<PAGE>
As filed with the Securities and Exchange Commission on June 11, 1999
Registration No. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM S-1
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
----------------
ACTIVE SOFTWARE, INC.
(Exact Name of Registrant as Specified in Its Charter)
----------------
<TABLE>
<S> <C> <C>
Delaware 7372 94-3232772
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification Number)
</TABLE>
----------------
3333 Octavius Drive
Santa Clara, California 95054
(408) 988-0414
(Address, Including Zip Code, and Telephone Number, Including Area
Code, of Registrant's Principal Executive Offices)
----------------
R. James Green
President and Chief Executive Officer
Active Software, Inc.
3333 Octavius Drive
Santa Clara, California 95054
(408) 988-0414
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent for Service)
----------------
Copies to:
<TABLE>
<S> <C>
Mark A. Medearis Kevin P. Kennedy
Edward Y. Kim SHEARMAN & STERLING
Scott S. Ring 1550 El Camino Real
Gene Yoon Menlo Park, CA 94025
VENTURE LAW GROUP
A Professional Corporation
2775 Sand Hill Road
Menlo Park, CA 94025
</TABLE>
----------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Proposed
Maximum
Aggregate
Title Of Each Class Of Offering Amount Of
Securities To Be Registered Price(1) Registration Fee
- --------------------------------------------------------------------------------
<S> <C> <C>
Common stock, par value $.001..................... $75,000,000 $20,850
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) Estimated solely for the purpose of computing the amount of the
registration fee pursuant to Rule 457(a) and Rule 457(o) under the
Securities Act.
----------------
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this preliminary prospectus is not complete and may be +
+changed. These securities may not be sold until the registration statement +
+filed with the Securities and Exchange Commission is effective. This +
+preliminary prospectus is not an offer to sell nor does it seek an offer to +
+buy these securities in any jurisdiction where the offer or sale is not +
+permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion. Dated June 11, 1999.
Shares
[Logo]
Active Software, Inc.
Common Stock
-----------
This is an initial public offering of shares of common stock of Active
Software, Inc. All of the shares of common stock are being sold by
Active Software.
Prior to this offering, there has been no public market for the common stock.
It is currently estimated that the initial public offering price per share will
be between $ and $ . Active Software intends to list the common stock
for quotation on the Nasdaq National Market under the symbol "ASWX."
See "Risk Factors" beginning on page 7 to read about factors you should
consider before buying shares of the common stock.
-----------
Neither the Securities and Exchange Commission nor any other regulatory body
has approved or disapproved of these securities or passed upon the accuracy or
adequacy of this prospectus. Any representation to the contrary is a criminal
offense.
-----------
<TABLE>
<CAPTION>
Per
Share Total
----- -----
<S> <C> <C>
Initial public offering price...................................... $ $
Underwriting discount.............................................. $ $
Proceeds, before expenses, to Active Software...................... $ $
</TABLE>
The underwriters may, subject to the terms of the underwriting agreement,
purchase up to an additional shares from Active Software at the initial
public offering price, less the underwriting discount.
-----------
The underwriters expect to deliver the shares against payment in New York,
New York on , 1999.
Joint Lead Managers
Goldman, Sachs & Co. Lehman Brothers
Dain Rauscher Wessels
a division of Dain Rauscher Incorporated
-----------
Prospectus dated , 1999
<PAGE>
[INSIDE FRONT COVER]
[Graphical representation of ActiveWorks Integration System]
----------------
The Active Software logo is a registered trademark of Active Software, Inc.,
and "Active Software," "ActiveWorks" and "ActiveWorks Integration System" are
trademarks of Active Software, Inc. This prospectus also contains brand names,
trademarks or service marks of companies other than Active Software, Inc., and
these brand names, trademarks and service marks are the property of their
respective holders.
<PAGE>
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information regarding Active Software and the financial statements and notes
appearing elsewhere in this prospectus. Unless otherwise indicated, this
prospectus assumes:
. our reincorporation in Delaware and a three-for-two stock split to be
effected prior to the completion of the offering,
. the automatic conversion of our outstanding convertible redeemable
preferred stock into common stock upon closing of the offering,
. the filing of our amended and restated certificate of incorporation,
authorizing a class of 5,000,000 shares of undesignated preferred stock,
upon closing of the offering, and
. no exercise by the underwriters of their option to purchase additional
shares of stock in the offering.
Active Software, Inc.
Our Business
We are a leading provider of eBusiness integration software. We excel at
enabling companies to conduct their businesses electronically through the use
of Internet or other networking technologies, thereby empowering them to
operate as eBusinesses. Our customers can use our software platform to take
advantage of their long-term investments in applications, systems and
technologies by providing seamless integration of incompatible software
applications across their extended enterprises of customers, suppliers and
partners. Our software has been licensed across multiple industries to over 100
customers, including Boeing, Cisco Systems, Federal Express, Hewlett-Packard,
Starbucks and the U.S. Department of Defense. We believe that our software
platform, the ActiveWorks Integration System, provides significant business
benefits to our customers by allowing them to bring their products and services
to market faster, and respond more quickly and at a lower cost to the evolving
needs of their extended enterprises.
Our Market Opportunity
Companies today utilize a broad range of often incompatible software
applications for such key business functions as enterprise resource planning,
supply chain management, e-commerce, customer relationship management, sales
force automation and business decision support. To take full advantage of this
significant investment, companies need to be able to integrate these
applications so that they operate seamlessly with one another. The explosive
emergence of the Internet has added another dimension to this challenge by
providing companies with the ability to conduct their business electronically
as eBusinesses and by changing the nature and pace of business operations and
competition.
Traditional integration and enterprise application integration solutions
fail to fully capitalize on the benefits of Internet technologies and do not
adequately address the challenges of the eBusiness environment. These solutions
are often inflexible and rigid, lack key functionality, such as security and
integration management and monitoring, and do not offer the speed of
implementation and time-to-market benefits required in today's business
environment. To address these problems, we have developed the ActiveWorks
Integration System, which offers the following benefits:
. A comprehensive and highly reliable software solution that fully
integrates the disparate software applications of an eBusiness and
enables these applications to exchange information in real time across
the extended enterprise.
3
<PAGE>
. A broad portfolio of dynamic software components, called adapters, which
connect individual software applications to the ActiveWorks platform and
are readily configurable to meet constantly changing application
requirements and specifications.
. A flexible architecture that allows customers to respond quickly and
effectively to changes in their business with minimal custom programming.
. A platform that can be scaled to match not only the number of
transactions processed by a customer's computer systems but also the
breadth of the customer's extended enterprise.
. Built-in security features that allow information to be transmitted
securely across the customer's extended enterprise.
. Efficient, easy-to-use and centralized management and monitoring of the
integration platform and its components, resulting in a reduction of the
cost and time required for system-wide maintenance.
Our Strategy
Our mission is to establish the ActiveWorks Integration System as the
leading platform for eBusiness integration worldwide. Key elements of this
strategy include:
. Facilitating broad acceptance and deployment of our eBusiness integration
platform. Our objective is to establish the ActiveWorks Integration
System as the eBusiness integration platform of choice across multiple
industries. We have designed our platform to be flexible, adaptable to
new technologies and standards, and broadly applicable to many different
industries.
. Enhancing our technological leadership through ongoing investment and
innovation. We expect to further enhance the architecture and technology
that provide the foundation for the ActiveWorks Integration System,
continuing our history of innovation in order to continue building
technological barriers to entry.
. Providing a complete eBusiness integration solution. We intend to expand
the capabilities of our products to provide our customers with a complete
eBusiness integration platform.
. Leveraging our partnerships with system integrators and service,
distribution and marketing partners. We maintain relationships with key
system integrators and service, distribution and marketing partners to
provide a wide range of support and implementation services to our
customers. We intend to expand our relationships with existing partners
and develop relationships with new partners to allow us to maintain our
focus as a product company while continuing to provide our customers with
a comprehensive eBusiness integration solution.
. Continuing our commitment to customer satisfaction. We are committed to
customer satisfaction throughout our organization, and we endeavor to
provide our customers with the highest quality products and services,
directly and through our partners. We intend to continue leveraging our
existing customers to serve as reference accounts for prospective
customers.
Corporate Information
We were originally incorporated under the laws of California in September
1995 and intend to reincorporate in Delaware prior to completion of this
offering. Our principal executive offices are located at 3333 Octavius Drive,
Santa Clara, California, 95054, and our telephone number is (408) 988-0414. The
address of our Web site is "www.activesw.com." Information contained on our Web
site does not constitute a part of this prospectus.
4
<PAGE>
The Offering
<TABLE>
<S> <C>
Shares offered by Active Software.. shares
Shares to be outstanding after this
offering.......................... shares
Use of proceeds.................... Working capital and other general corporate
purposes. See "Use of Proceeds."
Proposed Nasdaq National Market
symbol............................ ASWX
</TABLE>
The above information is based on shares outstanding as of March 31, 1999
and excludes:
. 2,882,940 shares issuable upon exercise of options outstanding at a
weighted average exercise price of $1.26 per share as of March 31, 1999,
. 215,676 shares issuable upon exercise of warrants outstanding at a
weighted average exercise price of $1.31 per share as of March 31, 1999,
and
. an aggregate of 4,639,510 shares available for future issuance under our
various stock plans.
5
<PAGE>
Summary Consolidated Financial Information
(in thousands, except per share data)
The following table sets forth a summary of our consolidated statements of
operations data for the periods presented. The pro forma information in the
following table gives effect to the automatic conversion of all outstanding
shares of our convertible redeemable preferred stock into common stock upon the
closing of this offering.
<TABLE>
<CAPTION>
Three Months
Sept. 19, 1995 Year Ended December 31, Ended March 31,
(Inception) to ------------------------- ----------------
Dec. 31, 1995 1996 1997 1998 1998 1999
-------------- ------- ------- ------- ------- -------
Consolidated Statements of
Operations Data:
<S> <C> <C> <C> <C> <C> <C>
Revenues:
License................. $ -- $ 280 $ 2,625 $ 5,900 $ 1,247 $ 2,364
Service................. 25 5 568 1,699 196 1,198
------- ------- ------- ------- ------- -------
Total revenues........ 25 285 3,193 7,599 1,443 3,562
Gross profit.............. 15 114 2,540 4,832 1,204 2,183
Operating expenses........ 142 3,030 7,522 14,429 2,651 4,784
Loss from operations...... (127) (2,916) (4,982) (9,597) (1,447) (2,601)
Net loss.................. (133) (2,814) (4,853) (9,326) (1,435) (2,580)
Basic and diluted net loss
per share................ $(10.23) $ (6.59) $ (2.50) $ (3.01) $ (0.59) $ (0.57)
Shares used in computing
basic and diluted net
loss per share........... 13 427 1,945 3,096 2,439 4,542
Pro forma basic and
diluted net loss per
share.................... $(0.60) $(0.14)
Shares used in computing
pro forma basic and
diluted net loss per
share.................... 15,457 17,947
</TABLE>
The following table sets forth a summary of our consolidated balance sheet
at March 31, 1999:
.on an actual basis;
. on a pro forma basis to give effect to the automatic conversion of all
shares outstanding of our convertible redeemable preferred stock into
common stock upon the closing of this offering; and
. on a pro forma as adjusted basis to reflect the conversion of the
convertible redeemable preferred stock and our receipt of the estimated
net proceeds from the sale of shares of common stock in this
offering at an assumed initial public offering price of $ per share.
<TABLE>
<CAPTION>
As of March 31, 1999
-------------------------------
Pro Forma
Actual Pro Forma As Adjusted
------- --------- ------------
<S> <C> <C> <C>
Consolidated Balance Sheet Data:
Cash and cash equivalents....................... $ 5,745 $ 5,745 $
Working capital................................. 4,989 4,989
Total assets.................................... 10,269 10,269
Notes payable, less current portion............. 84 84
Convertible redeemable preferred stock.......... 25,117 --
Total stockholders' equity (deficiency)......... (18,990) 6,127
</TABLE>
6
<PAGE>
RISK FACTORS
You should carefully consider the following risks before making a decision
to buy our common stock. The risks described below are intended to highlight
risks that are specific to us and are not the only ones that we face.
Additional risks and uncertainties, such as those that generally apply to our
industry or to companies undertaking initial public offerings, also may impair
our business operations. You should also refer to the other information set
forth in this prospectus, including the discussions set forth in "Special Note
Regarding Forward-Looking Statements," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business," as well as our
consolidated financial statements and the related notes.
If any of the following risks actually occur, our business, financial
condition and results of operations could suffer. In such case, the trading
price of our common stock could decline, and you may lose all or part of your
investment.
We only began selling our products in August 1996, and as a result, you may
have difficulty evaluating our business and operating results.
We have a limited operating history and cannot be certain that our business
strategy will be successful. We were incorporated in September 1995 and
commercially released our first software product in August 1996. An investor in
our common stock must consider the risks and difficulties frequently
encountered by early stage companies in new and rapidly evolving markets such
as the eBusiness integration market, including:
. our substantial dependence on our ActiveWorks software products, which
have limited market acceptance to date;
. our need to introduce new software products and services to respond to
technological and competitive developments and customer needs;
. our ability to manage our anticipated growth;
. our need to expand our distribution capability through our direct sales
organization and through third party distributors and system integrators;
. our ability to respond to competitive developments;
. the market's acceptance of eBusiness integration; and
. our dependence on our current executive officers and key employees.
We have a history of losses, we expect future losses, and we may not achieve or
maintain profitability.
We have incurred net losses in each fiscal quarter since our inception and
do not expect to achieve profitability in the foreseeable future. We incurred
net losses of $9.3 million in 1998 and $2.6 million in the quarter ended March
31, 1999, and, as of March 31, 1999, we had an accumulated deficit of
approximately $19.7 million. We cannot assure you that our revenues will grow
or that we will achieve or maintain profitability in the future. In addition,
we intend to significantly increase our future product development, sales and
marketing, and administrative expenses over the next 18 months. Accordingly, we
will need to significantly increase revenue to achieve and maintain
profitability. Our ability to increase revenue and achieve profitability will
be affected by the other risks and uncertainties described in this section and
in "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
7
<PAGE>
Our operating results are subject to fluctuations and seasonality, and if we
fail to meet the expectations of securities analysts or investors, our stock
price could decline significantly.
Our operating results are difficult to predict, and we believe that period-
to-period comparisons of our operating results will not necessarily be
meaningful. As a result, you should not rely upon them as an indication of
future performance. Our future quarterly operating results may fluctuate and
may not meet the expectations of securities analysts or investors. If this
occurs, the price of our common stock would likely decline. The factors that
may cause fluctuations of our operating results include the following:
. the size, timing and contractual terms of sales of our products and
services due to the long and unpredictable sales cycle for our products;
. technical difficulties in our software that could delay product shipments
or delay or increase the costs of introducing new products;
. introductions of new products or new versions of existing products by us
or our competitors;
. changes in the pricing of our products and services or those of our
competitors;
. our ability and the ability of our partners to implement eBusiness
solutions for our customers;
. changes in our mix of revenues generated from product sales and services;
. changes in our mix of sales channels through which our products and
services are sold; and
. the fixed nature of our operating expenses, such as base compensation and
rent.
In addition, we expect to experience seasonality in the sales of our
software products. For example, we expect that sales may decline during summer
months, particularly in European markets. We also anticipate that sales may be
lower in our first fiscal quarter due to patterns in the capital budgeting and
purchasing cycles of our current and prospective customers. These seasonal
variations in our sales may lead to fluctuations in our quarterly operating
results. Furthermore, it is difficult for us to evaluate the degree to which
this seasonality may affect our business because our growth may have largely
overshadowed this seasonality in recent periods. In addition, concerns
regarding Year 2000 compliance issues may adversely affect the demand for
software products like ours if our customers divert resources to address year
2000 issues.
Because our revenues are largely dependent on sales of our ActiveWorks software
products, our business could be materially harmed by factors that adversely
affect the pricing and demand for these products.
We currently derive substantially all of our revenues from the sale of our
ActiveWorks Integration System software products and related services. We
expect revenues from this product family to continue to account for a
substantial portion of our future revenues. As a result, factors adversely
affecting the pricing of or demand for our ActiveWorks software products, such
as competition and technological change, could materially harm our business.
Because a small number of customers account for a substantial portion of our
revenues, our revenues could suffer if we lose a major customer.
We have generated a substantial portion of our annual and quarterly
historical revenues from a limited number of customers. As a result, if we lose
a major customer, our revenues could suffer. In 1997, The Boeing Company
accounted for 33% of our total revenues. In 1998, no customer accounted for
more than 10% of our total revenues. For the quarter ended March 31, 1999,
three customers accounted for 26%, 15% and 11% of our total revenues. We expect
that a small number
8
<PAGE>
of customers will continue to account for a substantial portion of our revenues
in any given quarter for the foreseeable future. See "Business--Customers."
We need to expand our sales and distribution channels, and if we fail to do so,
our growth could be limited.
We will need to significantly expand our direct and indirect sales
operations in order to increase market awareness of our ActiveWorks software
products and to generate increased revenue. We have recently expanded our
direct sales force and plan to recruit additional sales personnel. As of
May 31, 1999, we employed approximately 48 individuals in our sales and
marketing organization. Currently, we believe we will need to expand our sales
organization by more than 100% of its present size over the next 18 months. New
sales personnel will require training and take time to achieve full
productivity. There is strong competition for qualified sales personnel in our
business, and we may not be able to attract and retain sufficient new sales
personnel to expand our operations. In addition, we believe that our future
success is dependent upon expansion of our indirect distribution channel,
consisting of our relationships with a variety of distribution partners such as
system integrators, independent software vendors and value added resellers. To
date, we have relationships with only a limited number of these partners. We
cannot be certain that we will be able to establish relationships with
additional distribution partners on a timely basis or at all, or that these
distribution partners will devote adequate resources to selling our products.
In addition, we may also face potential conflicts between our direct sales
force and third-party reselling efforts.
We rely on system integrators and other strategic relationships to implement
and sell our software products and, if these relationships fail, our business
could be harmed.
We have entered into relationships with third-party system integrators, as
well as with hardware platform and software applications developers and service
providers. We have derived, and anticipate that we will continue to derive, a
significant portion of our revenues from customers that have relationships with
our partners. Our future growth will be limited if we fail to work effectively
with our partners or fail to grow our base of these types of partners.
Our partners are not required to market or sell our products and generally
are not restricted from working with competing software companies. Accordingly,
our success will depend on their willingness and ability to devote sufficient
resources and efforts to marketing our ActiveWorks software products rather
than the products of others. If these relationships fail, we will have to
devote substantially more resources to the distribution, sales and marketing,
implementation and support of our products than we would otherwise, and our
efforts may not be as effective as those of our partners, either of which would
harm our business.
The ActiveWorks Integration System must integrate with applications made by
third parties, and if we lose access to the programming interfaces for these
applications, or if we are unable to modify our products or develop new
products in response to changes in these applications, our business could
suffer.
Our ActiveWorks Integration System uses software components called adapters
to communicate with our customers' enterprise applications. Our ability to
develop these adapters is largely dependent on our ability to gain access to
the application programming interfaces, or APIs, for the applications, and we
may not have access to necessary APIs in the future. APIs are written and
controlled by the application provider. Accordingly, if an application provider
becomes a competitor by entering the eBusiness integration market, it could
restrict our access to its APIs for competitive reasons. Our business could
suffer if we are unable to gain access to these APIs. Furthermore, we may need
to modify our ActiveWorks software products or develop new adapters in the
future as new applications or newer versions of existing applications are
introduced. If we fail to continue to develop adapters or respond to new
applications or newer versions of existing applications, our business could
suffer.
9
<PAGE>
We rely in part on third parties to develop adapters necessary for the
integration of applications using our ActiveWorks platform, and we cannot be
certain that these companies will continue to develop these adapters or that
these adapters will be free of defects.
A core element of our strategy is to enable third parties to develop
adapters that operate with our ActiveWorks Integration System. If these third
parties are unable or unwilling to develop these adapters, we may need to
expend significant resources in order to develop them internally. In addition,
we cannot be certain that adapters developed by third parties will not contain
undetected errors or defects, which could harm our reputation, result in
product liability or decrease the market acceptance of our products.
The eBusiness integration market is in an early stage of development, and
eBusiness integration products, including our ActiveWorks software products,
may not achieve market acceptance.
The market for eBusiness integration software is relatively new and rapidly
evolving, and there is a variety of integration methods available. We do not
know if our target markets will widely adopt and deploy eBusiness integration
products such as our ActiveWorks software products. If eBusiness integration
products such as our ActiveWorks software products are not widely adopted by
our target markets, our business will suffer.
Our products are complex and generally involve significant capital
expenditures by our customers. We do not have a long history of selling our
products and will have to devote substantial resources to educate prospective
customers about the benefits of our ActiveWorks software products. Our efforts
to educate potential customers may not result in our products achieving market
acceptance. In addition, many of these prospective customers have made
significant investments in internally-developed or custom systems and would
incur significant costs in switching to third-party products such as ours.
Furthermore, even if our products are effective, our target customers may not
choose them for technical, cost, support or other reasons. If the market for
our products fails to grow or grows more slowly than we anticipate, our
business could suffer.
Because market participants in some vertical markets have adopted industry-
specific technologies, we may need to expend significant resources in order to
address specific vertical markets.
Our strategy is to develop our ActiveWorks eBusiness integration platform to
be broadly applicable to many industries. However, in some vertical markets,
market participants have adopted core technologies that are specific to these
markets. For example, many companies in the healthcare and financial services
industries have adopted industry-specific protocols for the interchange of
information. In order to successfully sell our products to companies in these
vertical markets, we may need to expand or enhance our products to adapt to
these industry-specific technologies, which could be costly and require the
diversion of engineering resources.
Competition in the eBusiness integration market is intense, and if we are
unable to compete effectively, the demand for, or the prices of, our products
may be reduced.
The eBusiness integration market is extremely competitive and subject to
rapid change. We compete with various providers of application integration
solutions, including CrossWorlds, New Era of Networks, Software Technologies
Corporation and Vitria. In addition, a number of other companies are offering
products and services that address specific aspects of application integration,
including IBM, BEA Systems, Inc. and TIBCO Software Inc. We also face
competition for some aspects of our product and service offerings from major
system integrators, both independently and in conjunction with corporate in-
house information technology departments, which have traditionally been the
prevalent resource for application integration. We expect additional
competition from other
10
<PAGE>
established and emerging companies. Furthermore, our competitors may combine
with each other, or other companies may enter our markets by acquiring or
entering into strategic relationships with our competitors.
Many of our current and potential competitors have longer operating
histories, significantly greater financial, technical, product development and
marketing resources, greater name recognition and larger customer bases than we
do. Our present or future competitors may be able to develop products
comparable or superior to those we offer, adapt more quickly than we do to new
technologies, evolving industry trends or customer requirements, or devote
greater resources to the development, promotion and sale of their products than
we do. Accordingly, we may not be able to compete effectively in our markets,
competition may intensify and future competition may harm our business. See
"Business--Competition."
Our recent growth has placed a significant strain on our management, systems
and resources, and we may experience difficulties managing our expected growth.
We have been experiencing a period of rapid growth over recent years. Our
total revenues have grown from approximately $285,000 during 1996 to $7.6
million during 1998. The number of our employees has grown from approximately
48 at the end of 1997 to 102 as of March 31, 1999. This growth has placed, and
we expect that any future growth we experience will continue to place, a
significant strain on our management, systems and resources. To manage the
anticipated growth of our operations, we will be required to:
. improve existing and implement new operational, financial and management
information controls, reporting systems and procedures;
. hire, train and manage additional qualified personnel; and
. manage our relationships with our customers, suppliers and partners.
In particular, we expect to implement a new financial and accounting
management information system during the next six months. We may not be able to
install management information and control systems in an efficient and timely
manner, and our current or planned personnel, systems, procedures and controls
may not be adequate to support our future operations.
In the future, we may experience difficulties meeting the demand for our
products and services. The installation and use of our products sometimes
requires implementation services, which are provided to our customers either by
us or by our partners. Our growth could be limited if we or our partners are
unable to provide these implementation services to our customers in a timely
manner. In addition, our management team may not be able to achieve the rapid
execution necessary to fully exploit the market for our products and services.
Any failure to manage growth effectively could materially harm our business.
We rely on the services of our founders and other key personnel, whose
knowledge of our business and technical expertise would be extremely difficult
to replace.
Our future success depends, to a significant degree, on the continued
services of our founders, R. James Green and Rafael Bracho, as well as other
key management, sales and technical personnel. Our officers or key employees
are not bound by employment agreements, and we do not maintain life insurance
policies on any of our employees. The loss of services of any of these
employees for any reason could harm our business. Given our early stage of
development, we are dependent on our ability to attract, retain and motivate
high caliber personnel, and we may not be able to recruit and retain additional
qualified personnel. Competition for qualified personnel in the software
industry and in the San Francisco Bay area, as well as other markets in which
we recruit, is extremely intense and characterized by rapidly increasing
salaries, which may increase our operating expenses or hinder our ability to
recruit qualified candidates.
11
<PAGE>
Rapid technological change in the eBusiness integration market could cause our
products to become obsolete or require us to redesign our products.
The eBusiness integration market is characterized by rapid technological
change, frequent new product introductions, changes in the enterprise software
applications used by our customers and emerging industry standards,
particularly those related to electronic commerce. We also expect that the
rapid evolution of Internet-based applications and standards, as well as
general technology trends such as changes in or introductions of operating
systems, will require us to adapt our software products to remain competitive.
Our products could become obsolete and unmarketable if we are unable to adapt
to new technologies or standards.
To be successful, we will need to develop and introduce new products and
product enhancements that respond to technological changes or evolving industry
standards in a timely manner and on a cost effective basis. We cannot assure
you that we will successfully develop these types of products and product
enhancements or that our products will achieve broad market acceptance. Our
failure to respond in a timely and cost-effective manner to new and evolving
technologies could adversely impact our business.
Because our products incorporate technology licensed to us from third parties,
the loss of our right to use this licensed technology could harm our business.
We license technology that is incorporated into our products from third
parties, including security software from SPYRUS. Any significant interruption
in the supply or support of any licensed software could adversely affect our
sales, unless and until we can replace the functionality provided by this
licensed software. Because our products incorporate software developed and
maintained by third parties, we depend on these third parties to deliver and
support reliable products, enhance their current products, develop new products
on a timely and cost-effective basis and respond to emerging industry standards
and other technological changes. The failure of these third parties to meet
these criteria could harm our business.
Our sales cycle is lengthy and unpredictable and may cause our operating
results to fluctuate, which could result in volatility in the price of our
stock.
The typical sales cycle of our ActiveWorks Integration System is lengthy and
unpredictable and involves significant capital investment decisions by
prospective customers, as well as our education of potential customers
regarding the benefits of our ActiveWorks software products. Any delay in sales
of our products could cause our operating results to vary significantly from
quarter to quarter, which could result in volatility in our stock price. Many
of our prospective customers have neither set aside money to purchase eBusiness
integration software nor have specific dedicated personnel for the procurement
and implementation of these software products. As a result, before purchasing
our products, our customers spend a substantial amount of time performing
internal reviews and obtaining capital expenditure approvals. Currently, the
time to receive an initial order from a customer from the time we first contact
the customer may range from six to nine months, with enterprise-wide deployment
occurring over a longer period of time. This cycle may lengthen in the future.
The emerging and evolving nature of the eBusiness integration market may cause
prospective customers to postpone their purchase decisions. In addition,
general concerns regarding year 2000 compliance may further delay purchase
decisions by prospective customers.
Because our strategy to expand our international operations is subject to
uncertainties, we may not be able to enter new international markets or
generate significant revenues from those markets in which we currently operate.
To date we have not generated significant revenues from sales of our
products in international markets and have little experience with international
operations and localization of our products for
12
<PAGE>
foreign markets. We intend to continue to expand our international operations
and enter new international markets, which will require significant management
attention and financial resources. Our international operations are subject to
a number of risks and uncertainties, including:
. the difficulties and costs of staffing and managing foreign operations;
. our ability to establish relationships with system integrators and
service, distribution and marketing partners and the performance of these
partners in selling our products;
. the difficulties and costs of localizing products for foreign markets,
including the development of multilingual capabilities in our products;
. unexpected changes in regulatory requirements;
. legal uncertainties regarding liability, export and import restrictions,
tariffs and other trade barriers;
. reduced protection of intellectual property in other countries;
. increased difficulty in collecting delinquent or unpaid accounts;
. fluctuations in the value of the U.S. dollar relative to other
currencies;
. potentially adverse tax consequences; and
. political and economic instability.
Any of these factors could impair our ability to expand our international
operations into these markets or to generate significant revenues from those
markets in which we operate.
Our software products are complex and may contain unknown defects that could
harm our reputation, result in product liability or decrease market acceptance
of our products.
Our software products are complex and include software that is internally
developed and licensed from third parties. These software products may contain
errors or defects, particularly when first introduced or when new versions or
enhancements are released. Although we have not experienced any material
software defects to date, these defects could cause our customers to experience
severe system failures. Because our customers depend on our software for their
critical systems and business functions, any interruptions could:
. damage our reputation;
. cause our customers to initiate product liability suits against us;
. increase our product development costs;
. divert our product development resources;
. cause us to lose sales; or
. delay market acceptance of our products.
Although we conduct extensive testing, we may not discover software defects
that affect our current or new products or enhancements until after they are
sold. Furthermore, because our ActiveWorks software products are designed to
work in conjunction with a wide variety of applications, we are unable to test
our products with all of these applications.
13
<PAGE>
Because our products could interfere with the operations of our customers'
other software applications, we may be subject to potential product liability
and warranty claims by these customers, which may be costly and may not be
adequately covered by insurance.
