORDS. A member of the
Board of Directors, or a member of any committee designated by the Board of
Directors, shall, in the performance of such person's duties, be protected to
the fullest extent permitted by law in relying upon the records of the
Corporation and upon information, opinion, reports or statements presented to
the Corporation.
Section 7.6. APPLICATION OF BYLAWS. In the event that any provisions of
these Bylaws is or may be in conflict with any law of the United States, of the
state of Delaware, or of any other governmental body or power having
jurisdiction over this Corporation, or over the subject matter to which such
provision of these Bylaws applies, or may apply, such provision of these Bylaws
shall be inoperative to the extent only that the operation thereof unavoidably
conflicts with such law, and shall in all other respects be in full force and
effect.
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ARTICLE 8
INDEMNIFICATION OF OFFICERS AND DIRECTORS
Section 8.1. INDEMNIFICATION. Each person who was, in or is threatened to
be made a named defendant or respondent in any action, suit or proceeding,
whether civil, criminal, administrative or investigative (hereinafter a
"proceeding"), by reason of the fact that he or she, or a person of whom he or
she is the legal representative, is or was a director or officer, of the
Corporation or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation or of a partnership,
joint venture, trust or other enterprise, including service with respect to
employee benefit plans, whether the basis of such proceeding is alleged action
in an official capacity as a director, officer, employee or agent or in any
other capacity while serving as a director, officer, employee or agent, shall be
indemnified and held harmless by the Corporation to the fullest extent
authorized by the Delaware General Corporation Law, as the same exists or may
hereafter be amended (but, in the case of any such amendment, only to the extent
that such amendment permits the Corporation to provide broader indemnification
rights than said law permitted the Corporation to provide prior to such
amendment), against all expense, liability and loss (including attorneys' fees,
judgments, fines, ERISA excise taxes or penalties and amounts paid or to be paid
in settlement) reasonably incurred or suffered by such person in connection
therewith, and such indemnification shall continue as to a person who has ceased
to be a director, officer, employee or agent and shall inure to the benefit of
his or her heirs, executors and administrators. Further, the Corporation shall
pay the expenses (including attorney's fees) incurred by an officer or director
in defending any proceeding, the subject matter for which indemnification is
sought herewith, in advance of its final disposition; provided, however, that,
if the Delaware General Corporation Law requires, the payment of such expenses
incurred by a director or officer in his or her capacity as a director or
officer (and not in any other capacity in which service was or is rendered by
such person while a director or officer, including, without limitation, service
to an employee benefit plan) in advance of the final disposition of such
proceeding, shall be made only upon delivery to the Corporation of an
undertaking, by or on behalf of such director or officer, to repay all amounts
so advanced if it shall ultimately be determined that such director or officer
is not entitled to be indemnified under this Section or otherwise. The
Corporation may, by action of its Board of Directors, provide indemnification to
employees and agents of the Corporation with the same scope and effect as the
foregoing indemnification of directors and officers.
Section 8.2. CLAIMS AND DEFENSES. If a claim under Section 8.1 of this
Article is not paid in full by the Corporation within thirty days after a
written claim has been received by the Corporation, the claimant may at any time
thereafter bring suit against the Corporation to recover the unpaid amount of
the claim and, if successful in whole or in part, the claimant shall be entitled
to be paid also the expense of prosecuting such claim. It shall be a defense to
any such action (other than an action brought to enforce a claim for expenses
incurred in defending any proceeding in advance of its final disposition where
the required undertaking, if any is required, has been tendered to the
Corporation) that the claimant has not met the standards of conduct which make
it permissible under the Delaware General Corporation Law for the Corporation to
indemnify the claimant for the amount claimed, but the burden of proving such
defense shall be on the Corporation. Neither the failure of the Corporation
(including its Board of Directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because he or she has met the applicable standard of conduct
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set forth in the Delaware General Corporation Law, nor an actual determination
by the Corporation (including its Board of Directors, independent legal counsel,
or its stockholders) that the claimant has not met such applicable standard of
conduct, shall be determinative of whether claimant has met the applicable
standard of conduct with respect to any suit by claimant against Corporation.
Section 8.3. NONEXCLUSIVITY. The right to indemnification and the payment
of expenses incurred in defending a proceeding in advance of its final
disposition conferred in this Section shall not be exclusive of any other right
which any person may have or hereafter acquire under any statute, provision of
the Certificate of Incorporation, bylaw, agreement, vote of stockholders or
disinterested directors or otherwise.
Section 8.4. INSURANCE. The Corporation may maintain insurance, at its
expense, to protect itself and any director, officer, employee or agent of the
Corporation or another corporation, partnership, joint venture, trust or other
enterprise against any such expense, liability or loss, whether or not the
Corporation would have the power to indemnify such person against such expense,
liability or loss under the Delaware General Corporation Law.
ARTICLE 9
AMENDMENTS
Section 9.1. AMENDMENTS. The Board of Directors shall have the power to
adopt, amend and repeal from time to time Bylaws of the Corporation, subject to
the right of the stockholders entitled to vote with respect thereto to amend or
repeal such Bylaws as adopted or amended by the Board of Directors.
CERTIFICATE
The foregoing Bylaws were adopted by the Incorporator acting by unanimous
consent dated effective on August 12, 1996 and approved by the Board of Director
acting by unanimous consent dated effective of August 12, 1996.
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EXHIBIT 3.2.2
As amended, May 21, 1999
BYLAWS
OF
MISSION CRITICAL SOFTWARE, INC.
ARTICLE 1
OFFICES
Section 1.1. REGISTERED OFFICE. The registered office of the Corporation
which is required by the state of Delaware to be maintained in the state of
Delaware shall be the registered office named in the charter documents of the
Corporation, or such other office as may be designated from time to time by the
Board of Directors in the manner provided by law.
Section 1.2. OTHER OFFICES. The Corporation may also have offices at
such other places both within and without the state of Delaware as the Board of
Directors may from time to time determine or the business of the Corporation may
require.
ARTICLE 2
STOCKHOLDERS
Section 2.1. PLACE OF MEETINGS. All meetings of the stockholders shall
be held at the principal office of the Corporation, or at such other place
within or without the state of Delaware as shall be specified or fixed in the
notices or waivers of notice thereof.
Section 2.2. QUORUM; ADJOURNMENT OF MEETINGS. Unless otherwise required
by law or provided in the charter documents of the Corporation or these Bylaws,
(i) 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 any meeting of stockholders for the transaction of business, (ii) in
all matters other than election of directors, the affirmative vote of the
holders of a majority of such stock so present or represented at any meeting of
stockholders at which a quorum is present shall constitute the act of the
stockholders, and (iii) where a separate vote by a class or classes is required,
a majority of the outstanding shares of such class or classes, present in person
or represented by proxy shall constitute a quorum entitled to take action with
respect to that vote on that matter and the affirmative vote of the majority of
the shares of such class or classes present in person or represented by proxy at
the meeting shall be the act of such class. The stockholders present at a duly
organized meeting may continue to transact business until adjournment,
notwithstanding the withdrawal of enough stockholders to leave less than a
quorum, subject to the provisions of clauses (ii) and (iii) above.
Directors shall be elected by a plurality of the votes of the shares
present in person or represented by proxy at the meeting and entitled to vote on
the election of directors.
<PAGE>
Notwithstanding the other provisions of the charter documents of the
Corporation or these Bylaws, the chairman of the meeting or the holders of a
majority of the issued and outstanding stock, present in person or represented
by proxy and entitled to vote thereat, at any meeting of stockholders, whether
or not a quorum is present, shall have the power to adjourn such meeting from
time to time, without any notice other than announcement at the meeting of the
time and place of the holding of the adjourned meeting. If the adjournment is
for more than thirty (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 such meeting. At such
adjourned meeting at which a quorum shall be present or represented any business
may be transacted which might have been transacted at the meeting as originally
called.
Section 2.3. ANNUAL MEETING.
(a) An annual meeting of the stockholders, for the election of directors
to succeed those whose terms expire and for the transaction of such other
business as may properly come before the meeting, shall be held at such place
(within or without the state of Delaware), on such date, and at such time as the
Board of Directors shall fix and set forth in the notice of the meeting, which
date shall be within thirteen (13) months subsequent to the last annual meeting
of stockholders.
(b) At an annual meeting of stockholders, only such business shall be
conducted as shal have been properly brought before the meeting. To be properly
brought before an annual meeting, 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 business to be properly brought before an
annual meeting by a stockholder, the stockholder must have given timely notice
thereof in writing to the Secretary of the corporation. To be timely, a
stockholder's notice must be delivered to or mailed and received at the
principal executive offices of the corporation not less than one hundred twenty
(120) calendar days in advance of the date specified in the corporation's proxy
statement released to stockholders in connection with the previous year's annual
meeting of stockholders; provided, however, that in the event that no annual
meeting was held in the previous year or the date of the annual meeting has been
changed by more than thirty (30) days from the date contemplated at the time of
the previous year's proxy statement, notice by the stockholder to be timely must
be so received a reasonable time before the solicitation is made. A
stockholder's notice to the Secretary shall set forth as to each matter the
stockholder proposes to bring before the annual meeting: (i) a brief description
of the business desired to be brought before the annual meeting and the reasons
for conducting such business at the annual meeting, (ii) the name and address,
as they appear on the corporation's books, of the stockholder proposing such
business, (iii) the class and number of shares of the corporation which are
beneficially owned by the stockholder, (iv) any material interest of the
stockholder in such business and (v) any other information that is required to
be provided by the stockholder pursuant to Regulation 14A under the Securities
Exchange Act of 1934, as amended (the "1934 Act"), in his capacity as a
proponent to a stockholder proposal. Notwithstanding the foregoing, in order to
include information with respect to a stockholder proposal in the proxy
statement and form of proxy for a stockholder's meeting, stockholders must
provide notice as required by the regulations promulgated under the 1934 Act.
Notwithstanding anything in these
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Bylaws to the contrary, no business shall be conducted at any annual meeting
except in accordance with the procedures set forth in this paragraph (b). The
chairman of the annual meeting shall, if the facts warrant, determine and
declare at the meeting that business was not properly brought before the meeting
and in accordance with the provisions of this paragraph (b), and, if he should
so determine, he shall so declare at the meeting that any such business not
properly brought before the meeting shall not be transacted.
(c) Only persons who are nominated in accordance with the procedures set
forth in this paragraph (c) shall be eligible for election as Directors.
Nominations of persons for election to the Board of Directors of the corporation
may be made at a meeting of stockholders by or at the direction of the Board of
Directors or by any stockholder of the corporation entitled to vote in the
election of Directors at the meeting who complies with the notice procedures set
forth in this paragraph (c). Such nominations, other than those made by or at
the direction of the Board of Directors, shall be made pursuant to timely notice
in writing to the Secretary of the corporation in accordance with the provisions
of paragraph (b) of this Section 2.2. Such stockholder's notice shall set forth
(i) as to each person, if any, whom the stockholder proposes to nominate for
election or re-election as a Director: (A) the name, age, business address and
residence address of such person, (B) the principal occupation or employment of
such person, (C) the class and number of shares of the corporation which are
beneficially owned by such person, (D) 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 nominations are to
be made by the stockholder, and (E) any other information relating to such
person that is required to be disclosed in solicitations of proxies for
elections of Directors, or is otherwise required, in each case pursuant to
Regulation 14A under the 1934 Act (including without limitation such person's
written consent to being named in the proxy statement, if any, as a nominee and
to serving as a Director if elected); and (ii) as to such stockholder giving
notice, the information required to be provided pursuant to paragraph (b) of
this Section 2.2. At the request of the Board of Directors, any person nominated
by a stockholder for election as a Director shall furnish to the Secretary of
the corporation that information required to be set forth in the stockholder's
notice of nomination which pertains to the nominee. No person shall be eligible
for election as a Director of the corporation unless nominated in accordance
with the procedures set forth in this paragraph (c). The chairman of the meeting
shall, if the facts warrants, determine and declare at the meeting that a
nomination was not made in accordance with the procedures prescribed by these
Bylaws, and if he should so determine, he shall so declare at the meeting, and
the defective nomination shall be disregarded.
Section 2.4. SPECIAL MEETINGS. Special meetings of stockholders may be
called at any time by a majority of the the Board of Directors, or by the
chairman of the board, but such special meetings may not be called by any other
person or persons.
Section 2.5. RECORD DATE. For the purpose of determining stockholders
entitled to notice of or to vote at any meeting of stockholders, or any
adjournment thereof, 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
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lawful action, the Board of Directors of the Corporation may fix a date as the
record date for any such of stockholders, which record date shall not precede
the date on which the resolutions fixing the record date are adopted and which
record date shall not be more than sixty (60) days nor less than ten (10) days
before the date of such meeting of stockholders, nor more than sixty (60) days
prior to any other action to which such record date relates.
If the Board of Directors does not fix a record date for any meeting of
the stockholders, the record date for determining stockholders entitled to
notice of or to vote at such meeting shall be at the close of business on the
day next preceding the day on which notice is given, or, in accordance with
Article 7, Section 7.3 of these Bylaws notice is waived, at the close of
business on the day next preceding the day on which the meeting is held. The
record date for determining stockholders for any other purpose (other than the
consenting to corporate action in writing without a meeting) shall be at the
close of business on the day on which the Board of Directors adopts the
resolution relating thereto. 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.
For the purpose of determining the stockholders entitled to consent to
corporate action in writing without a meeting, the Board of Directors may fix a
record date, which record date shall not precede the date upon which the
resolution fixing the record date is adopted by the Board of Directors, and
which date shall not be more than ten (10) days after the date upon which the
resolution fixing the record date is adopted by the Board of Directors. If the
Board of Directors does not fix the record date, the record date for determining
stockholders entitled to consent to corporate action in writing without a
meeting, when no prior action by the Board of Directors is necessary, shall be
the first date on which a signed written consent setting forth the action taken
or proposed to be taken is delivered to the Corporation at its registered office
in the state of incorporation of the Corporation or at its principal place of
business. If the Board of Directors does not fix the record date, and prior
action by the Board of Directors is necessary, the record date for determining
stockholders entitled to consent to corporate action in writing without a
meeting shall be at the close of business on the day on which the Board of
Directors adopts the resolution taking such prior action.
Section 2.6. NOTICE OF MEETINGS. Written notice of the place, date and
hour of all meetings, and, in case of a special meeting, the purpose or purposes
for which the meeting is called, shall be given by or at the direction of the
President, the Secretary or the other person(s) calling the meeting to each
stockholder entitled to vote thereat not less than ten (10) nor more than sixty
(60) days before the date of the meeting. Such notice may be delivered either
personally or by mail. If mailed, notice is given when deposited in the United
States mail, postage prepaid, directed to the stockholder at such stockholder's
address as it appears on the records of the Corporation.
Section 2.7. STOCKHOLDER LIST. A complete list of stockholders entitled
to vote at any meeting of stockholders, arranged in alphabetical order for each
class of stock and showing the address of each such stockholder and the number
of shares registered in the name of such stockholder, shall be open to the
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least ten (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
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notice of the meeting, or, if not so specified, at the place where the meeting
is to be held. The stockholder list shall also be produced and kept at the time
and place of the meeting during the whole time thereof, and may be inspected by
any stockholder who is present.
Section 2.8. PROXIES. Each stockholder entitled to vote at a meeting of
stockholders or to express consent or dissent to a corporate action in writing
without a meeting may authorize another person or persons to act for him by
proxy. Proxies for use at any meeting of stockholders shall be filed with the
Secretary, or such other officer as the Board of Directors may from time to time
determine by resolution, before or at the time of the meeting. All proxies shall
be received and taken charge of and all ballots shall be received and canvassed
by the secretary of the meeting, who shall decide all questions touching upon
the qualification of voters, the validity of the proxies, and the acceptance or
rejection of votes, unless an inspector or inspectors shall have been appointed
by the chairman of the meeting, in which event such inspector or inspectors
shall decide all such questions.
No proxy shall be valid after three (3) years from its date, unless the
proxy provides for a longer period. Each proxy shall be revocable unless
expressly provided therein to be irrevocable and coupled with an interest
sufficient in law to support an irrevocable power.
Should a proxy designate two or more persons to act as proxies, unless
such instrument shall provide the contrary, a majority of such persons present
at any meeting at which their powers thereunder are to be exercised shall have
and may exercise all the powers of voting or giving consents thereby conferred,
or if only one be present, then such powers may be exercised by that one; or, if
an even number attend and a majority do not agree on any particular issue, each
proxy so attending shall be entitled to exercise such powers in respect of such
portion of the shares as is equal to the reciprocal of the fraction equal to the
number of proxies representing such shares divided by the total number of shares
represented by such proxies.
Section 2.9. VOTING; ELECTION; INSPECTORS. Unless otherwise required by
law or provided for in the charter documents of the Corporation, each
stockholder shall on each matter submitted to a vote at a meeting of
stockholders have one vote for each share of the stock entitled to vote which is
registered in his name on the record date for the meeting. For the purposes
hereof, each election to fill a directorship shall constitute a separate matter.
Shares registered in the name of another corporation, domestic or foreign, may
be voted by such officer, agent or proxy as the bylaws (or comparable body) of
such corporation may determine. Shares registered in the name of a deceased
person may be voted by the executor or administrator of such person's estate,
either in person or by proxy.
All voting, except as required by the charter documents of the
Corporation or where otherwise required by law, may be by a voice vote;
provided, however, upon request of the chairman of the meeting or upon demand
therefor by stockholders holding a majority of the issued and outstanding stock
present in person or by proxy at any meeting a stock vote shall be taken. Every
stock vote shall be taken by written ballots, each of which shall state the name
of the stockholder or proxy voting and such other information as may be required
under the procedure established for the meeting. All elections of directors
shall be by written ballots, unless otherwise provided in the charter documents
of the Corporation.
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At any meeting at which a vote is taken by written ballots, the chairman
of the meeting may appoint one or more inspectors; each of whom shall subscribe
an oath or affirmation to execute faithfully the duties of inspector at such
meeting with strict impartiality and according to the best of such inspector's
ability. Such inspector shall receive the written ballots, count the votes, and
make and sign a certificate of the result thereof. The chairman of the meeting
may appoint any person to serve as inspector, except no candidate for the office
of director shall be appointed as an inspector.
Unless otherwise provided in the charter documents of the Corporation,
cumulative voting for the election of directors shall be prohibited.
Section 2.10. CONDUCT OF MEETINGS. The meetings of the stockholders
shall be presided over by the President, or, if the President is not present, by
a chairman elected at the meeting. The Secretary of the Corporation, if present,
shall act as secretary of such meetings, or, if the Secretary is not present, an
Assistant Secretary shall so act; if neither the Secretary of or Assistant
Secretary is present, then a secretary shall be appointed by the chairman of the
meeting.
The chairman of any meeting of stockholders shall determine the order of
business and the procedure at the meeting, including such regulation of the
manner of voting and the conduct of discussion as seem to the chairman in order.
Section 2.11. TREASURY STOCK. The Corporation shall not vote, directly
or indirectly, shares of its own stock owned by it and such shares shall not be
counted for quorum purposes. Nothing in this Section 2.11 shall be construed as
limiting the right of the Corporation to vote stock, including but not limited
to its own stock, held by it in a fiduciary capacity.
Section 2.12. ACTION WITHOUT MEETING. Unless otherwise provided in the
Certificate of Incorporation, any action which may be taken at any annual or
special meeting of stockholders may be taken without a meeting and without prior
notice, if a consent in writing, setting forth the action so taken, is signed by
the holders of outstanding shares having not less than the minimum number of
votes that would be necessary to authorize or take that action at a meeting at
which all shares entitled to vote on that action were present and voted.
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.
Following the closing date of the Corporation's initial public offering
of shares of its Common Stock pursuant to an effective registration statement
filed with the Securities and Exchange Commission (the "IPO"), no action of
stockholders shall be taken by the stockholders except at an annual or special
meeting of stockholders called in accordance with the notice requirements of
Section 2.6 above and no action of the stockholders shall be taken by written
consent.
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ARTICLE 3
BOARD OF DIRECTORS
Section 3.1. POWER; NUMBER; TERM OF OFFICE. The business and affairs of
the Corporation shall be managed by or under the direction of the Board of
Directors, and, subject to the restrictions imposed by law or the charter
documents of the Corporation, the Board of Directors may exercise all the powers
of the Corporation.
Notwithstanding anything contained in these Bylaws to the contrary, at
any time that a valid agreement among the stockholders is in force with respect
to the nomination, election and removal of directors or similar matters, such
agreement is hereby recognized and directors shall be nominated, elected and
removed in accordance therewith.
The number of directors which shall constitute the whole Board of
Directors shall be determined from time to time by the Board of Directors
(provided that no decrease in the number of directors which would have the
effect of shortening the term of an incumbent director may be made by the Board
of Directors). Each director shall hold office for the term for which such
director is elected, and until such director's successor shall have been elected
and qualified or until such director's earlier death, resignation or removal.
Unless otherwise provided in the charter documents of the Corporation,
directors need not be stockholders nor resident of the state of Delaware.
Section 3.2. CLASSES OF DIRECTORS. Effective upon the closing of the
Corporation's IPO, 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
closing of the IPO, 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 closing of the IPO, 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 closing of the Initial 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.
Section 3.3. QUORUM; VOTING. Unless otherwise provided in the charter
documents of the Corporation, a majority of the number of directors then in
office shall constitute a quorum for the transaction of business of the Board of
Directors and the vote of a majority of the directors present at a meeting at
which a quorum is present shall be the act of the Board of Directors.
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Section 3.4. PLACE OF MEETINGS; ORDER OF BUSINESS. The directors may
hold their meetings and may have an office and keep the books of the
Corporation, except as otherwise provided by law, in such place or places,
within or without the state of incorporation of the Corporation, as the Board of
Directors may from time to time determine. At all meetings of the Board of
Directors business shall be transacted in such order as shall from time to time
be determined by the President or by the Board of Directors.
Section 3.5. FIRST MEETING. Each newly elected Board of Directors may
hold its first meeting for the purpose of organization and the transaction of
business, if a quorum is present, immediately after and at the same place as the
annual meeting of the stockholders. Notice of such meeting shall not be
required. At the first meeting of the Board of Directors in each year at which a
quorum shall be present, held after the annual meeting of stockholders, the
Board of Directors shall elect the officers of the Corporation.
Section 3.6. REGULAR MEETINGS. Regular meetings of the Board of
Directors shall be held at such times and places as shall be designated from
time to time by the President, or in the President's absence, by another officer
of the Corporation. Notice of such regular meetings shall not be required.
Section 3.7. SPECIAL MEETINGS. Special meetings of the Board of
Directors may be called by the President, or on the written request of any
director, by the Secretary, in each case on at least twenty-four (24) hours'
personal, written, telegraphic, cable or wireless notice to each director. Such
notice, or any waiver thereof pursuant to Article 7, Section 7.3 hereof, need
not state the purpose or purposes of such meeting, except as may otherwise be
required by law or provided for in the charter documents of the Corporation or
these Bylaws. Meetings may be held at any time without notice if all the
directors are present or if those not present waive notice of the meeting in
writing.
Section 3.8. REMOVAL. 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.
Section 3.9. VACANCIES; INCREASES IN THE NUMBER OF DIRECTORS. Any
director may resign effective on giving written notice to the chairman of the
board, the president, the secretary or the board of directors, unless the notice
specifies a later time for that resignation to become effective. If the
resignation of a director is effective at a future time, the board of directors
may elect a successor to take office when the resignation becomes effective.
Unless otherwise provided in the Certificate of Incorporation or these
bylaws, vacancies in the board of directors may be filled by a majority of the
remaining directors, even if less than a quorum, or by a sole remaining
director; however, a vacancy created by the removal of a director by the vote or
written consent of the stockholders or by court order may be filled only by the
affirmative vote of a majority of the shares represented and voting at a duly
held meeting at which a quorum is present (which shares voting affirmatively
also constitute a majority of the required quorum), or by the unanimous written
consent of all shares entitled to vote thereon. Each director so elected shall
hold office until the next annual meeting of the stockholders and until a
successor has been elected and qualified.
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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 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 call a special meeting of stockholders in accordance with
the provisions of the certificate of incorporation or these bylaws, or 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 ten (10) percent 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.
Section 3.10. COMPENSATION. Directors and members of standing committees
may receive such compensation as the Board of Directors from time to time shall
determine to be appropriate, and shall be reimbursed for all reasonable expenses
incurred in attending and returning from meetings of the board of Directors.
Section 3.11. ACTION WITHOUT A MEETING: TELEPHONE CONFERENCE MEETING.
Unless otherwise restricted by the charter documents of the Corporation, any
action required or permitted to be taken at any of the Board of Directors or any
committee designated by the Board of Directors may be taken without a meeting if
all members of the Board of Directors 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 of Directors or committee. Such consent shall have the
same force and effect as a unanimous vote at a meeting, and may be stated as
such in any document or instrument filed with the Secretary of State of the
state of incorporation of the Corporation.
Unless otherwise restricted by the charter documents of the Corporation,
subject to the requirement for notice of meetings, members of the Board of
Directors, or members of any
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committee designated by the Board of Directors, may participate in a meeting of
such Board of Directors or committee, as the case may be, by means of a
conference telephone connection or similar communications equipment by means of
which all persons participating in the meeting can hear each other, and
participation in such a meeting shall constitute presence in person at such
meeting, except where a person participates in the meeting for the express
purpose of objecting to the transaction of any business on the ground that the
meeting is not lawfully called or convened.
Section 3.12. APPROVAL OR RATIFICATION OF ACTS OR CONTRACTS BY
STOCKHOLDERS. The Board of Directors in its discretion may submit any act or
contract for approval or ratification at any annual meeting of the stockholders,
or at any special meeting of the stockholders called for the purpose of
considering any such act or contract, and any act or contract that shall be
approved or be ratified by the vote of the stockholders holding a majority of
the issued and outstanding shares of stock of the Corporation entitled to vote
and present in person or by proxy at such meeting (provided that a quorum is
present) shall be as valid and as binding upon the Corporation and upon all the
stockholders as if it has been approved or ratified by every stockholder of the
Corporation. In addition, any such act or contract may be approved or ratified
by the written consent of stockholders holding a majority of the issued and
outstanding shares of capital stock of the Corporation entitled to vote, and
such consent shall be as valid and binding upon the Corporation and upon all the
stockholders as if it had been approved or ratified by every stockholder of the
Corporation.
ARTICLE 4
COMMITTEES
Section 4.1. DESIGNATION; POWERS. The Board of Directors may, by
resolution passed by a majority of the board, designate one or more committees,
including, if they shall so determine, an executive committee and a compensation
committee, with each such committee to consist of one or more of the directors
of the Corporation. Any such designated committee shall have and may exercise
such of the powers and authority of the Board of Directors in the management of
the business and affairs of the Corporation as may be provided in such
resolution, except that no such committee shall have the power or authority of
the Board of Directors in reference of amending the charter documents of the
Corporation, adopting an agreement of merger or consolidation, recommending to
the stockholders the sale, lease or exchange of all or substantially all of the
Corporation's property and assets, recommending to the stockholders a
dissolution of the Corporation or a revocation of a dissolution of the
Corporation, or amending, altering or repealing these Bylaws or adopting new
bylaws for the Corporation. Any such designated committee may authorize the seal
of the Corporation to be affixed to all papers which may require it. In addition
to the above, such committee or committees shall have such other powers and
limitations of authority as may be determined from time to time by the Board of
Directors.
Section 4.2. PROCEDURE; MEETINGS; QUORUM. Any committee designated
pursuant to this Article 4 shall keep regular minutes of its actions and
proceedings in a book provided for that purpose and report the same to the Board
of Directors at its meeting next succeeding such action, shall fix its own rules
or procedures, and shall meet at such times and at such place or places as may
be provided by such rules, or by such committee or the board of Directors.
Should a committee fail to fix its own rules, the provisions of these Bylaws,
pertaining to the calling of meetings and conduct of business by the Board of
Directors, shall apply as nearly as may be possible. At every meeting of
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any such committee, the presence of a majority of all the members thereof shall
constitute a quorum, except as provided in Section 4.3 of this Article 4 and the
affirmative vote of a majority of the members present shall be necessary for the
adoption by it of any resolution.
Section 4.3. SUBSTITUTION AND REMOVAL OF MEMBERS: VACANCIES. The Board
of Directors may designate one or more directors as alternate members of any
committee, who may replace any absent or disqualified member at any meeting of
such committee. In the absence or disqualification of a member of a committee,
the member or members present at any meeting and not disqualified from voting,
whether or not constituting a quorum, may unanimously appoint another member of
the Board of Directors to act at the meeting in the place of the absent or
disqualified member. The Board of Directors shall have the power at any time to
remove any member(s) of a committee and to appoint other directors in lieu of
the person(s) so removed and shall also have the power to fill vacancies in a
committee.
ARTICLE 5
OFFICERS
Section 5.1. NUMBER, TITLES, AND TERM OF OFFICE. The officers of the
Corporation shall be a President, Treasurer, a Secretary, and such other
officers as the Board of Directors may from time to time elect or appoint
(including, but not limited to, a Chairman of the Board, and or more Vice
Presidents, (anyone or more of whom may be designated Executive Vice President
or Senior Vice President) Vice Chairman of the Board, one or more Assistant
Secretaries and one or more Assistant Treasurers). Each officer shall hold
office until such officer's successor shall be duly elected and shall qualify or
until such officer's death or until such officer shall resign or shall have been
removed. Any number of offices may be held by the same person, unless the
Articles of Incorporation of the Corporation provide otherwise. Except for the
Chairman of the Board and the Vice Chairman of the Board, no officer need be a
director.
Section 5.2. POWERS AND DUTIES OF THE PRESIDENT. The President shall be
the chief executive officer of the Corporation. Subject to the control of the
Board of Directors and the Executive Committee (if any), the President shall
have general executive charge, management and control of the properties,
business and operations of the Corporation with all such powers as may be
reasonably incident to such responsibilities; may agree upon and execute all
leases, contracts, evidences of indebtedness and other obligations in the name
of the Corporation and may sign all certificates for shares of capital stock of
the Corporation; and shall have such other powers and duties as designated in
accordance with these Bylaws and as from time to time may be assigned to the
President by the Board of Directors. The President shall preside at all meetings
of the stockholders and of the Board of Directors.
Section 5.3. VICE PRESIDENTS. Each Vice President shall at all times
possess power to sign all certificates, contracts and other instruments of the
Corporation, except as otherwise limited in writing by the Chairman of the
Board, the President or the Vice Chairman of the Board of the Corporation. Each
Vice President shall have such other powers and duties as from time to time may
be assigned to such Vice President by the Board of Directors, the Chairman of
the Board, the President or the Vice Chairman of the Board.
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Section 5.4. SECRETARY. The Secretary shall keep the minutes of all
meetings of the Board of Directors, committees of the Board of Directors and the
stockholders, in books provided for that purpose; shall attend to the giving and
serving of all notices; may in the name of the Corporation affix the seal of the
Corporation to all contracts and attest the affixation of the seal of the
Corporation thereto; may sign with the other appointed officers all certificates
for shares of capital stock of the Corporation; shall have charge of the
certificate books, transfer books and stock ledgers, and such other books and
papers as the Board of Directors may direct, all of which shall at all
reasonable times be open to inspection of any director upon application at the
office of the Corporation during business hours; shall have such other powers
and duties as designated in these Bylaws and as from time to time may be
assigned to the Secretary by the Board of Directors, the Chairman of the Board,
the President or the Vice Chairman of the Board; and shall in general perform
all acts incident of the office of Secretary, subject to the control of the
Board of Directors, the Chairman of the Board, the President or the Vice
Chairman of the Board.
Section 5.5. ASSISTANT SECRETARIES. Each Assistant Secretary shall have
the usual powers and duties pertaining to such offices, together with such other
powers and duties as designated in these Bylaws and as from time to time may be
assigned to an Assistant Secretary by the board of directors, the President, or
the Secretary. The Assistant Secretaries shall exercise the powers of the
Secretary during that officer's absence or inability or refusal to act.
Section 5.6. TREASURER. The Treasurer shall have responsibility for the
custody and control of all the funds and securities of the Corporation, and
shall have such other powers and duties as designated in these Bylaws and as
from time to time may be assigned to the Treasurer by the Board of Directors or
the President. The Treasurer shall perform all acts incident to the position of
Treasurer, subject to the control of the Board of Directors or the President;
and the Treasurer shall, if required by the Board of Directors, give such bond
for the faithful discharge of the Treasurer's duties in such form as the Board
of Directors may require.
Section 5.7. ASSISTANT TREASURERS. Each Assistant Treasurer shall have
the usual powers and duties pertaining to such office, together with such other
powers and duties as designated in these Bylaws and as from time to time may be
assigned to each Assistant Treasurer by the Board of Directors, the President,
or the Treasurer. The Assistant Treasurers shall exercise the powers of the
Treasurer during that officer's absence or inability or refusal to act.
Section 5.8. ACTION WITH RESPECT TO SECURITIES OF OTHER CORPORATIONS.
Unless otherwise directed by the Board of Directors, the President, together
with the Secretary or any Assistant Secretary shall have power to vote and
otherwise act on behalf of the Corporation, in person or by proxy, at any
meeting of security holders of or with respect to any action of security holders
of any other corporation in which this Corporation may hold securities and
otherwise to exercise any and all rights and powers which this Corporation may
possess by reason of its ownership of securities in such other corporation.
Section 5.9. DELEGATION. For any reason that the Board of Directors may
deem sufficient, the Board of Directors may, except where otherwise provided by
statute, delegate the powers or duties of any officer to any other person, and
may authorize any officer to delegate specified duties
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of such office to any other person. Any such delegation or authorization by the
Board shall be effected from time to time by resolution of the Board of
Directors.
ARTICLE 6
CAPITAL STOCK
Section 6.1. CERTIFICATES OF STOCK. The certificates for shares of the
capital stock of the Corporation shall be in such form, not inconsistent with
that required by law and the charter documents of the Corporation, as shall be
approved by the Board of Directors. Every holder of stock represented by
certificates shall be entitled to have a certificate signed by or in the name of
the Corporation by the President or a Vice President and the Secretary or an
Assistant Secretary or the Treasurer or an Assistant Treasurer of the
Corporation representing the number of shares (and, if the stock of the
Corporation shall be divided into classes or series, certifying the class and
series of such shares) owned by such stockholder which are registered in
certified form; provided, however, that any of or all the signatures on the
certificate may be facsimile. The stock record books and the blank stock
certificate books shall be kept by the Secretary or at the office of such
transfer agent or transfer agents as the Board of Directors may from time to
time determine. In case any officer, transfer agent or registrar who shall have
signed or whose facsimile signature or signatures shall have been placed upon
any such certificate or certificates shall have ceased to be such officer,
transfer agent or registrar before such certificate is issued by the
Corporation, such certificate may nevertheless be issued by the Corporation with
the same effect as if such person were such officer, transfer agent or registrar
at the date of issue. The stock certificates shall be consecutively numbered and
shall be entered in the books of the Corporation as they are issued and shall
exhibit the holder's name and number of shares.
Section 6.2. TRANSFER OF SHARES. The shares of stock of the Corporation
shall be transferable only on the books of the Corporation by the holders
thereof in person or by their duly authorized attorneys or legal representatives
upon surrender and cancellation of certificates for a like number of shares.
Upon surrender to the Corporation or a transfer agent of the Corporation of a
certificate for shares duly endorsed or accompanied by proper evidence of
succession, assignment or authority to transfer, it shall be the duty of the
Corporation to issue a new certificate to the person entitled thereto, cancel
the old certificate and record the transaction upon its books.
Section 6.3. OWNERSHIP OF SHARES. The Corporation shall be entitled to
treat the holder of record of any share or shares of capital stock of the
Corporation as the holder in fact thereof and, accordingly, shall not be bound
to recognize any equitable or other claim to or interest in such share or shares
on the part of any other person, whether or not it shall have express or other
notice thereof, except as otherwise provided by the laws of the state of
Delaware.
Section 6.4. REGULATIONS REGARDING CERTIFICATES. The Board of Directors
shall have the power and authority to make all such rules and regulations as
they may deem expedient concerning the issue, transfer and registration or the
replacement of certificates for shares of capital stock of the Corporation.
Section 6.5. LOST OR DESTROYED CERTIFICATES. The Board of Directors may
determine the conditions upon which the Corporation may issue a new certificate
of stock in place of a certificate
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theretofore issued by it which is alleged to have been lost, stolen or destroyed
and may require the owner of such certificate or such owner's legal
representative to give bond, with surety sufficient to indemnify the Corporation
and each transfer agent and registrar against any and all losses or claims which
may arise by reason of the alleged loss, theft or destruction of any such
certificate or the issuance of such new certificate in the place of the one so
lost, stolen destroyed.
ARTICLE 7
MISCELLANEOUS PROVISIONS
Section 7.1. FISCAL YEAR. The fiscal year of the Corporation shall begin
on the first day of July of each year.
Section 7.2. CORPORATE SEAL. The corporate seal shall be circular in
form and shall have inscribed thereon the name of the Corporation and the state
of its incorporation, which seal shall be in the charge of the Secretary and
shall be affixed to certificates of stock, debentures, bonds and other
documents, in accordance with the direction of the Board of Directors or a
committee thereof, and as may be required by law; however, the Secretary may, if
the Secretary deems it expedient, have a facsimile of the corporate seal
inscribed on any such certificates of stock, debentures, bonds, contract or
other documents. Duplicates of the seal may be kept for use by any Assistant
Secretary.
Section 7.3. NOTICE AND WAIVER OF NOTICE. Whenever any notice is
required to be given by law, the charter documents of the Corporation or under
the provisions of these Bylaws, said notice shall be deemed to be sufficient if
given (i) by telegraphic, cable or wireless transmission (including by telecopy
or facsimile transmission) or (ii) by deposit of the same in a post office box
or by delivery to an overnight courier service company in a sealed prepaid
wrapper addressed to the person entitled thereto at such person's post office
address, as it appears on the records of the Corporation, and such notice shall
be deemed to have been given on the day of such transmission or mailing or
delivery to courier, as the case may be.
Whenever notice is required to be given by law, the charter documents of
the Corporation or under any of the provisions of 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, including without limitation a director, at 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, directors, or members of a
committee of directors need be specified in any written waiver of notice unless
so required by the charter documents of the Corporation or these Bylaws.
Section 7.4. FACSIMILE SIGNATURE. In addition to the provisions for the
use of facsimile signatures elsewhere specifically authorized in these Bylaws,
facsimile signatures of any officer or officers of the Corporation may be used
whenever and as authorized by the Board of Directors.
Section 7.5. RELIANCE UPON BOOKS, REPORTS AND RECORDS. A member of the
Board of Directors, or a member of any committee designated by the Board of
Directors, shall, in the
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performance of such person's duties, be protected to the fullest extent
permitted by law in relying upon the records of the Corporation and upon
information, opinion, reports or statements presented to the Corporation.
Section 7.6. APPLICATION OF BYLAWS. In the event that any provisions of
these Bylaws is or may be in conflict with any law of the United States, of the
state of Delaware, or of any other governmental body or power having
jurisdiction over this Corporation, or over the subject matter to which such
provision of these Bylaws applies, or may apply, such provision of these Bylaws
shall be inoperative to the extent only that the operation thereof unavoidably
conflicts with such law, and shall in all other respects be in full force and
effect.
ARTICLE 8
INDEMNIFICATION OF OFFICERS AND DIRECTORS
Section 8.1. INDEMNIFICATION. The corporation shall, to the maximum
extent and in the manner permitted by the General Corporation Law of Delaware,
indemnify each of its directors and officers against expenses (including
attorneys' fees), judgments, fines, settlements and other amounts actually and
reasonably incurred in connection with any proceeding, arising by reason of the
fact that such person is or was an agent of the corporation. For purposes of
this Section 6.1, a "director" or "officer" of the corporation includes any
person (i) who is or was a director or officer of the corporation, (ii) who is
or was serving at the request of the corporation as a director or officer of
another corporation, partnership, joint venture, trust or other enterprise, or
(iii) who was a director or officer of a corporation which was a predecessor
corporation of the corporation or of another enterprise at the request of such
predecessor corporation.
Section 8.2. INDEMNIFICATION OF OTHERS. The corporation shall have the
power, to the maximum extent and in the manner permitted by the General
Corporation Law of Delaware, to indemnify each of its employees and agents
(other than directors and officers) against expenses (including attorneys'
fees), judgments, fines, settlements and other amounts actually and reasonably
incurred in connection with any proceeding, arising by reason of the fact that
such person is or was an agent of the corporation. For purposes of this Section
6.2, an "employee" or "agent" of the corporation (other than a director or
officer) includes any person (i) who is or was an employee or agent of the
corporation, (ii) who is or was serving at the request of the corporation as an
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, or (iii) who was an employee or agent of a corporation which
was a predecessor corporation of the corporation or of another enterprise at the
request of such predecessor corporation.
Section 8.3. INSURANCE. The corporation may 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 or her and incurred by him or her in any such capacity, or arising out of
his or her status as such, whether or not the corporation would have the power
to indemnify him or her against such liability under the provisions of the
General Corporation Law of Delaware.
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ARTICLE 9
AMENDMENTS
Section 9.1. AMENDMENTS. The Board of Directors shall have the power to
adopt, amend and repeal from time to time Bylaws of the Corporation, subject to
the right of the stockholders entitled to vote with respect thereto to amend or
repeal such Bylaws as adopted or amended by the Board of Directors.
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As amended, May 21, 1999
CERTIFICATE
The foregoing Bylaws were adopted by the Incorporator acting by unanimous
consent dated effective on August 12, 1996 and approved by the Board of
Directors acting by unanimous consent dated effective of August 12, 1996.
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EXHIBIT 4.3
AMENDED AND RESTATED STOCKHOLDERS' AGREEMENT
THIS AMENDED AND RESTATED STOCKHOLDERS' AGREEMENT is made as of July 2, 1997
by and among the stockholders listed on Schedule I hereto (individually, a
"Stockholder" and collectively, the "Stockholders") and Mission Critical
Software, Inc., a Delaware corporation, (the "Company").
WHEREAS, the Stockholders are the holders of all of the outstanding shares of
the Common Stock, par value $.001 per share, of the Company (the "Common
Stock"), all of the outstanding shares of the Series A Convertible Preferred
Stock, par value $.001 per share, of the Company (the "Series A Stock"), all of
the outstanding shares of Series B Convertible Preferred Stock, par value $.001
per share, of the Company (the "Series B Stock"), and all of the outstanding
shares of Series C Convertible Preferred Stock, par value $.001 per share, of
the Company (the "Series C Stock" and together with the Series A Stock and the
Series B Stock, the "Preferred Stock"); and
WHEREAS, the holders of the Common Stock, the Series A Stock and the Series B
Stock and the Company are parties to a Stockholders Agreement dated as of
September 4, 1996 (the "Original Agreement"); and
WHEREAS, the holders of Series C Stock, pursuant to that certain Series C
Convertible Preferred Stock Purchase Agreement dated as of the date hereof (the
"Purchase Agreement"), have agreed to purchase an aggregate of 3,450,000 shares
of Series C Stock; and it is a condition precedent to the closing of such
purchase and sale that the Company and the Stockholders enter into this
Agreement, thereby amending and restating the Original Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby mutually acknowledged, the parties hereto
covenant and agree as follows:
1. GENERAL PROVISIONS.
1.1. SHARES SUBJECT TO THIS AGREEMENT. The Stockholders expressly agree
that, unless otherwise specified herein, the terms and restrictions of this
Agreement shall apply to the Common Stock and the Preferred Stock, and all other
equity securities of the Company now or hereafter issued (collectively referred
to herein as the "Shares") which any of them now owns or hereafter acquires by
any means, including without limitation by purchase, assignment or operation of
law, or as a result of any stock dividend, stock split, reorganization,
reclassification, whether voluntary or involuntary, or other similar
transaction, and to any shares of capital stock of any successor in interest of
the Company, whether by sale, merger, consolidation or other similar
transaction, or by purchase, assignment or operation of law. Without limiting
the foregoing, the defined terms "Preferred Stock" and "Shares" as used herein
expressly include all shares of Common Stock of the Company issued on conversion
of the Series A Stock, Series B Stock and Series C Stock, in accordance with the
Company's Amended and Restated Certificate of Incorporation.
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1.2. NO PARTNERSHIP RELATIONSHIP. Notwithstanding, but not in limitation of,
any other provision of this Agreement, the parties understand and agree that the
creation, management and operation of the Company shall not create or imply a
general partnership between or among the Stockholders and shall not make any
Stockholder the agent or partner of any other Stockholder for any purpose.
2. ELECTION OF THE BOARD OF DIRECTORS.
2.1. ELECTION OF DIRECTORS. Each of the Stockholders agrees to vote his, her
or its Shares (and any other shares of the capital stock of the Company over
which he, she or it exercises voting control) and to take such other actions as
are necessary, so as to fix the number of members of the Board of Directors of
the Company at nine (9) and (to the extent of the voting rights of the shares of
capital stock held by such party) to elect and thereafter continue in office as
directors of the Company:
(i) one (1) individual who shall be designated by International
Capital Partners, Inc. and Zesiger Capital Group, LLC (the
"ICP Director");
(ii) one (1) individual who shall be designated by New
Enterprise Associates VII, Limited Partnership ("NEA VII")
(the "NEA Director");
(iii) one (1) individual who shall be designated by Austin
Ventures V, L.P. (the "Austin Ventures Director");
(iv) one (1) individual who shall be designated by JMI Equity
Fund III, L.P. (the "JMI Director");
(v) four (4) individuals who shall be designated by the
Stockholders owning a majority of the Shares of Common
Stock and Series A Stock voting together (the "Common
Directors");
(vi) one (1) individual who shall not be an employee of the
Company and who shall be designated by all of the Common
Directors and then approved by each of the ICP Director,
the NEA Director, the Austin Ventures Director and the JMI
Director (the "Independent Director").
The Stockholders agree that no individual designated as a Common Director
or the Independent Director shall be an ancestor, descendent, spouse, sibling,
or spouse or descendent of a sibling of any other director of the Company. As
used herein, the ICP Director, the NEA Director, the Austin Ventures Director
and the JMI Director are collectively referred to as the "VC Directors."
As of the date hereof, each of the parties agrees that (i) Douglas L. Ayer
shall be designated as the ICP Director, (ii) Scott D. Sandell shall be
designated as the NEA Director,
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(iii) John D. Thornton shall be designated the Austin Ventures Director, (iv)
John Moores shall be designated the JMI Director, (v) Thomas P. Bernhardt, Louis
R. Woodhill and Paul F. Koffend, Jr. shall be designated as the Common
Directors, and (vi) E. Alexander Goldstein shall be designated as the
Independent Director. As of the date hereof, one Common Director shall be
undesignated. Without limiting the generality of the foregoing, at each annual
meeting of the stockholders of the Company, and at each special meeting of the
stockholders called for the purpose of electing directors of the Company, and at
any time at which the stockholders of the Company have the right to, or shall,
elect directors of the Company, then, and in each event, each Stockholder shall
vote or cause to be voted all Shares owned or controlled by him, her or it (or
shall consent in writing in lieu of a meeting of stockholders of the Company, as
the case may be) to set the number of, and to elect persons as, directors of the
Company in accordance with this Section 2.1.
2.2. REMOVAL OF BOARD MEMBERS. Each of the Stockholders agrees to vote
his, her or its Shares (and any other shares of the capital stock of the Company
over which he, she or it exercises voting control) and take such other actions
as are necessary, for the removal of any director upon the request of the party
or parties designating such director or in the case of the Independent Director
upon the unanimous consent of either (i) all of the VC Directors or (ii) all of
the Common Directors. Any such removal shall create a vacancy which shall be
filled in accordance with Section 2.3.
2.3. VACANCIES ON THE BOARD OF DIRECTORS. Each of the Stockholders agrees
to vote his, her or its Shares (and any other shares of the capital stock of the
Company over which he, she or it exercises voting control) and take such other
actions as are necessary, in such manner as shall be necessary or appropriate to
ensure that any vacancy on the Board of Directors of the Company shall be filled
either (i) in accordance with Section 2.1 or (ii) pending such shareholder
action, by the vote of a majority of the Board of Directors.
2.4. OBLIGATION OF THE COMPANY. The Company hereby agrees not to take any
action or fail to object to any action which would be inconsistent with the
parties' exercise of their obligations under this Section 2.
2.5. ELECTION OF DIRECTORS. The Company shall provide the Stockholders
with 30 days' prior written notice of any meeting at which directors are to be
elected. Each group of Stockholders designating a director hereunder shall give
written notice to the Company no later than 20 days prior to such meeting, of
the persons designated by such group as nominees for election as directors. The
Company agrees to nominate and recommend for election as directors only the
individuals designated, or to be designated, pursuant to Section 2.1. If such
Stockholders fail to give notice to the Company as provided above, it shall be
deemed that the designee[s] of such Stockholders then serving as director[s]
shall be their designee[s] for reelection.
2.6. REIMBURSEMENT OF EXPENSES. The Company shall pay the reasonable out-
of-pocket expenses of all Directors (other than any Directors who are employees
of the Company, who shall be reimbursed in accordance with the Company's
existing employee travel policy) in attending meetings of the Board of Directors
and committees thereof (including, without limitation, travel, room and board).
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2.7. COMMITTEES OF THE BOARD. The Stockholders shall cause their director-
nominees to vote in favor of (i) the establishment of a Compensation Committee
comprised solely of each VC Director and the Independent Director to oversee (A)
the compensation of all executive officers of the Company, (B) the compensation
of all employees of the Company earning $100,000 or more per year, and (C) all
awards of stock, stock options or other form of equity compensation to officers,
employees and consultants of the Company, whether pursuant to an equity
incentive plan approved by the Company's shareholders or otherwise, and (ii) the
appointment of each VC Director to any other committee of the Board of Directors
which may from and after the date hereof be established.
2.8. INDEMNIFICATION AND INSURANCE. The Company shall indemnify each
member of the Board of Directors to the fullest extent provided by law and shall
advance expenses in connection with defending such claims to the extent provided
in the By-laws of the Company as such By-laws exist on the date hereof. Upon
the consummation of an initial public offering of the Common Stock of the
Company, the Company shall obtain directors liability insurance with per-claim
coverage of at least $1,000,000.
3. RIGHT OF FIRST REFUSAL ON COMMON STOCK AND SERIES A STOCK.
3.1. RESTRICTED TRANSFER. Except as otherwise provided for in Sections
3.2 and 3.4 below, and except in connection with transfers to the Company, each
holder of Common Stock and each holder of Series A Stock listed on Schedule II
hereto (each, a "Selling Stockholder") agrees that he, she or it shall not sell,
transfer, pledge, hypothecate or otherwise dispose of, by operation of law or
otherwise (collectively, "transfer"), any of the Common Stock or Series A Stock
held by him, her or it except for transfers pursuant to this Agreement.
3.2. PERMITTED TRANSFERS. A Selling Stockholder may transfer Common Stock
or Series A Stock (a "Permitted Transfer") to or for the benefit of any
Permitted Transferee (as defined below), provided that such Common Stock and
Series A Stock shall remain subject to this Agreement and such Permitted
Transferee shall, as a condition to such transfer, deliver to the Company a
written instrument confirming that such transferee shall be bound by all of the
terms and conditions of this Agreement. For the purposes of this Agreement, a
"Permitted Transferee" shall mean (i) an ancestor, descendant, sibling or spouse
of an individual Selling Stockholder or to any trust for the benefit of, or
partnership solely owned by, any such persons or to a trust for the benefit of,
or partnership solely owned by, the Selling Stockholder, provided such transfer
does not effect any change in the voting control of the Common Stock or Series A
Stock, as the case may be, and (ii) an entity that directly, or indirectly
through one or more intermediaries, controls or is controlled by, or is under
common control with, a corporation or partnership Selling Stockholder.
3.3. SALE NOTICE. At least twenty (20) days prior to making any transfer
of Common Stock or Series A Stock other than a Permitted Transfer, a Selling
Stockholder (and/or a Permitted Transferee of a Selling Stockholder), shall
deliver a written notice (the "Sale Notice") to each holder of Series B Stock
(each, a "Series B Stockholder"), each holder of Series C Stock (each, a "Series
C Stockholder", and together with the Series B Stockholders, the "Series B and C
Stockholders") and to the Company disclosing in reasonable detail the identity
of the proposed transferees and the terms and conditions of the proposed
transfer.
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3.4. RIGHT OF FIRST REFUSAL. The Company may elect to purchase some or all
of the Common Stock and/or Series A Stock to be transferred (the "Offered
Stock") upon the terms and conditions set forth in the Sale Notice by delivering
a written notice of such election to the transferring Selling Stockholder (the
"Offeror") and the Series B and C Stockholders within ten (10) business days
after the date of delivery of the Sale Notice by the Offeror as determined
pursuant to Section 6.1 below (the "Delivery Date"). If the Company fails to
elect to purchase all of the Offered Stock, it shall promptly notify the Series
B and C Stockholders and the Series B and C Stockholders may elect to purchase
some or all of the Offered Stock which the Company did not elect to purchase
("Remaining Offered Stock") upon the terms and conditions set forth in the Sale
Notice by delivering a written notice of such election to the Company, the
Offeror and the other Series B and C Stockholders within twenty (20) business
days after the Delivery Date. If more than one Series B and C Stockholder elects
to purchase the Remaining Offered Stock, the Remaining Offered Stock shall be
apportioned among such electing Series B and C Stockholders pro rata to their
respective holdings of the Common Stock issued or issuable upon conversion of
such Series B and C Stockholders' shares of Series B Stock or Series C Stock, as
the case may be. The closing of the purchase and sale of the Offered Stock and
Remaining Offered Stock shall take place on a date agreed upon by the Offeror
and the Company and/or the Series B and C Stockholders purchasing the remaining
shares of Common Stock or Series A Stock, as the case may be, but in any event
within thirty (30) business days after the Delivery Date, at the principal
office of the Company, or such other place as may be agreed to by the Offeror,
the Company and such Series B and C Stockholders. Such purchase and sale shall
take place upon the terms and conditions set forth in the Sale Notice that in
the event that the transaction described in a Sale Notice involves in whole or
in part the payment of non-cash consideration, or the payment of consideration
over time, the Company and any purchasing Series B and C Stockholder shall have
the right to elect, upon exercise of their rights set forth in this Section 3,
to pay to the Selling Stockholders in full consideration for the Offered Stock
the market price of such securities which shall be the present cash value of the
consideration described in the Sale Notice as determined by the Board of
Directors of the Company in good faith. If the Company and the Series B and C
Stockholders fail to elect to purchase all of the Offered Stock, the Offeror
may, subject to Section 4, transfer the Offered Stock not purchased by the
Company and the Series B and C Stockholders at a price and on terms no more
favorable to the transferee than those specified in the Sale Notice during the
120-day period immediately following the date on which the Series B and C
Stockholder's right of first refusal expired. Any Offered Stock not sold or
transferred during such 120-day period will again be subject to the provisions
of this Section 3.
3.5. EFFECT OF PROHIBITED TRANSFER. The Company shall not be required (a)
to transfer on its books any of the Common Stock or Series A Stock which shall
have been sold or transferred in violation of any of the provisions set forth in
this Agreement, or (b) to treat as owner of such Common Stock or Series A Stock
or to pay dividends to any transferee to whom any such Common Stock or Series A
Stock shall have been so sold or transferred.
3.6. ADJUSTMENT FOR STOCK SPLITS, STOCK DIVIDENDS, ETC. If from time to
time during the term of this Agreement there is any stock split-up, stock
dividend, stock distribution or other reclassification of the Common Stock or
Series A Stock of the Company, any and all new, substituted or additional
securities to which a Selling Stockholder is entitled by reason of his, her or
its ownership of Common Stock or Series A Stock shall be immediately subject to
the provisions of this Agreement in the same manner and to the same extent as
the Shares.
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3.7. ACQUISITION OF COMMON STOCK AND SERIES A STOCK BY SERIES B AND C
STOCKHOLDERS. Notwithstanding anything in this Agreement to the contrary,
shares of Common Stock and Series A Stock acquired pursuant to this Agreement by
a Series B and C Stockholder not listed on Schedule II shall no longer be
subject to the transfer restrictions of Sections 3 and 4 hereto.
4. RIGHT OF CO-SALE ON COMMON STOCK.
4.1. CO-SALE RIGHT. If the Company and/or Series B and C Stockholders do
not elect to purchase all of the Offered Stock from the Selling Stockholder
pursuant to Section 3 above, any Series B and C Stockholder not electing to
purchase any of the Offered Stock pursuant to Section 3 above may elect to
participate in the contemplated sale by delivering written notice to the Selling
Stockholder and the Company within twenty (20) business days after receipt of
the Sale Notice. If such Series B and C Stockholder (each a "Participating
Seller") elects to so participate, such Participating Seller shall be entitled
to sell, at the same price and on the same terms, such number of shares of
Common Stock as is determined by multiplying the number of shares of Offered
Stock (or the number of shares of Common Stock into which the Offered Stock is
convertible, as the case may be) by a fraction, the numerator of which is the
number of Shares owned by such Participating Seller (assuming the conversion of
such Participating Seller's Preferred Stock into shares of Common Stock) at the
time of the transfer and the denominator of which is the number of Shares owned
by all Series B and C Stockholders and the Selling Stockholders at the time of
the transfer (assuming the conversion of all Preferred Stock into Common Stock).
4.2. OVERALLOTMENT. If any Series B and C Stockholder does not elect to
fully participate in the Selling Stockholder's sale pursuant to this Section 4,
the Selling Stockholder shall promptly give notice of such failure to the
Participating Sellers who did so elect. Such notice may be made by telephone if
confirmed in writing within two (2) days. Such Participating Sellers shall have
five (5) days from the date such notice was given to agree to sell their pro
rata share of the unsold portion. For purposes of this Section 4.2, a
Participating Seller's pro rata share shall be the ratio of (x) the number of
Shares (assuming the conversion of all shares of Preferred Stock into Common
Stock) held by such Participating Seller to (y) the total number of Shares
(assuming the conversion of all shares of Preferred Stock into Common Stock)
held by all Participating Sellers.
4.3. DELIVERY OF CERTIFICATES. The Participating Sellers shall effect
their participation in the sale by promptly delivering to the Selling
Stockholder for transfer to the prospective purchaser one or more certificates,
properly endorsed for transfer, which represent:
(a) the type and number of shares of Common Stock which the
Participating Seller elects to sell; or
(b) that number of shares of Series B Stock and Series C Stock which
is at such time convertible into the number of shares of Common Stock (or the
number of shares of Common Stock into which the Offered Stock is convertible, as
the case may be) which the Participating Seller elects to sell; PROVIDED,
HOWEVER, that if the prospective purchaser objects to the delivery of Series B
Stock or Series C Stock in lieu of Common Stock or Series A Stock, the
Participating Seller shall convert such Series B Stock or Series C Stock into
Common Stock and deliver Common Stock as provided in this paragraph 4.3. The
Company agrees to make any such conversion concurrent with the actual transfer
of such shares to the purchaser.
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4.4. CONSUMMATION OF SALE. The stock certificate or certificates that the
Participating Sellers deliver to the Selling Stockholder pursuant to paragraph
4.3 shall be transferred to the prospective purchaser along with the stock
certificate or certificates representing the Selling Stockholders' Shares to be
sold by the Selling Stockholder, such number of Selling Stockholders' Shares to
be correspondingly reduced by the Participating Sellers' shares, in consummation
of the sale of the Selling Stockholders' Shares pursuant to the terms and
conditions specified in the Sale Notice, and the purchaser of such shares shall
concurrently therewith remit to each Participating Seller and to the Selling
Stockholder that portion of the sale proceeds to which such Participating Seller
or the Selling Stockholder, as the case may be, is entitled by reason of its
participation in such sale. To the extent that any prospective purchaser or
purchasers prohibit such assignment or otherwise refuse to purchase shares or
other securities from a Participating Seller who is exercising its rights of co-
sale hereunder, the Selling Stockholder shall not sell to such prospective
purchaser or purchasers any Selling Stockholders' Shares unless and until,
simultaneously with such sale, the Selling Stockholder shall purchase such
shares or other securities from such Participating Seller for the same
consideration and on the same terms and conditions as the proposed transfer
described in the Sale Notice.
5. MISCELLANEOUS.
5.1. NOTICES. All notices, requests, consents and other communications
hereunder shall be in writing, shall be addressed to the receiving party's
address set forth below or to such other address as a party may designate by
notice hereunder, and shall be either (i) delivered by hand, (ii) made by telex,
telecopy or facsimile transmission, (iii) sent by overnight courier, or (iv)
sent by registered mail, return receipt requested, postage prepaid.
If to the Stockholders: at their respective addresses listed on
Schedule 1
With a copy to: International Capital Partners, Inc.
300 First Stamford Place
Stamford, CT 06902
Attn: Douglas L. Ayer, Managing Partner
If to the Company: Mission Critical Software, Inc.
720 North Post Oak Road
Houston, TX 77024
Attn: Louis Woodhill, President
With a copy to: Baker & Hostetler
1000 Louisiana, Suite 200
Houston, TX 77002-5009
Attn: Richard C. Yount, Jr., Esq.
All notices, requests, consents and other communications hereunder shall be
deemed to have been given either (i) if by hand, at the time of the delivery
thereof to the receiving party at the address of such party set forth above,
(ii) if made by telex, telecopy or facsimile transmission, at the time that
receipt thereof has been acknowledged by electronic confirmation or otherwise,
(iii) if sent by overnight courier, on the next business day following the day
such notice is delivered to the courier service, or (iv) if sent by registered
mail, on the fifth business day following the day such mailing is made.
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5.2. RESTRICTIVE LEGEND. All certificates representing Common Stock or
Preferred Stock shall have affixed thereto a legend in substantially the
following form, in addition to any other legends that may be required under
federal or state securities laws:
"The shares of stock represented by this certificate are subject to
transfer restrictions and voting agreements set forth in a certain Amended
and Restated Stockholders' Agreement dated as of July 2, 1997 among the
corporation, the registered owner of this certificate (or his predecessor
in interest) and others, and such Agreement is available for inspection
without charge at the offices of the corporation."
If requested by a holder of Common Stock or Preferred Stock, the Company
will remove any legend set forth on the certificate representing such shares of
Common Stock or Preferred Stock, unless counsel to the Company advises the
Company that such legend is necessary or advisable in light of contractual
obligations or is necessary in light of provisions of applicable law.
5.3. TRANSFERS AMONG ZESIGER STOCKHOLDERS. Stockholders owning shares of
Common Stock or Preferred Stock and who are party to an investment advisory
agreement with Zesiger Capital Group LLC ("Zesiger Stockholders") may transfer,
without provision of an opinion of counsel and regardless of any legends stated
on the stock certificates representing such shares, such Common Stock or
Preferred Stock to or for the benefit of any other Zesiger Stockholder (each, a
"Zesiger Transferee"); provided that such Common Stock and Preferred Stock shall
remain subject to this Agreement and such Zesiger Transferee shall, as a
condition to such transfer, deliver to the Company a written instrument
confirming that such transferee shall be bound by all of the terms and
conditions of this Agreement.
5.4. ENTIRE AGREEMENT. This Agreement embodies the entire agreement and
understanding between the parties hereto with respect to the subject matter
hereof and supersedes all prior oral or written agreements and understandings
relating to the subject matter hereof. No statement, representation, warranty,
covenant or agreement of any kind not expressly set forth in this Agreement
shall affect, or be used to interpret, change or restrict, the express terms and
provisions of this Agreement.
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5.5. TERMINATION. This Agreement shall terminate and shall be of no
further force or effect upon the conversion of all of the outstanding shares of
Preferred Stock into Common Stock under the Company's Amended and Restated
Certificate of Incorporation.
5.6. MODIFICATIONS AND AMENDMENTS. The terms and provisions of this
Agreement may be modified or amended only by written agreement executed by (a)
the Company, (b) the holders of record of more than 66 2/3% of the Common Stock
and Series A Stock, voting together, exclusive of Common Stock issued on
conversion of Series B Stock and Series C Stock, and (c) the holders of record
of more than 66 2/3% of the Common Stock issued or issuable on conversion of the
Series B Stock and Series C Stock voting together as a class. Notwithstanding
the foregoing, no amendment shall affect the right of a Stockholder or group of
Stockholders to designate a representative to the Board of Directors as provided
in Section 2 without the written consent of such Stockholder, or in the case of
a group of Stockholders holders of 66 2/3% of the Shares held by such group.
5.7. WAIVERS AND CONSENTS. The terms and provisions of this Agreement may
be waived, or consent for the departure therefrom granted, only by written
document executed by the party (or in the case of the Stockholders, the
percentage of such group set forth in Section 5.5) entitled to the benefits of
such terms or provisions. No such waiver or consent shall be deemed to be or
shall constitute a waiver or consent with respect to any other terms or
provisions of this Agreement, whether or not similar. Each such waiver or
consent shall be effective only in the specific instance and for the purpose for
which it was given, and shall not constitute a continuing waiver or consent.
5.8. ASSIGNMENT; BENEFIT. The rights and obligations under this Agreement
may be assigned by any party hereto in connection with an assignment of Shares,
to the extent permitted hereby, and provided that such transferee shall, as a
condition to such transfer, deliver to the Company a written instrument
confirming that such transferee shall be bound by all of the terms and
conditions of this Agreement. All statements, representations, warranties,
covenants and agreements in this Agreement shall be binding on the parties
hereto and shall inure to the benefit of the respective successors and permitted
transferees and assigns of each party hereto; provided however, that no such
succession in interest or permitted transfer or assignment shall be effective
unless and until such successor or permitted transferee or assign shall agree in
writing to be bound by the terms hereof. Nothing in this Agreement shall be
construed to create any rights or obligations except among the parties hereto,
and no person or entity shall be regarded as a third-party beneficiary of this
Agreement.
5.9. GOVERNING LAW. This Agreement and the rights and obligations of the
parties hereunder shall be construed in accordance with and governed by the law
of the State of Delaware, without giving effect to the conflict of law
principles thereof.
5.10. SEVERABILITY. In the event that any court of competent jurisdiction
shall determine that any provision, or any portion thereof, contained in this
Agreement shall be unenforceable in any respect, then such provision shall be
deemed limited to the extent that such court deems it enforceable, and as so
limited shall remain in full force and effect. In the event that such court
shall deem any such provision, or portion thereof, wholly unenforceable, the
remaining provisions of this Agreement shall nevertheless remain in full force
and effect.
9
<PAGE>
5.11. HEADINGS AND CAPTIONS. The headings and captions of the various
subdivisions of this Agreement are for convenience of reference only and shall
in no way modify or affect the meaning or construction of any of the terms or
provisions hereof.
5.12. ENFORCEMENT. Each of the parties hereto acknowledges and agrees
that the rights acquired by each party hereunder are unique and that irreparable
damage would occur in the event that any of the provisions of this Agreement to
be performed by the other parties were not performed in accordance with their
specific terms or were otherwise breached. Accordingly, in addition to any
other remedy to which the parties hereto are entitled at law or in equity, each
party hereto shall be entitled to an injunction or injunctions to prevent
breaches of this Agreement by any other party and to enforce specifically the
terms and provisions hereof in any federal or state court to which the parties
have agreed hereunder to submit to jurisdiction.
5.13. NO WAIVER OF RIGHTS, POWERS AND REMEDIES. No failure or delay by a
party hereto in exercising any right, power or remedy under this Agreement, and
no course of dealing among the parties hereto, shall operate as a waiver of any
such right, power or remedy of the party. No single or partial exercise of any
right, power or remedy under this Agreement by a party hereto, nor any
abandonment or discontinuance of steps to enforce any such right, power or
remedy, shall preclude such party from any other or further exercise thereof or
the exercise of any other right, power or remedy hereunder. The election of any
remedy by a party hereto shall not constitute a waiver of the right of such
party to pursue other available remedies. No notice to or demand on a party not
expressly required under this Agreement shall entitle the party receiving such
notice or demand to any other or further notice or demand in similar or other
circumstances or constitute a waiver of the rights of the party giving such
notice or demand to any other or further action in any circumstances without
such notice or demand.
5.14. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and
warranties made by the parties hereto in this Agreement or in any other
agreement, certificate or instrument provided for or contemplated hereby, shall
survive (i) the execution and delivery hereof, and (ii) any investigations made
by or on behalf of the parties. No claim shall be made by a party for any
alleged misrepresentation or breach of warranty by any other party unless notice
for such claim shall have been given to such other party in accordance with the
notice provision hereof.
5.15. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
[Remainder of Page Intentionally Left Blank]
10
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement or caused
this Agreement to be executed by their duly authorized representatives, as of
the date first written above.
MISSION CRITICAL SOFTWARE, INC.
By: /s/ Louis Woodhill
-----------------------------
Title: President
STOCKHOLDERS
MISSION CRITICAL SOFTWARE I, INC.
By: /s/ James R. Woodhill
-----------------------------
Title: Chairman
NEW ENTERPRISE ASSOCIATES VI, LIMITED
PARTNERSHIP
By: NEA Partners VI, Limited Partnership
its general partner
By:
-----------------------------
General Partner
NEW ENTERPRISE ASSOCIATES VII, LIMITED
PARTNERSHIP
By: NEA Partners VII, Limited Partnership
its general partner
By: /s/ Thomas C. McConnell
-----------------------------
General Partner
NEA PRESIDENTS' FUND, L.P.
By: NEA General Partners, L.P.
its general partner
By: /s/ Thomas C. McConnell
-----------------------------
General Partner
11
<PAGE>
NEA VENTURES 1996, L.P.
By: /s/ Lynn S. Walker
-----------------------------
Title: Vice President
INTERNATIONAL CAPITAL PARTNERS, INC.
By: /s/ Douglas Ayer
-----------------------------
Title: President and Managing Partner
ZESIGER CAPITAL GROUP LLC, as agent and
attorney-in-fact for certain of the investors
as indicated on Schedule I
By: /s/ Andrew D. Zacks
-----------------------------
Name: Andrew D. Zacks
-----------------------------
Title: Principal
AUSTIN VENTURES V, L.P.
By: AV Partners V, L.P.
its general partner
By: /s/ John D. Thornton
-----------------------------
Name: John D. Thornton
-----------------------------
Title: General Partner
COMMERCE FUNDING CORPORATION
By: /s/ Randall C. Elkins
-----------------------------
Randall C. Elkins
President
12
<PAGE>
/s/ Thomas P. Bernhardt
---------------------------------
Thomas P. Bernhardt
/s/ Louis R. Woodhill
---------------------------------
Louis R. Woodhill
/s/ James R. Woodhill
---------------------------------
James R. Woodhill
/s/ Richard E. Denham
---------------------------------
Richard E. Denham
/s/ Paul F. Koffend, Jr.
---------------------------------
Paul F. (Mick) Koffend, Jr.
/s/ Marcus Erickson
---------------------------------
Marcus Erickson
/s/ E. Alexander Goldstein
---------------------------------
E. Alexander Goldstein
/s/ Brian J. McGrath
---------------------------------
Brian J. McGrath
/s/ Peter D. Schaeffer by R.C. Yount
---------------------------------
Peter D. Schaeffer
/s/ Goran Rynger by R.C. Yount
---------------------------------
Peter D. Schaeffer
/s/ Gregg Swensen
---------------------------------
Gregg Swensen
/s/ Lisa Swensen
---------------------------------
Lisa Swensen
13
<PAGE>
/s/ Robert W. Cox
---------------------------------
Robert W. Cox
/s/ Courtney L.G. Parker
---------------------------------
Courtney L.G. Parker
/s/ Marc Geller
---------------------------------
Marc Geller
/s/ Randall C. Elkins
---------------------------------
Randall C. Elkins
14
<PAGE>
JMI EQUITY FUND III, L.P.
By: JMI Associates III, L.L.C.
its general partner
By: /s/ Charles E. Noels
---------------------------------
Managing Member
15
<PAGE>
SCHEDULE 1
Stockholders of Mission Critical Software, Inc.
<TABLE>
<CAPTION>
NAME ADDRESS
---- -------
<S> <C>
Mission Critical Software I, Inc. 720 North Post Oak Road, Suite 505
Houston, Texas 77024
New Enterprise Associates VI, Limited c/o New Enterprise Associates
Partnership 2490 Sand Hill Road
Menlo Park, CA 94025
New Enterprise Associates VII, Limited c/o New Enterprise Associates
Partnership 2490 Sand Hill Road
Menlo Park, CA 94025
NEA President's Fund, L.P. c/o New Enterprise Associates
2490 Sand Hill Road
Menlo Park, CA 94025
NEA Ventures 1996, L.P. c/o New Enterprise Associates
2490 Sand Hill Road
Menlo Park, CA 94025
Commerce Funding Corporation Randall C. Elkins, President
1000 Louisiana, Suite 2000
Houston, TX 77002
Austin Ventures V, L.P. 114 W. 7th Street, Suite 300
Austin, TX 78701
Attn: John D. Thornton
International Capital Partners, Inc. 300 First Stamford Place
Stamford, CT 06902
Attn: Douglas L. Ayer, Managing Partner
JMI Equity Fund 111 St. Paul Street
Baltimore, MD 21202
Attn: Brad Woloson
Thomas P. Bernhardt 14 Ash Branch Ct.
The Woodlands, TX 77381
Louis R. Woodhill 2114 Pecan Trail Drive
Richmond, TX 77469
James R. Woodhill 1960 Hadden Avenue
Houston, TX 77019
Richard E. Denham 99 North Post Oak Lane
#8103
Houston, TX 77024
Paul F. (Mick) Koffend, Jr. 1238 Glourie Drive
Houston, TX 77055
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
NAME ADDRESS
---- -------
<S> <C>
Robert W. Cox 3918 Oak Gardens Drive
Kingwood, TX 77339
Randall C. Elkins 22219 Treesdale Lane
Katy, TX 77450
Marcus Erickson 7527 Timber Ridge Trail
Sugarland, TX 77479
Marc Geller 3501 Nottingham
Houston, TX 77005
E. Alexander Goldstein 1755 Churchview Lane
Columbus, OH 43220
Brian J. McGrath 2 Oak Street, Box 2797
Kennebunkport, ME 04046
Peter D. Schaeffer 2918 E. Autumn Run Circle
Sugarland, TX 77479
Courtney LG Parker 402 East Gaywood Drive
Houston, TX 77079
Goran Rynger Torpvagen IA
S-18352 Taby
Sweden
Gregg and Lisa Swensen 207 Bird Song Terrace
Franklin Lakes, NJ 07417
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
*A. Carey Zesiger See footnote below
*Albert L. Zesiger See footnote below
*Alexa L. Zesiger See footnote below
*Alza Corporation Retirement Plan See footnote below
*Barrie Ramsay Zesiger See footnote below
*Brearley School General Investment Fund See footnote below
*Chapin School Ltd. - Endowment Fund See footnote below
*State of Oregon PERS/ZCG See footnote below
*David Zesiger See footnote below
*Dean Witter Foundation See footnote below
*Elizabeth Heller Mandell Trust See footnote below
*Harold & Grace Willens JTWROS See footnote below
*Leonard Kingsley See footnote below
*Lisa W. Hess See footnote below
*Mary Ann S. Hamilton Trust for Self See footnote below
*Mary Van Schulyer Raiser See footnote below
*Morgan Trust Co. of the Bahamas Ltd. See footnote below
*Nicola L. Zesiger See footnote below
*Planned Parenthood of NY See footnote below
*Psychology Associates See footnote below
*Tab Products Co. Pension Plan See footnote below
*The Ferris Hamilton Family Trust See footnote below
*The Jenifer Altman Foundation See footnote below
*The Meehan Investment Partnership I, L.P. See footnote below
*Van Loben Sels Foundation See footnote below
*Warren Investment Group Ltd. See footnote below
*Public Employees Retirement System of Idaho See footnote below
</TABLE>
- ------------------
* An asterisk next to a stockholders name indicates that the stockholder has
designated Zesiger Capital Group LLC as his, her or its agent and attorney-in-
fact. A copy of the Limited Power of Attorney signed by the Stockholder has
been provided to Mission Critical Software, Inc. The address of all such
stockholders is c/o Zesiger Capital Group LLC, 320 Park Avenue, New York, NY
10022.
3
<PAGE>
*Wells Family LLC See footnote below
*The Trustees of Amherst College See footnote below
* An asterisk next to a stockholders name indicates that the stockholder has
designated Zesiger Capital Group LLC as his, her or its agent and attorney-in-
fact. A copy of the Limited Power of Attorney signed by the Stockholder has
been provided to Mission Critical Software, Inc. The address of all such
stockholders is c/o Zesiger Capital Group LLC, 320 Park Avenue, New York, NY
10022.
4
<PAGE>
SCHEDULE II
Selling Stockholders under Section 3
Mission Critical Software I, Inc.
Thomas P. Bernhardt
Louis R. Woodhill
James R. Woodhill
Richard E. Denham
Paul F. (Mick) Koffend, Jr.
Marcus Erickson
E. Alexander Goldstein
1
<PAGE>
EXHIBIT 5.1
WILSON SONSINI GOODRICH & ROSATI
Professional Corporation
8911 CAPITAL OF TEXAS HIGHWAY, SUITE 3350
AUSTIN, TEXAS 78759
TELEPHONE 512-338-5400 FACSIMILE 512-338-5499
WWW.WSGR.COM
_____ __, 1999
Mission Critical Software, Inc.