Our ActiveWorks products are integrated with our customers' networks and
software applications. The sale and support of our products may entail the risk
of product liability or warranty claims based on damage to these networks or
applications. In addition, the failure of our products to perform to customer
expectations could give rise to warranty claims. Any of these claims, even if
not meritorious, could result in costly litigation or divert management's
attention and resources. Although we carry general liability insurance, our
current insurance coverage would likely be insufficient to protect us from all
liability that may be imposed under these types of claims.
Our year 2000 compliance efforts could be costly and time-consuming, and our
business could suffer if we or our customers do not adequately address year
2000 risks.
Many currently installed computer systems are not capable of distinguishing
21st century dates from 20th century dates. As a result, beginning on January
1, 2000, computer systems and software used by many companies and organizations
in a wide variety of industries, including technology, transportation,
utilities, finance and telecommunications, will produce erroneous results or
fail unless they have been modified or upgraded to process date information
correctly.
Our software products could fail due to processing errors caused by
inaccurate calculations with respect to the year 2000. In addition, third party
hardware and software used with our software products could experience year
2000 compliance problems which are wrongly attributed to us, or our customers,
partners or suppliers could experience year 2000 compliance problems. The
occurrence of any of these events could result in delays or losses of revenues,
diversion of our resources, damage to our reputation, increased service and
warranty costs and litigation costs.
Our year 2000 compliance efforts may also involve significant time and
expense, and uncorrected problems could harm our business. We may also
experience reduced sales of our products as potential customers reduce their
budgets for eBusiness integration products due to increased expenditures on
their own year 2000 compliance efforts. For a further discussion of year 2000
issues, see "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Year 2000."
Our intellectual property could be used by others without our consent because
protection of our intellectual property is limited.
We rely primarily on a combination of copyrights, trademarks, trade secret
laws and contractual obligations with employees and third parties to protect
our proprietary rights. We do not currently own any issued patents, and other
protection of our intellectual property is limited. Despite our efforts to
protect our proprietary rights, unauthorized parties may copy aspects of our
products and obtain and use information that we regard as proprietary. In
addition, other parties may breach confidentiality agreements or other
protective contracts we have entered into, and we may not be able to enforce
our rights in the event of these breaches. Furthermore, we expect that we will
increase our international operations in the future, and the laws of many
foreign countries do not protect our intellectual property rights to the same
extent as the laws of the United States. See "Business--Proprietary Rights."
Our products may infringe the intellectual property rights of others, and
resulting claims against us could be costly and require us to enter into
disadvantageous license or royalty arrangements.
The software industry is characterized by the existence of a large number of
patents and frequent litigation based on allegations of patent infringement and
the violation of other intellectual
14
<PAGE>
property rights. Although we attempt to avoid infringing known proprietary
rights of third parties in our product development efforts, we expect that we
may be subject to legal proceedings and claims for alleged infringement by us
or our licensees of third party proprietary rights, such as patents, trademarks
or copyrights, from time to time in the ordinary course of business. Any claims
relating to the infringement of third party proprietary rights, even if not
meritorious, could result in costly litigation, divert management's attention
and resources, or require us to enter into royalty or license agreements which
are not advantageous to us. In addition, parties making these claims may be
able to obtain an injunction, which could prevent us from selling our products
in the United States or abroad. Any of these results could harm our business.
We may increasingly be subject to infringement claims as the number of products
and competitors in our industry grows and functionalities of products overlap.
Furthermore, former employers of our current and future employees may assert
that our employees have improperly disclosed confidential or proprietary
information to us. See "Business--Proprietary Rights."
Because there has been no prior market for our stock, and the market for stocks
of technology companies has experienced extreme price and volume fluctuations,
our stock price may be volatile, which could adversely affect your investment.
Prior to this offering, there has been no public market for our common
stock. The price of the common stock that will prevail in the market after this
offering may be higher or lower than the price you pay. An active public market
for our common stock may not develop or be sustained after this offering. If
you purchase shares of common stock in this offering, you will pay a price that
was not established in a competitive market. Rather, you will pay the price
that we negotiated with the representatives of the underwriters. Many factors
could cause the market price of our common stock to rise and fall. Some of
these factors are:
. variations in our quarterly results;
. announcements of technological innovations by us or by our competitors;
. introductions of new products or new pricing policies by us or by our
competitors;
. acquisitions or strategic alliances by us or by our competitors;
. recruitment or departure of key personnel;
. the gain or loss of significant orders;
. concerns over Year 2000 issues;
. changes in the estimates of our operating performance or changes in
recommendations by securities analysts; and
. market conditions in the industry and the economy as a whole.
In addition, the market for stocks of technology and Internet-related
companies has experienced extreme price and volume fluctuations that often have
been unrelated to these companies' operating performance. These fluctuations
could lower the market price of our common stock regardless of our actual
operating performance.
In the past, securities class action litigation has often been brought
against a company following a period of volatility in the market price of its
securities. We may in the future be the target of similar litigation.
Securities litigation could result in substantial costs and divert management's
attention and resources, which could harm our business.
15
<PAGE>
Our officers, directors and affiliated entities own a large percentage of our
voting stock and could significantly influence the outcome of actions requiring
stockholder approval.
Upon completion of this offering, executive officers and directors and their
respective affiliates will beneficially own, in the aggregate, approximately
% of our outstanding common stock. As a result, these stockholders will be
able to exercise control over all matters requiring stockholder approval,
including the election of directors and approval of significant corporate
transactions. This concentration of ownership may delay, deter or prevent
transactions that would result in a change of control, which in turn could
reduce the market price of our common stock.
Our certificate of incorporation and bylaws and Delaware law contain provisions
that could discourage or prevent a takeover, even if an acquisition would be
beneficial to our stockholders.
Provisions of our certificate of incorporation and bylaws and Delaware law
may discourage, delay or prevent a merger or acquisition that some stockholders
may consider favorable. These provisions, which are more fully described in
"Description of Capital Stock--Anti-Takeover Provisions of Charter Documents
and Delaware Law," include:
. authorizing our board of directors to issue additional preferred stock;
. limiting the persons who may call special meetings of stockholders;
. prohibiting stockholder action by written consent;
. establishing advance notice requirements for nominations for election of
our board of directors or for proposing matters that can be acted on by
stockholders at stockholder meetings;
. prohibiting cumulative voting in the election of directors; and
. establishing a classified board of directors.
An aggregate of 19,682,882, or %, of our total outstanding shares are
restricted from immediate resale but may be sold into the market in the near
future. This could cause the market price of our common stock to drop
significantly, even if our business is doing well.
After this offering, we will have outstanding shares of common
stock. This includes shares we are selling in the offering, which may
be resold immediately in the public market. The remaining 19,682,882 shares
will become eligible for resale in the public market as shown in the table
below.
<TABLE>
<CAPTION>
Number of shares/
% of total
outstanding Date of availability for resale into public
after the offering market
------------------ -------------------------------------------
<S> <C>
16,868,117 / % 180 days after the date of this prospectus
due to an agreement these stockholders have
with Active Software and the underwriters.
However, the underwriters can waive this
restriction and allow these stockholders to
sell their shares at any time. 10,868,704 of
these shares will be subject to sales volume
limitations under the federal securities
laws.
2,814,765 / % Between 180 days and 365 days after the date
of this prospectus due to the requirements of
federal securities laws.
</TABLE>
You will experience immediate and substantial dilution in the net tangible book
value of the shares you purchase.
If you purchase shares of common stock in this offering, you will experience
immediate and substantial dilution of $ per share, based on an assumed
initial public offering price of $ per
16
<PAGE>
share. This dilution is in large part because our earlier investors paid
substantially less than the public offering price when they purchased their
shares of common stock. You will experience additional dilution upon the
exercise of outstanding stock options or warrants to purchase our common stock.
Our management and board of directors have broad discretion to use the offering
proceeds.
We have not designated any specific use for the net proceeds of this
offering. We expect to use the proceeds primarily for working capital and other
general corporate purposes. As a result, our management and board of directors
will have broad discretion in spending the proceeds of this offering. See "Use
of Proceeds."
We do not intend to pay dividends.
We have never declared or paid any cash dividends on our capital stock. We
currently intend to retain any future earnings for funding growth and,
therefore, do not expect to pay any dividends in the foreseeable future. See
"Dividend Policy."
SPECIAL NOTE REGARDING 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. 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 in "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.
17
<PAGE>
USE OF PROCEEDS
The net proceeds to us from the sale of the shares of common stock
being offered by us are estimated to be approximately $ million, or
approximately $ million if the underwriters' over-allotment option is
exercised in full. This estimate is based on an assumed public offering price
of $ per share, after deducting the estimated underwriting discounts and
commissions and the estimated offering expenses.
The principal purposes of this offering are to increase our working capital,
create a public market for our common stock, facilitate our future access to
the public capital markets and increase our visibility in our markets. We
intend to use the net proceeds of this offering primarily for working capital
and other general corporate purposes. We may also use a portion of the net
proceeds to acquire additional businesses, products and technologies or to
establish joint ventures that we believe will complement our current or future
business. However, we have no specific plans, agreements or commitments to do
so and are not currently engaged in any negotiations for any acquisitions or
joint ventures. The amounts that we actually expend for working capital
purposes will vary significantly depending on a number of factors, including
future revenue growth, if any, and the amount of cash we generate from
operations. As a result, we will retain broad discretion in the allocation of
the net proceeds of this offering. Pending these uses, we will invest the net
proceeds in short-term, interest-bearing, investment-grade securities.
DIVIDEND POLICY
We have never declared or paid cash dividends on our common stock. We
currently intend to retain any future earnings to fund the development and
growth of our business. Therefore, we do not currently anticipate paying any
cash dividends in the foreseeable future.
18
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of March 31, 1999. Our
capitalization is presented:
. on an actual basis;
. on a pro forma basis to give effect to the automatic conversion of all
outstanding shares of our convertible redeemable preferred stock into
common stock upon the closing of this offering; and
. on a pro forma as adjusted basis to reflect the conversion of the
convertible redeemable preferred stock and our receipt of the estimated
net proceeds from the sale of shares of common stock in this
offering at an assumed initial public offering price of $ per
share.
<TABLE>
<CAPTION>
As of March 31, 1999
--------------------------------
Pro Forma
Actual Pro Forma As Adjusted
-------- --------- -----------
(in thousands)
<S> <C> <C> <C>
Current portion of notes payable............... $ 107 $ 107 $ 107
Notes payable, less current portion............ 84 84 84
Convertible redeemable preferred stock,
13,405,500 shares authorized, 13,405,332
shares issued and outstanding, actual; none
authorized, issued or outstanding, pro forma
and pro forma as adjusted..................... 25,117 -- --
Stockholders' equity (deficiency):
Preferred stock, no shares authorized, issued
and outstanding, actual and pro forma;
5,000,000 shares authorized, none issued or
outstanding, pro forma as adjusted.......... -- -- --
Common stock, 30,000,000 shares authorized,
actual and pro forma, 6,277,550 shares
issued and outstanding, actual; 19,682,882
shares issued and outstanding, pro forma;
100,000,000 shares authorized, shares
issued and outstanding, pro forma as
adjusted.................................... 2,828 27,945
Deferred stock compensation.................. (2,103) (2,103) (2,103)
Notes receivable from stockholders........... (9) (9) (9)
Accumulated deficit.......................... (19,706) (19,706) (19,706)
-------- -------- --------
Total stockholders' equity (deficiency).... (18,990) 6,127
-------- -------- --------
Total capitalization....................... $ 6,318 $ 6,318 $
======== ======== ========
</TABLE>
In addition to the shares of common stock to be outstanding after the
offering, we may issue additional shares of common stock under the following
plans and arrangements:
. 2,882,940 shares issuable upon exercise of options outstanding at a
weighted average exercise price of $1.26 per share as of March 31, 1999,
. 215,676 shares issuable upon exercise of warrants outstanding at a
weighted average exercise price of $1.31 per share as of March 31, 1999,
and
. an aggregate of 4,639,510 shares available for future issuance under our
various stock plans.
Please read the capitalization table together with the sections of this
prospectus entitled "Selected Consolidated Financial Data" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
with the consolidated financial statements and related notes included elsewhere
in this prospectus.
19
<PAGE>
DILUTION
Our pro forma net tangible book value as of March 31, 1999 was $6.1 million
or $0.34 per share. Pro forma net tangible book value per share represents the
amount of our total tangible assets reduced by the amount of our total
liabilities and divided by the total number of shares of common stock
outstanding after giving effect to the automatic conversion of our convertible
redeemable preferred stock. Dilution in pro forma 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 pro forma net tangible book
value per share of common stock immediately after the completion of this
offering. After giving effect to the sale of the shares of common stock
offered by us at an assumed initial public offering price of $ per share,
and after deducting the underwriting discount and estimated offering expenses
payable by us, our pro forma net tangible book value at March 31, 1999 would
have been approximately $ million or $ per share of common stock. This
represents an immediate increase in pro forma net tangible book value of $
per share to existing stockholders and an immediate dilution of $ per share
to new investors of common stock. The following table illustrates this dilution
on a per share basis:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share................. $
Pro forma net tangible book value per share as of March 31,
1999......................................................... $0.34
Increase per share attributable to new investors..............
-----
Pro forma net tangible book value per share after this offering.
--------
Dilution per share to new investors............................. $
========
</TABLE>
The following table summarizes on a pro forma basis after giving effect to
the offering (based on an assumed initial public offering price of $ per
share), as of March 31, 1999, the differences between the existing stockholders
and new investors with respect to the number of shares of common stock
purchased from us, the total consideration paid to us and the average price per
share paid:
<TABLE>
<CAPTION>
Average
Shares Purchased Total Consideration Price
------------------ ------------------- Per
Number Percent Amount Percent Share
---------- ------- ----------- ------- -------
<S> <C> <C> <C> <C> <C>
Existing stockholders............ 19,682,882 % $25,719,000 % $1.31
New investors....................
----- -----
Total.......................... 100.0% 100.0%
===== =====
</TABLE>
The foregoing discussion and tables are based upon the number of shares
actually issued and outstanding on March 31, 1999 and assume no exercise of
options or warrants outstanding as of March 31, 1999. As of that date, there
were:
. 2,882,940 shares issuable upon exercise of options outstanding at a
weighted average exercise price of $1.26 per share as of March 31, 1999,
and
. 215,676 shares issuable upon exercise of warrants outstanding at a
weighted average exercise price of $1.31 per share as of March 31, 1999.
To the extent these options and warrants are exercised, there will be
further dilution to new investors.
20
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data below should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results
of Operations," the Consolidated Financial Statements and Notes thereto and the
other information contained in this prospectus. The consolidated statements of
operations data for the years ended December 31, 1996, 1997 and 1998, and the
consolidated balance sheet data as of December 31, 1997 and 1998, are derived
from the audited financial statements, which have been audited by Deloitte &
Touche LLP, which are included elsewhere in this prospectus. The consolidated
statements of operations data for the period from September 19, 1995 to
December 31, 1995 and the consolidated balance sheet data as of December 31,
1995 and 1996 are derived from audited consolidated financial statements that
are not included in this prospectus. The consolidated statements of operations
data for the three-month periods ended March 31, 1998 and 1999, and the
consolidated balance sheet data at March 31, 1999, are derived from unaudited
consolidated financial statements included elsewhere in this prospectus. The
unaudited consolidated financial statements have been prepared on substantially
the same basis as the audited consolidated financial statements and, in the
opinion of management, include all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the results of
operations for these periods. The historical results presented below are not
necessarily indicative of future results. The pro forma information in the
following table gives effect to the automatic conversion of all outstanding
shares of our convertible redeemable preferred stock into common stock upon the
closing of this offering.
<TABLE>
<CAPTION>
Three Months
Ended
Sept. 19, 1995 Years Ended December 31, March 31,
(inception) ---------------------------- ----------------
to Dec. 31, 1995 1996 1997 1998 1998 1999
---------------- -------- -------- -------- ------- -------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
Consolidated Statements
of Operations Data:
Revenues:
License................ $ -- $ 280 $ 2,625 $ 5,900 $ 1,247 $ 2,364
Service................ 25 5 568 1,699 196 1,198
------- -------- -------- -------- ------- -------
Total revenues....... 25 285 3,193 7,599 1,443 3,562
Cost of revenues:
License................ -- 6 30 477 3 60
Service................ 10 165 623 2,290 236 1,319
------- -------- -------- -------- ------- -------
Total cost of
revenues............ 10 171 653 2,767 239 1,379
------- -------- -------- -------- ------- -------
Gross profit............ 15 114 2,540 4,832 1,204 2,183
Operating expenses:
Research and
development........... 78 1,182 2,830 3,971 619 1,060
Sales and marketing.... 23 685 2,896 8,389 1,626 3,146
General and
administrative........ 41 1,163 1,796 2,069 406 476
Amortization of
deferred stock
compensation.......... -- -- -- -- -- 102
------- -------- -------- -------- ------- -------
Total operating
expenses............ 142 3,030 7,522 14,429 2,651 4,784
------- -------- -------- -------- ------- -------
Loss from operations.... (127) (2,916) (4,982) (9,597) (1,447) (2,601)
Interest income
(expense), net......... (6) 102 129 271 12 21
------- -------- -------- -------- ------- -------
Net loss................ $ (133) $ (2,814) $ (4,853) $ (9,326) $(1,435) $(2,580)
======= ======== ======== ======== ======= =======
Basic and diluted net
loss per share......... $(10.23) $ (6.59) $ (2.50) $ (3.01) $ (0.59) $ (0.57)
======= ======== ======== ======== ======= =======
Shares used in computing
basic and diluted net
loss per share......... 13 427 1,945 3,096 2,439 4,542
======= ======== ======== ======== ======= =======
Pro forma basic and
diluted net loss per
share (unaudited)...... $ (0.60) $ (0.14)
======== =======
Shares used in computing
pro forma basic and
diluted net loss per
share (unaudited)...... 15,457 17,947
======== =======
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
As of December 31, As of
--------------------------------- March 31,
1995 1996 1997 1998 1999
----- ------- ------- -------- ---------
(in thousands)
<S> <C> <C> <C> <C> <C>
Consolidated Balance Sheet Data:
Cash and cash equivalents......... $ 95 $ 1,393 $ 2,876 $ 7,461 $ 5,745
Working capital (deficit)......... (316) 1,002 2,755 7,493 4,989
Total assets...................... 316 1,901 5,195 12,294 10,269
Notes payable, less current
portion.......................... -- 300 216 108 84
Convertible redeemable preferred
stock............................ -- 3,995 11,008 25,117 25,117
Total stockholders' deficiency.... (126) (2,891) (7,743) (16,756) (18,990)
</TABLE>
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Consolidated
Financial Statements and Notes thereto and the other information contained in
this prospectus.
Overview
We are a leading provider of eBusiness integration software. Our ActiveWorks
Integration System provides a platform for the seamless, real-time integration
of packaged and legacy enterprise software applications, both within and across
the extended enterprise. We were incorporated in September 1995. From inception
until August 1996, when we shipped our first product, our operations consisted
primarily of start-up activities, including research and development,
recruiting personnel and raising capital. Since shipping our first product, we
have continued to focus on these activities, as well as building our sales and
marketing presence, expanding and enhancing our product offerings, building
relationships with third parties to leverage our distribution and services
capabilities, and supporting and maintaining our product deployments within an
expanding customer base. In addition, we established our professional services
organization in the third quarter of 1998 to support our system integrator
partners.
We generate revenue principally from licenses of our ActiveWorks software
products and, to a lesser extent, from services such as maintenance and
support, as well as consulting and training. License revenues constituted 78%
and 66% of our total revenues in 1998 and in the quarter ended March 31, 1999,
respectively, while service revenues constituted 22% and 34% of our total
revenues in the same periods. We recognize license revenues upon shipment of
the software if collection of the resulting receivable is probable, an
agreement has been signed, the fee is fixed or determinable and we have no
significant obligations remaining. Revenues from maintenance and support are
recognized ratably over the period of the contract, which is typically one
year, while revenues from consulting and training services are recognized as
the services are performed. Payments received in advance of services rendered
are recorded as deferred revenues, and such balances were $1.2 million at both
December 31, 1998 and March 31, 1999.
We sell our ActiveWorks software products through our direct sales force and
through indirect channels. We have derived, and expect to continue to derive, a
significant portion of our sales in both channels from customers that have
significant relationships with third-party system integrators. In the first
quarter of 1999, we expanded our presence in international markets by opening
sales offices in the United Kingdom and in the Netherlands, and by establishing
relationships with system integrators and resellers in other international
markets. Revenues derived from international sales represented 1% or less of
total revenues in 1998 and in the quarter ended March 31, 1999. We expect that
international sales will account for an increasing portion of our revenues,
although the percentage of our total revenues derived from international sales
may vary.
Cost of license revenues consists primarily of third-party license and
support fees and, to a lesser extent, costs of duplicating media and
documentation. Cost of service revenues consists of compensation and related
overhead costs for personnel engaged in consulting, training, maintenance and
support services for our customers.
Since inception, we have incurred substantial research and development costs
and have invested heavily in the expansion of our sales and marketing and
professional services organizations to build an infrastructure to support our
long-term growth strategy. Our full-time employees increased from 48 as of
December 31, 1997 to 102 as of March 31, 1999. As a result of these
investments, we have incurred net losses in each fiscal quarter since inception
and, as of March 31, 1999, had an accumulated deficit of $19.7 million. We
anticipate that our operating expenses will continue to
23
<PAGE>
increase for the foreseeable future, as we expand our product development and
sales and marketing efforts. In addition, we expect to incur additional
expenses associated with being a public company. Accordingly, we expect to
incur net losses for the foreseeable future.
Costs for the development of new software products and substantial
enhancements to existing software products are expensed as incurred until
technological feasibility has been established, at which time any additional
development costs would be capitalized. Because we believe our current process
for developing software is essentially completed concurrently with the
establishment of technological feasibility, no costs have been capitalized to
date.
We believe that period-to-period comparisons of our historical operating
results are not necessarily meaningful and should not be relied upon as being
indicative of future performance. Our prospects must be considered in light of
the risks, expenses and difficulties frequently encountered by companies in
early stages of development, particularly companies in new and rapidly evolving
markets like ours. Although we recently have experienced significant revenue
growth, this trend may not continue. Furthermore, we may not achieve or
maintain profitability in the future.
In October 1998, we issued a warrant to a strategic partner for the purchase
of 36,763 shares of common stock at an exercise price of $4.08 per share. The
warrant is contingently exercisable upon the achievement by the strategic
partner of specified performance improvements to our software product. The
warrant will expire on August 31, 1999, unless the strategic partner achieves
these performance improvements before that date, in which case the warrant will
expire on October 29, 2005. If the performance improvements are achieved before
August 31, 1999, we will record a research and development expense equal to the
fair value of the warrant. For example, if the fair value of the common stock
is $ per share at that time, we would recognize a total charge of
approximately $ . If the fair value of our common stock were to increase
substantially from this level, the total charge would also increase
substantially.
Since inception, we have incurred net losses for federal and state tax
purposes and have not recognized any tax provision or benefit. As of December
31, 1998, we had net operating loss carryforwards of approximately $15.2
million and $11.3 million for federal and state income tax purposes,
respectively. The federal and state net operating loss carryforwards, if not
utilized, expire through 2018 and 2003, respectively. We also have research and
development credit carryforwards of approximately $313,000 and $178,000 for
federal and state income tax purposes, respectively. The federal research and
development credit carryforward expires, if not utilized, through 2018, while
the state credit has no expiration. Federal and state tax laws impose
significant restrictions on the utilization of net operating loss carryforwards
in the event of a shift in our ownership that constitutes an "ownership
change," as defined in Section 382 of the Internal Revenue Code. See Note 6 of
Notes to Consolidated Financial Statements.
We have placed a valuation allowance against our net deferred tax assets due
to the uncertainty surrounding the realization of these assets. We evaluate on
a quarterly basis the recoverability of the net deferred tax assets and the
level of the valuation allowance. When it is determined that it is more likely
than not the net deferred tax assets are realizable, the valuation allowance
will be reduced.
For 1997 and prior years, we recognized revenues in accordance with the
American Institute of Certified Public Accountants Statement of Position 91-1.
Commencing in 1998, we began recognizing revenues in accordance with the
American Institute of Certified Public Accountants Statement of Position 97-2,
"Software Revenue Recognition," or SOP 97-2, as amended by Statements of
Position 98-4 and 98-9. To date, our adoption of these new standards has not
had any material effect on our revenue recognition. Further implementation
guidelines relating to these standards may result in unanticipated changes in
our revenue recognition practices, and such changes could affect our future
revenues and earnings.
24
<PAGE>
Results of Operations
The following table sets forth, for the periods indicated, the statements of
operations data as a percentage of total revenues.
<TABLE>
<CAPTION>
Three Months
Years Ended Ended
December 31, March 31,
-------------------- ---------------
1996 1997 1998 1998 1999
------ ---- ---- ------ ------
<S> <C> <C> <C> <C> <C>
Revenues:
License............................... 98 % 82 % 78 % 86 % 66 %
Service............................... 2 18 22 14 34
------ ---- ---- ------ -----
Total revenues...................... 100 100 100 100 100
Cost of revenues:
License............................... 2 1 6 * 2
Service............................... 58 19 30 16 37
------ ---- ---- ------ -----
Total cost of revenues.............. 60 20 36 16 39
Gross profit........................... 40 80 64 84 61
Operating expenses:
Research and development.............. 415 89 52 43 30
Sales and marketing................... 240 91 110 113 88
General and administrative............ 408 56 27 28 13
Amortization of deferred stock
compensation......................... -- -- -- -- 3
------ ---- ---- ------ -----
Total operating expenses............ 1,063 236 189 184 134
------ ---- ---- ------ -----
Loss from operations................... (1,023) (156) (125) (100) (73)
Interest income, net................... 36 4 3 1 1
------ ---- ---- ------ -----
Net loss............................... (987)% (152)% (122)% (99)% (72)%
====== ==== ==== ====== =====
</TABLE>
- --------
*Less than 1%
Three Months Ended March 31, 1998 and 1999
Revenues
Total revenues increased from $1.4 million in the quarter ended March 31,
1998 to $3.6 million in the quarter ended March 31, 1999. License revenues
increased from $1.2 million in the quarter ended March 31, 1998 to $2.4 million
in the quarter ended March 31, 1999. The increase in license revenues was due
primarily to increased sales of our ActiveWorks software products to new
customers and increased sales of additional ActiveWorks products and features
to existing customers.
Service revenues increased from $196,000 in the quarter ended March 31, 1998
to $1.2 million in the quarter ended March 31, 1999. The increase in service
revenues was attributable primarily to the establishment of our professional
services organization in the third quarter of 1998 and to the growth of our
customer base.
Cost of Revenues
Total cost of revenues increased from $239,000 in the quarter ended March
31, 1998 to $1.4 million in the quarter ended March 31, 1999. Cost of license
revenues increased from $3,000 in the quarter ended March 31, 1998 to $60,000
in the quarter ended March 31, 1999. As a percentage of license revenues, cost
of license revenues was less than 1% and was 3% in the quarters ended March 31,
1998 and 1999, respectively. The growth in cost of license revenues as a
percentage of
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license revenues and on an absolute basis was attributable primarily to a
larger proportion of our products sold in the quarter ended March 31, 1999
incorporating third-party technology for which we pay royalties. We anticipate
that the cost of license revenues will increase in absolute dollars as we
license additional products, although cost of license revenues will vary as a
percentage of license revenues from period to period.
Cost of service revenues increased from $236,000 in the quarter ended March
31, 1998 to $1.3 million in the quarter ended March 31, 1999. The growth in
cost of service revenues was attributable primarily to an increase in personnel
dedicated to support a larger number of customers. As a percentage of service
revenues, cost of service revenues was 120% and 110% in the quarters ended
March 31, 1998 and 1999, respectively. We anticipate that the cost of service
revenues will increase in absolute dollars as we continue to expand our
services offerings, although cost of service revenues may vary as a percentage
of service revenues from period to period.
Operating Expenses
Research and Development. Research and development expenses consist
primarily of compensation and related costs for research and development
employees and contractors. Research and development expenses increased from
$619,000 in the quarter ended March 31, 1998 to $1.1 million in the quarter
ended March 31, 1999. The increase was attributable primarily to the addition
of personnel in our research and development organization associated with
product development. As a percentage of total revenues, research and
development expenses were 43% and 30% in the quarters ended March 31, 1998 and
1999, respectively. We expect to continue to make substantial investments in
research and development and anticipate that research and development expenses
will continue to increase in absolute dollars, but may vary as a percentage of
total revenues from period to period. In addition, research and development
expenses in the third quarter of 1999 could be significantly increased if the
performance improvements are achieved by a strategic partner in connection with
a warrant issued to that partner. See "--Overview."
Sales and Marketing. Sales and marketing expenses consist primarily of
compensation and related costs for sales and marketing personnel and
promotional expenditures. Sales and marketing expenses increased from $1.6
million in the quarter ended March 31, 1998 to $3.1 million in the quarter
ended March 31, 1999. The increase was attributable primarily to the addition
of sales and marketing personnel and increased commissions related to increased
revenues, as well as costs associated with increased efforts to develop market
awareness of our products and services. As a percentage of total revenues,
sales and marketing expenses were 113% and 88% for the quarters ended March 31,
1998 and 1999, respectively. We expect to continue increasing our marketing and
promotional efforts and to hire additional sales personnel. Accordingly, we
anticipate that sales and marketing expenses will increase in absolute dollars,
but may vary as a percentage of total revenues from period to period.
General and Administrative. General and administrative expenses consist
primarily of personnel expenses, legal and accounting expenses and other
general corporate expenses. General and administrative expenses increased from
$406,000 in the quarter ended March 31, 1998 to $476,000 in the quarter ended
March 31, 1999, due primarily to the addition of financial and management
personnel. As a percentage of total revenues, general and administrative
expenses were 28% and 13% in the quarters ended March 31, 1998 and 1999,
respectively. We expect that general and administrative expenses will increase
in absolute dollars as we add personnel and incur additional costs related to
the anticipated growth of our business and operation as a public company.
Amortization of Deferred Stock Compensation. Options granted in December
1998 and in the first quarter of 1999 have been considered to be compensatory
as the estimated fair value for accounting purposes was greater than the
exercise price as determined by the board of directors on
26
<PAGE>
the date of grant. The total deferred stock compensation associated with these
options as of March 31, 1999 amounted to $2.1 million, net of amortization.
These amounts are being amortized over the respective vesting periods of these
equity arrangements, generally 50 months. Of the total deferred stock
compensation, approximately $102,000 was amortized in the quarter ended March
31, 1999. We expect amortization of approximately $499,000 in 1999, $529,000 in
2000, $529,000 in 2001, $529,000 in 2002 and $119,000 in 2003 related to these
options.
Net Interest Income
Net interest income consists primarily of interest earned on cash and cash
equivalents, offset by interest expense related to obligations under capital
leases. In the quarters ended March 31, 1998 and 1999, net interest income was
approximately $12,000 and $21,000, respectively. The increase in net interest
income was due primarily to increased interest income earned on higher cash and
cash equivalent balances as a result of our convertible redeemable preferred
stock financing in 1998.
Years Ended December 31, 1996, 1997 and 1998
Revenues
Total revenues were $285,000, $3.2 million and $7.6 million in 1996, 1997
and 1998, respectively. License revenues increased from $280,000 in 1996 to
$2.6 million in 1997 and to $5.9 million in 1998. The increases in license
revenues during these periods were due primarily to increased sales of our
ActiveWorks software products to new customers and increased sales of
additional ActiveWorks products and features to existing customers. As a
percentage of total revenues, license revenues were 82% and 78% for 1997 and
1998, respectively.
Service revenues increased from $5,000 in 1996 to $568,000 in 1997 and to
$1.7 million in 1998. As a percentage of total revenues, service revenues were
18% and 22% for 1997 and 1998, respectively. The increase in 1997 was
attributable primarily to growth in our customer base. The increase in 1998 was
attributable to the establishment of our professional services organization in
the third quarter of 1998 and to the growth of our customer base.
Cost of Revenues
Cost of license revenues increased from $6,000 in 1996 to $30,000 in 1997
and to $477,000 in 1998. As a percentage of license revenues, cost of license
revenues was 1% and 8% for 1997 and 1998, respectively. The growth in cost of
license revenues as a percentage of license revenues and on an absolute basis
was attributable primarily to a larger proportion of our products sold
incorporating third party technology for which we pay royalties, as well as to
the increases in license revenues during these periods.
Cost of service revenues increased from $165,000 in 1996 to $623,000 in 1997
and to $2.3 million in 1998. The growth in cost of service revenues was
attributable primarily to an increase in personnel dedicated to support a
larger number of customers. As a percentage of service revenues, cost of
service revenues was 110% and 135% for 1997 and 1998, respectively.
Operating Expenses
Research and Development. Research and development expenses increased from
$1.2 million in 1996 to $2.8 million in 1997 and to $4.0 million in 1998. The
increases during these periods were attributable primarily to the addition of
personnel in our research and development organization associated with product
development. As a percentage of total revenues, research and development
expenses were 89% and 52% for 1997 and 1998, respectively.
27
<PAGE>
Sales and Marketing. Sales and marketing expenses increased from $685,000 in
1996 to $2.9 million in 1997 and to $8.4 million in 1998. The increases during
these periods were attributable primarily to the addition of sales and
marketing personnel and increased commissions related to increased revenues
and, to a lesser extent, to costs associated with increased efforts to develop
market awareness of our products and services. As a percentage of total
revenues, sales and marketing expenses were 91% and 110% for 1997 and 1998,
respectively.
General and Administrative. General and administrative expenses increased
from $1.2 million in 1996 to $1.8 million in 1997 and to $2.1 million in 1998.
The increases during these periods were due primarily to the addition of
financial and management personnel. As a percentage of total revenues, general
and administrative expenses were 56% and 27% of total revenues for 1997 and
1998, respectively.
Amortization of Deferred Stock Compensation. Total deferred stock
compensation as of December 31, 1998 amounted to $457,000. Amortization of
deferred stock compensation was insignificant in 1998.
Net Interest Income
Net interest income was $102,000, $129,000 and $271,000 in 1996, 1997 and
1998, respectively. The increases during these periods were due primarily to
increased interest income earned on higher cash and cash equivalent balances as
a result of convertible redeemable preferred stock financings in 1997 and 1998.
28
<PAGE>
Quarterly Results of Operations
The following table sets forth unaudited consolidated statements of
operations data for the five quarters ended March 31, 1999, as well as this
information expressed as a percentage of our total revenues for the periods
indicated. This information has been derived from unaudited consolidated
financial statements that, in the opinion of our management, include all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of this information when read in conjunction with our annual
audited consolidated financial statements and related notes. The operating
results for any quarter are not necessarily indicative of results for any
future period.
<TABLE>
<CAPTION>
Three Months Ended
----------------------------------------------------
Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31,
1998 1998 1998 1998 1999
-------- -------- --------- -------- --------
(in thousands, except percentages)
<S> <C> <C> <C> <C> <C>
Consolidated Statements of
Operations Data:
Revenues:
License.................... $ 1,247 $ 708 $ 1,642 $ 2,303 $ 2,364
Service.................... 196 258 427 818 1,198
------- ------- ------- ------- -------
Total revenues........... 1,443 966 2,069 3,121 3,562
Cost of revenues:
License.................... 3 44 157 273 60
Service.................... 236 270 629 1,155 1,319
------- ------- ------- ------- -------
Total cost of revenues... 239 314 786 1,428 1,379
Gross profit................ 1,204 652 1,283 1,693 2,183
Operating expenses:
Research and development... 619 994 1,208 1,150 1,060
Sales and marketing........ 1,626 2,072 2,209 2,482 3,146
General and
administrative............ 406 483 603 577 476
Amortization of deferred
stock compensation........ -- -- -- -- 102
------- ------- ------- ------- -------
Total operating expenses. 2,651 3,549 4,020 4,209 4,784
------- ------- ------- ------- -------
Loss from operations........ (1,447) (2,897) (2,737) (2,516) (2,601)
Interest income, net........ 12 80 94 85 21
------- ------- ------- ------- -------
Net loss.................... $(1,435) $(2,817) $(2,643) $(2,431) $(2,580)
======= ======= ======= ======= =======
Percentage of Total
Revenues:
Revenues:
License.................... 86% 73% 79% 74% 66%
Service.................... 14 27 21 26 34
------- ------- ------- ------- -------
Total revenues........... 100 100 100 100 100
Cost of revenues:
License.................... * 5 8 9 2
Service.................... 16 28 30 37 37
------- ------- ------- ------- -------
Total cost of revenues... 16 33 38 46 39
Gross profit................ 84 67 62 54 61
Operating expenses:
Research and development... 43 103 59 37 30
Sales and marketing........ 113 214 107 80 88
General and
administrative............ 28 50 29 18 13
Amortization of deferred
stock compensation........ -- -- -- -- 3
------- ------- ------- ------- -------
Total operating expenses. 184 367 195 135 134
------- ------- ------- ------- -------
Loss from operations........ (100) (300) (133) (81) (73)
Interest income, net........ 1 8 5 3 1
------- ------- ------- ------- -------
Net loss.................... (99)% (292)% (128)% (78)% (72)%
======= ======= ======= ======= =======
</TABLE>
- --------
* Less than 1%
29
<PAGE>
License revenues increased in each of the quarters ended September 30, 1998,
December 31, 1998 and March 31, 1999 due to increased sales of our ActiveWorks
software products to new customers and increased sales of additional
ActiveWorks products to existing customers. License revenues declined from $1.2
million in the quarter ended March 31, 1998 to $708,000 in the quarter ended
June 30, 1998, due primarily to the delay in a significant purchase by a
customer, which was subsequently recognized in the quarter ended September 30,
1998. Service revenues generally increased in each of the quarters presented
above, due primarily to the increasing size of our customer base.
Cost of license revenues and cost of service revenues increased in each of
the quarters ended June 30, 1998, September 30, 1998 and December 31, 1998,
both in absolute dollars and as a percentage of related revenues. These
increases were attributable primarily to increases in the number of service
professionals to support ongoing maintenance and support of our growing
customer base and to increased sales of our ActiveWorks software products. The
increases in cost of service revenues in absolute dollars in the quarters ended
September 30, 1998, December 31, 1998 and March 31, 1999 were also attributable
to the establishment of our professional services organization in the third
quarter of 1998.
Our operating expenses have increased in absolute dollars in connection with
investment in the growth of our business and operating structure. Total
operating expenses have decreased as a percentage of total revenues in the
quarters ended September 30, 1998, December 31, 1998 and March 31, 1999. Sales
and marketing expenses increased in absolute dollars in each of the quarters
presented above as a result of increased spending for salaries and commissions,
public relations and promotional expenses. Research and development expenses
decreased in absolute dollars in the quarters ended December 31, 1998 and March
31, 1999, and decreased as a percentage of total revenues in the quarters ended
September 30, 1998, December 31, 1998 and March 31, 1999. This decrease was due
primarily to decreasing reliance on outsourcing for documentation and quality
assurance. While we expect that research and development expenses will increase
significantly over the next 18 months, they may vary as we develop new products
and enhance existing products. In addition, research and development expenses
in the third quarter of 1999 could be significantly increased if the
performance improvements are achieved by a strategic partner in connection with
a warrant issued to that partner. See "--Overview."
The amount and timing of our operating expenses generally will vary from
quarter to quarter depending on our level of actual and anticipated business
activities. Our revenues and operating results are difficult to forecast and
will fluctuate, and we believe that period-to-period comparisons of our
operating results will not necessarily be meaningful. As a result, you should
not rely upon them as an indication of future performance. It is likely that
our future quarterly operating results from time to time will not meet the
expectations of security analysts or investors, which would likely cause the
price of the common stock to decline.
Liquidity and Capital Resources
Since inception, we have financed our operations primarily through private
sales of convertible redeemable preferred stock, which totaled $25.1 million in
aggregate net proceeds through March 31, 1999. As of March 31, 1999, we had
$5.7 million of cash and cash equivalents.
Net cash used in operating activities was $2.5 million, $4.8 million and
$9.0 million in 1996, 1997 and 1998, and $1.6 million in the quarter ended
March 31, 1999. For 1997, cash used by operating activities was attributable
primarily to a net loss of $4.9 million and an increase in accounts receivable
of $1.5 million, offset in part by an increase in deferred revenues of $606,000
and an increase in accrued compensation and related benefits of $582,000. For
1998, cash used by operating activities was attributable primarily to a net
loss of $9.3 million and an increase in accounts receivable of $1.8 million,
offset in part by an increase in deferred revenues of $432,000 and
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<PAGE>
increases in other accrued liabilities and accounts payable. For the quarter
ended March 31, 1999, cash used by operating activities was attributable
primarily to a net loss of $2.6 million, offset in part by an increase in
accounts receivable of $697,000 and an increase in accounts payable of
$495,000. Our sales cycle is lengthy and unpredictable, and could cause our
quarterly revenues and operating results to fluctuate. Any change in our sales
cycle could adversely affect the amount of cash provided by our operating
activities.
Net cash used in investing activities was $336,000, $642,000 and $711,000 in
1996, 1997 and 1998 and $381,000 in the quarter ended March 31, 1999. For each
of these periods, cash used in investing activities was attributable primarily
to purchases of property and equipment.
Net cash provided by financing activities was $4.2 million, $6.9 million and
$14.3 million in 1996, 1997 and 1998, and $220,000 in the quarter ended March
31, 1999. For each of 1996, 1997 and 1998, cash provided by financing
activities was attributable primarily to proceeds from the issuance of
convertible redeemable preferred stock. In addition, we received proceeds of
$401,000 in 1996 from an equipment loan, of which $191,000 in principal amount
was outstanding at March 31, 1999. For the quarter ended March 31, 1999, cash
provided by financing activities was attributable primarily to proceeds from
the issuance of common stock.
As of March 31, 1999, our principal commitments consisted of obligations
outstanding under operating leases and equipment loans. Although we have no
material commitments for capital expenditures, we anticipate that capital
expenditures and lease commitments will increase, consistent with our
anticipated growth in operations, infrastructure and personnel. For 1999, we
anticipate that capital expenditures will be at least $1.5 million. We also may
establish additional operations as we expand globally.
We anticipate that our liquidity needs for at least the next eighteen months
will be met by the net proceeds from this offering, together with our current
cash and cash equivalents. After this time, we cannot assure you that cash
generated from operations will be sufficient to satisfy our liquidity
requirements, and we may need to raise additional capital by selling additional
equity or debt securities or by obtaining a credit facility. If additional
funds are raised through the issuance of debt securities, these securities
could have rights, preferences and privileges senior to holders of common
stock, and the terms of these securities could impose restrictions on our
operations. The sale of additional equity or convertible debt securities could
result in additional dilution to our stockholders, and we cannot be certain
that additional financing will be available in amounts or on terms acceptable
to us, if at all. If we are unable to obtain this additional financing, we may
be required to reduce the scope of our planned product development and
marketing efforts, which could harm our business, financial condition and
operating results.
Year 2000
Many currently installed computer systems and software products are coded to
accept only two digit entries in the date code field. These systems and
software products will need to accept four digit entries to distinguish 21st
century dates from 20th century dates. This problem may result in software
failures or the creation of erroneous results.
We have conducted a year 2000 readiness review for the current versions of
our products. The review includes assessment, implementation and validation
testing. We have largely completed all phases of this plan for the current
versions of our products. As a result, we believe all current versions of our
products are capable of properly distinguishing between 20th and 21st century
dates, when configured and used in accordance with the related documentation,
and provided that the underlying operating system of the host machine and any
other software used with our products are also capable of properly
distinguishing between 20th and 21st century dates.
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<PAGE>
We are testing software obtained from third parties that is incorporated
into our products, and we have requested that our vendors confirm that their
software is capable of properly distinguishing between 20th and 21st century
dates. We have been informed by many of our vendors that their products that we
use are capable of properly distinguishing between 20th and 21st century dates.
Despite testing by us and by current and potential customers, and assurances
from developers of products incorporated into our products, our products may
contain undetected errors or defects associated with year 2000 date functions.
Known or unknown errors or defects in our products could result in delay or
loss of revenues, diversion of development resources, damage to our reputation,
or increased service and warranty costs, any of which could harm our business.
Some commentators have predicted significant litigation regarding year 2000
compliance issues, and we are aware of lawsuits against other software vendors.
Because of the unprecedented nature of this litigation, it is uncertain whether
or to what extent we may be affected by it.
Our internal systems include our information technology, or IT, systems and
non-IT systems. We have completed an assessment of our material internal IT
systems and non-IT systems. We expect to complete validation testing of our IT
systems and related contingency planning by August 31, 1999. To the extent that
we are not able to test the technology provided by third-party vendors, we are
seeking assurances from vendors that their systems are year 2000 compliant. We
are not currently aware of any material operational issues associated with
preparing our internal IT systems and non-IT systems for the year 2000.
However, we may experience material unanticipated problems or additional costs
caused by undetected errors or defects in the technology used in our internal
IT systems and non-IT systems.
We do not currently have any information concerning the year 2000 compliance
status of our customers. If our current or future customers fail to achieve
year 2000 compliance or if they divert technology expenditures, especially
technology expenditures that were earmarked for our products, to address year
2000 compliance problems, our business could suffer.
We have funded our year 2000 plan from available cash and have not
separately accounted for these expenses in the past. To date, these expenses
have not been material and have totaled less than $200,000. Most of our
expenses have related to, and are expected to continue to relate to, the
operating costs associated with time spent by employees in the evaluation
process and year 2000 compliance matters generally. We expect to incur no more
than an additional $300,000 to verify that our products, IT systems and non-IT
systems are capable of properly distinguishing between 20th century and 21st
century dates. In addition, we may experience material problems and expenses
associated with year 2000 compliance that could adversely affect our business,
results of operations and financial condition. Finally, we are also subject to
external forces that might generally affect industry and commerce, such as year
2000 compliance failures by utility or transportation companies and related
service interruptions.
We do not have a formal contingency plan to address any unanticipated Year
2000 problems that may occur in our products or our internal systems. If such
problems arise, we expect to make the necessary expenditures to assess and
remedy these problems. We cannot currently estimate the amount or timing of
these potential expenditures. They may be significant and could have an adverse
effect on our business.
Recently Issued Accounting Standards
In June 1997, the Financial Accounting Standards Board issued accounting
statement No. 130, Reporting Comprehensive Income, which requires an enterprise
to report, by major components and as a single total, the change in its net
assets during the period from nonowner sources. We had no comprehensive income
items to report, other than net loss, for any of the periods presented. The
FASB also issued accounting statement No. 131, Disclosures About Segments of an
Enterprise and
32
<PAGE>
Related Information, which establishes annual and interim reporting standards
for an enterprise's business segments and related disclosures about its
products, services, geographic areas and major customers. We currently operate
in one reportable segment.
In March 1998, the American Institute of Certified Public Accountants issued
SOP 98-1, Accounting for the Costs of Computer Software Developed or Obtained
for Internal Use. This standard requires companies to capitalize qualifying
computer software costs, which are incurred during the application development
stage, and amortize them over the software's estimated useful life. SOP 98-1 is
effective for fiscal years beginning after December 15, 1998. We are currently
evaluating the impact of SOP 98-1 on our financial statements and related
disclosures.
In June 1998, the Financial Accounting Standards Board issued accounting
statement No. 133, Accounting for Derivative Instruments and Hedging
Activities. This statement requires companies to record derivatives on the
balance sheet as assets or liabilities measured at fair value. Gains or losses
resulting from changes in the values of those derivatives would be accounted
for depending on the use of the derivative and whether it qualifies for hedge
accounting. SFAS No. 133 will be effective for us beginning in 2001. We are
currently evaluating the impact of SFAS No. 133 on our financial statements and
related disclosures.
33
<PAGE>
BUSINESS
Overview
We are a leading provider of eBusiness integration software that enables our
customers to accelerate their time to market for products and services, enhance
their relationships with customers, suppliers and partners and substantially
reduce their operating and IT costs. Our ActiveWorks Integration System
provides our customers with a platform for the seamless, real-time integration
of packaged and legacy software applications, both within and across their
extended enterprises of customers, suppliers and partners. Our customers use
our platform to link their front-office, back-office, supply chain and e-
commerce applications without costly and time-consuming custom programming,
enabling them to quickly and cost-effectively take full advantage of their
long-term investments in systems and technologies to compete in today's rapidly
changing eBusiness environment. We have designed the ActiveWorks Integration
System to provide a highly flexible and adaptable eBusiness integration
platform that can be deployed quickly and changed easily in response to
evolving business requirements. In addition, we partner with a broad range of
system integrators and hardware, software and service providers in order to
offer our customers a comprehensive integration solution.
Industry Background
Over the past decade, enterprise computing environments have undergone a
significant transformation. This transformation has been driven by accelerating
organizational demands for flexibility, efficiency, and speed in order to more
effectively respond to a rapidly changing business environment and increasingly
global marketplace. In parallel, there has been a shift from in-house, custom
development of mission-critical applications to the purchase of these
applications and related services from third-party vendors. Packaged
applications have spread throughout the enterprise to address many highly
strategic business functions, including enterprise resource planning, supply
chain management, customer relationship management, sales force automation,
business decision support and e-commerce. In this new corporate environment, a
single business process can require access to data and information from many
distinct applications, none of which are designed to communicate seamlessly and
in real time with the others.
Companies have invested an enormous amount of financial and technical
resources in developing and deploying a broad range of packaged and legacy
applications. To take full advantage of these investments, it has become
critical for companies to efficiently integrate these applications. META Group
estimates that the average Fortune 1000 company maintains 49 distinct
enterprise applications and spends from one-quarter to one-third of its total
IT budget on integration-related efforts. The complexity of this integration
challenge has historically required time-consuming, expensive, custom-developed
in-house solutions or third-party specialized consulting and system integration
services. More recently, the market for third-party enterprise application
integration, or EAI, software has emerged to provide this integration
capability as a packaged solution. Driven by the increasingly business-critical
need for integration, the application and data integration software market is
projected by the Yankee Group to reach a total size of $5 billion by 2001.
Against this backdrop, the explosive emergence of the Internet has further
changed the nature and pace of business operations and competition. Companies
are now able to conduct business electronically and operate as extended
enterprises through an Internet-enabled real-time network of customers,
suppliers and partners. As a result, the ability to operate as an eBusiness has
become a critical strategic objective. Companies need to integrate all aspects
of their extended enterprises, including back-office operations and processing,
front-office applications, such as sales, marketing and customer service, and
supplier management systems, such as planning, sourcing, purchasing,
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fulfillment and inventory control. For example, a company can now give
suppliers and partners real-time electronic access to its scheduling, billing
and inventory information, thereby enhancing communication, reducing operating
costs and creating a networked organization that takes advantage of supplier
and partner strengths in ways not previously possible. To compete successfully,
a company needs an eBusiness integration platform that allows it to adapt
quickly to changing market conditions, accelerate time to market, enhance
relationships with customers, suppliers and partners, and reduce operating
costs.
Traditional integration and EAI solutions fail to fully capitalize on the
benefits of Internet technologies and do not adequately address the challenges
of this eBusiness environment. These solutions are often inflexible and rigid,
lack key functionality, such as security and integration management and
monitoring, and do not offer the speed of implementation and time-to-market
benefits required in today's business environment. As a result, we believe that
there is a significant opportunity for a vendor who can provide a platform that
enables seamless, real-time and efficient eBusiness integration across widely
distributed and disparate computing environments. This platform needs to
provide the following key capabilities:
. Comprehensive, Robust Solution: a comprehensive, packaged solution for
eBusiness integration that does not require substantial custom
programming and includes a broad portfolio of integration and management
facilities;
. Dynamic Adaptability: a system designed to adapt quickly and efficiently
to changing business operations, rules and processes, and to accommodate
change without additional programming;
. Scalability: a system that easily accommodates a wide range of
transaction and data flow volumes across locally and globally-distributed
networks;
. Extensibility: a flexible architecture that allows for the efficient
incorporation of and integration with evolving technologies;
. Security: inherent state-of-the-art security and administrative
capabilities designed for an extended enterprise operating in an
eBusiness environment; and
. Management and Monitoring: efficient, easy-to-use and centralized
management and monitoring of the integration platform and all of its
components.
The Active Software Solution
We develop, market and support a leading eBusiness integration platform that
enables our customers to more quickly expand and capitalize upon greater
business opportunities. The ActiveWorks Integration System connects a wide
range of enterprise applications and systems and provides a comprehensive
software platform for integrating an enterprise's front-office, back-office,
supply chain and e-commerce applications with minimal custom programming.
We believe the ActiveWorks platform provides the following compelling and
strategic business benefits to our customers:
. Accelerates Time to Market. The ActiveWorks platform enables our
customers to accelerate time to market for new products and services by
integrating and synchronizing the information flow between enterprise
applications in an eBusiness environment. By enabling the close
interaction of customers, suppliers and partners, the ActiveWorks
eBusiness solution provides the integration platform for the seamless
exchange of relevant information within and across the extended
enterprise. In addition, the platform is readily adaptable to changing
business and computing environments, providing the business flexibility
to respond in real time to changes in either the external market or
internal computing environment. The architecture,
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dynamic adapter portfolio and management and monitoring functionality all
provide an enhanced level of adaptability to changes in business processes
and rules in an evolutionary manner with minimal disruption to business
operations.
. Improves Customer and Supply Chain Interaction. The ActiveWorks platform,
by enabling scalable and secure eBusiness across the extended enterprise,
can enhance our customers' business relationships with their customers
and suppliers. We offer a comprehensive, robust solution for integration
across traditional business boundaries, providing the information link to
customers and suppliers and greatly enhancing an organization's ability
to respond quickly, accurately and effectively to customer and supplier
needs.
. Reduces Operational Costs. The ActiveWorks platform is designed to enable
our customers to operate in a more efficient and streamlined manner,
significantly reducing their operational costs. Our customers are able to
take advantage of the capabilities of the ActiveWorks platform to
interact electronically with customers, suppliers and partners in a cost-
effective manner. In addition, our platform minimizes the need for time-
consuming and expensive custom programming, reducing the number of highly
skilled programmers required to implement and maintain our system. The
ActiveWorks solution is not only designed for rapid initial deployment,
but also can be efficiently altered in response to an upgrade or
replacement of a specific application or an internal or external business
process change. As a result, our solution substantially reduces the
installation and maintenance costs associated with other integration
approaches.
In addition to these business benefits, our platform is differentiated from
other integration solutions through the following core competencies, which we
believe enable us to deliver faster time to integration than the solutions
offered by our competitors:
. Comprehensive and Robust Platform. Our platform, the ActiveWorks
Integration System, provides an integration architecture upon which our
customers can develop strategic eBusiness initiatives. We offer a
comprehensive platform for eBusiness integration, including base
integration functionality, a broad set of dynamic adapters for
integrating a wide variety of applications across multiple operating
systems, and management and monitoring capabilities. In addition, in
order to provide the security capabilities critical to operating an
effective eBusiness, we embed security features throughout our platform,
rather than merely layering them on top. Our platform is designed to
provide the reliability required for mission-critical operations, even
against network, hardware or software failures. We believe that the
comprehensive and robust nature of our platform approach assures our
customers that their eBusiness needs can be met today and in the future.
. Dynamic Adapters. We maintain and continue to expand our portfolio of
dynamic adapters for integrating a wide variety of applications across
multiple operating systems. These adapters, which connect individual
software applications to the ActiveWorks platform, are readily
configurable and easily reconfigurable to meet constantly changing
application requirements and specifications. This broad portfolio of
dynamic adapters substantially reduces the need for the custom
programming often required with other integration solutions. Our
development and production efforts are supported by third parties that
build Active Software-certified adapters, which facilitates the pervasive
adoption of the ActiveWorks Integration System as a standard integration
platform.
. Flexibility and Adaptability to Change. Because our customers' needs are
not static, we have designed our solution to be dynamic. Since little or
no custom programming is required, the ActiveWorks platform provides the
flexibility to respond quickly and effectively to changes in business
operations, rules and processes both inside the company and across the
extended enterprise. In addition, the ActiveWorks platform is designed to
allow the efficient incorporation of, and integration with, evolving
technologies and standards.
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. Scalability. We provide global information sharing, guaranteed delivery
and transparent information routing across geographic regions. Our
software is designed to be scalable not only across a customer's existing
organization, but throughout its extended enterprise. As a result, our
architecture not only scales to match the number of transactions, but
also scales across geographies.
. Embedded Security. Security is a high priority for Internet and eBusiness
needs and will become increasingly important in a global economy. Our
implementation of security mechanisms allows integration to be safely
extended to applications running at customer, supplier or partner sites
and can be selected to fit current needs and then adjusted to fit future
requirements.
. Management and Monitoring Capabilities. Our ActiveWorks solution allows
systems administrators to view business event transmissions, both in real
time and historically. Our graphical management and monitoring
capabilities provide a unified view of the interactions among the
applications, which reduces the cost and time required for system-wide
maintenance.
The Active Software Strategy
Active Software's mission is to establish the ActiveWorks Integration System
as the leading platform for eBusiness integration worldwide. Key elements of
this strategy include:
Facilitate Broad Acceptance and Deployment of Our eBusiness Integration
Platform
Our objective is to establish the ActiveWorks Integration System as the
eBusiness integration platform of choice across multiple industries. To
facilitate this broad acceptance, we have designed our platform to be open,
extensible and broadly applicable to many different vertical markets. For
example, we have licensed the ActiveWorks Integration System to leading
enterprises in the financial services, technology, telecommunications,
government, utilities, retail, manufacturing and transportation industry
sectors. We intend to continue leveraging our existing customers to serve as
reference accounts in order to further penetrate these markets, as well as to
expand into other vertical markets. An important aspect of our strategy has
been to develop partnerships with organizations that extend our market reach
and supplement and complement our capabilities, particularly in providing
expertise with respect to specific large vertical markets. By working together
to meet our customers' needs, we can become an integral part of their eBusiness
strategy, which provides significant additional opportunities for us to grow
with our customers going forward.
Enhance Our Technological Leadership through Ongoing Investment and Innovation
We expect to continually add to the depth and breadth of the ActiveWorks
Integration System, always with the ultimate objective of making eBusiness
integration faster and easier for our customers. We believe that ongoing
innovation will be critical to realizing this objective and building
technological barriers to entry. Our key technical personnel have been
recognized as innovators in integration, middleware and networking
technologies. We believe that the recognition by industry analysts and the
media of our technical achievements is important in increasing market awareness
and generating business referral opportunities.
Provide a Complete eBusiness Integration Solution
We recognize that solving the integration challenges facing our customers is
critical to the continued success of their businesses. Our approach is designed
to help them meet those challenges by offering a comprehensive eBusiness
integration solution. We intend to continue to enhance and expand the
capabilities of our products in order to continue to provide our customers
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with a comprehensive eBusiness integration platform. The ActiveWorks
Integration System incorporates the Information Broker, dynamic adapters and
management facilities necessary to provide a robust platform for eBusiness
integration. In addition, we have developed a methodology that enables our
customers to develop a focused integration strategy and implementation plan.
This methodology is accompanied by pre-built standard integration processes
that can be readily customized and deployed. Finally, we understand that our
customers' success is paramount and we partner with a variety of third parties
whose capabilities both complement and augment our own in order to assist our
customers in rapidly delivering successful business results.