720 North Post Oak Road
Houston, Texas 77024
RE: REGISTRATION STATEMENT ON FORM S-1
Ladies and Gentlemen:
We have examined the Registration Statement on Form S-1 (File No. 333______)
to be filed by you with the Securities and Exchange Commission on May __, 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 Mission Critical Software, Inc.(the "Shares"). As your counsel in
connection with this transaction, we have examined the proceedings proposed to
be taken in connection with such 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
MISSION CRITICAL SOFTWARE, INC.
INDEMNIFICATION AGREEMENT
This Indemnification Agreement ("Agreement") is effective as of _________,
____ by and between Mission Critical Software, Inc., a Delaware corporation (the
"Company"), and ______________ ("Indemnitee").
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 the
advancement of expenses to, Indemnitee to the maximum extent permitted by law;
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 connection with the Company's reincorporation, the Company and
Indemnitee desire to continue to have in place the additional protection
provided by an indemnification agreement, with such changes as are required to
conform the existing agreement to Delaware law and to provide indemnification
and advancement of expenses to the Indemnitee to the maximum extent permitted by
Delaware law;
WHEREAS, in view of the considerations set forth above, the Company desires
that Indemnitee shall be indemnified and advanced expenses 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
<PAGE>
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 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, (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 (iv) 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 with respect to a Covered Event: 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 Mission
Critical Software, Inc., any constituent corporation (including any constituent
of a constituent) absorbed in a consolidation or merger to which Mission
Critical Software, Inc. (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. "Covered 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.
e. "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
-2-
<PAGE>
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 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.
f. "Expense Advance" shall mean a payment to Indemnitee pursuant to
Section 3 of Expenses in advance of the settlement of or final judgement in any
action, suit, proceeding or alternative dispute resolution mechanism, hearing,
inquiry or investigation which constitutes a Claim.
g. "Independent Legal Counsel" shall mean an attorney or firm of
attorneys, selected in accordance with the provisions of Section 2(d) 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, subject to the provisions of Section
2(d), any person or body appointed by the Board of Directors in accordance with
applicable law to review the Company's obligations hereunder and under
applicable law, which may include a member or members of the Company's Board of
Directors, Independent Legal Counsel or any other person or body not a party to
the particular Claim for which Indemnitee is seeking indemnification.
j. "Section" refers to a section of this Agreement unless otherwise
indicated.
k. "Voting Securities" shall mean any securities of the Company that
vote generally in the election of directors.
2. INDEMNIFICATION.
a. INDEMNIFICATION OF EXPENSES. Subject to the provisions of Section
2(b) below, the Company shall indemnify Indemnitee for Expenses 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
-3-
<PAGE>
a party to or witness or other participant in, any Claim (whether by reason of
or arising in part out of a Covered Event), including all interest, assessments
and other charges paid or payable in connection with or in respect of such
Expenses.
b. REVIEW OF INDEMNIFICATION OBLIGATIONS. Notwithstanding the
foregoing, in the event any Reviewing Party shall have determined (in a written
opinion, in any case in which Independent Legal Counsel is the Reviewing Party)
that Indemnitee is not entitled to be indemnified hereunder under applicable
law, (i) the Company shall have no further obligation under Section 2(a) to make
any payments to Indemnitee not made prior to such determination by such
Reviewing Party, and (ii) the Company shall be entitled to be reimbursed by
Indemnitee (who hereby agrees to reimburse the Company) for all Expenses
theretofore paid to Indemnitee to which Indemnitee is not entitled hereunder
under applicable law; provided, however, that if Indemnitee has commenced or
thereafter commences legal proceedings in a court of competent jurisdiction to
secure a determination that Indemnitee is entitled to be indemnified hereunder
under applicable law, any determination made by any Reviewing Party that
Indemnitee is not entitled to be indemnified hereunder under applicable law
shall not be binding and Indemnitee shall not be required to reimburse the
Company for any Expenses theretofore paid in indemnifying Indemnitee 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 Expenses shall be unsecured and no
interest shall be charged thereon.
c. INDEMNITEE RIGHTS ON UNFAVORABLE DETERMINATION; BINDING EFFECT.
If any Reviewing Party determines that Indemnitee substantively is not entitled
to be indemnified hereunder 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 such Reviewing Party or any
aspect thereof, including the legal or factual bases therefor, and, subject to
the provisions of Section 15, the Company hereby consents to service of process
and to appear in any such proceeding. Absent such litigation, any determination
by any Reviewing Party shall be conclusive and binding on the Company and
Indemnitee.
d. SELECTION OF REVIEWING PARTY; CHANGE IN CONTROL. If there has not
been a Change in Control, any Reviewing Party shall be selected by the Board 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), any
Reviewing Party with respect to all matters thereafter arising concerning the
rights of Indemnitee to indemnification of Expenses under this Agreement or any
other agreement or under the Company's Certificate of Incorporation or Bylaws as
now or hereafter in effect, or under any other applicable law, if desired by
Indemnitee, shall be Independent Legal Counsel 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
entitled to be indemnified hereunder 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
-4-
<PAGE>
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
employment of separate counsel by one or more Indemnitees has been previously
authorized by the Company in writing, or (ii) an Indemnitee shall have provided
to the Company a written statement that such Indemnitee has reasonably concluded
that there may be a conflict of interest between such Indemnitee and the other
Indemnitees with respect to the matters arising under this Agreement.
e. 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, Indemnitee shall be indemnified against all Expenses incurred by
Indemnitee in connection therewith.
3. EXPENSE ADVANCES.
a. OBLIGATION TO MAKE EXPENSE ADVANCES. Upon receipt of a written
undertaking by or on behalf of the Indemnitee to repay such amounts if it shall
ultimately be determined that the Indemnitee is not entitled to be indemnified
therefore by the Company hereunder under applicable law, the Company shall make
Expense Advances to Indemnitee.
b. FORM OF UNDERTAKING. Any obligation to repay any Expense Advances
hereunder pursuant to a written undertaking by the Indemnitee shall be unsecured
and no interest shall be charged thereon.
c. DETERMINATION OF REASONABLE EXPENSE ADVANCES. The parties agree
that for the purposes of any Expense Advance for which Indemnitee has made
written demand to the Company in accordance with this Agreement, all Expenses
included in such Expense Advance that are certified by affidavit of Indemnitee's
counsel as being reasonable shall be presumed conclusively to be reasonable.
4. PROCEDURES FOR INDEMNIFICATION AND EXPENSE ADVANCES.
a. TIMING OF PAYMENTS. All payments of Expenses (including without
limitation Expense Advances) by the Company to the Indemnitee pursuant to this
Agreement shall be made to the fullest extent permitted by law as soon as
practicable after written demand by Indemnitee therefor is presented to the
Company, but in no event later than thirty (30) business days after such written
demand by Indemnitee is presented to the Company, except in the case of Expense
Advances, which shall be made no later than ten (10) business days after such
written demand by Indemnitee is presented to the Company.
-5-
<PAGE>
b. NOTICE/COOPERATION BY INDEMNITEE. Indemnitee shall, as a
condition precedent to Indemnitee's right to be indemnified or Indemnitee's
right to receive Expense Advances 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 this Agreement or applicable
law. In addition, neither the failure of any 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 any
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
this Agreement 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. In connection with any
determination by any Reviewing Party or otherwise as to whether the Indemnitee
is entitled to be indemnified hereunder under applicable law, the burden of
proof shall be on the Company to establish that Indemnitee is not so entitled.
d. NOTICE TO INSURERS. If, at the time of the receipt by the Company
of a notice of a Claim pursuant to Section 4(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.
e. SELECTION OF COUNSEL. In the event the Company shall be obligated
hereunder to provide indemnification for or make any Expense Advances with
respect to the Expenses of any Claim, the Company, if appropriate, shall be
entitled to assume the defense of such Claim with counsel approved by Indemnitee
(which approval shall not be unreasonably withheld) upon the delivery to
Indemnitee of written notice of the Company's election to do so. 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 or expenses of separate counsel subsequently retained by
or on behalf of 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
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continue to retain such counsel to defend such Claim, then the fees and expenses
of Indemnitee's separate counsel shall be Expenses for which Indemnitee may
receive indemnification or Expense Advances hereunder.
5. 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 10(a) hereof.
b. NONEXCLUSIVITY. The indemnification and the payment of Expense
Advances 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 and the payment of Expense Advances provided under this
Agreement shall continue as to Indemnitee for any action taken or not taken
while serving in an indemnified capacity even though subsequent thereto
Indemnitee may have ceased to serve in such capacity.
6. 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, Bylaws or otherwise) of the amounts otherwise payable hereunder.
7. 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.
8. 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.
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9. 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.
10. 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 or make Expense
Advances to Indemnitee with respect to Claims arising out of acts, omissions or
transactions for which Indemnitee is prohibited from receiving indemnification
under applicable law.
b. CLAIMS INITIATED BY INDEMNITEE. To indemnify or make Expense
Advances to Indemnitee with respect to Claims initiated or brought voluntarily
by Indemnitee and not by way of defense, counterclaim or crossclaim, 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 Covered 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, Expense Advances, 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 action instituted (i) by
Indemnitee to enforce or interpret this Agreement, if a court having
jurisdiction over such action determines as provided in Section 13 that each of
the material assertions made by the Indemnitee as a basis for such action was
not made in good faith or was frivolous, or (ii) by or in the name of the
Company to enforce or interpret this Agreement, if a court having jurisdiction
over such action determines as provided in Section 13 that each of the material
defenses asserted by Indemnitee in such action was made in bad 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.
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
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<PAGE>
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. EXPENSES INCURRED IN ACTION RELATING TO ENFORCEMENT OR INTERPRETATION.
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
indemnified for all Expenses incurred by Indemnitee with respect to such action
(including without limitation attorneys' fees), regardless of whether Indemnitee
is ultimately successful in such action, unless as a part of such action a court
having jurisdiction over such action makes a final judicial determination (as to
which all rights of appeal therefrom have been exhausted or lapsed) that each of
the material assertions made by Indemnitee as a basis for such action was not
made in good faith or was frivolous; provided, however, that until such final
judicial determination is made, Indemnitee shall be entitled under Section 3 to
receive payment of Expense Advances hereunder with respect to such action. 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 indemnified for all Expenses incurred by Indemnitee in
defense of such action (including without limitation costs and expenses incurred
with respect to Indemnitee's counterclaims and cross-claims made in such
action), unless as a part of such action a court having jurisdiction over such
action makes a final judicial determination (as to which all rights of appeal
therefrom have been exhausted or lapsed) that each of the material defenses
asserted by Indemnitee in such action was made in bad faith or was frivolous;
provided, however, that until such final judicial determination is made,
Indemnitee shall be entitled under Section 3 to receive payment of Expense
Advances hereunder with respect to such action.
14. 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
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.
15. 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.
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<PAGE>
16. 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
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.
17. 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 limitation 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.
18. CHOICE OF LAW. This Agreement, and all rights, remedies, liabilities,
powers and duties of the parties to this Agreement, shall be governed by and
construed in accordance with the laws of the State of Delaware as applied to
contracts between Delaware residents entered into and to be performed entirely
in the State of Delaware without regard to principles of conflicts of laws.
19. 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.
20. 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.
21. 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.
22. 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.
[Remainder of Page Intentionally Left Blank]
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IN WITNESS WHEREOF, the parties hereto have executed this Indemnification
Agreement as of the date first above written.
MISSION CRITICAL SOFTWARE, INC.
By:
----------------------------
Name:
--------------------------
Title:
-------------------------
Address: 720 North Post Oak Road
Houston, TX 77024
AGREED TO AND ACCEPTED
INDEMNITEE:
----------------------------------
(signature)
----------------------------------
Name
----------------------------------
Address
----------------------------------
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EXHIBIT 10.2
MISSION CRITICAL SOFTWARE, INC.
1997 STOCK PLAN
(AS AMENDED MAY 21, 1999)
1. PURPOSES OF THE PLAN. The purposes of this 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.
2. DEFINITIONS. As used herein, the following definitions shall apply:
(a) "ADMINISTRATOR" means the Board or any of its Committees appointed
in accordance with Section 4 hereof.
(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 are, or will be, granted under
the Plan.
(c) "BOARD" means the Board of Directors of the Company.
(d) "CODE" means the Internal Revenue Code of 1986, as amended.
(e) "COMMITTEE" means a committee of Directors appointed by the Board
in accordance with Section 4 hereof.
(f) "COMMON STOCK" means the Common Stock of the Company.
(g) "COMPANY" means Mission Critical Software, Inc., a Delaware
corporation.
(h) "CONSULTANT" means any person who is engaged by the Company or any
Parent or Subsidiary to render consulting or advisory services to such entity
and who is compensated for such services.
(i) "DIRECTOR" means a member of the Board of Directors of the
Company.
(j) "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
<PAGE>
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.
(k) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(l) "FAIR MARKET VALUE" means, as of any date, the value of Common
Stock determined 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, its Fair Market Value
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; or
(iii) In the absence of an established market for the Common Stock,
the Fair Market Value thereof shall be determined in good faith by the
Administrator.
(m) "INCENTIVE STOCK OPTION" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code.
(n) "NONSTATUTORY STOCK OPTION" means an Option not intended to
qualify as an Incentive Stock Option.
(o) "OFFICER" means a person who is an officer of the Company within
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(p) "OPTION" means a stock option granted pursuant to the Plan.
(q) "OPTION AGREEMENT" means a written or electronic 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.
(r) "OPTION EXCHANGE PROGRAM" means a program whereby outstanding
Options are exchanged for Options with a lower exercise price.
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(s) "OPTIONED STOCK" means the Common Stock subject to an Option.
(t) "OPTIONEE" means the holder of an outstanding Option granted under
the Plan.
(u) "PARENT" means a "parent corporation," whether now or hereafter
existing, as defined in Section 424(e) of the Code.
(v) "PLAN" means this 1997 Stock Plan.
(w) "SERVICE PROVIDER" means an Employee, Director or Consultant.
(x) "SHARE" means a share of the Common Stock, as adjusted in
accordance with Section 12 below.
(y) "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 12 of
the Plan, the maximum aggregate number of Shares which may be subject to option
and sold under the Plan is 8,795,000 Shares, together with an annual increase in
the number of shares of Common Stock reserved for issuance hereunder on the
first day of the Company's fiscal year, beginning with July 1, 2000, equal to
the lesser of (i) 750,000 shares, (ii) 5% of the outstanding shares of the
Company as of the last day of the prior fiscal year or (iii) such amount as
determined by the Board of Directors. The Shares may be authorized but
unissued, or reacquired Common Stock.
If an Option 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). However, Shares
that have actually been issued under the Plan, upon exercise of an Option, shall
not be returned to the Plan and shall not become available for future
distribution 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 Employees and
Consultants.
(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.
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<PAGE>
(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.
(b) POWERS OF THE ADMINISTRATOR. Subject to the provisions of the
Plan and, in the case of a Committee, the specific duties delegated by the Board
to such Committee, and subject to the approval of any relevant authorities, 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 from time to time be granted hereunder;
(iii) to determine the number of Shares to be covered by each
such award granted hereunder;
(iv) to approve forms of agreement for use under the Plan;
(v) to determine the terms and conditions, of any Option granted
hereunder. Such terms and conditions include, but are not limited to, the
exercise price, the time or times when Options 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 the
Common Stock relating thereto, based in each case on such factors as the
Administrator, in its sole discretion, shall determine;
(vi) to determine whether and under what circumstances an Option
may be settled in cash under subsection 9(f) instead of Common Stock;
(vii) to reduce the exercise price of any Option to the then
current Fair Market Value if the Fair Market Value of the Common Stock covered
by such Option has declined since the date the Option was granted;
(viii) to initiate an Option Exchange Program;
(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;
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(x) 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 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 the amount of tax to be withheld
is to be determined. All elections by Optionees 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; and
(xi) to construe and interpret the terms of the Plan and awards
granted pursuant to the Plan.
(xii) to make all other determinations deemed necessary or
advisable for administering the Plan.
(c) EFFECT OF ADMINISTRATOR'S DECISION. All decisions, determinations
and interpretations of the Administrator shall be final and binding on all
Optionees.
5. ELIGIBILITY.
(a) Nonstatutory Stock Options may be granted to Service Providers.
Incentive Stock Options may be granted only to Employees.
(b) 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 5(b), 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.
(c) Neither the Plan nor any Option shall confer upon any Optionee any
right with respect to continuing the Optionee's relationship as a Service
Provider with the Company, nor shall it interfere in any way with his or her
right or the Company's right to terminate such relationship at any time, with or
without cause.
(d) Upon the Company, or a successor corporation issuing any class of
common equity securities required to be registered under Section 12 of the
Exchange Act, or upon the Plan being assumed by a corporation having a class of
common equity securities required to be registered under Section 12 of the
Exchange Act, the following limitations shall apply to grants to options to
Service Providers:
(i) No Employee shall be granted in any fiscal year, Options to
purchase more than 500,000 Shares.
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(ii) In connection with his or her initial employment, and
Employee may be granted Options to purchase up to an additional 1,000,000 Shares
which shall not count against the amount set forth in subsection (i) above.
(iii) The foregoing limitations shall be adjusted appropriately in
connection with any change in the Company's capitalization as described in
Section 11.
(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 11), 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.
6. TERM OF PLAN. The Plan shall become effective upon its adoption by the
Board. It shall continue in effect for a term of ten (10) years unless sooner
terminated under Section 14 of the Plan.
7. TERM OF OPTION. The term of each Option shall be stated in the Option
Agreement; provided, however, that the term shall be no more than ten (10) years
from the date of grant thereof. In the case of an Incentive Stock Option
granted to an Optionee who, at the time the 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 term of the Option shall
be five (5) years from the date of grant or such shorter term as may be provided
in the Option Agreement.
8. OPTION EXERCISE PRICE AND CONSIDERATION.
(a) The per share exercise price for the Shares to be issued upon
exercise of an Option shall be such price as is determined by the Administrator,
but shall be subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time of grant of such
Option, 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 exercise
price shall be no less than 110% of the Fair Market Value per Share on the date
of grant.
(B) granted to any other Employee, the per Share exercise
price shall be no less than 100% of the Fair Market Value per Share on the date
of grant.
(ii) In the case of a Nonstatutory Stock Option
(A) granted to a Service Provider who, at the time of grant
of such Option, owns stock representing more than ten percent (10%) of the
voting power of all classes of stock
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of the Company or any Parent or Subsidiary, the exercise price shall be no less
than 110% of the Fair Market Value per Share on the date of the grant.
(B) granted to any other Service Provider, the per Share
exercise price shall be no less than 100% of the Fair Market Value per Share on
the date of grant.
(iii) Notwithstanding the foregoing, Options may be granted with a
per Share exercise price other than as required above pursuant to a merger or
other corporate transaction.
(b) The consideration to be paid for the Shares to be issued upon
exercise of an Option, including the method of payment, shall be determined by
the Administrator (and, in the case of an Incentive Stock Option, shall be
determined at the time of grant). Such consideration may consist of (1) cash,
(2) check, (3) promissory note, (4) other Shares which (x) 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 (y) have a Fair Market Value on
the date of surrender equal to the aggregate exercise price of the Shares as to
which such Option shall be exercised, (5) delivery of a properly executed
exercise notice together with such other documentation as the Administrator and
the broker, if applicable, shall require to effect an exercise of the Option and
delivery to the Company of the sale or loan proceeds required to pay the
exercise price, (6) consideration received by the Company under a cashless
exercise program implemented by the Company in connection with the Plan, (7) any
combination of the foregoing methods of payment, or (8) such other consideration
and method of payment for the issuance of Shares to the extent permitted by
Applicable Laws. In making its determination as to the type of consideration to
accept, the Administrator shall consider if acceptance of such consideration may
be reasonably expected to benefit the Company.
9. EXERCISE OF OPTION.
(a) Procedure for Exercise; Rights as a Stockholder. Any Option
granted hereunder shall be exercisable according to the terms hereof 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.
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 Stockholder shall exist
with respect to the Shares, notwithstanding the exercise
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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 12 of the Plan.
Exercise of an Option in any manner shall result in a decrease in
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. If an Optionee
ceases to be a Service Provider, such Optionee may exercise his or her Option
within such period of time as is specified in the Option Agreement (of at least
thirty (30) days) to the extent that the Option is vested on the date of
termination (but in no event later than the expiration of the term of the Option
as set forth in the Option Agreement). 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 exercise his
or her Option within such period of time as is specified in the Option Agreement
to the extent the Option is vested on the date of termination (but in no event
later than the expiration of the term of such Option as set forth in the Option
Agreement). In the absence of a specified time in the Option Agreement, the
Option shall remain exercisable for twelve (12) months following the Optionee's
termination. If such disability is not a "disability" as such term is defined
in Section 22(e)(3) of the Code, in the case of an Incentive Stock Option such
Incentive Stock Option shall automatically cease to be treated as an Incentive
Stock Option and shall be treated for tax purposes as a Nonstatutory Stock
Option on the day three months and one day following such 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.
(d) DEATH OF OPTIONEE. If an Optionee dies while a Service Provider,
the Option may be exercised within such period of time as is specified in the
Option Agreement (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. In the
absence of a specified time in the Option Agreement, the Option shall remain
exercisable for twelve (12) months following the Optionee's termination. 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
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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.
10. NON-TRANSFERABILITY OF OPTIONS. Options 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.
11. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, MERGER OR ASSET SALE.
(a) CHANGES IN CAPITALIZATION. Subject to any required action by the
Stockholders of the Company, the number of shares of Common Stock covered by
each outstanding Option, and the number of shares of Common Stock which have
been authorized for issuance under the Plan but as to which no Options have yet
been granted or which have been returned to the Plan upon cancellation or
expiration of an Option, as well as the price per share of Common Stock covered
by each such outstanding Option, shall be proportionately adjusted for any
increase or decrease in the number of issued shares of Common Stock resulting
from a stock split, reverse stock split, stock dividend, combination or
reclassification of the Common Stock, or any other increase or decrease in the
number of issued shares of Common Stock effected without receipt of
consideration by the Company. The 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 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 fifteen (15) 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 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 will terminate immediately prior to the consummation of
such proposed action.
(c) MERGER OR ASSET SALE. 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 shall be assumed or an equivalent option
or right substituted by the successor corporation or a
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Parent or Subsidiary of the successor corporation. In the event that the
successor corporation refuses to assume or substitute for the Option, Board of
Directors of the Company, at its discretion, may choose to accelerate the
vesting of some portion of or all of the outstanding options such that the
Optionee shall fully vest in and have the right to exercise the Option as to all
of the Optioned Stock, including Shares as to which it would not otherwise be
vested or exercisable. In the alternative, if the successor corporation does not
assume or substitute the Option and the Company's Board of Directors fails to
act to accelerate the vesting of some portion of or all of the outstanding
Options, the Option that have not been fully vested will terminate upon closing
of the merger. If an Option 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 shall be fully exercisable for a period of fifteen (15) days from the
date of such notice, and the Option shall terminate upon the expiration of such
period. For the purposes of this paragraph, the Option 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 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,
for each Share of Optioned Stock subject to the Option, to be solely common
stock of the successor corporation or its Parent equal in fair market value to
the per share consideration received by holders of Common Stock in the merger or
sale of assets.
12. TIME OF GRANTING OPTIONS AND STOCK PURCHASE RIGHTS. The date of grant
of an Option shall, for all purposes, be the date on which the Administrator
makes the determination granting such Option, or such other date as is
determined by the Administrator. Notice of the determination shall be given to
each Employee or Consultant to whom an Option is so granted within a reasonable
time after the date of such grant.
13. AMENDMENT AND TERMINATION OF THE PLAN.
(a) AMENDMENT AND TERMINATION. The Board may at any time amend,
alter, suspend or terminate the Plan.
(b) STOCKHOLDER APPROVAL. The Board shall obtain stockholder approval
of any Plan amendment to the extent necessary and desirable to comply with
Applicable Laws.
(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
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exercise the powers granted to it hereunder with respect to Options granted
under the Plan prior to the date of such termination.
14. CONDITIONS UPON ISSUANCE OF SHARES.
(a) LEGAL COMPLIANCE. Shares shall not be issued pursuant to the
exercise of an Option unless the exercise of such Option 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, the Administrator 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.
15. 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.
16. RESERVATION OF SHARES. The Company, during the term of this Plan,
shall at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
17. STOCKHOLDER APPROVAL. The Plan shall be subject to approval by the
stockholders of the Company within twelve (12) months after the date the Plan is
adopted. Such stockholder approval shall be obtained in the degree and manner
required under Applicable Laws.
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EXHIBIT 10.2.1
MISSION CRITICAL SOFTWARE, INC.
1997 STOCK OPTION 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]
The undersigned Optionee has 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: ________________________
Vesting Schedule:
This Option shall be exercisable, in whole or in part, according to the
following vesting schedule:
25% of the Shares subject to the Option shall vest twelve months after the
Vesting Commencement Date, and 1/48 of the Shares subject to the Option shall
vest each month thereafter, subject to Optionee's continuing to be a Service
Provider on such dates.
<PAGE>
TERMINATION PERIOD:
This Option shall be exercisable for three (3) months after Optionee ceases
to be a Service Provider. Upon Optionee's death or disability, this Option may
be exercised for such longer period as provided in the Plan. In no event may
Optionee exercise this Option after the Term/Expiration Date as provided above.
II. AGREEMENT
1. GRANT OF OPTION. The Plan Administrator of the Company hereby grants to
the Optionee named in the Notice of Grant (the "Optionee"), an option (the
"Option") to purchase the number of Shares set forth in the Notice of
Grant, at the exercise price per Share set forth in the Notice of Grant
(the "Exercise Price"), and subject to the terms and conditions of the
Plan, which is incorporated herein by reference. Subject to Section 13(c)
of the Plan, in the event of a conflict between the terms and conditions of
the Plan and 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 as
defined in Section 422 of the Code. Nevertheless, to the extent that it exceeds
the $100,000 rule of Code Section 422(d), this Option shall be treated as a
Nonstatutory Stock Option ("NSO").
2. EXERCISE OF OPTION.
a. RIGHT TO EXERCISE. This Option shall be exercisable during its
term in accordance with the Vesting Schedule set out in the Notice
of Grant and with the applicable provisions of the Plan and this
Option Agreement.
b. METHOD OF EXERCISE. This Option shall be 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 with respect to which the Option is
being exercised, and such other representations and agreements as
may be required by 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 the aggregate Exercise Price.
No Shares shall be issued pursuant to the exercise of an Option unless
such issuance and such exercise complies with Applicable laws. Assuming such
compliance, for income tax purposes the Shares shall be considered transferred
to the Optionee on the date on which the Option is exercised with respect to
such Shares.
<PAGE>
3. OPTIONEE'S REPRESENTATIONS. In the event the Shares have not been
registered under the Securities Act of 1933, as amended, at the time this
Option is exercised, the Optionee shall, if required by the Company,
concurrently with the exercise of all or any portion of this Option, deliver
to the Company his or her Investment Representation Statement in the form
attached hereto as Exhibit B, and shall read the applicable rules of the
Commissioner of Corporations attached to such Investment Representation
Statement.
4. LOCK-UP PERIOD. Optionee hereby agrees that, if so requested by the
Company or any representative of the underwriters (the "Managing
Underwriter") in connection with any registration of the offering of any
securities of the Company under the Securities Act, Optionee shall not sell
or otherwise transfer any Shares or other securities of the Company during
the 180-day period (or such other period as may be requested in writing by
the Managing Underwriter and agreed to in writing by the Company) (the
"Market Standoff Period") following the effective date of a registration
statement of the Company filed under the Securities Act. Such restriction
shall apply only to the first registration statement of the Company to
become effective under the Securities Act that includes securities to be
sold on behalf of the Company to the public in an underwritten public
offering under the Securities Act. The Company may impose stop-transfer
instructions with respect to securities subject to the foregoing
restrictions until the end of such Market Standoff Period.
5. METHOD OF PAYMENT. Payment of the aggregate Exercise Price shall be by
any of the following, or a combination thereof, at the election of the
Optionee:
a. cash or check;
b. consideration received by the Company under a formal cashless
exercise program adopted by the Company in connection with the Plan;
or
c. 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.
6. RESTRICTIONS ON EXERCISE. This Option may not be exercised until such
time as the Plan has been approved by the stockholders of the Company, or if
the issuance of such Shares upon such exercise or the method of payment of
consideration for such shares would constitute a violation of any Applicable
Law.
7. 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 Optionee. The
terms of the Plan and this Option
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Agreement shall be binding upon the executors, administrators, heirs,
successors and assigns of the Optionee.
8. 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.
9. TAX CONSEQUENCES. Set forth below is a brief summary as of the date of
this Option of some of the federal tax consequences of exercise of this
Option and disposition of the Shares. 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.
a. EXERCISE OF ISO. If this Option qualifies as an ISO, there will
be no regular federal income tax liability upon the exercise of the
Option, although the excess, if any, of the Fair Market Value of the
Shares on the date of exercise over the Exercise Price will be
treated as an adjustment to the alternative minimum tax for federal
tax purposes and may subject the Optionee to the alternative minimum
tax in the year of exercise.
b. EXERCISE OF NONSTATUTORY STOCK OPTION. There may be a regular
federal income tax liability upon the exercise of a Nonstatutory
Stock Option. 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 Shares on the
date of exercise over the Exercise Price. If Optionee is an Employee
or a former Employee, the Company will be required to withhold from
Optionee's compensation or collect from Optionee and pay to the
applicable taxing authorities an amount in cash equal to a
percentage of this compensation income at the time of exercise, and
may refuse to honor the exercise and refuse to deliver Shares if
such withholding amounts are not delivered at the time of exercise.
c. DISPOSITION OF SHARES. In the case of an NSO, if Shares are
held for at least one year, any gain realized on disposition of the
Shares will be treated as long-term capital gain for federal income
tax purposes. In the case of an ISO, if Shares transferred pursuant
to the Option are held for at least one year after exercise and of
at least two years after the Date of Grant, any gain realized on
disposition of the Shares will also be treated as long-term capital
gain for federal income tax purposes. If Shares purchased under an
ISO are disposed of within one year after exercise or two years
after the Date of Grant, any gain realized on such disposition will
be treated as compensation income (taxable at ordinary income rates)
to the
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extent of the difference between the Exercise Price and the lesser of (1)
the Fair Market Value of the Shares on the date of exercise, or (2) the
sale price of the Shares. Any additional gain will be taxed as capital
gain, short-term or long-term depending on the period that the ISO Shares
were held.
d. NOTICE OF DISQUALIFYING DISPOSITION OF ISO SHARES. If the Option
granted to Optionee herein is an ISO, and if Optionee sells or otherwise
disposes of any of the Shares acquired pursuant to the ISO on or before
the later of (1) the date two years after the Date of Grant, or (2) the
date one year after the date of exercise, the Optionee shall immediately
notify the Company in writing of such disposition. Optionee agrees that
Optionee may be subject to income tax withholding by the Company on the
compensation income recognized by the Optionee.
10. 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 Texas..
11. 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 (NOT
THROUGH THE ACT OF BEING HIRED, BEING GRANTED THIS OPTION OR ACQUIRING
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 IN ANY WAY 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.
Optionee acknowledges receipt of a copy of the Plan and represents that he
or she is familiar with the terms and provisions thereof, and hereby accepts
this Option subject to all of the terms and provisions thereof. Optionee has
reviewed the Plan and this Option in their entirety, has had an opportunity to
obtain the advice of counsel prior to executing this Option and fully
understands all provisions of the Option. Optionee hereby agrees to accept as
binding, conclusive and final all decisions or interpretations of the
Administrator upon any questions arising under the Plan or this Option. Optionee
further agrees to notify the Company upon any change in the residence address
indicated below.
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MISSION CRITICAL SOFTWARE, INC.
_______________________________________
By
_______________________________________
Title
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OPTIONEE'S ACCEPTANCE AND ACKNOWLEDGMENT
Dated:________________________ ________________________________
Residential Address
______________________________ ________________________________
Optionee's Signature City, State, Zip Code
_____ I hereby acknowledge that I am not legally married as of the date of
this Agreement.
_____ I hereby acknowledge that I am legally married as of the date of this
Agreement and, if applicable, by executing this Agreement, my spouse
agrees to be bound by all the terms and conditions of this Agreement.
_____________________________
Spouse's Signature
SPOUSAL SIGNATURE IS REQUIRED FOR RESIDENTS OF COMMUNITY PROPERTY STATES:
ARIZONA, CALIFORNIA, IDAHO, LOUISIANA, NEVADA, NEW MEXICO, TEXAS, WASHINGTON AND
WISCONSIN.
THIS OPTION WILL BECOME EFFECTIVE UPON RECEIPT BY THE COMPANY OF ONE FULLY
EXECUTED COPY OF THIS AGREEMENT
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EXHIBIT A
1997 STOCK OPTION PLAN
EXERCISE NOTICE
Mission Critical Software, Inc.
720 North Post Oak Road
Suite 505
Houston, Texas 77024
Attention: Chief Executive Officer
1. EXERCISE OF OPTION. Effective as of today, ___________, 19__, the
undersigned ("Optionee") hereby elects to exercise Optionee's option to
purchase _________ shares of the Common Stock (the "Shares") of Mission
Critical Software, Inc. (the "Company") under and pursuant to the 1997
Stock Option Plan (the "Plan") and the Stock Option Agreement dated
________, 19 (the "Option Agreement").
2. DELIVERY OF PAYMENT. Purchaser herewith delivers to the Company the
full purchase price of the Shares, as set forth in the Option
Agreement.
3. REPRESENTATIONS OF OPTIONEE. Optionee acknowledges that Optionee
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 STOCKHOLDER. Until the issuance of the Shares (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 stockholder shall exist with
respect to the Optioned Stock, notwithstanding the exercise of the
Option. The Shares shall be issued to the Optionee as soon as
practicable after the Option is exercised. No adjustment shall 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 11 of the Plan.
5. COMPANY'S RIGHT OF FIRST REFUSAL. Before any Shares held by
Optionee or any transferee (either being sometimes referred to herein
as the "Holder") may be sold or otherwise transferred (including
transfer by gift or operation of law), the Company or its assignee(s)
shall have a right of first refusal to purchase the Shares on the terms
and conditions set forth in this Section (the "Right of First
Refusal").
a. NOTICE OF PROPOSED TRANSFER. The Holder of the Shares shall
deliver to the Company a written notice (the "Notice") stating:
(i) the Holder's bona fide intention to sell or otherwise
transfer such Shares; (ii) the name
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of each proposed purchaser or other transferee ("Proposed
Transferee"); (iii) the number of Shares to be transferred to
each Proposed Transferee; and (iv) the bona fide cash price or
other consideration for which the Holder proposes to transfer
the Shares (the "Offered Price"), and the Holder shall offer
the Shares at the Offered Price to the Company or its
assignee(s).
b. EXERCISE OF RIGHT OF FIRST REFUSAL. At any time within
thirty (30) days after receipt of the Notice, the Company
and/or its assignee(s) may, by giving written notice to the
Holder, elect to purchase all, but not less than all, of the
Shares proposed to be transferred to any one or more of the
Proposed Transferees, at the purchase price determined in
accordance with subsection (c) below.
c. PURCHASE PRICE. The purchase price ("Purchase Price") for
the Shares purchased by the Company or its assignee(s) under
this Section shall be the Offered Price. If the Offered Price
includes consideration other than cash, the cash equivalent
value of the non-cash consideration shall be determined by the
Board of Directors of the Company in good faith.
d. PAYMENT. Payment of the Purchase Price shall be made, at
the option of the Company or its assignee(s), in cash (by
check), by cancellation of all or a portion of any outstanding
indebtedness of the Holder to the Company (or, in the case of
repurchase by an assignee, to the assignee), or by any
combination thereof within 30 days after receipt of the Notice
or in the manner and at the times set forth in the Notice.
e. HOLDER'S RIGHT TO TRANSFER. If all of the Shares proposed
in the Notice to be transferred to a given Proposed Transferee
are not purchased by the Company and/or its assignee(s) as
provided in this Section, then the Holder may sell or otherwise
transfer such Shares to that Proposed Transferee at the Offered
Price or at a higher price, provided that such sale or other
transfer is consummated within 120 days after the date of the
Notice, that any such sale or other transfer is effected in
accordance with any applicable securities laws and that the
Proposed Transferee agrees in writing that the provisions of
this Section shall continue to apply to the Shares in the hands
of such Proposed Transferee. If the Shares described in the
Notice are not transferred to the Proposed Transferee within
such period, a new Notice shall be given to the Company, and
the Company and/or its assignees shall again be offered the
Right of First Refusal before any Shares held by the Holder may
be sold or otherwise transferred.
f. EXCEPTION FOR CERTAIN FAMILY TRANSFERS. Anything to the
contrary contained in this Section notwithstanding, the
transfer of any or all of the
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<PAGE>
Shares during the Optionee's lifetime or on the Optionee's
death by will or intestacy to the Optionee's immediate family
or a trust for the benefit of the Optionee's immediate family
shall be exempt from the provisions of this Section. "Immediate
Family" as used herein shall mean spouse, lineal descendant or
antecedent, father, mother, brother or sister. In such case,
the transferee or other recipient shall receive and hold the
Shares so transferred subject to the provisions of this
Section, and there shall be no further transfer of such Shares
except in accordance with the terms of this Section.
g. TERMINATION OF RIGHT OF FIRST REFUSAL. The Right of First
Refusal shall terminate as to any Shares upon the first sale of
Common Stock of the Company to the general public pursuant to a
registration statement filed with and declared effective by the
Securities and Exchange Commission under the Securities Act of
1933, as amended.
6. TAX CONSULTATION. 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 consultants 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.
7. RESTRICTIVE LEGENDS AND STOP-TRANSFER ORDERS.
a. LEGENDS. Optionee understands and agrees that the Company
shall cause the legends set forth below or legends
substantially equivalent thereto, to be placed upon any
certificate(s) evidencing ownership of the Shares together with
any other legends that may be required by the Company or by
state or federal securities laws:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL
REGISTERED UNDER THE ACT OR, IN THE OPINION OF COMPANY COUNSEL
SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH OFFER, SALE OR
TRANSFER, PLEDGE OR HYPOTHECATION IS IN COMPLIANCE THEREWITH.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS ON TRANSFER AND A RIGHT OF FIRST REFUSAL HELD BY THE
ISSUER OR ITS ASSIGNEE(S) AS SET FORTH IN THE EXERCISE NOTICE BETWEEN
THE ISSUER AND THE ORIGINAL HOLDER OF THESE
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<PAGE>
SHARES, A COPY OF WHICH MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE
ISSUER. SUCH TRANSFER RESTRICTIONS AND RIGHT OF FIRST REFUSAL ARE
BINDING ON TRANSFEREES OF THESE SHARES.
b. STOP-TRANSFER NOTICES. Optionee agrees that, in order to
ensure compliance with the restrictions referred to herein, the
Company may issue appropriate "stop transfer" instructions to
its transfer agent, if any, and that, if the Company transfers
its own securities, it may make appropriate notations to the
same effect in its own records.
c. REFUSAL TO TRANSFER. The Company shall not be required (i)
to transfer on its books any Shares that have been sold or
otherwise transferred in violation of any of the provisions of
this Agreement or (ii) to treat as owner of such Shares or to
accord the right to vote or pay dividends to any purchaser or
other transferee to whom such Shares shall have been so
transferred.
8. SUCCESSORS AND ASSIGNS. The Company may assign any of its rights
under this Agreement to single or multiple assignees, and this
Agreement shall inure to the benefit of the successors and assigns of
the Company. Subject to the restrictions on transfer herein set forth,
this Agreement shall be binding upon Optionee and his or her heirs,
executors, administrators, successors and assigns.
9. INTERPRETATION. Any dispute regarding the interpretation of this
Agreement shall be submitted by Optionee or by the Company forthwith to
the Administrator which shall review such dispute at its next regular
meeting. The resolution of such a dispute by the Administrator shall be
final and binding on all parties.
10. GOVERNING LAW; SEVERABILITY. This Agreement is governed by the
internal substantive laws but not the choice of law rules, of Texas.
11. ENTIRE AGREEMENT. The Plan and Option Agreement are incorporated
herein by reference. This Agreement, the Plan, the Option Agreement and
the Investment Representation Statement 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.
Submitted by: Accepted by:
OPTIONEE: MISSION CRITICAL SOFTWARE, INC.
________________________________ _________________________________
Signature By
________________________________ _________________________________
Print Name Its
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Address: Address:
________________________________ _________________________________
________________________________ _________________________________
_________________________________
Date Received
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<PAGE>
EXHIBIT B
INVESTMENT REPRESENTATION STATEMENT
OPTIONEE:
COMPANY: MISSION CRITICAL SOFTWARE, INC.
SECURITY: COMMON STOCK
AMOUNT:
DATE:
In connection with the purchase of the above-listed Securities, the
undersigned Optionee represents to the Company the following:
a. Optionee 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. Optionee is acquiring these Securities for investment
for Optionee's own account only and not with a view to, or for
resale in connection with, any "distribution" thereof within the
meaning of the Securities Act of 1933, as amended (the "Securities
Act").
b. Optionee acknowledges and understands that the Securities
constitute "restricted securities" under the Securities Act and have
not been registered under the Securities Act in reliance upon a
specific exemption therefrom, which exemption depends upon, among
other things, the bona fide nature of Optionee's investment intent
as expressed herein. In this connection, Optionee understands that,
in the view of the Securities and Exchange Commission, the statutory
basis for such exemption may be unavailable if Optionee'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. Optionee further
understands that the Securities must be held indefinitely unless
they are subsequently registered under the Securities Act or an
exemption from such registration is available. Optionee further
acknowledges and understands that the Company is under no obligation
to register the Securities. Optionee understands that the
certificate evidencing the Securities will be imprinted with a
legend which prohibits the transfer of the Securities unless they
are registered or such registration is not required in the opinion
of counsel satisfactory to the Company, a legend prohibiting their
transfer
<PAGE>
without the consent of the Securities Commissioner of the State of
Texas and any other legend required under applicable state
securities laws.
c. Optionee is familiar with the provisions of Rule 701 and Rule
144, each promulgated under the Securities Act, which, in substance,
permit limited public resale of "restricted securities" acquired,
directly or indirectly from the issuer thereof, in a non-public
offering subject to the satisfaction of certain conditions. Rule 701
provides that if the issuer qualifies under Rule 701 at the time of
the grant of the Option to the Optionee, the exercise will be exempt
from registration under the Securities Act. In the event the Company
becomes subject to the reporting requirements of Section 13 or 15(d)
of the Securities Exchange Act of 1934, ninety (90) days thereafter
(or such longer period as any market stand-off agreement may
require) the Securities exempt under Rule 701 may be resold, subject
to the satisfaction of certain of the conditions specified by Rule
144, including: (1) the resale being made through a broker in an
unsolicited "broker's transaction" or in transactions directly with
a market maker (as said term is defined under the Securities
Exchange Act of 1934); and, in the case of an affiliate, (2) the
availability of certain public information about the Company, (3)
the amount of Securities being sold during any three month period
not exceeding the limitations specified in Rule 144(e), and (4) the
timely filing of a Form 144, if applicable.
In the event that the Company does not qualify under Rule 701 at the time
of grant of the Option, then the Securities may be resold in certain limited
circumstances subject to the provisions of Rule 144, which requires the resale
to occur not less than two years after the later of the date the Securities were
sold by the Company or the date the Securities were sold by an affiliate of the
Company, within the meaning of Rule 144; and, in the case of acquisition of the
Securities by an affiliate, or by a non-affiliate who subsequently holds the
Securities less than three years, the satisfaction of the conditions set forth
in sections (1), (2), (3) and (4) of the paragraph immediately above.
d. Optionee further understands that in the event all of the
applicable requirements of Rule 701 or 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 Rules 144 and 701 are not exclusive,
the Staff of the Securities and Exchange Commission has expressed
its opinion that persons proposing to sell private placement
securities other than in a registered offering and otherwise than
pursuant to Rules 144 or 701 will have a substantial burden of proof
in establishing that an exemption from registration is available for
such offers or sales, and that such persons and their respective
brokers who participate in such transactions do so at their own
risk. Optionee understands that no assurances can be given that any
such other registration exemption will be available in such event.
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<PAGE>
e. Optionee understands that the certificate evidencing the
Securities will be imprinted with a legend which prohibits the
transfer of the Securities without the consent of the Securities
Commissioner of the State of Texas.
--------------------------------------
Signature of Optionee:
Date:__________________________, 19___
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EXHIBIT 10.3
MISSION CRITICAL SOFTWARE, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
The following constitute the provisions of the 1999 Employee Stock Purchase
Plan of Mission Critical Software, Inc. (the "Company").
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 Mission Critical Software, Inc. and any
Designated Subsidiary of the Company.
(e) "COMPENSATION" shall mean all compensation of the participant
reported by the Company on Form W-2.
(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.
(j) "FAIR MARKET VALUE" shall mean, as of any date, the value of
Common Stock determined as follows:
<PAGE>
(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 February 1 and August
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 July 31,
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; provided, however, that
the first Purchase 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 January 31, 2000.
(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.
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<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 February 1 and August 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
July 31, 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.
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<PAGE>
(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 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. A participant may not, except as set forth
below, change his or her rate of payroll deductions during a Purchase Period. A
participant may increase or decrease the rate of his or her payroll deductions
during a later Purchase Period by completing and filing with the Company a new
subscription agreement authorizing a change in payroll deduction rate prior to
the commencement date of such Purchase 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.
Notwithstanding the foregoing, a participant may decrease his or
her participation in the Plan to zero percent (0%) during a Purchase Period by
completing and filing with the Company a new subscription agreement authorizing
such elimination of payroll deductions. The participant may recommence payroll
deductions during a later Purchase Period by completing and filing with the
Company a new subscription agreement authorizing the rate of payroll deductions
prior to the commencement date of such Purchase Period.
(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 shall 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,
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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 Date by the applicable Purchase Price; provided that such purchase
shall be subject to the limitations set forth in Sections 3(b) and 13 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
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<PAGE>
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.
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 six hundred thousand (600,000) shares together with an annual increase
in the number of shares reserved for issuanced thereunder on the
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first day of the Company's fiscal year, beginning with July 1, 2000, equal to
the lesser of (i) 500,000 shares, (ii) four percent (4%) of the outstanding
shares of the Company on the last day of the prior fiscal year or (iii) such
amount as determined by the Board of Directors. 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.
(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,
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transfer, pledge or other disposition shall be without effect, except that the
Company may treat such act as an election to withdraw fund 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.
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, 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
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<PAGE>
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.
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
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<PAGE>
(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.
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.
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EXHIBIT 10.3.1
MISSION CRITICAL SOFTWARE, INC.
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 Mission Critical
Software, Inc. 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 not 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>
Stock. The Company may, but will not be obligated to, withhold from my
compensation the amount necessary to meet any applicable withholding
obligation including any withholding necessary to make available to the
Company any tax deductions or benefits attributable to 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)
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<TABLE>
<CAPTION>
<S> <C>
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)
</TABLE>
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<PAGE>
MISSION CRITICAL SOFTWARE, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
The undersigned participant in the Offering Period of the Mission Critical
Software, Inc. 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: _________________________________
<PAGE>
EXHIBIT 10.4
MISSION CRITICAL SOFTWARE, INC.
1999 DIRECTOR OPTION PLAN
1. PURPOSES OF THE PLAN. The purposes of this 1999 Director Option Plan
are to attract and retain the best available personnel for service as Outside
Directors (as defined herein) of the Company, to provide additional incentive to
the Outside Directors of the Company to serve as Directors, and to encourage
their continued service on the Board.
All options granted hereunder shall be nonstatutory stock options.
2. DEFINITIONS. As used herein, the following definitions shall apply:
(a) "BOARD" means the Board of Directors of the Company.
(b) "CODE" means the Internal Revenue Code of 1986, as amended.
(c) "COMMON STOCK" means the common stock of the Company.
(d) "COMPANY" means Mission Critical Software, Inc.
(e) "DIRECTOR" means a member of the Board.
(f) "DISABILITY" means total and permanent disability as defined in
section 22(e)(3) of the Code.
(g) "EMPLOYEE" means any person, including officers and Directors,
employed by the Company or any Parent or Subsidiary of the Company. The payment
of a Director's fee by the Company shall not be sufficient in and of itself to
constitute "employment" by the Company.
(h) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(i) "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 for the last market
<PAGE>
trading day prior to the time of determination, as reported in The Wall Street
Journal or such other source as the Board deems reliable; or
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Board.
(j) "INSIDE DIRECTOR" means a Director who is an Employee.
(k) "OPTION" means a stock option granted pursuant to the Plan.
(l) "OPTIONED STOCK" means the Common Stock subject to an Option.
(m) "OPTIONEE" means a Director who holds an Option.
(n) "OUTSIDE DIRECTOR" means a Director who is not an Employee of the
Company.
(o) "PARENT" means a "parent corporation," whether now or hereafter
existing, as defined in Section 424(e) of the Code.
(p) "PLAN" means this 1999 Director Option Plan.
(q) "SHARE" means a share of the Common Stock, as adjusted in
accordance with Section 10 of the Plan.
(r) "SUBSIDIARY" means a "subsidiary corporation," whether now or
hereafter existing, as defined in Section 424(f) of the Internal Revenue Code of
1986.
3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section 10 of
the Plan, the maximum aggregate number of Shares which may be optioned and sold
under the Plan is 250,000 Shares (the "Pool") (the Shares may be authorized, but
unissued, or reacquired Common Stock), together with an annual increase to the
number of shares reserved thereunder on the first day of the Company's fiscal
year, beginning with July 1, 2000, equal to the lesser of (i) 250,000 Shares,
(ii) 2% of the outstanding shares of Common Stock on the last day of each prior
fiscal year or (ii) such amount as determined by the Board of Directors.
If an Option expires or becomes unexercisable without having been
exercised in full, the unpurchased Shares which were subject thereto shall
become available for future grant or sale under the Plan (unless the Plan has
terminated). Shares that have actually been issued under the Plan shall not be
returned to the Plan and shall not become available for future distribution
under the Plan.
4. ADMINISTRATION AND GRANTS OF OPTIONS UNDER THE PLAN.
(a) PROCEDURE FOR GRANTS. All grants of Options to Outside Directors
under this Plan shall be automatic and nondiscretionary and shall be made
strictly in accordance with the following provisions:
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<PAGE>
(i) No person shall have any discretion to select which Outside
Directors shall be granted Options or to determine the number of Shares to
be covered by Options.
(ii) Each Outside Director who becomes an Outside Director after
the effective date of the Company's initial public offering shall be
automatically granted an Option to purchase 37,500 Shares (post-split) (such
Option shall each be known as a "First Option") on the date on which such person
first becomes an Outside Director, whether through election by the stockholders
of the Company or appointment by the Board to fill a vacancy; provided, however,
that an Inside Director who ceases to be an Inside Director but who remains a
Director shall not receive a First Option.
(iii) Each Outside Director shall be automatically granted an
Option to purchase 12,500 Shares (a "Subsequent Option") at the next meeting of
the Board of Directors following the Annual Meeting of Stockholders in each year
commencing with the 1999 Annual Meeting of Stockholders provided he or she is
then an Outside Director and if as of such date, he or she shall have served on
the Board for at least the preceding six (6) months.
(iv) Notwithstanding the provisions of subsections (ii) and (iii)
hereof, any exercise of an Option granted before the Company has obtained
stockholder approval of the Plan in accordance with Section 16 hereof shall be
conditioned upon obtaining such stockholder approval of the Plan in accordance
with Section 16 hereof.
(v) The terms of a First Option granted hereunder shall be as
follows:
(A) the term of the First Option shall be ten (10) years.
(B) the First Option shall be exercisable only while the
Outside Director remains a Director of the Company, except as set forth in
Sections 8 and 10 hereof.
(C) the exercise price per Share shall be 100% of the Fair
Market Value per Share on the date of grant of the First Option.
(D) subject to Section 10 hereof, the First Option shall
become exercisable cumulatively with respect to 1/3 of the Shares subject to the
First Option on the anniversary of the date of grant, and as to 1/36th of the
First Option at the end of each month thereafter, so that the First Option shall
be fully exercisable three years after its date of grant, provided that the
Optionee continues to serve as a Director on such dates.
(vi) The terms of a Subsequent Option granted hereunder shall
be as follows:
(A) the term of the Subsequent Option shall be ten (10)
years.
(B) the Subsequent Option shall be exercisable only while
the Outside Director remains a Director of the Company, except as set forth in
Sections 8 and 10 hereof.
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<PAGE>
(C) the exercise price per Share shall be 100% of the Fair
Market Value per Share on the date of grant of the Subsequent Option.
(D) subject to Section 10 hereof, the Subsequent Option
shall become exercisable cumulatively with respect to 1/2 of the Shares subject
to the Subsequent Option on the anniversary of the date of grant, and as to
1/24th of the Subsequent Option at the end of each month thereafter, so that the
Subsequent Option shall be fully exercisable two years after its date of grant,
provided that the Optionee continues to serve as a Director on such dates.
(vii) In the event that any Option granted under the Plan would
cause the number of Shares subject to outstanding Options plus the number of
Shares previously purchased under Options to exceed the Pool, then the remaining
Shares available for Option grant shall be granted under Options to the Outside
Directors on a pro rata basis. No further grants shall be made until such time,
if any, as additional Shares become available for grant under the Plan through
action of the Board or the stockholders to increase the number of Shares which
may be issued under the Plan or through cancellation or expiration of Options
previously granted hereunder.
5. ELIGIBILITY. Options may be granted only to Outside Directors. All
Options shall be automatically granted in accordance with the terms set forth in
Section 4 hereof.
The Plan shall not confer upon any Optionee any right with respect to
continuation of service as a Director or nomination to serve as a Director, nor
shall it interfere in any way with any rights which the Director or the Company
may have to terminate the Director's relationship with the Company at any time.
6. TERM OF PLAN. The Plan shall become effective upon the later to occur
of the effective date of the Company's initial public offering of its Common
Stock that is registered with the Securities and Exchange Commission or its
approval by the stockholders of the Company as described in Section 16 of the
Plan. It shall continue in effect for a term of ten (10) years unless sooner
terminated under Section 11 of the Plan.
7. FORM OF CONSIDERATION. The consideration to be paid for the Shares to
be issued upon exercise of an Option, including the method of payment, shall
consist of (i) cash, (ii) check, (iii) other shares which (x) 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 (y) 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, (iv) consideration received
by the Company under a cashless exercise program implemented by the Company in
connection with the Plan, or (v) any combination of the foregoing methods of
payment.
8. EXERCISE OF OPTION.
(a) PROCEDURE FOR EXERCISE; RIGHTS AS A STOCKHOLDER. Any Option granted
hereunder shall be exercisable at such times as are set forth in Section 4
hereof; provided, however,
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<PAGE>
that no Options shall be exercisable until stockholder approval of the Plan in
accordance with Section 16 hereof has been obtained.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of such
exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for the
Shares with respect to which the Option is exercised has been received by the
Company. Full payment may consist of any consideration and method of payment
allowable under Section 7 of the Plan. Until the issuance (as evidenced by the
appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company) of the stock certificate evidencing such Shares, no right
to vote or receive dividends or any other rights as a stockholder shall exist
with respect to the Optioned Stock, notwithstanding the exercise of the Option.
A share certificate for the number of Shares so acquired shall be issued to the
Optionee as soon as practicable after exercise of the Option. No adjustment
shall be made for a dividend or other right for which the record date is prior
to the date the stock certificate is issued, except as provided in Section 10 of
the Plan.
Exercise of an Option in any manner shall result in a decrease in the
number of Shares which thereafter may be available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(b) TERMINATION OF CONTINUOUS STATUS AS A DIRECTOR. Subject to
Section 10 hereof, in the event an Optionee's status as a Director terminates
(other than upon the Optionee's death or Disability), the Optionee may exercise
his or her Option, but only within three (3) months following the date of such
termination, and only to the extent that the Optionee was entitled to exercise
it on the date of such termination (but in no event later than the expiration of
its ten (10) year term). To the extent that the Optionee was not entitled to
exercise an Option on the date of such termination, and to the extent that the
Optionee does not exercise such Option (to the extent otherwise so entitled)
within the time specified herein, the Option shall terminate.
(c) DISABILITY OF OPTIONEE. In the event Optionee's status as a
Director terminates as a result of Disability, the Optionee may exercise his or
her Option, but only within twelve (12) months following the date of such
termination, and only to the extent that the Optionee was entitled to exercise
it on the date of such termination (but in no event later than the expiration of
its ten (10) year term). To the extent that the Optionee was not entitled to
exercise an Option on the date of termination, or if he or she does not exercise
such Option (to the extent otherwise so entitled) within the time specified
herein, the Option shall terminate.
(d) DEATH OF OPTIONEE. In the event of an Optionee's death, the
Optionee's estate or a person who acquired the right to exercise the Option by
bequest or inheritance may exercise the Option, but only within twelve (12)
months following the date of death, and only to the extent that the Optionee was
entitled to exercise it on the date of death (but in no event later than the
expiration of its ten (10) year term). To the extent that the Optionee was not
entitled to exercise an Option on the date of death, and to the extent that the
Optionee's estate or a person who acquired the right to
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<PAGE>
exercise such Option does not exercise such Option (to the extent otherwise so
entitled) within the time specified herein, the Option shall terminate.
9. NON-TRANSFERABILITY OF OPTIONS. The Option may not be sold, pledged,
assigned, hypothecated, transferred, or disposed of in any manner other than by
will or by the laws of descent or distribution and may be exercised, during the
lifetime of the Optionee, only by the Optionee.
10. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, DISSOLUTION, MERGER OR ASSET
SALE.
(a) CHANGES IN CAPITALIZATION. Subject to any required action by the
stockholders of the Company, the number of Shares covered by each outstanding
Option, the number of Shares which have been authorized for issuance under the
Plan but as to which no Options have yet been granted or which have been
returned to the Plan upon cancellation or expiration of an Option, as well as
the price per Share covered by each such outstanding Option, and the number of
Shares issuable pursuant to the automatic grant provisions of Section 4 hereof
shall be proportionately adjusted for any increase or decrease in the number of
issued Shares resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued Shares 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." 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
subject to an Option.
(b) DISSOLUTION OR LIQUIDATION. In the event of the proposed dissolution
or liquidation of the Company, to the extent that an Option has not been
previously exercised, it shall terminate immediately prior to the consummation
of such proposed action.
(c) MERGER OR ASSET SALE. 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, the Option or option shall become fully exercisable, including as
to Shares for which it would not otherwise be exercisable. Thereafter, the
Option or option shall remain exercisable in accordance with Sections 8(b)
through (d); provided, however, that if the Successor Corporation does not
assume such outstanding Option or substitute for it an equivalent option, and
the Option would otherwise terminate pursuant to Sections 8(b) through 8(d)
after the consummation of the merger or asset sale transaction, then the Board
shall notify the Optionee that the Option shall be fully exercisable for a
period of fifteen (15) days from the date of such notice, and upon the
expiration of such period the Option shall terminate.
For the purposes of this Section 10(c), an Option shall be considered
assumed if, following the merger or sale of assets, the Option confers the right
to purchase or receive, for each Share of Optioned Stock subject to the Option
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
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<PAGE>
majority of the outstanding Shares). 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, for each Share of Optioned Stock subject to the Option, to be solely
common stock of the successor corporation or its Parent equal in fair market
value to the per share consideration received by holders of Common Stock in the
merger or sale of assets.
11. AMENDMENT AND TERMINATION OF THE PLAN.
(a) AMENDMENT AND TERMINATION. The Board may at any time amend, alter,
suspend, or discontinue the Plan, but no amendment, alteration, suspension, or
discontinuation shall be made which would impair the rights of any Optionee
under any grant theretofore made, without his or her consent. In addition, to
the extent necessary and desirable to comply with any applicable law, regulation
or stock exchange rule, the Company shall obtain stockholder approval of any
Plan amendment in such a manner and to such a degree as required.
(b) EFFECT OF AMENDMENT OR TERMINATION. Any such amendment or
termination of the Plan shall not affect Options already granted and such
Options shall remain in full force and effect as if this Plan had not been
amended or terminated.
12. TIME OF GRANTING OPTIONS. The date of grant of an Option shall, for
all purposes, be the date determined in accordance with Section 4 hereof.
13. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued pursuant
to the exercise of an Option unless the exercise of such Option and the issuance
and delivery of such Shares pursuant thereto shall comply with all relevant
provisions of law, including, without limitation, the Securities Act of 1933, as
amended, the Exchange Act, the rules and regulations promulgated thereunder,
state securities laws, and the requirements of any stock exchange upon which the
Shares may then be listed, and shall be further subject to the approval of
counsel for the Company with respect to such compliance.
As a condition to the exercise of an Option, the Company may require
the person exercising such Option to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares, if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned relevant provisions of law.
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.
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<PAGE>
14. RESERVATION OF SHARES. The Company, during the term of this Plan, will
at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
15. OPTION AGREEMENT. Options shall be evidenced by written option
agreements in such form as the Board shall approve.
16. STOCKHOLDER APPROVAL. The Plan shall be subject to approval by the
stockholders of the Company within twelve (12) months after the date the Plan is
adopted. Such stockholder approval shall be obtained in the degree and manner
required under applicable state and federal law and any stock exchange rules.
-8-
<PAGE>
EXHIBIT 10.5
LEASE
THIS LEASE ("Lease") is entered into as of the 22 day of October 1996, by
and between SOARING EAGLES ORCHARD, INC., a Washington Corporation ("Landlord")
and MISSION CRITICAL SOFTWARE, INC. ("Tenant"), whose address prior to the
Commencement Date (hereinafter defined) is 12600 Northborough, Suite 392,
Houston, Texas 77067.
WITNESSETH:
ARTICLE 1
1.01. INTRODUCTORY PROVISIONS AND DEFINITIONS.
The Lease provisions set forth in this Section 1.01 in summary form are solely
to facilitate convenient reference by the parties. If there is any conflict
between this Section and any other provisions of this Lease, the latter shall
control. For purposes of this lease the following terms shall have the meanings
set forth opposite the term.
<TABLE>
<S> <C> <C>
(a) Project Name and Address: 720 North Post Oak Office Building
720 North Post Oak Road
Houston, Texas 77024
(b) Building: Approximately 93,165 square feet of Net Rentable Area
(c) Premises: Approximately 7,067 square feet of Rentable
Area on the fifth (5th) floor as shown on Exhibit "B"
(d) Primary Term: Sixty-four (64) months
(e) Commencement Date: December 1, 1996
(f) Expiration Date: March 31, 2002
(g) Base Rent: $6,874.18 per month*
(h) Base Operating Expense
For the Building: 1997 base year per square foot of Rentable Area
(i) Tenant's Initial Pro Rata
Share: 7.6%
(j) Security Deposit: $6,874.18
(k) Supplements: $10,000.00 due upon lease execution
(l) Permitted Use: General office use consistent with software development and marketing
(m) Guarantor: N/A
(n) Broker: Transwestern Property Company
(o) Addresses for Notices: TO: Tenant
Mission Critical Software
720 N. Post Oak Road, Suite 500
Houston, Texas 77024
TO: Landlord
Transwestern Property Company (Building Manager)
720 N. Post Oak Road, Suite 132
Houston, Texas 77024
c/o Property Manager
</TABLE>
* Base Rent for months 1-4 shall be abated.
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ARTICLE 2
2.01. PREMISES.
Landlord hereby does lease, let and demise unto Tenant, and Tenant hereby does
lease and rent from Landlord, upon and subject to the provisions of this Lease,
the Rentable Area of the Premises located in the Building located on the tract
of land ("Land") situated in Harris County, Texas and more particularly
described on EXHIBIT "A" attached hereto and incorporated herein for all
purposes (the Building, the Land, the parking areas and garages, and any present
or future associated underground or elevated pedestrian tunnels or walkways
being hereinafter collectively referred to as the "Project"), TO HAVE AND TO
HOLD said Premises for the Term, subject to the provisions of this Lease. Such
space so leased to Tenant is herein called the "Premises" and is reflected on
the floor plans ("Floor Plans") of the Building attached hereto as EXHIBIT "B".
2.02. IMPROVEMENTS BY LANDLORD.
Before the Commencement Date and subject to delays caused by Tenant, Landlord
shall substantially complete any leasehold improvements ("Leasehold
Improvements") to be constructed or installed by Landlord pursuant to EXHIBIT
"C" attached hereto and incorporated herein for all purposes. All installations
hereafter placed on the Premises in excess of Building Standard items as
determined by Landlord and as set forth in EXHIBIT "C" shall be for Tenant's
account and at Tenant's cost (and Tenant shall pay ad valorem taxes and
increased insurance thereon), which costs shall be payable by Tenant to Landlord
as additional rent hereunder promptly upon being invoiced therefore, and failure
by Tenant to pay same in full within thirty (30) days shall constitute an event
of default by Tenant hereunder giving rise to all remedies available to Landlord
under this Lease and at law for non-payment of rent.
ARTICLE 3
3.01. TERM.
Subject to the other provisions hereof, this Lease shall be and continue in full
force and effect for a primary term commencing on the Commencement Date, and
expiring on the Expiration Date. Such term, as it may be modified, is herein
called the "Term".
3.02. COMMENCEMENT.
Subject to Section 3.04 hereof, if on the Commencement Date any of the work
described in EXHIBIT "C" hereto that is required to be performed by Landlord at
Landlord's expense has not been substantially completed, or if Landlord is
unable to tender possession of the Premises to Tenant on the Commencement Date
due to any other reason beyond the reasonable control of Landlord, then the
Commencement Date shall be postponed until such work is substantially completed,
the Expiration Date shall be extended so that the Term shall continue for the
full number of years set forth in Section 3.01 and Landlord shall not be liable
for any claims or damages in connection with such failure to complete
construction or tender possession. Notwithstanding the preceding provided Tenant
has executed and delivered the Lease to Landlord for full execution by October
18, 1996 and Tenant has complied with the terms and conditions of Exhibit "C"
attached hereto, if the Landlord does not substantially complete all of the
leasehold improvements and Tenant has not occupied the Lease Premises, through
no fault or delay of Tenant, by January 1, 1997, then Tenant shall have the
option to terminate this Lease effective thirty (30) days following written
notice and to receive the return of the first month's rent and security deposit
within thirty (30) days of written notice.
3.03. LATE POSSESSION.
No delay in the completion of the Premises resulting from delay or failure on
the part of Tenant in furnishing information, work or other matters required in
EXHIBIT "C" shall delay the Commencement Date, the Expiration Date or the
commencement of installments of Rent.
3.04. EARLY POSSESSION.
If prior to the Commencement Date, Tenant shall enter into possession of all or
any part of the Premises, such possession shall be subject to all of the
provisions of this Lease, and the Term and the payment of all Rent shall
commence, with respect to all or such part of the premises as are so occupied by
Tenant, on the date of such entry, and the total amount of all Rent due
hereunder shall be increased accordingly, on a per diem basis, provided that no
such early entry shall be permitted without Landlord's prior written consent or
<PAGE>
operate to change the Expiration Date provided for herein.
3.05. CERTIFICATE OF COMMENCEMENT DATE AND EXPIRATION DATE.
If the Commencement Date or Expiration Date is other than as set forth in
Section 3.01 hereof, then upon request by either Landlord or Tenant, both
parties shall execute and deliver a certificate setting forth the actual
Commencement Date and Expiration Date.
3.06. ACCEPTANCE LETTER.
Before the entry into possession of the Premises by Tenant, Tenant shall furnish
to Landlord a letter accepting the condition of the Premises or specifying any
area that is not acceptable. If Tenant enters and accepts possession, Tenant
shall be deemed to have accepted the condition of the Premises without Landlord
having any obligation to do further work other than these items specified by
Tenant required in previous sentence in Tenant's letter.
ARTICLE 4
4.01. BASE RENT.
Tenant, in consideration for this Lease and the leasing of the Premises for the
Term, agrees to pay to Landlord without deduction or set-off as rent, the Base
Rent, in equal monthly installments for each calendar month during the Term.
Base Rent is payable in advance and without demand, on the first day of each
calendar month during the Term. If the Commencement Date is other than the first
day of a month, Tenant shall be required to pay only a pro rate portion of the
monthly installment of Base Rent for the first partial month of the Term for
which Base Rent is payable hereunder on the Commencement Date.
4.02. PAYMENT OF RENT.
As used in this Lease, "Rent" shall mean the Base Rent, the Operating Expense
reimbursements pursuant to Section 5.01, the parking rent, and all other amounts
provided for in this Lease to be paid by Tenant, all of which shall constitute
rental in consideration for this Lease and the Leasing of the Premises. The Rent
shall be paid at the times and in the amounts provided for herein in Legal
tender of the United States of America to Landlord at the address specified
above or to such other person or at such other address as Landlord may from time
to time designate in writing. The Rent shall be paid without notice, demand,
abatement, deduction, or offset except as may be expressly set forth in this
Lease. Landlord shall, at its option, have the right to collect from Tenant,
five cents ($.05) for each dollar ($1.00) of each installment of Rent which is
not received within ten (10) days after its due date for any reason whatsoever
(notwithstanding any notice requirement hereunder, if any) and Tenant agrees to
pay such amount immediately on demand as liquidated damages to cover the
additional costs of collecting and processing such late payments. Any payment
which is less than the amount of Rent then due shall constitute a payment made
on account thereof, the parties hereto agreeing that the Landlord's acceptance
of that
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<PAGE>
payment shall not alter or impair the Landlord's rights under this Lease to be
paid all of such amounts then due, or in other respect. Tenant acknowledges that
the late payment by Tenant to Landlord of Rent due hereunder will cause Landlord
to incur costs not contemplated by this Lease, the exact amount of which will be
extremely difficult to ascertain. Such costs include, but are not limited to,
processing and accounting charges, and such late charges represent a fair and
reasonable estimate of the cost that Landlord will incur by reason of the late
payment by Tenant.
ARTICLE 5
5.01. OPERATING EXPENSE REIMBURSEMENT.
In the event that Operating Expenses (defined in Section 5.02 hereof) of the
Building during any calendar year of the Term shall exceed the Base Operating
Expense for the Building, Tenant shall pay to Landlord its proportionate share
of the increase in such Operating Expenses over the Base Operating Expense.
Tenant's proportionate share of such increase is agreed to be Tenant's Pro Rata
Share. Thereafter, from time to time, Landlord shall provide to Tenant the
Estimated Operating Expense Increase (or an amendment thereto) for any year. In
addition to the Base Rent, Tenant shall pay in advance on the first day of each
calendar month during the Term, installments equal to 1/12th of Tenant's Pro
Rate Share of the Estimated Operating Expense Increase, except that the first
such monthly installment is due upon the Commencement Date. As soon as possible
after the comparison year, Landlord shall furnish to Tenant a statement
certified by Landlord of the Actual Operating Expense Increase (hereinafter
defined) for the immediately preceding calendar year, which statement shall
specify the various types of Operating Expenses and set forth Landlord's
calculations of Tenant's Pro Rata Share of the Actual Operating Expense
Increase. If Tenant's Pro Rata Share of the Estimated Operating Expense Increase
paid to Landlord during the previous calendar year exceeds Tenant's Pro Rata
Share of the Actual Operating Expense Increase, then Landlord shall refund the
difference to Tenant at the time Landlord furnishes the statement of the Actual
Operating Expense Increase. Otherwise, within fifteen (15) days after Landlord
furnishes such statement to Tenant, Tenant shall make a lump sum payment to
Landlord equal to Tenant's Pro Rata Share of the positive difference between the
Actual Operating Expense Increase and the Estimated Operating Expense Increase
theretofore paid by Tenant.
The "Estimated Operating Expense Increase" shall equal Landlord's estimate of
Operating Expenses for the applicable calendar year, less the Base Operating
Expense. Landlord's statement of the Estimated Operating Expense Increase shall
control for the year specified in such statement and for each succeeding year
during the Term until Landlord provides a new statement of the Estimated
Operating Expense Increase. The "Actual Operating Expense Increase" shall equal
the actual Operating Expenses for the applicable calendar year, less the Base
Operating Expense.
5.02. OPERATING EXPENSES.
The term "Operating Expenses" shall mean and include those reasonable amounts,
expenses, and costs of whatsoever nature that Landlord incurs because of or in
connection with the ownership, operation, management, repair, or maintenance of
the Project and Landlord's personal property used in connection therewith.
Operating Expenses shall be determined on an accrual basis in accordance with
generally accepted accounting principles consistently applied and shall include,
without limitation, the following:
(a) Wages, salaries, fees, related taxes, insurance, benefits, and
reimbursable expenses of all personnel engaged in operating, repairing, and
maintaining the Project and providing traffic control about the Project;
provided, however, that if during the Term such personnel are also working on
other projects being operated by Landlord, their wages, salaries, fees and
related expenses shall be allocated by Landlord in good faith among all of such
projects and only that portion of such expenses allocable to the Project shall
be included as an "Operating Expense."
(b) Cost of all supplies and materials used in operating, repairing,
and maintaining the Project.
(c) Cost of all utilities for the Project, including, without
limitation, water, electricity, gas, fuel oil, heating, lighting, air
conditioning, and ventilating.
(d) Cost of all maintenance, security, window cleaning, elevator
maintenance, landscaping, repair, Janitorial, and other similar service
agreements for the Project and the equipment and other personal property of
Landlord therein and thereon used in connection with the operation, management,
repair or maintenance of the Project.
(e) Cost of all insurance relating to the Project and its occupancy
or operations, including but not limited to (i) the cost of rent loss and
casualty and
<PAGE>
liability insurance applicable to the Project or Landlord's personal
property used in connection with the operation of the Project, (ii) the cost of
business interruption insurance in such amounts as will reimburse Landlord for
all losses of earnings and other income attributable to the ownership and
operation of the Project, and (iii) the cost of insurance against such perils
and occurrences as are commonly insured against by prudent Landlords.
(f) All taxes, assessments, and governmental charges and fees of
whatsoever nature, whether now existing or subsequently created, attributable to
the Project or its occupancy or operation, excluding only franchise and income
taxes of Landlord (but not excluding such taxes if imposed in the future wholly
or partially in lieu of present real estate, ad valorem, or similar taxes), and
including all such taxes whether assessed to or paid by Landlord or third
parties, but excluding such taxes to the extent, if any, that Tenant, any other
tenant of the Project, or any other party specifically reimburses Landlord
therefore (other than through the payment of Operating Expense reimbursements).
(g) Costs of repairs to and maintenance of the Project, excluding any
such costs as are paid by the proceeds of insurance, by Tenant, or by other
third parties.
(h) A management fee not to exceed four percent (4%) for management
services rendered in connection with the Project.
(i) Amortization of the cost of capital investment items which are
installed primarily to reduce Operating Expenses for the benefit of all of the
Project's tenants or which may be required by any governmental authority. All
such costs, including interest costs, shall be amortized over the reasonable
life of the capital investment items, with the reasonable life and amortization
schedule being determined by Landlord according to generally accepted accounting
principles, but in no event to extend beyond the reasonable life of the
Building.
(j) Landlord's central accounting costs, and legal, appraisal, and
other such third party fees relating to the operation of the Project.
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<PAGE>
(k) The fair market rental value of Landlord's and the property
manager's offices, if any, in the Building not to exceed fair market value.
Notwithstanding the foregoing provisions of this Section 5.02, "Operating
Expenses" shall not include any of the following:
(1) Costs incurred by Landlord for alterations, additions and replacements
which are considered capital expenditures under generally accepted accounting
principles, consistently applied, except to the extent provided in Section
5.02(1).
(2) Any costs or expenditures for which (and to the extent) Landlord is
entitled to reimbursement by Tenant (other than pursuant to this Article 5), any
other tenant of the Project (other than through the payment of Operating Expense
reimbursements), insurance, or condemnation proceeds.
(3) The cost of preparing, renovating, painting, decorating, or otherwise
modifying any part of the Building other than Building Common Areas and Floor
Common Areas.
(4) Leasing commissions, ground rentals (except to the extent the same may
be made to pay insurance or taxes), non-cash items (including, without
limitation, depreciation, except to the extent provided in Section 5.02(1), and
obsolescence), debt service (principal and interest) and other debt costs, and
advertising and promotional expenditures.
(5) One (1) time annually Tenant shall have the right during normal
business hours to audit the previous year's Operating Expenses of the Building
by giving Landlord fifteen (15) days notice of such intent to audit.
5.03. PRORATION AND ADJUSTMENT OF OPERATING EXPENSES.
If this Lease commences on other than the first day of a calendar year, or if
this Lease expires on other than the last day of a calendar year, then the
Operating Expenses for all of such calendar year shall be prorated according to
the portion of the Term that occurs during such calendar year. If at any time
the Building is not fully occupied or Landlord is not supplying all services to
all portions of the Building during an entire calendar year, then Operating
Expenses shall be adjusted as though the Building had been fully occupied and
Landlord were supplying all services to all portions of the Building during the
entire calendar year.
ARTICLE 6
6.01. USE.
Tenant shall use and occupy the Premises only for the purpose set forth in
Article 1.01 (k), and for no other purposes. Tenant shall not use or permit the
Premises to be used for any unlawful purpose or in any unlawful manner, and
shall comply with all federal, state, and local governmental laws, ordinances,
orders, rules and regulations applicable to the Premises, the Project, and the
occupancy thereof and Tenant shall give prompt written notice to Landlord of any
notification to Tenant of any claimed violation thereof. Tenant shall not do or
permit anything to be done in or about the Premises, nor bring or keep anything
therein which will in any way increase the existing rate of or affect any fire
or other insurance upon the Project or any of its contents, or cause
cancellation of any insurance policy covering the Project or any part thereof or
any of its contents. Tenant shall not do or permit anything to be done in or
about the Premises and/or Project which will in any way obstruct or interfere
with the rights of other tenants or occupants of the Project or injure or annoy
them. Tenant shall not permit any nuisance in, on or about the Premises. Tenant
shall not commit or suffer to be committed any waste in or upon the Premises.
ARTICLE 7
7.01. LANDLORD'S SERVICES.
Provided Tenant is not in default hereunder, Landlord shall, at Landlord's
expense except as provided to the contrary in this Lease, furnish to Tenant the
following services:
(a) Air conditioning and central heat at such temperatures and in
such amounts as are reasonably considered by Landlord to be standard for the
Building, during normal business hours for the Building as set forth in the
Rules and Regulations as hereinafter defined.
(b) Janitorial services in the Premises and public and exterior
portions of
<PAGE>
the Building for all days, except Saturdays, Sundays and holidays; provided,
however, if Tenant's floor covering or other improvements is other than Building
Standard, as hereinafter defined, Tenant shall pay the additional cleaning cost
attributable thereto as additional rent upon presentation of a statement
therefore by Landlord.
(c) Hot and cold water at those points of supply provided for
general use of other tenants in the Building.
(d) Normal and customary routine maintenance for all public,
structural, and exterior portions of the Project according to Landlord's
standards.
(e) Electric lighting service for all public portions of the
Project.
(f) Automatic passenger elevator service at all times for access to
and egress from the Premises. Freight elevator service, in common with other
tenants, shall be provided during reasonable business hours as prescribed by
Landlord, exclusive of Saturdays, Sundays, and holidays.
(g) All Building Standard fluorescent bulb replacement in all areas
and all incandescent bulb replacement in public areas, toilet and rest room
areas and stairwells.
(h) Electrical facilities to furnish sufficient power for
typewriters, calculating machines, personal computers and other machines of
similar low electrical consumption (total electrical power requirement not to
exceed one watt per square foot of Rentable Area); but not including electricity
required for electronic data processing equipment, special lighting in excess of
Building Standard, and any other item of electrical equipment, or that requires
a voltage other than 120 volts single phase; and provided that if the
installation of said electrical equipment requires additional air conditioning
capacity above that provided by the Building Standard system, then the
additional air conditioning installation and operating costs will be the
obligation of Tenant. Landlord, at its option, may cause a water meter, electric
current meter or such similar device to be installed on the Premises so as to
measure the amount of water and electric current consumed by Tenant. The cost of
any such meters and of the installation, maintenance and repair thereof shall be
paid for by Tenant and Tenant agrees to pay to Landlord, promptly upon demand by
Landlord, for all such excess water and electric expense incurred. If a separate
meter is not installed or Landlord is prevented from installing a separate meter
by operation of law
4
<PAGE>
or other cause beyond Landlord's control, such excess costs for such water and
electric current will be established by an estimate made by the utility company,
electrical engineer, or an independent consultant, which estimate shall be
binding on Tenant.
7.02. ADDITIONAL SERVICE COST.
Tenant shall pay Landlord, upon demand, such additional amounts as are
reasonably necessary to recover additional costs incurred by Landlord in
performing or providing non-standard janitorial maintenance, security, or other
services or requirements of Tenant or in performing any services (and in paying
additional taxes) as to any Non-Building Standard installations in the Premises.
Tenant shall pay Landlord, upon demand, reasonable charges for providing off-
hour and non-standard air conditioning, heating and electricity; provided,
however, that Tenant's excessive use or consumption of heating, air conditioning
and/or electrical services in violation of Section 7.01 above, without
Landlord's prior written consent, shall constitute a default under this Lease.
7.03. INTERRUPTION OF SERVICES.
Any failure or defect in Landlord's hereinabove described services shall not be
construed as an eviction of Tenant, nor entitle Tenant to any reduction,
abatement, offset, or refund of Rent or to any damages from Landlord. Landlord
shall not be in breach or default under this Lease, provided Landlord uses
reasonable diligence to restore any such failure or defect after Landlord
receives written notice thereof.
7.04. KEYS AND LOCKS.
Landlord shall furnish to Tenant two (2) keys for each corridor door entering
the Premises. Additional keys will be furnished at a charge by Landlord on an
order signed by Tenant or Tenant's authorized representative. All such keys
shall remain the property of Landlord. No additional locks shall be allowed on
any door of the Premises without Landlord's permission, and Tenant shall not
make, or permit to be made any duplicate keys, except those furnished by
Landlord. Upon termination of this Lease, Tenant shall surrender to Landlord all
keys to the Premises, and give to Landlord an explanation of the combination of
all locks for safes, safe cabinets and vault doors, if any, in the Premises.
7.05. SIGNS.
Landlord shall provide and install all letters and numerals on entrance doors in
or at the Premises. All such letters and numerals are to be Building Standard
graphics, and no other letters, numbers, or signage shall be used or permitted
on the Premises without the prior written consent of Landlord.
ARTICLE 8
8.01. ALTERATIONS.
Tenant shall make no alterations, installations, additions, or improvements in
or to the Premises or place signs on the Premises which are visible from outside
the Premises, without Landlord's prior written consent. All alterations,
installations, additions or improvements, other than moveable furniture and
moveable trade fixtures, made by Tenant to the Premises shall remain upon and be
surrendered with the Premises and become the property of Landlord at the
expiration or termination of this Lease or the termination of Tenant's right to
possession of the Premises; provided, however, that Landlord may require Tenant,
at Tenant's cost, to remove any or all of such items that are not Building
Standard upon the expiration or termination of this Lease or the termination of
Tenant's right to possession of the Premises. All work performed by Tenant with
respect to the Premises shall (a) be performed so as not to alter the exterior
appearance of the Building, (b) be preformed by a contractor approved in writing
by Landlord, (c) be performed so as not to adversely affect the structure or
safety of the Building, (d) comply with all building, safety, fire, and other
codes and governmental and insurance requirements, (e) be performed so as not to
result in any usage in excess of Building Standard of water, electricity, gas,
heating, ventilating, or air conditioning (either during or after such work)
unless prior written arrangements reasonably satisfactory to Landlord are made
with respect thereto, (f) be completed promptly and in a good and workmanlike
manner, and (g) be performed in such a manner that no valid mechanic's,
materialman's, or other similar liens attached to Tenant's leasehold estate and
in no event shall Tenant permit, or be authorized to permit, any such liens
(valid or alleged) or other claims to be asserted against Landlord or Landlord's
rights, estates, and interests with respect to the Project or this Lease. In all
events, Tenant shall not be entitled to perform any work unless and until Tenant
has obtained and furnished to Landlord an appropriate workman's compensation
policy covering all workmen and a general liability policy naming Landlord as a
co-insured with policy limits not less than $1,000,000. Landlord may require, at
Tenant's sole cost and expense, a lien and completion bond in an amount equal to
the estimated cost of any improvements, additions or alterations in the Premises
which have been approved by Landlord.
8.02. REMOVAL OF TRADE FIXTURES AND PERSONAL PROPERTY.
<PAGE>
Tenant agrees to remove all of its trade fixtures, personal property and, at
Landlord's request pursuant to Section 8.01, Non-Building Standard items, on or
before the date of expiration or termination of the Term, and shall promptly
reimburse Landlord for the cost of repairing all damage done to the Premises or
the Project by such removal and the cost of restoring the Premises to their
original condition, reasonable wear and tear excepted, after such removal.
Tenant shall not be responsible for the removal of telephone network cabling
installed in the Premises.
8.03. REPAIRS BY LANDLORD.
Landlord shall repair and maintain the structural portions of the Project,
including the Building Standard plumbing (exclusive of tenant kitchens and
coffee bars), air conditioning, heating and electrical systems installed or
furnished by Landlord, and all areas of the Project for the common non-exclusive
use of all tenants in the Project, unless such maintenance and repairs are
caused in part or in whole by the act, neglect, or omission of any duty by the
Tenant, its agents, servants, employees or invitees, or unless such maintenance
or repairs are otherwise herein provided to be made by Tenant. Landlord shall
not be liable for any failure to make such repairs or to perform any maintenance
unless such failure shall persist for an unreasonable time after written notice
of the need of such repairs or maintenance is given to Landlord by Tenant and
then, only if, after ten (10) days have elapsed, Landlord has failed to commence
to make such repairs or maintenance. Landlord shall not be liable for any
damages, compensation or claim for loss of the use of the whole or any part of
the Premises or Tenant's personal property, or any inconvenience, loss of
business, or annoyance arising from any such repair and/or maintenance performed
by Landlord hereunder, except for damage resulting from Landlord's gross
negligence or willful misconduct. Landlord reserves the right to make such
repairs, changes, alterations, additions, or improvements in or to any portion
of the Project and the fixtures and equipment thereof as it may deem necessary
or desirable.
8.04. REPAIRS BY TENANT.
By taking possession of the Premises, Tenant shall be deemed to have accepted
the Premises as being in good, sanitary order, condition and repair. Tenant
shall, at Tenant's sole cost and expense, keep the Premises in good condition
and repair, damage thereto from causes beyond the reasonable control of Tenant
and ordinary wear and tear excepted. Tenant shall, upon the expiration or sooner
termination of this Lease, surrender the Premises to the Landlord in good
condition, ordinary wear and tear and damage from causes beyond the reasonable
control of Tenant excepted. Any injury or
5
<PAGE>
damage to the Premises or Project, or the appurtenances or fixtures thereof,
caused by or resulting from the act, omission or neglect of Tenant or Tenant's
employees, servants, agents, invitees, assignees, or subtenants shall be
repaired or replaced by Tenant, or at Landlord's option by Landlord, at the
expense of Tenant. If Tenant fails to maintain the Premises or fails to repair
or replace any damage to the Premises or Project resulting from the negligence
or intentional act of Tenant, its employees, servants, agents, invitees,
assignees or subtenants, Landlord may, but shall not be obligated to cause such
maintenance, repair or replacement to be done, as Landlord deems necessary, and
Tenant shall immediately pay to Landlord all costs related thereto, plus a
charge for Landlord's overhead of fifteen percent (15%) of such cost.
ARTICLE 9
9.01. LANDLORD'S INSURANCE.
Landlord shall fully insure the Project and shall maintain liability and other
insurance in such amounts as may be required by Landlord's mortgagee for the
Project or in such greater amounts as Landlord, in its discretion, may deem
appropriate. Such insurance shall be for the sole benefit of Landlord and, if
required, Landlord's mortgagee.
9.02. TENANT'S INSURANCE.
Tenant shall, at Tenant's expense, fully insure its property located in the
Premises against fire and other casualty and shall maintain public liability
insurance with combined limits of at least $1,000,000. The limits or amounts of
said insurance coverage shall not, however, limit the liability of the Tenant
hereunder. Tenant shall cause Landlord to be named as an additional insured
under such public liability insurance policy and the fire and casualty insurance
policy which Tenant is required to maintain with respect to Tenant's property
located in the Premises. If Tenant shall fail to procure and maintain said
insurance, Landlord may, but shall not be required to, procure and maintain
same, and in such event, premiums and costs thereof shall be reimbursed and paid
by Tenant to Landlord on demand by Landlord. Insurance required hereunder shall
be with companies rated AAA or better in "Best's Insurance Guide." Tenant shall
deliver to Landlord prior to occupancy of the Premises copies of policies of
liability insurance required herein or certificates evidencing the existence and
amounts of such insurance. No policy shall be cancelable or subject to reduction
of coverage except after thirty (30) days prior written notice to Landlord.
9.03. WAIVER OF SUBROGATION.
Whenever (a) any loss, cost, damage or expense resulting from fire, explosion or
any other casualty or occurrence is incurred by either of the parties to this
Lease in connection with the Premises or the Project, and (b) such party is then
covered (or is required to be covered under the foregoing provisions of this
Article 9) in whole or in part by insurance with respect to such loss, cost,
damage or expense, then the party so insured (or required to be insured) hereby
releases the other party from any liability it may have on account of such loss,
cost, damage or expense to the extent of such insurance coverage in place or
required to be in place, and waives any right of subrogation which might
otherwise exist in or accrue to any person on account thereof; provided,
however, that such release of liability shall not be operative in any case where
the effect thereof is to invalidate such insurance coverage or increase the cost
thereof; provided that in the case of increased cost, the other party shall have
the right, within thirty (30) days following written notice, to pay such
increased cost, thereupon keeping such release and waiver in full force and
effect. Landlord and Tenant shall use their respective best efforts to obtain
such a release and waiver of subrogation from their respective insurance
carriers and shall immediately notify the other of any failure to obtain or
maintain the same.
9.04. WAIVER OF LIABILITY AND INDEMNITY.
Landlord, its agents and employees, shall not be liable for any injury to or
death of persons or for any loss of or damage to property of Tenant or of
others, regardless of whether such property is entrusted to employees of the
Project, or such loss or damage is occasioned by casualty, theft, or any other
cause of whatsoever nature, unless caused solely by the willful misconduct or
gross negligence of Landlord. In no event shall Landlord be liable as the result
of the acts or omissions of Tenant or any other tenant of the Project. All
personal property upon the Premises shall be at the risk of Tenant only and
Landlord shall not be liable for any damage thereto or theft thereof. Except in
the event of willful misconduct or gross negligence Tenant hereby indemnifies
and holds Landlord harmless from and against any and all claims arising from
Tenant's use of the
<PAGE>
Premises for the conduct of its business or from any activity, work or other
thing done, permitted or suffered by Tenant on or about the Project and shall
further indemnify and hold harmless Landlord from and against any and all claims
arising from any breach or default in the performance of any obligation on
Tenant's part to be performed under the terms of this Lease, or arising from any
act or omission of, or due to the negligence of, the Tenant, or any officer,
agent, employee, guest or invitee of Tenant and from and against all costs,
attorneys' fees, expenses and liabilities incurred in or related to any such
claim or any action or proceeding brought thereon.
Except for any injury or damage to persons or property on the Project that is
caused by or results from the negligent act of Tenant, or Tenant's agents,
employees, invitees, or contractors, and except as otherwise expressly stated in
this Lease, Landlord shall indemnify and hold Tenant harmless from and against
any and all claims arising from any breach or default in the performance of any
obligation on Landlord's part to be performed under the terms of this Lease, or
arising from any act or omission of, or due to the negligence of, the Landlord,
or any officer, employee, representative, invitee or contractor of Landlord, and
from and against all costs, attorneys fees, expenses and liabilities incurred ir
or related to any such claim or any action or proceeding brought thereon.
ARTICLE 10
10.01 CASUALTY.
If the Premises or Project, or any portion of either, shall be damaged by fire
or other casualty covered by the insurance carried or required to be carried by
Landlord hereunder, and the cost of repairing such damage shall not be greater
than ten percent (10%) of the then full replacement cost thereof, then, subject
to the following provisions of this Article, Landlord shall repair the Premises
and/or Project. If the Premises or Project shall be damaged (a) by fire or other
casualty not covered by insurance carried by Landlord hereunder, (b) by fire or
other casualty covered by insurance carried by Landlord hereunder and Landlord's
mortgagee requires that such insurance proceeds be used to retire the mortgage
debt, or to an extent greater than ten percent (10%) of the then full
replacement cost thereof, then Landlord shall have the option to either (I)
repair or reconstruct the same to substantially the same condition as
immediately prior to such fire or other casualty, or (ii) terminate this Lease
by so notifying Tenant within ninety (90) days after the date of such fire or
other casualty, such termination to be effective as of the date of such notice.
The Rent required to be paid hereunder shall be abated in proportion to the
portions of the Premises, if any, which are rendered untenantable by fire or
other casualty hereunder until repairs of the Premises are completed, or if the
Premises are not repaired, until the termination date hereunder. Other than such
Rent abatement, no damages, compensation or claim shall be payable by Landlord
for loss of the use of the whole or any part of the Premises, Tenant's personal
property, or any inconvenience, loss of business, or annoyance arising from any
such repair and reconstruction.
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If this Lease is terminated as provided in (c)(ii) above, all Rent shall be
apportioned and paid up to the termination date. Landlord shall not be required
to repair or replace any furniture, furnishings or other personal property which
Tenant may be entitled to remove from the Premises or any property constructed
and installed by or for Tenant pursuant to Section 8.01 hereof or any
installations in excess of Building Standard.
10.02. END OF TERM CASUALTY.
Notwithstanding anything to the contrary in this Article, Landlord shall not
have any obligation whatsoever to repair, reconstruct or restore the Premises or
the Project when the damage resulting from any casualty covered under this
Article occurs during the last twelve (12) months of the Term or any extension
thereof.
ARTICLE 11
11.01. CONDEMNATION.
If all or substantially all of the Premises be taken by virtue of eminent domain
or for any public or quasi-public use or purpose, this Lease and the estate
hereby granted shall terminate on the date the condemning authority takes
possession and Tenant shall be free to terminate this Lease and vacate the
Premises.
11.02. CONDEMNATION AWARD.
Landlord shall be entitled to the whole of any and all awards which may be paid
or made in connection with any such taking, except that Tenant shall be entitled
to make a separate claim with the condemning authority for (a) any moving
expenses incurred by Tenant as a result of such condemnation, and (b) any
relocation costs incurred by Tenant. Tenant shall be granted the right to pursue
its own award in the event of a condemnation.
ARTICLE 12
12.01. ENTRY.
Landlord, its agents, employees, and representatives, shall have the right to
enter the Premises at any time upon reasonable notice to Tenant under the
circumstances (such notice may be oral and not in compliance with Section 17.05
hereof, but no notice shall be required in the case of routine maintenance or
any emergency) for any purpose which Landlord may reasonably deem necessary for
the operation and maintenance of the Project, including, without limitation, the
exhibiting of the Premises to prospective purchasers, mortgagees, or tenants.
ARTICLE 13
13.01. SUBORDINATION.
This Lease is and shall be subject and subordinate to any and all ground or
similar leases affecting the Project, all mortgages which may now or hereafter
encumber or affect the Project and to all renewals, modifications,
consolidations, replacements and extensions of any such leases and/or mortgages;
provided, however, that at the option of any Underlying Party (hereinafter
defined), this Lease shall be superior to the lease or mortgage of such
Underlying Party. The provisions of this Section 13.01 shall be self-operative
and shall require no further consent or agreement requested by any such lessor
or mortgagee in connection with this Section 13.01. Tenant shall, however,
execute promptly any appropriate certificate or instrument that Landlord may
request. As used in this Lease, the term "Underlying Party" shall mean the
holder of the lessor's interest under any ground or similar lease of all or part
of the Building and/or the mortgagee or purchaser at foreclosure with respect to
any mortgage of all or part of the Building. Tenant agrees that any Underlying
Party may unilaterally subordinate its mortgage or lease to this Lease at any
time by filing a notice of such subordination in the Official Public Records of
Real Property of the county where the Building is located. In the event Landlord
places a mortgage on the property that exceeds 80% of value. Landlord shall use
its best efforts to procure a non-disturbance agreement benefiting Tenant.
13.02. ATTORNMENT.
In the event of the termination of any ground or similar lease affecting the
Project or the enforcement by the trustee or the beneficiary under any mortgage
or deed of trust of remedies provided by law or by such mortgage or deed of
trust, Tenant will, upon request of any person or party succeeding to the
interest of Landlord as the result of such termination or enforcement,
automatically become the Tenant of such successor in interest
<PAGE>
without change in the terms or other provisions of this Lease; provided,
however, that such successor in interest shall not be bound by (a) any payment
of Rent for more than one month in advance, or (b) any amendment or modification
of this Lease made without the written consent of such trustee or such
beneficiary or such successor in interest. Upon request by any such successor in
interest, Tenant shall execute and deliver an instrument or instruments
confirming the attornment provided for herein.
13.03. QUIET ENJOYMENT.
Tenant, on paying the Rent and keeping and performing the conditions and
covenants herein contained, shall and may peaceably and quietly enjoy the
Premises for the Term, subject to all applicable laws and ordinances, applicable
insurance requirements and regulations, and the provisions of this Lease.
ARTICLE 14
14.01. ASSIGNMENT.
Tenant shall not assign or in any manner transfer this Lease or any estate or
interest herein, or sublet the Premises or any part thereof, or grant any
license, concession or other right of occupancy of any portion of the Premises
without the prior written consent of Landlord which shall not be unreasonably
withheld. Landlord shall have the option, upon receipt from Tenant of a written
request for Landlord's consent to a subletting or assignment, to cancel this
Lease as of the date which is thirty (30) days following the receipt by Landlord
of the request from Tenant to sublet or assign. The option of Landlord to cancel
this Lease, as provided for above, shall be exercised, if at all, within fifteen
(15) days following Landlord's receipt of such written notice, by delivering to
Tenant written notice of Landlord's intention to exercise the option to so
cancel this Lease. If Tenant desires at any time to enter into an assignment of
this Lease or a sublease of the Premises or any portion thereof, Tenant shall
give written notice to Landlord of its desire to do so, which notice shall
contain (a) the name of the proposed assignee or subtenant, (b) the nature of
the proposed assignee's or subtenant's business to be carried on in the
Premises, the terms and provisions of the proposed assignment or sublease, and
(d) resumes, business plans, references, financial information, and other
information as Landlord may reasonably request concerning the proposed assignee
or subtenant. If Tenant is a corporation, partnership or other entity, and if at
any time during the term of this Lease or any renewal or extension hereof, the
person or persons who own a majority of either the outstanding voting interest
or all outstanding ownership interests of Tenant at the time of execution of
this Lease cease to own a majority of such interest (except as a result of
transfers by devise or
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descent), the loss of a majority of such interest shall be deemed an assignment
of this Lease by Tenant and therefore subject in all respects to the provisions
of this Section 14.01. The previous sentence shall not apply, however, if Tenant
is a corporation and at the time of the execution of this Lease the outstanding
voting shares of capital stock of Tenant are listed on a recognized security
exchange or over the counter market.
14.02. CONTINUED LIABILITY.
Tenant shall, despite any permitted assignment or sublease, remain directly and
primarily liable for the performance of all of the covenants, duties, and
obligations of Tenant hereunder and Landlord shall be permitted to enforce the
provisions of this Lease against Tenant or any assignee or sublease without
demand upon or proceeding in any way against any other person. over, in the
event that the rental due and payable by a sublessee (or a combination of the
rental payable under such sublease, plus any bonus or other consideration
thereof incident thereto) exceeds the Rent payable under this Lease, or if with
respect to a permitted assignment, permitted license, or other transfer by
Tenant permitted by Landlord, the consideration payable to Tenant by the
assignee, licensee or other transferee exceeds Rent payable under this Lease,
then Tenant shall be bound and obligated to pay Landlord all such excess rental
and other excess consideration within ten (10) days following receipt thereof by
Tenant from such sublessee, assignee, licensee or other transferee, as the case
may be.
14.03. CONSENT.
If this Lease is assigned or if the Premises are subleased, then Landlord may
collect rent from the assignee or sublessee and apply the net amount collected
to the Rent payable hereunder, but no such transaction or collection of rent or
application thereof by Landlord shall be deemed a waiver of any provision hereof
or a release of Tenant from the performance by Tenant of its obligations
hereunder.
14.04. TRANSFER BY LANDLORD.
In the event of the transfer and assignment by Landlord of its interest in this
Lease and in the Project to a person expressly assuming Landlord's obligations
under this Lease, Landlord shall thereby be released from any further
obligations hereunder, and Tenant agrees to look solely to such successor in
interest of the Landlord for performance of such obligations. Any security given
by Tenant to secure performance of Tenant's obligations hereunder may be
assigned and transferred by Landlord to such successor in interest, and Landlord
shall thereby be discharged of any further obligation relating thereto.
ARTICLE 15
15.01. DEFAULT BY TENANT.
Each of the following shall constitute a "Default" by Tenant:
(a) The failure of Tenant to pay the Base Rent, any other
installment of Rent, or any part thereof when due; or
(b) Tenant shall fail to fulfill or perform, in whole or in part,
any of its obligations under this Lease (other than the payment of Rent) and
such failure or non-performance shall continue for a period of fifteen (15) days
after written notice thereof has been given by Landlord to Tenant; or
(c) The entry of a decree or order by a court having jurisdiction
adjudging Tenant to be bankrupt or insolvent or approving as properly filed a
petition seeking reorganization of Tenant under the National Bankruptcy Act, or
any other similar applicable Federal or State Law, or a decree or order of a
court having jurisdiction for the appointment of a receiver or liquidator or a
trustee or assignee in bankruptcy or insolvency of Tenant or its property or for
the winding up or liquidation of its affairs; or Tenant shall institute
proceedings to be adjudicated a voluntary bankrupt or shall consent to the
filing of any bankruptcy, reorganization, receivership or other proceeding
against Tenant, or any such proceedings shall be instituted against Tenant and
the same shall not be vacated within ninety (90) days after the same are
commenced; or Tenant shall make an assignment for the benefit of Tenant's
creditors or admit in writing Tenant's inability to pay the debts of Tenant
generally as they may become due; or
(e) Tenant shall do or permit to be done anything which creates a
lien upon the Premises or any portion of the Project; or
15.02. RIGHTS UPON DEFAULT BY TENANT.
(a) This Lease and the term and estate hereby granted and the
demise hereby made are subject to the limitation that if and whenever there
shall occur any event of Default, as enumerated above, Landlord may, at
Landlord's option, without any notice or demand whatsoever in addition to any
other remedy or right given hereunder or by law or equity do any one or more of
the following:
<PAGE>
(1) Terminate this Lease by written notice to Tenant, in which event
Tenant shall immediately surrender possession of the Premises to
Landlord;
(2) Terminate Tenant's right to possession of the Premises under this
Lease without terminating the Lease itself, by written notice to
Tenant, in which event Tenant shall immediately surrender possession
of the Premises to Landlord;
(3) Enter upon and take possession of the Premises and expel or remove
Tenant and any other occupant therefrom, with or without having
terminated this Lease;
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(4) Alter locks and other security devices at the Premises with or without
having terminated this Lease or Tenant's right to possession under the
Lease;
(5) In the event of any default described in subsection (b) of Section
15.01, Landlord shall have the right to enter upon the Premises
without being liable for prosecution or any claim for damages
therefore, and do whatever Tenant is obligated to do under the terms
of this Lease; and Tenant agrees to reimburse Landlord on demand for
the reasonable any expenses which Landlord may incur in thus effecting
compliance with Tenant's obligations under this Lease, and Tenant
further agrees that Landlord shall not be liable for any damages
resulting to Tenant from such action.
(b) Exercise by Landlord of any one or more remedies hereunder granted
or otherwise available shall not be deemed to be an acceptance of surrender of
the Premises by Tenant, whether by agreement or by operation of law, it being
understood that such surrender can be effected only by the written agreement of
Landlord and Tenant. No such alteration of locks or other security devices and
no removal or other exercise of dominion by Landlord over the property of Tenant
or others at the Premises shall be deemed unauthorized or constitute a
conversion, Tenant hereby consenting, after any event of Default, to the
aforesaid exercise of dominion over Tenant's property within the Premises. All
claims for damages by reason of such re-entry and/or repossession and/or
alteration of locks except for gross negligence or willful misconduct by
Landlord or other security devices are hereby waived, as are all claims for
damages by reason of any distress warrant, forcible detainer proceedings,
sequestration proceedings or other legal process. Tenant agrees that any re-
entry by Landlord may be pursuant to a judgment obtained in forcible detainer
proceedings or other legal proceedings or without the necessity for any legal
proceedings, as Landlord may elect, and Landlord shall not be liable in trespass
or otherwise.
(c) (i) In the event Landlord elects to terminate this Lease by
reason of an event of Default, then notwithstanding such termination, the Tenant
shall be liable for and shall pay to the Landlord, at the address specified in
Section 1.01(a) above, the sum of all Rent accrued to the date of such
termination, plus, as damages, (1) an amount equal to the total of the Rent
provided in this Lease for the remaining portion of the Term of the Lease (had
such Term not been terminated by Landlord prior to the Expiration Date stated in
Section 3.01), less the reasonable rental value of the Premises for such period,
such amount to be discounted to present value at the rate of six percent (6%)
per annum (the undersigned parties here stipulating that such reasonable rental
shall in no event be deemed to exceed 60% of the present value of the Rent for
such period).
(ii) In the event Landlord elects to terminate this Lease by
reason of an event of Default, in lieu of exercising the right of Landlord under
the preceding subparagraph (I), Landlord may instead hold Tenant liable for all
Rent accrued to the date of such termination, plus such Rent as would otherwise
have been required to be paid by Tenant to Landlord during the period following
termination of the Term measured from the date of such termination by Landlord
until the Expiration Date stated in Section 3.01 (had Landlord not elected to
terminate the Lease on account of such event of Default) diminished by any net
sums thereafter received by Landlord through reletting the Premises during said
period (after deducting expenses incurred by Landlord as provided in Section
15.03 hereof). Actions to collect amounts due by Tenant as provided for in this
paragraph may be brought from time to time by Landlord during the aforesaid
period, on one or more occasions, without the necessity of Landlord's waiting
until expiration of such period; If Landlord elects to exercise the remedy
prescribed in this subparagraph (ii), this election shall in no way prejudice
Landlord's right at any time thereafter to cancel said election in favor of the
remedy prescribed in the foregoing subparagraph (I).
(f) In the event of a Default, Tenant shall in addition to all other
sums owed to Landlord, pay to Landlord an amount equal to the dollar amount of
all "concessions" provided to Tenant in connection with this Lease, including,
but not limited to, rental concessions, above standard tenant improvements,
relocation allowances, cash payments, any other unamortized tenant improvements,
and the like. The foregoing shall not, however, act to limit in any manner the
damages or remedies to which Landlord may be entitled under this Lease or by
law, but shall act only as a reimbursement of such concessions as may have been
provided to Tenant as an incentive to enter into this Lease.
15.03. EXPENSE OF REPOSSESSION.
15.04. CUMULATIVE REMEDIES.
The remedies of Landlord hereunder shall be deemed cumulative and not exclusive
of each other.
<PAGE>
15.05. ATTORNEY'S FEES.
If on account of any breach or default by Tenant in its obligations hereunder,
Landlord shall employ an attorney to present, enforce or defend any of
Landlord's rights or remedies hereunder, Tenant agrees to pay any reasonable
attorney's fees incurred by Landlord in such connection and assessed by a court
of competent jurisdiction.
15.06. INTEREST.
All late payments of Rent, costs or other amounts due from Tenant under this
Lease shall bear interest from the date due until paid at the maximum non-
usurious rate of interest at which Tenant may legally contract in Texas.
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15.07. SECURITY DEPOSIT
Tenant shall deposit with Landlord prior to on the date Tenant occupies the
Premises, the Security Deposit to be held by Landlord without interest as
security for the performance by Tenant of Tenant's covenants and obligations
under this Lease, it being expressly understood that such deposit may be
commingled with Landlord's other funds and is not an advance payment of rental
or a measure of Landlord's damages in case of Default by Tenant. If the Premises
are conveyed by Landlord, the security deposit or any balance thereof may be
turned over to Landlord's grantee or assignee, and if the same is turned over,
Tenant hereby releases Landlord from any and all liability with respect to the
security deposit and its application and Tenant agrees to look solely to such
grantee or assignee for such application or return. Upon the occurrence of any
event of Default by Tenant, Landlord may, from time to time, without prejudice
to any other remedy provided herein or provided by law, use such fund to the
extent necessary to make good any arrears of Rents and any other damage, injury,
expense or liability caused to Landlord by such event of Default, and Tenant
shall pay to Landlord on demand the amount so applied in order to restore the
security deposit to its original amount. If Tenant is not then in Default
hereunder, any remaining balance of such deposit shall be returned by Landlord
to Tenant within thirty (30) days following expiration of this Lease (subject to
the provisions of Section 14.04 above).
15.08. LANDLORD'S CONTRACTUAL SECURITY INTEREST.
15.09. USE AND STORAGE OF PERSONAL PROPERTY.
15.10. DEFAULT BY LANDLORD.
In the event of a default or breach by Landlord under this Lease, then Tenant
shall be entitled to the same rights and remedies as may be available to
Landlord under this Lease.
ARTICLE 16
16.01. HAZARDOUS WASTE.
To the best of Landlord's knowledge there are no pending condemnation projects
affecting the Building and that there are no hazardous materials in, on or under
the Building. Tenant hereby represents and warrants to Landlord the following:
Tenant shall not cause or permit the release, discharge, or disposal nor the
presence, use, transportation, generation, or storage of any Hazardous Material
(as hereafter defined) in, on, under, about, to, or from the Premises by either
Tenant, Tenant's employees, agents, contractors, or invitees (collectively the
"Tenant") other than the use of such materials in de minimus quantities
reasonably necessitated by the Tenant's regular business activities.
Tenant further agrees and covenants to Landlord, its agents, employees,
affiliates and shareholders (collectively the "Landlord") the following:
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1. To comply with all Environmental Laws in effect, or may come into
effect, applicable to the Tenant or Tenant's use and occupancy of the
Premises;
2. To immediately notify Landlord, in writing, of any existing, pending,
or threatened (a) investigation, inquiry, claim or action by any
governmental authority in connection with any Environmental Laws; (b)
third party claims; (c) regulatory actions; and/or (d) contamination
of the Premises;
3. Tenant shall, at Tenant's expense, investigate, monitor, remediate,
and/or clean up any Hazardous Material or other environmental
condition on, about, or under the Premises required as a result of
Tenant's use or occupancy of the Premises;
4. To keep the Premises free of any lien imposed pursuant to any
Environmental Laws; and
5. To indemnify, defend, and save Landlord harmless from and against any
and all claims (including personal injury, real, or personal property
damage), actions, judgments, damages, penalties, fines, costs,
liabilities, interests, or attorney's fees that arise, directly or
indirectly, from Tenant's violation of any Environmental Laws or the
presence of any Hazardous Materials on, under or about the Premises.
The Tenant's obligations, responsibilities, and liabilities under this Section
shall survive the expiration of this Lease.
For purposes of this Section the following definitions apply:
"Hazardous Materials" shall mean: (1) any "hazardous waste" and/or "hazardous
substance" defined pursuant to any Environmental Laws; (2) asbestos or any
substance containing asbestos; (3) polychlorinated biphenyls; (4) lead; (5)
radon; (6) pesticides; (7) petroleum or any other substance containing
hydrocarbons; (8) any substance which, when on the Premises, is prohibited by
any Environmental Laws; and (9) any other substance, material, or waste which,
(i) by any Environmental Laws requires special handling or notification of any
governmental authority in its collection, storage, treatment, or disposal or
(ii) is defined or classified as hazardous, dangerous or toxic pursuant to any
legal requirement.
"Environmental Laws" shall mean: any and all federal, state, and local laws,
statutes, codes, ordinances, regulations, rules, or other requirements, relating
to human health or safety or to the environment, including, but not limited to,
those applicable to storage, treatment, disposal, handling and release of any
Hazardous Materials, all as amended or modified from time to time.
ARTICLE 17
17.01. SUBSTITUTE PREMISES.
17.02. ESTOPPEL LETTERS.
Tenant will, at such time or times as Landlord may request, execute and
acknowledge a certificate stating whether this Lease is in full force and
effect, whether any amendments or modifications exist, whether there are any
defaults hereunder, and containing such other related information as may be
reasonably requested.
17.03. HOLDOVER.
If Tenant shall remain in possession of the Premises after the expiration or
earlier termination of this Lease, Tenant shall pay as rent an amount equal to
one hundred fifty percent (150%) of the daily rental rate prevailing on the date
of such termination or expiration (computed on the basis of a thirty (30) day
month). The remaining in possession by Tenant or the acceptance by Landlord of
the payment of said rent shall not be construed as an extension or renewal of
this Lease. The rental payable to Landlord under this Section shall not be
deemed to be in lieu of any damages or other remedy to which Landlord may be
entitled by virtue of Tenant's holding over.
17.04. SURRENDER.
Upon the expiration or earlier termination of the Lease, Tenant shall peacefully
quit and surrender the Premises in broom clean condition and in good order and
condition, excepting ordinary wear and tear, but subject to Sections 8.01 and
8.02 hereof. Tenant shall also cause all exposed electrical wires, plumbing, and
utilities to be capped.
17.05. NOTICE.
<PAGE>
Except as otherwise herein provided, any statement, notice, or other
communication which Landlord or Tenant may desire or be required to give to the
other shall be in writing and shall be deemed properly given if mailed by first
class United States mail, postage prepaid, registered or certified with return
receipt requested, or by delivering same in person or by courier to the intended
addressee. Notice so mailed shall be effective upon the expiration of three (3)
business days after its deposit. Notice given in any other manner shall be
effective only if and when received by the addressee. For purposes of notice,
the addresses of the parties shall be as set forth in the opening provisions of
this Lease and/or Section 1.01 hereof. Either party shall have the right to
change its address for notice hereunder to any other location within the United
States by the giving of thirty (30) days' notice to the other party in the
manner set forth hereinabove.
17.06. RULES AND REGULATIONS.
Tenant, as well as any assignee or sublessee approved by Landlord, will comply
with the rules of the Project adopted by Landlord, which are set forth in
EXHIBIT "E" attached hereto and made a part hereof for all purposes. Landlord
shall have the right to change such Rules and Regulations or to amend them in
any reasonable manner for the safety, care and cleanliness of the Project, and
the Premises, and for preservation of good order therein, all of which changes
and amendments will be sent by Landlord to Tenant in writing and shall be
thereafter binding upon,
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carried out and observed by Tenant. Tenant shall further be responsible for the
compliance with such Rules and Regulations by the employees, servants, agents
and invitees of Tenant.
17.07. LANDLORD'S LIABILITY.
Tenant specifically agrees to look solely to Landlord's and Landlord's assignees
interest in the Project for the recovery of any judgment from Landlord, it being
agreed that Landlord shall never be personally liable for any such judgment. The
provision contained in the foregoing sentence is not intended to, and shall not,
limit any right that Tenant might otherwise have to obtain injunctive relief
against Landlord or Landlord's successors in interest, or any other action not
involving the personal liability of Landlord to respond in monetary damages from
assets other than Landlord's interest in the Project or any suit or action in
connection with enforcement or collection of amounts which may become owing or
payable under or on account of insurance maintained by Landlord.
17.08. INABILITY TO PERFORM.
If, by reason of inability reasonably to obtain and utilize labor, materials,
equipment, or supplies, or by reason of circumstances directly or indirectly the
result of any state of war or national or local emergency, or by reason of any
laws, rules, orders, regulations, action, non-action, or requirements of any
governmental authority now or hereafter in force, or by reason of strikes or
riots, or by reason of accidents in, damage to, or the making of repairs,
replacements, or improvements to the Project or the Premises, or any of the
equipment of either, or by the reason of any other cause beyond the reasonable
control of Landlord, Landlord shall be unable to perform or shall be delayed in
the performance of any obligation hereunder, then this Lease and the obligation
of Tenant to pay the Base Rent or additional items of Rent and to perform and
comply with all of the other covenants and agreements hereunder shall in no way
be affected or impaired except as otherwise expressly provided for in this
Lease, and such non-performance or delay in performance by landlord shall not
give rise to any claim against Landlord for damages or constitute a total or
partial eviction, constructive or otherwise. Landlord shall exercise due
diligence in undertaking to remedy such inability to perform or delay in
performance with all reasonable dispatch, but shall not be required to adjust a
labor dispute against its will.
17.09. TENANT AUTHORIZATION.
If Tenant signs as a corporation, each of the persons executing this Lease on
behalf of Tenant represents and warrants that Tenant is a duly organized and
existing corporation, that Tenant has and is qualified to do business in Texas,
that the corporation has full right and authority to enter into this Lease, and
that all persons signing on behalf of the corporation were authorized to do so
by appropriate corporate actions. If Tenant is a general partnership, limited
partnership, trust, or other legal entity, each individual executing this Lease
on behalf of said entity represents and warrants that he or she is duly
authorized to execute this Lease on behalf of such entity and in accordance with
such entity's governing instruments, and that this Lease is binding upon such
entity. Upon the Landlord's request, Tenant shall furnish Landlord with proper
proof of due authorization for Tenant's execution of this Lease as Landlord
shall require.
17.10. BROKER.
Tenant and Landlord each represents and warrants to the other that Tenant and
Landlord, respectively, have dealt with, and only with, Broker as real estate
broker in connection with this Lease, and that, insofar as Tenant and Landlord,
respectively, knows, no other broker negotiated this Lease or is entitled to any
commission in connection herewith and Tenant and Landlord, respectively, shall
indemnify and hold harmless the other from and against all claims (and costs of
defending against and such claims) of any broker or similar parties claiming by,
through, or under Tenant and Landlord, respectively, in connection with this
Lease.
17.11. MEMORANDUM OF LEASE.
Without the prior written consent of Landlord (which may be granted of withheld
in Landlord's sole discretion), Tenant shall not record this Lease or a
memorandum or other instrument with respect to this Lease.
17.12. PARKING.
Tenant shall be permitted to use, on a non-exclusive basis certain parking
spaces during the Term as more fully provided for in EXHIBIT "D" hereto. Use of
the parking spaces is subject to such rules and regulations governing the use as
Landlord may from time to time prescribe, including the designation of specific
areas in which automobiles owned by Tenant, its employees, agents and invitees
shall be part. Tenant shall furnish to Landlord upon request a complete list of
license numbers and physical description of all automobiles operated by Tenant,
its employees and agents.
17.13. TAXES ON TENANT'S PROPERTY.
Tenant shall be liable for all taxes levied or assessed against personal
property and
<PAGE>
furniture placed by Tenant on the Premises if such taxes for which Tenant is
liable are levied or assessed against Landlord or Landlord's property and if
Landlord elects to pay the same, or if the assessed value of the Project is
increased by the inclusion of personal property, furniture placed by Tenant on
the Premises, and Landlord elects to pay the taxes based on such increase,
Tenant shall pay to Landlord upon demand, that part of such taxes for which
Tenant is primarily liable hereunder, together with interest thereon until paid
at the rate set forth in Section 15.06 hereof.
17.14. LANDLORD'S RIGHTS IN EVENT OF NON-RENEWAL.
During the last ninety days of the original term, or of any renewal term, should
Tenant not elect to renew the term as provided herein, Landlord or any person
authorized by Landlord may during normal business hours, exhibit the same to
prospective tenants, Such entry or actions permitted herein shall not constitute
eviction of Tenant.
17.15. JOINT AND SEVERAL LIABILITY.
If there is more than one tenant, the obligations hereunder imposed upon Tenant
shall be Joint and several. If there is a guarantor of the obligations hereunder
imposed upon Tenant, there shall be a joint and several obligation of Tenant and
such guarantor, and Landlord may not first proceed against Tenant before
proceeding against such guarantor, nor shall any such guarantor be released from
its guaranty for any reason whatsoever.
17.16. ACCEPTANCE BY LANDLORD.
17.17. TIME OF ESSENCE.
Time is of the essence of this Lease and all of its provisions in which
performance is a factor.
12
<PAGE>
17.18. ENTIRE AGREEMENT.
This Lease, including EXHIBITS "A" through "E" and Supplements, if any, attached
hereto (which Exhibits are hereby incorporated herein and shall constitute a
portion hereof), contains the entire agreement between Landlord and Tenant with
respect to the subject matter hereof.
17.19. AMENDMENT.
Any agreement hereafter made between Landlord and Tenant shall be ineffective to
modify, release or otherwise affect this Lease, in whole or in part, unless such
agreement is in writing and signed by the party to be bound thereby.
17.20. SEVERABILITY.
If any term or provision of this Lease shall, to any extent, be held invalid or
unenforceable by a final judgment of a court of competent jurisdiction, the
remainder of this Lease shall not be affected thereby.
17.21. SUCCESSORS.
Subject to the limitations and conditions set forth elsewhere herein, this Lease
shall bind and inure to the benefit of the respective heirs, legal
representatives, successors, and assigns of the parties hereto. All rights,
powers, privileges, immunities, and duties either Party under this Lease,
including, but not limited to, any notices required or permitted to be delivered
by Landlord to Tenant hereunder, may, be exercised or performed by that Party's
agent or attorney.
17.22. CAPTIONS.
The captions in this Lease are inserted only as a matter of convenience and for
reference only and they in no way define, limit, or describe the scope of this
Lease or the intent of any provisions hereof.
17.23. NUMBER AND GENDER.
All genders used in this Lease shall include the other genders, the singular
shall include the plural, and the plural shall include the singular, whenever
and as often as may be appropriate.
17.24. GOVERNING LAW.
This Lease shall be governed by and construed in accordance with the laws of the
State of Texas.
18.00 The submission of this Lease to Tenant shall not be construed as an
offer, reservation or option.
Tenant has no rights under this lease unless Tenant and Landlord execute this
Lease, and Landlord delivers the executed Lease to Tenant.
IN WITNESS WHEREOF, Landlord and Tenant have respectively executed this
Lease as of the day and year first above written.
LANDLORD TENANT
SOARING EAGLES ORCHARD, INC., MISSION CRITICAL SOFTWARE, INC.
a Washington corporation
By: Cummings-Baccus Interests,
its authorized agent
By: /s/ Signature Illegible By: /s/ Signature Illegible
Name: M. Buckner Baccus Name: Paul F. Koffend, Jr.
Its: Vice President Its: Chief Financial Officer
13
<PAGE>
LIST OF EXHIBITS
Exhibit "A" - Land
Exhibit "B" - Floor Plans
Exhibit "C" - Leasehold Improvements
Exhibit "D" - Parking
Exhibit "E" - Rules and Regulations
Exhibit "F" - Special Provisions
<PAGE>
EXHIBIT "A"
Land
Being a tract of land containing 1.9146 Acres (83,401 square feet) of land
located in the John Reinerman Survey, Abstract No. 647 in the City of Houston,
Harris County, Texas, and being a part of land described in deed from William
Quensel to Eliza Roy, dated October 22, 1885, recorded in Volume 33, Page 24 of
the Harris County Deed Records, said tract being more particularly described by
metes and bounds as follows: all bearings are referenced to the deed of record;
BEGINNING at a 1-inch iron pipe found at the common West corner of said tract
and that certain tract conveyed to "710 Post Oak, L.C." and recorded under
Harris County Clerk's File No. N980973;
THENCE North 01 deg. 39 min. 00 sec. West, coincident with the Easterly right-
of-way line of North Post Oak Road (based on 120.00 foot right-of-way), a
distance of 382.30 feet to a found 5\8-inch iron rod with aluminum cap stamped
"Cotton" for the Northwest corner of the herein described tract;
THENCE North 88 deg. 22 min. 54 sec. East, with the common line of said tract
and that certain tract conveyed to Fit Properties, L.C. and Bear Properties,
Inc. under Film Code No. 115-480250 Harris County, Texas, a distance of 219.20
feet to a found 5\18-inch iron rod with aluminum cap stamped "Cotton" for the
Northwest corner of the herein described tract;
THENCE coincident with the Westerly right-of-way line of Interstate Highway 610
Freeway and along the arc of a curve to the right, said curve having a central
angle of 10 deg. 31 min. 45 sec., a radius of 805.50 feet, an arc length of
148.02 feet and a chord which bears South 03 deg. 20 min. 41 sec. East, 147.82
feet, to a 1\2-inch iron rod set for corner and end of said curve;
THENCE South 02 deg. 43 min. 12 sec. West, continuing with the said westerly
right-of-way line of Interstate Highway 610, a distance of 235,42 feet to a 5\8-
inch iron rod found for the Southwest corner of the herein described tract;
THENCE South 88 deg. 26 min. 11 sec. West with the common line of this tract and
said "710 Post Oak, L.C. tract", a distance of 205.63 feet to the POINT OF
BEGINNING and containing 1.9146 Acres (83,401 square feet) of land.
<PAGE>
[EXHIBIT OMITTED]
Landlord (Initials) Tenant (Initials)
STD TX LEASE FORM CBI 6\95 B-1
<PAGE>
EXHIBIT "C"
LEASEHOLD IMPROVEMENTS
ARTICLE 1
LANDLORD'S WORK
Tenant Improvements shall be substantially similar to the plan attached hereto
as Exhibit "C-1", Tenant Improvements shall be defined as all construction to
the Premises, architectural fees of $.55 per square foot and construction
management fee of five percent (5%) of the total costs, as outlined below,
Landlord and Tenant agree to share in the cost of the Tenant Improvements as
outlined below:
1. Landlord shall provide an allowance of $84,189.44 for the sole purpose of
Tenant Improvements to the Premises.
Should costs exceed the estimate of $118,924.00 any additional costs shall be
paid for by Tenant upon move-in or amortized into the rental rate over the first
year of the Lease, however, in no event shall Landlord be obligated to amortize
more than $7,067.00. Should the cost of construction be less than $118,924.00
Tenant shall receive a credit towards rent for such savings.
ARTICLE 2
TENANT'S WORK
2.01 Any additional Leasehold Improvements than those shown on Exhibit "C-
1" to be constructed in the Premises shall be constructed by Tenant at Tenant's
cost, provided, however, all such improvements shall be expressly subject to
review and approval by Landlord.
2.02 Under no circumstances whatsoever will Tenant, or Tenant's authorized
representative, ever alter or modify or in any disturb any central system or
installation of the Building, including, but not limited to, exterior building,
central plumbing system, central fire protection and fire alert systems, central
building maintenance systems, central structural systems, elevators, and
anything located within the central core of the Building. Only with Landlord's
express written permission and under direct supervision of Landlord or
Landlord's authorized representative shall Tenant or Tenant's authorized
representative alter or modify or in any manner disturb any branch of any system
or installation of the Building which is located within the Premises, including,
but not limited to, branch electrical, heating, ventilating and air conditioning
systems, and branch fire protection and alert systems. For the purposes of this
Section 2.04, "central" shall be defined as that portion of any Building System
or component which is within the core and\or common to and\or serves or exists
for the benefit of other tenants in the Building; and "branch" shall be defined
as that portion of any Building System or component which serves to connect or
extend control systems into the Premises.
Landlord (Initials) Tenant (Initials)
STD TX LEASE FORM CBI 6\95 c-1
<PAGE>
[EXHIBIT OMITTED]
Landlord (Initials) Tenant (Initials)
STD TX LEASE FORM CBI 6\95 c-1-1
<PAGE>
EXHIBIT "D"
PARKING
1. At the beginning of the original Term of this Lease, Landlord
shall make available to Tenant six (6) covered reserved parking permits in the
area designated for parking on the Land.
2. Tenant shall indemnify and hold harmless Landlord from and against
all claims, losses, liabilities, damages, costs and expenses (including, but not
limited to, attorneys' fees and court costs) arising or alleged to arise out of
Tenant's use of any such parking spaces. Tenant shall have no further rights to
(a) any parking permit not taken at the beginning of the original Term or (b)
any parking permit taken at the beginning of the original Term and thereafter
released by Tenant or terminated by Landlord for failure to pay parking rent or
to comply with the other terms and conditions for the leasing of such parking
permit imposed by Landlord. Upon the termination of this Lease, Tenant's rights
to the parking permit then being leased to Tenant hereunder shall terminate. In
the event any of the above parking spaces are or become unavailable at any time
or from time to time throughout the Term, whether due to casualty or any other
cause, the Lease shall continue in full force and effect, and Tenant's sole
remedy shall be an abatement of Parking Rent for those parking spaces rendered
unavailable, which abatement shall continue until such time as said parking
spaces, or substitutes therefore, again become available, it being expressly
agreed and understood that Landlord shall have no duty to provide substitute
parking spaces for those spaces rendered unavailable.
3. Tenant agrees to comply with all reasonable rules and regulations
now or hereafter established by Landlord relating to the use of the garage by
contract parking patrons. A condition of any parking shall be compliance by the
parking patron with garage rules and regulations, including any sticker or other
identification system established by Landlord. The following rules and
regulations are in effect until notice is given to Tenant of any change.
Landlord reserves the right to modify and/or adopt such other reasonable and
non-discriminatory rules and regulations for the garage as it deems necessary
for the operation of the garage. Landlord may refuse to permit any person who
violates the rules to park in the garage, and any violation of the rules shall
subject the car to removal.
RULES AND REGULATIONS
1. Cars must be parked entirely within the stall lines painted
on the floor.
2. All directional signs and arrows must be observed.
3. The speed limit shall be 5 miles per hour.
4. Parking is prohibited:
(a) in areas not striped for parking
(b) in aisles
(c) where "no parking" signs are posted
(d) in cross hatched areas
(e) in such other areas as may be designated by Landlord or
Landlord's agent(s).
5. Parking stickers or any other device or form of identification
supplied by Landlord shall remain the property of the Landlord and
shall not be transferable. There will be a replacement charge
payable by Tenant equal to the amount posted from time to time by
Landlord for loss of any magnetic parking card or parking sticker.
6. Garage managers or attendants are not authorized to make or
allow any exceptions to these Rules and Regulations.
7. Every parker is required to park and lock his own car. All
responsibility for damage to cars or persons is assumed by the
parker.
8. No intermediate or full size cars shall be parked in parking
spaces limited to compact cars.
9. All motorcycles/motorized bicycles are to be parked in the
designated motorcycle area, and will be removed from the property
if not in the designated area.
<PAGE>
Failure to promptly pay the rent required hereunder or persistent failure
on the part of Tenant or Tenant's designated parkers to observe the rules and
regulations above shall give Landlord the right to terminate Lessee's right to
use the parking structure. No such termination shall create any liability on
Landlord or be deemed to interfere with Tenant's right to quiet possession of
the Premises.
Landlord (Initials) Tenant (Initials)
STD TX LEASE FORM CBI 6\95 D-1
<PAGE>
EXHIBIT "E"
RULES AND REGULATIONS
1. The sidewalks, walks, plaza entries, corridors, concourses, ramps,
staircases, escalators and elevators of the Project shall not be obstructed or
used by Tenant, or the employees, agents, servants, visitors or licensees of
Tenant for any purpose other than ingress and egress to and from the Premises.
No bicycle or motorcycle shall be brought into the Building or kept on the
Premises without the prior written consent of Landlord.
2. No freight, furniture or bulky matter of any description will be
received into the Project or carried into the elevators except in such a manner,
during such hours and using such elevators and passageways as may be approved by
Landlord, and then only upon having been scheduled in advance. Any hand trucks,
carryalls, or similar equipment used for the delivery or receipt of merchandise
or equipment shall be equipped with rubber tires, side guards and such other
safeguards as Landlord shall require.
3. Landlord shall have the right to prescribe the weight, position and
manner of installation of safes or other heavy equipment which shall, if
considered necessary by Landlord, be installed in a manner which shall insure
satisfactory weight distribution. All damage done to the Project by reason of a
safe or any other article of Tenant's office equipment being on the Premises
shall be repaired at the expense of Tenant. The time, routing and manner of
moving safes or other heavy equipment shall be subject to prior approval by
Landlord.
4. Only persons authorized by Landlord will be permitted to furnish
newspapers, ice, drinking water, towels, barbering, shoe shining, janitorial
services, floor polishing and other similar services and concessions to Tenant,
and only at hours and under regulations fixed by Landlord. Tenant shall use no
other method of heating or cooling than that supplied by Landlord other than
fans.
5. Tenant, or the employees, agents, servants, visitors or licensees of
Tenant shall not at any time place, leave or discard any rubbish, paper,
articles or objects of any kind whatsoever outside the doors of the Premises or
in the corridors or passageways of the Project. No animals or birds shall be
brought or kept in or about the Project.
6. Landlord shall have the right to prohibit any advertising by Tenant
which, in Landlord's opinion, tends to impair the reputation of the Project or
its desirability for offices and, upon written notice from Landlord, Tenant will
refrain from or discontinue such advertising.
7. Tenant shall not place, or cause or allow to be placed, any sign,
placard, picture, advertisement, notice or lettering whatsoever, in, about or on
the exterior of the Premises, Building or Project except in and at such places
as may be designated by Landlord and consented to by Landlord in writing. Any
such sign, placard, advertisement, picture, notice or lettering so placed may be
removed by Landlord without notice to and at the expense of Tenant. All
lettering and graphics on corridor doors shall conform to the Building Standard
prescribed by Landlord. No trademark shall be displayed in any event.
8. Canvassing, soliciting or peddling in the Building and/or Project is
prohibited and Tenant shall cooperate to prevent same.
9. Landlord shall have the right to exclude any person from the Project
other than during customary business hours as set forth in the Lease, and any
person in the Project will be subject to identification by employees and agents
of Landlord. All persons in or entering the Project shall be required to comply
with the security policies of the Project. If Tenant desires any additional
security service for the Premises, Tenant shall have the right (with the advance
written consent of Landlord) to obtain such additional service at Tenant's sole
cost and expense. Tenant shall keep doors to unattended areas locked and shall
otherwise exercise reasonable precautions to protect property from theft, loss
or damage. Landlord shall not be responsible for the theft, loss or damage of
any property or for any error with regard to the exclusion from or admission to
the Project of any person. In case of invasion, mob, riot or public excitement,
the Landlord reserves the right to prevent access to the Project during the
continuance of same by closing the doors or taking other measures for the safety
of the tenants and protection of the Project and property or persons therein.
10. Only workman employed, designated or approved by Landlord may be
employed for repairs, installations, alterations, painting, material moving and
other similar work that may be done in or on the Premises.
<PAGE>
11. Tenant shall not do any cooking or conduct any restaurant,
luncheonette, automat or cafeteria for the sale or service of food or beverages
to its employees or to others, or permit the delivery of any food or beverage to
the Premises, except by such persons delivering the same as shall be approved by
Landlord and only under regulations fixed by Landlord. Tenant may, however,
operate a coffee bar by and for its employees.
12. Tenant shall not bring or permit to be brought or kept in or on the
Premises or Project any inflammable, combustible, corrosive, caustic, poisonous,
or explosive substance, or cause or permit any odors to permeate in or emanate
from the Premises, or permit or suffer the Premises to be occupied or used in a
manner offensive or objectionable to Landlord or other occupants of the Project
by reason of light, radiation, magnetism, noise, odors and/or vibrations, or
interfere in any way with other tenants or those having business in the Project.
13. Tenant shall not mark, paint, drill into, or in any way deface any
part of the Project or the Premises. No boring, driving of nails or screws,
cutting or stringing of wires shall be permitted, except with the prior written
consent of Landlord, and as Landlord may direct. Tenant shall not install any
resilient tile or similar floor covering in the Premises except with the prior
approval of Landlord. The use of cement or other similar adhesive material is
expressly prohibited.
14. No additional locks or bolts of any kind shall be placed on any door
in the Project or the Premises and no lock on any door therein shall be changed
or altered in any respect. Landlord shall furnish two keys for each lock on
exterior doors to the Premises and shall, on Tenant's request and at Tenant's
expense, provide additional duplicate keys. Tenant shall not make duplicate
keys. All keys shall be returned to Landlord upon the termination of this Lease
and Tenant shall give to Landlord the explanations of the combinations of all
safes, vaults and combination locks remaining with the Premises. Landlord may at
all times keep a pass key to the Premises. All entrance doors to the Premises
shall be left closed at all times and left locked when the Premises are not in
use.
Landlord (Initials) Tenant (Initials)
STD TX LEASE FORM CBI 6\95 E-1
<PAGE>
EXHIBIT "E" (Continued)
15. Tenant shall give immediate notice to Landlord in case of theft,
unauthorized solicitation or accident in the Premises or in the Project or of
defects therein or in any fixtures or equipment, or of any known emergency in
the Project.
16. Tenant shall not use the Premises or permit the Premises to be used
for photographic, multilith or multigraph reproductions, except in connection
with its own business and not as a service for others without Landlord's prior
permission.
17. Tenant shall not use or permit any portion of the Premises to be used
as an office for a public stenographer or typist, offset printing, the sale of
liquor or tobacco, a barber or manicure shop, an employment bureau, a labor
union office, a doctor's or dentist's office, a dance or music studio, any type
of school, or for any use other than those specifically granted in this Lease.
18. Tenant shall not advertise for laborers giving the Premises as an
address, nor pay such laborers at a location in the Premises.
19. The requirements of Tenant will be attended to only upon application
at the office of Landlord in the Building or at such other address as may be
designated by Landlord in the Lease. Employees of Landlord shall not perform any
work or do anything outside of their regular duties, unless under special
instructions from the office of Landlord.
20. Tenant shall not place a load upon any floor of the Premises which
exceeds the load per square foot which such floor was designed to carry and
which is allowed by law. Business machines and mechanical and electrical
equipment belonging to Tenant which cause noise, vibration, electrical or
magnetic interference, or any other nuisance that may be transmitted to the
structure or other portions of the Project or to the Premises to such a degree
as to be objectionable to Landlord or which interfere with the use or enjoyment
by other tenants of their premises or the public portions of the Project shall
be placed and maintained by Tenant, at Tenant's expense in settings of cork,
rubber, spring type, or other vibration eliminators sufficient to eliminate
noise or vibration.
21. No awnings, draperies, shutters or other interior or exterior window
coverings that are visible from the exterior of the Building or from the
exterior of the Premises within the Building may be installed by Tenant.
22. Tenant shall not place, install or operate within the Premises or any
other part of the Project any engine, stove, or machinery, or conduct mechanical
operations therein, without the written consent of Landlord.
23. No portion of the Premises or any other part of the Project shall at
any time be used or occupied as sleeping or lodging quarters.
24. Tenant shall at all times keep the Premises neat and orderly.
25. The toilet rooms, urinals, wash bowls and other apparatus shall not be
used for any purpose other than that for which they were constructed and no
foreign substance of any kind whatsoever shall be thrown therein and the expense
of any breakage, stoppage or damage resulting from the violation of this rule
shall be borne by the Tenant who or whose employees or invitees shall have
caused it.
26. Landlord reserves the right to exclude or expel from the Project any
person who, in the Judgment of Landlord, is intoxicated or under the influence
of liquor or drugs, or who shall in any manner do any act in violation of any of
the Rules and Regulations of the Project.
27. Normal business hours shall be deemed to be 8:00 a.m. through 6:00
p.m. on weekdays and 8:00 a.m. through 12:00 p.m. on Saturdays, exclusive of
holidays. Holidays shall, for purposes of this Lease, be deemed to be New Year's
Day, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas
Day.
28. Landlord reserves the right, without the approval of Tenant, to
rescind, add to and amend any rules or regulations, to add new rules or
regulations, and to waive any rules or regulations with respect to any tenant or
tenants.
29. All tenants will refer all contractor's representatives and
installation technicians who are to perform any work within the Building,
grounds, and Parking Area to Landlord for Landlord's supervision, approval and
control before the performance of any such work. This provision shall apply to
all work performed in the Building, grounds and
<PAGE>
Parking Area including, but not limited to, installations of telephones,
telegraph equipment, electrical devices and attachments, and any and all
installations of every nature effecting floors, walls, woodwork, trim, window,
ceilings, equipment and any other physical portion of the Building, grounds, and
Parking Area. Tenant shall not mark, paint, drill into, or in any way deface any
part of the Building without Landlord's written consent. No boring, cutting or
stringing of wires shall be permitted, except with the prior written consent of
Landlord, and as the Landlord may direct. All Christmas and other decorations in
the Building must be flame retardant.
30. Any services which Tenant requests Landlord to perform which Landlord
is not required to perform under this Lease shall, if performed by Landlord, be
billed to Tenant at Landlord's cost plus a ten percent (10%) fee to cover
Landlord's overhead costs. Landlord shall have the right to reasonably refuse to
perform any such services.
31. The Building and all Leased Premises are designated as no smoking
areas. Tenants, their employees, agents, invitees and guest shall not be allowed
to smoke in any area of the Building or Leased Premises. Smoking shall only be
allowed in an area so designated by the Landlord or Landlord's agent and such
area may be changed from time-to-time upon prior written notice from Landlord to
Tenant.
Landlord (Initials) Tenant (Initials)
STD TX LEASE FORM CBI 6\95 E-2
<PAGE>
EXHIBIT "F"
SPECIAL PROVISIONS
1. Option to Extend Lease: If Tenant is not in default under this Lease at the
time of the exercise of this option or at the commencement of the extended
Lease Term, Tenant may extend the Lease Term for one (1) extension term of
five (5) years commencing on the next day after the initial Expiration Date
by giving Landlord an extension notice at least nine (9) months, but not
more than twelve (12) months, prior to the initial Expiration Date. If
Tenant timely gives a valid extension notice, the Lease Term is extended
for five (5) years upon the same terms as in the Lease, except that the
Rent and other applicable terms adjust based on the Market Rate and Tenant
has no further option to extend the Lease Term after this option is
exercised.
Within thirty (30) days after Landlord receives Tenant's extension notice,
Landlord shall deliver a notice to Tenant specifying the Market Rate. If
Tenant does not approve Landlord's designation of Market Rate, then Tenant,
as its sole remedy, may revoke its exercise notice by delivering a
revocation notice to Landlord within fifteen (15) and delivers to Landlord
an Arbitration Notice (herein so called) within sixty (60) days after
Tenant's receipt of Landlord's notice specifying the Market Rate, but
otherwise Tenant may not revoke its extension notice. If Tenant gives a
revocation notice, the Lease Term ends on the initial Expiration Date and
Tenant has not further rights under this Section.
2. Expansion Option: Provided Tenant is not in default hereunder, Tenant shall
have the option (the "Expansion") through March 31, 1997 to expand into
such Suites 510, 520 and 530 as noted on the attached Exhibit "F-1"
(Expansion Area"). The terms and conditions of such expansion area shall be
mutually agreed upon by Landlord and Tenant. Landlord shall not sign a new
lease on Suites 510, 520 and 530 until March 1, 1997, however, in the event
Tenant and Landlord cannot mutually agree to the terms and conditions under
which Tenant shall take the Expansion Area by said date, the Expansion
Option shall become null and void.
3. Right of First Refusal: Provided Tenant is not in default, Tenant shall
have the Right of First Refusal on all spaces on the fifth (5th) floor (the
"Refusal Space") which might become available for lease throughout the
Primary Term. Upon Landlord delivering written notice to Tenant that
Landlord has a bona fide offer from a third party, Tenant shall have three
(3) business days to either accept or reject such Right of First Refusal
Space. The terms and conditions of such Right of First Refusal Space shall
be the same as those in the offer to the third party, which will be
outlined on the Landlord's written notice to Tenant. In the event Tenant
either gives written notice that it declines the Refusal Space or does not
provide notice within the established time frame Tenant's Right of First
Refusal shall be aware of such space and Landlord shall be unencumbered to
lease such Refusal Space.
4. Prepaid Rent. Tenant shall pay to Landlord $24,734.50 prior to taking
occupancy of the Premises.
5. Cap on Controllable Operating Expense: Tenant shall not be liable for any
controllable operating expense escalations which are in excess of 10% in
any given year.
Landlord (Initials) Tenant (Initials)
STD TX LEASE FORM CBI 6\95 F-1
<PAGE>
[EXHIBIT OMITTED]
Landlord (Initials) Tenant (Initials)
STD TX LEASE FORM CBI 6\95 F-1-1
<PAGE>
EXHIBIT 10.5.1
FIRST AMENDMENT TO LEASE AGREEMENT
THIS FIRST AMENDMENT TO LEASE AGREEMENT (hereinafter called the "First
Amendment") entered into this 13th day of February, 1997, by and between SOARING
EAGLES ORCHARDS, INC., a Washington corporation, (hereinafter called "Landlord"
or "Lessor") and MISSION CRITICAL SOFTWARE, INC. (hereinafter called "Tenant" or
"Lessee").
WITNESSETH:
WHEREAS, under that certain Lease Agreement dated October 22, 1996
(hereinafter called the "Lease"), by and between Tenant and Landlord, Tenant
leased approximately 7,067 rentable square feet of space (hereinafter called the
"Leased Premises") on the fifth (5th) floor of the 720 North Post Oak Road
Office Building (hereinafter called the "Building") situated at 720 North Post
Oak Road, Houston, Texas for a term of sixty-four (64) months;
WHEREAS, Landlord and Tenant have agreed to amend the Lease to expand the
Leased Premises, subject to the terms and conditions set forth herein; and
WHEREAS, Landlord and Tenant have agreed to further amend the terms of the
Lease upon the terms and conditions contained herein.
NOW, THEREFORE, as of the Commencement Date (hereinafter defined) it is
mutually covenant and agreed as follows:
1. EXPANSION AREA: The Premises shall be expanded by 2,205 square feet of
net rentable area ("NRA") as shown on the attached Exhibit "A", "First
Expansion" creating a new square footage for the Premises of 9,272
square feet of NRA.
2. PRIMARY TERM: The Term of the Expansion Area shall commence March 1,
1997 and terminate on March 31, 2002.
3. BASE RENT: The Base Rent payment for the entire Premises shall be as
follows:
March 1, 1997 through March 31, 1997: $0.00 monthly
April 1, 1997 through May 31, 1997: $6,874.18 monthly
June 1, 1997 through May 31, 1998: $9,814.18 monthly
June 1, 1998 through March 31, 2002: $8,895.43 monthly
4. TENANT'S INITIAL PRO RATA SHARE: Commencing March 1, 1997 the Tenant's
Pro Rata Share for the Building is changed from 7.6% to 10%.
5. TENANT'S IMPROVEMENTS: Landlord shall provide Tenant with an allowance
of $22,050.00 for the sole purposes of improving the Leased Premises.
Any additional costs shall be paid for by the Tenant prior to Tenant
taking occupancy of the First Expansion Area.
6. EXPANSION OPTION: Should Tenant expand into Suite 530 containing
approximately 1,455 square feet of NRA as shown on the attached
Exhibit "B", "Future Expansion" prior to June 1, 1997. Tenant shall
have the option to use the following terms and conditions:
Months 1-3: $0.00 per square foot
Months 4-15: $16.00 per square foot annually
Month 16 through March 31, 2002: $11.00 per square foot annually
Tenant Improvements: $10.00 per square foot of NRA
7. Unless otherwise defined herein all capitalized terms shall have the
same meaning as identified in the Lease.
1
<PAGE>
8. This First Amendment supersedes all previous legal documents between
Tenant and Landlord and except as specifically herein amended, all
other terms and conditions of the Lease shall remain in full force and
effect throughout the term of this First Amendment.
9. The submission of this First Amendment to Tenant shall not be
construed as an offer, reservation or option. Tenant has no additional
rights under this Lease unless Tenant and Landlord execute this First
Amendment and Landlord delivers the executed First Amendment to
Tenant.
IN WITNESS WHEREOF, the parties hereto executed this First Amendment to
Lease Agreement as of the day and year hereinabove written.
LANDLORD:
SOARING EAGLES ORCHARDS, INC., a
Washington Corporation by Cummings-Baccus
Interests its authorized agent
BY: /s/ M. Buckner Baccus
---------------------------------
NAME: M. Buckner Baccus
TITLE: Vice President
TENANT:
MISSION CRITICAL SOFTWARE INC.
BY: /s/ Paul F. Koffend, Jr.
---------------------------------
NAME: Paul F. Koffend, Jr.
TITLE: Chief Financial Officer
2
<PAGE>
[EXHIBIT OMITTED]
3
<PAGE>
[EXHIBIT OMITTED]
4
<PAGE>
Exhibit 10.5.2
SECOND AMENDMENT TO LEASE AGREEMENT
THIS SECOND AMENDMENT TO LEASE AGREEMENT (hereinafter called the "Second
Amendment") entered into this 1st day of April, 1997, by and between SOARING
EAGLES ORCHARDS, INC., a Washington corporation, (hereinafter called "Landlord"
or "Lessor") and MISSION CRITICAL SOFTWARE, INC. (hereinafter called "Tenant" or
"Lessee").
WITNESSETH:
WHEREAS, under that certain Lease Agreement dated October 22, 1996
(hereinafter called the "Lease"), by and between Tenant and Landlord, Tenant
leased approximately 7,067 rentable square feet of space (hereinafter called the
"Leased Premises") on the fifth (5th) floor of the 720 North Post Oak Road
Office Building (hereinafter called the "Building") situated at 720 North Post
Oak Road, Houston, Texas for a term of sixty-four (64) months;
WHEREAS, Landlord and Tenant amended the Lease by the First Amendment to
Lease Agreement dated February 13, 1997 where Tenant expanded by 2,205 square
feet of net rentable area; and
WHEREAS, Landlord and Tenant agree that the Lease Agreement and First
Amendment to Lease Agreement shall be collectively referred to as the "Lease".
WHEREAS, Landlord and Tenant have agreed to further amend the terms of the
Lease upon the terms and conditions contained herein.
NOW, THEREFORE, as of June 1, 1997, hereinafter deemed to be the Effective
Date, it is mutually covenant and agreed as follows:
1. EXPANSION AREA: The Premises shall be expanded by 1,455 square feet of
net rentable area ("NRA") as shown on the attached Exhibit "A",
"Second Expansion" creating a new square footage for the Premises of
10,727 square feet of NRA.
2. PRIMARY TERM: The Term of the Expansion Area shall commence June 1,
1997 (the "Commencement Date") and terminate on March 31, 2002.
3. BASE RENT: The Base Rent payment for the entire Premises shall be as
follows:
June 1, 1997 through August 31, 1997: $9,814.18 monthly
September 1, 1997 through May 31, 1998: $11,754.18 monthly
June 1, 1998 through August 31, 1998: $10,835.43 monthly
September 1, 1998 through March 31, 2002: $10,229.18 monthly
4. TENANT'S INITIAL PRO RATA SHARE: Commencing June 1, 1997 the Tenant's
Pro Rata Share for the Building is changed from 10.00% to 11.12%.
5. TENANT'S IMPROVEMENTS: Landlord shall provide Tenant with an allowance
of $14,550.00 for the sole purposes of improving the Leased Premises
which shall include, architectural fees of $.55 psf, construction
management fees equal to 5% of the total cost of construction and
appropriate state sales tax. Any additional costs shall be paid for by
the Tenant prior to Tenant taking occupancy of the Second Expansion
Area. Landlord reserves the right to approve Tenant's improvements to
the Second Expansion Space.
6. Unless otherwise defined herein all capitalized terms shall have the
same meaning as identified in the Lease.
7. This Second Amendment supersedes all previous legal documents between
Tenant and Landlord and except as specifically herein amended, all
other terms and conditions of the Lease shall remain in full force and
effect throughout the term of this Second Amendment.
1
<PAGE>
8. The submission of this Second Amendment to Tenant shall not be
construed as an offer, reservation or option. Tenant has no additional
rights under this Lease unless Tenant and Landlord execute this Second
Amendment and Landlord delivers the executed Second Amendment to
Tenant.
IN WITNESS WHEREOF, the parties hereto executed this Second Amendment to
Lease Agreement as of the day and year hereinabove written.
LANDLORD:
SOARING EAGLES ORCHARDS, INC., a
Washington Corporation by Cummings-Baccus
Interests its authorized agent
BY: /s/ M. Buckner Baccus
------------------------------------
NAME: M. Buckner Baccus
TITLE: Vice President
TENANT:
MISSION CRITICAL SOFTWARE, INC.
BY: /s/ Paul F. Koffend, Jr.
------------------------------------
NAME: Paul F. Koffend, Jr.
TITLE: Chief Financial Officer
2
<PAGE>
[EXHIBIT OMITTED]
3
<PAGE>
Exhibit 10.5.3
THIRD AMENDMENT TO LEASE AGREEMENT
THIS THIRD AMENDMENT TO LEASE AGREEMENT (hereinafter called the "Third
Amendment") entered into this 22ND day of JULY, 1997, by and between SOARING
EAGLES ORCHARDS, INC., a Washington Corporation, (hereinafter called "Landlord"
or "Lessor") and Mission Critical Software, Inc. (hereinafter called "Tenant" or
"Lessee").
WITNESSETH:
WHEREAS, under that certain Lease Agreement dated October 22, 1996
(hereinafter called the "Lease"), by and between Tenant and Landlord, Tenant
leased approximately 7,067 rentable square feet of space (hereinafter called the
"Leased Premises") on the fifth (5th) floor of the 720 North Post Oak Road
Office Building (hereinafter called the "Building") situated at 720 North Post
Oak Road, Houston, Texas for a term of sixty-four (64) months;
WHEREAS, Landlord and Tenant amended the Lease by the First Amendment to
Lease Agreement dated February 13, 1997 where Tenant expanded the Premises by an
additional 2,205 square feet of Rentable Area creating a new total square
footage for the Premises of 9,272 square feet of Rentable Area; and
WHEREAS, Landlord and Tenant amended the Lease by the Second Amendment to
Lease Agreement dated April 1, 1997 where Tenant expanded the Premises by an
additional 1,455 square feet of Rentable Area creating a new total square
footage for the Premises of 10,727 square feet of Rentable Area; and
WHEREAS, Landlord and Tenant have agreed to further amend the terms of the
Lease upon the terms and conditions contained herein.
NOW, THEREFORE, as of the November 1, 1997 (hereinafter defined) it is
mutually covenant and agreed as follows:
1. EXPANSION AREA: The Premises shall be expanded in two (2) stages as
outlined below:
A. The "Third Expansion" shall expand the premises by an
additional 1,801 square feet of Rentable Area as shown on the
attached Exhibit A, creating a new total Rentable Area of
12,528 square feet.
B. The "Fourth Expansion" shall expand the premises by an
additional 19,170 square feet of Rentable Area as shown on the
attached Exhibit B and Exhibit B-1, creating a new total
Rentable Area of 31,698 square feet.