Leverage Our Partnerships with System Integrators and Service, Distribution
and Marketing Partners
We intend to expand and strengthen our partnerships with system integrators
and service, distribution and marketing partners in order to provide services
and sales leverage to our software product-based business model. We have
established a series of partnerships and alliances with system integrators,
such as American Management Systems, Inc., Cambridge Technology Partners, Inc.
and Electronic Data Systems, and service, distribution and marketing partners,
such as BroadVision, Inc., Cisco Systems, Inc., Hewlett-Packard Company, Siebel
Systems, Inc. and Sun Microsystems, Inc. These partnerships and alliances
provide an extension of our direct sales force through our joint selling
efforts and enable us to reach a broader range of customers than would be
possible through our sales force alone. These relationships also enable us to
focus on being the provider of eBusiness integration platform software,
leveraging our unique capabilities and technologies while providing our
customers with a comprehensive solution and enabling us to scale our business
more quickly, effectively and inexpensively.
Continue Our Commitment to Customer Satisfaction
We understand that in order for us to be successful, our customers must be
successful. We are committed to customer satisfaction throughout our
organization, and we endeavor to provide our customers with the highest quality
products and services, directly and through our partners. We also intend to
continue leveraging our existing customers to serve as reference accounts for
prospective customers. In order to accomplish this, we invest substantial time
and effort in testing our products and working closely with our customers to
quickly address any issues that arise. Our in-house professional services
efforts are focused on providing both our customers and our partners with the
technical assistance and capabilities required to ensure smooth implementation
of our eBusiness integration solution. We carefully select partners who share
our commitment to high quality work and outstanding customer service.
Products and Services
We market the ActiveWorks Integration System and professional services that
support our customers' and partners' use of our products. In addition, our
Active Integration Methodology provides a framework for accelerating
integration projects implemented by our customers and our system integrator
partners.
ActiveWorks Integration System
The ActiveWorks Integration System consists of a number of products that
work together to provide our customers with a comprehensive integration
platform. These products include the ActiveWorks Designer for graphically
designing integration projects; the Information Broker, which provides the
underlying technology for integrating different sources of data in real time;
Dynamic Adapters, which provide connectivity to applications and systems;
Integration Agents, which provide a mechanism for extending integration
projects with specialized code or logic; Graphical Integration
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Tools, which provide for the configuration of the system; and Graphical
Management and Monitoring Tools, which make the integration platform easy to
deploy, manage and maintain.
[Graphical diagram of ActiveWorks Integration System]
. ActiveWorks Designer. The ActiveWorks Designer provides a visual point-
and-click environment for designing and testing an integration project.
The ActiveWorks Designer supports the industry standards for process
modeling and design. Once the design for integration is complete, the
ActiveWorks Designer automatically generates the underlying code and
configuration information. The ActiveWorks Designer also supports
automatic simulation of the integration, load testing, and project
reporting, thereby decreasing the likelihood of errors during an
integration project. The ActiveWorks Designer implements the Active
Integration Methodology and eliminates much of the custom programming
involved in integrating complex systems.
. ActiveWorks Information Broker. The Information Broker is the central
component of the ActiveWorks Integration System. The Information Broker
resides on a server and mediates requests to and from applications,
providing essential queuing, filtering, routing and storage of
information in a secure manner. The Information Broker ensures that
events are delivered once, and only once. ActiveWorks' scalable
architecture simplifies systems integration because all collaborating
applications communicate through the Information Broker, rather than in a
more complex point-to-point fashion.
. Information Broker Options. Our customers may choose the following
Information Broker options, which increase functionality and enhance the
ability of ActiveWorks to support mission-critical eBusiness integration
projects:
. The Multi-Broker Option enables an unlimited number of Information
Brokers to be configured to provide information sharing and automatic
information delivery across the extended enterprise. Multiple
Information Brokers collaborate to provide a single integrated system
that efficiently delivers information among applications.
. The High Availability Option ensures uninterrupted availability
without data loss through server outages.
. The Secure Socket Layer, or SSL, Option enables customers to send
encrypted data with digital signature authentication.
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. ActiveWorks Dynamic Adapters. Dynamic adapters connect individual
software applications to the ActiveWorks platform. Active Software and
its partners have developed a large number of dynamic adapters that work
with many enterprise applications and systems, including:
. front office and e-commerce applications, including those from
Clarify, Inc., Siebel Systems, Inc., The Vantive Corporation and
InterWorld Corporation;
. back office enterprise resource planning applications, including
those from PeopleSoft, Inc. and SAP;
. relational databases, including those from IBM (DB2), Informix
Corporation, Microsoft Corporation (SQL Server), Oracle Corporation
and Sybase, Inc.;
. mainframe and legacy data sources, such as IBM 3270, CICS and MQ
Series; and
. custom applications developed using ActiveX, C, C++, CORBA and the
Java language.
Our breadth of dynamic adapters enables easier and faster integration
of additional applications to an eBusiness integration solution or
project. The wide range of dynamic adapters available from Active
Software and its partners give ActiveWorks a scope of integration not
available from other integration solution providers. We believe that our
ActiveWorks dynamic adapters are also more configurable and adaptable
than approaches available from other vendors. ActiveWorks dynamic
adapters enable new functionality in the integrated application to become
immediately and automatically available to the rest of the system.
. ActiveWorks Adapter Development Kit. The ActiveWorks Adapter Development
Kit enables customers, partners and independent software vendors to
create their own custom dynamic adapters for the ActiveWorks platform,
which further extend the capabilities of the ActiveWorks Integration
System. Virtually any application can be integrated through the use of
custom adapters created with the Adapter Development Kit, thereby
ensuring that customers can successfully integrate their current
applications, as well as applications which may be developed or acquired
in the future.
. ActiveWorks Integration Agents. ActiveWorks Integration Agents provide
additional integration logic and data transformation to meet demanding
integration requirements. The Integration Logic Agent extends the
processing capabilities of the integrated system by providing a framework
for managing and executing custom code written in the Java language. The
Business Rule Agent monitors events and specifies the processing of these
events based on the application of business rules. The Data
Transformation Agent performs complex transformations to enable
incompatible data types to be exchanged across applications using complex
data formats such as Electronic Data Interchange, or EDI, and Extensible
Markup Language, or XML.
. ActiveWorks Graphical Integration Tools. ActiveWorks Graphical
Integration Tools enable the Information Broker and dynamic adapters to
be configured or reconfigured in real time, eliminating the need for
expensive custom programming.
. ActiveWorks Graphical Management and Monitoring Tools. ActiveWorks
Graphical Management and Monitoring Tools facilitate the rapid deployment
of eBusiness integration solutions using the ActiveWorks platform. These
tools have an easy-to-use graphical point-and-click interface that
provides users with insight regarding the activity of a deployed
ActiveWorks system.
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The Active Integration Methodology
Designed to rapidly deliver successful business results, the Active
Integration Methodology involves project planning, integration analysis and
design, best practices mentoring and quality assurance testing. The Active
Integration Methodology consists of standard business integration processes and
an integration framework, all of which help customers and partners complete
integration projects more quickly.
. Integration Processes are pre-built standard business integration
solutions that synchronize information and coordinate business processes
across multiple enterprise applications. Integration processes have been
developed for such common business requirements as customer
synchronization, customer support billing, account status, bill of
materials and order/inventory status. All of these pre-built integration
processes can be used as provided, or customized to fit the particular
business requirements.
. The Integration Framework consists of templates for creating custom
integration processes as quickly as possible. With Active Software's
expertise built-in, the Integration Framework enables customers to focus
on developing the content of their business processes, rather than the
underlying technology formats. The Integration Framework is typically
used when there is no pre-built integration process available or when it
is necessary to develop a customer-specific process for the integration
project.
Professional Services
Our professional services include training, consulting, support and
maintenance. Support and maintenance services are provided to our customers
through agreements under which we provide technical support by telephone, fax,
email and the Web during business hours and provide updates and upgrades to our
software products. In addition, customers can elect optional services such as
emergency coverage on a 24 hours per day, seven days per week basis and
dedicated technical account managers. We also provide customer training at our
Santa Clara, California facility and other locations, with coursework related
to various aspects of our eBusiness integration solution.
While we generally partner with system integrators to provide services such
as project implementation and management to our customers, our professional
services organization also directly supports our customers by providing
services related to eBusiness integration mentoring, integration process design
and custom adapter development.
Strategic Partners
System Integrators. We have a software product-based business model that
leverages system integrator partners who jointly or separately provide a range
of services to our customers, including first-line technical support and
project implementation services. Accordingly, we have established a series of
partnerships with system integrators worldwide. These partnerships allow us to
maintain our focus as a product company while simultaneously obtaining sales,
technical and service leverage through our partners to provide our customers
with a comprehensive eBusiness integration solution. The following is a
representative list of our system integrator partners:
<TABLE>
<S> <C>
. Alodar Systems, Inc. .Inventa Corporation
. American Management Systems, Inc. .Inffinix Software
. Cambridge Technology Partners, Inc. .KPMG
. Catapult Communications Corporation .ObTech, Inc.
. DMR Consulting Group .Primix Solutions, Inc.
. Electronic Data Systems Corporation .Siemens Business Services
. Fort Point Partners
</TABLE>
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Solution and Complementary Partners. An important part of our strategy is to
work with solution and complementary partners who have capabilities that can
complement and augment our eBusiness integration solution and extend our market
reach. Many of these partners package or incorporate our products with their
products or solutions, enabling us to create combined offerings that address
specific problems, reach specific vertical markets and provide more complete
and tailored offerings. The following is a representative list of our solution
and complementary partners:
<TABLE>
<S> <C>
. Aspect Telecommunications Corporation .Moss Software, Inc.
. Baan Company, N.V. .Newtonian Software, Inc.
. Blue Lobster Software .PeopleSoft, Inc.
. BroadVision, Inc. .Perot Systems Corporation
. Calico Commerce, Inc. .Pivotal Software Inc.
. Cisco Systems, Inc. .Siebel Systems, Inc.
. Clarify, Inc. .Sun Microsystems, Inc.
. Hewlett-Packard Company .Technology House
. InterWorld Corporation .The Vantive Corporation
. LongView Solutions
</TABLE>
Technology
Our ActiveWorks Integration System is based on an innovative architecture
that enables the integration of disparate enterprise applications, such as
custom and packaged applications, databases, e-commerce applications and legacy
systems. As a result, these applications can exchange information in real time,
enabling a business to operate faster and more efficiently and to use intranets
and the Internet to conduct electronic transactions internally and with
customers, suppliers and partners. This new way of implementing business
processes across applications minimizes the need for expensive custom
programming.
Overview of the ActiveWorks Integration System
In the ActiveWorks Integration System, integrated applications exchange
messages called events. An event can announce a business event, such as "order
shipped" or can request a service, such as "retrieve X's current bill." The
software components that connect an integrated application to the ActiveWorks
Integration System are called adapters. An adapter subscribes to events that
are related to its application and translates between the application's
programming interface, or API, and the event. When the adapter receives an
event, it invokes the API to make the application do what the event says needs
to be done. The adapter may also be invoked by its application, in which case
it publishes an event, typically a notice that announces to the rest of the
system that something has happened in the application--for example, a notice
that an order has been shipped. Adapters do not communicate directly with each
other. Instead they send events to, and receive events from, an Information
Broker, which is the hub of the ActiveWorks Integration System. In effect, the
Information Broker serves as an operating system for events and handles event
queuing, delivery, filtering and security checking.
Individual customers select the various ActiveWorks components appropriate
to their needs and use them to integrate their existing applications to fulfill
their business requirements. Regardless of the individual variations of unique
installations, all ActiveWorks systems include the necessary attributes for a
robust eBusiness integration platform: scalability, security, adaptability and
extensibility.
Scalability
The ActiveWorks Integration System can be distributed and scaled by simply
adding multiple Information Brokers between the integrated applications. An
initial hub-and-spoke configuration
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deployed for internal use can be incrementally expanded to a multi-hub
configuration. The addition of Information Brokers enables the ActiveWorks
Integration System to support more simultaneous connections to applications and
provide faster response to each connection, while reducing traffic that flows
across the network backbone. In addition, expanding a single-broker system to a
multi-broker system requires no changes to the applications and their adapters,
and administrators can manage a multi-broker system in the same manner as a
single-broker system. Instead of requiring administrators to replicate
configuration changes across multiple brokers, the brokers propagate the
changes themselves.
Security
The ActiveWorks Integration System incorporates a wide range of security
features that address critical eBusiness security issues arising from global
operations, business transactions conducted over the Internet and the
integration of applications at partner or vendor sites. These security features
include:
. Territories and territory gateways. Multiple brokers can be employed to
scale and distribute integration both within an eBusiness and among
eBusinesses. Using multi-broker features called territories and territory
gateways, select communications can securely take place with applications
running at partner or vendor sites.
. Encryption. The ActiveWorks Integration System uses the same state-of-
the-art encryption standard (SSL) and encryption technology (public key)
that are widely used to protect e-commerce.
. Digital signatures. A digital signature is an encrypted message digest
that can detect events that have been tampered with or otherwise
corrupted during transmission. A receiver can tell if an event has
arrived intact by computing its own message digest and comparing it with
the digest transmitted with the event.
. Digital certificates. Analogous to a passport, a digital certificate is a
digital document that cannot be forged. The digital certificate attests
that the public key in the certificate really belongs to the subject
named in the certificate. Digital certificates can be used to detect and
authenticate adapters or users.
. Authorization. The ActiveWorks Integration System limits a user's or an
application's ability to perform only those functions for which it has
been specifically authorized. The authorization capability controls
access to and distribution of critical business information.
Adaptability
We produce many dynamic adapters that enable interfacing with a wide range
of packaged applications (including those from SAP, PeopleSoft and Clarify);
databases (including those from Oracle, Sybase and Informix); custom
applications developed using ActiveX, C, C++, CORBA and the Java language; and
mainframe and legacy data sources (including CICS and MQ Series). In addition,
ActiveWorks offers an Adapter Development Kit that enables third parties to
develop additional dynamic adapters.
ActiveWorks dynamic adapters are designed to be reusable in a wide variety
of circumstances. They are able to receive instructions and configuration
information that will change their behavior while they are running. This
flexibility allows a single dynamic adapter to support a wide variety of
business processes and to adjust its behavior dynamically without code changes.
The ability to make these types of adjustments at the deployment site without
changing or writing code has been crucial to the achievement of robust systems
in a short time period.
Extensibility
The ActiveWorks Integration System employs software components called agents
to extend its processing functionality. Agents subscribe to a set of event
types and publish or deliver another set
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of transformed events. Customers can develop custom agents using language
adapters we offer for applications written using C/C++, CORBA/IDL, the Java
language or ActiveX. Examples of processing that might be performed by agents
include error processing, integration logic such as insert or update
processing, complex data transformations or workflow processing.
The agent architecture enables a more flexible and scalable approach to
providing processing extensions, rather than direct inclusion of logic within
the Information Broker. By separating the processing, agents can be run either
locally on the same system as the Information Broker, or on one or more remote
systems for more configuration flexibility. One or more agents of a given type
can be connected to an Information Broker shared queue, with the Information
Broker providing automatic load balancing and workload partitioning.
Customers
As of May 31, 1999, Active Software has licensed its ActiveWorks
Integration System to over 100 companies. Our typical customers are medium to
large businesses, particularly Global 2000 companies. In the quarter ended
March 31, 1999, repeat customers accounted for approximately 71% of total
revenues. In 1997, The Boeing Company accounted for 33% of our total revenues.
In 1998, no customer accounted for more than 10% of our total revenues. For
the quarter ended March 31, 1999, three customers accounted for 26%, 15% and
11% of our total revenues. We expect that a small number of customers will
continue to account for a substantial portion of our revenues for the
foreseeable future.
The following is a representative list of our customers by industry:
Financial Services Technology Manufacturing and
Automatic Data Calico Technology, Other
Processing, Inc. Inc. The Boeing Company
American Management Cisco Systems, Inc. C.H. Robinson Company
Systems, Inc. Comdisco, Inc. Falconbridge
Citibank Creo Products Inc. Federal Express
Daiwa Securities GoTo.com Corporation
America InterWorld Herman Miller, Inc.
Fidelity Investments Corporation J. Crew
IntraWare, Inc. Marshall Industries
Government and Utilities Intuit, Inc. Starbucks Corporation
AEP Energy Services Juniper Networks,
City of Toronto Inc. Telecommunications
CTX Corporation Motorola, Inc. Level 3
Houston Associates Order Trust Communications, Inc.
Idaho Power Company Technology House MediaOne Group, Inc.
Lockheed Martin VeriFone, Inc. RCN Corporation
Missiles and Space Xtra Online Telecel
Company
Union Energy Inc.
U.S. Dept. of Defense
U.S. Dept. of
Transportation
Case Studies
The following examples illustrate how some of Active Software's customers
are using ActiveWorks to rapidly and successfully implement eBusiness
integration solutions to accelerate time to market, improve customer and
supply chain interaction and reduce operational costs.
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Daiwa Securities America
Daiwa Securities America, Inc. is a wholly-owned subsidiary of Daiwa
Securities Co. Ltd., the second largest securities firm in Japan with
approximately $10 billion in equity capital. Daiwa Securities America is a
leading broker-dealer and primary dealer in U.S. Treasury securities.
. Challenge: In order to create a real-time information management system
that shows decision-makers their risk-adjusted return on capital, Daiwa
Securities needed to integrate the multiple front-office applications
that it uses to submit trades with the half-dozen back-office
applications that process them. Historically, this had been accomplished
by forcing front-office applications to feed information into the
processing system via proprietary methods, and then waiting for
confirmation via batch mode the next day. Daiwa Securities wanted to
replace this slow and manual process with a real-time connection between
front- and back-office applications to streamline the entire trading and
settlement process.
. Result: Using ActiveWorks, Daiwa Securities has established a "middle
office" that enables the seamless flow of information between
incompatible front-office securities trading applications and back-office
trade processing applications. The front-office applications now format
information on trades in a simple template and publish it through
ActiveWorks. The trade uploader software receives the information and
translates it to fit into the correct format used by the back-office
applications. Daiwa Securities estimates that it was able to deploy the
ActiveWorks solution 75% faster than if they had developed a custom
integration solution.
Herman Miller
Headquartered in Zeeland, Michigan, Herman Miller is a leading multinational
provider of office furniture, furniture systems and furniture management
services. The company reported sales of $1.7 billion in fiscal 1998 and is
included in the NASDAQ 100.
. Challenge: Faced with increasing competitive challenges, Herman Miller
needed to increase the speed and reliability of its customer order
fulfillment and delivery process. Herman Miller had the applications it
needed to manage the order-to-delivery process, including online order
entry, manufacturing, supply chain and inventory management software.
However, these applications were not integrated. While some of these
applications communicated through batch file transfers, this
communication was inefficient and not in real time. Herman Miller wanted
to redesign its customer order fulfillment and delivery processes using
an integration system to rapidly and flexibly link these applications in
real time.
. Result: Using ActiveWorks, Herman Miller is integrating its
manufacturing, supply chain and inventory management applications to
deliver an integrated eBusiness solution consistent with the challenge.
The goal is the seamless flow of information and automation of business
processes spanning the order-to-delivery process, including sales
quotations, sales order processing, product configuration and product
shipping.
Sales and Marketing
We sell our products through our direct sales organization in North America
and Europe, as well as through system integrators and value added resellers in
countries where we have no direct sales operations. As of May 31, 1999, we had
48 people in our sales and marketing organization, of which 42 were in the
United States and six were in Europe. We intend to increase the size of our
direct sales force and to establish additional sales offices domestically and
internationally. Currently, we believe we will need to expand our sales
organization by more than 100% of its present size over the next 18 months.
Our system integrator partners and service, distribution and marketing
partners have capabilities that complement and augment our eBusiness
integration solution and extend our market reach. In
45
<PAGE>
particular, our system integrator partners often contribute industry-specific
and application-specific expertise as well as large scale project management
capabilities that enable us to address a broad range of vertical markets. Many
of our service, distribution and marketing partners package or incorporate our
products with their products or solutions, enabling us to create combined
offerings with these partners that address specific problems, market to
specific vertical markets and provide more complete and tailored offerings.
Our marketing efforts are focused on developing greater awareness among
target customers for the ActiveWorks Integration System and the benefits it
provides. We market our products and services through targeted events including
tradeshows, conferences and seminars. We also regularly promote our products
through a variety of public relations activities and industry analyst
briefings, and our executives are frequent speakers at industry conferences and
forums in many of the markets we serve. We have developed a wide range of
collateral materials and sales tools that are used by our direct sales
organization, as well as by our system integrators and value added reseller
partners. These materials include brochures, data sheets, technical and
business white papers, case studies, press releases and our web site.
Research and Development
We believe that strong product development capabilities are essential to our
strategy of continuing to enhance and expand the capabilities of our products
in order to continue to provide our customers with a comprehensive eBusiness
integration platform. We have invested significant time and resources in
creating a structured process for undertaking all product development. This
process involves several functional groups at all levels within our
organization and is designed to provide a framework for defining and addressing
the activities required to bring product concepts and development projects to
market successfully. In addition, we have recruited key engineers and software
developers with experience in the application integration, networking and
internet software markets.
Our research and development expenses were $2.8 million in 1997, $4.0
million in 1998 and $1.1 million for the quarter ended March 31, 1999. As of
May 31, 1999, approximately 38 employees were engaged in research and
development activities.
Competition
The eBusiness integration market is extremely competitive and subject to
rapid change. We believe that the competitive factors affecting the market for
our products and services include product functionality and features;
availability of global support; incumbency of vendors; ease of product
implementation; quality of customer support services; and vendor and product
reputation. The relative importance of each of these factors depends upon the
specific customer environment. Although we believe that our products and
services currently compete favorably with respect to these factors, we may not
be able to maintain our competitive position against current and potential
competitors.
We compete with various providers of application integration solutions,
including CrossWorlds, New Era of Networks, Software Technologies Corporation
and Vitria. In addition, a number of other companies are offering products and
services that address specific aspects of application integration, including
IBM, BEA Systems, Inc. and TIBCO Software Inc. We also face competition for
some aspects of our product and service offerings from major system
integrators, both independently and in conjunction with in-house corporate IT
departments, which have traditionally been the prevalent resource for
application integration. We expect additional competition from other
established and emerging companies. Furthermore, our competitors may combine
with each other, or other companies may enter our markets by acquiring or
entering into strategic relationships with our competitors. See "Risk Factors--
Competition in the eBusiness integration market is intense, and if
46
<PAGE>
we are unable to compete effectively, the demand for, or the prices of, our
products may be reduced."
Proprietary Rights
We rely primarily on a combination of copyrights, trademarks, trade secret
laws and contractual obligations with employees and third parties to protect
our proprietary rights. We do not currently own any issued patents, and other
protection of our intellectual property is limited. Despite our efforts to
protect our proprietary rights, unauthorized parties may copy aspects of our
products and obtain and use information that we regard as proprietary. In
addition, other parties may breach confidentiality agreements or other
protective contracts we have entered into, and we may not be able to enforce
our rights in the event of these breaches. Furthermore, we expect that we will
increase our international operations in the future, and the laws of many
foreign countries do not protect our intellectual property rights to the same
extent as the laws of the United States.
The software industry is characterized by the existence of a large number of
patents and frequent litigation based on allegations of patent infringement and
the violation of other intellectual property rights. Although we attempt to
avoid infringing known proprietary rights of third parties in our product
development efforts, we expect that we may be subject to legal proceedings and
claims for alleged infringement by us or our licensees of third party
proprietary rights, such as patents, trademarks or copyrights, by us or our
licensees from time to time in the ordinary course of business. Any claims
relating to the infringement of third party proprietary rights, even if not
meritorious, could result in costly litigation, divert management's attention
and resources, or require us to enter into royalty or license agreements which
are not advantageous to us. In addition, parties making these claims may be
able to obtain an injunction, which could prevent us from selling our products
in the United States or abroad. Any of these results could harm our business.
We may increasingly be subject to infringement claims as the number of products
and competitors in our industry grow and functionalities of products overlap.
Furthermore, former employers of our current and future employees may assert
that our employees have improperly disclosed confidential or proprietary
information to us.
Employees
As of May 31, 1999, we had a total of 110 employees, of which 38 were in
research and development, 48 were in sales and marketing, 16 were in
professional services, and eight were in finance and administration. Our future
performance depends in significant part upon our ability to attract new
personnel and the continued service of existing personnel in key areas
including engineering, technical support and sales. Competition for these
personnel is intense and there can be no assurance that we will be successful
in attracting or retaining these personnel in the future. None of our employees
are subject to a collective bargaining agreement. We consider our relations
with our employees to be good.
Facilities
We lease approximately 24,000 square feet for our headquarters facility in
Santa Clara, California. The current lease for the Santa Clara facility expires
in December 2003 and does not provide for a right of extension or renewal. We
also lease space at various other locations in the United States and in other
countries. Each of these other offices is generally leased on a month-to-month
basis or under a lease with a remaining term of 12 months or less.
Legal Proceedings
We are not currently subject to any material legal proceedings; however, we
may from time to time become a party to various legal proceedings arising in
the ordinary course of our business.
47
<PAGE>
MANAGEMENT
Executive Officers and Directors
Our executive officers and directors and their ages as of May 31, 1999 are
as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
R. James Green.................. 49 Chief Executive Officer, President and
Chairman of the Board of Directors
Rafael Bracho................... 43 Chief Technology Officer, Executive Vice
President and Director
Jon A. Bode..................... 42 Chief Financial Officer and Vice President,
Finance and Administration
Edwin C. Winder................. 50 Senior Vice President, Worldwide Sales
Sydney Springer................. 52 Vice President, Engineering
John M. Dempsey................. 47 Vice President, Professional Services
M. Zack Urlocker................ 36 Vice President, Marketing
Kevin R. Compton................ 40 Director
James P. Gauer.................. 47 Director
Michael J. Odrich............... 35 Director
Todd Rulon-Miller............... 48 Director
Roger S. Siboni................. 44 Director
</TABLE>
R. James Green co-founded Active Software in September 1995, and has served
as President and Chief Executive Officer since October 1997 and as a Director
since November 1995. Mr. Green has also served as Chairman since April 1996 and
served as President from November 1995 to April 1996. Prior to founding Active
Software, Mr. Green established and managed the distributed objects program at
Sun Microsystems, Inc., a provider of network computing products, where he was
Director of Engineering from 1988 to 1995. Mr. Green holds a B.A. degree from
Hanover College, an M.S. degree from North Carolina State University and an
M.S. degree in Computer Science from San Jose State University.
Rafael Bracho co-founded Active Software and has served as Chief Technology
Officer and Executive Vice President since November 1995. Dr. Bracho also has
served as a Director from November 1995 to April 1996 and from March 1997 to
present. Prior to founding Active Software, Dr. Bracho held various positions
at Sun Microsystems, Inc., where he was Senior Staff Engineer from January 1993
to September 1995 and Manager, NeWS Technology Department from April 1990 to
January 1993. Dr. Bracho holds a B.S. degree in Biomedical Engineering from
Universidad Iberoamericana (Mexico), an M.S. degree in Electrical Engineering
from the University of Washington and a Ph.D. degree in Electrical and Computer
Engineering from Carnegie Mellon University.
Jon A. Bode has served as Chief Financial Officer and Vice President,
Finance and Administration since joining Active Software in August 1997. Prior
to joining Active Software, from February 1997 to August 1997, Mr. Bode was
Acting Chief Financial Officer of NVIDIA Corporation, a provider of video
graphics processors, and of PharmaSonics, Inc., a medical device company. From
February 1996 to January 1997, Mr. Bode was Chief Financial Officer at Internet
Profiles Corporation, a provider of Internet traffic analysis and research
services. From October 1992 to November 1995, Mr. Bode held various financial
management positions, including Vice President, Finance and Administration, at
ArcSys Inc., a developer of automation software for physical layout of
semiconductors. Mr. Bode holds a B.A. degree from Calvin College and an M.B.A.
degree from the University of Michigan.
48
<PAGE>
Edwin C. Winder has served as Senior Vice President, Worldwide Sales since
joining Active Software in August 1997. Prior to joining Active Software, Mr.
Winder held a variety of sales management positions at Informix Corporation, a
database software company, where he was Senior Vice President, Japan Operations
from January 1996 to March 1997, Senior Vice President, Intercontinental from
April 1994 to December 1995, and Senior Vice President, Americas from January
1991 to March 1994. Mr. Winder holds a B.S. degree in Electrical Engineering
from Southern University and is a graduate of the Stanford University Executive
Program.
Sydney Springer has been Vice President, Engineering of Active Software
since October 1997, and served as Active Software's Director of Engineering
from February 1997 through October 1997. Prior to joining Active Software, Ms.
Springer held a variety of senior engineering and management positions at Sun
Microsystems, Inc. from February 1986 to January 1997, including Senior Staff
Engineer, Manager, NEO Technology Services, Project Lead--Integrated Multimedia
Group, and Manager, NeWS Technology Department. Ms. Springer holds a B.S.
degree in Applied Behavioral Sciences from the University of California at
Davis.
John M. Dempsey has served as Vice President, Professional Services since
joining Active Software in July 1998. Prior to joining Active Software, Mr.
Dempsey held a variety of executive management positions at Computer Sciences
Corporation, a system integrator, including Vice President, Communications
Industry Services from September 1996 to June 1998, and Vice President,
Consulting and Systems Integration from January 1990 to September 1996. Mr.
Dempsey holds a B.S. degree in Computer Science from the University of
Massachusetts and an M.S. degree in Engineering Management from Northeastern
University.
M. Zack Urlocker has served as Vice President, Marketing since joining
Active Software in February 1999. Prior to joining Active Software, Mr.
Urlocker held a variety of management positions with Inprise Corporation
(formerly Borland International), a software company, from August 1990 to
January 1999, including Vice President, Marketing from December 1997 to
February 1999 and Vice President, Product Management from February 1997 to
November 1997. Mr. Urlocker attended the J. L. Kellogg Graduate School of
Management at Northwestern University and holds a B.S. degree in Computer
Science from Concordia University (Montreal, Canada) and an M.Math degree in
Computer Science from University of Waterloo (Canada).