2. PRIMARY TERM: The Term of the "Third Expansion" shall commence on
November 1, 1997 or upon Tenant's possession of the "Third Expansion"
area, whichever occurs first. The "Fourth Expansion" shall commence on
February 1, 1998 or upon Tenant's possession of the Fourth Expansion
which ever occurs first. The Term of the Lease shall continue until
the expiration date of the Lease which shall be revised and extended
to January 31, 2003.
3. BASE RENT: Effective November 1, 1997, the Base Rent for the Premises
shall be as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
November 1, 1997 through January 31, 1998 $13,630.22
February 1, 1998 through May 31, 1998 $33,598.97
June 1, 1998 through August 31, 1998 $32,680.22
September 1, 1998 through January 31, 2001 $32,073.97
February 1, 2001 through March 31, 2002 $34,695.35
April 1, 2002 through January 31, 2003 $36,981.00
</TABLE>
1
<PAGE>
4. TENANTS INITIAL PRO RATA SHARE:
Commencing November 1, 1997 the Tenant's Initial Pro Rata Share
for the building shall be 13.15%, and commencing February 1,
1998 the Tenants Initial Pro Rata Share shall be 33.27%.
5. TENANT IMPROVEMENTS: Tenant accepts the "Third Expansion" and "Fourth
Expansion in their current "as-is" condition and Landlord shall not be
liable or required to make any improvements to such space.
6. CANCELLATION OPTION: On August 1, 2000, Tenant shall have the option
to cancel all or a portion of Leased Premises so long as Tenant
provides six (6) months prior written notice to Landlord along with a
payment in cash equal to $14.00 for each square foot of Rentable Area
to be vacated. However, should the space which Tenant decides to
cancel be less than 10,000 square feet in Rentable Area, Landlord
shall have the option to, at Landlord's sole and absolute discretion,
approve the location of such partial reduction in space.
7. RIGHT OF FIRST REFUSAL: Lessor hereby grants Lessee a Right of First
Refusal ("Refusal Right") with respect to any space on the sixth
(6th) floor of the building; However, the Refusal Right may not be
exercised during any time when there is an uncured Event of Default
under the Lease. Additionally, the Refusal Right shall be subject to
the rights of any Lessee presently occupying space in the Building, as
of the date of execution of this amendment.
If any space subject to the Refusal Right becomes available and Lessor
receives an offer from a third party to lease all or part of the
Refusal Space which Lessor desires to accept, Lessor shall so notify
Lessee ("Refusal Notice"), describing the general terms of the offer
(i.e. rent, location of the premises, size of the premises, length of
the term, improvement allowance (if any)). Lessee shall have five (5)
days from the receipt of the Refusal Notice to notify Lessor in
writing of the desire by Lessee to exercise Lessee's Refusal Right
with respect to the subject Refusal Space, which shall be on the same
terms and conditions with respect to the entire space as set forth in
the Refusal Notice. If Lessee fails to so notify Lessor within such
five (5) day period, Lessee shall be deemed to have irrevocably waived
its Refusal Right and Lessor shall have the right to enter into a
lease with any party with respect to that portion of the Refusal
Space. If Lessee properly exercised its Refusal Right in the manner
and within the time period specified herein, Lessor and Lessee shall,
within thirty (30) days after Lessee delivers to Lessor notice of its
election, enter into a written amendment modifying and supplementing
the Lease and containing such other terms and provisions as Lessor may
reasonably deem appropriate. If Lessee fails to enter into such
amendment within the thirty (30) day period, Lessee shall be deemed to
have irrevocably waived its Refusal Right for said particular space,
and Lessor shall have the right to enter into a lease with any party
with respect to that portion of the Refusal Space.
The Refusal Right shall automatically terminate upon the termination
of the Lease.
8. Unless otherwise defined herein all capitalized terms shall have the
same meaning as identified in the Lease.
9. This Third Amendment supersedes all previous legal documents between
Tenant and Landlord and except as specifically herein amended, all
other terms and conditions of the Lease shall remain in full force and
effect throughout the term of this Third Amendment.
10. The submission of this Third Amendment to Tenant shall not be
construed as an offer, reservation or option. Tenant has no additional
rights under this lease unless Tenant and Landlord execute this Third
Amendment, and Landlord delivers the executed Third Amendment to
Tenant.
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto executed this Third Amendment to
Lease Agreement as of the day and year hereinabove written.
LANDLORD:
SOARING EAGLES ORCHARDS, INC., a
Washington Corporation by Cummings-Baccus
Interest its authorized agent
By: /s/ M. Buckner Baccus
--------------------------------------
Name: M. Buckner Baccus
Title: Vice President
TENANT:
MISSION CRITICAL SOFTWARE, INC.
By: /s/ Paul F. Koffend, Jr.
---------------------------------------
Name: PAUL F. KOFFEND, JR.
Title: CFO
3
<PAGE>
[EXHIBIT OMITTED]
4
<PAGE>
[EXHIBIT OMITTED]
5
<PAGE>
[EXHIBIT OMITTED]
6
<PAGE>
Exhibit 10.6.1
LOAN MODIFICATION AGREEMENT
This Loan Modification Agreement is entered into as of January 23, 1998,
by and between Mission Critical Software, Inc. ("Borrower") whose address is 720
North Post Oak Road, Suite 505, Houston, TX 77024 and Silicon Valley Bank a
California-chartered bank ("Silicon") with its principal place of business at
3003 Tasman Drive, Santa Clara, CA 95054 with a loan production office located
at 9442 Capital of Texas Highway North, Arboretum Plaza One, Austin, TX 78759.
1. DESCRIPTION OF EXISTING INDEBTEDNESS: Among other indebtedness which may
be owing by Borrower to Silicon, Borrower is indebted to Silicon pursuant to,
among other documents, a QuickStart Loan and Security Agreement (and Schedules
thereto) dated February 7, 1997, as may be amended from time to time, (the "Loan
Agreement"). The Loan Agreement provided for, among other things, a Credit Limit
the original principal amount of Seven Hundred Fifty Thousand and 00/100 Dollars
($750,000,000). Defined terms used but not otherwise defined herein shall have
the same meanings as in the Loan Agreement.
Hereinafter, all indebtedness owing by Borrower to Silicon shall be referred to
as the "Indebtedness."
2. DESCRIPTION OF COLLATERAL AND GUARANTIES. Repayment of the indebtedness
is secured by the Collateral as described in the Loan Agreement.
Hereinafter, the above-described security documents and guaranties, together
with all other documents securing repayment of the Indebtedness shall be
referred to as the "Security Documents". Hereinafter, the Security Documents,
together with all other documents evidencing or securing the indebtedness shall
be referred to as the "Existing Loan Documents".
3. DESCRIPTION OF CHANGE IN TERMS.
A. MODIFICATION(S) TO LOAN AGREEMENT.
1. Subparagraph (h) is hereby incorporated into Section 5 entitled
"Events of Default and Remedies" to read as follows:
(h) Borrower's failure to comply with or to perform any
other term, obligation, covenant or condition contained in any
other agreement between Silicon and Borrower.
B. MODIFICATION(S) TO SCHEDULE (EQUIPMENT ADVANCES).
1. The paragraph entitled "Credit Limit (Equipment)" is hereby
amended in its entirety to read as follows:
$750,000,000 (such amount to be funded under the aggregate
Credit Limit). Equipment Advances will be made only on or
prior to March 7, 1998 (the "Last Advance Date") and only for
the purpose of purchasing equipment reasonably acceptable to
Silicon. Borrower must provide invoices for the equipment to
Silicon on or before the Last Advance Date. Equipment Advances
shall be allowed up to 85% of eligible existing equipment and
100% of new equipment purchases excluding taxes, shipping,
software and installation expenses. Eligible equipment shall
consist of invoices dated after July 1, 1997.
<PAGE>
2. The first sentence of the paragraph entitled "Interest
Rate" is hereby amended in its entirety to read as
follows:
A rate equal to the "Prime Rate" in effect from time to
time.
2. The paragraph entitled "Maturity Date" is hereby amended
in its entirety to read as follows:
After the Last Advance Date, the unpaid principal balance
of the Equipment Advances shall be repaid in thirty (30)
equal monthly installments of principal plus interest
commencing on April 7, 1998 and continuing on the same
day of each month thereafter until the entire unpaid
principal balance and all accrued unpaid interest of the
Equipment Advances have been paid (subject to Silicon's
right to accelerate the Equipment Advances on a Event of
Default).
4. CONSISTENT CHANGES. The Existing Loan Documents are hereby amended
wherever necessary to reflect the changes described above.
5. NO DEFENSES OF BORROWER. Borrower (and each guarantor and pledgor
signing below) agrees that, as of the date hereof, it has no defenses against
the obligations to pay any amounts under the indebtedness.
6. CONTINUING VALIDITY. Borrower (and each guarantor and pledgor signing
below) understands and agrees that in modifying the existing indebtedness,
Silicon is relying upon Borrower's representations, warranties, and agreements,
as set forth in the Existing Loan Documents. Except as expressly modified
pursuant to this Loan Modification Agreement, the terms of the Existing Loan
documents remain unchanged and in full force and effect. Silicon's agreement to
modifications to the existing indebtedness pursuant to this Loan Modification
Agreement in no way shall obligate Silicon to make any future modifications to
the indebtedness. Nothing in this Loan Modification Agreement shall constitute a
satisfaction of the indebtedness. It is the intention of Silicon and Borrower to
retain as liable parties all makers and endorsers of Existing Loan Documents,
unless the party is expressly released by Silicon in writing. No maker,
endorser, or guarantor will be released by virtue of this Loan Modification
Agreement. The terms of this paragraph apply not only to this Loan Modification
Agreement, but also to all subsequent loan modification agreements.
This Loan Modification Agreement is executed as of the date first
written above.
BORROWER: SILICON:
MISSION CRITICAL SOFTWARE, INC. SILICON VALLEY BANK
By: /s/ Louis R. Woodhill By: /s/ Stuart Edwards
----------------------------- -------------------------------
Name: Louis R. Woodhill Name: Stuart Edwards
--------------------------- -----------------------------
Title: President Title: Vice President
-------------------------- ----------------------------
2
<PAGE>
EXHIBIT 10.6.2
LOAN AND SECURITY AGREEMENT
BETWEEN
SILICON VALLEY BANK
AND
MISSION CRITICAL SOFTWARE, INC.
<PAGE>
TABLE OF CONTENTS
Page
----
RECITALS.................................................................. 1
AGREEMENT................................................................. 1
1. DEFINITIONS AND CONSTRUCTION..................................... 1
1.1 Definitions................................................ 1
1.2 Accounting and Other Terms................................. 9
2. LOAN AND TERMS OF PAYMENT........................................ 9
2.1 Credit Extensions.......................................... 9
2.2 Overadvances............................................... 10
2.3 Interest Rates, Payments, and Calculations................. 10
2.4 Crediting Payments......................................... 11
2.5 Fees....................................................... 12
2.6 Additional Costs........................................... 12
2.7 Term....................................................... 13
3. CONDITIONS OF LOANS.............................................. 13
3.1 Conditions Precedent to Initial Credit Extension........... 13
3.2 Conditions Precedent to all Credit Extensions.............. 14
4. CREATION OF SECURITY INTEREST.................................... 14
4.1 Grant of Security Interest................................. 14
4.2 Delivery of Additional Documentation Required.............. 14
4.3 Right to Inspect........................................... 14
5. REPRESENTATIONS AND WARRANTIES................................... 14
5.1 Due Organization and Qualification......................... 14
5.2 Due Authorization; No Conflict............................. 15
5.3 No Prior Encumbrances...................................... 15
5.4 Bona Fide Eligible Accounts................................ 15
5.5 Merchantable Inventory..................................... 15
5.7 Name; Location of Chief Executive Office................... 15
5.8 Litigation................................................. 16
5.9 No Material Adverse Change in Financial Statements......... 16
5.10 Solvency................................................... 16
5.11 Regulatory Compliance...................................... 16
5.12 Environmental Condition.................................... 16
5.13 Taxes...................................................... 17
5.14 Subsidiaries............................................... 17
5.15 Government Consents........................................ 17
5.16 Full Disclosure............................................ 17
6. AFFIRMATIVE COVENANTS............................................ 17
6.1 Good Standing.............................................. 17
6.2 Government Compliance...................................... 17
6.3 Financial Statements, Reports, Certificates................ 17
6.4 Inventory; Returns......................................... 18
i
<PAGE>
Page
----
6.5 Taxes...................................................... 18
6.6 Insurance.................................................. 19
6.7 Quick Ratio................................................ 19
6.8 Debt-Tangible Net Worth Ratio.............................. 19
6.9 Tangible Net Worth......................................... 19
6.10 Registration of Intellectual Property Rights............... 19
6.11 Further Assurances......................................... 20
7. NEGATIVE COVENANTS............................................... 20
7.1 Dispositions............................................... 20
7.2 Changes in Business, Ownership, Management
or Business Locations.................................... 20
7.3 Mergers or Acquisitions.................................... 20
7.4 Indebtedness............................................... 21
7.5 Encumbrances............................................... 21
7.6 Distributions.............................................. 21
7.7 Investments................................................ 21
7.8 Transactions with Affiliates............................... 21
7.9 Intellectual Property Agreements........................... 21
7.10 Subordinated Debt.......................................... 21
7.11 Inventory.................................................. 21
7.12 Compliance................................................. 21
8. EVENTS OF DEFAULT................................................ 22
8.1 Payment Default............................................ 22
8.2 Covenant Default........................................... 22
8.3 Material Adverse Change.................................... 22
8.4 Attachment................................................. 22
8.5 Insolvency................................................. 23
8.6 Other Agreements........................................... 23
8.7 Subordinated Debt.......................................... 23
8.8 Judgments.................................................. 23
8.9 Misrepresentations......................................... 23
9. BANK'S RIGHTS AND REMEDIES....................................... 23
9.1 Rights and Remedies........................................ 23
9.2 Power of Attorney.......................................... 25
9.3 Accounts Collection........................................ 25
9.4 Bank Expenses.............................................. 25
9.5 Bank's Liability for Collateral............................ 26
9.6 Remedies Cumulative........................................ 26
9.7 Demand; Protest............................................ 26
10. NOTICES.......................................................... 26
11. CHOICE OF LAW AND VENUE.......................................... 27
12. GENERAL PROVISIONS............................................... 27
12.1 Successors and Assigns..................................... 27
12.2 INDEMNIFICATION............................................ 27
12.3 Time of Essence............................................ 27
12.4 Severability of Provisions................................. 27
ii
<PAGE>
Page
----
12.5 Amendments in Writing, Integration......................... 28
12.6 Counterparts............................................... 28
12.7 Survival................................................... 28
12.9 WAIVER OF JURY TRIAL....................................... 28
12.10 NOTICE OF ORAL AGREEMENT................................... 29
EXHIBIT A........................................................ A-1
EXHIBIT B........................................................ B-1
EXHIBIT C........................................................ C-1
EXHIBIT D........................................................ D-1
iii
<PAGE>
LOAN AND SECURITY AGREEMENT
This LOAN AND SECURITY AGREEMENT is entered into as of January 26, 1998, by
and between SILICON VALLEY BANK, a California-chartered bank ("Bank") with its
principal place of business at 3003 Tasman Drive, Santa Clara, California 95054
and with a loan production office located at 9020 Capital of Texas Highway
North, Building 1, Suite 350, Austin, Texas 78759 and Mission Critical Software,
Inc., a Delaware corporation ("Borrower").
R E C I T A L S
Borrower wishes to obtain credit from time to time from Bank, and Bank
desires to extend credit to Borrower. This Agreement sets forth the terms on
which Bank will advance credit to Borrower, and Borrower will repay the amounts
owing to Bank.
AGREEMENT
The parties agree as follows:
1. DEFINITIONS AND CONSTRUCTION
1.1 DEFINITIONS. As used in this Agreement, the following terms
shall have the following definitions:
"Accounts" means all presently existing and hereafter arising accounts,
contract rights, and all other forms of obligations owing to Borrower arising
out of the sale or lease of goods (including, without limitation, the licensing
of software and other technology) or the rendering of services by Borrower,
whether or not earned by performance, and any and all credit insurance,
guaranties, and other security therefor, as well as all merchandise returned to
or reclaimed by Borrower and Borrower's Books relating to any of the foregoing.
"Advance" or "Advances" means a loan advance under the Committed Revolving
Line.
"Affiliate" means, with respect to any Person, any Person that owns or
controls directly or indirectly such Person, any Person that controls or is
controlled by or is under common control with such Person, and each of such
Person's senior executive officers, directors, partners and, for any Person that
is a limited liability company, such Person's, managers and members.
"Bank Expenses" means all reasonable costs or expenses (including
reasonable attorneys' fees and expenses) incurred in connection with the
preparation, negotiation, administration, and enforcement of the Loan Documents
(excluding those attorneys' fees incurred by Bank in connection with the
preparation and negotiation of this Agreement); and Bank's reasonable attorneys'
fees and expenses incurred in amending, enforcing or defending the Loan
Documents (including fees and expenses of appeal or review, or those incurred in
any Insolvency
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Proceeding) whether or not suit is brought and those attorneys' fees and
expenses assessed in favor of Bank by a court of competent jurisdiction.
"Borrower's Books" means all of Borrower's books and records including,
without limitation: ledgers; records concerning Borrower's assets or
liabilities, the Collateral, business operations or financial condition; and all
computer programs, or tape files, and the equipment, containing such
information.
"Borrowing Base" means an amount equal to eighty percent (80%) of Eligible
Accounts plus the Foreign Amount Add-Back, as determined by Bank with reference
to the most recent Borrowing Base Certificate delivered by Borrower.
"Business Day" means any day that is not a Saturday, Sunday, or other day
on which banks in the State of Texas or the State of California are authorized
or required to close.
"Closing Date" means the date of this Agreement.
"Code" means the Uniform Commercial Code as in effect in the State of Texas
from time to time.
"Collateral" means the property described on Exhibit A attached hereto.
"Committed Revolving Line" means a credit extension of up to Three Million
and No/100 Dollars ($3,000,000.00).
"Contingent Obligation" means, as applied to any Person, any direct or
indirect liability, contingent or otherwise, of that Person with respect to (i)
any indebtedness, lease, dividend, letter of credit or other obligation of
another, including, without limitation, any such obligation directly or
indirectly guaranteed, endorsed, co-made or discounted or sold with recourse by
that Person, or in respect of which that Person is otherwise directly or
indirectly liable; (ii) any obligations with respect to undrawn letters of
credit issued for the account of that Person; and (iii) all obligations arising
under any interest rate, currency or commodity swap agreement, interest rate cap
agreement, interest rate collar agreement, or other agreement or arrangement
designated to protect a Person against fluctuation in interest rates, currency
exchange rates or commodity prices; provided, however, that the term "Contingent
Obligation" shall not include endorsements for collection or deposit in the
ordinary course of business. The amount of any Contingent Obligation shall be
deemed to be an amount equal to the stated or determined amount of the primary
obligation in respect of which such Contingent Obligation is made or, if not
stated or determinable, the maximum reasonably anticipated liability in respect
thereof as determined by such Person in good faith; provided, however, that such
amount shall not in any event exceed the maximum amount of the obligations under
the guarantee or other support arrangement.
"Copyrights" means any and all copyright rights, copyright applications,
copyright registrations and like protections in each work or authorship and
derivative work thereof, whether published or unpublished and whether or not the
same also constitutes a trade secret, now or hereafter existing, created,
acquired or held.
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"Credit Extension" means each Advance and any other extension of credit by
Bank for the benefit of Borrower hereunder.
"Current Assets" means, as of any applicable date, all amounts that should,
in accordance with GAAP, be included as current assets on the consolidated
balance sheet of Borrower and its Subsidiaries as at such date.
"Current Liabilities" means, as of any applicable date, all amounts that
should, in accordance with GAAP, be included as current liabilities on the
consolidated balance sheet of Borrower and its Subsidiaries, as at such date,
plus, to the extent not already included therein, all outstanding Credit
Extensions made under this Agreement, including all Indebtedness that is payable
upon demand or within one year from the date of determination thereof unless
such Indebtedness is renewable or extendable at the option of Borrower or any
Subsidiary to a date more than one year from the date of determination, but
excluding Subordinated Debt.
"Eligible Accounts" means those Accounts that arise in the ordinary course
of Borrower's business that comply with all of Borrower's representations and
warranties to Bank set forth in Section 5.4; provided, that standards of
eligibility may be fixed and revised from time to time by Bank in Bank's
reasonable judgment and upon thirty days prior notification thereof to Borrower
in accordance with the provisions hereof. Unless otherwise agreed to by Bank in
writing, Eligible Accounts shall not include the following:
(a) Accounts that the account debtor has failed to pay within ninety (90)
days of invoice date;
(b) Accounts with respect to an account debtor, fifty percent (50%) of
whose Accounts the account debtor has failed to pay within ninety (90) days of
invoice date;
(c) Accounts with respect to an account debtor, including Affiliates, whose
total obligations to Borrower exceed twenty-five percent (25%) of all Accounts,
to the extent such obligations exceed the aforementioned percentage, except as
approved in writing by Bank;
(d) Accounts with respect to which the account debtor does not have its
principal place of business in the United States; provided Bank will allow, as
part of the Borrowing Base, an amount that, in the aggregate and from time to
time, does not exceed the lesser of (i) eighty percent (80%) of the total of all
Foreign Accounts and (ii) twenty percent (20%) of the total of all Eligible
Accounts and (iii) Five Hundred Thousand and No/100 Dollars ($500,000.00) (the
lesser of (i), (ii) and (iii) to be the "Foreign Amount Add-Back");
(e) Accounts with respect to which the account debtor is a federal, state,
or local governmental entity or any department, agency, or instrumentality
thereof;
(f) Accounts with respect to which Borrower is liable to the account debtor
for goods sold or services rendered by the account debtor to Borrower, but only
to the extent
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of any amounts owing to the account debtor (sometimes referred to as "contra"
accounts, e.g. accounts payable, customer deposits, credit accounts etc.);
(g) Accounts generated by demonstration or promotional equipment, or with
respect to which goods are placed on consignment, guaranteed sale, sale or
return, sale on approval, bill and hold, or other terms by reason of which the
payment by the account debtor may be conditional;
(h) Accounts with respect to which the account debtor is an Affiliate,
officer, employee, or agent of Borrower, except those Accounts that are included
pursuant to and in accordance with (d) above;
(i) Accounts with respect to which the account debtor disputes liability or
makes any claim with respect thereto as to which Bank believes, in its sole
discretion, that there may be a basis for dispute (but only to the extent of the
amount subject to such dispute or claim), or is subject to any Insolvency
Proceeding, or becomes insolvent, or goes out of business; and
(j) Accounts the collection of which Bank reasonably determines to be
doubtful.
"Equipment" means all present and future machinery, equipment, tenant
improvements, furniture, fixtures, vehicles, tools, parts and attachments in
which Borrower has any interest.
"ERISA" means the Employment Retirement Income Security Act of 1974, as
amended, and the regulations thereunder.
"Foreign Accounts" means Accounts with respect to which the account debtor
does not have its principal place of business in the United States.
"GAAP" means generally accepted accounting principles as in effect in the
United States from time to time.
"Indebtedness" means (a) all indebtedness for borrowed money or the
deferred purchase price of property or services, including without limitation
reimbursement and other obligations with respect to surety bonds and letters of
credit, (b) all obligations evidenced by notes, bonds, debentures or similar
instruments, (c) all capital lease obligations and (d) all Contingent
Obligations.
"Insolvency Proceeding" means any proceeding commenced by or against any
Person or entity under any provision of the United States Bankruptcy Code, as
amended, or under any other bankruptcy or insolvency law, including assignments
for the benefit of creditors, formal or informal moratoria, compositions,
extension generally with its creditors, or proceedings seeking reorganization,
arrangement, or other relief.
"Intellectual Property Collateral" means
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(a) Copyrights, Trademarks, Patents, and Mask Works and all other
intellectual property rights referred to the Intellectual Property Security
Agreement and exhibits thereto, as may be revised, amended or modified from time
to time;
(b) Any and all trade secrets, and any and all intellectual property rights
in computer software and computer software products now or hereafter existing,
created, acquired or held;
(c) Any and all design rights which may be available to Borrower now or
hereafter existing, created, acquired or held;
(d) 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 and such claims shall exist in
favor of Bank without any further action by Borrower;
(e) All licenses or other rights to use any of the Copyrights, Patents,
Trademarks, or Mask Works, and all license fees and royalties arising from such
use to the extent permitted by such license or rights;
(f) All amendments, renewals and extensions of any of the Copyrights,
Trademarks, Patents, or Mask Works; and
(g) All proceeds and products of the foregoing, including without
limitation all payments under insurance or any indemnity or warranty payable in
respect of any of the foregoing.
"Inventory" means all present and future goods or other inventory,
including software, in which Borrower has any interest, including merchandise,
raw materials, parts, supplies, packing and shipping materials, work in process
and finished products, intended for sale or lease or to be furnished under a
contract of service, of every kind and description now or at any time hereafter
owned by or in the custody or possession, actual or constructive, of Borrower,
including such goods or other inventory as is temporarily out of its custody or
possession or in transit and including any returns upon any accounts or other
proceeds, including insurance proceeds, resulting from the sale or disposition
of any of the foregoing and any documents of title representing any of the
above.
"Investment" means any beneficial ownership (including stock, partnership
interest or other securities) of any Person, or any loan, advance or capital
contribution to any Person.
"IRC" means the Internal Revenue Code of 1986, as amended, and the
regulations thereunder.
"Lien" means any mortgage, lien, deed of trust, charge, pledge, security
interest or other encumbrance.
"Loan Documents" means, collectively, this Agreement, any note or notes
that may be executed by Borrower in favor of Bank, and any other present or
future agreement entered
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into between Borrower and/or for the benefit of Bank in connection with this
Agreement, all as amended, extended or restated from time to time.
"Mask Works" means all mask work or similar rights available for the
protection of semiconductor chips, now owned or hereafter acquired.
"Material Adverse Effect" means a material adverse effect on (i) the
business operations or condition (financial or otherwise) of Borrower and its
Subsidiaries taken as a whole or (ii) the ability of Borrower to repay the
Obligations or otherwise perform its obligations under the Loan Documents.
"Maximum Lawful Rate" means the maximum rate of interest and the term
"Maximum Lawful Amount" means the maximum amount of interest that are
permissible under applicable state or federal law for the type of loan evidenced
by the Loan Documents. If the Maximum Lawful Rate is increased by statute or
other governmental action subsequent to the date of this Agreement, then the new
Maximum Lawful Rate shall be applicable to the payments provided for hereunder
from the effective date thereof, unless otherwise prohibited by applicable law.
"Negotiable Collateral" means all of Borrower's present and future letters
of credit of which it is a beneficiary, notes, drafts, instruments, securities,
documents of title, and chattel paper.
"Obligations" means all debt, principal, interest, Bank Expenses and other
amounts owed to Bank by Borrower pursuant to this Agreement or any other
agreement, whether absolute or contingent, due or to become due, now existing or
hereafter arising, including any interest that accrues after the commencement of
an Insolvency Proceeding and including any debt, liability, or obligation owing
from Borrower to others that Bank may have obtained by assignment or otherwise.
"Patents" means all patents, patent applications and like protections
including without limitation improvements, divisions, continuations, renewals,
reissues, extensions and continuations-in-part of the same.
"Payment Date" means the 25th calendar day of each month commencing on the
first such date after the Closing Date and ending on the Revolving Maturity
Date.
"Permitted Indebtedness" means:
(a) Indebtedness of Borrower in favor of Bank arising under this Agreement
or any other Loan Document;
(b) Indebtedness existing on the Closing Date and disclosed in the
Schedule;
(c) Subordinated Debt;
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(d) Indebtedness to trade creditors incurred in the ordinary course of
business; and
(e) Indebtedness secured by Permitted Liens.
"Permitted Investment" means:
(a) Investments existing on the Closing Date disclosed in the Schedule; and
(b) (i) marketable direct obligations issued or unconditionally guaranteed
by the United States of America, any State or any agency or instrumentality
thereof maturing within one (1) year from the date of acquisition thereof, (ii)
commercial paper maturing no more than one (1) year from the date of creation
thereof and currently having the highest rating obtainable from either Standard
& Poor's Corporation or Moody's Investors Service, Inc., and (iii) certificates
of deposit maturing no more than one (1) year from the date of investment
therein issued by Bank.
"Permitted Liens" means the following:
(a) Any Liens existing on the Closing Date and disclosed in the Schedule or
arising under this Agreement or the other Loan Documents;
(b) Liens for taxes, fees, assessments or other governmental charges or
levies, either not delinquent or being contested in good faith by appropriate
proceedings and as to which adequate reserves are maintained on Borrower's Books
in accordance with GAAP, provided the same have no priority over any of Bank's
security interests;
(c) Liens (i) upon or in any Equipment acquired or held by Borrower or any
of its Subsidiaries to secure the purchase price of such Equipment or
indebtedness incurred solely for the purpose of financing the acquisition of
such Equipment, or (ii) existing on such Equipment at the time of its
acquisition, provided that the Lien is confined solely to the property so
acquired and improvements thereon, and the proceeds of such Equipment;
(d) Leases or subleases and licenses or sublicenses granted to others in
the ordinary course of Borrower's business not interfering in any material
respect with the business of Borrower and its Subsidiaries taken as a whole, and
any interest or title of a lessor, licensor or under any lease or license
provided that such leases, subleases, licenses and sublicenses do not prohibit
the grant of the security interest granted hereunder; and
(e) Liens incurred in connection with the extension, renewal or refinancing
of the Indebtedness secured by Liens of the type described in clauses (a)
through (c) above, provided that any extension, renewal or replacement Lien
shall be limited to the property encumbered by the existing Lien and the
principal amount of the Indebtedness being extended, renewed or refinanced does
not increase.
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"Person" means any individual, sole proprietorship, partnership, limited
liability company, joint venture, trust, unincorporated organization,
association, corporation, institution, public benefit corporation, firm, joint
stock company, estate, entity or governmental agency.
"Prime Rate" means the variable rate of interest, per annum, most recently
announced by Bank as its "prime rate," whether or not such announced rate is the
lowest rate available from Bank.
"Quick Assets" means, as of any applicable date, the consolidated cash,
cash equivalents, accounts receivable and investments with maturities of fewer
than ninety (90) days of Borrower determined in accordance with GAAP.
"Responsible Officer" means each of the Chief Executive Officer, the
President, the Chief Financial Officer and the Chief Technical Officer of
Borrower.
"Revolving Maturity Date" means January 25, 1999.
"Schedule" means the schedule of exceptions attached hereto, if any.
"Subordinated Debt" means any debt incurred by Borrower that is
subordinated to the debt owing by Borrower to Bank on terms acceptable to Bank
(and identified as being such by Borrower and Bank).
"Subsidiary" means with respect to any Person, corporation, partnership,
company association, joint venture, or any other business entity of which more
than fifty percent (50%) of the voting stock or other equity interests is owned
or controlled, directly or indirectly, by such Person or one or more Affiliates
of such Person.
"Tangible Net Worth" means as of any applicable date, the consolidated
total assets of Borrower and its Subsidiaries minus, without duplication, (i)
the sum of any amounts attributable to (a) goodwill, (b) intangible items such
as unamortized debt discount and expense, patents, trade and service marks and
names, copyrights and research and development expenses except prepaid expenses,
and (c) all reserves not already deducted from assets, and (ii) Total
Liabilities.
"Total Liabilities" means as of any applicable date, any date as of which
the amount thereof shall be determined, all obligations that should, in
accordance with GAAP be classified as liabilities on the consolidated balance
sheet of Borrower, including in any event all Indebtedness, but specifically
excluding Subordinated Debt.
"Trademarks" means any trademark and servicemark rights, whether registered
or not, applications to register and registrations of the same and like
protections, and the entire goodwill of the business of Borrower connected with
and symbolized by such trademarks.
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1.2 ACCOUNTING AND OTHER TERMS. All accounting terms not specifically
defined herein shall be construed in accordance with GAAP and all calculations
and determinations made hereunder shall be made in accordance with GAAP. When
used herein, the term "financial statements" shall include, for all statements
other than interim statements, the notes and schedules thereto. The terms
"including" and "includes" shall always be read as meaning "including (or
includes) without limitation", when used herein or in any other Loan Document.
2. LOAN AND TERMS OF PAYMENT
2.1 CREDIT EXTENSIONS. Borrower promises to pay to the order of Bank,
in lawful money of the United States of America, the aggregate unpaid principal
amount of all Credit Extensions made by Bank to Borrower hereunder. Borrower
also promises to pay interest on the unpaid principal amount of such Advances at
rates in accordance with the terms hereof.
2.1.1 (a) Subject to and upon the terms and conditions of this
Agreement, Bank agrees to make Advances to Borrower in an aggregate outstanding
amount not to exceed (i) the lesser of the Committed Revolving Line and the
Borrowing Base minus (ii) the amount advanced pursuant to Section 2.1.2 hereof.
Subject to the terms and conditions of this Agreement, amounts borrowed pursuant
to this Section 2.1 may be repaid and reborrowed at any time during the term of
this Agreement.
(b) Whenever Borrower desires an Advance, Borrower will
notify Bank by facsimile transmission or telephone no later than 5:00 p.m.
Central time, on the Business Day that the Advance is to be made. Each such
notification shall be promptly confirmed by a Payment/Advance Form in
substantially the form of Exhibit B hereto. Bank is authorized to make Advances
under this Agreement, based upon instructions received from a Responsible
Officer or a designee of a Responsible Officer, or without instructions if in
Bank's discretion such Advances are necessary to meet Obligations which have
become due and remain unpaid. BANK SHALL BE ENTITLED TO RELY ON ANY TELEPHONIC
REQUEST FOR AN ADVANCE FROM ANY PERSON WHO BANK REASONABLY BELIEVES TO BE A
RESPONSIBLE OFFICER OR A DESIGNEE THEREOF, AND BORROWER SHALL INDEMNIFY AND HOLD
BANK HARMLESS FOR ANY DAMAGES OR LOSS SUFFERED BY BANK AS A RESULT OF SUCH
RELIANCE. Bank will credit the amount of Advances made under this Section 2.1 to
Borrower's deposit account.
(c) The Committed Revolving Line shall terminate on the
Revolving Maturity Date, at which time all Advances under this Section 2.1 and
other amounts due under this Agreement (except as otherwise expressly specified
herein) shall be immediately due and payable.
2.1.2 MERCHANT CARD SUBLIMIT. Subject to the terms and
conditions of this Agreement, Bank agrees to make Advances for the account of
Borrower with respect to any merchant card facility or other third party
facility that extends credit to Borrower on a revolving account basis; provided,
the aggregate amount advanced to Borrower pursuant to this Section 2.1.2 shall
not in any case exceed Sixty Thousand and No/100 Dollars ($60,000.00) at any one
time.
2.2 OVERADVANCES. If, at any time or for any reason, the amount of
Obligations owed by Borrower to Bank pursuant to Section 2.1.1 and 2.1.2 of this
Agreement is greater than the
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lesser of the Committed Revolving Line and the Borrowing Base, Borrower shall
immediately pay to Bank, in cash, the amount of such excess.
2.3 INTEREST RATES, PAYMENTS, AND CALCULATIONS.
(a) INTEREST RATE. Except as set forth in Section 2.3(b),
Advances shall bear interest, on the average daily balance thereof, at a per
annum rate equal to the Prime Rate.
(b) DEFAULT RATE. All Obligations shall bear interest, from and
after the occurrence of an Event of Default, at the "Default Interest Rate." The
Default Interest Rate shall be, at Bank's option, (i) the interest rate
applicable immediately prior to the occurrence of the Event of Default plus five
(5) percentage points or (ii) such lesser rate of interest as Bank in its sole
discretion may choose to charge; but never more than the Maximum Lawful Rate or
at a rate that would cause the total interest contracted for, charged or
received by Bank to exceed the Maximum Lawful Amount.
(c) PAYMENTS. Interest hereunder shall be due and payable on each
Payment Date. Any interest not paid when due shall be compounded daily and
become a part of the Obligations, and such interest shall thereafter accrue
interest at the rate then applicable hereunder.
(d) COMPUTATION.
(i) CHANGES. In the event the Prime Rate is changed from
time to time hereafter, the applicable rate of interest hereunder shall be
increased or decreased effective as of 12:01 a.m. on the day the Prime Rate is
changed, by an amount equal to such change in the Prime Rate.
(ii) SPREADING OF INTEREST. Because of the possibility of
irregular periodic balances of principal, the fluctuating nature of the interest
rate, or premature payment, the total interest that will accrue under this
Agreement cannot be determined in advance. Bank does not intend to contract for,
charge or receive more than the Maximum Lawful Rate or Maximum Lawful Amount
permitted by applicable state or federal law, and, to prevent such an
occurrence, Bank and Borrower agree that all amounts of interest, whenever
contracted for, charged or received by Bank, with respect to the loan of money
evidenced by the Loan Documents, shall be spread, prorated or allocated over the
full period of time the Obligations are unpaid, including the period of any
renewal or extension thereof. If the maturity of the Obligations is accelerated
for any reason whether as a lawsuit or an Event of Default or otherwise prior to
the full stated term, the total amount of interest contracted for, charged or
received to the time of such demand shall be spread, prorated or allocated along
with any interest thereafter accruing over the full period of time that the
Obligations thereafter remain unpaid for the purpose of determining if such
interest exceeds the Maximum Lawful Amount.
(iii) EXCESS INTEREST. At maturity (whether by acceleration
or otherwise) or on earlier final payment of the Obligations, Bank shall compute
the total amount of interest that has been contracted for, charged or received
by Bank or payable by Borrower hereunder and compare such amount to the Maximum
Lawful Amount that could have been contracted for, charged or received by Bank.
If such computation reflects that the total amount of interest that has been
contracted for, charged or received by Bank or payable by Borrower exceeds the
Maximum Lawful Amount, then Bank shall apply such excess to the reduction of the
principal balance and not
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to the payment of interest; or if such excess interest exceeds the unpaid
principal balance, such excess shall be refunded to Borrower. This provision
concerning the crediting or refund of excess interest shall control and take
precedence over all other agreements between Borrower and Bank so that under no
circumstances shall the total interest contracted for, charged or received by
Bank exceed the Maximum Lawful Amount.
(iv) DAILY COMPUTATION OF INTEREST. To the extent permitted
by applicable law, Bank at its option may either (i) calculate the per diem
interest rate or amount based on the actual number of days in the year (365 or
366, as the case may be), and charge that per diem interest rate or amount each
day, or (ii) calculate the per diem interest rate or amount as if each year has
only 360 days, and charge that per diem interest rate or amount each day for the
actual number of days of the year (365 or 366 as the case may be). If the Loan
Documents call for monthly payments, Bank at its option may determine the
payment amount based on the assumption that each year has only 360 days and each
month has 30 days. In no event shall Bank compute the interest in a manner that
would cause Bank to contract for, charge or receive interest that would exceed
the Maximum Lawful Rate or the Maximum Lawful Amount.
(v) REVOLVING LOAN ACCOUNTS AND USURY CEILING. In no event
shall Chapter 346 of the Texas Finance Code, as supplemented by the Texas Credit
Title ("Texas Finance Code")(which regulates certain revolving loan accounts and
revolving tri-party accounts) apply to this Agreement or Borrower's payment
obligations hereunder. To the extent that Chapter 303 of the Texas Finance Code,
is applicable to this Agreement, the "weekly ceiling" specified in such Chapter
303 is the applicable ceiling; provided that, if any applicable law permits
greater interest, the law permitting the greatest interest shall apply.
2.4 CREDITING PAYMENTS. Prior to the occurrence of an Event of
Default, Bank shall credit a wire transfer of funds, check or other item of
payment to such deposit account or Obligation as Borrower specifies. After the
occurrence of an Event of Default, the receipt by Bank of any wire transfer of
funds, check, or other item of payment, whether directed to Borrower's deposit
account with Bank or to the Obligations or otherwise, shall be immediately
applied to conditionally reduce Obligations, but shall not be considered a
payment in respect of the Obligations unless such payment is of immediately
available federal funds or unless and until such check or other item of payment
is honored when presented for payment. Notwithstanding anything to the contrary
contained herein, any wire transfer or payment received by Bank after 2:00 p.m.
Central time shall be deemed to have been received by Bank as of the opening of
business on the immediately following Business Day. Whenever any payment to Bank
under the Loan Documents would otherwise be due (except by reason of
acceleration) on a date that is not a Business Day, such payment shall instead
be due on the next Business Day, and additional fees or interest, as the case
may be, shall accrue and be payable for the period of such extension.
2.5 FEES. Borrower shall pay to Bank the following:
(a) FACILITY FEE. A Facility Fee equal to Seven Thousand Five
Hundred and No/100 Dollars ($7,500.00), which fee shall be due on the Closing
Date and shall be fully earned and non-refundable;
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(b) FINANCIAL EXAMINATION AND APPRAISAL FEES. Bank's customary
fees and reasonable out-of-pocket expenses for Bank's audits of Borrower's
Accounts performed in accordance with Section 6.3 below, and for each appraisal
of Collateral and financial analysis and examination of Borrower performed from
time to time by Bank or its agents;
(c) BANK EXPENSES. Upon demand from Bank, including, without
limitation, upon the date hereof, all Bank Expenses incurred through the date
hereof, including reasonable attorneys' fees and expenses, and, after the date
hereof, all Bank Expenses, including reasonable attorneys' fees and expenses, as
and when they become due.
2.6 ADDITIONAL COSTS. In case any change in law, regulation, treaty
or official directive or the interpretation or application thereof by any court
or any governmental authority charged with the administration thereof or the
compliance with any guideline or request of any central bank or other
governmental authority (whether or not having the force of law), in each case
after the date of this Agreement:
(a) subjects Bank to any tax with respect to payments of
principal or interest or any other amounts payable hereunder by Borrower or
otherwise with respect to the transactions contemplated hereby (except for taxes
on the overall net income of Bank imposed by the United States of America or any
political subdivision thereof);
(b) imposes, modifies or deems applicable any deposit insurance,
reserve, special deposit or similar requirement against assets held by, or
deposits in or for the account of, or loans by, Bank; or
(c) imposes upon Bank any other condition with respect to its
performance under this Agreement, and the result of any of the foregoing is to
increase the cost to Bank, reduce the income receivable by Bank or impose any
expense upon Bank with respect to the Obligations, Bank shall notify Borrower
thereof. Borrower agrees to pay to Bank the amount of such increase in cost,
reduction in income or additional expense as and when such cost, reduction or
expense is incurred or determined, upon presentation by Bank of a statement of
the amount and setting forth Bank's calculation thereof, all in reasonable
detail, which statement shall be deemed true and correct absent manifest error.
Bank agrees that it will allocate all such increased costs among its customers
similarly affected in good faith and in a manner consistent with Bank's
customary practice.
2.7 TERM. Except as otherwise set forth herein, this Agreement shall
become effective on the Closing Date and, subject to Section 12.7, shall
continue in full force and effect for a term ending on the Revolving Maturity
Date. Notwithstanding the foregoing, Bank shall have the right to terminate its
obligation to make Credit Extensions under this Agreement immediately and
without notice upon the occurrence and during the continuance of an Event of
Default. Notwithstanding termination of this Agreement, Bank's Lien on the
Collateral shall remain in effect for so long as any Obligations are
outstanding.
3. CONDITIONS OF LOANS
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3.1 CONDITIONS PRECEDENT TO INITIAL CREDIT EXTENSION. The obligation
of Bank to make the initial Credit Extension is subject to the condition
precedent that Bank shall have received, in form and substance satisfactory to
Bank, the following:
(a) this Agreement;
(b) a certificate of the Secretary of Borrower with respect to
articles, bylaws, incumbency and resolutions authorizing the execution and
delivery of this Agreement;
(c) an intellectual property security agreement:
(d) UCC-1 financing statements covering the Collateral and UCC-3
termination statements or assignments in favor of Bank from each Person that has
a security interest in the Collateral or any part thereof;
(e) insurance certificate;
(f) payment of the fees and Bank Expenses then due specified in
Section 2.5 hereof;
(g) Certificate of Foreign Qualification (if applicable);
(h) Subordination of Lien from the Person who leases the real
property set forth in Section 10 of this Agreement to Borrower; and
(i) such other documents, and completion of such other matters,
as Bank may reasonably deem necessary or appropriate.
3.2 CONDITIONS PRECEDENT TO ALL CREDIT EXTENSIONS. The obligation
of Bank to make each Credit Extension, including the initial Credit Extension,
is further subject to the following conditions:
(a) timely receipt by Bank of the Payment/Advance Form as
provided in Section 2.1; and
(b) the representations and warranties contained in Section 5
shall be true and correct in all material respects on and as of the date of such
Payment/Advance Form and on the effective date of each Credit Extension as
though made at and as of each such date, and no Event of Default shall have
occurred and be continuing, or would result from such Credit Extension. The
making of each Credit Extension shall be deemed to be a representation and
warranty by Borrower on the date of such Credit Extension as to the accuracy of
the facts referred to in this Section 3.2(b).
4. CREATION OF SECURITY INTEREST
4.1 GRANT OF SECURITY INTEREST. Borrower grants and pledges to Bank a
continuing security interest in all presently existing and hereafter acquired or
arising Collateral and all proceeds
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thereof, in order to secure prompt payment of any and all Obligations and in
order to secure prompt performance by Borrower of each of its covenants and
duties under the Loan Documents. Except as set forth in the Schedule, such
security interest constitutes a valid, first priority security interest in the
presently existing Collateral, and will constitute a valid, first priority
security interest in Collateral acquired after the date hereof. Borrower
acknowledges that Bank may place a "hold" on any deposit account pledged as
Collateral to secure the Obligations. Notwithstanding termination of this
Agreement, Bank's Lien on the Collateral shall remain in effect for so long as
any Obligations are outstanding.
4.2 DELIVERY OF ADDITIONAL DOCUMENTATION REQUIRED. Borrower shall
from time to time execute and deliver to Bank, at the request of Bank, all
Negotiable Collateral, all financing statements and other documents that Bank
may reasonably request, in form satisfactory to Bank, to perfect and continue
perfected Bank's security interest in the Collateral and in order to fully
consummate all of the transactions contemplated under the Loan Documents.
4.3 RIGHT TO INSPECT. Bank (through any of its officers, employees,
or agents) shall have the right, upon reasonable prior notice, from time to time
during Borrower's usual business hours, to inspect Borrower's Books and to make
copies thereof and to check, test, and appraise the Collateral in order to
verify Borrower's financial condition or the amount, condition of, or any other
matter relating to, the Collateral.
5. REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants as follows:
5.1 DUE ORGANIZATION AND QUALIFICATION. Borrower and each
Subsidiary is a corporation duly existing and in good standing under the laws of
its state of incorporation and qualified and licensed to do business in, and is
in good standing in, Texas and any other state in which the conduct of its
business or its ownership of property requires that it be so qualified.
5.2 DUE AUTHORIZATION; NO CONFLICT. The execution, delivery, and
performance of the Loan Documents are within Borrower's powers, have been duly
authorized, and are not in conflict with nor constitute a breach of any
provision contained in Borrower's Articles of Incorporation or Bylaws, nor will
they constitute an event of default under any material agreement to which
Borrower is a party or by which Borrower is bound. Borrower is not in default
under any agreement to which it is a party or by which it is bound, which
default could have a Material Adverse Effect.
5.3 NO PRIOR ENCUMBRANCES. Borrower has good and indefeasible
title to the Collateral, free and clear of Liens, except for Permitted Liens.
5.4 BONA FIDE ELIGIBLE ACCOUNTS. The Eligible Accounts are bona fide
existing obligations. The service or property giving rise to such Eligible
Accounts has been performed or delivered to the account debtor or to the account
debtor's agent for immediate shipment to and unconditional acceptance by the
account debtor. Borrower has not received notice of actual or
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imminent Insolvency Proceeding of any account debtor whose accounts are included
in any Borrowing Base Certificate as an Eligible Account.
5.5 MERCHANTABLE INVENTORY. All Inventory (other than that software
portion of Inventory that is work in progress) is in all material respects of
good and marketable quality, free from all material defects.
5.6 INTELLECTUAL PROPERTY. To the best of Borrower's knowledge,
Borrower is the sole owner of the Intellectual Property Collateral, except for
non-exclusive licenses granted by Borrower to its customers in the ordinary
course of business. Each of the Patents is valid and enforceable, and no part of
the Intellectual Property Collateral has been judged invalid or unenforceable,
in whole or in part, and no claim has been made that any part of the
Intellectual Property Collateral violates the rights of any third party. Except
for and upon the filing with the United States Patent and Trademark Office with
respect to the Patents and Trademarks and the Register of Copyrights with
respect to the Copyrights and Mask Works necessary to perfect the security
interests 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 (i) for the grant by Borrower of the security interest granted
hereby or for the execution, delivery or performance of Loan Documents by
Borrower in the United States or (ii) for the perfection in the United States or
the exercise by Bank of its rights and remedies hereunder.
5.7 NAME; LOCATION OF CHIEF EXECUTIVE OFFICE. Except as disclosed
in the Schedule, Borrower has not done business and will not without at least
thirty (30) days prior written notice to Bank do business under any name other
than that specified on the signature page hereof. The chief executive office of
Borrower is located at the address indicated in Section 10 hereof.
5.8 LITIGATION. Except as set forth in the Schedule, there are no
actions or proceedings pending, or, to Borrower's knowledge, threatened by or
against Borrower or any Subsidiary before any court or administrative agency in
which an adverse decision could have a Material Adverse Effect on Borrower's
interest or Bank's security interest in the Collateral.
5.9 NO MATERIAL ADVERSE CHANGE IN FINANCIAL STATEMENTS. All
consolidated financial statements related to Borrower and any Subsidiary that
have been delivered by Borrower to Bank fairly present in all material respects
Borrower's consolidated financial condition as of the date thereof and
Borrower's consolidated results of operations for the period then ended. There
has not been a material adverse change in the consolidated financial condition
of Borrower since the date of the most recent of such financial statements
submitted to Bank on or about the Closing Date.
5.10 SOLVENCY. The fair book value of Borrower's assets (including
goodwill minus disposition costs) exceeds the fair value of its liabilities; the
Borrower is not left with unreasonably small capital after the transactions
contemplated by this Agreement; and Borrower is able to pay its debts (including
trade debts) as they mature.
5.11 REGULATORY COMPLIANCE. Borrower and each Subsidiary has met the
minimum funding requirements of ERISA with respect to any employee benefit plans
subject to ERISA. No
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event has occurred resulting from Borrower's failure to comply with ERISA that
is reasonably likely to result in Borrower's incurring any liability that could
have a Material Adverse Effect. Borrower is not an "investment company" or a
company "controlled" by an "investment company" within the meaning of the
Investment Company Act of 1940. Borrower is not engaged principally, or as one
of its important activities, in the business of extending credit for the purpose
of purchasing or carrying margin stock (within the meaning of Regulations G, T
and U of the Board of Governors of the Federal Reserve System). Borrower has
complied with all the provisions of the Federal Fair Labor Standards Act.
Borrower has not violated any statutes, laws, ordinances or rules applicable to
it, violation of which could have a Material Adverse Effect.
5.12 ENVIRONMENTAL CONDITION. None of Borrower's or any Subsidiary's
properties or assets has ever been used by Borrower or any Subsidiary or, to the
best of Borrower's knowledge, by previous owners or operators, in the disposal
of, or to produce, store, handle, treat, release, or transport, any hazardous
waste or hazardous substance other than in accordance with applicable law; to
the best of Borrower's knowledge, none of Borrower's properties or assets has
ever been designated or identified in any manner pursuant to any environmental
protection statute as a hazardous waste or hazardous substance disposal site, or
a candidate for closure pursuant to any environmental protection statute; no
Lien arising under any environmental protection statute has attached to any
revenues or to any real or personal property owned by Borrower or any
Subsidiary; and neither Borrower nor any Subsidiary has received a summons,
citation, notice, or directive from the Environmental Protection Agency or any
other federal, state or other governmental agency concerning any action or
omission by Borrower or any Subsidiary resulting in the release, or other
disposition of hazardous waste or hazardous substances into the environment.
5.13 TAXES. Borrower and each Subsidiary has filed or caused to be
filed all tax returns required to be filed on a timely basis, and has paid, or
has made adequate provision for the payment of, all taxes reflected therein.
5.14 SUBSIDIARIES. Borrower does not own any stock, partnership
interest or other equity securities of any Person, except for Permitted
Investments.
5.15 GOVERNMENT CONSENTS. Other than as set forth on the Schedule
attached hereto, Borrower and each Subsidiary has obtained all consents,
approvals and authorizations of, made all declarations or filings with, and
given all notices to, all governmental authorities that are necessary for the
continued operation of Borrower's business as currently conducted.
5.16 FULL DISCLOSURE. No representation, warranty or other statement
made by Borrower in any certificate or written statement furnished to Bank
contains any untrue statement of a material fact or omits to state a material
fact necessary in order to make the statements contained in such certificates or
statements not misleading.
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6. AFFIRMATIVE COVENANTS
Borrower covenants and agrees that, until payment in full of all
outstanding Obligations, and for so long as Bank may have any commitment to make
a Credit Extension hereunder, Borrower shall do all of the following:
6.1 GOOD STANDING. Borrower shall maintain its and each of its
Subsidiaries' corporate existence and good standing in its jurisdiction of
incorporation and maintain qualification in Texas and every other jurisdiction
in which the failure to so qualify could have a Material Adverse Effect.
Borrower shall maintain in force, and shall cause each of its Subsidiaries to
maintain, to the extent consistent with prudent management of Borrower's
business, all licenses, approvals and agreements, the loss of which could have a
Material Adverse Effect.
6.2 GOVERNMENT COMPLIANCE. Borrower shall meet, and shall cause each
Subsidiary to meet, the minimum funding requirements of ERISA with respect to
any employee benefit plans subject to ERISA. Borrower shall comply, and shall
cause each Subsidiary to comply, with all statutes, laws, ordinances and
government rules and regulations to which it is subject, noncompliance with
which could have a Material Adverse Effect on the Collateral or the priority of
Bank's Lien on the Collateral.
6.3 FINANCIAL STATEMENTS, REPORTS, CERTIFICATES. Borrower shall
deliver to Bank: (a) as soon as available, but in any event within thirty (30)
days after the end of each month, a company prepared consolidated balance sheet
and income statement covering Borrower's consolidated operations during such
period, in a form and certified by an officer of Borrower reasonably acceptable
to Bank; (b) as soon as available, but in any event within one hundred twenty
(120) days after the end of Borrower's fiscal year, audited consolidated
financial statements of Borrower prepared in accordance with GAAP, consistently
applied, together with an unqualified opinion on such financial statements of an
independent certified public accounting firm reasonably acceptable to Bank; (c)
within five (5) days of filing, copies of all statements, reports and notices
sent or made available generally by Borrower to its security holders or to any
holders of Subordinated Debt and all reports on Form 10-K, 10-Q and 8-K filed
with the Securities and Exchange Commission; (d) promptly upon receipt of notice
thereof, a report of any legal actions pending or threatened against Borrower or
any Subsidiary that could result in damages or costs to Borrower or any
Subsidiary of One Hundred Thousand Dollars ($100,000) or more; (e) prompt notice
of any material change in the composition of the Intellectual Property
Collateral, including, but not limited to, any subsequent ownership right of the
Borrower in or to any Copyright, Patent or Trademark not specified in any
intellectual property security agreement between Borrower and Bank or knowledge
of an event that materially adversely effects the value of the Intellectual
Property Collateral; and (f) such budgets, sales projections, operating plans or
other financial information as Bank may reasonably request from time to time.
Within thirty (30) days after the last day of each month, Borrower
shall deliver to Bank an aged listings of accounts receivable and accounts
payable and, if there are any then outstanding Advances, a Borrowing Base
Certificate signed by a Responsible Officer in substantially the form of Exhibit
C hereto, together therewith.
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Within thirty (30) days after the last day of each month, Borrower shall
deliver to Bank monthly financial statements, and if there are any then
outstanding Advances, a Compliance Certificate signed by a Responsible Officer
in substantially the form of Exhibit D hereto, together therewith.
Bank shall have a right from time to time hereafter to audit Borrower's
Accounts at Borrower's expense, provided that such audits will be conducted no
more often than once every twelve (12) months unless an Event of Default has
occurred and is continuing.
6.4 INVENTORY; RETURNS. Borrower shall keep all Inventory in good and
marketable condition, free from all material defects. Returns and allowances, if
any, as between Borrower and its account debtors shall be on the same basis and
in accordance with the usual customary practices of Borrower, as they exist at
the time of the execution and delivery of this Agreement. Borrower shall
promptly notify Bank of all returns and recoveries and of all disputes and
claims, where the return, recovery, dispute or claim involves more than Fifty
Thousand Dollars ($50,000).
6.5 TAXES. Borrower shall make, and shall cause each Subsidiary to
make, due and timely payment or deposit of all material federal, state, and
local taxes, assessments, or contributions required of it by law, and will
execute and deliver to Bank, on demand, appropriate certificates attesting to
the payment or deposit thereof; and Borrower will make, and will cause each
Subsidiary to make, timely payment or deposit of all material tax payments and
withholding taxes required of it by applicable laws, including, but not limited
to, those laws concerning F.I.C.A., F.U.T.A., state disability, and local,
state, and federal income taxes, and will, upon request, furnish Bank with proof
satisfactory to Bank indicating that Borrower or a Subsidiary has made such
payments or deposits; provided that Borrower or a Subsidiary need not make any
payment if the amount or validity of such payment is (i) contested in good faith
by appropriate proceedings, (ii) is reserved against (to the extent required by
GAAP) by Borrower and (iii) no Lien other than a Permitted Lien results.
6.6 INSURANCE.
(a) Borrower, at its expense, shall keep the Collateral insured
against loss or damage by fire, theft, explosion, sprinklers, and all other
hazards and risks, and in such amounts, as ordinarily insured against by other
owners in similar businesses conducted in the locations where Borrower's
business is conducted on the date hereof. Borrower shall also maintain insurance
relating to Borrower's ownership and use of the Collateral in amounts and of a
type that are customary to businesses similar to Borrower's.
(b) All such policies of insurance shall be in such form, with
such companies, and in such amounts as are reasonably satisfactory to Bank. All
such policies of property insurance shall contain a lender's loss payable
endorsement, in a form satisfactory to Bank, showing Bank as an additional loss
payee thereof and all liability insurance policies shall show the Bank as an
additional insured, and shall specify that the insurer must give at least
fifteen (15) days notice to Bank before canceling its policy for any reason. At
Bank's request, Borrower shall deliver to Bank certified copies of such policies
of insurance and evidence of the payments of all premiums therefor.
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All proceeds payable under any such policy shall, at the option of Bank, be
payable to Bank to be applied on account of the Obligations.
6.7 QUICK RATIO. Borrower shall maintain, as of the last day of each
calendar month, a ratio of Quick Assets to Current Liabilities less deferred
maintenance revenue of at least 1.25 to 1.0.
6.8 DEBT-TANGIBLE NET WORTH RATIO. Borrower shall maintain, as of the
last day of each calendar month, a ratio of Total Liabilities less deferred
maintenance revenue and less Subordinated Debt to Tangible Net Worth plus
Subordinated Debt of not more than 1.50 to 1.0.
6.9 TANGIBLE NET WORTH. Borrower shall maintain, as of the last day
of each calendar month, a Tangible Net Worth of not less than Three Million and
No/100 Dollars ($3,000,000.00).
6.10 REGISTRATION OF INTELLECTUAL PROPERTY RIGHTS.
(a) Borrower shall give Bank no less than thirty (30) days prior
notice of its registration with the United States Patent and Trademark Office or
the United States Copyright Office, as applicable, of those intellectual
property rights referred to the Intellectual Property Security Agreement and
exhibits thereto, as may be revised, amended or modified, and delivered to Bank
by Borrower in connection with this Agreement.
(b) Borrower shall execute and deliver such additional
instruments and documents from time to time as Bank shall reasonably request to
perfect Bank's security interest in the Intellectual Property Collateral.
(c) Borrower shall (i) protect, defend and maintain the validity
and enforceability of the Trademarks, Patents, Copyrights, and Mask Works, (ii)
use its best efforts to detect infringements of the Trademarks, Patents,
Copyrights and Mask Works and promptly advise Bank in writing of material
infringements detected and (iii) not allow any Trademarks, Patents, Copyrights,
or Mask Works to be abandoned, forfeited or dedicated to the public without the
written consent of Bank, which shall not be unreasonably withheld, unless Bank
determines that reasonable business practices suggest that abandonment is
appropriate.
(d) Bank shall have the right, but not the obligation, to take,
at Borrower's sole expense, any actions that Borrower is required under this
Section 6.10 to take but which Borrower fails to take, after fifteen (15) days
notice to Borrower. Borrower shall reimburse and indemnify Bank for all
reasonable costs and reasonable expenses incurred in the reasonable exercise of
its rights under this Section 6.10.
6.11 FURTHER ASSURANCES. At any time and from time to time, Borrower
shall execute and deliver such further instruments and take such further action
as may reasonably be requested by Bank to effect the purposes of this Agreement.
7. NEGATIVE COVENANTS
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Borrower covenants and agrees that, so long as any Credit Extension
hereunder shall be available and until payment in full of the outstanding
Obligations or for so long as Bank may have any commitment to make any Advances,
Borrower will not do any of the following:
7.1 DISPOSITIONS. Convey, sell, lease, transfer or otherwise dispose
of (collectively, a "Transfer"), or permit any of its Subsidiaries to Transfer,
all or any part of its business or property, other than Transfers: (i) of
inventory in the ordinary course of business, (ii) of non-exclusive licenses and
similar arrangements for the use of the property of Borrower or its Subsidiaries
in the ordinary course of business; (iii) that constitute payment of normal and
usual operating expenses in the ordinary course of business; or (iv) of worn-out
or obsolete Equipment.
7.2 CHANGES IN BUSINESS, OWNERSHIP, MANAGEMENT OR BUSINESS LOCATIONS.
Engage in any business, or permit any of its Subsidiaries to engage in any
business, other than the businesses currently engaged in by Borrower and any
business substantially similar or related thereto (or incidental thereto), or
suffer an aggregate change in Borrower's ownership of greater than thirty-five
percent (35%) or a material change in Borrower's management and replacements
reasonably satisfactory to Bank are not made in within thirty (30) days.
Borrower will not, without at least thirty (30) days prior written notification
to Bank, relocate its chief executive office or add any new offices or business
locations.
7.3 MERGERS OR ACQUISITIONS. Merge or consolidate, or permit any of
its Subsidiaries to merge or consolidate, with or into any other business
organization, or acquire, or permit any of its Subsidiaries to acquire, all or
substantially all of the capital stock or property of another Person if (i) an
Event of Default has occurred and is continuing or would exist after giving
effect to such action or (ii) such transaction results in a change of more than
35% of Borrower's Net Worth.
7.4 INDEBTEDNESS. Create, incur, assume or be or remain liable with
respect to any Indebtedness, or permit any Subsidiary so to do, other than
Permitted Indebtedness.
7.5 ENCUMBRANCES. Create, incur, assume or suffer to exist any Lien
with respect to any of its property, or assign or otherwise convey any right to
receive income, including the sale of any Accounts, or permit any of its
Subsidiaries so to do, except for Permitted Liens.
7.6 DISTRIBUTIONS. Pay any dividends or make any other distribution
or payment on account of or in redemption, retirement or purchase of any capital
stock.
7.7 INVESTMENTS. Directly or indirectly acquire or own, or make any
Investment in or to any Person, or permit any of its Subsidiaries so to do,
other than Permitted Investments.
7.8 TRANSACTIONS WITH AFFILIATES. Directly or indirectly enter into
or permit to exist any material transaction with any Affiliate of Borrower
except for transactions that are in the ordinary course of Borrower's business,
upon fair and reasonable terms that are no less favorable to Borrower than would
be obtained in an arm's length transaction with a nonaffiliated Person.
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7.9 INTELLECTUAL PROPERTY AGREEMENTS. Other than those escrow
agreements entered into by Borrower in the ordinary course of its business,
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 Borrower's rights and interests in any property included within the
definition of the Intellectual Property Collateral acquired under such
contracts.
7.10 SUBORDINATED DEBT. Make any payment in respect of any
Subordinated Debt, or permit any of its Subsidiaries to make any such payment,
except in compliance with the terms of such Subordinated Debt, or amend any
provision contained in any documentation relating to the Subordinated Debt
without Bank's prior written consent.
7.11 INVENTORY. Store Inventory with an aggregate value of more than
Fifty Thousand and No/100 Dollars ($50,000) with one or more bailees,
warehousemen, or similar parties unless Bank has received a pledge of any
warehouse receipt covering such Inventory. Except for Inventory sold in the
ordinary course of business and except for such other locations as Bank may
approve in writing, Borrower shall keep the Inventory only at the location set
forth in Section 10 hereof and such other locations of which Borrower gives Bank
prior written notice and as to which Borrower signs and files a financing
statement where needed to perfect Bank's security interest.
7.12 COMPLIANCE. Become an "investment company" or a company
controlled by an "investment company," within the meaning of the Investment
Company Act of 1940, or become principally engaged in, or undertake as one of
its important activities, the business of extending credit for the purpose of
purchasing or carrying margin stock, or use the proceeds of any Advance for such
purpose; fail to meet the minimum funding requirements of ERISA; permit a
Reportable Event or Prohibited Transaction, as defined in ERISA, to occur; fail
to comply with the Federal Fair Labor Standards Act or violate any other law or
regulation, which violation could have a Material Adverse Effect or a material
adverse effect on the Collateral or the priority of Bank's Lien on the
Collateral; or permit any of its Subsidiaries to do any of the foregoing.
8. EVENTS OF DEFAULT
Any one or more of the following events shall constitute an Event of
Default by Borrower under this Agreement:
8.1 PAYMENT DEFAULT. If Borrower fails to pay, when due, any of the
Obligations.
8.2 COVENANT DEFAULT.
(a) If Borrower (i) fails or neglects to perform any obligation
under Section 6.3 within five (5) calendar days of when due or (ii) fails to
perform any obligation under Sections 6.7, 6.8 or 6.9 or (iii) violates any of
the covenants contained in Article 7 of this Agreement, or
(b) If Borrower fails or neglects to perform, keep, or observe
any other material term, provision, condition, covenant, or agreement contained
in this Agreement, in any of the Loan Documents, or in any other present or
future agreement between Borrower and Bank,
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including without limitation, those documents relating to Bank's loan to
Borrower of Seven Hundred Fifty Thousand and No/100 Dollars ($750,000.00) dated
on or about February 7, 1997 and as to any default under such other term,
provision, condition, covenant or agreement that can be cured, has failed to
cure such default within ten (10) calendar days after the occurrence thereof;
provided, however, that if the default cannot by its nature be cured within the
ten (10) day period or cannot after diligent attempts by Borrower be cured
within such ten (10) calendar day period, and such default is likely to be cured
within a reasonable time, then Borrower shall have an additional reasonable
period (which shall not in any case exceed thirty (30) calendar days) to attempt
to cure such default, and within such reasonable time period the failure to have
cured such default shall not be deemed an Event of Default (provided that no
Advances will be required to be made during such cure period).
8.3 MATERIAL ADVERSE CHANGE. If there (i) occurs a material adverse
change in the business, operations, or condition (financial or otherwise) of the
Borrower, or (ii) is a material impairment of the prospect of repayment of any
portion of the Obligations or (iii) is a material impairment of the value or
priority of Bank's security interests in the Collateral;
8.4 ATTACHMENT. If any material portion of Borrower's assets is
attached, seized, subjected to a writ or distress warrant, or is levied upon, or
comes into the possession of any trustee, receiver or person acting in a similar
capacity and such attachment, seizure, writ or distress warrant or levy has not
been removed, discharged or rescinded within ten (10) days, or if Borrower is
enjoined, restrained, or in any way prevented by court order from continuing to
conduct all or any material part of its business affairs, or if a judgment or
other claim becomes a lien or encumbrance upon any material portion of
Borrower's assets, or if a notice of lien, levy, or assessment is filed of
record with respect to any of Borrower's assets by the United States Government,
or any department, agency, or instrumentality thereof, or by any state, county,
municipal, or governmental agency, and the same is not paid within ten (10) days
after Borrower receives notice thereof, provided that none of the foregoing
shall constitute an Event of Default where such action or event is stayed or an
adequate bond has been posted pending a good faith contest by Borrower (provided
that no Credit Extensions will be required to be made during such cure period);
8.5 INSOLVENCY. If Borrower becomes insolvent, or if an Insolvency
Proceeding is commenced by Borrower, or if an Insolvency Proceeding is commenced
against Borrower and is not dismissed or stayed within thirty (30) days
(provided that no Advances will be made prior to the dismissal of such
Insolvency Proceeding);
8.6 OTHER AGREEMENTS. If there is a default in any agreement to which
Borrower is a party with a third party or parties resulting in a right by such
third party or parties, whether or not exercised, to accelerate the maturity of
any Indebtedness in an amount in excess of One Hundred Thousand Dollars
($100,000) or that could have a Material Adverse Effect;
8.7 SUBORDINATED DEBT. If Borrower makes any payment on account of
Subordinated Debt, except to the extent such payment is allowed under any
subordination agreement entered into with Bank;
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8.8 JUDGMENTS. If a judgment or judgments for the payment of money
in an amount, individually or in the aggregate, of at least Fifty Thousand
Dollars ($50,000) shall be rendered against Borrower and shall remain
unsatisfied and unstayed for a period of ten (10) calendar days (provided that
no Credit Extensions will be made prior to the satisfaction or stay of such
judgment); or
8.9 MISREPRESENTATIONS. If any material misrepresentation or material
misstatement exists now or hereafter in any warranty or representation set forth
herein or in any certificate or writing delivered to Bank by Borrower or any
Person acting on Borrower's behalf pursuant to this Agreement or to induce Bank
to enter into this Agreement or any other Loan Document.
9. BANK'S RIGHTS AND REMEDIES
9.1 RIGHTS AND REMEDIES. Upon the occurrence of an Event of Default,
Bank may, at its election, without notice of its election and without demand, do
any one or more of the following, all of which are authorized by Borrower:
(a) Declare all Obligations, whether evidenced by this
Agreement, by any of the other Loan Documents, or otherwise, immediately due and
payable (provided that upon the occurrence of an Event of Default described in
Section 8.5 all Obligations shall become immediately due and payable without any
action by Bank);
(b) Cease advancing money or extending credit to or for the
benefit of Borrower under this Agreement or under any other agreement between
Borrower and Bank;
(c) Settle or adjust disputes and claims directly with account
debtors for amounts, upon terms and in whatever order that Bank reasonably
considers advisable;
(d) Without notice to or demand upon Borrower, make such payments
and do such acts as Bank considers necessary or reasonable to protect its
security interest in the Collateral. Borrower agrees to assemble the Collateral
if Bank so requires, and to make the Collateral available to Bank as Bank may
designate. Borrower authorizes Bank to enter the premises where the Collateral
is located, to take and maintain possession of the Collateral, or any part of
it, and to pay, purchase, contest, or compromise any Lien which in Bank's
determination appears to be prior or superior to its security interest and to
pay all expenses incurred in connection therewith. With respect to any of
Borrower's premises, Borrower hereby grants Bank a license to enter such
premises and to occupy the same, without charge in order to exercise any of
Bank's rights or remedies provided herein, at law, in equity, or otherwise;
(e) Without notice to Borrower, set off and apply to the
Obligations any and all (i) balances and deposits of Borrower held by Bank, or
(ii) indebtedness at any time owing to or for the credit or the account of
Borrower held by Bank;
23
<PAGE>
(f) Ship, reclaim, recover, store, finish, maintain, repair,
prepare for sale, advertise for sale, and sell (in the manner provided for
herein) the Collateral. Bank is hereby granted a non-exclusive, royalty-free
license or other right, solely pursuant to the provisions of this Section 9.1,
to use, without charge, Borrower's labels, patents, copyrights, mask works,
rights of use of any name, trade secrets, trade names, trademarks, service
marks, and advertising matter, or any property of a similar nature, as it
pertains to the Collateral, in completing production of, advertising for sale,
and selling any Collateral and, in connection with Bank's exercise of its rights
under this Section 9.1, Borrower's rights under all licenses and all franchise
agreements shall inure to Bank's benefit;
(g) Sell the Collateral at either a public or private sale, or
both, by way of one or more contracts or transactions, for cash or on terms, in
such manner and at such places (including Borrower's premises) as Bank
determines is commercially reasonable, and apply the proceeds thereof to the
Obligations in whatever manner or order it deems appropriate; and
(h) Bank may credit bid and purchase at any public sale, or at
any private sale as permitted by law.
(i) Any deficiency that exists after disposition of the
Collateral as provided above will be paid immediately by Borrower.
(j) Bank shall have a non-exclusive, royalty-free license to
use the Intellectual Property Collateral to the extent reasonably necessary to
permit Bank to exercise its rights and remedies upon the occurrence of an Event
of Default.
9.2 POWER OF ATTORNEY. Effective only upon the occurrence and during
the continuance of an Event of Default, Borrower hereby irrevocably appoints
Bank (and any of Bank's designated officers, or employees) as Borrower's true
and lawful attorney to: (a) send requests for verification of Accounts or notify
account debtors of Bank's security interest in the Accounts; (b) endorse
Borrower's name on any checks or other forms of payment or security that may
come into Bank's possession; (c) sign Borrower's name on any invoice or bill of
lading relating to any Account, drafts against account debtors, schedules and
assignments of Accounts, verifications of Accounts, and notices to account
debtors; (d) make, settle, and adjust all claims under and decisions with
respect to Borrower's policies of insurance; and (e) settle and adjust disputes
and claims respecting the Accounts directly with account debtors, for amounts
and upon terms which Bank determines to be reasonable; (f) to modify, in its
sole discretion, any intellectual property security agreement entered into
between Borrower and Bank without first obtaining Borrower's approval of or
signature to such modification by amending Exhibit A, Exhibit B, Exhibit C, and
Exhibit D, thereof, as appropriate, to include reference to any right, title or
interest in any Copyrights, Patents, Trademarks, Mask Works acquired by Borrower
after the execution hereof or to delete any reference to any right, title or
interest in any Copyrights, Patents, Trademarks, or Mask Works in which Borrower
no longer has or claims any right, title or interest; (g) to file, in its sole
discretion, one or more financing or continuation statements and amendments
thereto, relative to any of the Collateral without the signature of Borrower
where permitted by law; and (h) to transfer the Intellectual Property Collateral
into the name of Bank or a third party to the extent permitted under the Code,
provided Bank may exercise such power of attorney to sign the name of Borrower
on any of the
24
<PAGE>
documents described in Section 4.2 regardless of whether an Event of Default has
occurred. The appointment of Bank as Borrower's attorney-in-fact, and each and
every one of Bank's rights and powers, being coupled with an interest, is
irrevocable until all of the Obligations have been fully repaid and performed
and Bank's obligation to provide advances hereunder is terminated.
9.3 ACCOUNTS COLLECTION. Upon the occurrence and during the
continuance of an Event of Default, Bank may notify any Person owing funds to
Borrower of Bank's security interest in such funds and verify the amount of such
Account. Borrower shall collect all amounts owing to Borrower for Bank, receive
in trust all payments as Bank's trustee, and if requested or required by Bank,
immediately deliver such payments to Bank in their original form as received
from the account debtor, with proper endorsements for deposit.
9.4 BANK EXPENSES. If Borrower fails to pay any amounts or furnish any
required proof of payment due to third persons or entities, as required under
the terms of this Agreement, then Bank may do any or all of the following: (a)
make payment of the same or any part thereof; (b) set up such reserves under the
Committed Revolving Line as Bank deems necessary to protect Bank from the
exposure created by such failure; or (c) obtain and maintain insurance policies
of the type discussed in Section 6.6 of this Agreement, and take any action with
respect to such policies as Bank deems prudent. Any amounts so paid or deposited
by Bank shall constitute Bank Expenses, shall be immediately due and payable,
and shall bear interest at the then applicable rate hereinabove provided, and
shall be secured by the Collateral. Any payments made by Bank shall not
constitute an agreement by Bank to make similar payments in the future or a
waiver by Bank of any Event of Default under this Agreement.
9.5 BANK'S LIABILITY FOR COLLATERAL. So long as Bank complies with
reasonable banking practices, Bank shall not in any way or manner be liable or
responsible for: (a) the safekeeping of the Collateral; (b) any loss or damage
thereto occurring or arising in any manner or fashion from any cause; (c) any
diminution in the value thereof; or (d) any act or default of any carrier,
warehouseman, bailee, forwarding agency, or other person whomsoever. All risk of
loss, damage or destruction of the Collateral shall be borne by Borrower.
9.6 REMEDIES CUMULATIVE. Bank's rights and remedies under this
Agreement, the Loan Documents, and all other agreements shall be cumulative.
Bank shall have all other rights and remedies, not expressly set forth herein,
and as provided under the Code, by law, or in equity. No exercise by Bank of one
right or remedy shall be deemed an election, and no waiver by Bank of any Event
of Default on Borrower's part shall be deemed a continuing waiver. No delay by
Bank shall constitute a waiver, election, or acquiescence by it. No waiver by
Bank shall be effective unless made in a written document signed on behalf of
Bank and then shall be effective only in the specific instance and for the
specific purpose for which it was given.