Kevin R. Compton has served as a director of Active Software since January
1996. Since 1990, Mr. Compton has served as a general partner of Kleiner
Perkins Caufield & Byers, a venture capital investment firm. Mr. Compton serves
on the Board of Directors of Citrix Systems, Inc., OneWorld Communications,
Inc., Corsair Communications, Inc., Rhythms NetConnections Inc. and VeriSign,
Inc. and is also a director of several privately-held companies.
James P. Gauer has been a director of Active Software since January 1996.
Since April 1999, he has served as a general partner of Palomar Ventures, a
venture capital investment firm, and from December 1992 to April 1999, he was a
general partner of Enterprise Partners.
Michael J. Odrich has been a director of Active Software since March 1997.
Since 1988, Mr. Odrich has held several positions at Lehman Brothers Inc., an
investment banking firm, and is currently Managing Director and head of Venture
Capital Investing at Lehman Brothers. Mr. Odrich is also a director of several
privately-held companies.
Todd Rulon-Miller has been a director of Active Software since October 1997.
Since 1998, Mr. Rulon-Miller has served as a partner of Apogee Venture Group, a
venture capital investment firm. Mr. Rulon-Miller was Vice President, Worldwide
Sales at Netscape Communications Corporation from 1994 to 1997, President and
Chief Executive Officer at Software Alliance from 1992 to 1994, and Vice
President, Sales--North American Operations at NeXT Computers from 1986 to
1992. Mr. Rulon-Miller is also a director of several privately-held companies.
49
<PAGE>
Roger S. Siboni has been a director of Active Software since August 1998.
Mr. Siboni has been President and Chief Executive Officer of E.piphany, a
relationship management software company, since August 1998. Prior to joining
E.piphany, Mr. Siboni spent more than twenty years at KPMG Peat Marwick LLP, a
worldwide accounting and consulting organization, most recently as its Deputy
Chairman and Chief Operating Officer. Mr. Siboni serves as a director of
Cadence Design Systems, Inc., FileNET Corporation, Macromedia, Inc. and the
Walter A. Haas School of Business at the University of California at Berkeley.
Board Composition
Our bylaws currently provide for a board of directors consisting of seven
members. All directors hold office until the next annual meeting of our
stockholders and until their successors have been elected and qualified.
Messrs. Compton, Gauer and Odrich were elected to the board of directors
pursuant to a voting agreement by and among Active Software and its principal
stockholders. This voting agreement will terminate upon completion of this
offering.
In accordance with the terms of our amended and restated certificate of
incorporation to be effective upon completion of this offering, the board of
directors will be divided into three classes, each serving staggered three-year
terms, following the completion of this offering: Class I, whose initial term
will expire at the annual meeting (or special meeting held in lieu of an annual
meeting) of stockholders held in 2000; Class II, whose initial term will expire
at the annual meeting (or special meeting held in lieu of an annual meeting) of
stockholders in 2001; and Class III, whose initial term will expire at the
annual meeting (or special meeting held in lieu of an annual meeting) of
stockholders in 2002. As a result, only one class of directors will be elected
at each annual meeting of stockholders of Active Software, with the other
classes continuing for the remainder of their respective terms. Messrs. Bracho,
Green and Odrich have been designated as Class I directors; Messrs. Compton and
Gauer have been designated as Class II directors; and Messrs. Siboni and Rulon-
Miller have been designated as Class III directors. These provisions in our
amended and restated certificate of incorporation may have the effect of
delaying or preventing changes in control or management of Active Software.
Board Compensation
Except for reimbursement for reasonable travel expenses relating to
attendance at board meetings and the grant of stock options, directors are not
compensated for their services as directors. Directors who are employees of
Active Software are eligible to participate in our 1996 Stock Plan, 1996A Stock
Plan and 1999 Stock Plan and will be eligible to participate in our 1999
Employee Stock Purchase Plan. Directors who are not employees of Active
Software will be eligible to participate in our 1999 Directors' Stock Option
Plan. See "Stock Plans."
In October 1997, we granted a nonstatutory stock option to Mr. Rulon-Miller
to purchase 60,000 shares of our common stock at an exercise price of $0.18 per
share. Additionally, in May 1999, we granted another nonstatutory stock option
to Mr. Rulon-Miller to purchase an additional 7,500 shares of our common stock
at an exercise price of $10.67 per share. In August 1998, we granted a
nonstatutory stock option to Mr. Siboni to purchase 60,000 shares of our common
stock at an exercise price of $0.77 per share. Each of these options vests over
a fifty-month period.
In June 1999, we granted nonstatutory stock options to each of Messrs.
Compton, Gauer and Odrich for the purchase of 5,000 shares of common stock at
an exercise price of $11.00 per share. Each of these options is exercisable for
the full number of shares under the option.
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<PAGE>
Board Committees
The compensation committee currently consists of Messrs. Odrich and Gauer.
The compensation committee:
. reviews and approves the compensation and benefits for our executive
officers and grants stock options under our stock option plans; and
. makes recommendations to the board of directors regarding these matters.
The audit committee consists of Messrs. Siboni and Compton. The audit
committee:
. makes recommendations to the board of directors regarding the selection
of independent auditors;
. reviews the results and scope of the audit and other services provided by
our independent auditors; and
. reviews and evaluates our audit and control functions.
Compensation Committee Interlocks and Insider Participation
The members of the compensation committee of Active Software's board of
directors are currently Messrs. Odrich and Gauer, neither of whom has been an
officer or employee of Active Software at any time. Investment entities
affiliated with Messrs. Odrich and Gauer have purchased shares of our
convertible redeemable preferred stock in private placement transactions. These
transactions are described in "Certain Transactions."
No executive officer of Active Software serves as a member of the board of
directors or compensation committee of any entity that has one or more
executive officers serving on Active Software's board of directors or
compensation committee.
Executive Compensation
Summary Compensation Information
The following table sets forth compensation awarded to, earned by, or paid
to our Chief Executive Officer and the four other most highly compensated
executive officers whose total cash compensation exceeded $100,000 during the
year ended December 31, 1998. These individuals are referred to in this
prospectus as the "Named Executive Officers."
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term and Other
Compensation
------------------------
Annual
Compensation
------------------ Securities All Other
Salary Underlying Compensation
Name and Principal Position ($) Bonus ($) Options (#) ($)(1)
--------------------------- -------- --------- ----------- ------------
<S> <C> <C> <C> <C>
R. James Green................... $172,230 $61,967 150,000 $ 874
President and Chief Executive
Officer
Rafael Bracho.................... 151,923 65,376 90,000 441
Executive Vice President and
Chief Technology Officer
Edwin C. Winder.................. 176,538 77,871 -- 893
Senior Vice President, Worldwide
Sales
Jon A. Bode...................... 110,322 20,868 45,000 301
Vice President, Finance and
Administration and
Chief Financial Officer
Sydney Springer.................. 152,387 3,868 -- 1,263
Vice President, Engineering
</TABLE>
- --------
(1) Consists of life insurance premiums paid by Active Software.
51
<PAGE>
Option Grants
The following table shows information regarding stock options granted to the
executive officers named in the Summary Compensation Table during the year
ended December 31, 1998. No stock appreciation rights were granted to these
individuals during the year.
Option Grants in 1998
<TABLE>
<CAPTION>
Potential
Realizable Value
at Assumed Annual
Rates Of Stock
Number of Percentage Price
Shares of Total Exercise Appreciation for
Underlying Options Price Option Term(4)
Options Granted to per Expiration -----------------
Name Granted (#) Employees(2) Share(3) Date 5% 10%
---- ----------- ------------ -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
R. James Green(1)....... 150,000 7.6% $1.33 12/17/2008 $125,779 $318,748
Rafael Bracho(1)........ 90,000 4.6 1.33 12/17/2008 75,467 191,249
Edwin C. Winder......... -- -- -- -- -- --
Jon A. Bode(1).......... 45,000 2.3 1.33 12/17/2008 37,734 95,625
Sydney Springer......... -- -- -- -- -- --
</TABLE>
- --------
(1) These stock options were granted under the 1996A Stock Plan and are
exercisable for all option shares; however, any shares purchased upon
exercise of such options are subject to repurchase by Active Software at
the original exercise price per share upon the termination of the
optionee's employment with Active Software. This right of repurchase lapses
over time, with the shares issuable upon exercise of each of these options
vesting as to 24% of the shares on the first anniversary of the vesting
commencement date specified in the respective option agreement and 2% of
the shares each month thereafter. See "--Stock Plans."
(2) Based on an aggregate of 1,969,500 shares subject to options granted by
Active Software during the year ended December 31, 1998 to employees and
consultants of Active Software, including the executive officers named in
the Summary Compensation Table.
(3) The exercise price per share of each option was equal to the fair market
value of the common stock as determined by the board of directors on the
date of grant.
(4) Potential realizable value assumes that the price of the applicable stock
increases from the date of grant until the end of the option term (ten
years) at the annual rates specified. The 5% and 10% assumed annual rates
of compounded stock price appreciation are mandated by rules of the
Securities and Exchange Commission. There is no assurance provided to any
executive officer or any other holder of our securities that the actual
stock price appreciation over the 10-year option term will be at the
assumed 5% and 10% levels or at any other defined level. Unless the market
price of the common stock appreciates over the option term, no value will
be realized from the option grants made to the executive officers named in
the Summary Compensation Table.
The following table provides summary information concerning the shares of
common stock represented by outstanding stock options held by each of the
executive officers named in the Summary Compensation Table as of December 31,
1998.
52
<PAGE>
Aggregated Option Exercises in 1998 and Fiscal Year-End Option Values
<TABLE>
<CAPTION>
Number of Value of Unexercised
Securities Underlying In-the-Money Options
Unexercised Options at December 31, 1998
Shares at December 31, 1998 (#) ($)(2)
Acquired Value -------------------------- -------------------------
Name on Exercise Realized(1) Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
R. James Green.......... -- -- 150,000(3) -- $ 0 --
Rafael Bracho........... -- -- 90,000(3) -- 0 --
Edwin C. Winder......... 349,500 $ 0 -- -- -- --
Jon A. Bode............. 172,500 0 45,000(3) -- 0 --
Sydney Springer......... 142,500 9,350 -- -- -- --
</TABLE>
- --------
(1) Represents the difference between the fair market value of the shares on
the date of exercise, as determined by the board of directors on such date,
and the exercise price of the option.
(2) Based on the fair market value as of December 31, 1998, as determined by
the board of directors on such date, minus the exercise price, multiplied
by the number of shares underlying the option.
(3) These stock options were granted under the 1996A Stock Plan and are
exercisable for all option shares; however, any shares purchased upon
exercise of such options are subject to repurchase by Active Software at
the original exercise price per share upon the termination of the
optionee's employment with Active Software. The shares issuable upon
exercise of each of these options vest as to 24% of the shares on the first
anniversary of the vesting commencement date and 2% of the shares each
month thereafter. See "--Stock Plans."
In March 1999, we granted to Sydney Springer and Edwin Winder options to
purchase 15,000 shares and 30,000 shares, respectively, of common stock, in
each case at an exercise price of $4.00 per share. Each of these options vests
over a fifty-month period.
Stock Plans
1999 Stock Plan
Our 1999 Stock Plan was adopted by the board of directors in June 1999 and
will be submitted for approval by our stockholders prior to the completion of
this offering. A total of 3,000,000 shares of common stock has been reserved
for issuance under the 1999 Stock Plan, all of which remain available for
future option grants. In addition, the number of shares reserved under the plan
will automatically be increased each year, beginning on July 1, 2000 in an
amount equal to the lesser of (a) 1,500,000 shares, (b) four percent of the
shares outstanding on the last day of the preceding fiscal year or (c) a lesser
number of shares as is determined by the board of directors. The purposes of
the 1999 Stock Plan are to attract and retain the best available personnel to
Active Software, to provide additional incentives to our employees and
consultants and to promote the success of our business.
The 1999 Stock Plan provides for the grant of incentive stock options to
employees, including officers and directors, and nonstatutory stock options and
stock purchase rights to employees and consultants, including nonemployee
directors. If not terminated earlier, the 1999 Stock Plan will terminate in
June 2009.
The 1999 Stock Plan may be administered by the board of directors or a
committee of the board. The administrator determines the terms of options and
stock purchase rights granted under the 1999 Stock Plan, including the number
of shares subject to the award, exercise or purchase price, term and
exercisability. In no event, however, may an individual employee receive option
grants or stock purchase rights for more than 1,000,000 shares under the 1999
Stock Plan in any fiscal year.
53
<PAGE>
The exercise price of all incentive stock options granted under the 1999
Stock Plan must be at least equal to the fair market value of the common stock
on the date of grant. The exercise price of any incentive stock option granted
to an optionee who owns stock representing more than 10% of the total combined
voting power of all classes of outstanding capital stock of Active Software or
any parent or subsidiary corporation of Active Software must equal at least
110% of the fair market value of the common stock on the date of grant.
However, the exercise price of a nonstatutory stock option granted to an
individual who, on the last day of our most recently completed fiscal year, is
our chief executive officer, or is acting in such capacity, or is one of our
four most highly compensated officers, other than our chief executive officer,
whose total cash compensation exceeded $100,000 during the fiscal year, will
generally equal at least 100% of the fair market value of the common stock on
the date of grant. The exercise prices of nonstatutory stock options granted to
other persons will be specified by the administrator at the time of grant.
Payment of the exercise price may be made in cash or other consideration as
determined by the administrator.
The administrator determines the term of options, which may not exceed 10
years or 5 years in the case of an incentive stock option granted to a 10%
stockholder. Generally, no option may be transferred by the optionee other than
by will or the laws of descent or distribution. However, the administrator may
in its discretion permit transferability of nonstatutory stock options granted
under the 1999 Stock Plan. The administrator determines when options become
exercisable. Options granted under the 1999 Stock Plan generally become
exercisable at the rate of 24% of the total number of shares subject to the
options on the first anniversary of the vesting commencement date, and 2% of
the total number of shares subject to the options each month thereafter.
In addition to stock options, the administrator may issue to employees,
directors and consultants stock purchase rights under the 1999 Stock Plan. The
administrator determines the number of shares, price, terms, conditions and
restrictions related to a grant of stock purchase rights. Unless the
administrator determines otherwise, the recipient of a stock purchase right
must execute a restricted stock purchase agreement granting Active Software an
option to repurchase the shares at cost upon termination of the recipient's
relationship with us. This repurchase right generally lapses on the same
schedule as options vest.
If we sell all or substantially all of our assets, merge with another
corporation or engage in specified reorganizations, the 1999 Stock Plan
provides for automatic acceleration of vesting with respect to 50% of the
remaining unvested shares under each stock option, effective as of the closing
or completion of the change of control transaction, provided that this partial
vesting acceleration does not preclude "pooling of interests" accounting
treatment for the change of control transaction. In addition, if we sell all or
substantially all of our assets or merge with another corporation, then each
option and stock purchase right may be assumed or an equivalent option or stock
purchase right substituted by the successor corporation. However, if the
successor corporation does not agree to assume or substitute an option or stock
purchase right, then the option will automatically be terminated. The
administrator has the authority to amend or terminate the 1999 Stock Plan as
long as the amendment or termination does not adversely affect any outstanding
option or stock purchase right and provided that stockholder approval shall be
obtained to the extent it is required by applicable law.
1996 and 1996A Stock Plans
Our 1996 Stock Plan was adopted by the board of directors and approved by
our stockholders in January 1996. Our 1996A Stock Plan was adopted by the board
of directors in August 1996 and approved by our stockholders in March 1997. An
aggregate of 6,846,000 shares of common stock has been reserved for issuance
under the 1996 and 1996A Stock Plans, 589,510 of which remained available for
future option grants as of March 31, 1999. The 1996 and 1996A Stock Plans
provide that any shares repurchased or returned to the 1996 Stock Plan will be
automatically transferred to the 1996A Stock Plan and will be available for
future issuance under the 1996A Stock Plan.
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The purposes of the 1996 and 1996A Stock Plans are to attract and retain the
best available personnel to Active Software, to provide additional incentives
to our employees and consultants and to promote the success of our business.
The 1996 and 1996A Stock Plans provide for the grant of incentive stock options
to employees, including officers and directors, and nonstatutory stock options
and stock purchase rights to employees and consultants, including nonemployee
directors. If not terminated earlier, the 1996 Stock Plan will terminate in
January 2006 and the 1996A Stock Plan will terminate in August 2006.
The terms of options and stock purchase rights issued under the 1996 and
1996A Stock Plans are generally the same as those which may be issued under the
1999 Stock Plan, except with respect to the following features. Nonstatutory
stock options and stock purchase rights granted under the 1996 and 1996A Stock
Plans are nontransferable in all cases and must generally be granted with an
exercise or purchase price equal to at least 85% of the fair market value of
the common stock on the date of grant. In addition, prior to the date of this
offering, optionees have generally been permitted by the board of directors to
enter into amendments to their option agreements that allow for the immediate
exercise of all the shares subject to the options, including shares which are
not yet vested at the time of exercise. Such option agreement amendments give
Active Software the right to repurchase such unvested shares at the optionee's
exercise price in the event of termination of the optionee's employment or
consulting relationship with us. Our repurchase right lapses over the same
period as the vesting schedule that applied to the option prior to its
exercise.
No individual employee may receive options or stock purchase rights with
respect to more than 1,000,000 shares of common stock under the 1996 and 1996A
Stock Plans during any fiscal year.
1999 Directors' Stock Option Plan
The 1999 Directors' Stock Option Plan was adopted by the board of directors
in June 1999 and will be submitted for approval by our stockholders before
completion of this offering. A total of 300,000 shares of common stock has been
reserved for issuance under the 1999 Directors' Stock Option Plan, all of which
remain available for future grants.
The 1999 Directors' Stock Option Plan provides for the grant of nonstatutory
stock options to nonemployee directors of Active Software. The 1999 Directors'
Stock Option Plan is designed to work automatically without administration;
however, to the extent administration is necessary, it will be performed by the
board of directors. To the extent they arise, it is expected that conflicts of
interest will be addressed by abstention of any interested director from both
deliberations and voting regarding matters in which the director has a personal
interest.
The 1999 Directors' Stock Option Plan provides that each person who becomes
a nonemployee director of Active Software after the effective date of this
offering will be granted a nonstatutory stock option to purchase 20,000 shares
of common stock on the date on which the optionee first becomes a nonemployee
director of Active Software. In addition, each existing nonemployee director
who was elected to the board of directors prior to the completion of this
offering by the holders of our convertible redeemable preferred stock will be
granted a nonstatutory stock option to purchase 20,000 shares of common stock
on the first annual stockholders meeting following the effective date of this
offering, provided that he or she remains on the board of directors following
the meeting. Thereafter, on the date of our annual stockholders meeting each
year, each nonemployee director will be granted an additional option to
purchase 5,000 shares of common stock if, on such date, he or she has served on
our board of directors for at least six months. Our directors elected by our
convertible redeemable preferred stockholders prior to the offering who receive
an option to purchase 20,000 shares on the first annual stockholders meeting
following the offering will be eligible to receive additional options to
purchase 5,000 shares beginning on the second annual stockholders meeting
following the offering.
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The 1999 Directors' Stock Option Plan sets neither a maximum nor a minimum
number of shares for which options may be granted to any one nonemployee
director, but does specify the number of shares that may be included in any
grant and the method of making a grant. No option granted under the 1999
Directors' Stock Option Plan is transferable by the optionee other than by will
or the laws of descent or distribution or pursuant to a qualified domestic
relations order. Each option is exercisable, during the lifetime of the
optionee, only by the optionee or pursuant to a qualified domestic relations
order.
The 1999 Directors' Stock Option Plan provides that all options granted
under this plan shall be fully exercisable as to 100% of the total number of
shares on the date of grant. If a nonemployee director ceases to serve as a
director of Active Software for any reason other than death or disability, he
or she may within 90 days after the date he or she ceases to be a director of
Active Software, exercise options granted under the 1999 Directors' Stock
Option Plan to the extent that he or she was entitled to exercise it at the
date of termination. The exercise price of all stock options granted under the
1999 Directors' Stock Option Plan shall be equal to the fair market value of a
share of our common stock on the date of grant of the option. Options granted
under the 1999 Directors' Stock Option Plan have a term of five years.
In the event of the dissolution or liquidation of Active Software, a sale of
all or substantially all of our assets, our merger with or into another
corporation or any other reorganization of Active Software in which more than
50% of the shares of Active Software entitled to vote are exchanged, each
option outstanding under the plan will terminate if not exercised prior to
consummation of the transaction, if the acquiring entity does not assume or
substitute the option. The board of directors may amend or terminate the 1999
Directors' Stock Option Plan at any time as long as such action does not
adversely affect any outstanding option and stockholder approval is obtained
for any amendment as required by applicable law. If not terminated earlier, the
1999 Directors' Stock Option Plan will have a term of ten years.
1999 Employee Stock Purchase Plan
Our 1999 Employee Stock Purchase Plan was adopted by the board of directors
in June 1999 and will be submitted for approval by our stockholders before
completion of this offering. A total of 750,000 shares of common stock has been
reserved for issuance under the 1999 Employee Stock Purchase Plan. The number
of shares reserved for issuance under the 1999 Employee Stock Purchase Plan
will automatically increase on the first day of each of the fiscal years
beginning in 2000, 2001, 2002, 2003 and 2004 by an amount equal to the lesser
of 350,000 shares or one percent of the total shares outstanding on the last
day of the immediately preceding fiscal year.
The 1999 Employee Stock Purchase Plan, which is intended to qualify under
Section 423 of the Code, will be implemented by a series of overlapping
offering periods of approximately 24 months' duration, with new offering
periods (other than the first offering period) commencing on May 1 and November
1 of each year. Each offering period will generally consist of four consecutive
purchase periods of six months' duration, at the end of which an automatic
purchase will be made for participants. The initial offering period is expected
to commence on the date of this offering and end on October 31, 2001; the
initial purchase period is expected to begin on the date of this offering and
end on April 30, 2000, with subsequent purchase periods ending on October 31,
2000, April 30, 2000 and October 31, 2001. The 1999 Employee Stock Purchase
Plan will be administered by the board of directors or by a committee appointed
by the board. Our employees (including officers and employee directors), or
employees of any majority-owned subsidiary designated by the board, are
eligible to participate in the 1999 Employee Stock Purchase Plan if they are
employed by us or a subsidiary of ours for at least 20 hours per week and more
than five months per year. The 1999 Employee Stock Purchase Plan permits
eligible employees to purchase common stock through
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payroll deductions, which in any event may not exceed 20% of an employee's base
salary, commissions and bonus. The purchase price is equal to the lower of 85%
of the fair market value of the common stock at the beginning of each offering
period or at the end of each purchase period. Employees may end their
participation in the 1999 Employee Stock Purchase Plan at any time during an
offering period, and participation ends automatically on termination of
employment.
An employee cannot be granted an option under the 1999 Employee Stock
Purchase Plan if immediately after the grant the employee would own stock
and/or hold outstanding options to purchase stock equaling 5% or more of the
total voting power or value of all classes of our stock or stock of our
subsidiaries, or if the option would permit an employee to purchase stock under
the 1999 Employee Stock Purchase Plan at a rate that exceeds $25,000 in fair
market value of stock for each calendar year in which the option is
outstanding. In addition, no employee may purchase more than 1,000 shares of
common stock under the 1999 Employee Stock Purchase Plan in any one purchase
period. If the fair market value of the common stock on a purchase date is less
than the fair market value at the beginning of the offering period, each
participant in that offering period shall automatically be withdrawn from the
offering period as of the end of the purchase date and re-enrolled in the new
offering period beginning on the first business day following the purchase
date.
If we merge or consolidate with or into another corporation or sell all or
substantially all of our assets, each right to purchase stock under the 1999
Employee Stock Purchase Plan will be assumed or an equivalent right substituted
by the successor corporation. However, the board of directors will shorten any
ongoing offering period so that employees' rights to purchase stock under the
1999 Employee Stock Purchase Plan are exercised prior to the transaction in the
event that the successor corporation refuses to assume each purchase right or
to substitute an equivalent right of the acquiring corporation. The board of
directors has the power to amend or terminate the 1999 Employee Stock Purchase
Plan and to change or terminate offering periods as long as this action does
not adversely affect any outstanding rights to purchase stock thereunder.
However, the board of directors may amend or terminate the 1999 Employee Stock
Purchase Plan or an offering period even if it would adversely affect
outstanding options in order to avoid our incurring adverse accounting charges.
Limitation of Liability and Indemnification Matters
Our amended and restated certificate of incorporation limits the liability
of directors to the maximum extent permitted by Delaware law. Section 145 of
the Delaware General Corporation Law provides that a director of a corporation
will not be personally liable for monetary damages for breach of such
individual's fiduciary duties as a director except for:
. liability for any breach of the director's duty of loyalty to Active
Software or to its stockholders,
. liability for acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law,
. liability for unlawful payments of dividends or unlawful stock
repurchases or redemptions as provided in Section 174 of the Delaware
General Corporation Law, or
. liability for any transaction from which a director derives an improper
personal benefit.
Our bylaws provide that Active Software shall indemnify its directors and
executive officers and may indemnify its officers, employees and other agents
to the full extent permitted by law. We believe that indemnification under our
bylaws covers at least negligence and gross negligence on the part of an
indemnified party. Our bylaws also permit us to advance expenses incurred by an
indemnified party in connection with the defense of any action or proceeding
arising out of the party's status or service as a director, officer, employee
or other agent of Active Software upon an
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undertaking by the indemnified party to repay these advances if it is
ultimately determined that the party is not entitled to indemnification.
We have entered into separate indemnification agreements with each of our
directors and officers. These agreements require us to indemnify the director
or officer against expenses, including attorney's fees, judgments, fines and
settlements paid by the individual in connection with any action, suit or
proceeding arising out of the individual's status or service as a director or
officer of Active Software. We are not required to indemnify the individual
against liabilities arising from willful misconduct or conduct that is
knowingly fraudulent or deliberately dishonest. In addition, the
indemnification agreements require us to advance expenses incurred by the
individual in connection with any proceeding against the individual with
respect to which he or she may be entitled to indemnification by us. We believe
that the indemnification provisions of our amended and restated certificate of
incorporation and bylaws, as well as these indemnification agreements are
necessary to attract and retain qualified persons as directors and officers. We
also maintain directors' and officers' liability insurance.
At present we are not aware of any pending litigation or proceeding
involving any director, officer, employee or agent of Active Software where
indemnification will be required or permitted. Furthermore, we are not aware of
any threatened litigation or proceeding that might result in a claim for such
indemnification.
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CERTAIN TRANSACTIONS
Stock option grants to directors and executive officers of Active Software
are described under the captions "Management--Board Compensation" and "--
Executive Compensation."
Since January 1, 1996, we have issued shares of our convertible redeemable
preferred stock to investors in private placement transactions as follows: an
aggregate of 6,022,500 shares of Series A convertible redeemable preferred
stock at $0.67 per share in February 1996, an aggregate of 3,915,000 shares of
Series B convertible redeemable preferred stock at $1.79 per share in April
1997, and an aggregate of 3,467,832 shares of Series C convertible redeemable
preferred stock at $4.08 per share between March and October 1998. The
following table summarizes the shares of convertible redeemable preferred stock
purchased by our directors and 5% stockholders and persons and entities
associated with them in these private placement transactions.
<TABLE>
<CAPTION>
Series A Series B Series C
Preferred Preferred Preferred
Stock Stock Stock
--------- --------- ---------
<S> <C> <C> <C>
Entities affiliated with directors
----------------------------------
Entities affiliated with Kleiner Perkins
Caufield & Byers (Kevin R. Compton).......... 2,250,000 557,619 164,214
Entities affiliated with Lehman Brothers Inc.
(Michael J. Odrich).......................... -- 1,672,863 490,195
Ocean Park Ventures, L.P. (James P. Gauer).... 525,000 126,858 --
5% stockholders
---------------
Sierra Ventures V, L.P. ...................... 750,000 557,620 73,530
Entities affiliated with Enterprise Partners.. 2,475,000 598,048 151,654
Stephen MacDonald............................. -- 278,809 68,628
</TABLE>
In the table above, shares held by affiliated persons and entities have been
aggregated. See "Principal Stockholders." In connection with the above
transactions, we entered into an agreement with the investors providing for
registration rights with respect to these shares. See "Description of Capital
Stock--Registration Rights of Securityholders."
In February 1996, we issued an aggregate of 600,000 shares of common stock
to investment funds affiliated with Enterprise Partners in connection with a
loan to us by Enterprise Partners in October 1995 in the amount of $250,000 for
seed funding. This indebtedness was canceled in February 1996 as partial
consideration for the shares of Series A convertible redeemable preferred stock
purchased by these investment funds in February 1996.
We have entered into indemnification agreements with our officers and
directors containing provisions which may require us to, among other things,
indemnify our officers and directors against liabilities that may arise by
reason of their status or service as officers or directors (other than
liabilities arising from willful misconduct of a culpable nature) and to
advance their expenses incurred as a result of any proceeding against them as
to which they could be indemnified. See "Management--Limitation of Liability
and Indemnification Matters."
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PRINCIPAL STOCKHOLDERS
The following table sets forth information known to us with respect to the
beneficial ownership of our common stock as of May 31, 1999, as adjusted to
reflect the sale of the common stock offered hereby, by:
. each stockholder known by us to own beneficially more than 5% of the
common stock,
. our Chief Executive Officer and our four other highest compensated
executive officers,
. each director, and
. all directors and executive officers as a group.
Except as otherwise noted, the address of each person listed in the table is
c/o Active Software, Inc., 3333 Octavius Drive, Santa Clara, CA 95054.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and includes voting and investment power
with respect to shares. To our knowledge, except under applicable community
property laws or as otherwise indicated, the persons named in the table have
sole voting and sole investment control with respect to all shares beneficially
owned. The applicable percentage of ownership for each stockholder is based on
19,682,882 shares of common stock outstanding as of March 31, 1999 and an
assumed shares outstanding after the completion of this offering, in each
case together with applicable options for that stockholder. Shares of common
stock issuable upon exercise of options and other rights beneficially owned
that are exercisable within 60 days of May 31, 1999 are deemed outstanding for
the purpose of computing the percentage ownership of the person holding those
options and other rights but are not deemed outstanding for computing the
percentage ownership of any other person.