9.7 DEMAND; PROTEST. Borrower waives demand, protest, notice of
protest, notice of default or dishonor, notice of payment and nonpayment, notice
of any default, notice of intent to accelerate, notice of acceleration,
nonpayment at maturity, release, compromise, settlement, extension, or renewal
of accounts, documents, instruments, chattel paper, and guarantees at any time
held by Bank on which Borrower may in any way be liable.
25
<PAGE>
10. NOTICES
Unless otherwise provided in this Agreement, all notices or demands
by any party relating to this Agreement or any other agreement entered into in
connection herewith shall be in writing and (except for financial statements and
other informational documents which may be sent by first-class mail, postage
prepaid or by electronic mail) shall be personally delivered or sent by a
recognized overnight delivery service, by certified mail, postage prepaid,
return receipt requested, or by facsimile to Borrower or to Bank, as the case
may be, at its addresses set forth below:
If to Borrower: Mission Critical Software, Inc.
720 N. Post Oak Road, Suite 505
Houston, Texas 77024
Attn: Paul F. Koffend, Jr.
Fax: 713/548-1770
Electronic mail: [email protected]
If to Bank: Silicon Valley Bank
9020 Capital of Texas Highway North
Building 1, Suite 350
Austin, Texas 78759
Attn: Mr. Stuart Edwards, Vice President
Fax: 512/794-0855
Electronic mail: [email protected]
The parties hereto may change the address at which they are to receive
notices hereunder, by notice in writing in the foregoing manner given to the
other.
11. CHOICE OF LAW AND VENUE
THE LOAN DOCUMENTS SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE INTERNAL LAWS OF THE STATE OF TEXAS, WITHOUT REGARD TO PRINCIPLES OF
CONFLICTS OF LAW AS IF PERFORMED ENTIRELY WITHIN THE STATE OF TEXAS BY TEXAS
RESIDENTS. EACH OF BORROWER AND BANK HEREBY SUBMITS TO THE EXCLUSIVE
JURISDICTION OF THE STATE AND FEDERAL COURTS LOCATED IN THE COUNTY OF TRAVIS,
STATE OF TEXAS.
12. GENERAL PROVISIONS
12.1 SUCCESSORS AND ASSIGNS. This Agreement shall bind and inure to
the benefit of the respective successors and permitted assigns of each of the
parties; provided, however, that neither this Agreement nor any rights hereunder
may be assigned by Borrower without Bank's prior written consent, which consent
may be granted or withheld in Bank's sole discretion. If Bank refuses to consent
in writing to an assignment by Borrower of this Agreement or Borrower's rights
hereunder and provided that no Obligation remains outstanding, at Borrower's
request, Bank shall execute a document, in form satisfactory to Bank ,
evidencing mutual termination of this Agreement. Bank shall have the right
without the consent of or notice to Borrower to sell, transfer, negotiate, or
26
<PAGE>
grant participation in all or any part of, or any interest in, Bank's
obligations, rights and benefits hereunder.
12.2 INDEMNIFICATION. Borrower shall, indemnify, defend, protect and
hold harmless Bank and its directors, officers, employees, and agents against:
(a) all obligations, demands, claims, and liabilities claimed or asserted by any
other party in connection with the transactions contemplated by the Loan
Documents; and (b) all losses and Bank Expenses in any way suffered, incurred,
or paid by Bank as a result of or in any way arising out of, following, or
consequential to transactions between Bank and Borrower whether under the Loan
Documents, or otherwise (including without limitation reasonable attorneys' fees
and expenses), except for losses caused by Bank's gross negligence or willful
misconduct.
12.3 TIME OF ESSENCE. Time is of the essence for the performance of
all obligations set forth in this Agreement.
12.4 SEVERABILITY OF PROVISIONS. Each provision of this Agreement
shall be severable from every other provision of this Agreement for the purpose
of determining the legal enforceability of any specific provision. If any term,
provision, covenant, or condition of this Agreement is held by a court of
competent jurisdiction to be invalid, void, or unenforceable, the remainder of
the provisions shall remain in full force and effect and shall in no way be
affected, impaired, or invalidated and this Agreement shall be construed as if
such invalid, void or unenforceable provision had never been contained herein.
12.5 AMENDMENTS IN WRITING, INTEGRATION. This Agreement cannot be
amended or terminated except by a writing signed by Borrower and Bank. All prior
agreements, understandings, representations, warranties, and negotiations
between the parties hereto with respect to the subject matter of this Agreement,
if any, are merged into this Agreement and the Loan Documents.
12.6 COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by different parties on separate counterparts, each of which,
when executed and delivered, shall be deemed to be an original, and all of
which, when taken together, shall constitute but one and the same Agreement.
12.7 SURVIVAL. All covenants, representations and warranties made in
this Agreement shall continue in full force and effect so long as any
Obligations remain outstanding. The obligations of Borrower to indemnify Bank
with respect to the expenses, damages, losses, costs and liabilities described
in Section 12.2 shall survive until all applicable statute of limitations
periods with respect to actions that may be brought against Bank have run;
provided that so long as the obligations referred to in the first sentence of
this Section 12.7 have been satisfied, and Bank has no commitment to make any
Credit Extensions or to make any other loans to Borrower, Bank shall release all
security interests granted hereunder and redeliver all Collateral held by it in
accordance with applicable law.
12.8 CONFIDENTIALITY. In handling any confidential information of
Borrower, Bank shall exercise the same degree of care that it exercises with
respect to its own proprietary information
27
<PAGE>
of the same types to maintain the confidentiality of any non-public information
thereby received or received pursuant to this Agreement except that disclosure
of such information may be made (i) to the Subsidiaries or Affiliates of Bank in
connection with their present or prospective business relations with Borrower,
(ii) to prospective transferees or purchasers of any interest in the loans,
provided that they have entered into a comparable confidentiality agreement in
favor of Borrower and have delivered a copy to Borrower, (iii) as required by
law, regulation, rule or order, subpoena, judicial order or similar order, (iv)
as may be required in connection with the examination, audit or similar
investigation of Bank, and (v) as Bank may deem appropriate in connection with
the exercise of any remedies hereunder. Confidential information hereunder shall
not include information that either: (a) is in the public domain or in the
knowledge or possession of Bank when disclosed to Bank, or becomes part of the
public domain after disclosure to Bank through no fault of Bank; or (b) is
disclosed to Bank by a third party, provided Bank does not have actual knowledge
that such third party is prohibited from disclosing such information.
12.9 WAIVER OF JURY TRIAL. BANK AND BORROWER EACH HEREBY WAIVE THEIR
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR
ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED
THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL
OTHER COMMON LAW OR STATUTORY CLAIMS. EACH PARTY RECOGNIZES AND AGREES THAT THE
FOREGOING WAIVER CONSTITUTES A MATERIAL INDUCEMENT FOR IT TO ENTER INTO THIS
AGREEMENT. EACH PARTY REPRESENTS AND WARRANTS THAT IT HAS REVIEWED THIS WAIVER
WITH ITS LEGAL COUNSEL AND THAT IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY
TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL.
12.10 NOTICE OF ORAL AGREEMENT. THIS AGREEMENT AND THE LOAN DOCUMENTS
REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY
EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE
PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
MISSION CRITICAL SOFTWARE, INC.
By: /s/ Louis R. Woodhill
--------------------------------
Name: Louis R. Woodhill
Title: President
SILICON VALLEY BANK
By: /s/ Stuart Edwards
--------------------------------
Stuart Edwards, Vice President
28
<PAGE>
SCHEDULE TO LOAN AND SECURITY AGREEMENT
DATED JANUARY 26, 1998 BETWEEN
SILICON VALLEY BANK AND MISSION CRITICAL SOFTWARE, INC.
Section 5.6: As of "Closing Date", Borrower has not filed with the United
States Patent and Trademark Office for any of its "Intellectual
Property".
Section 5.9: Borrower's most recent financial statements, those as of December
31, 1997, are attached.
Section 5.13: Borrower has never received a property tax rendition from the
Harris County Appraisal District. The Amounts accrued are based
on Borrower's estimate.
Section 5.15: Borrower is in the process of establishing a branch office in
Paris, France. A Branch Manager has been appointed by Borrower's
Board of Directors, and consultations about the registration
process and tax effects have been conducted. However, the actual
registration process has not begun and is not expected to be
finished before March 31, 1998.
Section 6.6: Borrower has caused Sedgwick of Texas, Inc. to provide a
Certificate of Liability Insurance to Bank at its loan production
office in Austin, Texas.
Section 7.2: Borrower has engaged the services of an executive search firm to
find a new Chief Executive Officer. As of "Closing Date", no
satisfactory candidate has been found, and there is no guarantee
that the search will prove successful.
Section 7.4: Existing indebtedness as of "Closing Date" follows.
CREDITOR/LENDER PURPOSE AMOUNT OUTSTANDING
- -------------------------------------------------------------------------------
TIFCO Insurance Financing
Corporation Insurance premium $26,740.48
- -------------------------------------------------------------------------------
MONEX Phone system lease $36,530.44
- -------------------------------------------------------------------------------
Danka Copier (operating) lease Approx. $10,500.00
- -------------------------------------------------------------------------------
Danka Copier (operating) lease Approx. $12,000.00
(Lease signed 01/22/98)
- -------------------------------------------------------------------------------
Section 7.5: Existing liens as of "Closing Date" are attached.
Schedule to Loan and Security Agreement Page 1 of 3
<PAGE>
The lien shown on "Page 1" (Financing statement number 959402355 filed in the
Common Pleas Court in Cincinnati, Ohio on May 3, 1996) pertains to a company
which has no relationship to Borrower. (Borrower has been unable to register
its name in Michigan because of the existence of this company.)
The liens shown on "Page 2" through "Page 5" (Financing Statement number 0842337
filed with the County Clerk of Harris County, Texas on December 31, 1991(which
has been terminated); Financing Statement number 0847172 filed with the County
Clerk of Harris County, Texas on April 1, 1992 (which has been terminated)
pertain to a company formerly known as Mission Critical Software, Inc., but has
changed its name to Mission Critical Software I, Inc.
Section 7.7: Existing investments as of "Closing Date" follow.
----------------------------------------------------
INVESTMENT AMOUNT
----------------------------------------------------
Federal agency discount notes $2,244,007.99
----------------------------------------------------
Money market funds $ 34,340.93
----------------------------------------------------
Section 7.9: As of January 23, 1998, the following EA customers have License
Agreements which require Borrower to escrow Source Code. The
escrow agreement that Borrower has with Data Security
International, Inc. gives the listed companies, the right to have
the Source Code for Enterprise Administrator in the event that
Borrower cannot or will not provide maintenance for the product.
1) Merrill, Lynch, Pierce, Fenner & Smith
2) Mayo Foundation
3) Prudential Insurance Company of America
4) Merck
5) ALCOA
6) Blue Cross/Blue Shield of Florida
7) Honeywell
8) Proctor & Gamble
9) USAA
10) Johnson & Johnson
Section 7.11: Some of Borrower's supplies inventory is stored at a vendor's
place of business at Borrower's request. In general, the
supplies are printed materials used in sales, marketing and
product distribution. The amount of inventory varies over time,
as does the vendor with whom the supplies are stored. The
following represents Borrower's "off-site" inventories. This
inventory consists of printed marketing media and/or product
manuals that are produced and stored at the below listed vendor
sites.
Schedule to Loan and Security Agreement Page 2 of 3
<PAGE>
OFF-SITE INVENTORY VALUATION
As of 1/22/98
PRECISION GRAPHICS, INC.
Stephan Lackey
2311 Dunlavy
Houston, TX 77006
Voice: +1.713.528.2345
Fax: +1.713.528.0142
Cost of off-site brochures and User Guides $ 27,362.15
SOUTHWEST PRINTERS, INC.
John Houston
1055 Conrad Sauer
Houston, TX 77043
Voice: +1.713.777.3333
Fax: +1.713.777.7514
Cost of off-site marketing and distribution supplies $ 14,965.75
MEDIA, INC.
Randy Richardson
10400 Westoffice Drive
Suite #120
Houston, TX 77042
Voice: +1.713.784.5595
Fax: +1.713.784.5598
Cost of off-site product distribution supplies (CDs,
jewel cases, inserts) $ 11,232.94
Total cost of off-site inventory $ 53,560.84
===========
Schedule to Loan and Security Agreement Page 3 of 3
<PAGE>
EXHIBIT A
The Collateral shall consist of all right, title and interest of Borrower
in and to the following:
(a) All goods and equipment now owned or hereafter acquired, including,
without limitation, all machinery, fixtures, vehicles (including motor vehicles
and trailers), and any interest in any of the foregoing, and all attachments,
accessories, accessions, replacements, substitutions, additions, and
improvements to any of the foregoing, wherever located;
(b) All inventory, now owned or hereafter acquired, including, without
limitation, all merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products including such
inventory as is temporarily out of Borrower's custody or possession or in
transit and including any returns upon any accounts or other proceeds, including
insurance proceeds, resulting from the sale or disposition of any of the
foregoing and any documents of title representing any of the above;
(c) All contract rights and general intangibles now owned or hereafter
acquired, including, without limitation, goodwill, trademarks, servicemarks,
trade styles, trade names, patents, patent applications, leases, license
agreements, franchise agreements, blueprints, drawings, purchase orders,
customer lists, route lists, infringements, claims, computer programs, computer
discs, computer tapes, literature, reports, catalogs, design rights, income tax
refunds, payments of insurance and rights to payment of any kind;
(d) All now existing and hereafter arising accounts, contract rights,
royalties, license rights and all other forms of obligations owing to Borrower
arising out of the sale or lease of goods, the licensing of technology or the
rendering of services by Borrower, whether or not earned by performance, and any
and all credit insurance, guaranties, and other security therefor, as well as
all merchandise returned to or reclaimed by Borrower;
(e) All documents, cash, deposit accounts, securities, investment property,
letters of credit, certificates of deposit, instruments and chattel paper now
owned or hereafter acquired and Borrower's Books relating to the foregoing;
(f) All copyright rights, copyright applications, copyright registrations
and like protections in each work of authorship and derivative work thereof,
whether published or unpublished, now owned or hereafter acquired; all trade
secret rights, including all rights to unpatented inventions, know-how,
operating manuals, license rights and agreements and confidential information,
now owned or hereafter acquired; all mask work or similar rights available for
the protection of semiconductor chips, now owned or hereafter acquired; all
claims for damages by way of any past, present and future infringement of any of
the foregoing; and
(g) All Borrower's Books relating to the foregoing and any and all claims,
rights and interests in any of the above and all substitutions for, additions
and accessions to and proceeds thereof.
A-1
<PAGE>
EXHIBIT B
LOAN PAYMENT/ADVANCE TELEPHONE REQUEST FORM
DEADLINE FOR SAME DAY PROCESSING IS 5:00 P.M., C.S.T.
TO: CENTRAL CLIENT SERVICE DIVISION DATE:__________
FAX#: (408)__________________________ TIME:__________
FROM: Mission Critical Software, Inc.
_______________________________
BORROWER'S NAME
FROM: _______________________________
AUTHORIZED SIGNER'S NAME
_______________________________
AUTHORIZED SIGNATURE
PHONE: _______________________________
FROM ACCOUNT # _______________________ TO ACCOUNT# __________________________
- --------------------------------------------------------------------------------
REQUESTED TRANSACTION TYPE REQUEST DOLLAR AMOUNT
PRINCIPAL INCREASE (ADVANCE) $_____________
PRINCIPAL PAYMENT (ONLY) $_____________
INTEREST PAYMENT (ONLY) $_____________
PRINCIPAL AND INTEREST (PAYMENT) $_____________
OTHER INSTRUCTIONS: ______________________________
- --------------------------------------------------------------------------------
All representations and warranties of Borrower stated in the Loan and
Security Agreement are true, correct and complete in all material respects as of
the date of the telephone request for and Advance confirmed by this Advance
Request; provided, however, that those representations and warranties expressly
referring to another date shall be true, correct and complete in all material
respects as of such date.
- --------------------------------------------------------------------------------
BANK USE ONLY:
TELEPHONE REQUEST:
The following person is authorized to request the loan payment transfer/loan
advance on the advance designated account and is known to me.
______________________________
Authorized Requester
Authorized Signature (Bank)
Phone # ___________________
- --------------------------------------------------------------------------------
B-1
<PAGE>
EXHIBIT C
BORROWING BASE CERTIFICATE
Borrower: Mission Critical Software, Inc. Bank: Silicon Valley Bank
Commitment Amount: $3,000,000.00
ACCOUNTS RECEIVABLE
1. Receivable Book Value as of ________________ $__________
2. Additions (please explain on reverse) $__________
3. TOTAL ACCOUNTS RECEIVABLE $__________
ACCOUNTS RECEIVABLE DEDUCTIONS (without duplication)
4. Amounts over 90 days due $__________
5. Balance of 50% over 90 day accounts $__________
6. Concentration Limits $__________
7. Foreign Accounts $__________
8. Governmental Accounts $__________
9. Contra Accounts $__________
10. Promotion or Demo Accounts $__________
11. Intercompany/Employee Accounts $__________
12. Other (please explain on reverse) $__________
13. TOTAL ACCOUNTS RECEIVABLE DEDUCTIONS $__________
14. Eligible Accounts (#3 minus #13) $__________
15. LOAN VALUE OF ELIGIBLE ACCOUNTS (80% of #14) $__________
16. Foreign Amount Add-Back [Lesser of
(80% of #7) and (20% of #15) and $500,000.00] $__________
17. BORROWING BASE (#15 plus #16) $__________
18. Maximum Loan Amount $__________
19. Total Funds Available [Lesser of #18 and #17] $__________
20. Present balance owing on Line of Credit $__________
21. Outstanding under Merchant Card Sublimit
($60,000.00 maximum) $__________
22. RESERVE POSITION (#19 minus (#20 plus #21) $__________
The undersigned represents and warrants that the foregoing is true, complete and
correct, and that the information reflected in this Borrowing Base Certificate
complies with the representations and warranties set forth in the Loan and
Security Agreement between the undersigned and Silicon Valley Bank.
COMMENTS:
=======================================
BANK USE ONLY
Received By:____________________
Date:________________
Reviewed By:____________________
Compliance Status: Yes / No
=======================================
Mission Critical Software, Inc.
By: _______________________
Authorized Signer
C-1
<PAGE>
EXHIBIT D
COMPLIANCE CERTIFICATE
TO: SILICON VALLEY BANK
FROM: MISSION CRITICAL SOFTWARE, INC.
The undersigned authorized officer of Mission Critical Software, Inc.
hereby certifies that in accordance with the terms and conditions of the Loan
and Security Agreement between Borrower and Bank (the "Agreement"), (i) Borrower
is in complete compliance for the period ending ___________________ with all
required covenants except as noted below and (ii) all representations and
warranties of Borrower stated in the Agreement are true and correct in all
material respects as of the date hereof. Attached herewith are the required
documents supporting the above certification. The Officer further certifies
that these are prepared in accordance with Generally Accepted Accounting
Principles (GAAP) and are consistently applied from one period to the next
except as explained in an accompanying letter or footnotes. The Officer
expressly acknowledges that no borrowings may be requested by the Borrower at
any time or date of determination that Borrower is not in compliance with any
of the terms of the Agreement, and that such compliance is determined not just
at the date this certificate is delivered.
PLEASE INDICATE COMPLIANCE STATUS BY CIRCLING YES/NO UNDER "COMPLIES"
COLUMN.
<TABLE>
<CAPTION>
REPORTING COVENANT REQUIRED COMPLIES
------------------ -------- --------
<S> <C> <C> <C>
Monthly financial statements Monthly within 30 days Yes No
Annual (CPA Audited) FYE within 120 days Yes No
10Q and 10K Within 5 days after filing
with the SEC Yes No
A/R & A/P Agings Monthly within 30 days Yes No
FINANCIAL COVENANT REQUIRED ACTUAL COMPLIES
------------------ -------- ------ --------
Maintain on a Monthly Basis:
Minimum Quick Ratio 1.25:1.0 _____:1.0 Yes No
Minimum Tangible Net Worth $3,000,000.00 $________ Yes No
Maximum Debt/Tangible
Net Worth 1.50:1.0 _____:1.0 Yes No
</TABLE>
=======================================
BANK USE ONLY
Received By:____________________
Date:________________
Reviewed By:____________________
Compliance Status: Yes / No
=======================================
COMMENTS REGARDING EXCEPTIONS:
Sincerely,
________________________ Date: __________
SIGNATURE
________________________
TITLE
D-1
<PAGE>
DISBURSEMENT REQUEST AND AUTHORIZATION
Borrower: Mission Critical Software, Inc. Bank: Silicon Valley Bank
LOAN TYPE. This is a Variable Rate, Revolving Line of Credit of a principal
amount up to $3,000,000.00.
PRIMARY PURPOSE OF LOAN. The primary purpose of this loan is for business.
DISBURSEMENT INSTRUCTIONS. Borrower understands that no loan proceeds will be
disbursed until all of Bank's conditions for making the loan have been
satisfied. Please disburse the loan proceeds as follows:
Revolving Line
Amount paid to Borrower directly: $_____________
Undisbursed Funds $_____________
Principal $_____________
CHARGES PAID IN CASH. Borrower has paid or will pay in cash as agreed the
following charges:
Prepaid Finance Charges Paid in Cash: $ 7,500.00
$ 7,500.00 Loan Fee
$_________ Accounts Receivables Audit
Other Charges Paid in Cash: $ 500.00
$_________ UCC Search Fees
$_________ UCC Filing Fees
$ -0- Patent Filing Fees
$ -0- Trademark Filing Fees
$ -0- Copyright Filing Fees
$ -0- Outside Counsel Fees
$ 500.00 Third Party Expenses Incurred by Outside Counsel
Total Charges Paid in Cash $ 8,000.00
AUTOMATIC PAYMENTS. Borrower hereby authorizes Bank automatically to deduct
from Borrower's account numbered _________________ the amount of any loan
payment. If the funds in the account are insufficient to cover any payment,
Bank shall not be obligated to advance funds to cover the payment.
FINANCIAL CONDITION. BY SIGNING THIS AUTHORIZATION, BORROWER REPRESENTS AND
WARRANTS TO BANK THAT THE INFORMATION PROVIDED ABOVE IS TRUE AND CORRECT AND
THAT THERE HAS BEEN NO ADVERSE CHANGE IN BORROWER'S FINANCIAL CONDITION AS
DISCLOSED IN BORROWER'S MOST RECENT FINANCIAL STATEMENT TO BANK. THIS
AUTHORIZATION IS DATED AS OF JANUARY 26, 1998.
BORROWER:
____________________________________
Authorized Officer
<PAGE>
AGREEMENT TO PROVIDE INSURANCE
GRANTOR: Mission Critical Software, Inc. BANK: Silicon Valley Bank
INSURANCE REQUIREMENTS. Mission Critical Software, Inc. ("Grantor")
understands that insurance coverage is required in connection with the extending
of a loan or the providing of other financial accommodations to Grantor by Bank.
These requirements are set forth in the Loan Documents. The following minimum
insurance coverages must be provided on the following described collateral (the
"Collateral"):
Collateral: All Inventory, Equipment and Fixtures.
Type: All risks, including fire, theft and liability.
Amount: Full insurable value.
Basis: Replacement value.
Endorsements: Loss payable clause to Bank with stipulation that
coverage will not be cancelled or diminished without a
minimum of fifteen (15) days prior written notice to
Bank.
INSURANCE COMPANY. Grantor may obtain insurance from any insurance company
Grantor may choose that is reasonably acceptable to Bank. Grantor understands
that credit may not be denied solely because insurance was not purchased through
Bank.
FAILURE TO PROVIDE INSURANCE. Grantor agrees to deliver to Bank, on or
before closing, evidence of the required insurance as provided above, with an
effective date of ___________________, 1998, or earlier. Grantor acknowledges
and agrees that if Grantor fails to provide any required insurance or fails to
continue such insurance in force, Bank may do so at Grantor's expense as
provided in the Loan and Security Agreement. The cost of such insurance, at the
option of Bank, shall be payable on demand or shall be added to the indebtedness
as provided in the security document. GRANTOR ACKNOWLEDGES THAT IF BANK SO
PURCHASES ANY SUCH INSURANCE, THE INSURANCE WILL PROVIDE LIMITED PROTECTION
AGAINST PHYSICAL DAMAGE TO THE COLLATERAL, UP TO THE BALANCE OF THE LOAN;
HOWEVER, GRANTOR'S EQUITY IN THE COLLATERAL MAY NOT BE INSURED. IN ADDITION, THE
INSURANCE MAY NOT PROVIDE ANY PUBLIC LIABILITY OR PROPERTY DAMAGE
INDEMNIFICATION AND MAY NOT MEET THE REQUIREMENTS OF ANY FINANCIAL
RESPONSIBILITY LAWS.
AUTHORIZATION. For purposes of insurance coverage on the Collateral,
Grantor authorizes Bank to provide to any person (including any insurance agent
or company) all information Bank deems appropriate, whether regarding the
Collateral, the loan or other financial accommodations, or both.
GRANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS AGREEMENT TO
PROVIDE INSURANCE AND AGREES TO ITS TERMS. THIS AGREEMENT IS DATED JANUARY 26,
1998.
GRANTOR:
x______________________________
Authorized Officer
================================================================================
FOR BANK USE ONLY
INSURANCE VERIFICATION
DATE: PHONE:
AGENT'S NAME:
INSURANCE COMPANY:
POLICY NUMBER:
EFFECTIVE DATES:
COMMENTS:
================================================================================
<PAGE>
INTELLECTUAL PROPERTY SECURITY AGREEMENT
This Intellectual Property Security Agreement is entered into as of January
26, 1998 and between SILICON VALLEY BANK ("Bank") and MISSION CRITICAL SOFTWARE,
INC. ("Grantor").
RECITALS
A. Bank has agreed to make certain advances of money and to extend certain
financial accommodation to Grantor (the "Loans") in the amount and manner set
forth in that certain Loan and Security Agreement by and between Bank and
Grantor dated of even date herewith (as the same may be amended, modified or
supplemented from time to time, the "Loan Agreement"; capitalized terms used
herein are used as defined in the Loan Agreement). Bank is willing to make the
Loans to Grantor, but only upon the condition, among others, that Grantor shall
grant to Bank a security interest in certain Copyrights, Trademarks and Patents
to secure the obligations of Grantor under the Loan Agreement.
B. Pursuant to the terms of the Loan Agreement, Grantor has granted to
Bank a security interest in all of Grantor's right, title and interest, whether
presently existing or hereafter acquired, in, to and under all of the
Collateral.
NOW, THEREFORE, for good and valuable consideration, receipt of which is
hereby acknowledged, and intending to be legally bound, as collateral security
for the prompt and complete payment when due of its obligations under the Loan
Agreement, Grantor hereby represents, warrants, covenants and agrees as follows:
AGREEMENT
To secure its obligations under the Loan Agreement, Grantor grants and
pledges to Bank a security interest in all of Grantor's right, title and
interest in, to and under its Intellectual Property Collateral (including
without limitation those Copyrights, Patents, Trademarks and Mask Works listed
on Schedules A, B, C and D hereto), and including without limitation all
proceeds thereof (such as, by way of example but not by way of limitation,
license royalties and proceeds of infringement suits), the right to sue for
past, present and future infringements, all rights corresponding thereto
throughout the world and all re-issues, divisions continuations, renewals,
extensions and continuations-in-part thereof.
This security interest is granted in conjunction with the security interest
granted to Bank under the Loan Agreement. The rights and remedies of Bank with
respect to the security interest granted hereby are in addition to those set
forth in the Loan Agreement and the other Loan Documents, and those which are
now or hereafter available to Bank as a matter of law or equity. Each right,
power and remedy of Bank provided for herein or in the Loan Agreement or any of
the Loan Documents, or now or hereafter existing at law or in equity shall be
cumulative and concurrent and shall be in addition to every right, power or
remedy provided for herein and the exercise by Bank of any one or more of the
rights, powers or remedies provided for in this Intellectual Property Security
Agreement, the Loan Agreement or any of the other Loan Documents, or now or
hereafter
<PAGE>
existing at law or in equity, shall not preclude the simultaneous or later
exercise by any person, including Bank, of any or all other rights, powers or
remedies.
IN WITNESS WHEREOF, the parties have cause this Intellectual Property
Security Agreement to be duly executed by its officers thereunto duly authorized
as of the first date written above.
GRANTOR: MISSION CRITICAL SOFTWARE, INC.
Address of Grantor: 720 N. Post Oak Road, Suite 505
Houston, Texas 77024
By: /s/ Louis R. Woodhill
------------------------------
Name: Louis R. Woodhill
Title: President
BANK: SILICON VALLEY BANK
Address of Bank: 9020 Capital of Texas Highway North
Building 1, Suite 350
Austin, Texas 78759
Fax: 512/794-0855
By: /s/ Stuart Edwards
------------------------------------
Stuart Edwards, Vice President
2
<PAGE>
EXHIBIT A
Copyrights
<TABLE>
<CAPTION>
Registration/ Registration/
Application Application
Description Number Date
- ----------- ------ ----
<S> <C> <C>
Enterprise Administrator software None None
EA Automation Scripting Kit software None None
SeNTry Enterprise Event Manager software None None
User guides and manuals for EA, EEM and TASK None None
OPS/MVS software None None
Enterprise Storage Manager software None None
User guides and manuals for OPS/MVS and ESM None None
</TABLE>
A-1
<PAGE>
EXHIBIT B
<TABLE>
<CAPTION>
Patents
Description Registration/ Registration/
- ----------- Application Application
Number Date
------ ----
<S> <C> <C>
NONE
</TABLE>
B-1
<PAGE>
EXHIBIT C
Trademarks
<TABLE>
<CAPTION>
Description Registration/ Registration/
- ----------- Application Application
Number Date
------ ----
<S> <C> <C>
MISSION CRITICAL None None
MISSION CRITICAL SOFTWARE LOGO None None
MCS None None
ENTERPRISE ADMINISTRATOR None None
ENTERPRISE ADMINISTRATOR LOGO None None
EA None None
EAS BADGE LOGO None None
ENTERPRISE EVENT MANAGER None None
EEM None None
EEM BADE LOGO None None
SENTRY None None
SENTRY EEM LOGO None None
DEPUTY None None
MARSHALL None None
RANGER None None
</TABLE>
C-1
<PAGE>
EXHIBIT D
Mask Works
<TABLE>
<CAPTION>
Registration/ Registration/
Application Application
Description Number Date
- ----------- ------ ----
<S> <C> <C>
</TABLE>
NONE
D-1
<PAGE>
CORPORATE BORROWING RESOLUTION
<TABLE>
<CAPTION>
<S> <C>
BORROWER: MISSION CRITICAL SOFTWARE, INC. BANK: SILICON VALLEY BANK
720 N. Post Oak Road 9020 Capital of Texas Highway North
Suite 505 Building 1, Suite 350
Houston, Texas 77024 Austin, Texas 78759
</TABLE>
I, the undersigned Secretary or Assistant Secretary of Mission Critical
Software, Inc. ("Borrower"), HEREBY CERTIFY that Borrower is a corporation duly
organized and existing under and by virtue of the State of Delaware and is
authorized to do business in the State of Texas.
I FURTHER CERTIFY that at a meeting of the Directors of Borrower (or by other
duly authorized corporate action in lieu of a meeting), duly called and held, at
which a quorum was present and voting, the following resolutions were adopted.
BE IT RESOLVED, that any one (1) of the following named officers, employees, or
agents of Borrower, whose actual signatures are shown below:
<TABLE>
<CAPTION>
<S> <C> <C>
NAMES POSITIONS ACTUAL SIGNATURES
Louis R. Woodhill President /s/ Louis R. Woodhill
------------------------
Thomas P. Bernhardt Chief Technical Officer /s/ Thomas P. Bernhardt
------------------------
Paul F. (Mick) Koffend, Jr. Chief Financial Officer /s/ Paul F. Koffend, Jr.
------------------------
</TABLE>
acting for and on behalf of Borrower and as its act and deed be, and they hereby
are, authorized and empowered:
Borrow Money. To borrow from time to time from Silicon Valley Bank ("Bank"), on
such terms as may be agreed upon between the officers of Borrower and Bank, such
sum or sums of money as in their judgment should be borrowed.
Execute Loan Documents. To execute and deliver to Bank the loan documents of
Borrower, on Bank's forms, at such rates of interest and on such terms as may be
agreed upon, evidencing the sums of money so borrowed or any indebtedness of
Borrower to Bank, and also to execute and deliver to Bank one or more renewals,
extensions, modifications, refinancings, consolidations, or substitutions for
one or more of the loan documents, or any portion of the loan documents.
Grant Security. To grant a security interest to Bank in any of Borrower's
assets, which security interest shall secure all of Borrower's obligations to
Bank.
Negotiate Items. To draw, endorse, and discount with Bank all drafts, trade
acceptances, promissory notes, or other evidences of indebtedness payable to or
belonging to Borrower or in which Borrower may have an interest, and either to
receive cash for the same or to cause such
<PAGE>
proceeds to be credited to the account of Borrower with Bank, or to cause such
other disposition of the proceeds derived therefrom as they may deem
advisable.
Further Acts. To do and perform such other acts and things, to pay any and all
fees and costs, and to execute and deliver such other documents and agreements,
as they may in their discretion deem reasonably necessary to proper in order to
carry into effect the provisions of these Resolutions.
BE IF FURTHER RESOLVED, that any and all acts authorized pursuant to these
Resolutions and performed prior to the passage of these resolutions are hereby
ratified and approved, that these Resolutions shall remain in full force and
effect and Bank may rely on these Resolutions until written notice of their
revocation shall have been delivered to and received by Bank. Any such notice
shall not affect any of Borrower's agreements or commitments in effect at the
time notice is given.
I FURTHER CERTIFY that the persons named above are principal officers of the
Corporation and occupy the positions set opposite their respective names; that
the foregoing Resolutions now stand of record on the books of the Corporation;
and that they are in full force and effect and have not been modified or revoked
in any manner whatsoever.
IN WITNESS WHEREOF, I have hereunto set my hand on January 26, 1998 and attest
that the signatures set opposite the names listed above are their genuine
signatures.
CERTIFIED TO AND ATTESTED BY:
x /s/ Paul F. Koffend, Jr.
---------------------------------
*Secretary or Assistant Secretary
x /s/ Thomas P. Bernhardt
---------------------------------
*NOTE: In case the Secretary or other certifying officer is designated by the
foregoing resolutions as one of the signing officers, this resolution must also
be signed by a second Officer or Director of Borrower.
2
<PAGE>
<TABLE>
<CAPTION>
<S> | <C>
| THIS SPACE FOR USE OF FILING OFFICER
|
|
NONSTANDARD FORM |
|
FINANCING STATEMENT |
(To Be Filed With The Texas Secretary of State) |
|
This Financing Statement is presented to a |
Filing Officer for filing pursuant to the |
Uniform Commerical Code. |
|
|_________________________________________________________
</TABLE>
1. DEBTOR. The name and address of the Debtor is:
Mission Critical Software, Inc.
720 N. Post Oak Road, Suite 505
Houston, Texas 77024
2. SECURED PARTY. The name and address of the Secured Party is:
Silicon Valley Bank
3003 Tasman Drive
Santa Clara, California 95954
3. COLLATERAL. This Financing Statement covers all right, title and interest of
Debtor in and to the following collateral:
a) All goods and equipment now owned or hereafter acquired, including,
without limitation, all machinery, fixtures, vehicles (including motor
vehicles and trailers), and any interest in any of the foregoing, and all
attachments, accessories, accessions, replacements, substitutions, additions,
and improvements to any of the foregoing, wherever located;
b) All inventory, now owned or hereafter acquired, including, without
limitation, all merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products including such
inventory as is temporarily out of Debtor's custody or possession or in
transit and including any returns upon any accounts or other proceeds,
including insurance proceeds, resulting from the sale or disposition of any
of the foregoing and any documents of title representing any of the above;
c) All contract rights and general intangibles now owned or hereafter
acquired, including, without limitation, goodwill, trademarks, servicemarks,
trade styles, trade names, patents, patent applications, leases, license
agreements, franchise agreements, blueprints, drawings, purchase orders,
customer lists, route lists, infringements, claims, computer programs,
computer discs, computer tapes, literature, reports, catalogs, design rights,
income tax refunds, payments of insurance and rights to payment of any kind;
d) All now existing and hereafter arising accounts, contract rights,
royalties, license rights and all other forms of obligations owing to Debtor
arising out of the sale or lease of goods, the licensing of technology or the
rendering of services by Debtor, whether or not
<PAGE>
earned by performance, and any and all credit insurance, guaranties, and
other security therefor, as well as all merchandise returned to or
reclaimed by Debtor;
(e) All documents, cash, deposit accounts, securities, investment property,
letters of credit, certificates of deposit, instruments and chattel paper
now owned or hereafter acquired and Debtor's books and records, including
without limitation, ledgers; records relating to Debtor's assets or
liabilities, the Collateral, business operations or financial condition;
and all computer programs or tape file and equipment containing such
information ("Books") relating to the foregoing;
(f) All copyright rights, copyright applications, copyright registrations
and like protections in each work of authorship and derivative work
thereof, whether published or unpublished, now owned or hereafter acquired;
all trade secret rights, including all rights to unpatented inventions,
know-how, operating manuals, license rights and agreements and confidential
information, now owned or hereafter acquired; all mask work or similar
rights available for the protection of semiconductor chips, now owned or
hereafter acquired; all claims for damages by way of any past, present and
future infringement of any of the foregoing; and
(g) All Debtor's Books relating to the foregoing and any and all claims,
rights and interests in any of the above and all substitutions for,
additions and accessions to and proceeds thereof.
4. SIGNATURE OF DEBTOR:
MISSION CRITICAL SOFTWARE, INC.
By: /s/ Louis R. Woodhill
--------------------------------
Name: Louis R. Woodhill
Title: President
Page 2
<PAGE>
EXHIBIT 10.7
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "AGREEMENT") is made and entered into
effective as of September 4, 1996, by and between Paul F. Koffend, Jr.,
(hereinafter "EMPLOYEE"), and MISSION CRITICAL SOFTWARE, INC., a Delaware
corporation having its principal office at 12600 Northborough, Suite 392,
Houston, Texas 77067 (hereinafter "EMPLOYER").
W I T N E S S E T H:
This Agreement is made and entered into under the following circumstances:
(1) Whereas, Employer is in the business of the development, marketing and
sale of software products and systems (the "BUSINESS ACTIVITIES"); and
(2) Whereas Employer desires, on the terms and conditions stated herein, to
employ Employee; and
(3) Whereas Employee desires, on the terms and conditions stated herein, to
be employed by Employer.
NOW, THEREFORE, in consideration of Five Hundred Dollars ($500.00) and the
foregoing recitals, and the promises, covenants, terms and conditions contained
herein, the receipt and sufficiency of which are forever acknowledged and
confessed, the parties hereto agree as follows:
1. EMPLOYMENT AND TERM. Employer hereby employs Employee, and Employee
hereby accepts employment with Employer commencing September 4, 1996
(hereinafter the "EFFECTIVE DATE").
2. DUTIES. Employee shall perform the duties and functions as are normal
and customary to the position for which Employee was hired, as well as any other
duties delegated to Employee by Employer. Employee shall, in all Employee's
actions, demonstrate the utmost good faith, honesty and loyalty towards Employer
and its interests. Employee will perform Employee's duties and assignments in
the offices and work spaces provided by Employer unless otherwise specifically
authorized by the management of Employee. Employee agrees that Employee's
employment with Employer shall be the exclusive, full-time employment of
Employee. Employee shall comply with all applicable policies of Employer.
Employee understands that the nature of Employer's Business Activities
requires that Employer be able to contact Employee twenty-four hours a day.
Employee shall carry at all times a beeper provided by Employer to allow
Employer and/or its customers to maintain such contact.
<PAGE>
In addition to pagers, Employer may provide to Employee for business-
related use computers, cellular phones, equipment, funds, lists, books, records,
and other materials of Employer. Employee shall exercise due care in using such
items, and agrees that, upon the termination of Employee's employment with
Employer, Employee will immediately surrender to Employer all such items and any
other property of Employer in the possession of or provided to Employee.
3. COMPENSATION. Employee shall be entitled to initial base compensation
of $8,000.00 per month, subject to adjustment by Employer from time to time.
4. STATUS OF EMPLOYEE. The parties expressly acknowledge that Employee, in
the performance of services hereunder, is an employee of Employer. Accordingly,
Employer shall deduct from all compensation paid to Employee pursuant to this
Agreement any sums required by law or any other requirement of any governmental
body.
5. FRINGE BENEFITS. Employer shall provide to Employee, at Employer's
expense, fringe benefits commensurate with those provided to Employer's
employees of similar position and seniority. Employee shall be entitled to paid
leave for vacation and illness in accordance with Employer's policies.
6. TERMINATION. Notwithstanding any other provisions of this Agreement,
the Employee's employment with Employer shall terminate:
a. upon the death of Employee; or,
b. upon Employee's "disability" (For purposes of this Agreement, the
term "disability" shall mean the inability of Employee, arising out of any
medically determinable physical or mental impairment, to perform the services
required of him hereunder for a period of ninety (90) consecutive days during
which ninety (90) day period Employee's compensation hereunder shall continue);
c. immediately (unless Employer and Employee otherwise agree at the
time such notice is given) upon written notice from either party to the other,
with or without cause; or
d. at Employer's option, immediately upon the existence of "cause."
For purposes of this Agreement, the term "cause" shall be defined as:
(1) willful and continued failure of Employee to substantially
perform the duties required of him by Employer in a manner satisfactory to
Employer, in Employer's sole reasonable discretion, exercised in good
faith;
(2) a material violation of any written policy or procedure which
has been distributed by the Employer to its employees;
(3) any dishonesty by Employee in his dealings with Employer, the
commission of fraud by Employee, or gross negligence in the performance of
the duties of Employee;
-2-
<PAGE>
(4) the arrest or conviction (or plea of guilty or nolo contendere)
of Employee of any felony or other crime involving dishonesty or moral
turpitude;
(5) any violation of any covenant or restriction contained in
Section 9 or Section 10 hereof; or
(6) unlawful use of narcotics or other controlled substances, or
use of alcohol or other drugs in a manner Employer reasonably determines to
be adverse to the best interests of Employer or in violation of Employer's
applicable policies.
7. EFFECTS OF TERMINATION. In the event of termination of this Agreement,
neither party shall have any further obligations hereunder except for (i)
obligations accruing prior to the date of termination and (ii) obligations,
promises or covenants contained herein which are expressly made to extend beyond
the term of this Agreement, including, without limitation, confidentiality of
information, indemnities and Employee's covenants not to compete (which
covenants and agreements shall survive the termination or expiration of this
Agreement). The termination of this Agreement, for whatever reason, shall not
extinguish those obligations of Employee specified in the Restrictive Covenants
(hereinafter defined), nor shall the same extinguish the right of either party
to bring an action, either in law or in equity, for breach of this Agreement by
the other party.
8. COPYRIGHT ASSIGNMENT/WORK MADE FOR HIRE. Employee does hereby sell,
grant, convey and assign unto Employer, its successors, assigns and licensees
forever, all right, title and interest in and to all computer software programs,
computer code, system design, documents, system architecture, and the data base
model/structure, and other material constituting or otherwise relating to the
Property (as defined herein) hereafter written by Employee or to the development
of which Employee may have contributed ideas, know-how, skill or labor, and all
changes, additions, adjuncts, alterations, modifications, translations,
transformations, adaptions, elaborations, emulations, revisions or other
developments made in connection with the Property, which may heretofore have
been written or which may hereafter be written for the benefit of, at the
request of or with the sanction of Employer.
As used herein, Property includes all computer software, source code and
programs and other computer products, (i) acquired by Employer from a third
party specifically including that Property acquired from Mission Critical
Software I, Inc. by Employer in that certain Assignment Agreement dated
September 4, 1996, (ii) made, conceived and/or developed, or in the process of
being made, conceived or developed, by an employee or employees of Employer
while employed by Employer in its business or by its customers or (iii) made,
conceived and/or developed, or in the process of being made, conceived or
developed, by an employee or employees of Employer in the course of performing
services for or at the request of or while being compensated by Employer or
within a reasonable period of time thereafter if they involved the use of
company time or materials or facilities or if they resulted from or were
suggested by the employee's or employees' work with Employer whether or not they
are used or usable by Employer in its business or by its customers. Property
shall also include advertisements, marketing materials,
-3-
<PAGE>
collateral files of all types, word processing, spreadsheets, slogans,
trademarks and service marks.
Employee agrees and acknowledges that any and all Property written,
developed, created or produced by Employee, in whole or in part, for Employer
constitutes and will constitute a "work made for hire" for Employer, as
contemplated in 17 U.S.C. Section 101. Employer is and shall be considered the
author of the Property for all purposes and the sole and exclusive owner of all
rights to the Property and all derivative works, including all right, title, and
interest comprised in the copyright and all trademarks, patents and other right
in and to the Property and each and every part of the Property. Employee assigns
to Employer all rights whatsoever that Employee has in the Property and any
adaption, version or derivation of the Property. This assignment of rights
includes an assignment of any copyright in the Property not owned by Employer as
a result of the parties' agreement that the Property constitutes a work
made-for-hire for Employer. Employee will, upon request, execute, acknowledge
and deliver to Employer such additional documents as Employer may deem necessary
to evidence Employer's right hereunder, and grants to Employer the right, as
attorney-in-fact, to execute, acknowledge, deliver and record in the U.S.
Copyright Office or elsewhere any and all such documents.
9. TERRITORY. In recognition of the existing and potential worldwide
Business Activities of Employer and the narrow and precise definitions of
Prohibited Activities as defined below, Employer and Employee agree that the
terms of this Agreement shall apply to any Prohibited Activities engaged by
Employee anywhere in the world including all states and territories of the
United States of America (the "Territory"). Prohibited Activities shall include
any activities which would be directly or indirectly in competition with
Employer's Business Activities as defined in the Agreement.
10. NON-COMPETITION. Employee recognizes and agrees that there are certain
property rights such as trade secrets and products of Employer which are
critical to Employer's continued success. Because of their importance to
Employer and to Employee and other employees who are dependent on Employer for
their livelihood, it is necessary for Employer to take all permissible steps to
protect these property rights. This being the case, Employee agrees that during
the Employee's employment with Employer and for a continuous period of two (2)
years thereafter commencing upon termination of such employment, in the event of
any voluntary or involuntary termination or resignation by Employee, Employee
shall not, individually or jointly with others, directly or indirectly, manage,
operate, control, render services related to Prohibited Activities to,
participate in the management or control of, or own or hold any ownership or
voting interest in, any person or entity engaged in Prohibited Activities
(except for the ownership of up to 5% of the outstanding stock issued by
publicly traded companies); and Employee shall not act as an officer, director,
employee, partner, independent contractor, consultant, principal, agent,
proprietor, or in any other capacity for, nor lend any assistance (financial,
managerial, professional or otherwise) or cooperation to, nor perform any
services for, any such person or entity or any business that provides consulting
services to any person or entity engaged in Prohibited Activities anywhere in
the Territory.
11. NON-DISCLOSURE; NON-SOLICITATION. Except in the performance of
Employee's duties hereunder, at no time during the employment or at any time
thereafter shall Employee,
-4-
<PAGE>
individually or jointly with others, for the benefit of Employee or any third
party, publish, disclose, use or authorize anyone else to publish, disclose or
use, any secret or confidential material or information relating to any aspect
of the business or operations of Employer or any information regarding the
business methods, business policies, procedures, techniques, or trade secrets,
or other knowledge or processes of or developed by Employer (and/or any other
consultant, Employee or agent of Employer), any affiliate of Employer, or any
entity in which Employer has an interest, including, without limitation, any
secret or confidential material or information relating to the business,
customers, financial position, trade or industrial practices, trade secrets,
technology or know-how of Employer or Employer's affiliates. As used herein, the
term "trade secrets" includes all research and development information,
technical information, data, technology, computer software, source code,
programs and information and other computer technology, techniques, services,
equipment, marketing and sales information, customer lists and other customer
information, methods of doing business and other secret or proprietary methods
and information and trade secrets used or usable by Employer or a third party
having a contractual relationship with Employer which have been or are developed
or used by Employer or any such third party or which are developed by Employee
during Employee's employment with Employer.
Moreover, during Employee's employment with Employer, Employee shall not
act as an officer, director, employee, partner, independent contractor,
consultant, principal, agent, proprietor, owner or part owner, or in any other
capacity for, nor lend any assistance (financial, managerial or otherwise) or
cooperation to, any person or entity which employs any person or hires or
contracts with, as a consultant or other independent agent or independent
contractor, any person or entity (other than Employee) who was employed by or
acted as an agent for, consultant to, or independent contractor of Employer, any
affiliate of Employer, or any entity in which Employer has an interest, at any
time during Employee's employment with Employer. During the Employees'
employment with Employer and for a continuous period of two (2) years thereafter
commencing upon termination of Employee's employment, Employee shall not employ
any such person or induce or attempt to influence any such person to voluntarily
terminate employment with Employer.
12. REASONABLENESS OF RESTRICTIONS; REFORMATION; ENFORCEMENT. The parties
hereto recognize and acknowledge that the geographical and time limitations
contained in Sections 9 and 10 hereof (hereinafter the "RESTRICTIVE COVENANTS")
are reasonable and properly required for the adequate protection of Employer's
interest. Employee acknowledges that Employer will provide to Employee
confidential information concerning Employer's and Employer's affiliates'
business methods and operating practices in reliance on the covenants contained
in the Restrictive Covenants. It is agreed by the parties hereto that if any
portion of the restrictions contained in the Restrictive Covenants are held to
be unreasonable, arbitrary or against public policy, then the restrictions shall
be considered divisible, both as to the time and to the geographical area, with
each month of the specified period being deemed a separate period of time and
each radius mile of the restricted territory being deemed a separate
geographical area, so that the lesser period of time or geographical area shall
remain effective so long as the same is not unreasonable, arbitrary or against
public policy. The parties hereto agree that in the event any court of
competent jurisdiction determines the specified period or the specified
geographical area of the restricted territory to be unreasonable, arbitrary or
against public policy, a lesser time period or
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geographical area which is determined to be reasonable, nonarbitrary and not
against public policy may be enforced against Employee. If Employee shall
violate any of the covenants contained herein and if any court action is
instituted by Employer to prevent or enjoin such violation, then the period of
time during which Employee's business activities shall be restricted, as
provided in this Agreement, shall be lengthened by a period of time equal to the
period between the date of Employee's breach of the terms or covenants contained
in this Agreement and the date on which the decree of the court disposing of the
issues upon the merits shall become final and not subject to further appeal.
13. NO REMEDY AT LAW. Employee agrees that the remedy at law for any breach
by him of the Restrictive Covenants will be inadequate and would be difficult to
ascertain and therefore, in the event of the breach or threatened breach of any
such covenants, Employer, in addition to any and all other remedies, shall have
the right to enjoin Employee from any threatened or actual activities in
violation thereof; and Employee hereby consents and agrees that temporary and
permanent injunctive relief may be granted in any proceedings which might be
brought to enforce any such covenants without the necessity of proof of actual
damages and without necessity of posting a bond in cash or otherwise. In the
event Employer does apply for such an injunction, Employee shall not raise as a
defense thereto that Employer has an adequate remedy at law.
14. ASSIGNABILITY. This Agreement and the rights and duties created
hereunder shall not be assignable or delegable by Employee. Employer may, at
Employer's option and without consent of Employee, assign its rights and duties
hereunder to any successor entity or transferee of Employer's assets.
15. NOTICES. All notices or other communications provided for herein to be
given or sent to a party by the other party shall be deemed validly given or
sent if in writing and (i) mailed, postage prepaid, by registered or certified
United States mail or hand delivered, (ii) sent by facsimile, addressed to the
parties at their addresses hereinabove set forth, or (iii) sent by Employer's
intercompany electronic mail to the appropriate address designated for the
receiving party. Any party may give notice to the other party at any time, by
the method specified above, of a change in the address at which, or the person
to whom, notice is to be addressed.
16. SEVERABILITY. Each section, subsection and lesser section of this
Agreement constitutes a separate and distinct undertaking, covenant or provision
hereof. In the event that any provision of this Agreement shall be determined to
be invalid or unenforceable, such provision shall be deemed limited by
construction in scope and effect to the minimum extent necessary to render the
same valid and enforceable, and, in the event such a limiting construction is
impossible, such invalid or unenforceable provision shall be deemed severed from
this Agreement, but every other provision of this Agreement shall remain in full
force and effect.
17. WAIVER. The failure of a party to enforce any term, provision or
condition of this Agreement at any time or times shall not be deemed a waiver of
that term, provision or condition for the future, nor shall any specific waiver
of a term, provision or condition at one time be deemed a waiver of such term,
provision or condition for any future time or times.
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18. PARTIES. This Agreement shall be binding upon, and shall inure to the
benefit of, the parties hereto and their heirs, personal representatives, legal
representatives, and proper successors and assigns, as the case may be.
19. GOVERNING LAW. The validity, interpretation and performance of this
Agreement shall be governed by the laws of the State of Texas, without giving
effect to the principles of comity or conflicts of laws thereof. Each party
hereto agrees to submit to the personal jurisdiction and venue of the state and
federal courts having jurisdiction over Harris County, Texas, for a resolution
of all disputes arising in connection with the interpretation, construction, and
enforcement of this Agreement, and hereby waives the claim or defense therein
that such courts constitute an inconvenient forum.
20. ENFORCEMENT/DISPUTES SUBJECT TO ARBITRATION. Employee recognizes that
differences may arise between Employer and Employee during or following
employment with Employer, and that those differences may or may not be related
to employment. Employee understands and agrees that by entering into this
Agreement, Employee anticipates gaining the benefits of a speedy, impartial
dispute-resolution procedure.
Employee understands that any reference in this Agreement to Employer will
be a reference also to its affiliated entities, all benefit plans, the benefit
plans' sponsors, fiduciaries, administrators, affiliates, and all successors and
assigns of any of them.
a. CLAIMS COVERED. Employer and Employee mutually consent to the
resolution by arbitration of all claims or controversies ("claims"), whether or
not arising out of Employee's employment (or its termination), that Employer may
have against Employee or that Employee may have against Employer or against its
officers, directors, employees, or agents in their capacity as such or
otherwise. The claims covered by this Agreement include, but are not limited to,
claims for wages or other compensation due; claims for breach of any contract or
covenant (express or implied); tort claims; claims for discrimination
(including, but not limited to race, sex, religion, national origin, age,
marital status, or medical condition, handicap, or disability); claims for
benefits (except where an employee benefit or pension plan specifies that its
claims procedure shall culminate in an arbitration procedure different from this
one), and claims for violation of any federal, state or other governmental law,
statute, regulation, or ordinance, except claims excluded in the following
paragraph.
b. CLAIMS NOT COVERED. Claims Employee may have for Workers' Compensation
or unemployment compensation benefits are not covered by this Agreement. Also
not covered are claims by Employer for injunctive and/or other equitable relief
for unfair competition and/or the use and/or unauthorized disclosure of trade
secrets or confidential information, as to which Employee understands and agrees
that Employer may seek and obtain relief from a court of competent jurisdiction.
c. REQUIRED NOTICE OF ALL CLAIMS AND STATUTE OF LIMITATIONS. Employer and
Employee agree that the aggrieved party must give verbal notice of any claims to
the other party within forty-eight (48) hours of the occurrence giving rise to
the claim; otherwise, the claim shall be void and deemed waived even if there is
a federal or state statute of limitations which would
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have given more time to pursue the claim. Employee shall give such verbal notice
to one of the persons designated for receipt of same in Employer's applicable
policy. Employee shall follow up such verbal notice with written notice within
five (5) days of the giving of verbal notice. The written notice shall identify
and describe the nature of all claims asserted and the facts upon which such
claims are based. If Employee is aware of the occurrence of an event which may
give rise to a claim by another employee, Employee shall give notice of the
occurrence to the appropriate persons in accordance with this paragraph.
d. REPRESENTATION. Any party may be represented by an attorney or other
representative selected by the party.
e. DISCOVERY. Each party shall have the right to take the deposition of
one individual and any expert witness designated by another party. Each party
also shall have the right to make requests for production of documents to any
party. The subpoena right specified below shall be applicable to discovery
pursuant to this paragraph. Additional discovery may be had only where the
Arbitrator selected pursuant to this Agreement so orders, upon a showing of
substantial need.
f. DESIGNATION OF WITNESSES. At least 30 days before the arbitration, the
parties must exchange lists of witnesses, including any expert, and copies of
all exhibits intended to be used at the arbitration.
g. SUBPOENAS. Each party shall have the right to subpoena witnesses and
documents for arbitration.
h. ARBITRATION PROCEDURES. Employer and Employee agree that, except as
provided in this Agreement, any arbitration shall be in accordance with the
then-current Employment Arbitration Rules of Judicial Arbitration & Mediation
Services, Inc. ("J-A-M-S") before an arbitrator who is licensed to practice law
in the state in which the arbitration is convened (the "Arbitrator"). If J-A-M-S
no longer exists, then the American Arbitration Association shall be substituted
therefor for purposes of this Section 20. The arbitration shall take place in or
near the city in which Employee is or was last employed by Employer.
The Arbitrator shall be selected as follows. J-A-M-S shall give each party
a list of 11 arbitrators drawn from its panel of labor and employment
arbitrators. Each party may strike all names on the list it deems unacceptable.
If only one common name remains on the lists of all parties, that individual
shall be designated as the Arbitrator. If more than one common name remains on
the lists of all parties, the parties shall strike names alternately until only
one remains. The party who did not initiate the claim shall strike first. If no
common name remains on the lists of all parties, J-A-M-S shall furnish an
additional list or lists until an Arbitrator is selected.
The Arbitrator shall apply the substantive law (and the law of remedies, if
applicable) of the State of Texas, or federal law, or both, as applicable to the
claim(s) asserted. The Texas Rules of Evidence shall apply. The Arbitrator, and
not any federal, state, or local court or agency, shall have exclusive authority
to resolve any dispute relating to the interpretation, applicability,
enforceability, or formation of this Agreement, including but not
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limited to any claim that all or any part of this Agreement is void or voidable.
The arbitration shall be final and binding upon the parties, except as provided
in this Agreement.
The Arbitrator shall have jurisdiction to hear and rule on pre-hearing
disputes and is authorized to hold pre-hearing conferences by telephone or in
person as the Arbitrator deems necessary. The Arbitrator shall have the
authority to entertain a motion to dismiss and/or a motion for summary judgment
by any party and shall apply the standards governing such motions under the
Texas Rules of Civil Procedure.
Either party, at its expense, may arrange for and pay the cost of a
court reporter to provide a stenographic record of proceedings.
Either party, upon request at the close of hearing, shall be given
leave to file a post-hearing brief. The time for filing such a brief shall be
set by the Arbitrator.
Either party may bring an action in a court as provided in Section 20
of this Agreement to compel arbitration under this Agreement and to enforce an
arbitration award. Except as otherwise provided in this Agreement, both Employer
and Employee agree that neither shall initiate or prosecute any lawsuit or
administrative action (other than as required by applicable law) in any way
related to any claim covered by this Agreement.
The Arbitrator shall render an award and opinion in the form typically
rendered in labor arbitrations.
i. ARBITRATION FEES AND COSTS. Employer and Employee shall equally
share the fees and costs of the Arbitrator. Each party will deposit funds or
post other appropriate security for its share of the Arbitrator's fee, in an
amount and manner determined by the Arbitrator, 10 days before the first day of
hearing. However, the prevailing party shall be entitled to recover from the
non-prevailing party in accordance with Section 24 of this Agreement, and the
Arbitrator may award such fees.
j. JUDICIAL REVIEW. A party opposing enforcement of an award may not do so
in an enforcement proceeding, but must bring a separate action in a court as
provided in Section 20 of this Agreement to set aside the award, where the
standard of review will be the same as that applied by an appellate court
reviewing a decision of a trial court sitting without a jury.
k. INTERSTATE COMMERCE. Employee understands and agrees that Employer is
engaged in transactions involving interstate commerce and that Employee's
employment involves such commerce.
l. REQUIREMENTS FOR MODIFICATION OR REVOCATION. This Agreement to
arbitrate shall survive the termination of employment. It can only be revoked or
modified by a writing signed by the parties which specifically states an intent
to revoke or modify this Agreement.
21. CAPTIONS. The captions of this Agreement have been assigned thereto for
convenience only, and shall not be construed to limit, define or modify the
substantive terms hereof.
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22. ENTIRE AGREEMENT; COUNTERPARTS. This Agreement constitutes the entire
agreement between the parties hereto concerning the subject matter hereof, and
supersedes all prior agreements, memoranda, correspondence, conversations and
negotiations. This Agreement may be executed in several counterparts that
together shall constitute but one and the same Agreement.
23. COSTS OF ENFORCEMENT. In the event it is necessary for any party to
retain the services of an attorney or to initiate legal proceedings to enforce
the terms of this Agreement, the prevailing party shall be entitled to recover
from the non-prevailing party, in addition to all other remedies, all costs of
such enforcement, including reasonable attorneys' fees and costs and including
trial and appellate proceedings.
24. GENDER, ETC. Words used herein, regardless of the number and gender
specifically used, shall be deemed and construed to include any other number,
singular or plural, and any other gender, masculine, feminine or neuter, as the
context indicates is appropriate.
IN WITNESS WHEREOF, the undersigned have hereunto set their hands on the
date first written above.
EMPLOYEE:
/s/ Paul F. Koffend, Jr.
-----------------------------------
Signature of Employee
Paul F. Koffend, Jr.
Print or Type Name of Employee
EMPLOYER:
MISSION CRITICAL SOFTWARE, INC.
a Delaware Corporation
By: /s/ Louis R. Woodhill
-------------------------------
Name: Louis R. Woodhill
----------------------------
Title: President
----------------------------
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EXHIBIT 10.8
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into
effective as of September 4, 1996, by and between LOUIS R. WOODHILL (hereinafter
"EMPLOYEE"), and MISSION CRITICAL SOFTWARE, INC., a Delaware corporation having
its principal office at 12600 Northborough, Suite 362, Houston, Texas 77067
(hereinafter "EMPLOYER").
W I T N E S S E T H:
This Agreement is made and entered into under the following circumstances:
(1) Whereas, Employer intends to carry out the business plan developed and
implemented by Employer for the development, marketing and sale of the software
products and systems sold by Mission critical Software I, Inc. to Employer which
products and systems are known as the "Enterprise Administrator" for the
administration of security systems for access to networked personal computer
systems and any other products, systems or services that Employer may hereafter
develop, market or sell (the "BUSINESS ACTIVITIES"); and
(2) Whereas Employer desires, on the terms and conditions stated herein, to
employ Employee; and
(3) Whereas Employee desires, on the terms and conditions stated herein, to
be employed by Employer.
NOW, THEREFORE, in consideration of the foregoing recitals, and of the
promises, covenants, terms and conditions contained herein, the parties hereto
agree as follows:
1. EMPLOYMENT. Employer hereby employs Employee, and Employee hereby
accepts employment with Employer commencing September 4, 1996 (hereinafter the
"EFFECTIVE DATE") and continuing until terminated as provided in Section 7
hereof (hereinafter the "TERM OF EMPLOYMENT").
2. DUTIES. Employee shall serve as President of Employer. Employee
shall serve in such position and perform the duties and functions as are normal
and customary to such position as well as any other duties delegated to Employee
by the Board of Directors during the Term of Employment. Employee agrees that
Employee's employment with Employer shall be the exclusive, full-time employment
of Employee.
3. BASE COMPENSATION AND INCENTIVE COMPENSATION. During the Term of
Employment, Employee shall be entitled to annual base compensation as set forth
on SCHEDULE A, payable in equal semi-monthly installments in accordance with the
normal payroll procedures of Employer. Employee shall be entitled to incentive
compensation as set form on SCHEDULE A.
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4. STATUS OF EMPLOYEE. The parties expressly acknowledge that Employee,
in the performance of services hereunder, is an employee of Employer.
Accordingly, Employer shall deduct from all compensation paid to Employee
pursuant to this Agreement any sums required by law or any other requirement of
any governmental body.
5. VACATION/PERSONAL TIME. Employee shall be entitled to paid leave for
vacation, and illness, as provided on the attached SCHEDULE A. Employee shall
not be entitled to any additional paid absences for any reason. Unused holidays
and days of vacation may not be carried over from one fiscal year to another,
and additional income will not be given for vacation time or holidays not taken
during any year. Employer and Employee shall mutually agree on the scheduling
of Employee's vacation, holiday and leave time.
6. FRINGE BENEFITS. Employer shall provide to Employee, at Employer's
expense, the fringe benefits set forth on the attached SCHEDULE B.
7. TERMINATION. Notwithstanding any other provisions of this Agreement,
the Term of Employment shall terminate upon:
a. the death of Employee; or,
b. Employee's "disability" (For purposes of this Agreement, the term
"disability" shall mean the inability of Employee, arising out of any medically
determinable physical or mental impairment, to perform the services required of
him hereunder for a period of sixty (60) consecutive days during which sixty
(60) day period Employee's compensation hereunder shall continue);
c. six (6) months' prior written notice from Employer to Employee,
without cause, provided that, in lieu of such notice, Employer shall pay to
Employee six (6) months; salary as severance compensation, payable either in a
lump sum or over such six month period in accordance with Employer's usual
compensation practices (the "Severance Amount"); or
d. thirty (30) days prior written notice from Employee to Employer.
e. at Employer's option, immediately upon the existence of "cause."
For purposes of this Agreement, the term "cause" shall be defined as:
(1) willful and continued failure of Employee to substantially
perform the duties required of him in this Agreement in a manner satisfactory to
Employer, in the sole discretion of a majority of the members of the Board of
Directors, exercised in good faith; provided, however, that the Term of
Employment shall not be terminated pursuant to this subparagraph (1)unless
Employer first gives Employee a written notice ("NOTICE OF DEFICIENCY"). The
Notice of Deficiency shall specify the deficiencies in Employee's performance of
his duties. Employee shall have a period of thirty (30) days, commencing on
receipt of the Notice of Deficiency, in which to cure the deficiencies
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contained in the Notice of Deficiency. If Employee does not cure the
deficiencies to the reasonable satisfaction of Employer, in Employer's sole
reasonable discretion, within such thirty (30) day period, the Employer shall
have the right to immediately terminate the Term of Employment and this
Agreement. The provisions of this subparagraph (1) may be invoked by Employer
any number of times and cure of deficiencies contained in any Notice of
Deficiency shall not be construed as a waiver of this subparagraph (1) nor
prevent the Employer from issuing any subsequent Notices of Deficiency;
(2) the willful engaging by Employee in misconduct which is
materially injurious to Employer or its affiliates, monetarily or otherwise;
(3) any dishonesty by Employee in his dealings with the Employer,
the commission of fraud by Employee, or negligence in the performance of the
duties of Employee;
(4) the arrest or conviction (or plea of guilty or nolo contendere)
of Employee of any felony or other crime involving dishonesty or moral
turpitude;
(5) any violation of any covenant or restriction contained in
Section 11 or Section 12 hereof; or
(6) unlawful use of narcotics or other controlled substances, or
use of alcohol or other drugs in a manner the Employer reasonably determines to
be adverse to the best interests of the Employer.
For all purposes of this Agreement, termination for "cause" shall be deemed
to have occurred if Employee's resignation when, because of existing facts and
circumstances, subsequent termination for "cause" can reasonably be foreseen.
For all purposes of this Agreement, no act, or failure to act, on Employee's
part shall be considered "willful" unless done, or omitted to be done, by him
not in good faith and without reasonable belief that his action or omission was
in, or not opposed to, the best interest of Employer or its affiliates.
Upon termination of this Agreement, Employee or Employee's estate, as
appropriate, shall be entitled to receive (in addition to any fringe benefits
payable upon death in the case of Employee's death) the compensation provided
for in Section 3 hereof (prorated on a daily basis) up to and including the
effective date of termination.
8. EFFECTS OF TERMINATION. Upon termination of this Agreement, neither
party shall have any further obligations hereunder except for (i) obligations
accruing prior to the date of termination and (ii) obligations, promises or
covenants contained herein which are expressly made to extend beyond the term of
this Agreement, including, without limitation, confidentiality of information,
indemnities and Employee's covenants not to compete (which covenants and
agreements shall survive the termination or expiration of this Agreement). The
termination of
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this Agreement, for whatever reason, shall not extinguish those
obligations of Employee specified in the Restrictive Covenants (hereinafter
defined), nor shall the same extinguish the right of either party to bring an
action, either in law or in equity, for breach of this Agreement by the other
party.
9. TRANSITION FOLLOWING NOTICE OF TERMINATION. Following any notice of
termination of employment hereunder, whether given by Employer or Employee,
Employee will fully cooperate with Employer in all matters relating to the
winding up of Employee's pending work on behalf of Employer and the orderly
transfer of such work to the other professional employees of Employer. On or
after the giving of notice of termination hereunder and during any notice
period, Employer will be entitled to such full-time or part-time services of
Employee as Employer may reasonably require in accordance with the terms hereof,
and Employer will specifically have the right to terminate the active services
of Employee at the time such notice is given and to pay to Employee the
Severance Amount if such amount is due pursuant to Section 7(c) hereof.
10. TERRITORY. In recognition of the existing and potential worldwide
Business Activities of Employer, Employer and Employee agree that the terms of
this Agreement shall apply to any Prohibited Activities (as defined below)
engaged by Employee anywhere in the world including all states and territories
of the United Sates of America. Prohibited Activities shall include (without
limitation) any activities which would be in breach of the covenants contained
in Sections 11 and 12 below.
11. NON-COMPETITION. While Employee is employed by Employer and for a
period of one (1) year after termination or cessation such employment for any
reason Employee shall not, without employer's prior written consent, as a
principal, employee, consultant, partner, or stockholder of, or in any other
capacity with, any "business enterprise" (as that term is defined below) (other
than in any capacity as a holder of not more than 1% of the combined voting
power of the outstanding stock of a publicly held company) (a) engage in
competition with Employer, (b) conduct a business of the type or character
engaged in by Employer at the time of termination or cessation of Employee's
employment, or (c) develop, market, sell, and/or distribute products or services
competitive with those of Employer. As used herein, the term "business
enterprise" shall mean any corporation, partnership, association, sole
proprietorship or any other entity competing with Employer or directly involved
in the development, marketing, sales, and/or distribution of products or
services which, during the time of Employee's employment by Employer, were
developed, under active development, under consideration for development,
marketed, sold, and/or distributed by Employer.
12. NON-DISCLOSURE: NON-SOLICITATION. Except in the performance of his
duties hereunder, at no time during the Term of Employment or at any time
thereafter shall Employee, individually or jointly with others, for the benefit
of Employee or any third party, publish, disclose, use of authorize anyone else
to publish, disclose or use, any secret or confidential material or information
relating to any aspect of the business or operations of Employer or any
information regarding the business methods, business policies, procedures,
techniques, or trade
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secrets, or other knowledge or processes of or developed by Employer (and/or any
other Employee or agent of Employer), any affiliate of the Employer, or any
entity in which the Employer has an interest, including, without limitation, any
secret or confidential information relating to the business, customers,
financial position, trade or industrial practices, trade secrets, technology or
know-how of the Employer or Employer's affiliates. Moreover, while Employee is
employed by Employer and for a period of two years thereafter, Employee shall
not directly or in any other capacity, employ any person or hire or contract
with, as a consultant or other independent agent or independent contractor, any
person or entity (other than Employee) who was employed by or acted as an agent
for, consultant to, or independent contractor of the Employer, any affiliate of
the Employer, or any entity in which the Employer has an interest, at any time
during the Term of Employment; PROVIDED that the prohibitions contained in this
sentence shall exclude persons or entities not directly involved in the
development, marketing, sales, and/or distribution of products or services
which, during the time of Employee's employment by Employer, were developed,
under active development, under consideration for development, marketed, sold
and/or distributed by Employer. In addition, while Employee is employed by
Employer and for a continuous period of two (2) years thereafter, Employee shall
not solicit, divert or take away, or attempt to divert or TAKE away, the
business or patronage of any of the clients, customers or accounts, or
prospective clients, customers or accounts, of Employer which were contacted,
solicited or served by Employee while employed by Employer in connection with
products or services which, during the time of Employee's employment by
Employer, were developed, under active development, under consideration for
development, marketed, sold, and/or distributed by Employer.
13. REASONABLENESS OF RESTRICTIONS; REFORMATION; ENFORCEMENT. The parties
hereto recognize and acknowledge that the geographical and time limitations
contained in Sections 11 and 12 hereof (hereinafter the "RESTRICTIVE COVENANTS")
are reasonable and properly required for the adequate protection of Employer's
interest. Employee acknowledges that Employer will provide to Employee
confidential information concerning the Employer's and Employer's affiliates'
business methods and operating practices in reliance on the covenants contained
in the Restrictive Covenants. It is agreed by the parties hereto that if any
portion of the restrictions contained in the Restrictive Covenants are held to
be unreasonable, arbitrary or against public policy, then the restrictions shall
be considered divisible, both as to the time and to the geographical area, with
each month of the specified period being deemed a separate period of time and
each radius mile of the restricted territory being deemed a separate
geographical area, so that the lesser period of time or geographical area shall
remain effective so long as the same is not unreasonable, arbitrary or against
public policy. The parties hereto agree that if any court of competent
jurisdiction determines the specified period or the specified geographical area
of the restricted territory to be unreasonable, arbitrary or against public
policy, a lesser time period or geographical area which is determined to be
reasonable, nonarbitrary and not against public policy may be enforced against
Employee. If Employee shall violate any of the covenants contained herein and
if any court action is instituted by the Employer to prevent or enjoin such
violation, then the period of time during which the Employee's business
activities shall be restricted, as provided in this Agreement, shall be
lengthened by a period of time equal to the period between the date of the
Employee's breach of the terms or covenants contained in this
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Agreement and the date on which the decree of the court disposing of the issues
upon the merits shall become final and not subject to further appeal.
14. NO REMEDY AT LAW. Employee agrees that the remedy at law for any
breach by him of the Restrictive Covenants will be inadequate and would be
difficult to ascertain and therefore, in the event of the breach or threatened
breach of any such covenants, the Employer, in addition to any and all other
remedies, shall have the right to enjoin Employee from any threatened or actual
activities in violation thereof; and Employee hereby consents and agrees that
temporary and permanent injunctive relief may be granted in any proceedings
which might be brought to enforce any such covenants without the necessity of
proof of actual damages and without necessity of posting a bond in cash or
otherwise. If Employer does apply for such an injunction, Employee shall not
raise as a defense thereto that the Employer has an adequate remedy at law.
15. ASSIGNABILITY. This Agreement and the rights and duties created
hereunder shall not be assignable or delegable by Employee. Employer may, at
Employer's option and without consent of Employee, assign its rights and duties
hereunder to any successor entity or transferee of Employer's assets.
16. NOTICES. All notices or other communications provided for herein to
be given or sent to a party by the other party shall be deemed validly given or
sent if in writing and mailed, postage prepaid, by registered or certified
United States mail or hand delivered or sent by facsimile, addressed to the
parties at their addresses hereinabove set forth. Any party may give notice to
the other party at any time, by the method specified above, of a change in the
address at which, or the person to whom, notice is to be addressed.
17. SEVERABILITY. Each section, subsection and lesser section of this
Agreement constitutes a separate and distinct undertaking, covenant or provision
hereof. If that any provision of this Agreement shall be determined to be
invalid or unenforceable, such provision shall be deemed limited by construction
in scope and effect to the minimum extent necessary to render the same valid and
enforceable, and, if such a limiting construction is impossible, such invalid or
unenforceable provision shall be deemed severed from this Agreement, but every
other provision of this Agreement shall remain in full force and effect.
18. WAIVER. The failure of a party to enforce any term, provision or
condition of this Agreement at any time or times shall not be deemed a waiver of
that term, provision or condition for the future, nor shall any specific waiver
of a term, provision or condition at one time be deemed a waiver of such term,
provision or condition for any future time or times.
19. PARTIES. This Agreement shall be binding upon, and shall inure to the
benefit of, the parties hereto and their heirs, personal representative, legal
representatives, and proper successors and assigns, as the case may be.
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20. GOVERNING LAW. The validity, interpretation and performance of this
Agreement shall be governed by the laws of the State of Texas, without giving
effect to the principles of comity or conflicts of laws thereof. Each party
hereto agrees to submit to the personal jurisdiction and venue of the state and
federal courts having jurisdiction over Harris County, Texas, for a resolution
of all disputes arising in connection with the interpretation, construction, and
enforcement of this Agreement, and hereby waives the claim or defense therein
that such courts constitute an inconvenient forum.
21. CAPTIONS. The captions of this Agreement have been assigned thereto
for convenience only, and shall not be construed to limit, define or modify the
substantive terms hereof.
22. ENTIRE AGREEMENT; COUNTERPARTS. This Agreement constitutes the entire
agreement between the parties hereto concerning the subject matter hereof, and
supersedes all prior agreements, memoranda, correspondence, conversations and
negotiations. This Agreement may be executed in several counterparts that
together shall constitute but one and the same Agreement.
23. COSTS OF ENFORCEMENT. If it is necessary for any party to retain the
services of an attorney or to initiate legal proceedings to enforce the terms of
this Agreement, the prevailing party shall be entitled to recover from the non-
prevailing party, in addition to all other remedies, all costs of such
enforcement, including reasonable attorneys' fees and costs and including trial
and appellate proceedings.
24. GENDER, ETC. Words used herein, regardless of the number and gender
specifically used, shall be deemed and construed to include any other number,
singular or plural, and any other gender, masculine, feminine or neuter, as the
context indicates is appropriate.
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IN WITNESS WHEREOF, the undersigned have hereunto set their hands on the
date first written above.
EMPLOYEE:
/s/ Louis R. Woodhill
----------------------------------
Louis R. Woodhill
EMPLOYER:
MISSION CRITICAL SOFTWARE, INC.
a Delaware Corporation
By: /s/ Louis R. Woodhill
------------------------------
Name: Louis R. Woodhill
---------------------------
Title: President
---------------------------
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EXHIBIT 10.8.1
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement"), as amended and restated is
made and entered into effective as of May 21, 1998, by and between LOUIS R.
WOODHILL (hereinafter "EMPLOYEE"), and MISSION CRITICAL SOFTWARE, INC., a
Delaware corporation having its principal office at 720 North Post Oak Road,
Suite 505, Houston, Texas 77024 (hereinafter "EMPLOYER").
W I T N E S S E T H:
This Agreement is made and entered into under the following circumstances:
Whereas, Employer intends to carry out the business plan developed and
implemented by Employer for the development, marketing and sale of the software
products and systems sold by Mission Critical Software I, Inc. to Employer which
products and systems are known as the "Enterprise Administrator" for the
administration of security systems for access to networked personal computer
systems and any other products, systems or services that Employer may hereafter
develop, market or sell (the "BUSINESS ACTIVITIES"); and
Whereas Employer desires, on the terms and conditions stated herein, to
employ Employee; and
Whereas Employee desires, on the terms and conditions stated herein, to
be employed by Employer.
NOW, THEREFORE, in consideration of the foregoing recitals, and of the
promises, covenants, terms and conditions contained herein, the parties hereto
agree as follows:
1. EMPLOYMENT. Employer hereby employs Employee, and Employee hereby
accepts employment with Employer commencing May 21, 1998 (hereinafter the
"EFFECTIVE DATE") and continuing until terminated as provided in Section 9
hereof (hereinafter the "TERM OF EMPLOYMENT").
2. DUTIES. Employee shall serve as Chairman of the Board of Employer, and
in this capacity shall report to the President and Chief Executive Officer of
Employer. Employee shall perform the following duties: contract review and
negotiation, public speaking for the company, strategy development, intelligence
gathering (e.g., analyst and trade shows), customer presentations, recruiting,
partner development and advising the Chief Executive Officer on important
business matters, as well as any other duties and functions delegated to
Employee by the Chief Executive Officer during the Term of Employment. Employee
agrees that Employee's employment with Employer shall be the exclusive full-time
employment of Employee.
3. OFFICE. Employee will establish his principal office at a location other
than the principal office of Employer and will have no office at the Employer's
principle office, unless requested to do so by the Chief Executive Officer of
Employer. During the Term of Employment Employee will be paid by Employer an
allowance of One Thousand Dollars ($1,000) per month to compensate for the use
of his home, or other office that Employee chooses to establish but is not
furnished by Employer (the "OFFICE ALLOWANCE"). If Employee is requested to
establish an office at Employer's principle office or this Agreement is
terminated, the Office Allowance will be adjusted on a pro rata basis, effective
the day that the new office is established or this Agreement is terminated. The
number of days in the month will be calculated each month from the Effective
Date to the same date in the following month.
4. IT EQUIPMENT. During the Term of Employment, Employee will continue to
have use of, at Employer's expense, the same "IT equipment" he is currently
using including computers, ISDN line,, ISP account, MCS accounts, pagers, cell
phones, etc. Upon termination of this Agreement, Employee may keep the laptop
computer assigned to him along with the modem installed in his home, plus any
other "home infrastructure" deemed appropriate by the Chief Technology Officer
of the Employer in his sole discretion.
<PAGE>
5. BASE COMPENSATION AND INCENTIVE COMPENSATION. During the Term of
Employment, Employee shall be paid a base salary of Thirteen Thousand Seven
Hundred Fifty and No/100 ($13,750.00) per month, payable in equal semi-monthly
installments in accordance with the normal payroll procedures of Employer.
Employee shall not receive or be entitled to receive any other compensation,
including incentive compensation.
6. STATUS OF EMPLOYEE. The parties expressly acknowledge that Employee,
in the performance of services hereunder, is an employee of Employer.
Accordingly, Employer shall deduct from all compensation paid to Employee
pursuant to this Agreement any sums required by law or any other requirement of
any governmental body, or as authorized in writing by Employee.
7. VACATION/PERSONAL TIME. Employee shall be entitled to paid leave for
vacation, and illness, as provided on the attached Schedule A. Employee shall
not be entitled to any additional paid absences for any reason. Unused holidays
and days of vacation may not be carried over from one fiscal year to another,
and additional income will not be given for vacation time or holidays not taken
during any year. Employer and Employee shall mutually agree on the scheduling of
Employee's vacation, holiday and leave time.
8. FRINGE BENEFITS. Employer shall provide to Employee, at Employer's
expense, the fringe benefits set forth on the attached Schedule B.
9. TERMINATION. Notwithstanding any other provisions of this Agreement,
the Term of Employment shall terminate upon any of the following which occurs
first:
a. the death of Employee; or,
b. Employee's "disability" (For purposes of this Agreement, the term
"disability" shall mean the inability of Employee, arising out of any medically
determinable physical or mental impairment, to perform the services required of
him hereunder for a period of sixty (60) consecutive days during which sixty
(60) day period Employee's compensation hereunder shall continue);
c. thirty (30) days prior written notice from Employer to Employee,
without cause, provided that, in lieu of such notice, Employer may terminate
immediately and shall pay to Employee, in addition to the Severance Amount
provided for hereinafter, thirty (30) days salary; or
d. thirty (30) days prior written notice from Employee to Employer.
e. six (6) months from the Effective Date of this Agreement; or
f. at Employer's option, immediately upon the existence of "cause."
For purposes of this Agreement, the term "cause" shall be defined as:
(1) the willful engaging by Employee in misconduct which is materially
injurious to Employer or its affiliates, monetarily or otherwise;
(2) any dishonesty by Employee in his dealings with the Employer, the
commission of fraud by Employee, or negligence in the performance of the duties
of Employee;
(3) the arrest or conviction (or plea of guilty or nolo contendere) of
Employee of any felony or other crime involving dishonesty or moral turpitude;
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(4) any violation of any covenant or restriction contained in Section 11 or
Section 12 hereof; or
(5) unlawful use of narcotics or other controlled substances, or use of
alcohol or other drugs in a manner the Employer reasonably determines to be
adverse to the best interests of the Employer to be determined at the sole
discretion of the Employer.
For all purposes of this Agreement, termination for "cause" shall be deemed
to have occurred if Employee's resignation when, because of existing facts and
circumstances, subsequent termination for "cause" can reasonably be foreseen.
For all purposes of this Agreement, no act, or failure to act, on Employee's
part shall be considered "willful" unless done, or omitted to be done, by him
in bad faith and with reasonable belief that his action or omission was not
in, or opposed to, the best interest of Employer or its affiliates to be
determined solely at the discretion of the Employer.
Upon termination of Employment, Employee or Employee's estate, as
appropriate, shall be entitled to receive (in addition to any fringe benefits
payable upon death in the case of Employee's death) the outstanding compensation
provided for in Section S hereof (prorated on a daily basis) up to and including
the effective date of termination.
Upon termination of Employment, regardless of cause, Employee or Employee's
estate, as appropriate, shall also receive, six (6) months salary as severance
compensation, payable in a lump sum (the "Severance Amount"), plus any unused
vacation and any as-yet unreimbursed travel expenses;
10. OPTION GRANT. Upon termination of Employment, Employee will be granted
non-qualified options on fifteen thousand (15,000) shares of Mission Critical
Software, Inc. Common Stock at a price of fifty cents ($0.50) per share (the
"OPTIONS"). Twenty-five percent (25%) of the Options will vest 1 year from the
date of termination of employment and 1/48 of the Options will vest each month
thereafter.
11. EFFECTS OF TERMINATION. Upon termination of this Agreement, neither
party shall have any further obligations hereunder except for (i) obligations
accruing prior to the date of termination and (ii) obligations, promises or
covenants contained herein which are expressly made to extend beyond the term of
this Agreement, including, without limitation, confidentiality of information,
indemnities and Employee's covenants not to compete (which covenants and
agreements shall survive the termination or expiration of this Agreement). The
termination of this Agreement, for whatever reason, shall not extinguish those
obligations of Employee specified in the Restrictive Covenants (hereinafter
defined), nor shall the same extinguish the right of either party to bring an
action, either in law or in equity, for breach of this Agreement by the other
party.
12. TRANSITION FOLLOWING NOTICE OF TERMINATION. Following any notice of
termination of employment hereunder, whether given by Employer or Employee,
Employee will fully cooperate with Employer in all matters relating to the
winding up of Employee's pending work on behalf of Employer and the orderly
transfer of such work to the other professional employees of Employer. On or
after the giving of notice of termination hereunder and during any notice
period, Employer will be entitled to such full-time or part-time services of
Employee as Employer may reasonably require in accordance with the terms hereof,
and Employer will specifically have the right to terminate the active services
of Employee at the time such notice is given pursuant to Section 9 hereof and to
pay to Employee the Severance Amount.
13. TERRITORY. In recognition of the existing and potential worldwide
Business Activities of Employer, Employer and Employee agree that the terms of
this Agreement shall apply to any Prohibited Activities (as defined below)
engaged by Employee anywhere in the world including all states and territories
of the United States of America. "Prohibited Activities" shall include (without
limitation) any activities which would be in breach of the covenants contained
in Sections 14 and 15 below.
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14. NON-COMPETITION. While Employee is employed by Employer and for a
period of one (1) year after termination or cessation such employment for any
reason Employee shall not, without employer's prior written consent, as a
principal, employee, consultant, partner, or stockholder of, or in any other
capacity with, any "Business Enterprise" (as that term is defined below) (other
than in any capacity as a holder of not more than 1% of the combined voting
power of the outstanding stock of a publicly held company) (a) engage in
competition with Employer, (b) conduct a business of the type or character
engaged in by Employer at the time of termination or cessation of Employee's
employment, or (c) develop, market, sell, and/or distribute products or services
competitive with those of Employer. As used herein, the term "Business
Enterprise" shall mean any corporation, partnership, association, sole
proprietorship or any other entity competing with Employer or directly involved
in the development, marketing, sales, and/or distribution of products or
services which, during the time of Employee's employment by Employer, were
developed, under active development, under active consideration for development,
marketed, sold, and/or distributed by Employer.
15. NON-DISCLOSURE: NON-SOLICITATION. Except in the performance of his
duties hereunder, at no time during the time of Employee's employment by
Employer or at any time thereafter shall Employee, individually or jointly with
others, for the benefit of Employee or any third party, publish, disclose, use
of authorize anyone else to publish, disclose or use, any secret or confidential
material or information relating to any aspect of the business or operations of
Employer or any information regarding the business methods, business policies,
procedures, techniques, or trade secrets, or other knowledge or processes of or
developed by Employer (and/or any other Employee or agent of Employer), any
affiliate of the Employer, or any entity in which the Employer has an interest,
including, without limitation, any secret or confidential information relating
to the business, customers, financial position, trade or industrial practices,
trade secrets, technology or know-how of the Employer or Employer's affiliates.
Moreover, while Employee is employed by Employer and for a period of two (2)
years thereafter, Employee shall not directly or in any other capacity, employ
any person or hire or contract with, as a consultant or other independent agent
or independent contractor, any person or entity (other than Employee) who was
employed by or acted as an agent for, consultant to, or independent contractor
of the Employer, any affiliate of the Employer, or any entity in which the
Employer has an interest, at any time during the Term of Employment; PROVIDED
that the prohibitions contained in this sentence shall exclude persons or
entities not directly involved in the development, marketing, sales, and/or
distribution of products or services which, during the time of Employee's
employment by Employer, were developed, under active development, under
consideration for development, marketed, sold and/or distributed by Employer. In
addition, while Employee is employed by Employer and for a continuous period of
two (2) years thereafter, Employee shall not solicit, divert or take away, or
attempt to divert or take away, the business or patronage of any of the clients,
customers or accounts, or prospective clients, customers or accounts, of
Employer which were contacted, solicited or served by Employee while employed by
Employer in connection with products or services which, during the time of
Employee's employment by Employer, were developed, under active development,
under consideration for development, marketed, sold, and/or distributed by
Employer.
16. REASONABLENESS OF RESTRICTIONS; REFORMATION; ENFORCEMENT. The parties
hereto recognize and acknowledge that the geographical and time limitations
contained in Sections 14 and 15 hereof (hereinafter the "RESTRICTIVE COVENANTS")
are reasonable and properly required for the adequate protection of Employer's
interest. Employee acknowledges that Employer will provide to Employee
confidential information concerning the Employer's and Employer's affiliates'
business methods and operating practices in reliance on the covenants contained
in the Restrictive Covenants. It is agreed by the parties hereto that if any
portion of the restrictions contained in the Restrictive Covenants are held to
be unreasonable, arbitrary or against public policy, then the restrictions shall
be considered divisible, both as to the time and to the geographical area, with
each month of the specified period being deemed a separate period of time and
each radius mile of the restricted territory being deemed a separate
geographical area, so that the lesser period of time or geographical area shall
remain effective so long as the same is not unreasonable, arbitrary or against
public policy. The parties hereto agree that if any court of competent
jurisdiction determines the specified period or the specified geographical area
of the restricted territory to be unreasonable, arbitrary or against public
policy, a lesser time period or geographical area which is determined to be
reasonable, nonarbitrary and not against public policy may be enforced against
Employee. If Employee shall violate any of the covenants contained herein and
if any court action is instituted by
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the Employer to prevent or enjoin such violation, then the period of time during
which the Employee's business activities shall be restricted, as provided in
this Agreement, shall be lengthened by a period of time equal to the period
between the date of the Employee's breach of the terms or covenants contained in
this Agreement and the date on which the decree of the court disposing of the
issues upon the merits shall become final and not subject to further appeal.
17. NO REMEDY AT LAW. Employee agrees that the remedy at law for any
breach by him of the Restrictive Covenants will be inadequate and would be
difficult to ascertain and therefore, in the event of the breach or threatened
breach of any such covenants, the Employer, in addition to any and all other
remedies, shall have the right to enjoin Employee from any threatened or actual
activities in violation thereof; and Employee hereby consents and agrees that
temporary and permanent injunctive relief may be granted in any proceedings
which might be brought to enforce any such covenants without the necessity of
proof of actual damages and without necessity of posting a bond in cash or
otherwise. If Employer does apply for such an injunction, Employee shall not
raise as a defense thereto that the Employer has an adequate remedy at law.
18. ASSIGNABILITY. This Agreement and the rights and duties created
hereunder shall not be assignable or delegable by Employee. Employer may, at
Employer's option and without consent of Employee, assign its rights and duties
hereunder to any successor entity or transferee of Employer's assets.
19. NOTICES. All notices or other communications provided for herein to
be given or sent to a party by the other party shall be deemed validly given or
sent if in writing and mailed, postage prepaid, by registered or certified
United States mail or hand delivered or sent by facsimile, addressed to the
parties at their addresses hereinabove set forth. Any party may give notice to
the other party at any time, by the method specified above, of a change in the
address at which, or the person to whom, notice is to be addressed.
20. SEVERABILITY. Each section, subsection and lesser section of this
Agreement constitutes a separate and distinct undertaking, covenant or provision
hereof. If that any provision of this Agreement shall be determined to be
invalid or unenforceable, such provision shall be deemed limited by construction
in scope and effect to the minimum extent necessary to render the same valid and
enforceable, and, if such a limiting construction is impossible, such invalid or
unenforceable provision shall be deemed severed from this Agreement, but every
other provision of this Agreement shall remain in full force and effect.
21. WAIVER. The failure of a party to enforce any term, provision or
condition of this Agreement at any time or times shall not be deemed a waiver of
that term, provision or condition for the future, nor shall any specific waiver
of a term, provision or condition at one time be deemed a waiver of such term,
provision or condition for any future time or times.
22. PARTIES. This Agreement shall be binding upon, and shall inure to the
benefit of, the parties hereto and their heirs, personal representative, legal
representatives, and proper successors and assigns, as the case may be.
23. GOVERNING LAW. The validity, interpretation and performance of this
Agreement shall be governed by the laws of the State of Texas, without giving
effect to the principles of comity or conflicts of laws thereof. Each party
hereto agrees to submit to the personal jurisdiction and venue of the state and
federal courts having jurisdiction over Harris County, Texas, for a resolution
of all disputes arising in connection with the interpretation, construction, and
enforcement of this Agreement, and hereby waives the claim or defense therein
that such courts constitute an inconvenient forum.
24. CAPTIONS. The captions of this Agreement have been assigned thereto
for convenience only, and shall not be construed to limit, define or modify the
substantive terms hereof.
25. ENTIRE AGREEMENT; COUNTERPARTS. This Agreement constitutes the entire
agreement between the parties hereto concerning the subject matter hereof, and
supersedes all prior agreements, memoranda,
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correspondence, conversations and negotiations. This Agreement may be executed
in several counterparts that together shall constitute but one and the same
Agreement.
26. COSTS OF ENFORCEMENT. If it is necessary for any party to retain the
services of an attorney or to initiate legal proceedings to enforce the terms of
this Agreement, the prevailing party shall be entitled to recover from the non-
prevailing party, in addition to all other remedies, all costs of such
enforcement, including reasonable attorneys' fees and costs and including trial
and appellate proceedings.
27. GENDER, ETC. Words used herein, regardless of the number and gender
specifically used, shall be deemed and construed to include any other number,
singular or plural, and any other gender, masculine, feminine or neuter, as the
context indicates is appropriate.
IN WITNESS WHEREOF, the undersigned have hereunto set their hands on the
date first written above.
EMPLOYEE:
/s/ Louis R. Woodhill
----------------------
Louis R. Woodhill
EMPLOYER:
MISSION CRITICAL SOFTWARE, INC.
a Delaware Corporation
By: /s/ Thomas P. Bernhardt
--------------------------------
Name: Thomas P. Bernhardt
------------------------------
Title: CEO
-----------------------------
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SCHEDULE A
LEAVE
During the Term of this Agreement, Employee shall be entitled to seven
and one-half (7 1/2) additional days of leave, to be taken in accordance with
Employer's regular vacation policies.
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SCHEDULE B
BENEFITS
Life Insurance - None
Health Insurance - Major Medical, Personal, Family and Dependent Coverage and
Dental Insurance Coverage on such terms as Employer may establish for all of its
employees.
Disability Insurance - None
Other Fringe benefits - None
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EXHIBIT 10.9
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into
effective as of September 4, 1996, by and between JAMES R. WOODHILL (hereinafter
"EMPLOYEE"), and MISSION CRITICAL SOFTWARE, INC., a Delaware corporation having
its principal office at 12600 Northborough, Suite 362, Houston, Texas 77067
(hereinafter "EMPLOYER").
W I T N E S S E T H:
This Agreement is made and entered into under the following circumstances:
(1) Whereas, Employer intends to carry out the business plan developed and
implemented by Employer for the development, marketing and sale of the software
products and systems sold by Mission critical Software I, Inc. to Employer which
products and systems are known as the "Enterprise Administrator" for the
administration of security systems for access to networked personal computer
systems and any other products, systems or services that Employer may hereafter
develop, market or sell (the "BUSINESS ACTIVITIES"); and
(2) Whereas Employer desires, on the terms and conditions stated herein, to
employ Employee; and
(3) Whereas Employee desires, on the terms and conditions stated herein, to
be employed by Employer.
NOW, THEREFORE, in consideration of the foregoing recitals, and of the
promises, covenants, terms and conditions contained herein, the parties hereto
agree as follows:
1. EMPLOYMENT. Employer hereby employs Employee, and Employee hereby
accepts employment with Employer commencing September 4, 1996 (hereinafter the
"EFFECTIVE DATE") and continuing until terminated as provided in Section 7
hereof (hereinafter the "TERM OF EMPLOYMENT").
2. DUTIES. Employee shall serve as Vice President of Employer. Employee
shall serve in such position and perform the duties and functions as are normal
and customary to such position as well as any other duties delegated to Employee
by the Board of Directors during the Term of Employment. Employee agrees that
Employee's employment with Employer shall be the exclusive, full-time employment
of Employee.
3. BASE COMPENSATION AND INCENTIVE COMPENSATION. During the Term of
Employment, Employee shall be entitled to annual base compensation as set forth
on SCHEDULE A, payable in equal semi-monthly installments in accordance with the
normal payroll procedures of Employer. Employee shall be entitled to incentive
compensation as set form on SCHEDULE A.
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4. STATUS OF EMPLOYEE. The parties expressly acknowledge that Employee, in
the performance of services hereunder, is an employee of Employer. Accordingly,
Employer shall deduct from all compensation paid to Employee pursuant to this
Agreement any sums required by law or any other requirement of any governmental
body.
5. VACATION/PERSONAL TIME. Employee shall be entitled to paid leave for
vacation, and illness, as provided on the attached SCHEDULE A. Employee shall
not be entitled to any additional paid absences for any reason. Unused holidays
and days of vacation may not be carried over from one fiscal year to another,
and additional income will not be given for vacation time or holidays not taken
during any year. Employer and Employee shall mutually agree on the scheduling of
Employee's vacation, holiday and leave time.
6. FRINGE BENEFITS. Employer shall provide to Employee, at Employer's
expense, the fringe benefits set forth on the attached SCHEDULE B.
7. TERMINATION. Notwithstanding any other provisions of this Agreement,
the Term of Employment shall terminate upon:
a. the death of Employee; or,
b. Employee's "disability" (For purposes of this Agreement, the term
"disability" shall mean the inability of Employee, arising out of any medically
determinable physical or mental impairment, to perform the services required of
him hereunder for a period of sixty (60) consecutive days during which sixty
(60) day period Employee's compensation hereunder shall continue);
c. six (6) months' prior written notice from Employer to Employee,
without cause, provided that, in lieu of such notice, Employer shall pay to
Employee six (6) months; salary as severance compensation, payable either in a
lump sum or over such six month period in accordance with Employer's usual
compensation practices (the "Severance Amount"); or
d. thirty (30) days prior written notice from Employee to Employer.
e. at Employer's option, immediately upon the existence of "cause."
For purposes of this Agreement, the term "cause" shall be defined as:
(1) willful and continued failure of Employee to substantially
perform the duties required of him in this Agreement in a manner
satisfactory to Employer, in the sole discretion of a majority of the
members of the Board of Directors, exercised in good faith; provided,
however, that the Term of Employment shall not be terminated pursuant to
this subparagraph (1)unless Employer first gives Employee a written notice
("NOTICE OF DEFICIENCY"). The Notice of Deficiency shall specify the
deficiencies in Employee's performance of his duties. Employee shall have a
period of thirty (30) days, commencing on receipt of the Notice of
Deficiency, in which to cure the deficiencies contained in the Notice of
Deficiency. If Employee does not cure
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the deficiencies to the reasonable satisfaction of Employer, in Employer's
sole reasonable discretion, within such thirty (30) day period, the
Employer shall have the right to immediately terminate the Term of
Employment and this Agreement. The provisions of this subparagraph (1) may
be invoked by Employer any number of times and cure of deficiencies
contained in any Notice of Deficiency shall not be construed as a waiver of
this subparagraph (1) nor prevent the Employer from issuing any subsequent
Notices of Deficiency;
(2) the willful engaging by Employee in misconduct which is
materially injurious to Employer or its affiliates, monetarily or
otherwise;
(3) any dishonesty by Employee in his dealings with the Employer,
the commission of fraud by Employee, or negligence in the performance of
the duties of Employee;
(4) the arrest or conviction (or plea of guilty or nolo contendere)
of Employee of any felony or other crime involving dishonesty or moral
turpitude;
(5) any violation of any covenant or restriction contained in
Section 11 or Section 12 hereof; or
(6) unlawful use of narcotics or other controlled substances, or
use of alcohol or other drugs in a manner the Employer reasonably
determines to be adverse to the best interests of the Employer.
For all purposes of this Agreement, termination for "cause" shall be deemed
to have occurred if Employee's resignation when, because of existing facts and
circumstances, subsequent termination for "cause" can reasonably be foreseen.
For all purposes of this Agreement, no act, or failure to act, on Employee's
part shall be considered "willful" unless done, or omitted to be done, by him
not in good faith and without reasonable belief that his action or omission was
in, or not opposed to, the best interest of Employer or its affiliates.
Upon termination of this Agreement, Employee or Employee's estate, as
appropriate, shall be entitled to receive (in addition to any fringe benefits
payable upon death in the case of Employee's death) the compensation provided
for in Section 3 hereof (prorated on a daily basis) up to and including the
effective date of termination.
8. EFFECTS OF TERMINATION. Upon termination of this Agreement, neither
party shall have any further obligations hereunder except for (i) obligations
accruing prior to the date of termination and (ii) obligations, promises or
covenants contained herein which are expressly made to extend beyond the term of
this Agreement, including, without limitation, confidentiality of information,
indemnities and Employee's covenants not to compete (which covenants and
agreements shall survive the termination or expiration of this Agreement). The
termination of this Agreement, for whatever reason, shall not extinguish those
obligations of Employee specified in the Restrictive Covenants (hereinafter
defined), nor shall the same extinguish the
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right of either party to bring an action, either in law or in equity, for breach
of this Agreement by the other party.
9. TRANSITION FOLLOWING NOTICE OF TERMINATION. Following any notice of
termination of employment hereunder, whether given by Employer or Employee,
Employee will fully cooperate with Employer in all matters relating to the
winding up of Employee's pending work on behalf of Employer and the orderly
transfer of such work to the other professional employees of Employer. On or
after the giving of notice of termination hereunder and during any notice
period, Employer will be entitled to such full-time or part-time services of
Employee as Employer may reasonably require in accordance with the terms hereof,
and Employer will specifically have the right to terminate the active services
of Employee at the time such notice is given and to pay to Employee the
Severance Amount if such amount is due pursuant to Section 7(c) hereof.
10. TERRITORY. In recognition of the existing and potential worldwide
Business Activities of Employer, Employer and Employee agree that the terms of
this Agreement shall apply to any Prohibited Activities (as defined below)
engaged by Employee anywhere in the world including all states and territories
of the United States of America. Prohibited Activities shall include (without
limitation) any activities which would be in breach of the covenants contained
in Sections 11 and 12 below.
11. NON-COMPETITION. While Employee is employed by Employer and for a
period of one (1) year after termination or cessation such employment for any
reason Employee shall not, without employer's prior written consent, as a
principal, employee, consultant, partner, or stockholder of, or in any other
capacity with, any "business enterprise" (as that term is defined below) (other
than in any capacity as a holder of not more than 1% of the combined voting
power of the outstanding stock of a publicly held company) (a) engage in
competition with Employer, (b) conduct a business of the type or character
engaged in by Employer at the time of termination or cessation of Employee's
employment, or (c) develop, market, sell, and/or distribute products or services
competitive with those of Employer. As used herein, the term "business
enterprise" shall mean any corporation, partnership, association, sole
proprietorship or any other entity competing with Employer or directly involved
in the development, marketing, sales, and/or distribution of products or
services which, during the time of Employee's employment by Employer, were
developed, under active development, under consideration for development,
marketed, sold, and/or distributed by Employer.
12. NON-DISCLOSURE: NON-SOLICITATION. Except in the performance of his
duties hereunder, at no time during the Term of Employment or at any time
thereafter shall Employee, individually or jointly with others, for the benefit
of Employee or any third party, publish, disclose, use of authorize anyone else
to publish, disclose or use, any secret or confidential material or information
relating to any aspect of the business or operations of Employer or any
information regarding the business methods, business policies, procedures,
techniques, or trade secrets, or other knowledge or processes of or developed by
Employer (and/or any other Employee or agent of Employer), any affiliate of the
Employer, or any entity in which the Employer has an interest, including,
without limitation, any secret or confidential information
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relating to the business, customers, financial position, trade or industrial
practices, trade secrets, technology or know-how of the Employer or Employer's
affiliates. Moreover, while Employee is employed by Employer and for a period of
two years thereafter, Employee shall not directly or in any other capacity,
employ any person or hire or contract with, as a consultant or other independent
agent or independent contractor, any person or entity (other than Employee) who
was employed by or acted as an agent for, consultant to, or independent
contractor of the Employer, any affiliate of the Employer, or any entity in
which the Employer has an interest, at any time during the Term of Employment;
provided that the prohibitions contained in this sentence shall exclude persons
or entities not directly involved in the development, marketing, sales, and/or
distribution of products or services which, during the time of Employee's
employment by Employer, were developed, under active development, under
consideration for development, marketed, sold and/or distributed by Employer. In
addition, while Employee is employed by Employer and for a continuous period of
two (2) years thereafter, Employee shall not solicit, divert or take away, or
attempt to divert or take away, the business or patronage of any of the clients,
customers or accounts, or prospective clients, customers or accounts, of
Employer which were contacted, solicited or served by Employee while employed by
Employer in connection with products or services which, during the time of
Employee's employment by Employer, were developed, under active development,
under consideration for development, marketed, sold, and/or distributed by
Employer.
13. REASONABLENESS OF RESTRICTIONS; REFORMATION; ENFORCEMENT. The parties
hereto recognize and acknowledge that the geographical and time limitations
contained in Sections 11 and 12 hereof (hereinafter the "RESTRICTIVE COVENANTS")
are reasonable and properly required for the adequate protection of Employer's
interest. Employee acknowledges that Employer will provide to Employee
confidential information concerning the Employer's and Employer's affiliates'
business methods and operating practices in reliance on the covenants contained
in the Restrictive Covenants. It is agreed by the parties hereto that if any
portion of the restrictions contained in the Restrictive Covenants are held to
be unreasonable, arbitrary or against public policy, then the restrictions shall
be considered divisible, both as to the time and to the geographical area, with
each month of the specified period being deemed a separate period of time and
each radius mile of the restricted territory being deemed a separate
geographical area, so that the lesser period of time or geographical area shall
remain effective so long as the same is not unreasonable, arbitrary or against
public policy. The parties hereto agree that if any court of competent
jurisdiction determines the specified period or the specified geographical area
of the restricted territory to be unreasonable, arbitrary or against public
policy, a lesser time period or geographical area which is determined to be
reasonable, nonarbitrary and not against public policy may be enforced against
Employee. If Employee shall violate any of the covenants contained herein and
if any court action is instituted by the Employer to prevent or enjoin such
violation, then the period of time during which the Employee's business
activities shall be restricted, as provided in this Agreement, shall be
lengthened by a period of time equal to the period between the date of the
Employee's breach of the terms or covenants contained in this Agreement and the
date on which the decree of the court disposing of the issues upon the merits
shall become final and not subject to further appeal.
5
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14. NO REMEDY AT LAW. Employee agrees that the remedy at law for any
breach by him of the Restrictive Covenants will be inadequate and would be
difficult to ascertain and therefore, in the event of the breach or threatened
breach of any such covenants, the Employer, in addition to any and all other
remedies, shall have the right to enjoin Employee from any threatened or actual
activities in violation thereof; and Employee hereby consents and agrees that
temporary and permanent injunctive relief may be granted in any proceedings
which might be brought to enforce any such covenants without the necessity of
proof of actual damages and without necessity of posting a bond in cash or
otherwise. If Employer does apply for such an injunction, Employee shall not
raise as a defense thereto that the Employer has an adequate remedy at law.
15. ASSIGNABILITY. This Agreement and the rights and duties created
hereunder shall not be assignable or delegable by Employee. Employer may, at
Employer's option and without consent of Employee, assign its rights and duties
hereunder to any successor entity or transferee of Employer's assets.
16. NOTICES. All notices or other communications provided for herein to
be given or sent to a party by the other party shall be deemed validly given or
sent if in writing and mailed, postage prepaid, by registered or certified
United States mail or hand delivered or sent by facsimile, addressed to the
parties at their addresses hereinabove set forth. Any party may give notice to
the other party at any time, by the method specified above, of a change in the
address at which, or the person to whom, notice is to be addressed.
17. SEVERABILITY. Each section, subsection and lesser section of this
Agreement constitutes a separate and distinct undertaking, covenant or provision
hereof. If that any provision of this Agreement shall be determined to be
invalid or unenforceable, such provision shall be deemed limited by construction
in scope and effect to the minimum extent necessary to render the same valid and
enforceable, and, if such a limiting construction is impossible, such invalid or
unenforceable provision shall be deemed severed from this Agreement, but every
other provision of this Agreement shall remain in full force and effect.
18. WAIVER. The failure of a party to enforce any term, provision or
condition of this Agreement at any time or times shall not be deemed a waiver of
that term, provision or condition for the future, nor shall any specific waiver
of a term, provision or condition at one time be deemed a waiver of such term,
provision or condition for any future time or times.
19. PARTIES. This Agreement shall be binding upon, and shall inure to the
benefit of, the parties hereto and their heirs, personal representative, legal
representatives, and proper successors and assigns, as the case may be.
20. GOVERNING LAW. The validity, interpretation and performance of this
Agreement shall be governed by the laws of the State of Texas, without giving
effect to the principles of comity or conflicts of laws thereof. Each party
hereto agrees to submit to the personal jurisdiction and venue of the state and
federal courts having jurisdiction over Harris County, Texas, for a resolution
of all disputes arising in connection with the interpretation, construction,
6
<PAGE>
and enforcement of this Agreement, and hereby waives the claim or defense
therein that such courts constitute an inconvenient forum.
21. CAPTIONS. The captions of this Agreement have been assigned thereto
for convenience only, and shall not be construed to limit, define or modify the
substantive terms hereof.
22. ENTIRE AGREEMENT; COUNTERPARTS. This Agreement constitutes the entire
agreement between the parties hereto concerning the subject matter hereof, and
supersedes all prior agreements, memoranda, correspondence, conversations and
negotiations. This Agreement may be executed in several counterparts that
together shall constitute but one and the same Agreement.
23. COSTS OF ENFORCEMENT. If it is necessary for any party to retain the
services of an attorney or to initiate legal proceedings to enforce the terms of
this Agreement, the prevailing party shall be entitled to recover from the non-
prevailing party, in addition to all other remedies, all costs of such
enforcement, including reasonable attorneys' fees and costs and including trial
and appellate proceedings.
24. GENDER, ETC. Words used herein, regardless of the number and gender
specifically used, shall be deemed and construed to include any other number,
singular or plural, and any other gender, masculine, feminine or neuter, as the
context indicates is appropriate.
7
<PAGE>
IN WITNESS WHEREOF, the undersigned have hereunto set their hands on the
date first written above.
EMPLOYEE:
/s/ James R. Woodhill
-------------------------------
James R. Woodhill
EMPLOYER:
MISSION CRITICAL SOFTWARE, INC.
a Delaware Corporation
By: /s/ Louis R. Woodhill
---------------------------
Name: LOUIS R. WOODHILL
------------------------
Title: President
------------------------
8
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SCHEDULE A
COMPENSATION and LEAVE POLICIES
BASE COMPENSATION
Employee shall be paid a base salary of One Hundred Twenty Thousand Dollars
($120,000.00) per annum.
INCENTIVE COMPENSATION
There shall be no incentive compensation other than participation in such
incentive stock option plans as the Board of Directors or Compensation Committee
may establish from time to time on such terms the Board of Directors or
Compensation Committee may decide.
LEAVE
Employee shall be entitled to leave of three (3) weeks per annum, to be
taken in accordance with Employer's regular vacation policies.
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SCHEDULE B
BENEFITS
Life Insurance - None
Health Insurance - Major Medical, Personal, Family and Dependent Coverage and
Dental Insurance Coverage on such terms as Employer may establish for all of its
employees.
Disability Insurance - None
Other Fringe benefits - None
10
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EXHIBIT 10.10
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into
effective as of January 1, 1997, by and between THOMAS P. BERNHARDT (hereinafter
"EMPLOYEE"), and MISSION CRITICAL SOFTWARE, INC., a Delaware corporation having
its principal office at 720 North post Oak Road, Suite 505, Houston, Texas 77024
(hereinafter "EMPLOYER").
W I T N E S S E T H:
This Agreement is made and entered into under the following circumstances:
(1) Whereas, Employer intends to carry out the business plan developed and
implemented by Employer for the development, marketing and sale of the software
products and systems sold by Mission critical Software I, Inc. to Employer which
products and systems are known as the "Enterprise Administrator" for the
administration of security systems for access to networked personal computer
systems and any other products, systems or services that Employer may hereafter
develop, market or sell (the "BUSINESS ACTIVITIES"); and
(2) Whereas Employer desires, on the terms and conditions stated herein, to
employ Employee; and
(3) Whereas Employee desires, on the terms and conditions stated herein, to
be employed by Employer.
NOW, THEREFORE, in consideration of the foregoing recitals, and of the
promises, covenants, terms and conditions contained herein, the parties hereto
agree as follows:
1. EMPLOYMENT. Employer hereby employs Employee, and Employee hereby
accepts employment with Employer commencing January 1, 1997 (hereinafter the
"EFFECTIVE DATE") and continuing until terminated as provided in Section 7
hereof (hereinafter the "TERM OF EMPLOYMENT").
2. DUTIES. Employee shall serve as Vice President and Chief Technology
Officer of Employer. Employee shall serve in such position and perform the
duties and functions as are normal and customary to such position as well as any
other duties delegated to Employee by the Board of Directors during the Term of
Employment. Employee agrees that Employee's employment with Employer shall be
the exclusive, full-time employment of Employee.
3. BASE COMPENSATION AND INCENTIVE COMPENSATION. During the Term of
Employment, Employee shall be entitled to annual base compensation as set forth
on SCHEDULE A, payable in equal semi-monthly installments in accordance with the
normal payroll procedures of Employer. Employee shall be entitled to incentive
compensation as set form on SCHEDULE A.
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4. STATUS OF EMPLOYEE. The parties expressly acknowledge that Employee,
in the performance of services hereunder, is an employee of Employer.
Accordingly, Employer shall deduct from all compensation paid to Employee
pursuant to this Agreement any sums required by law or any other requirement of
any governmental body.
5. VACATION/PERSONAL TIME. Employee shall be entitled to paid leave for
vacation, and illness, as provided on the attached SCHEDULE A. Employee shall
not be entitled to any additional paid absences for any reason. Unused holidays
and days of vacation may not be carried over from one fiscal year to another,
and additional income will not be given for vacation time or holidays not taken
during any year. Employer and Employee shall mutually agree on the scheduling
of Employee's vacation, holiday and leave time.
6. FRINGE BENEFITS. Employer shall provide to Employee, at Employer's
expense, the fringe benefits set forth on the attached SCHEDULE B.
7. TERMINATION. Notwithstanding any other provisions of this Agreement,
the Term of Employment shall terminate upon:
a. the death of Employee; or,
b. Employee's "disability" (For purposes of this Agreement, the term
"disability" shall mean the inability of Employee, arising out of any medically
determinable physical or mental impairment, to perform the services required of
him hereunder for a period of sixty (60) consecutive days during which sixty
(60) day period Employee's compensation hereunder shall continue);
c. six (6) months' prior written notice from Employer to Employee,
without cause, provided that, in lieu of such notice, Employer shall pay to
Employee six (6) months; salary as severance compensation, payable either in a
lump sum or over such six month period in accordance with Employer's usual
compensation practices (the "Severance Amount"); or
d. thirty (30) days prior written notice from Employee to Employer.
e. at Employer's option, immediately upon the existence of "cause."
For purposes of this Agreement, the term "cause" shall be defined as:
(1) willful and continued failure of Employee to substantially
perform the duties required of him in this Agreement in a manner
satisfactory to Employer, in the sole discretion of a majority of the
members of the Board of Directors, exercised in good faith; provided,
however, that the Term of Employment shall not be terminated pursuant to
this subparagraph (1)unless Employer first gives Employee a written notice
("NOTICE OF DEFICIENCY"). The Notice of Deficiency shall specify the
deficiencies in Employee's performance of his duties. Employee shall have a
period of thirty (30) days, commencing on receipt of the Notice of
Deficiency, in which to cure the deficiencies contained in the Notice of
Deficiency. If Employee does not cure the
2
<PAGE>
deficiencies to the reasonable satisfaction of Employer, in Employer's sole
reasonable discretion, within such thirty (30) day period, the Employer
shall have the right to immediately terminate the Term of Employment and
this Agreement. The provisions of this subparagraph (1) may be invoked by
Employer any number of times and cure of deficiencies contained in any
Notice of Deficiency shall not be construed as a waiver of this
subparagraph (1) nor prevent the Employer from issuing any subsequent
Notices of Deficiency;
(2) the willful engaging by Employee in misconduct which is
materially injurious to Employer or its affiliates, monetarily or
otherwise;
(3) any dishonesty by Employee in his dealings with the Employer,
the commission of fraud by Employee, or negligence in the performance of
the duties of Employee;
(4) the arrest or conviction (or plea of guilty or nolo contendere)
of Employee of any felony or other crime involving dishonesty or moral
turpitude;
(5) any violation of any covenant or restriction contained in
Section 11 or Section 12 hereof; or
(6) unlawful use of narcotics or other controlled substances, or
use of alcohol or other drugs in a manner the Employer reasonably
determines to be adverse to the best interests of the Employer.
For all purposes of this Agreement, termination for "cause" shall be deemed
to have occurred if Employee's resignation when, because of existing facts and
circumstances, subsequent termination for "cause" can reasonably be foreseen.
For all purposes of this Agreement, no act, or failure to act, on Employee's
part shall be considered "willful" unless done, or omitted to be done, by him
not in good faith and without reasonable belief that his action or omission was
in, or not opposed to, the best interest of Employer or its affiliates.
Upon termination of this Agreement, Employee or Employee's estate, as
appropriate, shall be entitled to receive (in addition to any fringe benefits
payable upon death in the case of Employee's death) the compensation provided
for in Section 3 hereof (prorated on a daily basis) up to and including the
effective date of termination.
8. EFFECTS OF TERMINATION. Upon termination of this Agreement, neither
party shall have any further obligations hereunder except for (i) obligations
accruing prior to the date of termination and (ii) obligations, promises or
covenants contained herein which are expressly made to extend beyond the term of
this Agreement, including, without limitation, confidentiality of information,
indemnities and Employee's covenants not to compete (which covenants and
agreements shall survive the termination or expiration of this Agreement). The
termination of this Agreement, for whatever reason, shall not extinguish those
obligations of Employee specified in the Restrictive Covenants (hereinafter
defined), nor shall the same extinguish the
3
<PAGE>
right of either party to bring an action, either in law or in equity, for breach
of this Agreement by the other party.
9. TRANSITION FOLLOWING NOTICE OF TERMINATION. Following any notice of
termination of employment hereunder, whether given by Employer or Employee,
Employee will fully cooperate with Employer in all matters relating to the
winding up of Employee's pending work on behalf of Employer and the orderly
transfer of such work to the other professional employees of Employer. On or
after the giving of notice of termination hereunder and during any notice
period, Employer will be entitled to such full-time or part-time services of
Employee as Employer may reasonably require in accordance with the terms hereof,
and Employer will specifically have the right to terminate the active services
of Employee at the time such notice is given and to pay to Employee the
Severance Amount if such amount is due pursuant to Section 7(c) hereof.
10. TERRITORY. In recognition of the existing and potential worldwide
Business Activities of Employer, Employer and Employee agree that the terms of
this Agreement shall apply to any Prohibited Activities (as defined below)
engaged by Employee anywhere in the world including all states and territories
of the United States of America. Prohibited Activities shall include (without
limitation) any activities which would be in breach of the covenants contained
in Sections 11 and 12 below.
11. NON-COMPETITION. While Employee is employed by Employer and for a
period of one (1) year after termination or cessation such employment for any
reason Employee shall not, without employer's prior written consent, as a
principal, employee, consultant, partner, or stockholder of, or in any other
capacity with, any "business enterprise" (as that term is defined below) (other
than in any capacity as a holder of not more than 1% of the combined voting
power of the outstanding stock of a publicly held company) (a) engage in
competition with Employer, (b) conduct a business of the type or character
engaged in by Employer at the time of termination or cessation of Employee's
employment, or (c) develop, market, sell, and/or distribute products or services
competitive with those of Employer. As used herein, the term "business
enterprise" shall mean any corporation, partnership, association, sole
proprietorship or any other entity competing with Employer or directly involved
in the development, marketing, sales, and/or distribution of products or
services which, during the time of Employee's employment by Employer, were
developed, under active development, under consideration for development,
marketed, sold, and/or distributed by Employer.
12. NON-DISCLOSURE: NON-SOLICITATION. Except in the performance of his
duties hereunder, at no time during the Term of Employment or at any time
thereafter shall Employee, individually or jointly with others, for the benefit
of Employee or any third party, publish, disclose, use of authorize anyone else
to publish, disclose or use, any secret or confidential material or information
relating to any aspect of the business or operations of Employer or any
information regarding the business methods, business policies, procedures,
techniques, or trade secrets, or other knowledge or processes of or developed by
Employer (and/or any other Employee or agent of Employer), any affiliate of the
Employer, or any entity in which the Employer has an interest, including,
without limitation, any secret or confidential information
4
<PAGE>
relating to the business, customers, financial position, trade or industrial
practices, trade secrets, technology or know-how of the Employer or Employer's
affiliates. Moreover, while Employee is employed by Employer and for a period of
two years thereafter, Employee shall not directly or in any other capacity,
employ any person or hire or contract with, as a consultant or other independent
agent or independent contractor, any person or entity (other than Employee) who
was employed by or acted as an agent for, consultant to, or independent
contractor of the Employer, any affiliate of the Employer, or any entity in
which the Employer has an interest, at any time during the Term of Employment;
provided that the prohibitions contained in this sentence shall exclude persons
or entities not directly involved in the development, marketing, sales, and/or
distribution of products or services which, during the time of Employee's
employment by Employer, were developed, under active development, under
consideration for development, marketed, sold and/or distributed by Employer. In
addition, while Employee is employed by Employer and for a continuous period of
two (2) years thereafter, Employee shall not solicit, divert or take away, or
attempt to divert or take away, the business or patronage of any of the clients,
customers or accounts, or prospective clients, customers or accounts, of
Employer which were contacted, solicited or served by Employee while employed by
Employer in connection with products or services which, during the time of
Employee's employment by Employer, were developed, under active development,
under consideration for development, marketed, sold, and/or distributed by
Employer.
13. REASONABLENESS OF RESTRICTIONS; REFORMATION; ENFORCEMENT. The parties
hereto recognize and acknowledge that the geographical and time limitations
contained in Sections 11 and 12 hereof (hereinafter the "RESTRICTIVE COVENANTS")
are reasonable and properly required for the adequate protection of Employer's
interest. Employee acknowledges that Employer will provide to Employee
confidential information concerning the Employer's and Employer's affiliates'
business methods and operating practices in reliance on the covenants contained
in the Restrictive Covenants. It is agreed by the parties hereto that if any
portion of the restrictions contained in the Restrictive Covenants are held to
be unreasonable, arbitrary or against public policy, then the restrictions shall
be considered divisible, both as to the time and to the geographical area, with
each month of the specified period being deemed a separate period of time and
each radius mile of the restricted territory being deemed a separate
geographical area, so that the lesser period of time or geographical area shall
remain effective so long as the same is not unreasonable, arbitrary or against
public policy. The parties hereto agree that if any court of competent
jurisdiction determines the specified period or the specified geographical area
of the restricted territory to be unreasonable, arbitrary or against public
policy, a lesser time period or geographical area which is determined to be
reasonable, nonarbitrary and not against public policy may be enforced against
Employee. If Employee shall violate any of the covenants contained herein and
if any court action is instituted by the Employer to prevent or enjoin such
violation, then the period of time during which the Employee's business
activities shall be restricted, as provided in this Agreement, shall be
lengthened by a period of time equal to the period between the date of the
Employee's breach of the terms or covenants contained in this Agreement and the
date on which the decree of the court disposing of the issues upon the merits
shall become final and not subject to further appeal.
5
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14. NO REMEDY AT LAW. Employee agrees that the remedy at law for any
breach by him of the Restrictive Covenants will be inadequate and would be
difficult to ascertain and therefore, in the event of the breach or threatened
breach of any such covenants, the Employer, in addition to any and all other
remedies, shall have the right to enjoin Employee from any threatened or actual
activities in violation thereof; and Employee hereby consents and agrees that
temporary and permanent injunctive relief may be granted in any proceedings
which might be brought to enforce any such covenants without the necessity of
proof of actual damages and without necessity of posting a bond in cash or
otherwise. If Employer does apply for such an injunction, Employee shall not
raise as a defense thereto that the Employer has an adequate remedy at law.
15. ASSIGNABILITY. This Agreement and the rights and duties created
hereunder shall not be assignable or delegable by Employee. Employer may, at
Employer's option and without consent of Employee, assign its rights and duties
hereunder to any successor entity or transferee of Employer's assets.
16. NOTICES. All notices or other communications provided for herein to
be given or sent to a party by the other party shall be deemed validly given or
sent if in writing and mailed, postage prepaid, by registered or certified
United States mail or hand delivered or sent by facsimile, addressed to the
parties at their addresses hereinabove set forth. Any party may give notice to
the other party at any time, by the method specified above, of a change in the
address at which, or the person to whom, notice is to be addressed.
17. SEVERABILITY. Each section, subsection and lesser section of this
Agreement constitutes a separate and distinct undertaking, covenant or provision
hereof. If that any provision of this Agreement shall be determined to be
invalid or unenforceable, such provision shall be deemed limited by construction
in scope and effect to the minimum extent necessary to render the same valid and
enforceable, and, if such a limiting construction is impossible, such invalid or
unenforceable provision shall be deemed severed from this Agreement, but every
other provision of this Agreement shall remain in full force and effect.
18. WAIVER. The failure of a party to enforce any term, provision or
condition of this Agreement at any time or times shall not be deemed a waiver of
that term, provision or condition for the future, nor shall any specific waiver
of a term, provision or condition at one time be deemed a waiver of such term,
provision or condition for any future time or times.
19. PARTIES. This Agreement shall be binding upon, and shall inure to the
benefit of, the parties hereto and their heirs, personal representative, legal
representatives, and proper successors and assigns, as the case may be.
20. GOVERNING LAW. The validity, interpretation and performance of this
Agreement shall be governed by the laws of the State of Texas, without giving
effect to the principles of comity or conflicts of laws thereof. Each party
hereto agrees to submit to the personal jurisdiction and venue of the state and
federal courts having jurisdiction over Harris County, Texas, for a resolution
of all disputes arising in connection with the interpretation, construction,
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and enforcement of this Agreement, and hereby waives the claim or defense
therein that such courts constitute an inconvenient forum.
21. CAPTIONS. The captions of this Agreement have been assigned thereto
for convenience only, and shall not be construed to limit, define or modify the
substantive terms hereof.
22. ENTIRE AGREEMENT; COUNTERPARTS. This Agreement constitutes the entire
agreement between the parties hereto concerning the subject matter hereof, and
supersedes all prior agreements, memoranda, correspondence, conversations and
negotiations. This Agreement may be executed in several counterparts that
together shall constitute but one and the same Agreement.
23. COSTS OF ENFORCEMENT. If it is necessary for any party to retain the
services of an attorney or to initiate legal proceedings to enforce the terms of
this Agreement, the prevailing party shall be entitled to recover from the non-
prevailing party, in addition to all other remedies, all costs of such
enforcement, including reasonable attorneys' fees and costs and including trial
and appellate proceedings.
24. GENDER, ETC. Words used herein, regardless of the number and gender
specifically used, shall be deemed and construed to include any other number,
singular or plural, and any other gender, masculine, feminine or neuter, as the
context indicates is appropriate.
7
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IN WITNESS WHEREOF, the undersigned have hereunto set their hands on the
date first written above.
EMPLOYEE:
/s/ Thomas P. Bernhardt
------------------------------
Thomas P. Bernhardt
EMPLOYER:
MISSION CRITICAL SOFTWARE, INC.
a Delaware Corporation
By: /s/ Louis R. Woodhill
------------------------------
Name: LOUIS R. WOODHILL
----------------------------
Title: President
---------------------------
8
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SCHEDULE A
COMPENSATION and LEAVE POLICIES
BASE COMPENSATION
Employee shall be paid a base salary of One Hundred Fifty Thousand Dollars
($150,000.00) per annum.
INCENTIVE COMPENSATION
There shall be no incentive compensation other than participation in such
incentive stock option plans as the Board of Directors or Compensation Committee
may establish from time to time on such terms the Board of Directors or
Compensation Committee may decide.
LEAVE
Employee shall be entitled to leave of three (3) weeks per annum, to be
taken in accordance with Employer's regular vacation policies.
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SCHEDULE B
BENEFITS
Life Insurance - None
Health Insurance - Major Medical, Personal, Family and Dependent Coverage and
Dental Insurance Coverage on such terms as Employer may establish for all of its
employees.
Disability Insurance - None
Other Fringe benefits - None
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EXHIBIT 10.10.1
CONSULTING AGREEMENT
THIS CONSULTING AGREEMENT (the "Agreement") is made and entered into
effective as of September 4, 1996, by and between THOMAS P. BERNHARDT
(hereinafter "CONSULTANT"), and MISSION CRITICAL SOFTWARE, INC., a Delaware
corporation having its principal office at 720 North post Oak Road, Suite 505,
Houston, Texas 77024 (hereinafter "COMPANY").
W I T N E S S E T H:
- - - - - - - - - -
This Agreement is made and entered into under the following circumstances:
(1) Whereas, Company intends to carry out the business plan developed and
implemented by Company for the development, marketing and sale of the software
products and systems sold by Mission critical Software I, Inc. to Company which
products and systems are known as the "Enterprise Administrator" for the
administration of security systems for access to networked personal computer
systems and any other products, systems or services that Company may hereafter
develop, market or sell (the "BUSINESS ACTIVITIES"); and
(2) Whereas Company desires, on the terms and conditions stated herein, to
engage Consultant; and
(3) Whereas Consultant desires, on the terms and conditions stated herein,
to be engaged by Company.
NOW, THEREFORE, in consideration of the foregoing recitals, and of the
promises, covenants, terms and conditions contained herein, the parties hereto
agree as follows:
1. ENGAGEMENT AND TERM. Company hereby engages Consultant, and Consultant
hereby accepts engagement as a consultant by the Company commencing September 4,
1996 (hereinafter the "EFFECTIVE DATE") and continuing until terminated as
provided in Section 7 hereof (hereinafter the "TERM OF ENGAGEMENT").
2. DUTIES. Consultant shall serve as a consultant to the Company with
respect to Company's Business Activities. Company agrees that Consultant's
engagement with Company shall not be the exclusive, full-time engagement of
Consultant and Consultant may engage in other full time employment.
3. BASE COMPENSATION AND INCENTIVE COMPENSATION. During the Term of
Engagement, Consultant shall be entitled to annual base fees as set forth on
SCHEDULE A, payable in equal semi-monthly installments. Consultant shall be
entitled to incentive compensation as set form on SCHEDULE A.
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4. STATUS OF CONSULTANT. The parties expressly acknowledge that
Consultant, in the performance of services hereunder, is an independent
contractor. Accordingly, Company shall not deduct from fees paid to Consultant
pursuant to this Agreement any sums required by law or any other requirement of
any governmental body to be deducted as employee withholding or otherwise.
5. CONSULTING TIME. Company and Consultant shall mutually agree on the
times Consultant shall be available for consulting which time shall not be fewer
than 50 hours per month.
6. FRINGE BENEFITS. Consultant is not an employee and shall not be
entitled to any fringe benefits.
7. TERMINATION. Notwithstanding any other provisions of this Agreement,
the Term of Engagement shall terminate upon:
a. the death of Consultant; or,
b. Consultant's "disability" (For purposes of this Agreement, the term
"disability" shall mean the inability of Consultant, arising out of any
medically determinable physical or mental impairment, to perform the services
required of him hereunder for a period of sixty (60) consecutive days during
which sixty (60) day period Consultant's compensation hereunder shall continue);
c. six (6) months' prior written notice from Company to Consultant,
without cause, provided that, in lieu of such notice, Company shall pay to
Consultant six (6) months; salary as severance compensation, payable either in a
lump sum or over such six month period in accordance with Company's usual
compensation practices (the "Severance Amount"); or
d. thirty (30) days prior written notice from Consultant to Company.
e. at Company's option, immediately upon the existence of "cause." For
purposes of this Agreement, the term "cause" shall be defined as:
(1) the willful engaging by Consultant in misconduct which is materially
injurious to Company or its affiliates, monetarily or otherwise;
(2) any dishonesty by Consultant in his dealings with the Company, the
commission of fraud by Consultant, or negligence in the performance of the
duties of Consultant;
(3) the arrest or conviction (or plea of guilty or nolo contendere) of
Consultant of any felony or other crime involving dishonesty or moral
turpitude;
2
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(4) any violation of any covenant or restriction contained in Section 11 or
Section 12 hereof; or
(5) unlawful use of narcotics or other controlled substances, or use of
alcohol or other drugs in a manner the Company reasonably determines to be
adverse to the best interests of the Company.
For all purposes of this Agreement, termination for "cause" shall be deemed
to have occurred if Consultant's resignation when, because of existing facts and
circumstances, subsequent termination for "cause" can reasonably be foreseen.
For all purposes of this Agreement, no act, or failure to act, on Consultant's
part shall be considered "willful" unless done, or omitted to be done, by him
not in good faith and without reasonable belief that his action or omission was
in, or not opposed to, the best interest of Company or its affiliates.
Upon termination of this Agreement, Consultant or Consultant's estate, as
appropriate, shall be entitled to receive (in addition to any fringe benefits
payable upon death in the case of Consultant's death) the compensation provided
for in Section 3 hereof (prorated on a daily basis) up to and including the
effective date of termination.
8. EFFECTS OF TERMINATION. Upon termination of this Agreement, neither
party shall have any further obligations hereunder except for (i) obligations
accruing prior to the date of termination and (ii) obligations, promises or
covenants contained herein which are expressly made to extend beyond the term of
this Agreement, including, without limitation, confidentiality of information,
indemnities and Consultant's covenants not to compete (which covenants and
agreements shall survive the termination or expiration of this Agreement). The
termination of this Agreement, for whatever reason, shall not extinguish those
obligations of Consultant specified in the Restrictive Covenants (hereinafter
defined), nor shall the same extinguish the right of either party to bring an
action, either in law or in equity, for breach of this Agreement by the other
party.
9. TRANSITION FOLLOWING NOTICE OF TERMINATION. Following any notice of
termination of engagement hereunder, whether given by Company or Consultant,
Consultant will fully cooperate with Company in all matters relating to the
winding up of Consultant's pending work on behalf of Company and the orderly
transfer of such work to the other professional employees of Company. On or
after the giving of notice of termination hereunder and during any notice
period, Company will be entitled to such full-time or part-time services of
Consultant as Company may reasonably require in accordance with the terms
hereof, and Company will specifically have the right to terminate the active
services of Consultant at the time such notice is given and to pay to Consultant
the Severance Amount if such amount is due pursuant to Section 7(c) hereof.
10. TERRITORY. In recognition of the existing and potential worldwide
Business Activities of Company, Company and Consultant agree that the terms of
this Agreement shall apply to any Prohibited Activities (as defined below)
engaged by Consultant anywhere in the world including all states and territories
of the United Sates of America. Prohibited Activities
3
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shall include (without limitation) any activities which would be in breach of
the covenants contained in Sections 11 and 12 below.
11. NON-COMPETITION. While Consultant is employed by Company and for a
period of one (1) year after termination or cessation such engagement for any
reason Consultant shall not, without employer's prior written consent, as a
principal, employee, consultant, partner, or stockholder of, or in any other
capacity with, any "business enterprise" (as that term is defined below) (other
than in any capacity as a holder of not more than 1% of the combined voting
power of the outstanding stock of a publicly held company) (a) engage in
competition with Company, (b) conduct a business of the type or character
engaged in by Company at the time of termination or cessation of Consultant's
engagement, or (c) develop, market, sell, and/or distribute products or services
competitive with those of Company. As used herein, the term "business
enterprise" shall mean any corporation, partnership, association, sole
proprietorship or any other entity competing with Company or directly involved
in the development, marketing, sales, and/or distribution of products or
services which, during the time of Consultant's employment by Company, were
developed, under active development, under consideration for development,
marketed, sold, and/or distributed by Company.
12. NON-DISCLOSURE: NON-SOLICITATION. Except in the performance of his
duties hereunder, at no time during the Term of Employment or at any time
thereafter shall Consultant, individually or jointly with others, for the
benefit of Consultant or any third party, publish, disclose, use of authorize
anyone else to publish, disclose or use, any secret or confidential material or
information relating to any aspect of the business or operations of Company or
any information regarding the business methods, business policies, procedures,
techniques, or trade secrets, or other knowledge or processes of or developed by
Company (and/or any other Consultant or agent of Company), any affiliate of the
Company, or any entity in which the Company has an interest, including, without
limitation, any secret or confidential information relating to the business,
customers, financial position, trade or industrial practices, trade secrets,
technology or know-how of the Company or Company's affiliates. Moreover, while
Consultant is employed by Company and for a period of two years thereafter,
Consultant shall not directly or in any other capacity, employ any person or
hire or contract with, as a consultant or other independent agent or independent
contractor, any person or entity (other than Consultant) who was employed by or
acted as an agent for, consultant to, or independent contractor of the Company,
any affiliate of the Company, or any entity in which the Company has an
interest, at any time during the Term of Employment; provided that the
prohibitions contained in this sentence shall exclude persons or entities not
directly involved in the development, marketing, sales, and/or distribution of
products or services which, during the time of Consultant's employment by
Company, were developed, under active development, under consideration for
development, marketed, sold and/or distributed by Company. In addition, while
Consultant is employed by Company and for a continuous period of two (2) years
thereafter, Consultant shall not solicit, divert or take away, or attempt to
divert or take away, the business or patronage of any of the clients, customers
or accounts, or prospective clients, customers or accounts, of Company which
were contacted, solicited or served by Consultant while employed by Company in
connection with products or services which, during the time of Consultant's
employment by
4
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Company, were developed, under active development, under consideration for
development, marketed, sold, and/or distributed by Company.
13. REASONABLENESS OF RESTRICTIONS; REFORMATION; ENFORCEMENT. The parties
hereto recognize and acknowledge that the geographical and time limitations
contained in Sections 11 and 12 hereof (hereinafter the "RESTRICTIVE COVENANTS")
are reasonable and properly required for the adequate protection of Company's
interest. Consultant acknowledges that Company will provide to Consultant
confidential information concerning the Company's and Company's affiliates'
business methods and operating practices in reliance on the covenants contained
in the Restrictive Covenants. It is agreed by the parties hereto that if any
portion of the restrictions contained in the Restrictive Covenants are held to
be unreasonable, arbitrary or against public policy, then the restrictions shall
be considered divisible, both as to the time and to the geographical area, with
each month of the specified period being deemed a separate period of time and
each radius mile of the restricted territory being deemed a separate
geographical area, so that the lesser period of time or geographical area shall
remain effective so long as the same is not unreasonable, arbitrary or against
public policy. The parties hereto agree that if any court of competent
jurisdiction determines the specified period or the specified geographical area
of the restricted territory to be unreasonable, arbitrary or against public
policy, a lesser time period or geographical area which is determined to be
reasonable, nonarbitrary and not against public policy may be enforced against
Consultant. If Consultant shall violate any of the covenants contained herein
and if any court action is instituted by the Company to prevent or enjoin such
violation, then the period of time during which the Consultant's business
activities shall be restricted, as provided in this Agreement, shall be
lengthened by a period of time equal to the period between the date of the
Consultant's breach of the terms or covenants contained in this Agreement and
the date on which the decree of the court disposing of the issues upon the
merits shall become final and not subject to further appeal.
14. NO REMEDY AT LAW. Consultant agrees that the remedy at law for any
breach by him of the Restrictive Covenants will be inadequate and would be
difficult to ascertain and therefore, in the event of the breach or threatened
breach of any such covenants, the Company, in addition to any and all other
remedies, shall have the right to enjoin Consultant from any threatened or
actual activities in violation thereof; and Consultant hereby consents and
agrees that temporary and permanent injunctive relief may be granted in any
proceedings which might be brought to enforce any such covenants without the
necessity of proof of actual damages and without necessity of posting a bond in
cash or otherwise. If Company does apply for such an injunction, Consultant
shall not raise as a defense thereto that the Company has an adequate remedy at
law.
15. ASSIGNABILITY. This Agreement and the rights and duties created
hereunder shall not be assignable or delegable by Consultant. Company may, at
Company's option and without consent of Consultant, assign its rights and duties
hereunder to any successor entity or transferee of Company's assets.
5
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16. NOTICES. All notices or other communications provided for herein to
be given or sent to a party by the other party shall be deemed validly given or
sent if in writing and mailed, postage prepaid, by registered or certified
United States mail or hand delivered or sent by facsimile, addressed to the
parties at their addresses hereinabove set forth. Any party may give notice to
the other party at any time, by the method specified above, of a change in the
address at which, or the person to whom, notice is to be addressed.
17. SEVERABILITY. Each section, subsection and lesser section of this
Agreement constitutes a separate and distinct undertaking, covenant or provision
hereof. If that any provision of this Agreement shall be determined to be
invalid or unenforceable, such provision shall be deemed limited by construction
in scope and effect to the minimum extent necessary to render the same valid and
enforceable, and, if such a limiting construction is impossible, such invalid or
unenforceable provision shall be deemed severed from this Agreement, but every
other provision of this Agreement shall remain in full force and effect.
18. WAIVER. The failure of a party to enforce any term, provision or
condition of this Agreement at any time or times shall not be deemed a waiver of
that term, provision or condition for the future, nor shall any specific waiver
of a term, provision or condition at one time be deemed a waiver of such term,
provision or condition for any future time or times.
19. PARTIES. This Agreement shall be binding upon, and shall inure to the
benefit of, the parties hereto and their heirs, personal representative, legal
representatives, and proper successors and assigns, as the case may be.
20. GOVERNING LAW. The validity, interpretation and performance of this
Agreement shall be governed by the laws of the State of Texas, without giving
effect to the principles of comity or conflicts of laws thereof. Each party
hereto agrees to submit to the personal jurisdiction and venue of the state and
federal courts having jurisdiction over Harris County, Texas, for a resolution
of all disputes arising in connection with the interpretation, construction, and
enforcement of this Agreement, and hereby waives the claim or defense therein
that such courts constitute an inconvenient forum.
21. CAPTIONS. The captions of this Agreement have been assigned thereto
for convenience only, and shall not be construed to limit, define or modify the
substantive terms hereof.
22. ENTIRE AGREEMENT; COUNTERPARTS. This Agreement constitutes the entire
agreement between the parties hereto concerning the subject matter hereof, and
supersedes all prior agreements, memoranda, correspondence, conversations and
negotiations. This Agreement may be executed in several counterparts that
together shall constitute but one and the same Agreement.
23. COSTS OF ENFORCEMENT. If it is necessary for any party to retain the
services of an attorney or to initiate legal proceedings to enforce the terms of
this Agreement, the prevailing party shall be entitled to recover from the non-
prevailing party, in addition to all other remedies,
6
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all costs of such enforcement, including reasonable attorneys' fees and costs
and including trial and appellate proceedings.
24. GENDER, ETC. Words used herein, regardless of the number and gender
specifically used, shall be deemed and construed to include any other number,
singular or plural, and any other gender, masculine, feminine or neuter, as the
context indicates is appropriate.
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IN WITNESS WHEREOF, the undersigned have hereunto set their hands on the
date first written above.
EMPLOYEE:
/s/ Thomas P. Bernhardt
---------------------------
Thomas P. Bernhardt
EMPLOYER:
MISSION CRITICAL SOFTWARE, INC.
a Delaware Corporation
By: /s/ Louis R. Woodhill
-------------------------
Name: LOUIS R. WOODHILL
-----------------------
Title: President
----------------------
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SCHEDULE A
COMPENSATION and LEAVE POLICIES
BASE COMPENSATION
Consultant shall be paid a base fee of Forty-two Thousand Dollars
($42,000.00) per annum.
It is expressly understood by Company that Consultant is also engaged as a
consultant by Star Enterprise ("Star") of Houston, Texas and, in connection
therewith, Consultant is expected to render forty (40) hours of consulting
services to Star per week. It is agreed by the parties that if Consultant
reasonably determines that in any week the consulting services required by
Company shall make it unreasonable for Consultant to devote forty hours to the
satisfaction of Consultant's obligations to Star, Consultant may bill Company
$69.00 per hour for each hour that Consultant is prevented from consulting with
Star; provided that under no circumstances shall Consultant bill Star and
Company for more than forty (40) hours, in the aggregate, of consulting services
in any week in any event.
INCENTIVE COMPENSATION
There shall be no incentive compensation other than participation in such
incentive stock option plans as the Board of Directors or Compensation Committee
may establish from time to time on such terms the Board of Directors or
Compensation Committee may decide.
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EXHIBIT 10.11
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "AGREEMENT") is made and entered into effective
as of August 6, 1997, by and between Brian McGrath (hereinafter "EMPLOYEE"), and
MISSION CRITICAL SOFTWARE, INC., a Delaware corporation having its principal
office at 720 North Post Oak Road, Suite 505, Houston, TX 77024 (hereinafter
"EMPLOYER").
W I T N E S S E T H:
This Agreement is made and entered into under the following circumstances:
(1) Whereas, Employer is in the business of the development, marketing and
sale of software products and systems (the "BUSINESS ACTIVITIES"); and
(2) Whereas Employer desires, on the terms and conditions stated herein, to
employ Employee; and
(3) Whereas Employee desires, on the terms and conditions stated herein, to be
employed by Employer.
NOW, THEREFORE, in consideration of the foregoing recitals, and the promises,
covenants, terms and conditions contained herein, the receipt and sufficiency of
which are forever acknowledged and confessed, the parties hereto agree as
follows:
1. EMPLOYMENT AND TERM. Employer hereby employs Employee, and Employee
hereby accepts employment with Employer commencing August 6, 1997 (hereinafter
the "EFFECTIVE DATE").
2. DUTIES. Employee shall perform the duties and functions as are normal and
customary to the position for which Employee was hired, as well as any other
duties delegated to Employee by Employer. Employee shall, in all Employee's
actions, demonstrate the utmost good faith, honesty and loyalty towards Employer
and its interests. Employee will perform Employee's duties and assignments in
the offices and work spaces provided by Employer unless otherwise specifically
authorized by the management of Employee. Employee agrees that Employee's
employment with Employer shall be the exclusive, full-time employment of
Employee. Employee shall comply with all applicable policies of Employer.
Employee understands that the nature of Employer's Business Activities
requires that Employer be able to contact Employee twenty-four hours a day.
Employee shall carry at all times a beeper provided by Employer to allow
Employer and/or its customers to maintain such contact.
In addition to pagers, Employer may provide to Employee for business-related
use computers, cellular phones, equipment, funds, lists, books, records, and
other materials of Employer. Employee shall exercise due care in using such
items, and agrees that, upon the termination of Employee's employment with
Employer, Employee will immediately surrender to Employer all such items and any
other property of Employer in the possession of or provided to Employee.
3. COMPENSATION. Employee shall be entitled to initial base compensation of
$16,668.00 per
<PAGE>
month, subject to adjustment by Employer from time to time.
4. STATUS OF EMPLOYEE. The parties expressly acknowledge that Employee, in
the performance of services hereunder, is an employee of Employer. Accordingly,
Employer shall deduct from all compensation paid to Employee pursuant to this
Agreement any sums required by law or any other requirement of any governmental
body.
5. FRINGE BENEFITS. Employer shall provide to Employee, at Employer's
expense, fringe benefits commensurate with those provided to Employer's
employees of similar position and seniority. Employee shall be entitled to paid
leave for vacation and illness in accordance with Employer's policies.
6. TERMINATION. Notwithstanding any other provisions of this Agreement, the
Employee's employment with Employer shall terminate:
a. upon the death of Employee; or,
b. upon Employee's "disability" (For purposes of this Agreement, the term
"disability" shall mean the inability of Employee, arising out of any medically
determinable physical or mental impairment, to perform the services required of
him hereunder for a period of ninety (90) consecutive days during which ninety
(90) day period Employee's compensation hereunder shall continue);
c. immediately (unless Employer and Employee otherwise agree at the time
such notice is given) upon written notice from either party to the other, with
or without cause; or
d. at Employer's option, immediately upon the existence of "cause." For
purposes of this Agreement, the term "cause" shall be defined as:
(1) willful and continued failure of Employee to substantially perform
the duties required of him by Employer in a manner satisfactory to
Employer, in Employer's sole reasonable discretion, exercised in good
faith;
(2) a material violation of any written policy or procedure which has
been distributed by the Employer to its employees;
(3) any dishonesty by Employee in his dealings with Employer, the
commission of fraud by Employee, or gross negligence in the performance of
the duties of Employee;
(4) the arrest or conviction (or plea of guilty or nolo contendere) of
Employee of any felony or other crime involving dishonesty or moral
turpitude;
(5) any violation of any covenant or restriction contained in Section
9 or Section 10 hereof; or
(6) unlawful use of narcotics or other controlled substances, or use
of alcohol or other drugs in a manner Employer reasonably determines to be
adverse to the best interests of Employer or in violation of Employer's
applicable policies.
7. EFFECTS OF TERMINATION. In the event of termination of this Agreement,
neither party shall have any further obligations hereunder except for (i)
obligations accruing prior to the date of termination
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and (ii) obligations, promises or covenants contained herein which are expressly
made to extend beyond the term of this Agreement, including, without limitation,
confidentiality of information, indemnities and Employee's covenants not to
compete (which covenants and agreements shall survive the termination or
expiration of this Agreement). The termination of this Agreement, for whatever
reason, shall not extinguish those obligations of Employee specified in the
Restrictive Covenants (hereinafter defined), nor shall the same extinguish the
right of either party to bring an action, either in law or in equity, for breach
of this Agreement by the other party.
8. COPYRIGHT ASSIGNMENT/WORK MADE FOR HIRE. Employee does hereby sell,
grant, convey and assign unto Employer, its successors, assigns and licensees
forever, all right, title and interest in and to all computer software programs,
computer code, system design, documents, system architecture, and the data base
model/structure, and other material constituting or otherwise relating to the
Property (as defined herein) hereafter written by Employee or to the development
of which Employee may have contributed ideas, know-how, skill or labor, and all
changes, additions, adjuncts, alterations, modifications, translations,
transformations, adaptions, elaborations, emulations, revisions or other
developments made in connection with the Property, which may heretofore have
been written or which may hereafter be written for the benefit of, at the
request of or with the sanction of Employer.
As used herein, Property includes all computer software, source code and
programs and other computer products, (i) acquired by Employer from a third
party specifically including that Property acquired from Mission Critical
Software I, Inc. by Employer in that certain Assignment Agreement dated
September 4, 1996, (ii) made, conceived and/or developed, or in the process of
being made, conceived or developed, by an employee or employees of Employer
while employed by Employer in its business or by its customers or (iii) made,
conceived and/or developed, or in the process of being made, conceived or
developed, by an employee or employees of Employer in the course of performing
services for or at the request of or while being compensated by Employer or
within a reasonable period of time thereafter if they involved the use of
company time or materials or facilities or if they resulted from or were
suggested by the employee's or employees' work with Employer whether or not they
are used or usable by Employer in its business or by its customers. Property
shall also include advertisements, marketing materials, collateral files of all
types, word processing, spreadsheets, slogans, trademarks and service marks.
Employee agrees and acknowledges that any and all Property written, developed,
created or produced by Employee, in whole or in part, for Employer constitutes
and will constitute a "work made for hire" for Employer, as contemplated in 17
U.S.C. Section 101. Employer is and shall be considered the author of the
Property for all purposes and the sole and exclusive owner of all rights to the
Property and all derivative works, including all right, title, and interest
comprised in the copyright and all trademarks, patents and other right in and to
the Property and each and every part of the Property. Employee assigns to
Employer all rights whatsoever that Employee has in the Property and any
adaption, version or derivation of the Property. This assignment of rights
includes an assignment of any copyright in the Property not owned by Employer as
a result of the parties' agreement that the Property constitutes a work made-
for-hire for Employer. Employee will, upon request, execute, acknowledge and
deliver to Employer such additional documents as Employer may deem necessary to
evidence Employer's right hereunder, and grants to Employer the right, as
attorney-in-fact, to execute, acknowledge, deliver and record in the U.S.
Copyright Office or elsewhere any and all such documents.
9. TERRITORY. In recognition of the existing and potential worldwide
Business Activities of Employer and the narrow and precise definitions of
Prohibited Activities as defined below, Employer and Employee agree that the
terms of this Agreement shall apply to any Prohibited Activities engaged by
Employee anywhere in the world including all states and territories of the
United States of America (the
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"Territory"). Prohibited Activities shall include any activities which would be
directly or indirectly in competition with Employer's Business Activities as
defined in the Agreement.