<TABLE>
<CAPTION>
Percent
Beneficially Owned
Total ----------------------
Number of Before After
Name and Address Shares Offering Offering
- ---------------- --------- --------- ---------
<S> <C> <C> <C>
Entities affiliated with Enterprise Partners
5000 Birch Street, Suite 6200
Newport Beach, CA 92660(1).................. 3,719,700 18.9% %
Entities affiliated with Kleiner Perkins
Caufield & Byers
2750 Sand Hill Road
Menlo Park, CA 94025(2)..................... 2,971,833 15.1
Entities affiliated with Lehman Brothers Inc.
3 World Financial Center
New York, NY 10285(3)....................... 2,163,057 11.0
Sierra Ventures V, L.P.
3000 Sand Hill Road
Menlo Park, CA 94025........................ 1,381,150 7.0
R. James Green(4)............................ 1,065,000 5.4
Stephen A. MacDonald(5)...................... 1,109,937 5.6
Jon A. Bode(6)............................... 217,500 1.1
Rafael Bracho(7)............................. 670,500 3.4
Sydney Springer(8)........................... 157,500 *
Edwin Winder(9).............................. 375,000 1.9
Kevin R. Compton(2).......................... 2,971,833 15.1
James P. Gauer(10)........................... 756,858 3.9
Michael J. Odrich(3)......................... 2,163,057 11.0
Todd Rulon-Miller(11)........................ 67,500 *
Roger S. Siboni(12).......................... 60,000 *
All directors and executive officers as a
group
(12 persons)(13)............................ 2,975,996 14.7
</TABLE>
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- --------
* Less than one percent.
(1) Includes 3,422,124 shares held by Enterprise Partners III, L.P. and 297,576
shares held by Enterprise Partners III Associates, L.P.
(2) Includes 2,425,098 shares held by Kleiner Perkins Caufield & Byers VII,
L.P., 472,440 shares held by KPCB Java Fund, L.P. and 74,295 shares held by
KPCB Information Sciences Zaibatsu Fund II, L.P. Kevin R. Compton, a
director of Active Software, is a general partner of the general partner of
each of these partnerships. Mr. Compton disclaims beneficial ownership of
these shares, except to the extent of his pecuniary interest in the shares.
(3) Includes 1,993,479 shares held by LB I Group Inc. 144,837 shares held by
Lehman Brothers MGB Venture Capital Partners 1997 (A), L.P., 21,850 shares
held by Lehman Brothers MGB Venture Capital Partners 1998, (A), L.P., 403
shares held by Lehman Brothers MGB Venture Capital Partners 1998 (B), L.P.,
and 2,488 shares held by Lehman Brothers MGB Venture Capital Partners 1998
(C), L.P. Michael Odrich, a director of Active Software, is a vice
president of LB I Group Inc., which is the general partner of each of the
Lehman Brothers MGB Venture Capital Partners funds described above. In
addition, Mr. Odrich is a limited partner of Lehman Brothers MGB Venture
Capital Partners 1997 (A), L.P. and Lehman Brothers MGB Venture Capital
Partners 1998 (A), L.P. Mr. Odrich disclaims beneficial ownership of these
shares, except to the extent of his pecuniary interest in the shares.
(4) Includes 1,065,000 shares held by R. James Green and Carol E. Green,
Trustees of the Green Family Trust U/D/T dated August 23, 1996. A portion
of these shares is subject to repurchase by Active Software at the original
exercise price in the event of termination of employment with Active
Software, which repurchase right lapses over time. Does not include an
aggregate of 510,000 shares held in trusts for the benefit of Mr. Green's
children and for which Mr. Green has neither voting nor dispositive power.
(5) Includes 594,312 shares held by the MacDonald Family Trust dated October
27, 1987, and an aggregate of 515,625 shares held in various trusts for the
benefit of Mr. MacDonald's children.
(6) Includes 172,500 shares issued upon exercise of stock options. Also
includes 45,000 shares issuable pursuant to the exercise of outstanding
options. A portion of the shares issued or issuable upon exercise of the
options is subject to repurchase by Active Software at the original
exercise price in the event of termination of employment with Active
Software, which repurchase right lapses over time.
(7) Includes 580,500 shares held by the Rafael Bracho or Laraine Dietz Peterson
1999 Inter Vivos Trust. Also includes 90,000 shares issuable on exercise of
stock options. A portion of these shares is subject to repurchase by Active
Software at the original exercise price in the event of termination of
employment with Active Software, which repurchase right lapses over time.
Does not include an aggregate of 225,000 shares held in trusts for the
benefit of Mr. Bracho's children and over which Mr. Bracho has neither
voting nor dispositive power.
(8) Includes 142,500 shares issued pursuant to the exercise of stock options.
Also includes 15,000 shares issuable on exercise of stock options. A
portion of the shares issued or issuable upon exercise of the options is
subject to repurchase by Active Software at the original exercise price in
the event of termination of employment with Active Software, which
repurchase right lapses over time.
(9) Includes 345,000 shares issued pursuant to the exercise of stock options.
Also includes 30,000 shares issuable on exercise of stock options. A
portion of the shares issued or issuable upon exercise of the options is
subject to repurchase by Active Software at the original exercise price in
the event of termination of employment with Active Software, which
repurchase right lapses over time.
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(10) Includes 756,858 shares held by Ocean Park Ventures, L.P. Mr. Gauer is a
general partner of Ocean Park Ventures, L.P. Mr. Gauer is also a limited
partner of Enterprise Partners III, L.P. and Enterprise Partners III
Associates, L.P. and disclaims beneficial ownership of the shares held by
these entities, except to the extent of his pecuniary interest in the
shares.
(11) Includes 67,500 shares issuable pursuant to the exercise of outstanding
options. A portion of the shares issuable upon exercise of the options is
subject to repurchase by Active Software at the original exercise price in
the event of termination of Mr. Rulon-Miller's services as a director of
Active Software, which repurchase right lapses over time.
(12) Includes 60,000 shares issuable pursuant to the exercise of outstanding
options. A portion of the shares issuable upon exercise of the options is
subject to repurchase by Active Software at the original exercise price in
the event of termination of Mr. Siboni's services as a director of Active
Software, which repurchase right lapses over time.
(13) Includes an aggregate of 609,750 shares issuable pursuant to the exercise
of outstanding options. A portion of the shares issued or issuable upon
exercise of each option is subject to repurchase by Active Software at the
original exercise price in the event of termination of the optionee's
employment with Active Software, which repurchase right lapses over time.
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DESCRIPTION OF CAPITAL STOCK
Following the closing of the sale of the shares offered hereby, our
authorized capital stock will consist of 100,000,000 shares of common stock,
$0.001 par value, and 5,000,000 shares of preferred stock, $0.001 par value.
Common Stock
As of March 31, 1999, there were 19,682,882 shares of common stock
outstanding that were held of record by approximately 98 stockholders. There
will be shares of common stock outstanding (assuming no exercise or
conversion of outstanding options and warrants after March 31, 1999) after
giving effect to the sale of the shares of common stock offered hereby.
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 therefor.
See "Dividend Policy." In the event of a liquidation, dissolution or winding up
of Active Software, the holders of common stock are entitled to share ratably
in all assets remaining after payment of liabilities, subject to prior 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 available to the common stock. All
outstanding shares of common stock are fully paid and non-assessable, and the
shares of common stock to be issued upon completion of this offering will be
fully paid and non-assessable.
Preferred Stock
Effective upon the closing of this offering, Active Software will be
authorized to issue 5,000,000 shares of undesignated preferred stock. The board
of directors will have the authority to issue the undesignated preferred stock
in one or more series and to determine the powers, preferences and rights and
the qualifications, limitations or restrictions granted to or imposed upon any
wholly unissued series of undesignated preferred stock and to fix the number of
shares constituting any series and the designation of such series, without any
further vote or action by the stockholders. The issuance of preferred stock may
have the effect of delaying, deferring or preventing a change in control of
Active Software without further action by the stockholders and may adversely
affect the voting and other rights of the holders of common stock. At present,
we have no plans to issue any shares of preferred stock.
Warrants
As of March 31, 1999, warrants were outstanding to purchase an aggregate of
215,676 shares of common stock at a weighted average exercise price of $1.31
per share. Of such warrants, warrants to purchase an aggregate of 136,912
shares of common stock at a weighted average exercise price of $0.77 per share
will terminate upon the completion of this offering if not exercised prior to
such time.
Registration Rights of Securityholders
The holders of 15,724,325 shares of common stock (the "Registrable
Securities"), as well as 78,763 shares issuable upon exercise of warrants, or
their transferees are entitled to rights with respect to the registration of
such shares under the Securities Act. These rights are provided under the terms
of an agreement between Active Software and the holders of Registrable
Securities. Subject to limitations in this agreement, the holders of the
Registrable Securities may require, on two occasions at any time after six
months from the effective date of this offering, that Active Software use its
best efforts to register the Registrable Securities for public resale, provided
that the proposed aggregate offering price is at least $5,000,000. If we
register any of our common stock either for our
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own account or for the account of other security holders, the holders of
Registrable Securities are entitled to include their shares of common stock in
the registration. A holder's right to include shares in an underwritten
registration is subject to the ability of the underwriters to limit the number
of shares included in this offering. In addition, these holders have the right
to require Active Software to register their shares on Form S-3 under the
Securities Act, if Active Software is eligible to use such form. All fees,
costs and expenses of such registrations must be borne by Active Software and
all selling expenses (including underwriting discounts, selling commissions and
stock transfer taxes) relating to Registrable Securities must be borne by the
holders of the securities being registered.
Anti-Takeover Provisions of Charter Documents and Delaware Law
We are subject to the provisions of Section 203 of the Delaware Law. In
general, the statute prohibits a publicly held Delaware corporation from
engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date that the person became an interested
stockholder unless (with some 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 stockholder, and an "interested stockholder" is a person who, together with
affiliates and associates, owns (or within three years prior, did own) 15% or
more of the corporation's outstanding voting stock.
Upon completion of this offering, our charter documents also will contain
provisions that may have the effect of delaying or preventing changes in
control or management of Active Software, which could have an adverse effect on
the market price of our common stock. For example, our charter documents will
contain a provision eliminating the ability of stockholders to take actions by
written consent. In addition, our amended and restated certificate of
incorporation to be effective upon completion of this offering also provides
that the board of directors will be divided into three classes, each serving
staggered three-year terms, following the completion of this offering: Class I,
whose initial term will expire at the annual meeting (or special meeting held
in lieu of an annual meeting) of stockholders held in 2000; Class II, whose
initial term will expire at the annual meeting (or special meeting held in lieu
of an annual meeting) of stockholders in 2001; and Class III, whose initial
term will expire at the annual meeting (or special meeting held in lieu of an
annual meeting) of stockholders in 2002. As a result, only one class of
directors will be elected at each annual meeting of stockholders of Active
Software, with the other classes continuing for the remainder of their
respective terms. Messrs. Bracho, Green and Odrich have been designated as
Class I directors; Messrs. Compton and Gauer have been designated as Class II
directors; and Messrs. Siboni and Rulon-Miller have been designated as Class
III directors. In addition, our amended and restated certificate of
incorporation permits our board of directors to issue up to 5,000,000 shares of
preferred stock and to fix the rights, preferences, privileges and
restrictions, including voting rights, of these shares without any further vote
or action by the stockholders.
Our stock option and purchase plans generally provide for assumption of such
plans or substitution of an equivalent option of a successor corporation or,
alternatively, at the discretion of the board of directors, exercise of some or
all of the options stock, including non-vested shares, or acceleration of
vesting of shares issued pursuant to stock grants, upon a change of control or
similar event.
Transfer Agent and Registrar
The Transfer Agent and Registrar for our common stock is ChaseMellon
Shareholder Services, L.L.C.
Nasdaq Stock Market Listing
We have applied to list our common stock for quotation on the Nasdaq
National Market under the trading symbol "ASWX."
64
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for our common stock.
Future sales of substantial amounts of common stock in the public market could
adversely affect prevailing market prices. As described below, no shares
currently outstanding will be available for sale immediately after this
offering because of contractual restrictions on resale. Sales of substantial
amounts of our common stock in the public market after the restrictions lapse
could adversely affect the prevailing market price and impair our ability to
raise equity capital in the future.
Upon completion of the offering, we will have outstanding shares of
common stock, based upon shares outstanding as of March 31, 1999. Of these
shares, the shares sold in the offering, plus any shares issued upon
exercise of the underwriters' over-allotment option, will be freely tradable
without restriction under the Securities Act, unless purchased by our
"affiliates," as that term is defined in Rule 144 under the Securities Act. In
general, affiliates include officers, directors or 10% stockholders.
The remaining 19,682,882 shares outstanding are "restricted securities"
within the meaning of Rule 144. Restricted securities may be sold in the public
market only if registered or if they qualify for an exemption from registration
under Rules 144, 144(k) or 701 promulgated under the Securities Act, which are
summarized below. Sales of the restricted securities in the public market, or
the availability of such shares for sale, could adversely affect the market
price of the common stock.
Our directors, officers and stockholders have entered into lock-up
agreements in connection with this offering generally providing that they will
not offer, sell, contract to sell or grant any option to purchase or otherwise
dispose of our common stock or any securities exercisable for or convertible
into our common stock owned by them for a period of 180 days after the date of
this prospectus without the prior written consent of Goldman, Sachs & Co.
Notwithstanding possible earlier eligibility for sale under the provisions of
Rules 144, 144(k) and 701, shares subject to lock-up agreements will not become
eligible for resale until such agreements expire or are waived by Goldman,
Sachs & Co. Taking into account the lock-up agreements, and assuming Goldman,
Sachs & Co. does not release stockholders from these agreements, the following
shares will be eligible for sale in the public market at the following times:
. beginning on the effective date of this prospectus, only the shares sold
in the offering will be immediately available for sale in the public
market.
. beginning 180 days after the effective date, approximately 2,520,798
shares will be eligible for sale pursuant to Rule 701, approximately
2,556,357 additional shares will be eligible for sale pursuant to Rule
144(k), and approximately 11,790,962 additional shares will be eligible
for sale pursuant to Rule 144.
. between 180 days and 365 days after the effective date, approximately
2,814,765 shares will be eligible for sale pursuant to Rule 144 at
various times.
In general, under Rule 144 as currently in effect, after the expiration of
the lock-up agreements, a person who has beneficially owned restricted
securities for at least one year would be entitled to sell within any three-
month period a number of shares that does not exceed the greater of:
. one percent of the number of shares of common stock then outstanding,
which will equal approximately shares immediately after the
offering; or
. the average weekly trading volume of the common stock during the four
calendar weeks preceding the sale.
Sales under Rule 144 are also subject to requirements with respect to manner
of sale, notice, and the availability of current public information about us.
Under Rule 144(k), a person who is not
65
<PAGE>
deemed to have been our affiliate 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, is entitled to sell such shares without complying with the
manner of sale, public information, volume limitation or notice provisions of
Rule 144.
Rule 701, as currently in effect, permits our employees, officers, directors
or consultants who purchased shares pursuant to a written compensatory plan or
contract to resell such shares in reliance upon Rule 144 but without compliance
with specific restrictions. Rule 701 provides that affiliates may sell their
Rule 701 shares under Rule 144 without complying with the holding period
requirement and that non-affiliates may sell such shares in reliance on Rule
144 without complying with the holding period, public information, volume
limitation or notice provisions of Rule 144.
In addition, we intend to file, immediately after the effectiveness of this
offering, a registration statement on Form S-8 under the Securities Act
covering all shares of common stock reserved for issuance under our 1996 Stock
Plan, 1996A Stock Plan, 1999 Stock Plan, 1999 Directors' Stock Option Plan and
1999 Employee Stock Purchase Plan. Shares registered under such registration
statement would be available for sale in the open market in the future unless
these shares are subject to vesting restrictions with Active Software or the
contractual restrictions described above. See "Risk Factors--An aggregate of
19,682,882, or %, of our total outstanding shares are restricted from
immediate resale but may be sold into the market in the near future. This could
cause the market price of our common stock to drop significantly, even if our
business is doing well," "Management--Stock Plans" and "Description of Capital
Stock."
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for
Active Software by Venture Law Group, A Professional Corporation, Menlo Park,
California. Mark A. Medearis, a director of Venture Law Group, is the Secretary
of Active Software. Certain legal matters in connection with this offering will
be passed upon for the Underwriters by Shearman & Sterling, Menlo Park,
California. Venture Law Group and its affiliates beneficially own an aggregate
of 34,155 shares of our common stock.
EXPERTS
The consolidated financial statements as of December 31, 1997 and 1998 and
for each of the three years in the period ended December 31, 1998 included in
this prospectus and the related consolidated financial statement schedule
included elsewhere in the registration statement have been audited by Deloitte
& Touche LLP, independent auditors, as stated in their reports appearing herein
and elsewhere in the registration statement, and have been so included in
reliance upon the reports of such firm given upon their authority as experts in
accounting and auditing.
66
<PAGE>
ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1, including the exhibits and schedule filed with the
registration statement, under the Securities Act of 1933 with respect to the
shares to be sold in this offering. This prospectus does not contain all the
information set forth in the registration statement. For further information
with respect to us and the shares to be sold in this offering, we refer you to
the registration statement. Statements contained in this prospectus as to the
contents of any contract, agreement or other document to which we make
reference to, are not necessarily complete, and in each instance we refer you
to the copy of the contract, agreement or other document filed as an exhibit to
the registration statement, each statement being qualified in all respects by
the more complete description of the matter involved. Each statement shall be
deemed incorporated by that reference.
You may read and copy all or any portion of the registration statement or
any reports, statements or other information we file at the Commission's public
reference room at Room 1024, Judiciary Plaza, 450 Fifth Street, N.C.,
Washington, D.C. 20549 and at the regional offices of the Commission located at
Seven World Trade Center, 13th Floor, New York, New York 10048 and 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. You can request copies of
these documents upon payment of a duplicating fee, by writing to the
Commission. Please call the Commission at 1-800-SEC-0330 for further
information on the operation of the public reference rooms. Our Commission
filings, including the registration statement, will also be available to you on
the Commission's Internet site, http://www.sec.gov.
67
<PAGE>
ACTIVE SOFTWARE, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Audited Consolidated Financial Statements:
Independent Auditors' Report.............................................. F-2
Consolidated Balance Sheets at December 31, 1997, 1998, March 31, 1999
(unaudited) and Pro Forma at March 31, 1999 (unaudited).................. F-3
Consolidated Statements of Operations for the years ended December 31,
1996, 1997 and 1998 and three months ended March 31, 1998 and 1999
(unaudited).............................................................. F-4
Consolidated Statements of Stockholders' Equity (Deficiency) for the years
ended December 31, 1996, 1997 and 1998 and three months ended March 31,
1999 (unaudited)......................................................... F-5
Consolidated Statements of Cash Flows for the years ended December 31,
1996, 1997 and 1998 and three months ended March 31, 1998 and 1999
(unaudited).............................................................. F-6
Notes to Consolidated Financial Statements................................ F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
"To the Board of Directors and Stockholders of
Active Software, Inc.:
We have audited the accompanying consolidated balance sheets of Active
Software, Inc. and subsidiary as of December 31, 1997 and 1998, and the related
consolidated statements of operations, stockholders' equity (deficiency), and
cash flows for each of the three years in the period ended December 31, 1998.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Active Software, Inc. and
subsidiary at December 31, 1997 and 1998, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1998 in conformity with generally accepted accounting principles.
San Jose, California
January 22, 1999
(June 10, 1999 as to Note 10)"
To the Board of Directors and Stockholders of
Active Software, Inc.:
The consolidated financial statements included herein have been adjusted to
give effect to the three-for-two common and convertible redeemable preferred
stock split as described in the sixth paragraph of Note 10 to the consolidated
financial statements. The above report is in the form that will be signed by
Deloitte & Touche LLP upon the effectiveness of such event assuming that from
June 10, 1999 to the effective date of such event, no other events shall have
occurred that would affect the accompanying consolidated financial statements
or notes thereto.
DELOITTE & TOUCHE LLP
San Jose, California
June 10, 1999
F-2
<PAGE>
ACTIVE SOFTWARE, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and par value amounts)
<TABLE>
<CAPTION>
December 31, Pro Forma
----------------- March 31, March 31,
1997 1998 1999 1999
------- -------- ----------- -----------
(Unaudited) (Note 1)
(Unaudited)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents.............. $ 2,876 $ 7,461 $ 5,745
Accounts receivable (net
of allowances of $82,
$200 and $200)........... 1,535 3,362 2,665
Prepaid expenses and
other current assets..... 58 495 637
------- -------- -------
Total current assets.... 4,469 11,318 9,047
Property and equipment,
net....................... 651 796 919
Other assets............... 75 180 303
------- -------- -------
Total assets............... $ 5,195 $ 12,294 $10,269
======= ======== =======
LIABILITIES AND
STOCKHOLDERS' EQUITY
(DEFICIENCY)
Current liabilities:
Accounts payable.......... $ 306 $ 739 $ 1,234
Accrued compensation and
related benefits......... 582 1,115 1,071
Deferred revenues......... 722 1,154 1,243
Accrued royalties......... -- 375 245
Other accrued
liabilities.............. 13 335 158
Current portion of notes
payable.................. 91 107 107
------- -------- -------
Total current
liabilities............ 1,714 3,825 4,058
------- -------- -------
Notes payable, less current
portion................... 216 108 84
------- -------- -------
Commitments (Notes 7 and
10)
Convertible redeemable
preferred stock:
Series A convertible
redeemable preferred
stock; $0.001 par value;
designated and
outstanding--6,022,500
shares; pro forma--none
outstanding; (liquidation
preference of $4,015)....... 3,995 3,995 3,995 $ --
Series B convertible
redeemable preferred
stock; $0.001 par value;
designated and
outstanding--3,915,000
shares; pro forma--none
outstanding; (liquidation
preference of $7,021)....... 7,013 7,013 7,013 --
Series C convertible
redeemable preferred
stock; $0.001 par value;
designated--3,467,832
shares: outstanding--1997,
none; 1998 and 1999,
3,467,832 shares; pro
forma--none outstanding;
(liquidation preference of
$14,149).................... -- 14,109 14,109 --
Stockholders' equity
(deficiency):
Preferred stock, $0.001
par value: pro forma
authorized 5,000,000
shares; none outstanding. -- -- -- --
Common stock, $0.001 par
value; authorized--
30,000,000 shares;
outstanding--1997,
4,145,850 shares; 1998,
5,874,725 shares; 1999
6,277,550 shares; pro
forma--19,682,882 shares
outstanding.............. 106 836 2,828 27,945
Deferred stock
compensation.............. -- (457) (2,103) (2,103)
Notes receivable from
stockholders.............. (49) (9) (9) (9)
Accumulated deficit........ (7,800) (17,126) (19,706) (19,706)
------- -------- ------- -------
Total stockholders'
equity (deficiency).... (7,743) (16,756) (18,990) $ 6,127
------- -------- ------- =======
Total liabilities and
stockholders' equity
(deficiency).............. $ 5,195 $ 12,294 $10,269
======= ======== =======
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
ACTIVE SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Years Ended Three Months Ended
December 31, March 31,
------------------------- --------------------
1996 1997 1998 1998 1999
------- ------- ------- --------- ---------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Revenues:
License.................... $ 280 $ 2,625 $ 5,900 $ 1,247 $ 2,364
Service.................... 5 568 1,699 196 1,198
------- ------- ------- --------- ---------
Total revenues........... 285 3,193 7,599 1,443 3,562
------- ------- ------- --------- ---------
Costs of revenues:
License.................... 6 30 477 3 60
Service.................... 165 623 2,290 236 1,319
------- ------- ------- --------- ---------
Total cost of revenues... 171 653 2,767 239 1,379
------- ------- ------- --------- ---------
Gross profit................. 114 2,540 4,832 1,204 2,183
Operating expenses:
Research and development... 1,182 2,830 3,971 619 1,060
Sales and marketing........ 685 2,896 8,389 1,626 3,146
General and administrative. 1,163 1,796 2,069 406 476
Amortization of deferred
stock compensation........ -- -- -- -- 102
------- ------- ------- --------- ---------
Total operating expenses. 3,030 7,522 14,429 2,651 4,784
------- ------- ------- --------- ---------
Loss from operations......... (2,916) (4,982) (9,597) (1,447) (2,601)
Interest income (expense):
Interest income............ 102 179 313 24 62
Interest expense........... -- (50) (42) (12) (41)
------- ------- ------- --------- ---------
Total interest income
(expense)............... 102 129 271 12 21
------- ------- ------- --------- ---------
Net loss..................... $(2,814) $(4,853) $(9,326) $ (1,435) $ (2,580)
======= ======= ======= ========= =========
Basic and diluted net loss
per share................... $ (6.59) $ (2.50) $ (3.01) $ (0.59) $ (0.57)
======= ======= ======= ========= =========
Shares used in calculating
basic and diluted net loss
per share................... 427 1,945 3,096 2,439 4,542
======= ======= ======= ========= =========
Pro forma basic and diluted
net loss per share (Note 1). $ (0.60) $ (0.14)
======= =========
Shares used in calculating
pro forma basic and diluted
net loss per share (Note 1). 15,457 17,947
======= =========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
ACTIVE SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
(In thousands, except share amounts)
<TABLE>
<CAPTION>
Notes
Common Stock Deferred Receivable
----------------- Stock from Accumulated
Shares Amount Compensation Stockholders Deficit Total
--------- ------ ------------ ------------ ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Balances, January 1,
1996................... 2,145,000 $ 14 $ -- $ (7) $ (133) $ (126)
Issuance of common
stock.................. 1,394,250 87 -- (42) -- 45
Issuance of common stock
for note payable
financing.............. 600,000 4 -- -- -- 4
Net loss................ -- -- -- -- (2,814) (2,814)
--------- ------ ------- ---- -------- --------
Balances, December 31,
1996................... 4,139,250 105 -- (49) (2,947) (2,891)
Issuance of common
stock.................. 6,600 1 -- -- -- 1
Net loss................ -- -- -- -- (4,853) (4,853)
--------- ------ ------- ---- -------- --------
Balances, December 31,
1997................... 4,145,850 106 -- (49) (7,800) (7,743)
Issuance of common
stock.................. 2,397,375 297 -- -- -- 297
Repurchase of common
stock.................. (668,500) (45) -- 29 -- (16)
Repayments of note
receivable............. -- -- -- 11 -- 11
Issuance of warrants.... -- 21 -- -- -- 21
Deferred stock
compensation........... -- 457 (457) -- -- --
Net loss ............... -- -- -- -- (9,326) (9,326)
--------- ------ ------- ---- -------- --------
Balances, December 31,
1998................... 5,874,725 836 (457) (9) (17,126) (16,756)
Issuance of common stock
(unaudited)............ 402,825 244 -- -- -- 244
Deferred stock
compensation
(unaudited)............ -- 1,748 (1,748) -- -- --
Amortization of deferred
stock compensation
(unaudited)............ -- -- 102 -- -- 102
Net loss (unaudited).... -- -- -- -- (2,580) (2,580)
--------- ------ ------- ---- -------- --------
Balances, March 31, 1999
(unaudited)............ 6,277,550 $2,828 $(2,103) $ (9) $(19,706) $(18,990)
========= ====== ======= ==== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
ACTIVE SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Years Ended Three Months Ended
December 31, March 31,
------------------------- --------------------
1996 1997 1998 1998 1999
------- ------- ------- --------- ---------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net loss..................... $(2,814) $(4,853) $(9,326) $ (1,435) $ (2,580)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Depreciation and
amortization............... 124 318 461 101 135
Amortization of deferred
stock compensation......... -- -- -- -- 102
Interest expense recorded in
connection with note
financing.................. 4 -- -- -- --
Issuance of warrants........ -- -- 21 -- --
Changes in assets and
liabilities:
Accounts receivable........ (34) (1,475) (1,827) 472 697
Prepaid expenses and other
current assets............ (42) (12) (437) (4) (142)
Accounts payable........... 18 75 433 74 495
Accrued compensation and
related benefits.......... 92 582 533 (120) (44)
Accrued royalties.......... -- -- 375 -- (130)
Other accrued liabilities.. -- (58) 322 62 (177)
Deferred revenues.......... 116 606 432 (215) 89
------- ------- ------- --------- ---------
Net cash used in operating
activities............... (2,536) (4,817) (9,013) (1,065) (1,555)
------- ------- ------- --------- ---------
Cash flows from investing
activities:
Property and equipment
additions................... (322) (588) (606) (135) (258)
Other assets................. (14) (54) (105) 3 (123)
------- ------- ------- --------- ---------
Net cash used in investing
activities................ (336) (642) (711) (132) (381)
------- ------- ------- --------- ---------
Cash flows from financing
activities:
Sale of common stock......... 45 1 297 179 244
Repurchase of common stock... -- -- (16) -- --
Sale of convertible
redeemable preferred stock.. 3,745 7,013 14,109 7,869 --
Repayment of notes receivable
from stockholders........... -- -- 11 -- --
Proceeds from notes payable.. 401 -- -- -- --
Repayment of notes payable .. (21) (72) (92) (21) (24)
------- ------- ------- --------- ---------
Net cash provided by
financing activities...... 4,170 6,942 14,309 8,027 220
------- ------- ------- --------- ---------
Net increase (decrease) in
cash and cash equivalents.... 1,298 1,483 4,585 6,830 (1,716)
Cash and cash equivalents--
beginning of period.......... 95 1,393 2,876 2,876 7,461
------- ------- ------- --------- ---------
Cash and cash equivalents--end
of period.................... $ 1,393 $ 2,876 $ 7,461 $ 9,706 $ 5,745
======= ======= ======= ========= =========
Supplemental disclosure of
cash flow information--
Cash paid during the period
for interest................. $ 2 $ 50 $ 42 $ 12 $ 9
======= ======= ======= ========= =========
Noncash financing activities:
Repurchase of common stock by
cancellation of note
receivable.................. $ -- $ -- $ 29 $ -- $ --
======= ======= ======= ========= =========
Common stock issued for notes
receivable.................. $ 42 $ -- $ -- $ -- $ --
======= ======= ======= ========= =========
Conversion of note payable to
convertible redeemable
preferred stock............. $ 250 $ -- $ -- $ -- $ --
======= ======= ======= ========= =========
Deferred stock compensation.. $ -- $ -- $ 457 $ -- $ 1,748
======= ======= ======= ========= =========
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
ACTIVE SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1996, 1997 and 1998 and
Three Months Ended March 31, 1998 and 1999 (Unaudited)
1. Business and Significant Accounting Policies
Business--Active Software, Inc. (the Company), incorporated in California in
September 1995, develops and markets software products for businesses that
allow users to integrate incompatible software applications across their
extended enterprises of customers, suppliers and partners.
Principles of Consolidation--The consolidated financial statements include
the accounts of the Company and its wholly-owned subsidiary. All intercompany
transactions and balances have been eliminated in consolidation.
Cash Equivalents--The Company considers all highly liquid debt instruments
purchased with a remaining maturity of three months or less to be cash
equivalents.
Property and equipment are stated at cost. Depreciation and amortization are
computed using the straight-line method over estimated useful lives of three
years. Leasehold improvements are amortized over the shorter of the lease term
or their useful life.
Long-Lived Assets--The Company evaluates its long-lived assets for
impairment whenever events or changes in circumstances indicate that the
carrying amount of such assets or intangibles may not be recoverable.
Recoverability of assets to be held and used is measured by a comparison of the
carrying amount of an asset to future undiscounted net cash flows expected to
be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets.
Software Development Costs--Costs for the development of new software
products and substantial enhancements to existing software products are
expensed as incurred until technological feasibility has been established, at
which time any additional development costs would be capitalized in accordance
with Statement of Financial Accounting Standards (SFAS) No. 86, Computer
Software To Be Sold, Leased, or Otherwise Marketed. Because the Company
believes its current process for developing software is essentially completed
concurrently with the establishment of technological feasibility, no costs have
been capitalized to date.
Notes Receivable from Stockholders--The notes receivable from stockholders
were issued in exchange for common stock, bear interest at 5.73% per annum, and
are due from November 30, 1999 through January 15, 2000.
Revenue Recognition--Active Software's revenue recognition policy is
consistent with Statement of Position 97-2, as amended. License revenues are
comprised of fees for the Company's software products. Revenue from license
fees is recognized when an agreement has been signed, delivery of the product
has occurred, no significant Company obligations remain, the fee is fixed or
determinable and collectibility is probable. For electronic delivery, the
software is considered to have been delivered when the Company has provided the
customer with the access codes that allow for immediate possession of the
software. If the fee due from the customer is not fixed or determinable,
revenue is recognized as payments become due from the customer. If
collectibility is not considered probable, revenue is recognized when the fee
is collected. Revenue on arrangements with customers who are not ultimate users
(primarily resellers) is not recognized until the product is delivered to the
end user.
F-7
<PAGE>
ACTIVE SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Service revenues are comprised of revenue from support arrangements,
consulting fees and training. Support arrangements provide technical support
and the right to unspecified upgrades on an if-and-when-available basis.
Revenue from support arrangements is recognized on a straight-line basis as
services revenue over the life of the related agreement, which is typically one
year. Consulting and training revenue is recognized when provided to the
customer. Customer advances and billed amounts due from customers in excess of
revenue recognized are recorded as deferred revenue.
Income Taxes--Income taxes are provided for using an asset and liability
approach which requires recognition of deferred tax liabilities and assets, net
of valuation allowances, for the expected future tax consequences of temporary
differences between the financial statement carrying amounts and the tax bases
of assets and liabilities and net operating loss and tax credit carryforwards.
Foreign Currency Transactions--The functional currency of the Company's
foreign subsidiary is the U.S. dollar. Accordingly, all monetary assets and
liabilities are translated at the current exchange rate at the end of the year,
nonmonetary assets and liabilities are translated at historical rates and
revenues and expenses are translated at average exchange rates in effect during
the period. Transaction gains and losses have not been significant to date.
Stock Compensation--The Company accounts for stock-based awards to employees
using the intrinsic value method in accordance with Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees.
Net Loss per Common Share--Basic net loss per common share excludes dilution
and is computed by dividing net loss by the weighted average number of common
shares outstanding for the period (excluding shares subject to repurchase).
Diluted net loss per common share was the same as basic net loss per common
share for all periods presented since the effect of any potentially dilutive
securities is excluded as they are anti-dilutive because of the Company's net
losses.
Pro Forma Net Loss per Common Share--Pro forma basic and diluted net loss
per common share is computed by dividing net loss by the weighted average
number of common shares outstanding for the period (excluding shares subject to
repurchase) plus the weighted average number of common shares resulting from
the automatic conversion of outstanding shares of convertible redeemable
preferred stock, which will occur upon the closing of the planned initial
public offering.
Unaudited Pro Forma Information--Upon the closing of the planned initial
public offering, each of the outstanding shares of convertible redeemable
preferred stock will automatically convert into one share of common stock. The
pro forma information is presented as if this conversion had occurred at March
31, 1999.
Unaudited Interim Financial Information--The interim financial information
as of March 31, 1999 and for the three months ended March 31, 1998 and 1999 is
unaudited and has been prepared on the same basis as the audited financial
statements. In the opinion of management, such unaudited financial information
includes all adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of the interim information. Operating results
for the three months ended March 31, 1999 are not necessarily indicative of the
results that may be expected for the year ending December 31, 1999.
Concentration of Credit Risk--Financial instruments that potentially expose
the Company to concentrations of credit risk consist primarily of accounts
receivable. The Company primarily sells its products to companies in North
America. The Company does not require collateral or other security to support
accounts receivable. To reduce credit risk, management performs ongoing credit
F-8
<PAGE>
ACTIVE SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
evaluations of its customers' financial condition. The Company maintains
allowances for potential credit losses.
Financial Instruments--The Company's financial instruments include cash and
cash equivalents, notes receivable from stockholders and long-term debt. At
December 31, 1997 and 1998, the fair value of these financial instruments
approximated their financial statement carrying amounts.
Significant Estimates--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, and disclosures of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from these estimates.
Certain Significant Risks and Uncertainties--The Company operates in the
software industry, and accordingly, can be affected by a variety of factors.
For example, management of the Company believes that changes in any of the
following areas could have a significant negative effect on the Company in
terms of its future financial position, results of operations or cash flows;
ability to obtain additional financing; fundamental changes in the technology
underlying software products; market acceptance of the Company's products under
development; development of sales channels; loss of significant customers;
adverse changes in international market conditions; year 2000 compliance
issues; litigation or other claims against the Company; the hiring, training
and retention of key employees; successful and timely completion of product
development efforts; and new product introductions by competitors.
Recently Adopted Accounting Standards--In June 1997, the FASB issued SFAS
No. 130, Reporting Comprehensive Income, which requires an enterprise to
report, by major components and as a single total, the change in its net assets
during the period from nonowner sources; and SFAS No. 131, Disclosures About
Segments of an Enterprise and Related Information, which establishes annual and
interim reporting standards for an enterprise's business segments and related
disclosures about its products, services, geographic areas and major customers.
The Company had no comprehensive income items, other than net loss, to report
for any of the periods presented. The Company currently operates in one
reportable segment under SFAS No. 131.
Recently Issued Accounting Standards--In March 1998, the American Institute
of Certified Public Accountants issued SOP 98-1, Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use. This standard
requires companies to capitalize qualifying computer software costs incurred
during the application development stage and amortize them over the software's
estimated useful life. SOP 98-1 is effective for fiscal years beginning after
December 15, 1998. The Company is currently evaluating the impact of SOP 98-1
on its financial statements and related disclosures.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities. This statement
requires companies to record derivatives on the balance sheet as assets or
liabilities, measured at fair value. Gains or losses resulting from changes in
the values of those derivatives would be accounted for depending on the use of
the derivative and whether it qualifies for hedge accounting. SFAS No. 133 will
be effective for the Company's fiscal year ending December 31, 2001. The
Company is currently evaluating the impact of SFAS No. 133 on its financial
statements and related disclosures.
F-9
<PAGE>
ACTIVE SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Reclassifications--Certain reclassifications have been made to the 1996 and
1997 financial statement presentation to conform to the 1998 presentation.
2. Property and Equipment
Property and equipment consist of (in thousands):
<TABLE>
<CAPTION>
December 31,
-------------- March 31,
1997 1998 1999
------ ------ ---------
<S> <C> <C> <C>
Equipment ....................................... $ 937 $1,523 $ 1,659
Software......................................... 52 72 183
Leasehold improvements........................... 102 102 102
------ ------ -------
1,091 1,697 1,944
Accumulated depreciation and amortization........ (440) (901) (1,025)
------ ------ -------
$ 651 $ 796 $ 919
====== ====== =======
</TABLE>
3. Notes Payable
In 1996, the Company borrowed $401,000 pursuant to a loan agreement with a
third party. The note bears interest at an effective rate of 17%, is payable in
monthly installments through July 2000 and is collateralized by all of the
Company's equipment. As of December 31, 1998, a principal balance of $215,000
was outstanding under these notes and is due as follows (in thousands):
<TABLE>
<CAPTION>
Year Ended
December 31,
------------
<S> <C>
1999................................................................. $107
2000................................................................. 108
----
$215
====
</TABLE>
4. Convertible Redeemable Preferred Stock and Stockholders' Equity
Convertible Redeemable Preferred Stock
Terms of the convertible redeemable preferred stock are as follows:
. Each share of Series A, B, and C convertible redeemable preferred stock
is convertible into one share of common stock (subject to adjustment for
events of dilution). Each share will automatically convert into common
stock upon the completion of a public offering with aggregate proceeds
greater than $10,000,000 and at a price per share of not less than $6.00.
. Each share of Series A, B, and C convertible redeemable preferred stock
has voting rights equivalent to the number of shares of common stock into
which it is convertible.
. When declared by the Board of Directors, the holders of Series A, B, and
C convertible redeemable preferred stock are entitled to receive
noncumulative dividends of $0.04, $0.11, and $0.24 per share per annum,
respectively, prior to the payment of any dividends on common stock.
F-10
<PAGE>
ACTIVE SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
. In the event the Company is acquired or merges into another company
(unless the Company's stockholders own more than 50% of the surviving
entity) or in the event of liquidation, dissolution or winding up of the
Company, Series A, B, and C convertible redeemable preferred stock
stockholders shall receive $0.67, $1.79, and $4.08 per share,
respectively (aggregating approximately $4,015,000, $7,021,000 and
$14,149,000 at December 31, 1998, respectively), adjusted for certain
events of dilution, as defined. Any remaining assets shall be distributed
ratably to the common and preferred stockholders (on an as converted
basis); except that the Series A, B, and C convertible redeemable
preferred stockholders shall be limited to per share distributions of
$1.33, $3.59, and $8.16 respectively, in addition to the distributions
mentioned in the preceding sentence.
. The Series A, B, and C convertible redeemable preferred stock
stockholders have certain registration rights.
. The Series A, B, and C convertible redeemable preferred stock is
redeemable if the Company receives a written request from the holders of
at least two-thirds of the then outstanding shares of Series A, B, and C
convertible redeemable preferred stock, respectively. The shares are
redeemable at $0.67, $1.79, and $4.08 per share, respectively, plus any
dividends declared, but not paid, on the date of redemption. No dividends
have been declared to date. Upon receipt of such written request, the
Company shall redeem the number of shares in three equal annual
installments beginning the later of March 2002 or ninety days after
receipt of such request.
Stock Plans
At December 31, 1998, the Company has reserved an aggregate of 6,846,000
shares of common stock for issuance, at the discretion of the Board of
Directors, to officers, directors, employees and consultants pursuant to its
1996 and 1996A Stock Plans (the Plans). Options are generally granted at fair
market value at the date of grant as determined by the Board of Directors.
Options granted under the Plans generally vest over 50 months and expire ten
years from the date of grant. In February 1998, the Company amended the stock
option agreements under the Plans to allow employees to exercise their stock
options immediately. All unvested shares are placed in escrow and continue to
vest according to the employee's normal stock option vesting schedule. The
unvested shares are subject to repurchase at the option of the Company at the
original purchase price upon termination of the employee. In 1998, 668,500
shares were repurchased at their original cost of $0.07 per share and returned
to the Plans. At December 31, 1998, 1,282,525 shares are available for future
issuance and 906,188 shares are subject to repurchase.
In addition to shares issued under the Stock Plans, the Company has issued
2,304,000 shares pursuant to individual restricted stock purchase agreements.
The Company has the right of first refusal on the sale of common stock acquired
under such restricted stock purchase agreements. This right expires if the
Company's stock becomes publicly traded in an established market. Upon
termination of employment, the Company has the right to repurchase any unvested
shares at the original purchase price. This right expires generally over four
years. In addition, upon termination of certain key employees, the Company has
the right to repurchase vested shares at the original purchase price per share.
Such repurchase right expires in 2000 or upon the Company's stock becoming
publicly traded. At December 31, 1998, 540,000 shares are subject to such
repurchase rights.
F-11
<PAGE>
ACTIVE SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Additional information with respect to outstanding options under the Plans
is as follows:
<TABLE>
<CAPTION>
Weighted
Number of Average
Options Exercise Price
---------- --------------
<S> <C> <C>
Outstanding, January 1, 1997 (none exercis-
able)........................................ 1,588,500 $0.07
Granted (weighted average fair value of
$0.03)...................................... 1,681,125 0.17
Exercised.................................... (6,600) 0.07
Cancelled.................................... (99,300) 0.14
---------- -----
Outstanding, December 31, 1997 (1,127,580
exercisable at a weighted average price of
$0.07)....................................... 3,163,725 0.12
Granted (weighted average fair value of
$0.27)...................................... 1,969,500 0.90
Exercised.................................... (2,397,375) 0.13
Cancelled.................................... (143,100) 0.18
---------- -----
Outstanding, December 31, 1998................ 2,592,750 0.70
Granted...................................... 717,375 2.93
Exercised.................................... (402,825) 0.67
Cancelled.................................... (24,360) 0.85
---------- -----
Outstanding, March 31, 1999................... 2,882,940 $1.26
========== =====
</TABLE>
Additional information regarding options outstanding as of December 31, 1998
is as follows:
<TABLE>
<CAPTION>
Options Outstanding Options Vested
------------------------------------------ ----------------------
Weighted
Average
Remaining Weighted Weighted
Range of Contractual Average Average
Exercise Number Life Exercise Number Exercise
Prices Outstanding (Years) Price Vested Price
-------- ----------- ----------- -------- ------ --------
<S> <C> <C> <C> <C> <C>
$0.07 446,250 7.25 $0.07 169,422 $0.07
0.18 555,750 8.90 0.18 129,300 0.18
0.27 127,500 9.19 0.27 -- --
0.67 45,000 9.27 0.67 -- --
0.77 502,500 9.56 0.77 -- --
1.33 915,750 9.90 1.33 -- --
--------- -------
$0.07--$1.33 2,592,750 9.13 $0.70 298,722 $0.11
========= =======
</TABLE>
During the year ended December 31, 1998 and the three months ended March 31,
1999, in connection with the grant of certain stock options, the Company
recorded deferred stock compensation of $457,000 and $1,748,000, respectively,
representing the difference between the exercise price of the options and the
estimated fair value of the Company's common stock on the date of grant. Such
amount is being amortized over the vesting period of the related options,
generally fifty months. In 1998 there was no significant amortization of
deferred stock compensation. For the three months ended March 31, 1999,
amortization of deferred stock compensation was $102,000. At March 31, 1999,
$2,103,000 of unamortized deferred stock compensation remains.
SFAS No. 123, Accounting for Stock-Based Compensation, requires the
disclosure of pro forma net loss and net loss per share had the Company adopted
the fair value method as of the beginning of fiscal 1995. Under SFAS 123, the
fair value of stock-based awards to employees is calculated
F-12
<PAGE>
ACTIVE SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
through the use of option pricing models, even though such models were
developed to estimate the fair value of freely tradable, fully transferable
options without vesting restrictions, which significantly differ from the
Company's stock option awards. These models also require subjective
assumptions, including future stock price volatility and expected time to
exercise, which greatly affect the calculated values. The Company's
calculations were made using the minimum value option pricing model with the
following weighted average assumptions: expected life, 24 months following
vesting in 1996, 1997 and 1998; risk free interest rate, 6% in 1996, 1997 and
1998; and no dividends during the expected term. The Company's calculations are
based on a multiple option valuation approach and forfeitures are recognized as
they occur. If the computed fair values of the 1996, 1997 and 1998 awards had
been amortized to expense over the vesting period of the awards, pro forma net
loss would have been $2,822,000 ($(6.61) per share, basic and diluted) in 1996,
$4,876,000 ($(2.51) per share, basic and diluted) in 1997 and $9,388,000
($(3.03) per share, basic and diluted) in 1998.
Common Stock Warrants
In September 1996, in conjunction with a note payable, the Company issued a
warrant to purchase up to 42,000 shares of common stock at $0.67 per share. The
warrant expires on September 30, 2004. The fair value of the warrant was
insignificant.
In June and July 1998, the Company issued warrants to system integrators in
connection with services rendered to purchase up to 136,912 shares of common
stock at $0.77 per share. The warrants expire in 2003. An expense of $20,600
was recorded in 1998 related to the issuance of such warrants which was based
on the warrants' estimated fair market value at the date of issuance.
In October 1998, the Company issued a warrant to a strategic partner to
purchase 36,764 shares of common stock at $4.08 per share. The warrant is
contingently exercisable upon the earliest of: i) achievement of certain
performance improvements to the Company's software product or ii) immediately
prior to the closing of an acquisition of the Company. The warrant generally
expires at the earlier of: i) October 29, 2005 or ii) August 31, 1999 in the
event that the strategic partner has not achieved the software performance
improvements. The fair value of the warrant will be recorded as expense in the
period in which the contingency is resolved.
At December 31, 1998, the Company has reserved shares of common stock for
issuance as follows:
<TABLE>
<S> <C>
Conversion of convertible redeemable preferred stock.............. 13,405,332
Issuances under the Stock Plans................................... 4,165,465
Exercise of common stock warrants................................. 215,676
----------
17,786,473
==========
</TABLE>
F-13
<PAGE>
ACTIVE SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
5. Net Loss per Share
The following is a reconciliation of the numerators and denominators used in
computing basic and diluted net loss per share (in thousands):
<TABLE>
<CAPTION>
Years Ended Three Months Ended
December 31, March 31,
------------------------- --------------------
1996 1997 1998 1998 1999
------- ------- ------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net loss (numerator), basic
and diluted.................. $(2,814) $(4,853) $(9,326) $ (1,435) $ (2,580)
Shares (denominator):
Weighted average common
shares outstanding......... 2,914 4,140 5,118 4,633 5,986
Weighted average common
shares outstanding subject
to repurchase.............. (2,487) (2,195) (2,022) (2,194) (1,444)
------- ------- ------- --------- ---------
Shares used in computation,
basic and diluted.......... 427 1,945 3,096 2,439 4,542
======= ======= ======= ========= =========
Net loss per share, basic and
diluted...................... $ (6.59) $ (2.50) $ (3.01) $ (0.59) $ (0.57)
======= ======= ======= ========= =========
</TABLE>
For the above mentioned periods, the Company had securities outstanding
which could potentially dilute basic earnings per share in the future, but were
excluded from the computation of diluted net loss per share in the periods
presented, as their effect would have been antidilutive. Such outstanding
securities consist of the following:
<TABLE>
<CAPTION>
December 31, March 31,
-------------------------------- ---------------------
1996 1997 1998 1998 1999
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Convertible redeemable
preferred stock........ 6,022,500 9,937,500 13,405,332 11,866,114 13,405,332
Shares of common stock
subject to repurchase.. 2,829,000 1,823,998 1,446,188 2,564,223 1,441,527
Outstanding options..... 1,588,500 3,163,725 2,592,750 1,572,150 2,882,940
Warrants................ 42,000 42,000 215,676 42,000 215,676
---------- ---------- ---------- ---------- ----------
Total................... 10,482,000 14,967,223 17,659,946 16,044,487 17,945,475
========== ========== ========== ========== ==========
Weighted average
exercise price of
options................ $ 0.07 $ 0.12 $ 0.70 $ 0.13 $ 1.26
========== ========== ========== ========== ==========
Weighted average
exercise price of
warrants............... $ 0.67 $ 0.67 $ 1.31 $ 0.67 $ 1.31
========== ========== ========== ========== ==========
</TABLE>
6. Income Taxes
The Company's net deferred tax assets are comprised of the following at
December 31 (in thousands):
<TABLE>
<CAPTION>
1997 1998
------ ------
<S> <C> <C>
Net deferred tax assets and liabilities:
Net operating loss carryforwards........................... $2,861 $6,379
General business credits................................... 330 491
Other timing differences................................... (104) 179
------ ------
3,087 7,049
Valuation allowance.......................................... (3,087) (7,049)
------ ------
Net deferred tax assets...................................... $ -- $ --
====== ======
</TABLE>
F-14
<PAGE>
ACTIVE SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Deferred income taxes reflect the tax effects of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes, as well as net operating
loss and tax credit carryforwards. Due to the uncertainty surrounding the
realization of its deferred tax assets, as of December 31, 1997 and 1998, the
Company has fully reserved its net deferred tax assets of $3,087,000 and
$7,049,000, respectively.
The Company's effective tax rate differs from the expected benefit at the
federal statutory tax rate at December 31 as follows:
<TABLE>
<CAPTION>
1996 1997 1998
----- ----- -----
<S> <C> <C> <C>
Federal statutory tax
rate..................... (35.0)% (35.0)% (35.0)%
State taxes, net of
federal benefit.......... (6.0) (6.0) (6.0)
Other..................... 0.6 1.3 1.0
Valuation allowance....... 40.4 39.7 40.0
----- ----- -----
Effective tax rate...... --% --% --%
===== ===== =====
</TABLE>
Substantially all of the Company's loss from operations for all periods
presented is generated from domestic operations.
At December 31, 1998, the Company has net operating loss (NOL) carryforwards
of approximately $15,203,000 and $11,303,000 for federal and state income tax
purposes, respectively. The federal NOL carryforwards expire through 2018,
while the state NOL carryforwards expire through 2003.
At December 31, 1998, the Company also has research and development credit
carryforwards of approximately $313,000 and $178,000 available to offset future
federal and state income taxes, respectively. The federal credit expires
through 2018, and the state credit carryforward has no expiration.
The extent to which the loss and credit carryforwards can be used to offset
future taxable income and tax liabilities, respectively, may be limited,
depending on the extent of ownership changes within any three-year period.
7. Lease Commitments
The Company leases its facilities under noncancelable operating leases
expiring through February 2000. Rent expense was $64,000, $323,000 and $191,000
in 1996, 1997 and 1998, respectively. Future minimum rent payments in 1999 are
$246,000 and in 2000 are $8,000.
8. Segment Information, Operating by Geographic Area and Significant Customers
The Company operates in one reportable segment, the development and
marketing of software products for businesses that allow integration of
incompatible software applications across their extended enterprises of
customers, suppliers and partners. The Company principally operates in the U.S.
with a small European office to support sales and marketing. The following is a
summary of operations within geographic areas (in thousands):
<TABLE>
<CAPTION>
Three Months
Years Ended Ended March
December 31, 31,
------------------ -------------
1996 1997 1998 1998 1999
---- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Revenues(1):
United States............................. $285 $3,193 $7,521 $1,443 $3,562
Europe.................................... -- -- 78 -- --
---- ------ ------ ------ ------
Total revenues.......................... $285 $3,193 $7,599 $1,443 $3,562
==== ====== ====== ====== ======
</TABLE>
- --------
(1) Revenues are broken out geographically by the ship-to location of the
customer.
F-15
<PAGE>
ACTIVE SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company has no significant long-lived assets deployed outside of the
U.S.
During 1996, two customers accounted for 53% and 26% of the Company's total
revenues, respectively. During 1997, one customer accounted for 33% of the
Company's total revenues. During 1998, no customers accounted for more than
10% of the Company's total revenues.
At December 31, 1997, two customers accounted for 34% and 22% of accounts
receivable, respectively. At December 31, 1998, two customers accounted for
22% and 21% of accounts receivable, respectively.
9. Employee Benefit Plan
In January 1997, the Company established a 401(k) tax-deferred savings
plan, whereby eligible employees may contribute a percentage of their eligible
compensation (presently from 1% to 15% up to the maximum allowed under IRS
rules). Company contributions are discretionary. No such Company contributions
have been made since inception of this plan.
10. Subsequent Events
In June 1999, the board of directors approved, subject to stockholder
approval, the following:
. Reincorporation of the Company in the state of Delaware.
. The Company's 1999 Stock Plan (the "1999 Plan"). The 1999 Plan becomes
effective upon the closing of the Company's initial public offering. A
total of 3,000,000 shares will be reserved for issuance under the 1999
Plan. In addition, the number of shares reserved under the plan will
automatically be increased each year, beginning on July 1, 2000 in an
amount equal to the lesser of (a) 1,500,000 shares, (b) four percent of
the shares outstanding on the last day of the preceding fiscal year or
(c) a lesser number of shares as is determined by the board of directors.
. The Company's 1999 Employee Stock Purchase Plan (the "ESPP") and the 1999
Directors' Stock Option Plan (the "Directors' Plan"). The ESPP and
Directors' Plans become effective upon the closing of the Company's
initial public offering. Under the ESPP, eligible employees may purchase
common stock through payroll deductions, which may not exceed 20% of any
employee's compensation, nor more than 1,000 shares in any one purchase
period. A total of 750,000 shares of commons stock will be reserved for
issuance under the ESPP. The number of shares reserved for issuance under
the ESPP will automatically increase on the first day of each fiscal year
beginning in 2000, 2001, 2002, 2003 and 2004 by an amount equal to the
lesser of 350,000 shares or one percent of the total shares outstanding
on the last day of the immediately preceding fiscal year. Under the
Directors' Plan, a total of 300,000 shares of common stock will be
reserved for the grant of nonstatutory stock options to nonemployee
directors of the Company. Options granted under the Directors' Plan shall
be immediately vested and expire in ten years from the date of grant.
. An increase of authorized shares of common stock to 100,000,000 shares
and creation of newly undesignated preferred stock totaling 5,000,000
shares, contingent upon the approval of the reincorporation of the
Company in Delaware and the closing of the Company's initial public
offering.
. A three-for-two stock split of the outstanding shares of common and
convertible redeemable preferred stock. The stock split will occur prior
to the effectiveness of the registration statement relating to the
initial public offering.
F-16
<PAGE>
ACTIVE SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
All shares and per share amounts in these financial statements have been
adjusted to give effect to the stock split.
In March 1999, the Company entered into a non-cancelable operating lease
expiring in 2003 requiring annual lease payments of approximately $365,000
in 1999, $557,000 in 2000, $571,000 in 2001, $585,000 in 2002 and $550,000
in 2003.
* * * * *
F-17
<PAGE>
UNDERWRITING
Active Software and the underwriters for the offering named below have
entered into an underwriting agreement with respect to the shares being
offered. Subject to certain conditions, each underwriter has severally agreed
to purchase the number of shares indicated in the following table. Goldman,
Sachs & Co., Lehman Brothers Inc. and Dain Rauscher Wessels, a division of Dain
Rauscher Incorporated, are the representatives of the underwriters.
<TABLE>
<CAPTION>
Number
of
Underwriters Shares
------------ --------
<S> <C>
Goldman, Sachs & Co.................................................
Lehman Brothers Inc.................................................
Dain Rauscher Wessels...............................................
--------
Total.............................................................
========
</TABLE>
If the underwriters sell more shares than the total number set forth in the
table above, the underwriters have an option to buy up to additional shares
from Active Software to cover such sales. They may exercise that option for 30
days. If any shares are purchased pursuant to this option, the underwriters
will severally purchase shares in approximately the same proportion as set
forth in the table above.
The following table shows the per share and total underwriting discounts and
commissions to be paid to the underwriters by Active Software. Such amounts are
shown assuming both no exercise and full exercise of the underwriters' option
to purchase additional shares.
Paid by Active Software
<TABLE>
<CAPTION>
No Exercise Full Exercise
----------- -------------
<S> <C> <C>
Per Share.......................................... $ $
Total............................................ $ $
</TABLE>
Shares sold by the underwriters to the public will initially be offered at
the initial public offering price set forth on the cover of this prospectus.
Any shares sold by the underwriters to securities dealers may be sold at a
discount of up to $ per share from the initial public offering price. Any
such securities dealers may resell any shares purchased from the underwriters
to certain other brokers or dealers at a discount of up to $ per share
from the initial public offering price. If all of the shares are not sold at
the initial public offering price, the representatives may change the offering
price and the other selling terms.
Active Software has agreed with the underwriters not to dispose of or hedge
any of its common stock or securities convertible into or exchangeable for
shares of common stock during the period from the date of this prospectus
continuing through the date 180 days after the date of this prospectus, except
with the prior written consent of the representatives. This agreement does not
apply to any existing employees benefit plans. See "Shares Available for Future
Sale" for a discussion of transfer restrictions.
In addition, Active Software's officers, directors and substantially all
holders of shares of our common stock have agreed that, subject to limited
exceptions, they will not offer to sell, sell, contract to sell, pledge, grant
any option to purchase, make any short sale or otherwise dispose of any shares
U-1
<PAGE>
owned of record or beneficially prior to the offering or any securities
convertible into or exchangeable for shares of common stock for a period of 180
days from the date of this prospectus without the prior written consent of the
representatives.