10. NON-COMPETITION. Employee recognizes and agrees that there are certain
property rights such as trade secrets and products of Employer which are
critical to Employer's continued success. Because of their importance to
Employer and to Employee and other employees who are dependent on Employer for
their livelihood, it is necessary for Employer to take all permissible steps to
protect these property rights. This being the case, Employee agrees that during
the Employee's employment with Employer and for a continuous period of two (2)
years thereafter commencing upon termination of such employment, in the event of
any voluntary or involuntary termination or resignation by Employee, Employee
shall not, individually or jointly with others, directly or indirectly, manage,
operate, control, render services related to Prohibited Activities to,
participate in the management or control of, or own or hold any ownership or
voting interest in, any person or entity engaged in Prohibited Activities
(except for the ownership of up to 5% of the outstanding stock issued by
publicly traded companies); and Employee shall not act as an officer, director,
employee, partner, independent contractor, consultant, principal, agent,
proprietor, or in any other capacity for, nor lend any assistance (financial,
managerial, professional or otherwise) or cooperation to, nor perform any
services for, any such person or entity or any business that provides consulting
services to any person or entity engaged in Prohibited Activities anywhere in
the Territory.
11. NON-DISCLOSURE; NON-SOLICITATION. Except in the performance of
Employee's duties hereunder, at no time during the employment or at any time
thereafter shall Employee, individually or jointly with others, for the benefit
of Employee or any third party, publish, disclose, use or authorize anyone else
to publish, disclose or use, any secret or confidential material or information
relating to any aspect of the business or operations of Employer or any
information regarding the business methods, business policies, procedures,
techniques, or trade secrets, or other knowledge or processes of or developed by
Employer (and/or any other consultant, Employee or agent of Employer), any
affiliate of Employer, or any entity in which Employer has an interest,
including, without limitation, any secret or confidential material or
information relating to the business, customers, financial position, trade or
industrial practices, trade secrets, technology or know-how of Employer or
Employer's affiliates. As used herein, the term "trade secrets" includes all
research and development information, technical information, data, technology,
computer software, source code, programs and information and other computer
technology, techniques, services, equipment, marketing and sales information,
customer lists and other customer information, methods of doing business and
other secret or proprietary methods and information and trade secrets used or
usable by Employer or a third party having a contractual relationship with
Employer which have been or are developed or used by Employer or any such third
party or which are developed by Employee during Employee's employment with
Employer.
Moreover, during Employee's employment with Employer, Employee shall not act
as an officer, director, employee, partner, independent contractor, consultant,
principal, agent, proprietor, owner or part owner, or in any other capacity for,
nor lend any assistance (financial, managerial or otherwise) or cooperation to,
any person or entity which employs any person or hires or contracts with, as a
consultant or other independent agent or independent contractor, any person or
entity (other than Employee) who was employed by or acted as an agent for,
consultant to, or independent contractor of Employer, any affiliate of Employer,
or any entity in which Employer has an interest, at any time during Employee's
employment with Employer. During the Employees' employment with Employer and
for a continuous period of two (2) years thereafter commencing upon termination
of Employee's employment, Employee shall not employ any such person or induce or
attempt to influence any such person to voluntarily terminate employment with
Employer.
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12. REASONABLENESS OF RESTRICTIONS; REFORMATION; ENFORCEMENT. The parties
hereto recognize and acknowledge that the geographical and time limitations
contained in Sections 9 and 10 hereof (hereinafter the "RESTRICTIVE COVENANTS")
are reasonable and properly required for the adequate protection of Employer's
interest. Employee acknowledges that Employer will provide to Employee
confidential information concerning Employer's and Employer's affiliates'
business methods and operating practices in reliance on the covenants contained
in the Restrictive Covenants. It is agreed by the parties hereto that if any
portion of the restrictions contained in the Restrictive Covenants are held to
be unreasonable, arbitrary or against public policy, then the restrictions shall
be considered divisible, both as to the time and to the geographical area, with
each month of the specified period being deemed a separate period of time and
each radius mile of the restricted territory being deemed a separate
geographical area, so that the lesser period of time or geographical area shall
remain effective so long as the same is not unreasonable, arbitrary or against
public policy. The parties hereto agree that in the event any court of
competent jurisdiction determines the specified period or the specified
geographical area of the restricted territory to be unreasonable, arbitrary or
against public policy, a lesser time period or geographical area which is
determined to be reasonable, nonarbitrary and not against public policy may be
enforced against Employee. If Employee shall violate any of the covenants
contained herein and if any court action is instituted by Employer to prevent or
enjoin such violation, then the period of time during which Employee's business
activities shall be restricted, as provided in this Agreement, shall be
lengthened by a period of time equal to the period between the date of
Employee's breach of the terms or covenants contained in this Agreement and the
date on which the decree of the court disposing of the issues upon the merits
shall become final and not subject to further appeal.
13. NO REMEDY AT LAW. Employee agrees that the remedy at law for any breach
by him of the Restrictive Covenants will be inadequate and would be difficult to
ascertain and therefore, in the event of the breach or threatened breach of any
such covenants, Employer, in addition to any and all other remedies, shall have
the right to enjoin Employee from any threatened or actual activities in
violation thereof; and Employee hereby consents and agrees that temporary and
permanent injunctive relief may be granted in any proceedings which might be
brought to enforce any such covenants without the necessity of proof of actual
damages and without necessity of posting a bond in cash or otherwise. In the
event Employer does apply for such an injunction, Employee shall not raise as a
defense thereto that Employer has an adequate remedy at law.
14. ASSIGNABILITY. This Agreement and the rights and duties created
hereunder shall not be assignable or delegable by Employee. Employer may, at
Employer's option and without consent of Employee, assign its rights and duties
hereunder to any successor entity or transferee of Employer's assets.
15. NOTICES. All notices or other communications provided for herein to be
given or sent to a party by the other party shall be deemed validly given or
sent if in writing and (i) mailed, postage prepaid, by registered or certified
United States mail or hand delivered, (ii) sent by facsimile, addressed to the
parties at their addresses hereinabove set forth, or (iii) sent by Employer's
intercompany electronic mail to the appropriate address designated for the
receiving party. Any party may give notice to the other party at any time, by
the method specified above, of a change in the address at which, or the person
to whom, notice is to be addressed.
16. SEVERABILITY. Each section, subsection and lesser section of this
Agreement constitutes a separate and distinct undertaking, covenant or provision
hereof. In the event that any provision of this Agreement shall be determined
to be invalid or unenforceable, such provision shall be deemed limited by
construction in scope and effect to the minimum extent necessary to render the
same valid and enforceable, and, in the event such a limiting construction is
impossible, such invalid or unenforceable provision shall be deemed severed from
this Agreement, but every other provision of this Agreement shall remain in full
force
-5-
<PAGE>
and effect.
17. WAIVER. The failure of a party to enforce any term, provision or
condition of this Agreement at any time or times shall not be deemed a waiver of
that term, provision or condition for the future, nor shall any specific waiver
of a term, provision or condition at one time be deemed a waiver of such term,
provision or condition for any future time or times.
18. PARTIES. This Agreement shall be binding upon, and shall inure to the
benefit of, the parties hereto and their heirs, personal representatives, legal
representatives, and proper successors and assigns, as the case may be.
19. GOVERNING LAW. The validity, interpretation and performance of this
Agreement shall be governed by the laws of the State of Texas, without giving
effect to the principles of comity or conflicts of laws thereof. Each party
hereto agrees to submit to the personal jurisdiction and venue of the state and
federal courts having jurisdiction over Harris County, Texas, for a resolution
of all disputes arising in connection with the interpretation, construction, and
enforcement of this Agreement, and hereby waives the claim or defense therein
that such courts constitute an inconvenient forum.
20. ENFORCEMENT/DISPUTES SUBJECT TO ARBITRATION. Employee recognizes that
differences may arise between Employer and Employee during or following
employment with Employer, and that those differences may or may not be related
to employment. Employee understands and agrees that by entering into this
Agreement, Employee anticipates gaining the benefits of a speedy, impartial
dispute-resolution procedure.
Employee understands that any reference in this Agreement to Employer will be
a reference also to its affiliated entities, all benefit plans, the benefit
plans' sponsors, fiduciaries, administrators, affiliates, and all successors and
assigns of any of them.
a. CLAIMS COVERED. Employer and Employee mutually consent to the resolution
by arbitration of all claims or controversies ("claims"), whether or not arising
out of Employee's employment (or its termination), that Employer may have
against Employee or that Employee may have against Employer or against its
officers, directors, employees, or agents in their capacity as such or
otherwise. The claims covered by this Agreement include, but are not limited
to, claims for wages or other compensation due; claims for breach of any
contract or covenant (express or implied); tort claims; claims for
discrimination (including, but not limited to race, sex, religion, national
origin, age, marital status, or medical condition, handicap, or disability);
claims for benefits (except where an employee benefit or pension plan specifies
that its claims procedure shall culminate in an arbitration procedure different
from this one), and claims for violation of any federal, state or other
governmental law, statute, regulation, or ordinance, except claims excluded in
the following paragraph.
b. CLAIMS NOT COVERED. Claims Employee may have for Workers' Compensation or
unemployment compensation benefits are not covered by this Agreement. Also not
covered are claims by Employer for injunctive and/or other equitable relief for
unfair competition and/or the use and/or unauthorized disclosure of trade
secrets or confidential information, as to which Employee understands and agrees
that Employer may seek and obtain relief from a court of competent jurisdiction.
c. REQUIRED NOTICE OF ALL CLAIMS AND STATUTE OF LIMITATIONS. Employer and
Employee agree that the aggrieved party must give verbal notice of any claims to
the other party within forty-eight (48) hours of the occurrence giving rise to
the claim; otherwise, the claim shall be void and deemed waived even
-6-
<PAGE>
if there is a federal or state statute of limitations which would have given
more time to pursue the claim. Employee shall give such verbal notice to one of
the persons designated for receipt of same in Employer's applicable policy.
Employee shall follow up such verbal notice with written notice within five (5)
days of the giving of verbal notice. The written notice shall identify and
describe the nature of all claims asserted and the facts upon which such claims
are based. If Employee is aware of the occurrence of an event which may give
rise to a claim by another employee, Employee shall give notice of the
occurrence to the appropriate persons in accordance with this paragraph.
d. REPRESENTATION. Any party may be represented by an attorney or other
representative selected by the party.
e. DISCOVERY. Each party shall have the right to take the deposition of one
individual and any expert witness designated by another party. Each party also
shall have the right to make requests for production of documents to any party.
The subpoena right specified below shall be applicable to discovery pursuant to
this paragraph. Additional discovery may be had only where the Arbitrator
selected pursuant to this Agreement so orders, upon a showing of substantial
need.
f. DESIGNATION OF WITNESSES. At least 30 days before the arbitration, the
parties must exchange lists of witnesses, including any expert, and copies of
all exhibits intended to be used at the arbitration.
g. SUBPOENAS. Each party shall have the right to subpoena witnesses and
documents for arbitration.
h. ARBITRATION PROCEDURES. Employer and Employee agree that, except as
provided in this Agreement, any arbitration shall be in accordance with the
then-current Employment Arbitration Rules of Judicial Arbitration & Mediation
Services, Inc. ("J-A-M-S") before an arbitrator who is licensed to practice law
in the state in which the arbitration is convened (the "Arbitrator"). If
J-A-M-S no longer exists, then the American Arbitration Association shall be
substituted therefor for purposes of this Section 20. The arbitration shall
take place in or near the city in which Employee is or was last employed by
Employer.
The Arbitrator shall be selected as follows. J-A-M-S shall give each party a
list of 11 arbitrators drawn from its panel of labor and employment arbitrators.
Each party may strike all names on the list it deems unacceptable. If only one
common name remains on the lists of all parties, that individual shall be
designated as the Arbitrator. If more than one common name remains on the lists
of all parties, the parties shall strike names alternately until only one
remains. The party who did not initiate the claim shall strike first. If no
common name remains on the lists of all parties, J-A-M-S shall furnish an
additional list or lists until an Arbitrator is selected.
The Arbitrator shall apply the substantive law (and the law of remedies, if
applicable) of the State of Texas, or federal law, or both, as applicable to the
claim(s) asserted. The Texas Rules of Evidence shall apply. The Arbitrator,
and not any federal, state, or local court or agency, shall have exclusive
authority to resolve any dispute relating to the interpretation, applicability,
enforceability, or formation of this Agreement, including but not limited to any
claim that all or any part of this Agreement is void or voidable. The
arbitration shall be final and binding upon the parties, except as provided in
this Agreement.
The Arbitrator shall have jurisdiction to hear and rule on pre-hearing
disputes and is authorized to hold pre-hearing conferences by telephone or in
person as the Arbitrator deems necessary.
-7-
<PAGE>
The Arbitrator shall have the authority to entertain a motion to dismiss and/or
a motion for summary judgment by any party and shall apply the standards
governing such motions under the Texas Rules of Civil Procedure.
Either party, at its expense, may arrange for and pay the cost of a court
reporter to provide a stenographic record of proceedings.
Either party, upon request at the close of hearing, shall be given leave to
file a post-hearing brief. The time for filing such a brief shall be set by the
Arbitrator.
Either party may bring an action in a court as provided in Section 20 of this
Agreement to compel arbitration under this Agreement and to enforce an
arbitration award. Except as otherwise provided in this Agreement, both
Employer and Employee agree that neither shall initiate or prosecute any lawsuit
or administrative action (other than as required by applicable law) in any way
related to any claim covered by this Agreement.
The Arbitrator shall render an award and opinion in the form typically
rendered in labor arbitrations.
i. ARBITRATION FEES AND COSTS. Employer and Employee shall equally share the
fees and costs of the Arbitrator. Each party will deposit funds or post other
appropriate security for its share of the Arbitrator's fee, in an amount and
manner determined by the Arbitrator, 10 days before the first day of hearing.
However, the prevailing party shall be entitled to recover from the non-
prevailing party in accordance with Section 24 of this Agreement, and the
Arbitrator may award such fees.
j. JUDICIAL REVIEW. A party opposing enforcement of an award may not do so
in an enforcement proceeding, but must bring a separate action in a court as
provided in Section 20 of this Agreement to set aside the award, where the
standard of review will be the same as that applied by an appellate court
reviewing a decision of a trial court sitting without a jury.
k. INTERSTATE COMMERCE. Employee understands and agrees that Employer is
engaged in transactions involving interstate commerce and that Employee's
employment involves such commerce.
l. REQUIREMENTS FOR MODIFICATION OR REVOCATION. This Agreement to arbitrate
shall survive the termination of employment. It can only be revoked or modified
by a writing signed by the parties which specifically states an intent to revoke
or modify this Agreement.
21. CAPTIONS. The captions of this Agreement have been assigned thereto for
convenience only, and shall not be construed to limit, define or modify the
substantive terms hereof.
22. ENTIRE AGREEMENT; COUNTERPARTS. This Agreement constitutes the entire
agreement between the parties hereto concerning the subject matter hereof, and
supersedes all prior agreements, memoranda, correspondence, conversations and
negotiations. This Agreement may be executed in several counterparts that
together shall constitute but one and the same Agreement.
23. COSTS OF ENFORCEMENT. In the event it is necessary for any party to
retain the services of an attorney or to initiate legal proceedings to enforce
the terms of this Agreement, the prevailing party shall be entitled to recover
from the non-prevailing party, in addition to all other remedies, all costs of
such enforcement, including reasonable attorneys' fees and costs and including
trial and appellate proceedings.
-8-
<PAGE>
24. GENDER, ETC. Words used herein, regardless of the number and gender
specifically used, shall be deemed and construed to include any other number,
singular or plural, and any other gender, masculine, feminine or neuter, as the
context indicates is appropriate.
-9-
<PAGE>
IN WITNESS WHEREOF, the undersigned have hereunto set their hands on the date
first written above.
EMPLOYEE:
/s/ Brian McGrath
------------------------------------
Signature of Employee
BRIAN McGRATH
------------------------------------
Type or Print Name of Employee
EMPLOYER:
MISSION CRITICAL SOFTWARE, INC.
a Delaware Corporation
By: /s/ Paul F. Koffend
-------------------------------------
Name: Paul F. Koffend
-------------------------------------
Title: Chief Financial Officer
-------------------------------------
-10-
<PAGE>
EXHIBIT 10.11.1
MCS
MISSION CRITICAL SOFTWARE
January 13, 1999
Ms. Leigh Faoro Saint-Germain
address
Re: Brian McGrath
Dear Leigh:
As we discussed in our meeting on January 7, 1999, Mission Critical Software,
Inc., M&A Associates and Brian McGrath have agreed to clarify the terms of the
Employment Agreement between MCS and Brian entered into effective as of January
1, 1998 to reflect certain terms omitted at the time of execution of such
agreement, including, without limitation, the intention of the parties at that
time to terminate the Sales and Marketing Agreement dated January 1, 1997
between MCS and M&A Associates (the "M&A Agreement"), effective as of the date
Brian took his position as Vice President of Sales for MCS, and the purchase by
Brian of a warrant to purchase 100,000 shares of the Common Stock of MCS.
Therefore, the Employment Agreement is hereby amended as follows:
. The current compensation arrangement between Brian and MSC consisting of
base salary payable at a rate of $16,667 per month, a 2% commission on
all license fee and a 1% commission on all initial maintenance revenue
collected by MCS since January 1, 1998 (other than revenue from the
"Named Accounts), and a commission of 15% of the revenue generated by
the "Named Accounts" since January 1, 1998 shall remain in place through
June 30, 1999 in accordance with MCS's and Brian's previous course of
conduct; provided that such 15% "Named Accounts" commission payable to
Brian shall be reduced to the extent MSC pays any commission to any
Account Manager or similar employee of MCS assigned to the "Named
Accounts" by MSC, but such reduction shall not exceed 6% of the related
commissioned revenue For example, if MSC assigns an Account Manager to
one of the "Named Accounts" and pays such Account Manager a 7%
commission on a "Named Account", Brian's commission would only be
reduced from 15% to 9%. The list of "Named Accounts is attached hereto
as Exhibit A;
. Beginning July 1, 1999, Brian's compensation package will consist of a
total compensation target base amount of $400,000, with 50% of such
compensation as base pay at a rate of $16,667 per month and 50% of such
target compensation contingent on meeting operating targets.
. With regard to the $100,000 of Brian's salary that Brian permitted MCS
to withhold from his pay at the beginning of 1998, such $100,000 amount
paid has been held in escrow, without interest, as consideration for the
exercise price of a Warrant to purchase 100,000 shares of MCS's common
stock. Such Warrant has an exercise price of $1.00 a share and is
exercisable for three years beginning January 1, 1998. In return for
other provisions of Brian's employment contract, Brian agrees that if he
<PAGE>
Ms. Leigh Faoro-Saint Germain
January 13, 1999
Page 2 of 5
voluntarily terminates his employment without "Good Reason" prior to
July 1, 1999, he will be required to pay an additional $100,000 upon
exercising this warrant
. All provisions of the Employment Agreement shall remain in place;
provided, however, that the Employment Agreement shall be amended as
follows:
. (i) in the event that Brian's employment with MCS is terminated by
MCS for any reason other than for "Cause" or Brian voluntarily
terminates his employment for "Good Reason", Brian shall receive a
severance payment of six months base salary. For purposes of the
Employment Agreement, "Good Reason" shall mean:
a. Without his express written consent, the assignment to Brian
of any duties inconsistent with his positions, duties,
responsibilities and status with MCS, or a material change
in his reporting responsibilities, titles or offices, or any
removal of Brian from or any failure to re-elect Brian to
any such positions, except in connection with the
termination of his employment for Cause, disability,
retirement, death, or to the extent that such change(s) are
subsequent to July 1, 1999 and the result of or in
connection with an acquisition of another business by MCS;
b. A reduction by MCS in Brian's total compensation package as
defined herein;
c. MCS's requiring Brian to relocate to anywhere other than
Texas except for required travel on MCS's business to an
extent substantially consistent with his present or past
business travel obligations, or, in the event that Brian
consents to any such relocation, the failure of MCS to pay
(or reimburse Brian) for all reasonable moving expenses
incurred by him relating to a change of his principal
residence in connection with such relocation;
d. Any failure of MCS to obtain the assumption of, or the
agreement to perform, this Agreement by any successor-in-
interest to MCS;
. (ii) Brian agrees to give MCS sixty (60) days prior written notice of
his resignation;
. (iii) The non-competition covenant shall be reduced to a six-month
period and shall only apply to a list of six companies that are
competitive with MCS (the "Competitors"), as determined by MCS based
on published or otherwise documented industry or company information
evidencing the competitive nature of such company; provided, however,
that such list may be amended by MCS every six (6) months on the 1st
of January and the 1st of July of each new year. The initial list
effective from January 1, 1999 to June 30, 1999 is attached hereto as
Exhibit B;
<PAGE>
Ms. Leigh Faoro-Saint Germain
January 13, 1999
Page 3 of 5
Brian's options shall continue to vest pursuant to the terms of the Option Plan
and Brian's Option Agreement(s) without change; provided, however, that in the
event of a termination of Brian's employment without Cause or a voluntary
resignation of his employment by Brian for "Good Reason", such options shall
continue to vest during the applicable notice period and severance period.
This offer is subject to M&A Associate's and Brian's written acknowledgement
below of the termination of the M&A Agreement as of January 1, 1998 and
agreement on the list of "Named Accounts" and "Competitors" attached hereto as
Exhibit A and Exhibit B, respectively. In connection with such termination of
the M&A Agreement and in consideration of MCS's execution and delivery of this
Letter Agreement, M&A Associates and Brian McGrath do hereby release, acquit,
and forever discharge MCS and its stockholders, employees, officers, agents and
directors, and their respective heirs, successors and assigns from any and all
manner of claims, debts, demands, damages, liabilities, and causes of action,
whether known or unknown, from the beginning of time through the date of this
release, which M&A Associates or Brian McGrath, their heirs, successors, and
assigns, may have had or may presently have or may have in the future, relating
to or arising out of the termination of the M&A Agreement and the employment of
Brian McGrath as Vice President of Sales of MCS including, but not limited to,
causes of action for libel, slander, breach of contract, negligence, impairment
of economic opportunity, wrongful termination, negligent supervision,
intentional infliction of emotional distress, and any other tort, and claims
under federal, state, or local constitutions, statutes, regulations, ordinances,
and common law, including, but not limited to, violations of the Texas Payroll
Act, exemplary damages, attorneys' fees, and pre- or post-judgment interest.
Nothing contained in this Agreement constitutes an admission of liability by
MCS, M&A Associates or Brian McGrath concerning any aspect of the employment of
Brian McGrath or the termination of the M&A Agreement. Furthermore, Brian
McGrath, M&A Associates and MCS do not waive any rights or claims that may arise
after the date this Agreement is executed, other than as set forth herein.
If you have any questions or comments regarding this matter, please give me a
call at your earliest convenience.
Sincerely,
/s/ Stephen E. Odom
- --------------------
Stephen E. Odom
Chief Financial Officer
AGREED AND ACCEPTED BY:
/s/ Brian McGrath
- ------------------
Brian McGrath
M&A ASSOCIATES
By: /s/ Brian McGrath
------------------
Brian McGrath, Principal
<PAGE>
Exhibit A
"Named Accounts"
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Territory Company Territory Company
Bekim AIG Data Center U S F G
Chase Manhattan Bank Prudential Insurance Co.
CitiBank - Puerto Rico
CitiBank - Citicorp Niederman Honeywell
CitiCorp CDSI Finance Honeywell Ltd
Citicorp Credit Services Honeywell Space Systems
Deutsche Morgan Grenfell Mayo Foundation
Lehman Brothers Mayo Foundation Medical Ed.
Merrill Lynch
Metropolitan Life Sage Anheuser-Busch
Morgan Stanley
Union Bank of Switzerland St. Martin Digital EquipmentCorp/Compaq
Pfizer (EEM) Hoechst Celanese/Celanse
Philip Morris USA Tennessee Eastman
Republic National Bank
Stracener Defense Intelligence Agency
Einhaus Detroit Edison Office Supply (DoD) A/Sentry
Pharmica/Upjohn FDIC
ALCOA National Reconnaissance/DEC
Scott Air Force Base
Flagella Aetna, Inc. Social Security Administration
Analog Devices U.S. Department of Labor
Choice Courier Systems Inc U.S. Navy - Strategic Defense
CSC Consulting OASAM Office of Procurement
Dunhill Staffing Systems, Inc Ft. Mead - (EEM)
Fidelity Investments US House of Reps - (EEM)
Lotus Development Corp. Internal Revenue Service
Reed El Sevier (EA & EEM) U.S. Treasury Department
SAIC USAF - Okinawa
UNUM Corporation 1st Air Marine Aircraft Japan
U.S. Tobacco Wright Patterson AFB
Swiss Bank
Watson CIBA Vision/Novartis
Jackson Bechtel Glaxo Wellcome
Charles Schwab & Co.
International Bank of Bermuda
Milan Blue Cross/Blue Shield of NE PA
Conoco
DuPont
Electronic Payment Services
Forensic Technologies
Johnson & Johnson
Merck
</TABLE>
<PAGE>
Exhibit B
"Competitors"
1. Aelita Software
2. Enteno Corporation
3. Bindview Development Corp.
4. Fastlane
5. NetIQ
6. Heroix Corp Ltd.
<PAGE>
EXHIBIT 10.12
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into
effective as of February 23, 1998, by and between OLIVIER J. THIERRY
(hereinafter "EMPLOYEE"), and MISSION CRITICAL SOFTWARE, INC., a Delaware
corporation having its principal office 720 North Post Oak Road, Suite 505,
Houston, Texas 77024 (hereinafter "EMPLOYER").
W I T N E S S E T H:
This Agreement is made and entered into under the following circumstances:
(1) Whereas, Employer is in the business of development, marketing and sale
of software products and systems (the "BUSINESS ACTIVITIES"); and
(2) Whereas Employer desires, on the terms and conditions stated herein, to
employ Employee; and
(3) Whereas Employee desires, on the terms and conditions stated herein, to
be employed by Employer.
NOW, THEREFORE, in consideration of the foregoing recitals, and of the
promises, covenants, terms and conditions contained herein, the receipt and
sufficiency of which are forever acknowledged and confessed, the parties hereto
agree as follows:
1. EMPLOYMENT. Employer hereby employs Employee, and Employee hereby
accepts employment with Employer commencing February 23, 1998 (hereinafter the
"EFFECTIVE DATE").
2. DUTIES. Employee shall perform the duties and functions as are normal
and customary to the position of Vice-President of Marketing, as well as any
other duties delegated to Employee by Employer. Employee shall, in all
Employee's actions, demonstrate the utmost good faith, honesty and loyalty
towards Employer and its interests. Employee will perform Employee's duties and
assignments in the offices and workspaces provided by Employer unless
specifically authorized by the management of the Employee. Employee agrees that
Employee's employment with employer shall be the exclusive, full-time employment
of Employee. Employee shall comply with all applicable policies of Employer.
3. BASE COMPENSATION AND INCENTIVE COMPENSATION. During the Term of
Employment, Employee shall be entitled to annual base compensation as set forth
on SCHEDULE A, payable in equal semi-monthly installments in accordance with the
normal payroll procedures of Employer. Employee shall be entitled to incentive
compensation as set form on SCHEDULE A.
1
<PAGE>
4. STATUS OF EMPLOYEE. The parties expressly acknowledge that Employee,
in the performance of services hereunder, is an employee of Employer.
Accordingly, Employer shall deduct from all compensation paid to Employee
pursuant to this Agreement any sums required by law or any other requirement of
any governmental body.
5. VACATION/PERSONAL TIME. Employee shall be entitled to paid leave for
vacation, and illness, as provided on the attached SCHEDULE A. Employee shall
not be entitled to any additional paid absences for any reason. Unused holidays
and days of vacation may not be carried over from one fiscal year to another,
and additional income will not be given for vacation time or holidays not taken
during any year. Employer and Employee shall mutually agree on the scheduling
of Employee's vacation, holiday and leave time.
6. FRINGE BENEFITS. Employer shall provide to Employee, at Employer's
expense, the fringe benefits set forth on the attached SCHEDULE B.
7. TERMINATION. Notwithstanding any other provisions of this Agreement,
the Term of Employment shall terminate upon:
a. the death of Employee; or,
b. Employee's "disability" (For purposes of this Agreement, the term
"disability" shall mean the inability of Employee, arising out of any medically
determinable physical or mental impairment, to perform the services required of
him hereunder for a period of sixty (60) consecutive days during which sixty
(60) day period Employee's compensation hereunder shall continue);
c. six (6) months' prior written notice from Employer to Employee,
without cause, provided that, in lieu of such notice, Employer shall pay to
Employee six (6) months; salary as severance compensation, payable either in a
lump sum or over such six month period in accordance with Employer's usual
compensation practices (the "Severance Amount"); or
d. thirty (30) days prior written notice from Employee to Employer.
e. at Employer's option, immediately upon the existence of "cause."
For purposes of this Agreement, the term "cause" shall be defined as:
(1) willful and continued failure of Employee to substantially
perform the duties required of him in this Agreement in a manner satisfactory to
Employer, provided, however, that the Term of Employment shall not be terminated
pursuant to this subparagraph (1)unless Employer first gives Employee a written
notice ("NOTICE OF DEFICIENCY"). The Notice of Deficiency shall specify the
deficiencies in Employee's performance of his duties. Employee shall have a
period of thirty (30) days, commencing on receipt of the Notice of Deficiency,
in which to cure the deficiencies contained in the Notice of Deficiency. If
Employee does not cure the deficiencies to the reasonable satisfaction of
Employer, in Employer's sole reasonable discretion, within such thirty (30) day
period, the Employer shall have the right to immediately
2
<PAGE>
terminate the Term of Employment and this Agreement. The provisions of this
subparagraph (1) may be invoked by Employer any number of times and cure of
deficiencies contained in any Notice of Deficiency shall not be construed as a
waiver of this subparagraph (1) nor prevent the Employer from issuing any
subsequent Notices of Deficiency;
(2) the willful engaging by Employee in misconduct which is
materially injurious to Employer or its affiliates, monetarily or otherwise;
(3) any dishonesty by Employee in his dealings with the Employer,
the commission of fraud by Employee, or negligence in the performance of the
duties of Employee;
(4) the arrest or conviction (or plea of guilty or nolo contendere)
of Employee of any felony or other crime involving dishonesty or moral
turpitude;
(5) any violation of any covenant or restriction contained in
Section 11 or Section 12 hereof; or
(6) unlawful use of narcotics or other controlled substances, or
use of alcohol or other drugs in a manner the Employer reasonably determines to
be adverse to the best interests of the Employer.
For all purposes of this Agreement, termination for "cause" shall be deemed
to have occurred if Employee's resignation when, because of existing facts and
circumstances, subsequent termination for "cause" can reasonably be foreseen.
For all purposes of this Agreement, no act, or failure to act, on Employee's
part shall be considered "willful" unless done, or omitted to be done, by him
not in good faith and without reasonable belief that his action or omission was
in, or not opposed to, the best interest of Employer or its affiliates.
Upon termination of this Agreement, Employee or Employee's estate, as
appropriate, shall be entitled to receive (in addition to any fringe benefits
payable upon death in the case of Employee's death) the compensation provided
for in Section 3 hereof (prorated on a daily basis) up to and including the
effective date of termination.
8. EFFECTS OF TERMINATION. Upon termination of this Agreement, neither
party shall have any further obligations hereunder except for (i) obligations
accruing prior to the date of termination and (ii) obligations, promises or
covenants contained herein which are expressly made to extend beyond the term of
this Agreement, including, without limitation, confidentiality of information,
indemnities and Employee's covenants not to compete (which covenants and
agreements shall survive the termination or expiration of this Agreement). The
termination of this Agreement, for whatever reason, shall not extinguish those
obligations of Employee specified in the Restrictive Covenants (hereinafter
defined), nor shall the same extinguish the right of either party to bring an
action, either in law or in equity, for breach of this Agreement by the other
party.
3
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9. TRANSITION FOLLOWING NOTICE OF TERMINATION. Following any notice of
termination of employment hereunder, whether given by Employer or Employee,
Employee will fully cooperate with Employer in all matters relating to the
winding up of Employee's pending work on behalf of Employer and the orderly
transfer of such work to the other professional employees of Employer. On or
after the giving of notice of termination hereunder and during any notice
period, Employer will be entitled to such full-time or part-time services of
Employee as Employer may reasonably require in accordance with the terms hereof,
and Employer will specifically have the right to terminate the active services
of Employee at the time such notice is given and to pay to Employee the
Severance Amount if such amount is due pursuant to Section 7(c) hereof.
10. TERRITORY. In recognition of the existing and potential worldwide
Business Activities of Employer, Employer and Employee agree that the terms of
this Agreement shall apply to any Prohibited Activities (as defined below)
engaged by Employee anywhere in the world including all states and territories
of the United States of America. Prohibited Activities shall include (without
limitation) any activities which would be in breach of the covenants contained
in Sections 11 and 12 below.
11. NON-COMPETITION. While Employee is employed by Employer and for a
period of one (1) year after termination or cessation such employment for any
reason Employee shall not, without employer's prior written consent, as a
principal, employee, consultant, partner, or stockholder of, or in any other
capacity with, any "business enterprise" (as that term is defined below) (other
than in any capacity as a holder of not more than 1% of the combined voting
power of the outstanding stock of a publicly held company) (a) engage in
competition with Employer, (b) conduct a business of the type or character
engaged in by Employer at the time of termination or cessation of Employee's
employment, or (c) develop, market, sell, and/or distribute products or services
competitive with those of Employer. As used herein, the term "business
enterprise" shall mean any corporation, partnership, association, sole
proprietorship or any other entity competing with Employer or directly involved
in the development, marketing, sales, and/or distribution of products or
services which, during the time of Employee's employment by Employer, were
developed, under active development, under consideration for development,
marketed, sold, and/or distributed by Employer.
A) The terms "Directly Competitive" or "Direct Competition" shall be
defined as "Companies, divisions of Companies, subsidiaries of
Companies, or any other manifestation of any Company which derives
at least 50% of its revenue from sales transactions for which
products developed, marketed, or sold by Mission Critical Software,
Inc. could reasonably compete."
12. NON-DISCLOSURE: NON-SOLICITATION. Except in the performance of his
duties hereunder, at no time during the Term of Employment or at any time
thereafter shall Employee, individually or jointly with others, for the benefit
of Employee or any third party, publish, disclose, use of authorize anyone else
to publish, disclose or use, any secret or confidential material or information
relating to any aspect of the business or operations of Employer or any
information regarding the business methods, business policies, procedures,
techniques, or trade
4
<PAGE>
secrets, or other knowledge or processes of or developed by Employer (and/or any
other Employee or agent of Employer), any affiliate of the Employer, or any
entity in which the Employer has an interest, including, without limitation, any
secret or confidential information relating to the business, customers,
financial position, trade or industrial practices, trade secrets, technology or
know-how of the Employer or Employer's affiliates. As used herein, the term
"trade Secrets" includes all research and development information, technical
information, data, technology, computer software, source code, programs and
information and other computer technology, techniques, services, equipment,
marketing and sales information, customer lists and other customer information,
methods of doing business and secret or proprietary methods and information and
trade secrets used or usable by Employer or a third party having a contractual
relationship with Employer which have been or are developed or used by Employer
or any such third party or which are developed by Employee during Employee's
employment with Employer.
Moreover, during Employee's employment with Employer, Employee shall not
act as an officer, director, employee, partner, independent contractor,
consultant, principal, agent, proprietor, owner or part owner, or in any
capacity for, nor lend any assistance (financial, managerial or otherwise) or
cooperation to, any person or entity which employs any person or hires or
contracts with, as a consultant or other independent agent or independent
contractor, any person or entity (other than Employee) who was employed by or
acted as an agent for, consultant to, or independent contractor or Employer, any
affiliate of Employer, or any entity in which the Employer has an interest, at
any time during Employee's employment with Employer. During the Employees'
employment with Employer and for a continuous period of two (2) years thereafter
commencing upon termination of Employee's employment, Employee shall not employ
any such person or induce or attempt to influence any such person to voluntarily
terminate employment with Employer.
13. REASONABLENESS OF RESTRICTIONS; REFORMATION; ENFORCEMENT. The parties
hereto recognize and acknowledge that the geographical and time limitations
contained in Sections 11 and 12 hereof (hereinafter the "RESTRICTIVE COVENANTS")
are reasonable and properly required for the adequate protection of Employer's
interest. Employee acknowledges that Employer will provide to Employee
confidential information concerning the Employer's and Employer's affiliates'
business methods and operating practices in reliance on the covenants contained
in the Restrictive Covenants. It is agreed by the parties hereto that if any
portion of the restrictions contained in the Restrictive Covenants are held to
be unreasonable, arbitrary or against public policy, then the restrictions shall
be considered divisible, both as to the time and to the geographical area, with
each month of the specified period being deemed a separate period of time and
each radius mile of the restricted territory being deemed a separate
geographical area, so that the lesser period of time or geographical area shall
remain effective so long as the same is not unreasonable, arbitrary or against
public policy. The parties hereto agree that if any court of competent
jurisdiction determines the specified period or the specified geographical area
of the restricted territory to be unreasonable, arbitrary or against public
policy, a lesser time period or geographical area which is determined to be
reasonable, nonarbitrary and not against public policy may be enforced against
Employee. If Employee shall violate any of the covenants contained herein and
if any court action is instituted by the Employer to prevent or enjoin such
violation, then the period of time during which the Employee's business
activities shall be
5
<PAGE>
restricted, as provided in this Agreement, shall be lengthened by a period of
time equal to the period between the date of the Employee's breach of the terms
or covenants contained in this Agreement and the date on which the decree of the
court disposing of the issues upon the merits shall become final and not subject
to further appeal.
14. NO REMEDY AT LAW. Employee agrees that the remedy at law for any
breach by him of the Restrictive Covenants will be inadequate and would be
difficult to ascertain and therefore, in the event of the breach or threatened
breach of any such covenants, the Employer, in addition to any and all other
remedies, shall have the right to enjoin Employee from any threatened or actual
activities in violation thereof; and Employee hereby consents and agrees that
temporary and permanent injunctive relief may be granted in any proceedings
which might be brought to enforce any such covenants without the necessity of
proof of actual damages and without necessity of posting a bond in cash or
otherwise. If Employer does apply for such an injunction, Employee shall not
raise as a defense thereto that the Employer has an adequate remedy at law.
15. ASSIGNABILITY. This Agreement and the rights and duties created
hereunder shall not be assignable or delegable by Employee. Employer may, at
Employer's option and without consent of Employee, assign its rights and duties
hereunder to any successor entity or transferee of Employer's assets.
16. NOTICES. All notices or other communications provided for herein to
be given or sent to a party by the other party shall be deemed validly given or
sent if in writing and mailed, postage prepaid, by registered or certified
United States mail or hand delivered or sent by facsimile, addressed to the
parties at their addresses hereinabove set forth. Any party may give notice to
the other party at any time, by the method specified above, of a change in the
address at which, or the person to whom, notice is to be addressed.
17. SEVERABILITY. Each section, subsection and lesser section of this
Agreement constitutes a separate and distinct undertaking, covenant or provision
hereof. If that any provision of this Agreement shall be determined to be
invalid or unenforceable, such provision shall be deemed limited by construction
in scope and effect to the minimum extent necessary to render the same valid and
enforceable, and, if such a limiting construction is impossible, such invalid or
unenforceable provision shall be deemed severed from this Agreement, but every
other provision of this Agreement shall remain in full force and effect.
18. WAIVER. The failure of a party to enforce any term, provision or
condition of this Agreement at any time or times shall not be deemed a waiver of
that term, provision or condition for the future, nor shall any specific waiver
of a term, provision or condition at one time be deemed a waiver of such term,
provision or condition for any future time or times.
19. PARTIES. This Agreement shall be binding upon, and shall inure to the
benefit of, the parties hereto and their heirs, personal representative, legal
representatives, and proper successors and assigns, as the case may be.
6
<PAGE>
20. GOVERNING LAW. The validity, interpretation and performance of this
Agreement shall be governed by the laws of the State of Texas, without giving
effect to the principles of comity or conflicts of laws thereof. Each party
hereto agrees to submit to the personal jurisdiction and venue of the state and
federal courts having jurisdiction over Harris County, Texas, for a resolution
of all disputes arising in connection with the interpretation, construction, and
enforcement of this Agreement, and hereby waives the claim or defense therein
that such courts constitute an inconvenient forum.
21. ENFORCEMENT/DISPUTES SUBJECT TO ARBITRATION. Employee recognizes that
differences may arise between Employer and Employee during or following
employment with Employer, and that those differences may or may not be related
to employment. Employee understands and agrees that by entering into this
Agreement, Employee anticipates gaining the benefits of a speedy, impartial
dispute-resolution procedure.
Employee understands that any reference in this Agreement to Employer will
be a reference also to its affiliated entities, all benefit plans, the benefit
plans' sponsors, fiduciaries, administrators, affiliates, and all successors and
assigns of any of them.
a. CLAIMS COVERED. Employer and Employee mutually consent to the
resolution by arbitration of all claims or controversies ("claims"), whether or
not arising out of Employee's employment (or its termination), that Employer may
have against Employee or that Employee may have against Employer or against its
officers, directors, employees, or agents in their capacity as such or
otherwise. The claims covered by this Agreement include, but are not limited to,
claims for wages or other compensation due; claims for breach of any contract or
covenant (express or implied); tort claims; claims for discrimination
(including, but not limited to race, sex, religion, national origin, age,
marital status, or medical condition, handicap, or disability); claims for
benefits (except where an employee benefit or pension plan specifies that its
claims procedure shall culminate in an arbitration procedure different from this
one), and claims for violation of any federal, state or other governmental law,
statute, regulation, or ordinance, except claims excluded in the following
paragraph.
b. CLAIMS NOT COVERED. Claims Employee may have for Workers' Compensation
or unemployment compensation benefits are not covered by this Agreement. Also
not covered are claims by Employer for injunctive and/or other equitable relief
for unfair competition and/or the use and/or unauthorized disclosure of trade
secrets or confidential information, as to which Employee understands and agrees
that Employer may seek and obtain relief from a court of competent jurisdiction.
c. REQUIRED NOTICE OF ALL CLAIMS AND STATUTE OF LIMITATIONS. Employer and
Employee agree that the aggrieved party must give verbal notice of any claims to
the other party within forty-eight (48) hours of the occurrence giving rise to
the claim; otherwise, the claim shall be void and deemed waived even if there is
a federal or state statute of limitations which would have given more time to
pursue the claim. Employee shall give such verbal notice to one of the persons
designated for receipt of same in Employer's applicable policy. Employee shall
follow up such verbal notice with written notice within five (5) days of the
giving of verbal notice. The written
7
<PAGE>
notice shall identify and describe the nature of all claims asserted and the
facts upon which such claims are based. If Employee is aware of the occurrence
of an event which may give rise to a claim by another employee, Employee shall
give notice of the occurrence to the appropriate persons in accordance with this
paragraph.
d. REPRESENTATION. Any party may be represented by an attorney or other
representative selected by the party.
e. DISCOVERY. Each party shall have the right to take the deposition of
one individual and any expert witness designated by another party. Each party
also shall have the right to make requests for production of documents to any
party. The subpoena right specified below shall be applicable to discovery
pursuant to this paragraph. Additional discovery may be had only where the
Arbitrator selected pursuant to this Agreement so orders, upon a showing of
substantial need.
f. DESIGNATION OF WITNESSES. At least 30 days before the arbitration, the
parties must exchange lists of witnesses, including any expert, and copies of
all exhibits intended to be used at the arbitration.
g. SUBPOENAS. Each party shall have the right to subpoena witnesses and
documents for arbitration.
h. ARBITRATION PROCEDURES. Employer and Employee agree that, except as
provided in this Agreement, any arbitration shall be in accordance with the
then-current Employment Arbitration Rules of Judicial Arbitration & Mediation
Services, Inc. ("J-A-M-S") before an arbitrator who is licensed to practice law
in the state in which the arbitration is convened (the "Arbitrator"). If J-A-M-
S no longer exists, then the American Arbitration Association shall be
substituted therefor for purposes of this Section 20. The arbitration shall
take place in or near the city in which Employee is or was last employed by
Employer.
The Arbitrator shall be selected as follows. J-A-M-S shall give each party
a list of 11 arbitrators drawn from its panel of labor and employment
arbitrators. Each party may strike all names on the list it deems unacceptable.
If only one common name remains on the lists of all parties, that individual
shall be designated as the Arbitrator. If more than one common name remains on
the lists of all parties, the parties shall strike names alternately until only
one remains. The party who did not initiate the claim shall strike first. If no
common name remains on the lists of all parties, J-A-M-S shall furnish an
additional list or lists until an Arbitrator is selected.
The Arbitrator shall apply the substantive law (and the law of remedies, if
applicable) of the State of Texas, or federal law, or both, as applicable to the
claim(s) asserted. The Texas Rules of Evidence shall apply. The Arbitrator, and
not any federal, state, or local court or agency, shall have exclusive authority
to resolve any dispute relating to the interpretation, applicability,
enforceability, or formation of this Agreement, including but not limited to any
claim that all or any part of this Agreement is void or voidable. The
arbitration shall be final and binding upon the parties, except as provided in
this Agreement.
8
<PAGE>
The Arbitrator shall have jurisdiction to hear and rule on pre-hearing
disputes and is authorized to hold pre-hearing conferences by telephone or in
person as the Arbitrator deems necessary. The Arbitrator shall have the
authority to entertain a motion to dismiss and/or a motion for summary judgment
by any party and shall apply the standards governing such motions under the
Texas Rules of Civil Procedure.
Either party, at its expense, may arrange for and pay the cost of a
court reporter to provide a stenographic record of proceedings.
Either party, upon request at the close of hearing, shall be given
leave to file a post-hearing brief. The time for filing such a brief shall be
set by the Arbitrator.
Either party may bring an action in a court as provided in Section 20
of this Agreement to compel arbitration under this Agreement and to enforce an
arbitration award. Except as otherwise provided in this Agreement, both Employer
and Employee agree that neither shall initiate or prosecute any lawsuit or
administrative action (other than as required by applicable law) in any way
related to any claim covered by this Agreement.
The Arbitrator shall render an award and opinion in the form typically
rendered in labor arbitrations.
i. ARBITRATION FEES AND COSTS. Employer and Employee shall equally share
the fees and costs of the Arbitrator. Each party will deposit funds or post
other appropriate security for its share of the Arbitrator's fee, in an amount
and manner determined by the Arbitrator, 10 days before the first day of
hearing. However, the prevailing party shall be entitled to recover from the
non-prevailing party in accordance with Section 24 of this Agreement, and the
Arbitrator may award such fees.
j. JUDICIAL REVIEW. A party opposing enforcement of an award may not do so
in an enforcement proceeding, but must bring a separate action in a court as
provided in Section 20 of this Agreement to set aside the award, where the
standard of review will be the same as that applied by an appellate court
reviewing a decision of a trial court sitting without a jury.
k. INTERSTATE COMMERCE. Employee understands and agrees that Employer is
engaged in transactions involving interstate commerce and that Employee's
employment involves such commerce.
l. REQUIREMENTS FOR MODIFICATION OR REVOCATION. This Agreement to
arbitrate shall survive the termination of employment. It can only be revoked or
modified by a writing signed by the parties which specifically states an intent
to revoke or modify this Agreement.
22. CAPTIONS. The captions of this Agreement have been assigned thereto for
convenience only, and shall not be construed to limit, define or modify the
substantive terms hereof.
9
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23. ENTIRE AGREEMENT; COUNTERPARTS. This Agreement constitutes the entire
agreement between the parties hereto concerning the subject matter hereof, and
supersedes all prior agreements, memoranda, correspondence, conversations and
negotiations. This Agreement may be executed in several counterparts that
together shall constitute but one and the same Agreement.
24. COSTS OF ENFORCEMENT. If it is necessary for any party to retain the
services of an attorney or to initiate legal proceedings to enforce the terms of
this Agreement, the prevailing party shall be entitled to recover from the non-
prevailing party, in addition to all other remedies, all costs of such
enforcement, including reasonable attorneys' fees and costs and including trial
and appellate proceedings.
25. GENDER, ETC. Words used herein, regardless of the number and gender
specifically used, shall be deemed and construed to include any other number,
singular or plural, and any other gender, masculine, feminine or neuter, as the
context indicates is appropriate.
10
<PAGE>
IN WITNESS WHEREOF, the undersigned have hereunto set their hands on the
date first written above.
EMPLOYEE:
/s/ Oliver Thierry
------------------------------
Olivier Thierry
EMPLOYER:
MISSION CRITICAL SOFTWARE, INC.
a Delaware Corporation
By: /s/ Paul F. Koffend, Jr.
--------------------------
Name: Paul F. Koffend, Jr.
-----------------------
Title: CFO
-----------------------
11
<PAGE>
SCHEDULE A
COMPENSATION and LEAVE POLICIES
BASE COMPENSATION
Employee shall be paid a base salary of Fourteen Thousand Five Hundred
Eighty-four Dollars ($14,584.00) per month, equal to One Hundred Seventy-five
Thousand and Eight Dollars ($175,008.00) per annum, subject to adjustment by
Employer from time to time.
INCENTIVE COMPENSATION
1) A Bonus of up to $25,000 per year to be paid annually within 30 days of
the end of a fiscal year (June 30) based upon the performance of the
company as a whole, which includes performance in meeting the
established Budget.
2) A Bonus of up to $25,000 per year to be paid quarterly based upon the
achievement of the objectives established for the Marketing Department.
LEAVE
Employee shall be entitled to leave of three (3) weeks per annum, to be
taken in accordance with Employer's regular vacation policies. Employee shall
also be entitled to sick leave in accordance with Employer's regular sick leave
policy.
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SCHEDULE B
BENEFITS
Life Insurance - Coverage on such terms as Employer may establish for all of its
employees.
Health Insurance - Major Medical, Personal, Family and Dependent Coverage and
Dental Insurance Coverage on such terms as Employer may establish for all of its
employees.
Disability Insurance - Long-Term Disability Coverage on such terms as Employer
may establish for all of its employees
Other Fringe benefits - None
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<PAGE>
ADDENDUM 1
RELOCATION AGREEMENT
Mission Critical Software, Inc. shall lend to Employee an amount equal to the
reasonable costs of a full-service relocation, in accordance with Employer's
Relocation Policy.
Thereafter, MCS will forgive 1/48 of the amount of this loan for each full month
Employee is employed at MCS. Employer will also "gross up" payments to employee
to compensate Employee for taxes upon income that will be realized as the loan
is forgiven (net of the deductions Employee shall receive for moving expenses)
The balance of the loan will be forgiven in the case of the following events:
1) In the event Employee leaves the employ of MCS for any reason other than
voluntary resignation or termination for cause.
2) In the event that MCS is acquired by another entity and the position held
by the employee is eliminated, downgraded, modified or geographically
transferred.
3) In the event of a change in control at MCS, in the situation that incoming
Senior Management wishes to replace Employee with another individual in the same
position, except in case of "termination with cause".
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ADDENDUM 2
STOCK OPTION AGREEMENT MODIFICATIONS
Subject to the approval of the Board of Directors, a grant of 240,000 stock
options shall be granted to Employee. Under the terms of the existing MCS Stock
Option Agreement, the options have a 4-year vesting schedule, a 10-year
expiration and a strike price of $0.50 per share.
Employee shall be automatically vested in one-fourth (25%) of the total grant
amount in the case of the occurrence of any of the following events during
Employee's first year of employment:
1) In the event Employee leaves the employ of MCS for any reason other than
voluntary resignation or termination for cause.
2) In the event that MCS is acquired by another entity and the position held
by the employee is eliminated, downgraded, modified or geographically
transferred.
3) In the event of a change in control at MCS, in the situation that incoming
Senior Management wishes to replace Employee with another individual in the same
position, except in case of "termination with cause".
15
<PAGE>
EXHIBIT 10.12.1
RELOCATION AGREEMENT
Mission Critical Software, Inc. shall lend to Employee an amount equal to the
reasonable costs of a full-service relocation, in accordance with Employer's
Relocation Policy.
Thereafter, MCS will forgive 1/48 of the amount of this loan for each full month
Employee is employed at MCS. Employer will also "gross up" payments to employee
to compensate Employee for taxes upon income that will be realized as the loan
is forgiven (net of the deductions Employee shall receive for moving expenses)
The balance of the loan will be forgiven in the case of the following events:
1) In the event Employee leaves the employ of MCS for any reason other than
voluntary resignation or termination for cause.
2) In the event that MCS is acquired by another entity and the position held
by the employee is eliminated, downgraded, modified or geographically
transferred.
3) In the event of a change in control at MCS, in the situation that incoming
Senior Management wishes to replace Employee with another individual in the same
position, except in case of "termination with cause".
<PAGE>
EXHIBIT 10.13
NEW
ENTERPRISE
ASSOCIATES
2490 Sand Hill Road
Menlo Park
California 94025
Tel: 650-854-9499
Fax: 650-854-9397
April 13, 1998
Mr. Michael S. Bennett
address
Dear Mike:
On behalf of the Board of Directors of Mission Critical Software, Inc., I am
pleased to present our offer to you to become Mission Critical Software's new
President and Chief Executive Officer, and a member of the Mission Critical
Software Board of Directors. As President and Chief Executive, you will report
to the Mission Critical Board of Directors.
We have enjoyed getting to know you, we are enthusiastic in support of this
offer - and we all look forward very much to welcoming you to Mission Critical
Software. All of us have been impressed with your personal stature and
character, your skills, and your achievements, and by how well you fit the
profile we established. We are convinced that you are very well qualified to
lead Mission Critical Software to major growth and success. We also believe, as
I know you do, that becoming President and CEO of Mission Critical Software is
an outstanding and timely opportunity for you to capitalize upon your talents -
and for you to continue to attain your personal, career and financial goals.
We have given careful thought to compensation arrangements that would be
appropriate to your professional stature, to Mission Critical Software's stage
of development, and to Mission Critical precedents and policies. Accordingly,
we are pleased to offer you the following, subject to approval to Mission
Critical's Certified public Accountants and our attorney:
1. Your initial base salary as President and Chief Executive Officer will be
$16,667 per month ($200,000 per annum).
2. You will receive an initial quarterly incentive bonus targeted at $43,750
per fiscal quarter, based half on personal milestones and half on corporate
operating results - the precise milestones and operating goals to be
mutually established within thirty days of your joining Mission Critical
Software.
3. Your base salary and incentive bonus plan for fiscal 2000 will be developed
by you and the Board prior to the close of Fiscal 1999 on June 30, 1999,
and will be set at amounts no less than those in Paragraphs 1 and 2 above.
<PAGE>
4. You will be granted, upon your employment, options on 7.00% of Mission
Critical Software, as follows:
A) 2.25% of the current full-diluted 13,380,692 shares outstanding, or
301,068 common shares, at the current employee price of fifty cents
($0.50) per share, which will best at the rate of 0.1875% per month
(25,089 shares per month) at the end of each of your first twelve
months of employment with Mission Critical;
B) An additional 0.13194% of the current full-diluted 13,380,692 shares
outstanding (or 17,655 common shares) at the current employee price of
fifty cents ($0.50) per share will vest after each of the next 36
months, subject to your continued employment with Mission Critical;
C) If, before your first anniversary date, you are terminated or your job
is materially changed ("constructive termination") for other than
cause, fifty percent of your then-unvested shares shall become
immediately vested;
D) If, before your first anniversary date, Mission Critical is acquired
by another company and you continue to serve in full time role of
equal responsibility and compensation, all of your then unvested
shares which remain after giving effect to Paragraph 4-C above will
vest at the rate of one-twelve per month during the ensuing months of
your employment;
E) If, after your first anniversary date, and before your fourth, Mission
Critical is acquired by another company and you are terminated or
assigned a position of lesser responsibility or compensation in the
resulting organization ("constructive termination"), or required to
relocate out of Austin, one hundred percent of your then unvested
shares shall become immediately vested;
F) Following your separation, whether voluntary and involuntary, from
Mission Critical or a successor company, you will have twelve months
in which to exercise your vested options.
5. If you are terminated by Mission Critical for other than cause, or if you
are terminated by a company which should acquire Mission Critical, Mission
Critical will pay you a lump sum severance in the amount of two hundred
thousand dollars ($200,000), upon said termination.
6. As a Mission Critical Software employee, you will participate in Mission
Critical's various corporate benefit plans, such as medical, disability,
dental, life insurance, and retirement plans, which are not in effect, or as
they may be changed or amended in the future.
-2-
<PAGE>
7. Mission Critical understands that you will reside in Austin while
undertaking this assignment. In order to facilitate this situation, the
company understands that you will need the following:
A) An office in Austin
B) Employment of your current administrative, Assistant in Austin,
including her participating in the company stock option and under
Mission Critical's normal guidelines.
C) Availability of a car in Houston.
D) Availability of an apartment in Houston.
In accordance with U.S. law, this offer is conditional upon satisfactory proof
of U.S. citizenship or other eligibility for employment, as required by the
Immigration Reform and Control Act of 1986. Having no specified term,
employment may be terminated at the will of either yourself or Mission Critical
Software, upon thirty days notice.
Mike, we all look forward to your prompt acceptance of our offer, and we expect
you to join Mission Critical Software full time on or before May 18, 1998. To
signify your acceptance, please sign and return to me one copy of this letter.
By signing below, you also certify that you are in good health and not under a
physician's care for any illness or injury that endangers your ability to assume
your duties.
We would appreciate your response to this letter by end of day on Monday, April
13, 1998. The terms of this letter will take effect on the date it is signed,
with the exception of salary and bonus compensation provisions. Salary and
bonus compensation will commence on your actual on-board dates.
May I say again how much we all look forward to welcoming you to Mission
Critical Software. We look forward to working with you during many challenging
and fruitful years.
Sincerely,
/s/ Scott D. Sandell
--------------------------------
Scott D. Sandell
Member of the Board of Directors
Mission Critical Software, Inc.
AGREED AND ACCEPTED:
/s/ Michael S. Bennett
- ---------------------------
Michael S. Bennett
4/13/98
- ---------------------------
Date
Enclosure: second signature copy of this letter.
-3-
<PAGE>
EXHIBIT 10.14
NEW
ENTERPRISE
ASSOCIATES
2490 Sand Hill Road
Menlo Park
California 94025
Tel: 650-854-9499
Fax: 650-854-9397
April 13, 1998
Mr. Stephen E. Odom
address
Dear Steve:
On behalf of the Board of Directors of Mission Critical Software, Inc., I am
pleased to present our offer to you to become Mission Critical Software's new
Chief Financial Officer, reporting to the President and Chief Executive Officer.
We have enjoyed getting to know you, we are enthusiastic in support of this
offer - and we all look forward very much to welcoming you to Mission Critical
Software. All of us have been impressed with your personal stature and
character, your skills and your achievements, and by how well you fit the
profile we established. We are convinced that you are very well qualified to
lead Mission Critical Software to major growth and success. We also believe, as
I know you do, that becoming CFO of Mission Critical Software is an outstanding
and timely opportunity for you to capitalize upon your talents - and for you to
continue to attain your personal, career and financial goals.
We have given careful thought to compensation arrangements that would be
appropriate to your professional stature, to Mission Critical Software's stage
of development, and to Mission Critical precedents and policies. Accordingly,
we are pleased to offer you the following, subject to Mike Bennett accepting our
offer of employment as CEO of Mission Critical Software (if he does not accept
our offer, we would like to consider your candidacy separately):
1. Your initial base salary as Chief Financial Officer will be $16,667 per
month ($200,000 per annum).
2. Your base salary and incentive bonus plan for fiscal 2000 will be developed
by you and the Board prior to the close of Fiscal 1999 on June 30, 1999.
Your Fiscal 2000 compensation will be set at an amount no less than that in
Paragraph 1 above.
3. You will be granted, upon your employment, options on 1.50% of Mission
Critical Software, as follows:
<PAGE>
A) 0.03125% of the current fully-diluted 13,380,692 shares outstanding, or
4,182 common share, at the current employee price of fifty cents ($0.50)
per share, will vest during each of the next 48 months, subject to your
continued employment with Mission Critical;
B) If, before your first anniversary date, you are terminated or your job
is materially changed ("constructive termination") for other than cause,
fifty percent of your then-unvested shares shall become immediately
vested;
C) If, after your first anniversary date, and before your fourth, Mission
Critical is acquired by another company and you are terminated or
assigned a position of lesser responsibility or compensation in the
resulting organization ("constructive termination"), one hundred percent
of your then unvested shares shall become immediately vested;
D) Following your separation, whether voluntary or involuntary, from
Mission Critical or a successor company, you will have twelve months in
which to exercise your vested options.
4. If you are terminated by Mission Critical for other than cause, Mission
Critical will pay you a lump sum severance in the amount of six months'
worth of your then-current salary upon said termination.
5. As a Mission Critical Software employee, you will participate in Mission
Critical's various corporate benefit plans, such as medical, disability,
dental, life insurance and retirement plans, which are now in effect, or as
they may be changed or amended in the future.
In accordance with U.S. law, this offer is conditional upon satisfactory proof
of U.S. citizenship or other eligibility for employment, as required by the
Immigration Reform and Control Act of 1986. Having no specified term,
employment may be terminated at the will of either yourself or Mission Critical
Software, upon thirty days notice.
Steve, we all look forward to your prompt acceptance of our offer, and to your
joining Mission Critical Software full time on or before May 18, 1998. To
signify your acceptance, please sign and return to me one copy of this letter.
By signing below, you also certify that you are in good health and not under a
physician's care for any illness or injury that endangers your ability to assume
your duties.
We would appreciate your response to this letter by end of day on Monday April
13, 1998. The terms of this letter will take effect on the date it is signed,
with the exception of salary and bonus compensation provisions. Salary and
bonus compensation will commence on your actual on-board date.
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<PAGE>
May I say again how much we all look forward to welcoming you to Mission
Critical Software. We look forward to working with you during many challenging
and fruitful years.
Sincerely,
/s/ Scott D. Sandell
---------------------------------
Scott D. Sandell
Member of the Board of Directors
Mission Critical Software, Inc.
AGREED AND ACCEPTED:
/s/ Stephen E. Odom
- -------------------------
Stephen E. Odom
4/13/98
- --------------------------
Date
Enclosure: second signature copy of this letter
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<PAGE>
EXHIBIT 10.15
MISSION CRITICAL
SOFTWARE
May 28, 1998
Mr. Leslie D. Willard
address
Dear Leslie,
We are pleased to offer you the position of Vice President of Financial with
Mission Critical Systems (MCS). The main terms of our offer are summarized
below:
. Starting monthly rate of salary will be $8,750.00 with an initial review
after (12) months and annual reviews thereafter. You will report to Steve
Odom, CFO of MCS.
. You will receive fifteen (15) working days vacation annually. The vacation
days for this calendar year will be pro-rated to reflect your actual starting
date.
. You will be eligible for a bonus of $45,000 per fiscal year starting July 1,
1998. This will be paid in the pay period following the end of each quarter.
This bonus will be based upon the same criteria as the CEO bonus plan.
. The Board of Directors will grant 25,000 stock options with an exercise price
of $0.50 per share and annual pro rata vesting over 4 years upon commencement
of employment. Specific details of the option guidelines will be provided to
you at a later date. MCS will provide accelerated vesting of 50% of the any
options granted if your employment is terminated for any reason other than
gross negligence or your job description or compensation are negatively
changed within the first year of your employment. Additionally, MCS will
provide accelerated vesting of 100% of any options granted if there is a
change in control of the company subsequent to the completion of one full
year of employment.
. You will be covered under our full insurance program, which includes major
medical, dental, disability and life insurance, on the first day of the month
following commencement of your employment with MCS.
. Upon your employment with MCS, you will be eligible to participate in our
401(k) plan at the next available enrollment date.
. MCS will give you a notice period/compensation equal to six (6) months of
your salary and bonus if your employment is terminated for any reason other
than gross negligence or misconduct on your part.
I have enclosed two (2) copies of this letter, please sign and return one (1)
copy to me at your earliest convenience. The seconded copy is for your personal
files.
We are confident that your talents and profession aspirations are well suited to
the opportunities available at MCS. As such, we look forward to you becoming a
member of the MCS Executive team.
Sincerely, Agreed and Accepted By:
/s/ Stephen E. Odom /s/ Leslie D. Willard
- ------------------------------- -----------------------------------
Stephen E. Odom Leslie D. Willard
Chief Financial Officer
<PAGE>
Exhibit 10.15.1
MISSION CRITICAL
SOFTWARE
May 26, 1999
Mr. Leslie D. Willard
Dear Leslie:
This letter amends and clarifies your offer letter dated May 28, 1998. Pursuant
to our conversation, the third and fourth sentences of paragraph four (option
grant) of your offer letter are hereby amended in their entirety to read as
follows:
. If, before your first anniversary date, you are terminated or your job is
materially changed ("constructive termination") for other than cause, fifty
percent of your then-unvested options shall become immediately vested. If,
after your first anniversary date, Mission Critical is acquired by another
company and you are terminated or assigned a position of lesser
responsibility or compensation in the resulting organization ("constructive
termination"), one hundred percent of your then unvested options shall become
immediately vested.
The remaining provisions of your offer letter shall remain in full force and
effect.
Sincerely,
/s/ Stephen E. Odom
- ----------------------------------
Stephen E. Odom
Chief Financial Officer
AGREED AND ACCEPTED BY:
/s/ Leslie D. Willard
- ----------------------------------
Leslie D. Willard
<PAGE>
EXHIBIT 10.16
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "AGREEMENT") is made and entered into
effective as of 21-Dec-98, by and between Pleczko, Richard J. (hereinafter
"EMPLOYEE"), and MISSION CRITICAL SOFTWARE, INC., a Delaware corporation having
its principal office at 720 North Post Oak Road, Suite 505, Houston, TX 77024
(hereinafter "EMPLOYER").
W I T N E S S E T H:
This Agreement is made and entered into under the following circumstances:
(1) Whereas, Employer is in the business of the development, marketing and
sale of software products and systems (the "BUSINESS ACTIVITIES"); and
(2) Whereas Employer desires, on the terms and conditions stated herein, to
employ Employee; and
(3) Whereas Employee desires, on the terms and conditions stated herein, to
be employed by Employer.
NOW, THEREFORE, in consideration of the foregoing recitals, and the
promises, covenants, terms and conditions contained herein, the receipt and
sufficiency of which are forever acknowledged and confessed, the parties hereto
agree as follows:
1. EMPLOYMENT AND TERM. Employer hereby employs Employee, and Employee
hereby accepts employment with Employer commencing 21-Dec-98 (hereinafter the
"EFFECTIVE DATE").
2. DUTIES. Employee shall perform the duties and functions as are normal
and customary to the position for which Employee was hired, as well as any other
duties delegated to Employee by Employer. Employee shall, in all Employee's
actions, demonstrate the utmost good faith, honesty and loyalty towards Employer
and its interests. Employee will perform Employee's duties and assignments in
the offices and work spaces provided by Employer unless otherwise specifically
authorized by the management of Employee. Employee agrees that Employee's
employment with Employer shall be the exclusive, full-time employment of
Employee. Employee shall comply with all applicable policies of Employer.
Employee understands that the nature of Employer's Business Activities
requires that Employer be able to contact Employee twenty-four hours a day.
Employee shall carry at all times a beeper provided by Employer to allow
Employer and/or its customers to maintain such contact.
In addition to pagers, Employer may provide to Employee for business-related
use computers, cellular phones, equipment, funds, lists, books, records, and
other materials of
<PAGE>
Employer. Employee shall exercise due care in using such items, and agrees that,
upon the termination of Employee's employment with Employer, Employee will
immediately surrender to Employer all such items and any other property of
Employer in the possession of or provided to Employee.
3. COMPENSATION. Employee shall be entitled to initial base compensation
of $15,210.00 per month, subject to adjustment by Employer from time to time.
4. STATUS OF EMPLOYEE. The parties expressly acknowledge that Employee, in
the performance of services hereunder, is an employee of Employer. Accordingly,
Employer shall deduct from all compensation paid to Employee pursuant to this
Agreement any sums required by law or any other requirement of any governmental
body.
5. FRINGE BENEFITS. Employer shall provide to Employee, at Employer's
expense, fringe benefits commensurate with those provided to Employer's
employees of similar position and seniority. Employee shall be entitled to paid
leave for vacation and illness in accordance with Employer's policies.
6. TERMINATION. Notwithstanding any other provisions of this Agreement,
the Employee's employment with Employer shall terminate:
a. upon the death of Employee; or,
b. upon Employee's "disability" (For purposes of this Agreement, the
term "disability" shall mean the inability of Employee, arising out of any
medically determinable physical or mental impairment, to perform the services
required of him hereunder for a period of ninety (90) consecutive days during
which ninety (90) day period Employee's compensation hereunder shall continue);
c. immediately (unless Employer and Employee otherwise agree at the
time such notice is given) upon written notice from either party to the other,
with or without cause; or
d. at Employer's option, immediately upon the existence of "cause."
For purposes of this Agreement, the term "cause" shall be defined as:
(1) willful and continued failure of Employee to substantially
perform the duties required of him by Employer in a manner satisfactory to
Employer, in Employer's sole reasonable discretion, exercised in good faith;
(2) a material violation of any written policy or procedure which
has been distributed by the Employer to its employees;
(3) any dishonesty by Employee in his dealings with Employer, the
commission of fraud by Employee, or gross negligence in the performance of
the duties of Employee;
(4) the arrest or conviction (or plea of guilty or nolo contendere)
of Employee of
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<PAGE>
any felony or other crime involving dishonesty or moral turpitude;
(5) any violation of any covenant or restriction contained in
Section 9 or Section 10 hereof; or
(6) unlawful use of narcotics or other controlled substances, or
use of alcohol or other drugs in a manner Employer reasonably determines to
be adverse to the best interests of Employer or in violation of Employer's
applicable policies.
7. EFFECTS OF TERMINATION. In the event of termination of this Agreement,
neither party shall have any further obligations hereunder except for (i)
obligations accruing prior to the date of termination and (ii) obligations,
promises or covenants contained herein which are expressly made to extend beyond
the term of this Agreement, including, without limitation, confidentiality of
information, indemnities and Employee's covenants not to compete (which
covenants and agreements shall survive the termination or expiration of this
Agreement). The termination of this Agreement, for whatever reason, shall not
extinguish those obligations of Employee specified in the Restrictive Covenants
(hereinafter defined), nor shall the same extinguish the right of either party
to bring an action, either in law or in equity, for breach of this Agreement by
the other party.
8. COPYRIGHT ASSIGNMENT/WORK MADE FOR HIRE. Employee does hereby sell,
grant, convey and assign unto Employer, its successors, assigns and licensees
forever, all right, title and interest in and to all computer software programs,
computer code, system design, documents, system architecture, and the data base
model/structure, and other material constituting or otherwise relating to the
Property (as defined herein) hereafter written by Employee or to the development
of which Employee may have contributed ideas, know-how, skill or labor, and all
changes, additions, adjuncts, alterations, modifications, translations,
transformations, adaptions, elaborations, emulations, revisions or other
developments made in connection with the Property, which may heretofore have
been written or which may hereafter be written for the benefit of, at the
request of or with the sanction of Employer.
As used herein, Property includes all computer software, source code and
programs and other computer products, (i) acquired by Employer from a third
party specifically including that Property acquired from Mission Critical
Software I, Inc. by Employer in that certain Assignment Agreement dated
September 4, 1996, (ii) made, conceived and/or developed, or in the process of
being made, conceived or developed, by an employee or employees of Employer
while employed by Employer in its business or by its customers or (iii) made,
conceived and/or developed, or in the process of being made, conceived or
developed, by an employee or employees of Employer in the course of performing
services for or at the request of or while being compensated by Employer or
within a reasonable period of time thereafter if they involved the use of
company time or materials or facilities or if they resulted from or were
suggested by the employee's or employees' work with Employer whether or not they
are used or usable by Employer in its business or by its customers. Property
shall also include advertisements, marketing materials, collateral files of all
types, word processing, spreadsheets, slogans, trademarks and service marks.
Employee agrees and acknowledges that any and all Property written,
developed, created
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<PAGE>
or produced by Employee, in whole or in part, for Employer constitutes and will
constitute a "work made for hire" for Employer, as contemplated in 17 U.S.C.
Section 101. Employer is and shall be considered the author of the Property for
all purposes and the sole and exclusive owner of all rights to the Property and
all derivative works, including all right, title, and interest comprised in the
copyright and all trademarks, patents and other right in and to the Property and
each and every part of the Property. Employee assigns to Employer all rights
whatsoever that Employee has in the Property and any adaption, version or
derivation of the Property. This assignment of rights includes an assignment of
any copyright in the Property not owned by Employer as a result of the parties'
agreement that the Property constitutes a work made-for-hire for Employer.
Employee will, upon request, execute, acknowledge and deliver to Employer such
additional documents as Employer may deem necessary to evidence Employer's right
hereunder, and grants to Employer the right, as attorney-in-fact, to execute,
acknowledge, deliver and record in the U.S. Copyright Office or elsewhere any
and all such documents.
9. TERRITORY. In recognition of the existing and potential worldwide
Business Activities of Employer and the narrow and precise definitions of
Prohibited Activities as defined below, Employer and Employee agree that the
terms of this Agreement shall apply to any Prohibited Activities engaged by
Employee anywhere in the world including all states and territories of the
United States of America (the "Territory"). Prohibited Activities shall include
any activities which would be directly or indirectly in competition with
Employer's Business Activities as defined in the Agreement.
10. NON-COMPETITION. Employee recognizes and agrees that there are certain
property rights such as trade secrets and products of Employer which are
critical to Employer's continued success. Because of their importance to
Employer and to Employee and other employees who are dependent on Employer for
their livelihood, it is necessary for Employer to take all permissible steps to
protect these property rights. This being the case, Employee agrees that during
the Employee's employment with Employer and for a continuous period of two (2)
years thereafter commencing upon termination of such employment, in the event of
any voluntary or involuntary termination or resignation by Employee, Employee
shall not, individually or jointly with others, directly or indirectly, manage,
operate, control, render services related to Prohibited Activities to,
participate in the management or control of, or own or hold any ownership or
voting interest in, any person or entity engaged in Prohibited Activities
(except for the ownership of up to 5% of the outstanding stock issued by
publicly traded companies); and Employee shall not act as an officer, director,
employee, partner, independent contractor, consultant, principal, agent,
proprietor, or in any other capacity for, nor lend any assistance (financial,
managerial, professional or otherwise) or cooperation to, nor perform any
services for, any such person or entity or any business that provides consulting
services to any person or entity engaged in Prohibited Activities anywhere in
the Territory.
11. NON-DISCLOSURE; NON-SOLICITATION. Except in the performance of
Employee's duties hereunder, at no time during the employment or at any time
thereafter shall Employee, individually or jointly with others, for the benefit
of Employee or any third party, publish, disclose, use or authorize anyone else
to publish, disclose or use, any secret or confidential material or information
relating to any aspect of the business or operations of Employer or any
information regarding the business methods, business policies, procedures,
techniques, or trade secrets, or other knowledge or processes of or developed by
Employer (and/or any other
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<PAGE>
consultant, Employee or agent of Employer), any affiliate of Employer, or any
entity in which Employer has an interest, including, without limitation, any
secret or confidential material or information relating to the business,
customers, financial position, trade or industrial practices, trade secrets,
technology or know-how of Employer or Employer's affiliates. As used herein, the
term "trade secrets" includes all research and development information,
technical information, data, technology, computer software, source code,
programs and information and other computer technology, techniques, services,
equipment, marketing and sales information, customer lists and other customer
information, methods of doing business and other secret or proprietary methods
and information and trade secrets used or usable by Employer or a third party
having a contractual relationship with Employer which have been or are developed
or used by Employer or any such third party or which are developed by Employee
during Employee's employment with Employer.
Moreover, during Employee's employment with Employer, Employee shall not act
as an officer, director, employee, partner, independent contractor, consultant,
principal, agent, proprietor, owner or part owner, or in any other capacity for,
nor lend any assistance (financial, managerial or otherwise) or cooperation to,
any person or entity which employs any person or hires or contracts with, as a
consultant or other independent agent or independent contractor, any person or
entity (other than Employee) who was employed by or acted as an agent for,
consultant to, or independent contractor of Employer, any affiliate of Employer,
or any entity in which Employer has an interest, at any time during Employee's
employment with Employer. During the Employees' employment with Employer and
for a continuous period of two (2) years thereafter commencing upon termination
of Employee's employment, Employee shall not employ any such person or induce or
attempt to influence any such person to voluntarily terminate employment with
Employer.
12. REASONABLENESS OF RESTRICTIONS; REFORMATION; ENFORCEMENT. The parties
hereto recognize and acknowledge that the geographical and time limitations
contained in Sections 9 and 10 hereof (hereinafter the "RESTRICTIVE COVENANTS")
are reasonable and properly required for the adequate protection of Employer's
interest. Employee acknowledges that Employer will provide to Employee
confidential information concerning Employer's and Employer's affiliates'
business methods and operating practices in reliance on the covenants contained
in the Restrictive Covenants. It is agreed by the parties hereto that if any
portion of the restrictions contained in the Restrictive Covenants are held to
be unreasonable, arbitrary or against public policy, then the restrictions shall
be considered divisible, both as to the time and to the geographical area, with
each month of the specified period being deemed a separate period of time and
each radius mile of the restricted territory being deemed a separate
geographical area, so that the lesser period of time or geographical area shall
remain effective so long as the same is not unreasonable, arbitrary or against
public policy. The parties hereto agree that in the event any court of
competent jurisdiction determines the specified period or the specified
geographical area of the restricted territory to be unreasonable, arbitrary or
against public policy, a lesser time period or geographical area which is
determined to be reasonable, nonarbitrary and not against public policy may be
enforced against Employee. If Employee shall violate any of the covenants
contained herein and if any court action is instituted by Employer to prevent or
enjoin such violation, then the period of time during which Employee's business
activities shall be restricted, as provided in this Agreement, shall be
lengthened by a period of time equal to the period between the date of
Employee's breach of the terms or covenants contained in this Agreement
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<PAGE>
and the date on which the decree of the court disposing of the issues upon the
merits shall become final and not subject to further appeal.
13. NO REMEDY AT LAW. Employee agrees that the remedy at law for any breach
by him of the Restrictive Covenants will be inadequate and would be difficult to
ascertain and therefore, in the event of the breach or threatened breach of any
such covenants, Employer, in addition to any and all other remedies, shall have
the right to enjoin Employee from any threatened or actual activities in
violation thereof; and Employee hereby consents and agrees that temporary and
permanent injunctive relief may be granted in any proceedings which might be
brought to enforce any such covenants without the necessity of proof of actual
damages and without necessity of posting a bond in cash or otherwise. In the
event Employer does apply for such an injunction, Employee shall not raise as a
defense thereto that Employer has an adequate remedy at law.
14. ASSIGNABILITY. This Agreement and the rights and duties created
hereunder shall not be assignable or delegable by Employee. Employer may, at
Employer's option and without consent of Employee, assign its rights and duties
hereunder to any successor entity or transferee of Employer's assets.
15. NOTICES. All notices or other communications provided for herein to be
given or sent to a party by the other party shall be deemed validly given or
sent if in writing and (i) mailed, postage prepaid, by registered or certified
United States mail or hand delivered, (ii) sent by facsimile, addressed to the
parties at their addresses hereinabove set forth, or (iii) sent by Employer's
intercompany electronic mail to the appropriate address designated for the
receiving party. Any party may give notice to the other party at any time, by
the method specified above, of a change in the address at which, or the person
to whom, notice is to be addressed.
16. SEVERABILITY. Each section, subsection and lesser section of this
Agreement constitutes a separate and distinct undertaking, covenant or provision
hereof. In the event that any provision of this Agreement shall be determined
to be invalid or unenforceable, such provision shall be deemed limited by
construction in scope and effect to the minimum extent necessary to render the
same valid and enforceable, and, in the event such a limiting construction is
impossible, such invalid or unenforceable provision shall be deemed severed from
this Agreement, but every other provision of this Agreement shall remain in full
force and effect.
17. WAIVER. The failure of a party to enforce any term, provision or
condition of this Agreement at any time or times shall not be deemed a waiver of
that term, provision or condition for the future, nor shall any specific waiver
of a term, provision or condition at one time be deemed a waiver of such term,
provision or condition for any future time or times.
18. PARTIES. This Agreement shall be binding upon, and shall inure to the
benefit of, the parties hereto and their heirs, personal representatives, legal
representatives, and proper successors and assigns, as the case may be.
19. GOVERNING LAW. The validity, interpretation and performance of this
Agreement shall be governed by the laws of the State of Texas, without giving
effect to the principles of comity or conflicts of laws thereof. Each party
hereto agrees to submit to the personal
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<PAGE>
jurisdiction and venue of the state and federal courts having jurisdiction over
Harris County, Texas, for a resolution of all disputes arising in connection
with the interpretation, construction, and enforcement of this Agreement, and
hereby waives the claim or defense therein that such courts constitute an
inconvenient forum.
20. ENFORCEMENT/DISPUTES SUBJECT TO ARBITRATION. Employee recognizes that
differences may arise between Employer and Employee during or following
employment with Employer, and that those differences may or may not be related
to employment. Employee understands and agrees that by entering into this
Agreement, Employee anticipates gaining the benefits of a speedy, impartial
dispute-resolution procedure.
Employee understands that any reference in this Agreement to Employer will
be a reference also to its affiliated entities, all benefit plans, the benefit
plans' sponsors, fiduciaries, administrators, affiliates, and all successors and
assigns of any of them.
a. CLAIMS COVERED. Employer and Employee mutually consent to the
resolution by arbitration of all claims or controversies ("claims"), whether or
not arising out of Employee's employment (or its termination), that Employer may
have against Employee or that Employee may have against Employer or against its
officers, directors, employees, or agents in their capacity as such or
otherwise. The claims covered by this Agreement include, but are not limited to,
claims for wages or other compensation due; claims for breach of any contract or
covenant (express or implied); tort claims; claims for discrimination
(including, but not limited to race, sex, religion, national origin, age,
marital status, or medical condition, handicap, or disability); claims for
benefits (except where an employee benefit or pension plan specifies that its
claims procedure shall culminate in an arbitration procedure different from this
one), and claims for violation of any federal, state or other governmental law,
statute, regulation, or ordinance, except claims excluded in the following
paragraph.
b. CLAIMS NOT COVERED. Claims Employee may have for Workers' Compensation
or unemployment compensation benefits are not covered by this Agreement. Also
not covered are claims by Employer for injunctive and/or other equitable relief
for unfair competition and/or the use and/or unauthorized disclosure of trade
secrets or confidential information, as to which Employee understands and agrees
that Employer may seek and obtain relief from a court of competent jurisdiction.
c. REQUIRED NOTICE OF ALL CLAIMS AND STATUTE OF LIMITATIONS. Employer and
Employee agree that the aggrieved party must give verbal notice of any claims to
the other party within forty-eight (48) hours of the occurrence giving rise to
the claim; otherwise, the claim shall be void and deemed waived even if there is
a federal or state statute of limitations which would have given more time to
pursue the claim. Employee shall give such verbal notice to one of the persons
designated for receipt of same in Employer's applicable policy. Employee shall
follow up such verbal notice with written notice within five (5) days of the
giving of verbal notice. The written notice shall identify and describe the
nature of all claims asserted and the facts upon which such claims are based. If
Employee is aware of the occurrence of an event which may give rise to a claim
by another employee, Employee shall give notice of the occurrence to the
appropriate persons in accordance with this paragraph.
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<PAGE>
d. REPRESENTATION. Any party may be represented by an attorney or other
representative selected by the party.
e. DISCOVERY. Each party shall have the right to take the deposition of
one individual and any expert witness designated by another party. Each party
also shall have the right to make requests for production of documents to any
party. The subpoena right specified below shall be applicable to discovery
pursuant to this paragraph. Additional discovery may be had only where the
Arbitrator selected pursuant to this Agreement so orders, upon a showing of
substantial need.
f. DESIGNATION OF WITNESSES. At least 30 days before the arbitration, the
parties must exchange lists of witnesses, including any expert, and copies of
all exhibits intended to be used at the arbitration.
g. SUBPOENAS. Each party shall have the right to subpoena witnesses and
documents for arbitration.
h. ARBITRATION PROCEDURES. Employer and Employee agree that, except as
provided in this Agreement, any arbitration shall be in accordance with the
then-current Employment Arbitration Rules of Judicial Arbitration & Mediation
Services, Inc. ("J-A-M-S") before an arbitrator who is licensed to practice law
in the state in which the arbitration is convened (the "Arbitrator"). If J-A-M-S
no longer exists, then the American Arbitration Association shall be substituted
therefor for purposes of this Section 20. The arbitration shall take place in or
near the city in which Employee is or was last employed by Employer.
The Arbitrator shall be selected as follows. J-A-M-S shall give each party a
list of 11 arbitrators drawn from its panel of labor and employment arbitrators.
Each party may strike all names on the list it deems unacceptable. If only one
common name remains on the lists of all parties, that individual shall be
designated as the Arbitrator. If more than one common name remains on the lists
of all parties, the parties shall strike names alternately until only one
remains. The party who did not initiate the claim shall strike first. If no
common name remains on the lists of all parties, J-A-M-S shall furnish an
additional list or lists until an Arbitrator is selected.
The Arbitrator shall apply the substantive law (and the law of remedies, if
applicable) of the State of Texas, or federal law, or both, as applicable to the
claim(s) asserted. The Texas Rules of Evidence shall apply. The Arbitrator, and
not any federal, state, or local court or agency, shall have exclusive authority
to resolve any dispute relating to the interpretation, applicability,
enforceability, or formation of this Agreement, including but not limited to any
claim that all or any part of this Agreement is void or voidable. The
arbitration shall be final and binding upon the parties, except as provided in
this Agreement.
The Arbitrator shall have jurisdiction to hear and rule on pre-hearing
disputes and is authorized to hold pre-hearing conferences by telephone or in
person as the Arbitrator deems necessary. The Arbitrator shall have the
authority to entertain a motion to dismiss and/or a motion for summary judgment
by any party and shall apply the standards governing such motions under the
Texas Rules of Civil Procedure.
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Either party, at its expense, may arrange for and pay the cost of a court
reporter to provide a stenographic record of proceedings.
Either party, upon request at the close of hearing, shall be given leave to
file a post-hearing brief. The time for filing such a brief shall be set by the
Arbitrator.
Either party may bring an action in a court as provided in Section 20 of
this Agreement to compel arbitration under this Agreement and to enforce an
arbitration award. Except as otherwise provided in this Agreement, both Employer
and Employee agree that neither shall initiate or prosecute any lawsuit or
administrative action (other than as required by applicable law) in any way
related to any claim covered by this Agreement.
The Arbitrator shall render an award and opinion in the form typically
rendered in labor arbitrations.
i. ARBITRATION FEES AND COSTS. Employer and Employee shall equally share
the fees and costs of the Arbitrator. Each party will deposit funds or post
other appropriate security for its share of the Arbitrator's fee, in an amount
and manner determined by the Arbitrator, 10 days before the first day of
hearing. However, the prevailing party shall be entitled to recover from the
non-prevailing party in accordance with Section 24 of this Agreement, and the
Arbitrator may award such fees.
j. JUDICIAL REVIEW. A party opposing enforcement of an award may not do so
in an enforcement proceeding, but must bring a separate action in a court as
provided in Section 20 of this Agreement to set aside the award, where the
standard of review will be the same as that applied by an appellate court
reviewing a decision of a trial court sitting without a jury.
k. INTERSTATE COMMERCE. Employee understands and agrees that Employer is
engaged in transactions involving interstate commerce and that Employee's
employment involves such commerce.
l. REQUIREMENTS FOR MODIFICATION OR REVOCATION. This Agreement to
arbitrate shall survive the termination of employment. It can only be revoked or
modified by a writing signed by the parties which specifically states an intent
to revoke or modify this Agreement.
21. CAPTIONS. The captions of this Agreement have been assigned thereto for
convenience only, and shall not be construed to limit, define or modify the
substantive terms hereof.
22. ENTIRE AGREEMENT; COUNTERPARTS. This Agreement constitutes the entire
agreement between the parties hereto concerning the subject matter hereof, and
supersedes all prior agreements, memoranda, correspondence, conversations and
negotiations. This Agreement may be executed in several counterparts that
together shall constitute but one and the same Agreement.
23. COSTS OF ENFORCEMENT. In the event it is necessary for any party to
retain the services of an attorney or to initiate legal proceedings to enforce
the terms of this Agreement, the
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<PAGE>
prevailing party shall be entitled to recover from the non-prevailing party, in
addition to all other remedies, all costs of such enforcement, including
reasonable attorneys' fees and costs and including trial and appellate
proceedings.
24. GENDER, ETC. Words used herein, regardless of the number and gender
specifically used, shall be deemed and construed to include any other number,
singular or plural, and any other gender, masculine, feminine or neuter, as the
context indicates is appropriate.
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<PAGE>
IN WITNESS WHEREOF, the undersigned have hereunto set their hands on the
date first written above.
EMPLOYEE:
/s/ Rick Pleczko
-------------------------------
Signature of Employee
RICK PLECZKO
-------------------------------
Type or Print Name of Employee
EMPLOYER:
MISSION CRITICAL SOFTWARE, INC.
a Delaware Corporation
By: /s/ Stephen E. Odom
---------------------------
Name: Stephen E. Odom
------------------------
Title: Chief Financial Officer
------------------------
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<PAGE>
EXHIBIT 10.16.1
December 2, 1998
Mr. Rick Pleczko
Dear Mr. Pleczko:
Mission Critical Software, Inc. ("MSC") is pleased to offer you the position of
Vice President of Product Management reporting to Mike Bennett. The following
sets forth your compensation package.
. Your base salary will be $182,500 per year.
. Subject to MCS' Board of Directors approval, upon your acceptance of this
offer of employment, you will be granted options of 172,000 (approximately 1.25%
fully diluted) shares of MCS' common stock, at an exercise price of $2.50 per
option. The options will vest 25% at the end of twelve (12) months' employment
and monthly thereafter for the following three (3) years.
. You will receive an initial quarterly incentive bonus targeted at $31,250 per
fiscal quarter, based on corporate operating results to be established by the
MCS' Board of Directors.
. If due to your start date with MCS, your quarterly bonus from PLATINUM
technology inc. is not made, MCS will provide you a hiring advance equal to
$31,250, which will be forgiven over your first twelve (12) months of
employment.
. If you are terminated without cause, you will receive a severance payment
equivalent to six (6) months' base salary and if terminated without cause during
the first twelve (12) months of employment, 25% of your options will vest.
. Benefits include Company paid health and life insurance and you will receive
fifteen (15) vacation days per year.
Employment with MCS is continent upon your agreeing to and signing our
Employment Agreement. MCS is an "at will" employer. You will receive a copy
tailored to your position on your first day of employment.
<PAGE>
This offer is remains open until December 9,1998, and I would like your Start
Date to be as soon as possible but no later than January 1, 1999. Please
indicate your acceptance of this offer by signing below and returning this
letter to Steve Odom. If you have any questions, please feel free to call me at
713-548-1700. We look forward to having you on our team.
Sincerely,
MISSION CRITICAL SOFTWARE, INC.
/s/ Michael Bennett
- -----------------------------------
Michael Bennett
President & CEO
EMPLOYMENT OFFER ACCEPTED BY
/s/ Rick Pleczko
- -----------------------------------
Name
12/8/1999
- -----------------------------------
Date
12/21/1999
- -----------------------------------
Starting Date
<PAGE>
EXHIBIT 10.18
February 8, 1999
Mr. Stephen Kangas
address
Dear Mr. Kangas:
Mission Critical Software, Inc. ("MCS") is pleased to offer you the position of
Vice President of Strategic Alliances reporting to Mike Bennett. This role will
require that you live in the Seattle area and your primary role will be managing
the Microsoft relationship. The following sets forth your compensation package.
. Your base salary will be at an annual rate of $150,000.
. You will also be eligible for $50,000 annual bonus, payable quarterly
as defined in the Executive Bonus Plan, based upon achievement of the
approved operating plan.
. Subject to MCS' Board of Directors approval, upon your acceptance of
this offer of employment, you will be granted options of 150,000
(approximately 1.1% fully diluted) shares of MCS' common stock, at an
exercise price of $12.50 per option. The options will vest 25% at the
end of twelve (12) months' employment and monthly thereafter for the
following three (3) years.
. If you are terminated without cause, you will receive a severance
payment equivalent to six (6) months' base salary and if terminated
without cause as a result of a merger or acquisition of MCS during
the first twelve (12) months of employment, 25% of your options will
vest.
. Benefits include Company paid health and life insurance and you will
receive fifteen (15) vacation days per year.
Employment with MCS is contingent upon your agreeing to and signing our
Employment Agreement. MCS is an "at will" employer. You will receive a copy
tailored to your position on your first day of employment.
This offer remains open until February 12, 1999 and I would like your Start Date
to be as soon as possible. Please indicate your acceptance of this offer by
signing below and returning this letter to Steve Odom. If you have any
questions, please feel free to call me at 713-548-1700. We look forward to
having you on our team.
Sincerely,
MISSION CRITICAL SOFTWARE, INC. EMPLOYMENT OFFER ACCEPTED BY:
/s/ Michael Bennett /s/ Stephen Kangas
- ------------------- -------------------
Michael Bennett Name
President & CEO
-------------------
Date
-------------------
Starting Date
<PAGE>
EXHIBIT 10.18.1
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "AGREEMENT") is made and entered into effective
as of 16-Feb-99, by and between Kangas, Stephen (hereinafter "EMPLOYEE"), and
MISSION CRITICAL SOFTWARE, INC., a Delaware corporation having its principal
office at 720 North Post Oak Road, Suite 505, Houston, TX 77024 (hereinafter
"EMPLOYER").
W I T N E S S E T H:
- - - - - - - - - -
This Agreement is made and entered into under the following circumstances:
(1) Whereas, Employer is in the business of the development, marketing and sale
of software products and systems (the "BUSINESS ACTIVITIES"); and
(2) Whereas Employer desires, on the terms and conditions stated herein, to
employ Employee; and
(3) Whereas Employee desires, on the terms and conditions stated herein, to be
employed by Employer.
NOW, THEREFORE, in consideration of the foregoing recitals, and the promises,
covenants, terms and conditions contained herein, the receipt and sufficiency of
which are forever acknowledged and confessed, the parties hereto agree as
follows:
1. EMPLOYMENT AND TERM. Employer hereby employs Employee, and Employee
hereby accepts employment with Employer commencing 16-Feb-99 (hereinafter the
"EFFECTIVE DATE").
2. DUTIES. Employee shall perform the duties and functions as are normal and
customary to the position for which Employee was hired, as well as any other
duties delegated to Employee by Employer. Employee shall, in all Employee's
actions, demonstrate the utmost good faith, honesty and loyalty towards Employer
and its interests. Employee will perform Employee's duties and assignments in
the offices and work spaces provided by Employer unless otherwise specifically
authorized by the management of Employee. Employee agrees that Employee's
employment with Employer shall be the exclusive, full-time employment of
Employee. Employee shall comply with all applicable policies of Employer.
Employee understands that the nature of Employer's Business Activities
requires that Employer be able to contact Employee twenty-four hours a day.
Employee shall carry at all times a beeper provided by Employer to allow
Employer and/or its customers to maintain such contact.
In addition to pagers, Employer may provide to Employee for business-related
use computers, cellular phones, equipment, funds, lists, books, records, and
other materials of
<PAGE>
Employer. Employee shall exercise due care in using such items, and agrees that,
upon the termination of Employee's employment with Employer, Employee will
immediately surrender to Employer all such items and any other property of
Employer in the possession of or provided to Employee.
3. COMPENSATION. Employee shall be entitled to initial base compensation of
$12,500 per month, subject to adjustment by Employer from time to time.
4. STATUS OF EMPLOYEE. The parties expressly acknowledge that Employee, in
the performance of services hereunder, is an employee of Employer. Accordingly,
Employer shall deduct from all compensation paid to Employee pursuant to this
Agreement any sums required by law or any other requirement of any governmental
body.
5. FRINGE BENEFITS. Employer shall provide to Employee, at Employer's
expense, fringe benefits commensurate with those provided to Employer's
employees of similar position and seniority. Employee shall be entitled to paid
leave for vacation and illness in accordance with Employer's policies.
6. TERMINATION. Notwithstanding any other provisions of this Agreement, the
Employee's employment with Employer shall terminate:
a. upon the death of Employee; or,
b. upon Employee's "disability" (For purposes of this Agreement, the
term "disability" shall mean the inability of Employee, arising out of any
medically determinable physical or mental impairment, to perform the services
required of him hereunder for a period of ninety (90) consecutive days during
which ninety (90) day period Employee's compensation hereunder shall continue);
c. immediately (unless Employer and Employee otherwise agree at the time
such notice is given) upon written notice from either party to the other, with
or without cause; or
d. at Employer's option, immediately upon the existence of "cause." For
purposes of this Agreement, the term "cause" shall be defined as:
(1) willful and continued failure of Employee to substantially
perform the duties required of him by Employer in a manner satisfactory
to Employer, in Employer's sole reasonable discretion, exercised in good
faith;
(2) a material violation of any written policy or procedure
which has been distributed by the Employer to its employees;
(3) any dishonesty by Employee in his dealings with Employer,
the commission of fraud by Employee, or gross negligence in the
performance of the duties of Employee;
(4) the arrest or conviction (or plea of guilty or nolo
contendere) of
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<PAGE>
Employee of any felony or other crime involving dishonesty or moral
turpitude;
(5) any violation of any covenant or restriction contained in
Section 9 or Section 10 hereof; or
(6) unlawful use of narcotics or other controlled substances, or
use of alcohol or other drugs in a manner Employer reasonably determines
to be adverse to the best interests of Employer or in violation of
Employer's applicable policies.
7. EFFECTS OF TERMINATION. In the event of termination of this Agreement,
neither party shall have any further obligations hereunder except for (i)
obligations accruing prior to the date of termination and (ii) obligations,
promises or covenants contained herein which are expressly made to extend beyond
the term of this Agreement, including, without limitation, confidentiality of
information, indemnities and Employee's covenants not to compete (which
covenants and agreements shall survive the termination or expiration of this
Agreement). The termination of this Agreement, for whatever reason, shall not
extinguish those obligations of Employee specified in the Restrictive Covenants
(hereinafter defined), nor shall the same extinguish the right of either party
to bring an action, either in law or in equity, for breach of this Agreement by
the other party.
8. COPYRIGHT ASSIGNMENT/WORK MADE FOR HIRE. Employee does hereby sell,
grant, convey and assign unto Employer, its successors, assigns and licensees
forever, all right, title and interest in and to all computer software programs,
computer code, system design, documents, system architecture, and the data base
model/structure, and other material constituting or otherwise relating to the
Property (as defined herein) hereafter written by Employee or to the development
of which Employee may have contributed ideas, know-how, skill or labor, and all
changes, additions, adjuncts, alterations, modifications, translations,
transformations, adaptions, elaborations, emulations, revisions or other
developments made in connection with the Property, which may heretofore have
been written or which may hereafter be written for the benefit of, at the
request of or with the sanction of Employer.
As used herein, Property includes all computer software, source code and
programs and other computer products, (i) acquired by Employer from a third
party specifically including that Property acquired from Mission Critical
Software I, Inc. by Employer in that certain Assignment Agreement dated
September 4, 1996, (ii) made, conceived and/or developed, or in the process of
being made, conceived or developed, by an employee or employees of Employer
while employed by Employer in its business or by its customers or (iii) made,
conceived and/or developed, or in the process of being made, conceived or
developed, by an employee or employees of Employer in the course of performing
services for or at the request of or while being compensated by Employer or
within a reasonable period of time thereafter if they involved the use of
company time or materials or facilities or if they resulted from or were
suggested by the employee's or employees' work with Employer whether or not they
are used or usable by Employer in its business or by its customers. Property
shall also include advertisements, marketing materials, collateral files of all
types, word processing, spreadsheets, slogans, trademarks and service marks.
Employee agrees and acknowledges that any and all Property written, developed,
created
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<PAGE>
or produced by Employee, in whole or in part, for Employer constitutes and will
constitute a "work made for hire" for Employer, as contemplated in 17 U.S.C.
Section 101. Employer is and shall be considered the author of the Property for
all purposes and the sole and exclusive owner of all rights to the Property and
all derivative works, including all right, title, and interest comprised in the
copyright and all trademarks, patents and other right in and to the Property and
each and every part of the Property. Employee assigns to Employer all rights
whatsoever that Employee has in the Property and any adaption, version or
derivation of the Property. This assignment of rights includes an assignment of
any copyright in the Property not owned by Employer as a result of the parties'
agreement that the Property constitutes a work made-for-hire for Employer.
Employee will, upon request, execute, acknowledge and deliver to Employer such
additional documents as Employer may deem necessary to evidence Employer's right
hereunder, and grants to Employer the right, as attorney-in-fact, to execute,
acknowledge, deliver and record in the U.S. Copyright Office or elsewhere any
and all such documents.
9. TERRITORY. In recognition of the existing and potential worldwide
Business Activities of Employer and the narrow and precise definitions of
Prohibited Activities as defined below, Employer and Employee agree that the
terms of this Agreement shall apply to any Prohibited Activities engaged by
Employee anywhere in the world including all states and territories of the
United States of America (the "Territory"). Prohibited Activities shall include
any activities which would be directly or indirectly in competition with
Employer's Business Activities as defined in the Agreement.
10. NON-COMPETITION. Employee recognizes and agrees that there are certain
property rights such as trade secrets and products of Employer which are
critical to Employer's continued success. Because of their importance to
Employer and to Employee and other employees who are dependent on Employer for
their livelihood, it is necessary for Employer to take all permissible steps to
protect these property rights. This being the case, Employee agrees that during
the Employee's employment with Employer and for a continuous period of two (2)
years thereafter commencing upon termination of such employment, in the event of
any voluntary or involuntary termination or resignation by Employee, Employee
shall not, individually or jointly with others, directly or indirectly, manage,
operate, control, render services related to Prohibited Activities to,
participate in the management or control of, or own or hold any ownership or
voting interest in, any person or entity engaged in Prohibited Activities
(except for the ownership of up to 5% of the outstanding stock issued by
publicly traded companies); and Employee shall not act as an officer, director,
employee, partner, independent contractor, consultant, principal, agent,
proprietor, or in any other capacity for, nor lend any assistance (financial,
managerial, professional or otherwise) or cooperation to, nor perform any
services for, any such person or entity or any business that provides consulting
services to any person or entity engaged in Prohibited Activities anywhere in
the Territory.
11. NON-DISCLOSURE; NON-SOLICITATION. Except in the performance of
Employee's duties hereunder, at no time during the employment or at any time
thereafter shall Employee, individually or jointly with others, for the benefit
of Employee or any third party, publish, disclose, use or authorize anyone else
to publish, disclose or use, any secret or confidential material or information
relating to any aspect of the business or operations of Employer or any
information regarding the business methods, business policies, procedures,
techniques, or trade secrets, or other knowledge or processes of or developed by
Employer (and/or any other
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<PAGE>
consultant, Employee or agent of Employer), any affiliate of Employer, or any
entity in which Employer has an interest, including, without limitation, any
secret or confidential material or information relating to the business,
customers, financial position, trade or industrial practices, trade secrets,
technology or know-how of Employer or Employer's affiliates. As used herein, the
term "trade secrets" includes all research and development information,
technical information, data, technology, computer software, source code,
programs and information and other computer technology, techniques, services,
equipment, marketing and sales information, customer lists and other customer
information, methods of doing business and other secret or proprietary methods
and information and trade secrets used or usable by Employer or a third party
having a contractual relationship with Employer which have been or are developed
or used by Employer or any such third party or which are developed by Employee
during Employee's employment with Employer.
Moreover, during Employee's employment with Employer, Employee shall not act
as an officer, director, employee, partner, independent contractor, consultant,
principal, agent, proprietor, owner or part owner, or in any other capacity for,
nor lend any assistance (financial, managerial or otherwise) or cooperation to,
any person or entity which employs any person or hires or contracts with, as a
consultant or other independent agent or independent contractor, any person or
entity (other than Employee) who was employed by or acted as an agent for,
consultant to, or independent contractor of Employer, any affiliate of Employer,
or any entity in which Employer has an interest, at any time during Employee's
employment with Employer. During the Employees' employment with Employer and
for a continuous period of two (2) years thereafter commencing upon termination
of Employee's employment, Employee shall not employ any such person or induce or
attempt to influence any such person to voluntarily terminate employment with
Employer.
12. REASONABLENESS OF RESTRICTIONS; REFORMATION; ENFORCEMENT. The parties
hereto recognize and acknowledge that the geographical and time limitations
contained in Sections 9 and 10 hereof (hereinafter the "RESTRICTIVE COVENANTS")
are reasonable and properly required for the adequate protection of Employer's
interest. Employee acknowledges that Employer will provide to Employee
confidential information concerning Employer's and Employer's affiliates'
business methods and operating practices in reliance on the covenants contained
in the Restrictive Covenants. It is agreed by the parties hereto that if any
portion of the restrictions contained in the Restrictive Covenants are held to
be unreasonable, arbitrary or against public policy, then the restrictions shall
be considered divisible, both as to the time and to the geographical area, with
each month of the specified period being deemed a separate period of time and
each radius mile of the restricted territory being deemed a separate
geographical area, so that the lesser period of time or geographical area shall
remain effective so long as the same is not unreasonable, arbitrary or against
public policy. The parties hereto agree that in the event any court of
competent jurisdiction determines the specified period or the specified
geographical area of the restricted territory to be unreasonable, arbitrary or
against public policy, a lesser time period or geographical area which is
determined to be reasonable, nonarbitrary and not against public policy may be
enforced against Employee. If Employee shall violate any of the covenants
contained herein and if any court action is instituted by Employer to prevent or
enjoin such violation, then the period of time during which Employee's business
activities shall be restricted, as provided in this Agreement, shall be
lengthened by a period of time equal to the period between the date of
Employee's breach of the terms or covenants contained in this Agreement
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<PAGE>
and the date on which the decree of the court disposing of the issues upon the
merits shall become final and not subject to further appeal.
13. NO REMEDY AT LAW. Employee agrees that the remedy at law for any breach
by him of the Restrictive Covenants will be inadequate and would be difficult to
ascertain and therefore, in the event of the breach or threatened breach of any
such covenants, Employer, in addition to any and all other remedies, shall have
the right to enjoin Employee from any threatened or actual activities in
violation thereof; and Employee hereby consents and agrees that temporary and
permanent injunctive relief may be granted in any proceedings which might be
brought to enforce any such covenants without the necessity of proof of actual
damages and without necessity of posting a bond in cash or otherwise. In the
event Employer does apply for such an injunction, Employee shall not raise as a
defense thereto that Employer has an adequate remedy at law.
14. ASSIGNABILITY. This Agreement and the rights and duties created
hereunder shall not be assignable or delegable by Employee. Employer may, at
Employer's option and without consent of Employee, assign its rights and duties
hereunder to any successor entity or transferee of Employer's assets.
15. NOTICES. All notices or other communications provided for herein to be
given or sent to a party by the other party shall be deemed validly given or
sent if in writing and (i) mailed, postage prepaid, by registered or certified
United States mail or hand delivered, (ii) sent by facsimile, addressed to the
parties at their addresses hereinabove set forth, or (iii) sent by Employer's
intercompany electronic mail to the appropriate address designated for the
receiving party. Any party may give notice to the other party at any time, by
the method specified above, of a change in the address at which, or the person
to whom, notice is to be addressed.
16. SEVERABILITY. Each section, subsection and lesser section of this
Agreement constitutes a separate and distinct undertaking, covenant or provision
hereof. In the event that any provision of this Agreement shall be determined
to be invalid or unenforceable, such provision shall be deemed limited by
construction in scope and effect to the minimum extent necessary to render the
same valid and enforceable, and, in the event such a limiting construction is
impossible, such invalid or unenforceable provision shall be deemed severed from
this Agreement, but every other provision of this Agreement shall remain in full
force and effect.
17. WAIVER. The failure of a party to enforce any term, provision or
condition of this Agreement at any time or times shall not be deemed a waiver of
that term, provision or condition for the future, nor shall any specific waiver
of a term, provision or condition at one time be deemed a waiver of such term,
provision or condition for any future time or times.
18. PARTIES. This Agreement shall be binding upon, and shall inure to the
benefit of, the parties hereto and their heirs, personal representatives, legal
representatives, and proper successors and assigns, as the case may be.
19. GOVERNING LAW. The validity, interpretation and performance of this
Agreement shall be governed by the laws of the State of Texas, without giving
effect to the principles of comity or conflicts of laws thereof. Each party
hereto agrees to submit to the personal
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<PAGE>
jurisdiction and venue of the state and federal courts having jurisdiction over
Harris County, Texas, for a resolution of all disputes arising in connection
with the interpretation, construction, and enforcement of this Agreement, and
hereby waives the claim or defense therein that such courts constitute an
inconvenient forum.
20. ENFORCEMENT/DISPUTES SUBJECT TO ARBITRATION. Employee recognizes that
differences may arise between Employer and Employee during or following
employment with Employer, and that those differences may or may not be related
to employment. Employee understands and agrees that by entering into this
Agreement, Employee anticipates gaining the benefits of a speedy,
impartiaroducts,e-resolution procedure.
Employee understands that any reference in this Agreement to Employer will be
a reference also to its affiliated entities, all benefit plans, the benefit
plans' sponsors, fiduciaries, administrators, affiliates, and all successors and
assigns of any of them.
a. CLAIMS COVERED. Employer and Employee mutually consent to the resolution
by arbitration of all claims or controversies ("claims"), whether or not arising
out of Employee's employment (or its termination), that Employer may have
against Employee or that Employee may have against Employer or against its
officers, directors, employees, or agents in their capacity as such or
otherwise. The claims covered by this Agreement include, but are not limited
to, claims for wages or other compensation due; claims for breach of any
contract or covenant (express or implied); tort claims; claims for
discrimination (including, but not limited to race, sex, religion, national
origin, age, marital status, or medical condition, handicap, or disability);
claims for benefits (except where an employee benefit or pension plan specifies
that its claims procedure shall culminate in an arbitration procedure different
from this one), and claims for violation of any federal, state or other
governmental law, statute, regulation, or ordinance, except claims excluded in
the following paragraph.
b. CLAIMS NOT COVERED. Claims Employee may have for Workers' Compensation or
unemployment compensation benefits are not covered by this Agreement. Also not
covered are claims by Employer for injunctive and/or other equitable relief for
unfair competition and/or the use and/or unauthorized disclosure of trade
secrets or confidential information, as to which Employee understands and agrees
that Employer may seek and obtain relief from a court of competent jurisdiction.
c. REQUIRED NOTICE OF ALL CLAIMS AND STATUTE OF LIMITATIONS. Employer and
Employee agree that the aggrieved party must give verbal notice of any claims to
the other party within forty-eight (48) hours of the occurrence giving rise to
the claim; otherwise, the claim shall be void and deemed waived even if there is
a federal or state statute of limitations which would have given more time to
pursue the claim. Employee shall give such verbal notice to one of the persons
designated for receipt of same in Employer's applicable policy. Employee shall
follow up such verbal notice with written notice within five (5) days of the
giving of verbal notice. The written notice shall identify and describe the
nature of all claims asserted and the facts upon which such claims are based.
If Employee is aware of the occurrence of an event which may give rise to a
claim by another employee, Employee shall give notice of the occurrence to the
appropriate persons in accordance with this paragraph.
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<PAGE>
d. REPRESENTATION. Any party may be represented by an attorney or other
representative selected by the party.
e. DISCOVERY. Each party shall have the right to take the deposition of one
individual and any expert witness designated by another party. Each party also
shall have the right to make requests for production of documents to any party.
The subpoena right specified below shall be applicable to discovery pursuant to
this paragraph. Additional discovery may be had only where the Arbitrator
selected pursuant to this Agreement so orders, upon a showing of substantial
need.
f. DESIGNATION OF WITNESSES. At least 30 days before the arbitration, the
parties must exchange lists of witnesses, including any expert, and copies of
all exhibits intended to be used at the arbitration.
g. SUBPOENAS. Each party shall have the right to subpoena witnesses and
documents for arbitration.
h. ARBITRATION PROCEDURES. Employer and Employee agree that, except as
provided in this Agreement, any arbitration shall be in accordance with the
then-current Employment Arbitration Rules of Judicial Arbitration & Mediation
Services, Inc. ("J-A-M-S") before an arbitrator who is licensed to practice law
in the state in which the arbitration is convened (the "Arbitrator"). If
J-A-M-S no longer exists, then the American Arbitration Association shall be
substituted therefor for purposes of this Section 20. The arbitration shall
take place in or near the city in which Employee is or was last employed by
Employer.
The Arbitrator shall be selected as follows. J-A-M-S shall give each party a
list of 11 arbitrators drawn from its panel of labor and employment arbitrators.
Each party may strike all names on the list it deems unacceptable. If only one
common name remains on the lists of all parties, that individual shall be
designated as the Arbitrator. If more than one common name remains on the lists
of all parties, the parties shall strike names alternately until only one
remains. The party who did not initiate the claim shall strike first. If no
common name remains on the lists of all parties, J-A-M-S shall furnish an
additional list or lists until an Arbitrator is selected.
The Arbitrator shall apply the substantive law (and the law of remedies, if
applicable) of the State of Texas, or federal law, or both, as applicable to the
claim(s) asserted. The Texas Rules of Evidence shall apply. The Arbitrator,
and not any federal, state, or local court or agency, shall have exclusive
authority to resolve any dispute relating to the interpretation, applicability,
enforceability, or formation of this Agreement, including but not limited to any
claim that all or any part of this Agreement is void or voidable. The
arbitration shall be final and binding upon the parties, except as provided in
this Agreement.
The Arbitrator shall have jurisdiction to hear and rule on pre-hearing
disputes and is authorized to hold pre-hearing conferences by telephone or in
person as the Arbitrator deems necessary. The Arbitrator shall have the
authority to entertain a motion to dismiss and/or a motion for summary judgment
by any party and shall apply the standards governing such motions under the
Texas Rules of Civil Procedure.
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<PAGE>
Either party, at its expense, may arrange for and pay the cost of a court
reporter to provide a stenographic record of proceedings.
Either party, upon request at the close of hearing, shall be given leave to
file a post-hearing brief. The time for filing such a brief shall be set by the
Arbitrator.
Either party may bring an action in a court as provided in Section 20 of this
Agreement to compel arbitration under this Agreement and to enforce an
arbitration award. Except as otherwise provided in this Agreement, both
Employer and Employee agree that neither shall initiate or prosecute any lawsuit
or administrative action (other than as required by applicable law) in any way
related to any claim covered by this Agreement.
The Arbitrator shall render an award and opinion in the form typically
rendered in labor arbitrations.
i. ARBITRATION FEES AND COSTS. Employer and Employee shall equally share the
fees and costs of the Arbitrator. Each party will deposit funds or post other
appropriate security for its share of the Arbitrator's fee, in an amount and
manner determined by the Arbitrator, 10 days before the first day of hearing.
However, the prevailing party shall be entitled to recover from the non-
prevailing party in accordance with Section 24 of this Agreement, and the
Arbitrator may award such fees.
j. JUDICIAL REVIEW. A party opposing enforcement of an award may not do so
in an enforcement proceeding, but must bring a separate action in a court as
provided in Section 20 of this Agreement to set aside the award, where the
standard of review will be the same as that applied by an appellate court
reviewing a decision of a trial court sitting without a jury.
k. INTERSTATE COMMERCE. Employee understands and agrees that Employer is
engaged in transactions involving interstate commerce and that Employee's
employment involves such commerce.
l. REQUIREMENTS FOR MODIFICATION OR REVOCATION. This Agreement to arbitrate
shall survive the termination of employment. It can only be revoked or modified
by a writing signed by the parties which specifically states an intent to revoke
or modify this Agreement.
21. CAPTIONS. The captions of this Agreement have been assigned thereto for
convenience only, and shall not be construed to limit, define or modify the
substantive terms hereof.
22. ENTIRE AGREEMENT; COUNTERPARTS. This Agreement constitutes the entire
agreement between the parties hereto concerning the subject matter hereof, and
supersedes all prior agreements, memoranda, correspondence, conversations and
negotiations. This Agreement may be executed in several counterparts that
together shall constitute but one and the same Agreement.
23. COSTS OF ENFORCEMENT. In the event it is necessary for any party to
retain the services of an attorney or to initiate legal proceedings to enforce
the terms of this Agreement, the
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prevailing party shall be entitled to recover from the non-prevailing party, in
addition to all other remedies, all costs of such enforcement, including
reasonable attorneys' fees and costs and including trial and appellate
proceedings.
24. GENDER, ETC. Words used herein, regardless of the number and gender
specifically used, shall be deemed and construed to include any other number,
singular or plural, and any other gender, masculine, feminine or neuter, as the
context indicates is appropriate.
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Exhibit 10.19
March 1, 1999
Mr. Michael J. Rovner
Dear Mr. Rovner:
Mission Critical Software, Inc. ("MSC") is pleased to offer you the position of
Director reporting to Mike Bennett. The following sets forth your compensation
package.
. Your base salary will be at an annual rate of $115,000.
. You will also be eligible for $30,000 annual bonus, payable quarterly as
defined in the Executive Bonus Plan, based upon achievement of the approved
operating plan.
. Subject to MCS' Board of Directors approval, upon your acceptance of this
offer of employment, you will be granted options of 25,000 shares of MCS'
common stock. The exercise price will be set at the next Board of Directors
meeting. The options will vest 25% at the end of twelve (12) months'
employment and monthly thereafter for the following three (3) years.
. If you are terminated without cause as a result of a merger or acquisition of
MCS during the first twelve (12) months of employment, 25% of your options
will vest and you will receive a severance payment equivalent to six (6)
months' base salary.
. Benefits include Company paid health and life insurance and you will receive
fifteen (15) vacation days per year.
Employment with MCS is continent upon your agreeing to and signing our
Employment Agreement. MCS is an "at will" employer. You will receive a copy
tailored to your position on your first day of employment.
This offer is remains open until March 3, 1999 and I would like your
March 22, 1999. Please indicate your acceptance of this offer by signing below
and returning this letter to Steve Odom. If you have any questions, please feel
free to call me at 713-548-1700. We look forward to having you on our team.
Sincerely,
MISSION CRITICAL SOFTWARE, INC. EMPLOYMENT OFFER ACCEPTED BY:
/s/ Michael Bennett /s/ M.J. Rovner
- -------------------------------- ------------------------------------
Name
Michael Bennett March 2, 1999
President & CEO ------------------------------------
Date
March 24, 1999
------------------------------------
Starting Date
<PAGE>
Exhibit 10.19.1
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (the "AGREEMENT") is made and entered into effective
as of March 24, 1999, by and between MICHAEL ROVNER (hereinafter "EMPLOYEE"),
and MISSION CRITICAL SOFTWARE, INC., a Delaware corporation having its principal
office at 720 North Post Oak Road, Suite 505, Houston, TX 77024 (hereinafter
"EMPLOYER").
W I T N E S S E T H:
- - - - - - - - - -
This Agreement is made and entered into under the following circumstances:
(1) Whereas, Employer is in the business of the development, marketing and
sale of Windows NT and Windows 2000 systems management and monitoring software
products and systems (the "BUSINESS ACTIVITIES"); and
(2) Whereas Employer desires, on the terms and conditions stated herein, to
employ Employee; and
(3) Whereas Employee desires, on the terms and conditions stated herein, to be
employed by Employer.
NOW, THEREFORE, in consideration of the foregoing recitals, and the promises,
covenants, terms and conditions contained herein, the receipt and sufficiency of
which are forever acknowledged and confessed, the parties hereto agree as
follows:
1. EMPLOYMENT AND TERM. Employer hereby employs Employee, and Employee
hereby accepts employment with Employer commencing March 24, 1999 (hereinafter
the "EFFECTIVE DATE").
2. DUTIES. Employee shall perform the duties and functions as are normal and
customary to the position for which Employee was hired, as well as any other
duties delegated to Employee by Employer. Employee shall, in all Employee's
actions, demonstrate the utmost good faith, honesty and loyalty towards Employer
and its interests. Employee will perform Employee's duties and assignments in
the offices and work spaces provided by Employer unless otherwise specifically
authorized by the management of Employee. Employee agrees that Employee's
employment with Employer shall be the exclusive, full-time employment of
Employee. Employee shall comply with all applicable policies of Employer.
Employee understands that the nature of Employer's Business Activities
requires that Employer be able to contact Employee twenty-four hours a day.
Employee shall carry at all times a beeper provided by Employer to allow
Employer and/or its customers to maintain such contact.
In addition to pagers, Employer may provide to Employee for business-related
use computers, cellular phones, equipment, funds, lists, books, records, and
other materials of Employer. Employee shall exercise due care in using such
items, and agrees that, upon the
<PAGE>
termination of Employee's employment with Employer, Employee will immediately
surrender to Employer all such items and any other property of Employer in the
possession of or provided to Employee.
3. COMPENSATION. Employee shall be entitled to initial base compensation of
$9,583.33 per month, subject to adjustment by Employer from time to time.
4. STATUS OF EMPLOYEE. The parties expressly acknowledge that Employee, in
the performance of services hereunder, is an employee of Employer. Accordingly,
Employer shall deduct from all compensation paid to Employee pursuant to this
Agreement any sums required by law or any other requirement of any governmental
body.
5. FRINGE BENEFITS. Employer shall provide to Employee, at Employer's
expense, fringe benefits commensurate with those provided to Employer's
employees of similar position and seniority. Employee shall be entitled to paid
leave for vacation and illness in accordance with Employer's policies.
6. TERMINATION. Notwithstanding any other provisions of this Agreement, the
Employee's employment with Employer shall terminate:
a. upon the death of Employee; or,
b. upon Employee's "disability" (For purposes of this Agreement, the term
"disability" shall mean the inability of Employee, arising out of any medically
determinable physical or mental impairment, to perform the services required of
him hereunder for a period of ninety (90) consecutive days during which ninety
(90) day period Employee's compensation hereunder shall continue);
c. immediately (unless Employer and Employee otherwise agree at the time
such notice is given) upon written notice from either party to the other, with
or without cause; or
d. at Employer's option, immediately upon the existence of "cause." For
purposes of this Agreement, the term "cause" shall be defined as:
(1) willful and continued failure of Employee to substantially perform
the duties required of him by Employer in a manner satisfactory to
Employer, in Employer's sole reasonable discretion, exercised in good
faith;
(2) a material violation of any written policy or procedure which has
been distributed by the Employer to its employees;
(3) any dishonesty by Employee in his dealings with Employer, the
commission of fraud by Employee, or gross negligence in the performance of
the duties of Employee;
(4) the arrest or conviction (or plea of guilty or nolo contendere) of
Employee of any felony or other crime involving dishonesty or moral
turpitude;
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(5) any violation of any covenant or restriction contained in Section 9
or Section 10 hereof; or
(6) unlawful use of narcotics or other controlled substances, or use of
alcohol or other drugs in a manner Employer reasonably determines to be
adverse to the best interests of Employer or in violation of Employer's
applicable policies.
7. EFFECTS OF TERMINATION. In the event of termination of this Agreement,
neither party shall have any further obligations hereunder except for (i)
obligations accruing prior to the date of termination, including obligations
under your offer letter dated as of March 1, 1999 and (ii) obligations, promises
or covenants contained herein which are expressly made to extend beyond the term
of this Agreement, including, without limitation, confidentiality of
information, indemnities and Employee's covenants not to compete (which
covenants and agreements shall survive the termination or expiration of this
Agreement). The termination of this Agreement, for whatever reason, shall not
extinguish those obligations of Employee specified in the Restrictive Covenants
(hereinafter defined), nor shall the same extinguish the right of either party
to bring an action, either in law or in equity, for breach of this Agreement by
the other party.
8. COPYRIGHT ASSIGNMENT/WORK MADE FOR HIRE. Employee does hereby sell,
grant, convey and assign unto Employer, its successors, assigns and licensees
forever, all right, title and interest in and to all computer software programs,
computer code, system design, documents, system architecture, and the data base
model/structure, and other material constituting or otherwise relating to the
Property (as defined herein) hereafter written by Employee or to the development
of which Employee may have contributed ideas, know-how, skill or labor, and all
changes, additions, adjuncts, alterations, modifications, translations,
transformations, adaptions, elaborations, emulations, revisions or other
developments made in connection with the Property, which may heretofore have
been written or which may hereafter be written for the benefit of, at the
request of or with the sanction of Employer.
As used herein, Property includes all computer software, source code and
programs and other computer products, (i) acquired by Employer from a third
party specifically including that Property acquired from Mission Critical
Software I, Inc. by Employer in that certain Assignment Agreement dated
September 4, 1996, (ii) made, conceived and/or developed, or in the process of
being made, conceived or developed, by an employee or employees of Employer
while employed by Employer in its business or by its customers or (iii) made,
conceived and/or developed, or in the process of being made, conceived or
developed, by an employee or employees of Employer in the course of performing
services for or at the request of or while being compensated by Employer or
within a reasonable period of time thereafter if they involved the use of
company time or materials or facilities or if they resulted from or were
suggested by the employee's or employees' work with Employer whether or not they
are used or usable by Employer in its business or by its customers. Property
shall also include advertisements, marketing materials, collateral files of all
types, word processing, spreadsheets, slogans, trademarks and service marks.
Employee agrees and acknowledges that any and all Property written, developed,
created or produced by Employee, in whole or in part, for Employer constitutes
and will constitute a
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<PAGE>
"work made for hire" for Employer, as contemplated in 17 U.S.C. Section 101.
Employer is and shall be considered the author of the Property for all purposes
and the sole and exclusive owner of all rights to the Property and all
derivative works, including all right, title, and interest comprised in the
copyright and all trademarks, patents and other right in and to the Property and
each and every part of the Property. Employee assigns to Employer all rights
whatsoever that Employee has in the Property and any adaption, version or
derivation of the Property. This assignment of rights includes an assignment of
any copyright in the Property not owned by Employer as a result of the parties'
agreement that the Property constitutes a work made-for-hire for Employer.
Employee will, upon request, execute, acknowledge and deliver to Employer such
additional documents as Employer may deem necessary to evidence Employer's right
hereunder, and grants to Employer the right, as attorney-in-fact, to execute,
acknowledge, deliver and record in the U.S. Copyright Office or elsewhere any
and all such documents.
9. TERRITORY. In recognition of the existing and potential worldwide
Business Activities of Employer and the narrow and precise definitions of
Prohibited Activities as defined below, Employer and Employee agree that the
terms of this Agreement shall apply to any Prohibited Activities engaged by
Employee anywhere in the world including all states and territories of the
United States of America (the "Territory"). Prohibited Activities shall include
any activities which would be directly or indirectly in competition with
Employer's Business Activities as defined in this Agreement, including the
development, marketing and sale of software products and services that are
competitive with Employer's then-current commercially available software
products and services at the time of such activities.
10. NON-COMPETITION. Employee recognizes and agrees that there are certain
property rights such as trade secrets and products of Employer which are
critical to Employer's continued success. Because of their importance to
Employer and to Employee and other employees who are dependent on Employer for
their livelihood, it is necessary for Employer to take all permissible steps to
protect these property rights. This being the case, Employee agrees that during
the Employee's employment with Employer and for a continuous period of two (2)
years thereafter commencing upon termination of such employment, in the event of
any voluntary or involuntary termination or resignation by Employee, Employee
shall not, individually or jointly with others, directly or indirectly, manage,
operate, control, render services related to Prohibited Activities to,
participate in the management or control of, or own or hold any ownership or
voting interest in, any person or entity engaged in Prohibited Activities
(except for the ownership of up to 5% of the outstanding stock issued by
publicly traded companies); and Employee shall not act as an officer, director,
employee, partner, independent contractor, consultant, principal, agent,
proprietor, or in any other capacity for, nor lend any assistance (financial,
managerial, professional or otherwise) or cooperation to, nor perform any
services for, any such person or entity or any business that provides consulting
services to any person or entity engaged in Prohibited Activities anywhere in
the Territory.
11. NON-DISCLOSURE; NON-SOLICITATION. Except in the performance of
Employee's duties hereunder, at no time during the employment or at any time
thereafter shall Employee, individually or jointly with others, for the benefit
of Employee or any third party, publish, disclose, use or authorize anyone else
to publish, disclose or use, any secret or confidential material or information
relating to any aspect of the business or operations of Employer or any
information regarding the business methods, business policies, procedures,
techniques, or trade
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secrets, or other knowledge or processes of or developed by Employer (and/or any
other consultant, Employee or agent of Employer), any affiliate of Employer, or
any entity in which Employer has an interest, including, without limitation, any
secret or confidential material or information relating to the business,
customers, financial position, trade or industrial practices, trade secrets,
technology or know-how of Employer or Employer's affiliates. As used herein, the
term "trade secrets" includes all research and development information,
technical information, data, technology, computer software, source code,
programs and information and other computer technology, techniques, services,
equipment, marketing and sales information, customer lists and other customer
information, methods of doing business and other secret or proprietary methods
and information and trade secrets used or usable by Employer or a third party
having a contractual relationship with Employer which have been or are developed
or used by Employer or any such third party or which are developed by Employee
during Employee's employment with Employer.
Moreover, during Employee's employment with Employer, Employee shall not act
as an officer, director, employee, partner, independent contractor, consultant,
principal, agent, proprietor, owner or part owner, or in any other capacity for,
nor lend any assistance (financial, managerial or otherwise) or cooperation to,
any person or entity which employs any person or hires or contracts with, as a
consultant or other independent agent or independent contractor, any person or
entity (other than Employee) who was employed by or acted as an agent for,
consultant to, or independent contractor of Employer, any affiliate of Employer,
or any entity in which Employer has an interest, at any time during Employee's
employment with Employer. During the Employees' employment with Employer and
for a continuous period of two (2) years thereafter commencing upon termination
of Employee's employment, Employee shall not employ any such person or induce or
attempt to influence any such person to voluntarily terminate employment with
Employer.
12. REASONABLENESS OF RESTRICTIONS; REFORMATION; ENFORCEMENT. The parties
hereto recognize and acknowledge that the geographical and time limitations
contained in Sections 9 and 10 hereof (hereinafter the "RESTRICTIVE COVENANTS")
are reasonable and properly required for the adequate protection of Employer's
interest. Employee acknowledges that Employer will provide to Employee
confidential information concerning Employer's and Employer's affiliates'
business methods and operating practices in reliance on the covenants contained
in the Restrictive Covenants. It is agreed by the parties hereto that if any
portion of the restrictions contained in the Restrictive Covenants are held to
be unreasonable, arbitrary or against public policy, then the restrictions shall
be considered divisible, both as to the time and to the geographical area, with
each month of the specified period being deemed a separate period of time and
each radius mile of the restricted territory being deemed a separate
geographical area, so that the lesser period of time or geographical area shall
remain effective so long as the same is not unreasonable, arbitrary or against
public policy. The parties hereto agree that in the event any court of
competent jurisdiction determines the specified period or the specified
geographical area of the restricted territory to be unreasonable, arbitrary or
against public policy, a lesser time period or geographical area which is
determined to be reasonable, nonarbitrary and not against public policy may be
enforced against Employee. If Employee shall violate any of the covenants
contained herein and if any court action is instituted by Employer to prevent or
enjoin such violation, then the period of time during which Employee's business
activities shall be restricted, as provided in this Agreement, shall be
lengthened by a period of time equal to the period
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between the date of Employee's breach of the terms or covenants contained in
this Agreement and the date on which the decree of the court disposing of the
issues upon the merits shall become final and not subject to further appeal.
13. NO REMEDY AT LAW. Employee agrees that the remedy at law for any breach
by him of the Restrictive Covenants will be inadequate and would be difficult to
ascertain and therefore, in the event of the breach or threatened breach of any
such covenants, Employer, in addition to any and all other remedies, shall have
the right to enjoin Employee from any threatened or actual activities in
violation thereof; and Employee hereby consents and agrees that temporary and
permanent injunctive relief may be granted in any proceedings which might be
brought to enforce any such covenants without the necessity of proof of actual
damages and without necessity of posting a bond in cash or otherwise. In the
event Employer does apply for such an injunction, Employee shall not raise as a
defense thereto that Employer has an adequate remedy at law.
14. ASSIGNABILITY. This Agreement and the rights and duties created
hereunder shall not be assignable or delegable by Employee. Employer may, at
Employer's option and without consent of Employee, assign its rights and duties
hereunder to any successor entity or transferee of Employer's assets.
15. NOTICES. All notices or other communications provided for herein to be
given or sent to a party by the other party shall be deemed validly given or
sent if in writing and (i) mailed, postage prepaid, by registered or certified
United States mail or hand delivered, (ii) sent by facsimile, addressed to the
parties at their addresses hereinabove set forth, or (iii) sent by Employer's
intercompany electronic mail to the appropriate address designated for the
receiving party. Any party may give notice to the other party at any time, by
the method specified above, of a change in the address at which, or the person
to whom, notice is to be addressed.
16. SEVERABILITY. Each section, subsection and lesser section of this
Agreement constitutes a separate and distinct undertaking, covenant or provision
hereof. In the event that any provision of this Agreement shall be determined
to be invalid or unenforceable, such provision shall be deemed limited by
construction in scope and effect to the minimum extent necessary to render the
same valid and enforceable, and, in the event such a limiting construction is
impossible, such invalid or unenforceable provision shall be deemed severed from
this Agreement, but every other provision of this Agreement shall remain in full
force and effect.
17. WAIVER. The failure of a party to enforce any term, provision or
condition of this Agreement at any time or times shall not be deemed a waiver of
that term, provision or condition for the future, nor shall any specific waiver
of a term, provision or condition at one time be deemed a waiver of such term,
provision or condition for any future time or times.
18. PARTIES. This Agreement shall be binding upon, and shall inure to the
benefit of, the parties hereto and their heirs, personal representatives, legal
representatives, and proper successors and assigns, as the case may be.
19. GOVERNING LAW. The validity, interpretation and performance of this
Agreement shall be governed by the laws of the State of Texas, without giving
effect to the principles of
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comity or conflicts of laws thereof. Each party hereto agrees to submit to the
personal jurisdiction and venue of the state and federal courts having
jurisdiction over Harris County, Texas, for a resolution of all disputes arising
in connection with the interpretation, construction, and enforcement of this
Agreement, and hereby waives the claim or defense therein that such courts
constitute an inconvenient forum.
20. ENFORCEMENT/DISPUTES SUBJECT TO ARBITRATION. Employee recognizes that
differences may arise between Employer and Employee during or following
employment with Employer, and that those differences may or may not be related
to employment. Employee understands and agrees that by entering into this
Agreement, Employee anticipates gaining the benefits of a speedy, impartial
dispute-resolution procedure.
Employee understands that any reference in this Agreement to Employer will be
a reference also to its affiliated entities, all benefit plans, the benefit
plans' sponsors, fiduciaries, administrators, affiliates, and all successors and
assigns of any of them.
a. CLAIMS COVERED. Employer and Employee mutually consent to the resolution
by arbitration of all claims or controversies ("claims"), whether or not arising
out of Employee's employment (or its termination), that Employer may have
against Employee or that Employee may have against Employer or against its
officers, directors, employees, or agents in their capacity as such or
otherwise. The claims covered by this Agreement include, but are not limited
to, claims for wages or other compensation due; claims for breach of any
contract or covenant (express or implied); tort claims; claims for
discrimination (including, but not limited to race, sex, religion, national
origin, age, marital status, or medical condition, handicap, or disability);
claims for benefits (except where an employee benefit or pension plan specifies
that its claims procedure shall culminate in an arbitration procedure different
from this one), and claims for violation of any federal, state or other
governmental law, statute, regulation, or ordinance, except claims excluded in
the following paragraph.
b. CLAIMS NOT COVERED. Claims Employee may have for Workers' Compensation or
unemployment compensation benefits are not covered by this Agreement. Also not
covered are claims by Employer for injunctive and/or other equitable relief for
unfair competition and/or the use and/or unauthorized disclosure of trade
secrets or confidential information, as to which Employee understands and agrees
that Employer may seek and obtain relief from a court of competent jurisdiction.
c. REQUIRED NOTICE OF ALL CLAIMS AND STATUTE OF LIMITATIONS. Employer and
Employee agree that the aggrieved party must give verbal notice of any claims to
the other party within forty-eight (48) hours of the occurrence giving rise to
the claim; otherwise, the claim shall be void and deemed waived even if there is
a federal or state statute of limitations which would have given more time to
pursue the claim. Employee shall give such verbal notice to one of the persons
designated for receipt of same in Employer's applicable policy. Employee shall
follow up such verbal notice with written notice within five (5) days of the
giving of verbal notice. The written notice shall identify and describe the
nature of all claims asserted and the facts upon which such claims are based.
If Employee is aware of the occurrence of an event which may give rise to a
claim by another employee, Employee shall give notice of the occurrence to the
appropriate persons in accordance with this paragraph.
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d. REPRESENTATION. Any party may be represented by an attorney or other
representative selected by the party.
e. DISCOVERY. Each party shall have the right to take the deposition of one
individual and any expert witness designated by another party. Each party also
shall have the right to make requests for production of documents to any party.
The subpoena right specified below shall be applicable to discovery pursuant to
this paragraph. Additional discovery may be had only where the Arbitrator
selected pursuant to this Agreement so orders, upon a showing of substantial
need.
f. DESIGNATION OF WITNESSES. At least 30 days before the arbitration, the
parties must exchange lists of witnesses, including any expert, and copies of
all exhibits intended to be used at the arbitration.
g. SUBPOENAS. Each party shall have the right to subpoena witnesses and
documents for arbitration.
h. ARBITRATION PROCEDURES. Employer and Employee agree that, except as
provided in this Agreement, any arbitration shall be in accordance with the
then-current Employment Arbitration Rules of Judicial Arbitration & Mediation
Services, Inc. ("J-A-M-S") before an arbitrator who is licensed to practice
law in the state in which the arbitration is convened (the "Arbitrator"). If
J-A-M-S no longer exists, then the American Arbitration Association shall be
substituted therefor for purposes of this Section 20. The arbitration shall take
place in or near the city in which Employee is or was last employed by Employer.
The Arbitrator shall be selected as follows. J-A-M-S shall give each party a
list of 11 arbitrators drawn from its panel of labor and employment arbitrators.
Each party may strike all names on the list it deems unacceptable. If only one
common name remains on the lists of all parties, that individual shall be
designated as the Arbitrator. If more than one common name remains on the lists
of all parties, the parties shall strike names alternately until only one
remains. The party who did not initiate the claim shall strike first. If no
common name remains on the lists of all parties, J-A-M-S shall furnish an
additional list or lists until an Arbitrator is selected.
The Arbitrator shall apply the substantive law (and the law of remedies, if
applicable) of the State of Texas, or federal law, or both, as applicable to the
claim(s) asserted. The Texas Rules of Evidence shall apply. The Arbitrator,
and not any federal, state, or local court or agency, shall have exclusive
authority to resolve any dispute relating to the interpretation, applicability,
enforceability, or formation of this Agreement, including but not limited to any
claim that all or any part of this Agreement is void or voidable. The
arbitration shall be final and binding upon the parties, except as provided in
this Agreement.
The Arbitrator shall have jurisdiction to hear and rule on pre-hearing
disputes and is authorized to hold pre-hearing conferences by telephone or in
person as the Arbitrator deems necessary. The Arbitrator shall have the
authority to entertain a motion to dismiss and/or a motion for summary judgment
by any party and shall apply the standards governing such motions under the
Texas Rules of Civil Procedure.
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Either party, at its expense, may arrange for and pay the cost of a court
reporter to provide a stenographic record of proceedings.
Either party, upon request at the close of hearing, shall be given leave to
file a post-hearing brief. The time for filing such a brief shall be set by the
Arbitrator.
Either party may bring an action in a court as provided in Section 20 of this
Agreement to compel arbitration under this Agreement and to enforce an
arbitration award. Except as otherwise provided in this Agreement, both
Employer and Employee agree that neither shall initiate or prosecute any lawsuit
or administrative action (other than as required by applicable law) in any way
related to any claim covered by this Agreement.
The Arbitrator shall render an award and opinion in the form typically
rendered in labor arbitrations.
i. ARBITRATION FEES AND COSTS. Employer and Employee shall equally share the
fees and costs of the Arbitrator. Each party will deposit funds or post other
appropriate security for its share of the Arbitrator's fee, in an amount and
manner determined by the Arbitrator, 10 days before the first day of hearing.
However, the prevailing party shall be entitled to recover from the non-
prevailing party in accordance with Section 24 of this Agreement, and the
Arbitrator may award such fees.
j. JUDICIAL REVIEW. A party opposing enforcement of an award may not do so
in an enforcement proceeding, but must bring a separate action in a court as
provided in Section 20 of this Agreement to set aside the award, where the
standard of review will be the same as that applied by an appellate court
reviewing a decision of a trial court sitting without a jury.
k. INTERSTATE COMMERCE. Employee understands and agrees that Employer is
engaged in transactions involving interstate commerce and that Employee's
employment involves such commerce.
l. REQUIREMENTS FOR MODIFICATION OR REVOCATION. This Agreement to arbitrate
shall survive the termination of employment. It can only be revoked or modified
by a writing signed by the parties which specifically states an intent to revoke
or modify this Agreement.
21. CAPTIONS. The captions of this Agreement have been assigned thereto for
convenience only, and shall not be construed to limit, define or modify the
substantive terms hereof.
22. ENTIRE AGREEMENT; COUNTERPARTS. This Agreement, together with the offer
letter dated as of March 1, 1999 between you and MCS constitutes the entire
agreement between the parties hereto concerning the subject matter hereof, and
supersedes all prior agreements, memoranda, correspondence, conversations and
negotiations. This Agreement may be executed in several counterparts that
together shall constitute but one and the same Agreement.
23. COSTS OF ENFORCEMENT. In the event it is necessary for any party to
retain the
-9-
<PAGE>
services of an attorney or to initiate legal proceedings to enforce the terms of
this Agreement, the prevailing party shall be entitled to recover from the non-
prevailing party, in addition to all other remedies, all costs of such
enforcement, including reasonable attorneys' fees and costs and including trial
and appellate proceedings.
24. GENDER, ETC. Words used herein, regardless of the number and gender
specifically used, shall be deemed and construed to include any other number,
singular or plural, and any other gender, masculine, feminine or neuter, as the
context indicates is appropriate.
IN WITNESS WHEREOF, the undersigned have hereunto set their hands on the date
first written above.
EMPLOYEE:
/s/ Michael Rovner
---------------------------------
Signature of Employee
Michael Rovner
_____________________________
Type or Print Name of Employee
EMPLOYER:
MISSION CRITICAL SOFTWARE, INC.
a Delaware Corporation
By: /s/ Stephen E. Odom
-----------------------------
Name: Stephen E. Odom
-------------------------
Title: Chief Financial Officer
------------------------
-10-
<PAGE>
Exhibit 10.20
CONSULTING AGREEMENT
This Consulting Agreement (the "Agreement") is entered into effective as of
, 1999 by and between Mission Critical Software, Inc., a Delaware
corporation ("MCS"), and , a resident of (the "Consultant").
RECITALS:
WHEREAS, prior to the Consultant has been involved with MCS as a member
of the Board of Directors and formerly as an executive officer;
WHEREAS, effective , (i) the Consultant has resigned from his position as a
member of the Board of Directors of MCS and (ii) MCS and the Consultant desire
for the Consultant to continue as a Service Provider in appreciation of the
Consultant's past services and as consideration for the covenants contained
herein;
NOW, THEREFORE, for and in consideration of the mutual promises and covenants
contained herein, MCS and the Consultant hereby agree as follows:
ARTICLE I
Resignation
------------
1.1 The Consultant's hereby resigns his position as a member of the Board of
Directors of MCS effective as of . In consideration for this
Agreement, MCS shall provide the Consultant with the benefits outlined in
Section 1.2 of this Agreement and the consulting arrangement set forth in
Article II of this Agreement. In consideration of the benefit package
provided herein, the Consultant shall abide by the covenants herein.
1.2 On , the Consultant was granted stock options under the MCS 1997
Stock Option Plan (the "Plan") to purchase shares of the MCS Common
Stock ("MCS Common Stock"), which vest over a four-year period starting on
. This grant was evidenced by that certain Stock Option Agreement
No. (the "Option Agreement"). These stock options are hereafter referred
to as the "Stock Options". During the term of this Consulting Agreement,
such Stock Options shall continue to vest on the terms set forth in the
Option Agreement and the Plan as long as the Consultant continues to
provide services to MCS hereunder.
1.3 MCS shall not be obligated to provide any other benefits other than those
provided for by this Agreement.
<PAGE>
ARTICLE II
Consulting Arrangement
----------------------
2.1 The term of this consulting arrangement shall begin and shall
terminate on . During the term of this consulting arrangement,
the Consultant shall advise the management of MCS with respect to the
operation and management of MCS and shall perform such duties and render
such advise as shall be mutually agreeable to MCS and the Consultant.
During the term of this Agreement, the Consultant agrees that he will serve
MCS faithfully, diligently and to the best of his ability under the
direction of the Chief Executive Officer of MCS and will promote and
further the interests of MCS consistent with the terms hereof.
2.2 In consideration of the services to be performed by the Consultant under
this consulting arrangement, the Consultant shall receive the benefits set
forth in Section 1.2 hereof. Any travel or other expenses to be incurred by
the Consultant in performing consulting services requested by MCS from time
to time must be pre-approved in writing by the Chief Executive Officer or
Chief Financial Officer of MCS.
ARTICLE III
Nondisclosure and Noncompetition Covenants
------------------------------------------
3.1 a. The Consultant agrees that during the term of his consulting arrangement
set forth in Article II hereof, he shall not, without MCS' prior written
consent, as a principal, employee, consultant, partner, or stockholder of,
or in any other capacity with, any "business enterprise" (as that term is
defined below) (other than in any capacity as a holder of not more than 1%
of the combined voting power of the outstanding stock of a publicly held
company) engage in competition with MCS or develop, market, sell, and/or
distribute products or services competitive with those of MCS. As used
herein, the term "business enterprise" shall mean any corporation,
partnership, association, sole proprietorship or any other entity competing
with MCS or directly involved in the development, marketing, sales, and/or
distribution of products or services which are competitive with the
products and services developed and marketed by MCS. The Consultant further
agrees that he will not in any way, directly or indirectly, represent
himself or anyone in his employment as being representatives of MCS. In
consideration for this covenant, MCS has provided and may provide the
Consultant with confidential information designed to assist the Consultant
in performing any consulting services pursuant to Article II, which
confidential information the Consultant has previously agreed herein not to
disclose or use except to the benefit of MCS and to return to MCS
immediately upon resignation or termination of the Consultant's employment
with MCS or upon termination of the term of the consulting arrangement,
whichever is later.
b. The Consultant agrees that during the term of the consulting arrangement
set forth in Article II hereof he will not recruit, solicit, or assist
others in recruiting or soliciting, the employment of any person who is at
that time an employee of MCS or any of its affiliates, or otherwise
interfere with MCS's lawful employment relationship with any of its
employees.
c. The Consultant hereby agrees that he will not disclose, publish, or
disseminate any Confidential Information to anyone, and the Consultant
agrees to use his best efforts to prevent any unauthorized use, disclosure,
publication, or dissemination of any Confidential Information. The
Consultant also agrees not to use Confidential Information for his own or
any third party's
2
<PAGE>
benefit without the prior written approval of an authorized representative
of MCS in each instance. Within ten business days of receipt of MCS's
written request, the Consultant will return to MCS all documents, records
and copies thereof, containing Confidential Information fixed in any
tangible medium, and in any form or format. "Confidential Information"
means any MCS proprietary information, technical data, trade secrets or
know-how, including, but not limited to, research, product plans, products,
services, customers, customer lists, markets, software, developments,
inventions, processes, formulas, technology, designs, drawings,
engineering, hardware configuration information, marketing, finances or
other business information disclosed by MCS either directly or indirectly
in writing, orally or by drawings or inspection of parts or equipment.
3.2 Subject to the requirements of any applicable securities or other laws, the
Consultant agrees that he shall not at any time make any statement or
representation, written or oral, which the Consultant knows or should know
will, or which he knows or should know is reasonably likely to, impair or
adversely affect in any way the reputation, goodwill, business, client,
customer or supplier relationships, public relations, or public market for
securities of MCS or any of its Affiliates.
ARTICLE IV
Additional Covenants
--------------------
4.1 The Consultant and MCS agree to keep confidential and to not disclose any
settlement negotiations between them, including the terms of this
Agreement. If the Consultant violates the terms of this Agreement, the
Consultant shall forfeit immediately to MCS the settlement consideration of
the additional compensation paid to the Consultant in accordance with this
Agreement.
4.2 The Consultant warrants that he is of legal age and sound mind and is
legally competent to execute this Agreement and does execute this Agreement
without duress. Each signatory warrants that he executes this Agreement of
his own free will and accord, without reliance on any statement, act, or
representation of any kind or character not expressly set forth herein. The
Consultant acknowledges that he has had adequate time to review and
consider this Agreement, and, as a result, enters into this Agreement
willingly and voluntarily.
4.3 The Consultant hereby agrees to sign the Lock-up Agreement required of all
major stockholders by Hambrecht & Quist ("H&Q") in connection with an
initial public offering of MCS capital stock.
ARTICLE V
Miscellaneous
-------------
5.1 This Agreement shall be governed by and construed in accordance with the
laws of the State of Texas, irrespective of the conflict of laws rules. If
MCS and the Consultant disagree with respect to whether the Consultant or
MCS breached any of the terms or conditions of this Agreement, or if either
MCS or the Consultant has a controversy, claim, or dispute against the
other arising out of or related to the terms and conditions of the
Consultant's employment with MCS and/or the breach of any term or condition
of the Consultant's employment with MCS, the disagreement shall be settled
exclusively by binding arbitration in accordance with the Texas General
Arbitration Act and the applicable rules and procedures of the American
Arbitration Association.
3
<PAGE>
Judicial proceedings may be commenced only to force arbitration or to
enforce the results of arbitration; provided that such prohibition shall
not apply in the event that a court-ordered injunction is an appropriate
remedy for a breach of either party's obligations of confidentiality or for
an infringement by either party of the intellectual property rights of the
other party. No arbitration shall commence later than twenty-five (25) days
before the expiration of the applicable statute of limitations. The
arbitration shall be held in Houston, Texas before a panel of three
arbitrators selected in accordance with the Commercial Rules of the
American Arbitration Association, each of whom shall be licensed to
practice law. Each party shall bear its own expense of arbitration, unless
otherwise determined by the arbitrator. The arbitrator may award pre-award
interest but shall not award punitive damages. The parties will cooperate
in good faith to begin the final arbitration hearing within 60 days after
an arbitration claim is filed, or as soon thereafter as practicable.
5.2 The Consultant has been advised to discuss this Agreement with an attorney
of his choice before signing it, and is freely and voluntarily signing this
document in exchange for the promises and consideration provided by MCS
under this Agreement. The Consultant and MCS further acknowledge that no
provisions hereof shall be construed against either the Consultant or MCS
by virtue of the activities of such party or its attorney in the
preparation and execution of this Agreement.
5.3 This Agreement and the agreements attached hereto as exhibits supersede all
prior written or oral agreements or understandings between the Consultant
and MCS, its officers, directors, employees, subsidiaries, parent, and
affiliated entities, relating to the Consultant's provision of services for
MCS after the date hereof. This Agreement and the agreements attached
hereto as exhibits represent the full understanding between the Consultant
and MCS regarding the subject matter hereof, and no parol evidence shall be
relevant to supplement or explain this Agreement or the agreements attached
hereto as exhibits.
5.4 This Agreement is intended to be performed in accordance with, and only to
the extent permitted by, all applicable legal requirements. If any
provision of this Agreement or the application thereof to any person or
circumstance shall, for any reason and to any extent, be invalid or
unenforceable, neither the remainder of the Agreement in which such
provision is contained nor the application of such provision to other
persons or circumstances shall be affected thereby; but, rather, this
Agreement shall be enforced to the greatest extent permitted by law.
IN WITNESS WHEREOF, the undersigned have executed this Consulting Agreement
effective as of _________.
________________________________
MISSION CRITICAL SOFTWARE, INC.
By: ______________________________________
Michael S. Bennett, President and CEO
4
<PAGE>
ACKNOWLEDGEMENT
---------------
STATE OF TEXAS )
)
COUNTY OF )
BEFORE ME, the undersigned authority, on this day personally appeared
____________________, known to me to be the person who executed the foregoing
instrument.
GIVEN UNDER MY HAND AND SEAL OF OFFICE this _____________ day of
____________________, 199____.
______________________________________
NOTARY PUBLIC IN AND FOR
THE STATE OF TEXAS
MY COMMISSION EXPIRES: ____________
STATE OF TEXAS )
)
COUNTY OF HARRIS )
BEFORE ME, the undersigned authority, on this day personally appeared
Michael S. Bennett of Mission Critical Software, Inc., known to me to be the
person who executed the forgoing instrument, and he acknowledged to me that such
corporation executed the same, as the act and deed of said corporation and in
the capacity therein stated.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this _____________________ day of
__________________________, 199__.
______________________________________
NOTARY PUBLIC IN AND FOR
THE STATE OF TEXAS
MY COMMISSION EXPIRES: ____________
5
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated May 21, 1999, in the Registration Statement (Form S-1)
and related Prospectus of Mission Critical Software, Inc. for the registration
of shares of its common stock.
/s/ ERNST & YOUNG LLP
Austin, Texas
May 21, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S FINANCIAL STATEMENTS AS OF MARCH 31, 1999 AND JUNE 30, 1998 AND THE
NINE MONTHS ENDED MARCH 31, 1999 AND THE YEAR ENDED JUNE 30, 1999.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 9-MOS YEAR
<FISCAL-YEAR-END> JUN-30-1999 JUN-30-1998
<PERIOD-START> JUL-01-1998 JUL-01-1997
<PERIOD-END> MAR-31-1999 JUN-30-1998
<CASH> 9,458 4,575
<SECURITIES> 0 0
<RECEIVABLES> 3,240 4,062
<ALLOWANCES> 395 150
<INVENTORY> 0 0
<CURRENT-ASSETS> 12,607 8,689
<PP&E> 2,673 1,781
<DEPRECIATION> 929 582
<TOTAL-ASSETS> 15,056 10,958
<CURRENT-LIABILITIES> 9,065 5,448
<BONDS> 0 0
13,179 13,179
0 0
<COMMON> 3 2
<OTHER-SE> (8,268) (8,516)
<TOTAL-LIABILITY-AND-EQUITY> 15,056 10,958
<SALES> 0 0
<TOTAL-REVENUES> 16,901 14,376
<CGS> 972 1,325
<TOTAL-COSTS> 16,357 15,430
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 42 59
<INCOME-PRETAX> (222) (2,316)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (222) (2,316)
<EPS-BASIC> (0.40) (2.47)
<EPS-DILUTED> (0.40) (2.47)
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