At our request, the underwriters have reserved up to shares of the
common stock offered hereby for sale, at the initial public offering price, to
employees, customers and other friends of Active Software through a directed
share program. The number of shares available for sale to the general public
will be reduced to the extent these persons purchase the reserved shares. There
can be no assurance that any of the reserved shares will be so purchased. Any
reserved shares not so purchased will be offered by the underwriters to the
general public on the same basis as other shares offered hereby.
Prior to this offering, there has been no public market for the shares. The
initial public offering price will be negotiated among Active Software and the
representatives. Among the factors to be considered in determining the initial
public offering price of the shares, in addition to prevailing market
conditions, will be the Active Software's historical performance, estimates of
the business potential and earnings prospects of Active Software, an assessment
of Active Software's management and the consideration of the above factors in
relation to market valuation of companies in related businesses.
Application has been made for quotation of the common stock on the Nasdaq
National Market under the symbol "ASWX."
In connection with this 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 this 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 this 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.
The underwriters do not expect sales to discretionary accounts to exceed
five percent of the total number of shares offered.
Active Software estimates that the total expenses of this offering,
excluding underwriting discounts and commissions, will be approximately
$ .
Active Software has agreed to indemnify the several underwriters against
certain liabilities, including liabilities under the Securities Act of 1933.
Affiliates of Lehman Brothers Inc., one of the representatives of the
underwriters, hold shares of convertible redeemable preferred stock of Active
Software that will convert into 2,163,057 shares of common stock upon closing
of the offering. In addition, Michael J. Odrich, a director of Active Software,
is a Managing Director of Lehman Brothers. Because of this relationship between
Lehman
U-2
<PAGE>
Brothers and Active Software, the offering is being conducted in accordance
with Rule 2720 of the NASD. That rule requires that the initial public offering
price can be no higher than that recommended by a "qualified independent
underwriter," as defined by the NASD. Goldman, Sachs & Co. is serving in that
capacity and will perform due diligence investigations and review and
participate in the preparation of the registration statement of which this
prospectus forms a part. Goldman, Sachs & Co. will receive a customary fee from
Active Software as compensation for such role.
U-3
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
No dealer, salesperson or other person is authorized to give any information
or to represent anything not contained in this prospectus. You must not rely on
any unauthorized information or representations. This prospectus is an offer to
sell only the shares offered hereby, but only under circumstances and in juris-
dictions where it is lawful to do so. The information contained in this pro-
spectus is current only as of its date.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 7
Use of Proceeds........................................................... 18
Dividend Policy........................................................... 18
Capitalization............................................................ 19
Dilution.................................................................. 20
Selected Consolidated Financial Data...................................... 21
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 23
Business.................................................................. 34
Management................................................................ 48
Certain Transactions...................................................... 59
Principal Stockholders.................................................... 60
Description of Capital Stock.............................................. 63
Shares Eligible for Future Sale........................................... 65
Legal Matters............................................................. 66
Experts................................................................... 66
Additional Information.................................................... 67
Index to Consolidated Financial Statements................................ F-1
Underwriting.............................................................. U-1
</TABLE>
Through and including , 1999 (the 25th day after the date of this
prospectus), all dealers effecting transactions in these securities, whether or
not participating in this offering, may be required to deliver a prospectus.
This is in addition to a dealer's obligation to deliver a prospectus when act-
ing as underwriter and with respect to their unsold allotment or subscription.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shares
Active Software, Inc.
Common Stock
----------------
[LOGO]
----------------
Goldman, Sachs & Co.
Lehman Brothers
Dain Rauscher Wessels
a division of Dain Rauscher Incorporated
Representatives of the Underwriters
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<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 us in connection with the
sale of common stock being registered. All amounts are estimates except the SEC
registration fee and the NASD filing fee and the Nasdaq National Market listing
fee.
<TABLE>
<CAPTION>
Amount
to be
Paid
-------
<S> <C>
SEC registration fee................................................ $20,850
NASD filing fee..................................................... 8,000
Nasdaq National Market listing fee.................................. *
Printing and engraving expenses..................................... *
Legal fees and expenses............................................. *
Accounting fees and expenses........................................ *
Blue Sky qualification fees and expenses............................ *
Transfer Agent and registrar fees................................... *
Miscellaneous fees and expenses..................................... *
-------
Total............................................................. *
=======
</TABLE>
- --------
*To be filed by amendment.
Item 14. Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law authorizes a court to
award, or a corporation's board of directors to grant, indemnity to directors
and officers in terms sufficiently broad to permit such indemnification under
certain circumstances for liabilities (including reimbursement for expenses
incurred) arising under the Securities Act of 1933, as amended (the "Act"). The
Registrant's Amended and Restated Certificate of Incorporation provides for
indemnification of its directors and officers to the maximum extent permitted
by the Delaware General Corporation Law and the Registrant's Bylaws provides
for indemnification of its directors, officers, employees and other agents to
the maximum extent permitted by the Delaware General Corporation Law. In
addition, the Registrant has entered into indemnification agreements with its
directors and officers containing provisions which are in some respects broader
than the specific indemnification provisions contained in the Delaware General
Corporation Law. The indemnification agreements may require the Company, among
other things, to indemnify its directors against certain liabilities that may
arise by reason of their status or service as directors (other than liabilities
arising from willful misconduct of culpable nature), to advance their expenses
incurred as a result of any proceeding against them as to which they could be
indemnified, and to obtain directors' insurance if available on reasonable
terms. Reference is also made to the Underwriting Agreement contained in
Exhibit 1.1 hereto, indemnifying officers and directors of the Company against
certain liabilities.
Item 15. Recent Sales of Unregistered Securities
(a) Since June 1, 1996, the Registrant has issued and sold (without payment
of any selling commission to any person) the following unregistered securities:
(1) Prior to the completion of this offering, the Registrant intends to
effect a three-for-two split of its outstanding common stock and
convertible redeemable preferred stock in which every
II-1
<PAGE>
two outstanding shares of common stock and convertible redeemable
preferred stock will be split into three shares of common stock or
convertible redeemable preferred stock, respectively.
(2) In September 1996, the Registrant issued a warrant to purchase 42,000
shares of common stock at a purchase price of $0.67 per share to a
lender in connection with a financing transaction. In December 1996,
the Registrant, in connection with such financing transaction, issued
to the lender a promissory note in the amount of $401,217.
(3) In April 1997, the Registrant issued and sold shares of Series B
convertible redeemable preferred stock convertible into an aggregate of
3,915,000 shares of common stock to a total of 12 investors for an
aggregate purchase price of $7,020,000.
(4) In March 1998, June 1998, July 1998 and October 1998, the Registrant
issued and sold shares of Series C convertible redeemable preferred
stock convertible into an aggregate of 3,467,832 shares of common stock
to a total of 21 investors for an aggregate purchase price of $14.1
million.
(5) In June 1998 and July 1998, the Registrant issued warrants to purchase
45,000 shares and 91,912 shares of common stock at a price of $0.77 per
share to two strategic partners.
(6) In October 1998, the Registrant issued a warrant to purchase 36,764
shares of common stock at a price of $4.08 per share to a strategic
partner.
(7) As of May 31, 1999, an aggregate of approximately 4,148,940 shares of
common stock had been issued upon exercise of options or pursuant to
restricted stock purchase agreements and an aggregate of approximately
3,042,150 shares of common stock were issuable upon exercise of
outstanding options under the Registrant's 1996 and 1996A Stock Plans.
(b) There were no underwritten offerings employed in connection with any of
the transactions set forth in Item 15(a).
All of the foregoing information gives effect to the three-for-two split of
the Registrant's common stock to be effected prior to completion of the
offering. The issuances described in Item 15(a)(1) were or will be exempt from
registration under Section 2(3) of the Securities Act on the basis that such
transactions did not involve a "sale" of securities. The issuances described
in Items 15(a)(2) through 15(a)(6) were deemed to be exempt from registration
under the Securities Act in reliance upon Section 4(2) thereof as transactions
by an issuer not involving any public offering. The issuances described in
Items 15(a)(7) were deemed to be exempt from registration under the Securities
Act in reliance upon Rule 701 promulgated thereunder in that they were offered
and sold either pursuant to written compensatory benefit plans or pursuant to
a written contract relating to compensation, as provided by Rule 701. In
addition, such issuances were deemed to be exempt from registration under
Section 4(2) of the Securities Act as transactions by an issuer not involving
any public offering. The recipients of securities in each such transaction
represented their intentions to acquire the securities for investment only and
not with a view to or for sale in connection with any distribution thereof and
appropriate legends where affixed to the securities issued in such
transactions. All recipients had adequate access, through their relationships
with the Company, to information about the Registrant.
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits
<TABLE>
<C> <S>
1.1* Form of Underwriting Agreement.
2.1* Form of Agreement and Plan of Merger between the Registrant and Active
Software, Inc., a California Corporation.
</TABLE>
II-2
<PAGE>
<TABLE>
<S> <C>
3.1* Form of Amended and Restated Certificate of Incorporation of the Registrant.
3.2* Form of Certificate of Amendment to Certificate of Incorporation of the Registrant, to be filed and
effective prior to completion of this offering.
3.3* Form of Amended and Restated Certificate of Incorporation of the Registrant, to be filed and
effective upon completion of this offering.
3.4 Bylaws of the Registrant.
4.1* Form of the Registrant's Common Stock Certificate.
5.1* Opinion of Venture Law Group, a Professional Corporation.
10.1 Form of Indemnification Agreement.
10.2* 1996 Stock Plan, as amended, and form of stock option agreement and restricted stock purchase
agreement.
10.3* 1996A Stock Plan, as amended, and form of stock option agreement and restricted stock purchase
agreement.
10.4* 1999 Stock Plan and form of stock option agreement and restricted stock purchase agreement.
10.5* 1999 Employee Stock Purchase Plan and form of subscription agreement.
10.6* 1999 Directors' Stock Option Plan and form of stock option agreement.
10.7 Amended and Restated Rights Agreement dated March 27, 1998, as amended.
10.8 Warrant to purchase shares of the Registrant's common stock issued by the Registrant to Intel
Corporation, dated October 29, 1998.
10.9 Warrant to purchase shares of the Registrant's common stock issued by the Registrant to Venture
Lending & Leasing, Inc., dated September 27, 1996.
10.10 Loan Agreement, dated as of September 27, 1996, between the Registrant and Venture Lending &
Leasing, Inc., with exhibits attached thereto including execution copies of the Security Agreement,
dated as of September 27, 1996, and the Promissory Note, dated December 20, 1996.
10.11+ SecureWeb Toolkit(TM) Developer & Joint Development Agreement, effective as of July 23, 1996,
between the Registrant and Terisa Systems, Inc. (SPYRUS).
10.12 SecureWeb Toolkit(TM) Distribution Agreement, effective as of July 23, 1996, between the Registrant
and Terisa Systems, Inc. (SPYRUS).
10.13 Sublease Agreement by and between The Vantive Corporation and the Registrant, dated March 1, 1999.
10.14 1999 Executive Incentive Plan.
21.1 Subsidiaries
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.
+Confidential treatment requested.
(b) Financial Statement Schedules
Schedule II -- Valuation and Qualifying Accounts
II-3
<PAGE>
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 for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Act, the information
omitted from the form of prospectus filed as part of this Registration
Statement in reliance upon Rule 430A and contained in the form of prospectus
filed by the Registrant pursuant to Rule 424(b)(1), or (4), or 497(h) under the
Act shall be deemed to be a part of this Registration Statement as of the time
it was declared effective.
(2) For the purpose of determining any liability under the Act, each post-
effective amendment that contains a form of prospectus shall be deemed to be a
new registration statement relating to the securities offered therein, and this
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the undersigned
Registrant has duly caused this Registration Statement on Form S-1 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Santa Clara, State of California, on June 11, 1999.
Active Software, Inc.
/s/ R. James Green
By: _________________________________
R. James Green
President and Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints R. James Green and Jon A. Bode, and each one of
them, his attorneys-in-fact, each with the power of substitution, for him in
any and all capacities, to sign any and all amendments to this Registration
Statement (including post-effective amendments), and to file the same, with
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
each of said attorneys-in-fact, or his substitute or substitutes, may do or
cause to be done by virtue hereof. This Power of Attorney may be signed in
several counterparts.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form S-1 has been signed by the following persons in
the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ R. James Green President, Chief Executive June 11, 1999
______________________________________ Officer and Director
(R. James Green) (Principal Executive
Officer)
/s/ Jon A. Bode Vice President of Finance June 11, 1999
______________________________________ and Administration and
(Jon A. Bode) Chief Financial Officer
(Principal Financial and
Accounting Officer)
/s/ Rafael Bracho Executive Vice President, June 11, 1999
______________________________________ Chief Technology Officer
(Rafael Bracho) and Director
/s/ Kevin R. Compton Director June 11, 1999
______________________________________
(Kevin R. Compton)
/s/ James P. Gauer Director June 11, 1999
______________________________________
(James P. Gauer)
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Michael J. Odrich Director June 11, 1999
______________________________________
(Michael J. Odrich)
/s/ Conway Rulon-Miller, Jr. Director June 11, 1999
______________________________________
(Conway Rulon-Miller, Jr.)
/s/ Roger S. Siboni Director June 11, 1999
______________________________________
</TABLE> (Roger S. Siboni)
II-6
<PAGE>
INDEPENDENT AUDITORS' REPORT ON SCHEDULE
"To the Board of Directors and Stockholders of Active Software, Inc.:
We have audited the consolidated financial statements of Active Software, Inc.
and subsidiary (the Company) as of December 31, 1996, 1997, and 1998, and for
each of the three years in the period ended December 31, 1998, and have issued
our report thereon dated January 22, 1999 (June 10, 1999 as to Note 10)
(included elsewhere in this Registration Statement.) Our audits also included
the consolidated financial statement schedule listed in Item 16(b) of this
Registration Statement. The consolidated financial statement schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion based on our audits. In our opinion, such consolidated financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.
San Jose, California
January 22, 1999"
The consolidated financial statements of Active Software, Inc. included in
the Prospectus have been adjusted to give effect to the three-for-two common
and convertible redeemable preferred stock split as described in the sixth
paragraph of Note 10 to the consolidated financial statements. The above report
is in the form that will be signed by Deloitte & Touche LLP upon the
effectiveness of such event assuming that from June 10, 1999 to the effective
date of such event, no other events shall have occurred that would affect the
accompanying consolidated financial statements or notes thereto.
DELOITTE & TOUCHE LLP
San Jose, California
June 10, 1999
S-1
<PAGE>
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Balance at Charged to
beginning cost and Deductions/ Balance at
of period expenses write-offs end of period
---------- ---------- ----------- -------------
<S> <C> <C> <C> <C>
Year ended December 31, 1996
Allowance for doubtful
accounts..................... $ 0 $ 0 $ 0 $ 0
======= ======== ====== ========
Year ended December 31, 1997
Allowance for doubtful
accounts..................... $ 0 $ 82,000 $ 0 $ 82,000
======= ======== ====== ========
Year ended December 31, 1998
Allowance for doubtful
accounts..................... $82,000 $118,000 $ 0 $200,000
======= ======== ====== ========
</TABLE>
S-2
<PAGE>
EXHIBIT INDEX
<TABLE>
<C> <S>
1.1* Form of Underwriting Agreement.
2.1* Form of Agreement and Plan of Merger between the Registrant and Active
Software, Inc., a California Corporation.
3.1* Form of Amended and Restated Certificate of Incorporation of the
Registrant.
3.2* Form of Certificate of Amendment to Certificate of Incorporation of the
Registrant, to be filed and effective prior to completion of this
offering.
3.3* Form of Amended and Restated Certificate of Incorporation of the
Registrant, to be filed and effective upon completion of this
offering.
3.4 Bylaws of the Registrant.
4.1* Form of the Registrant's Common Stock Certificate.
5.1* Opinion of Venture Law Group, a Professional Corporation.
10.1 Form of Indemnification Agreement.
10.2* 1996 Stock Plan, as amended, and form of stock option agreement and
restricted stock purchase agreement.
10.3* 1996A Stock Plan, as amended, and form of stock option agreement and
restricted stock purchase agreement.
10.4* 1999 Stock Plan and form of stock option agreement and restricted stock
purchase agreement.
10.5* 1999 Employee Stock Purchase Plan and form of subscription agreement.
10.6* 1999 Directors' Stock Option Plan and form of stock option agreement.
10.7 Amended and Restated Rights Agreement dated March 27, 1998, as amended.
10.8 Warrant to purchase shares of the Registrant's common stock issued by
the Registrant to Intel Corporation, dated October 29, 1998.
10.9 Warrant to purchase shares of the Registrant's common stock issued by
the Registrant to Venture Lending & Leasing, Inc., dated September 27,
1996.
10.10 Loan Agreement, dated as of September 27, 1996, between the Registrant
and Venture Lending & Leasing, Inc., with exhibits attached thereto
including execution copies of the Security Agreement, dated as of
September 27, 1996, and the Promissory Note, dated December 20, 1996.
10.11+ SecureWeb Toolkit(TM) Developer & Joint Development Agreement,
effective as of July 23, 1996, between the Registrant and Terisa
Systems, Inc. (SPYRUS).
10.12 SecureWeb Toolkit(TM) Distribution Agreement, effective as of July 23,
1996, between the Registrant and Terisa Systems, Inc. (SPYRUS).
10.13 Sublease Agreement by and between The Vantive Corporation and the
Registrant, dated March 1, 1999.
10.14 1999 Executive Incentive Plan.
21.1 Subsidiaries
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.
+Confidential treatment requested.
<PAGE>
EXHIBIT 3.4
BYLAWS
OF
ACTIVE SOFTWARE, INC.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I - CORPORATE OFFICES...................................... 4
1.1 Registered Office......................................... 4
1.2 Other Offices............................................. 4
ARTICLE II - MEETINGS OF STOCKHOLDERS.............................. 4
2.1 Place of Meetings......................................... 4
2.2 Annual Meeting............................................ 1
2.3 Special Meeting........................................... 3
2.4 Notice of Shareholder's Meeting; Affidavit of Notice...... 3
2.5 Advance Notice of Stockholder Nominees.................... 3
2.6 Quorum.................................................... 4
2.7 Adjourned Meeting; Notice................................. 4
2.8 Conduct of Business....................................... 4
2.9 Voting.................................................... 5
2.10 Waiver of Notice......................................... 5
2.11 Record Date for Stockholder Notice; Voting............... 5
2.12 Proxies.................................................. 6
ARTICLE III - DIRECTOR............................................. 6
3.1 Powers.................................................... 6
3.2 Number of Directors....................................... 6
3.3 Election, Qualification and Term of Office of Directors... 6
3.4 Resignation and Vacancies................................. 6
3.5 Place of Meetings; Meetings by Telephone.................. 7
3.6 Regular Meetings.......................................... 8
3.7 Special Meetings; Notice.................................. 8
3.8 Quorum.................................................... 8
3.9 Waiver of Notice.......................................... 8
3.10 Board Action by Written Consent without a Meeting........ 9
3.11 Fees and Compensation of Directors....................... 9
3.12 Approval of Loans to Officers............................ 9
3.13 Removal of Directors..................................... 9
3.14 Chairman of the Board of Directors....................... 10
ARTICLE IV - COMMITTEES............................................ 10
4.1 Committees of Directors................................... 10
4.2 Committee Minutes......................................... 11
4.3 Meetings and Action of Committees......................... 11
ARTICLE V - OFFICERS............................................... 11
5.1 Officers.................................................. 11
5.2 Appointment of Officers................................... 11
5.3 Subordinate Officers...................................... 11
5.4 Removal and Resignation of Officers....................... 12
</TABLE>
<PAGE>
<TABLE>
<S> <C>
5.5 Vacancies in Offices...................................... 12
5.6 Chief Executive Officer................................... 17
5.7 President................................................. 17
5.8 Vice Presidents........................................... 13
5.9 Secretary................................................. 13
5.10 Chief Financial Officer.................................. 18
5.11 Representation of Shares of Other Corporations........... 18
5.12 Authority And Duties of Officers......................... 19
ARTICLE VI - INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES,
AND OTHER AGENTS................................................... 19
6.1 Indemnification of Directors and Officers................. 19
6.2 Indemnification of Others................................. 19
6.3 Payment of Expenses in Advance............................ 19
6.4 Indemnity Not Exclusive................................... 20
6.5 Insurance................................................. 20
6.6 Conflicts................................................. 20
ARTICLE VII - RECORDS AND REPORTS.................................. 20
7.1 Maintenance and Inspection of Records..................... 20
7.2 Inspection by Directors................................... 21
7.3 Annual Statement to Stockholders.......................... 21
ARTICLE VIII - GENERAL MATTERS..................................... 21
8.1 Checks.................................................... 21
8.2 Execution of Corporate Contracts and Instruments.......... 21
8.3 Stock Certificates; Partly Paid Shares.................... 22
8.4 Special Designation on Certificates....................... 22
8.5 Lost Certificates......................................... 23
8.6 Construction; Definitions................................. 23
8.7 Dividends................................................. 23
8.8 Fiscal Year............................................... 23
8.9 Seal...................................................... 24
8.10 Transfer of Stock........................................ 24
8.11 Stock Transfer Agreements................................ 24
8.12 Registered Stockholders.................................. 24
ARTICLE IX - AMENDMENTS............................................ 24
</TABLE>
<PAGE>
BYLAWS
OF
ACTIVE SOFTWARE, INC.
ARTICLE I
CORPORATE OFFICES
-----------------
1.1 Registered Office.
-----------------
The address of the Corporation's registered office in the State of
Delaware is 1013 Centre Road, Wilmington, County of New Castle. The name of its
registered agent at such address is Corporation Service Company.
1.2 Other Offices.
-------------
The Board of Directors may at any time establish other offices at any
place or places where the Corporation is qualified to do business.
ARTICLE II
MEETINGS OF STOCKHOLDERS
------------------------
2.1 Place of Meetings.
-----------------
Meetings of stockholders shall be held at any place, within or outside
the State of Delaware, designated by the Board of Directors. In the absence of
any such designation, stockholders' meetings shall be held at the registered
office of the Corporation.
2.2 Annual Meeting.
--------------
(a) The annual meeting of stockholders shall be held each year on a date
and at a time designated by the Board of Directors. At the meeting, directors
shall be elected and any other proper business may be transacted.
(b) Nominations of persons for election to the Board of Directors of the
Corporation and the proposal of business to be transacted by the stockholders
may be made at an annual meeting of stockholders (i) pursuant to the
Corporation's notice with respect to such meeting, (ii) by or at the direction
of the Board of Directors or (iii) by any stockholder of the Corporation who was
a stockholder of record at the time of giving of the notice provided for in this
Section 2.2, who is
<PAGE>
entitled to vote at the meeting and who has complied with the notice procedures
set forth in this Section 2.2.
(c) In addition to the requirements of Section 2.5, for nominations or
other business to be properly brought before an annual meeting by a stockholder
pursuant to clause (iii) of paragraph (b) of this Section 2.2, the stockholder
must have given timely notice thereof in writing to the secretary of the
Corporation and such business must be a proper matter for stockholder action
under the General Corporation Law of Delaware. To be timely, a stockholder's
notice shall be delivered to the secretary at the principal executive offices of
the Corporation not less than 20 days nor more than 90 days prior to the first
anniversary of the preceding year's annual meeting of stockholders; provided,
however, that in the event that the date of the annual meeting is more than 30
days prior to or more than 60 days after such anniversary date, notice by the
stockholder to be timely must be so delivered not earlier than the 90th day
prior to such annual meeting and not later than the close of business on the
later of the 20th day prior to such annual meeting or the 10th day following the
day on which public announcement of the date of such meeting is first made.
Such stockholder's notice shall set forth (i) as to each person whom the
stockholder proposes to nominate for election or reelection as a director all
information relating to such person that is required to be disclosed in
solicitations of proxies for election of directors, or is otherwise required, in
each case pursuant to Regulation 14A under the Securities Exchange Act of 1934,
as amended (the "Exchange Act") (including such person's written consent to
being named in the proxy statement as a nominee and to serving as a director if
elected); (ii) as to any other business that the stockholder proposes to bring
before the meeting, a brief description of such business, the reasons for
conducting such business at the meeting and any material interest in such
business of such stockholder and the beneficial owner, if any, on whose behalf
the proposal is made; and (iii) as to the stockholder giving the notice and the
beneficial owner, if any, on whose behalf the nomination or proposal is made (A)
the name and address of such stockholder, as they appear on the Corporation's
books, and of such beneficial owner and (B) the class and number of shares of
the Corporation which are owned beneficially and of record by such stockholder
and such beneficial owner.
(d) Only such business shall be conducted at an annual meeting of
stockholders as shall have been brought before the meeting in accordance with
the procedures set forth in this Section 2.2. The chairman of the meeting shall
determine whether a nomination or any business proposed to be transacted by the
stockholders has been properly brought before the meeting and, if any proposed
nomination or business has not been properly brought before the meeting, the
chairman shall declare that such proposed business or nomination shall not be
presented for stockholder action at the meeting.
(e) For purposes of this Section 2.2, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service, Associated
Press or a comparable national news service.
(f) Nothing in this Section 2.2 shall be deemed to affect any rights of
stockholders to request inclusion of proposals in the Corporation's proxy
statement pursuant to Rule 14a-8 under the Exchange Act.
<PAGE>
2.3 Special Meeting.
---------------
(a) A special meeting of the stockholders may be called at any time by the
Board of Directors, or by the chairman of the board, or by the president.
(b) Nominations of persons for election to the Board of Directors may
be made at a special meeting of stockholders at which directors are to be
elected pursuant to such notice of meeting (i) by or at the direction of the
Board of Directors or (ii) by any stockholder of the Corporation who is a
stockholder of record at the time of giving of notice provided for in Section
2.5, who shall be entitled to vote at the meeting and who complies with the
notice procedures set forth in Section 2.5.
2.4 Notice of Stockholder's Meetings; Affidavit of Notice.
-----------------------------------------------------
All notices of meetings of stockholders shall be in writing and shall
be sent or otherwise given in accordance with this Section 2.4 of these Bylaws
not less than 10 nor more than 60 days before the date of the meeting to each
stockholder entitled to vote at such meeting (or such longer or shorter time as
is required by Section 2.5 of these Bylaws, if applicable). The notice shall
specify the place, date, and hour of the meeting, and, in the case of a special
meeting, the purpose or purposes for which the meeting is called.
Written notice of any meeting of stockholders, if mailed, is given
when deposited in the United States mail, postage prepaid, directed to the
stockholder at his address as it appears on the records of the Corporation. An
affidavit of the secretary or an assistant secretary or of the transfer agent of
the Corporation that the notice has been given shall, in the absence of fraud,
be prima facie evidence of the facts stated therein.
2.5 Advance Notice of Stockholder Nominees.
--------------------------------------
Only persons who are nominated in accordance with the procedures set
forth in this Section 2.5 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 for the
election of directors at the meeting who complies with the notice procedures set
forth in this Section 2.5. 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. To be timely, a stockholder's
notice shall be delivered to or mailed and received at the principal executive
offices of the Corporation not less than 60 days nor more than 90 days prior to
the meeting; provided, however, that in the event that less than 60 days' notice
or prior public disclosure of the date of the meeting is given or made to
stockholders, notice by the stockholder to be timely must be so received not
later than the close of business on the 10th day following the day on which such
notice of the date of the meeting was mailed or such public disclosure was made.
Such stockholder's notice shall set forth (a) as to each person whom the
stockholder proposes to nominate for election or re-election as a director, (i)
the name, age, business address and residence address of such person, (ii) the
principal
<PAGE>
occupation or employment of such person, (iii) the class and number of shares of
the Corporation which are beneficially owned by such person and (iv) any other
information relating to such person that is required to be disclosed in
solicitations of proxies for election of directors, or is otherwise required, in
each case pursuant to Regulation 14A under the Exchange Act (including, without
limitation, such person's written consent to being named in the proxy statement
as a nominee and to serving as a director if elected); and (b) as to the
stockholder giving the notice (i) the name and address, as they appear on the
Corporation's books, of such stockholder and (ii) the class and number of shares
of the Corporation which are beneficially owned by such stockholder. At the
request of the Board of Directors any person nominated by the Board of Directors
for election as a director shall furnish to the secretary of the Corporation
that information required to be set forth in a 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 Section 2.5. The chairman of the meeting shall,
if the facts warrant, determine and declare to the meeting that a nomination was
not made in accordance with the procedures prescribed by the Bylaws, and if he
or she should so determine, he or she shall so declare to the meeting and the
defective nomination shall be disregarded.
2.6 Quorum.
------
The holders of a majority of the stock issued and outstanding and entitled
to vote thereat, present in person or represented by proxy, shall constitute a
quorum at all meetings of the stockholders for the transaction of business
except as otherwise provided by statute or by the Certificate of Incorporation.
If, however, such quorum is not present or represented at any meeting of the
stockholders, then either (a) the chairman of the meeting or (b) the
stockholders entitled to vote thereat, present in person or represented by
proxy, shall have power to adjourn the meeting from time to time, without notice
other than announcement at the meeting, until a quorum is present or
represented. At such adjourned meeting at which a quorum is present or
represented, any business may be transacted that might have been transacted at
the meeting as originally noticed.
2.7 Adjourned Meeting; Notice.
-------------------------
When a meeting is adjourned to another time or place, unless these
Bylaws otherwise require, notice need not be given of the adjourned meeting if
the time and place thereof are announced at the meeting at which the adjournment
is taken. At the adjourned meeting the Corporation may transact any business
that might have been transacted at the original meeting. If the adjournment is
for more than 30 days, or if after the adjournment a new record date is fixed
for the adjourned meeting, a notice of the adjourned meeting shall be given to
each stockholder of record entitled to vote at the meeting.
2.8 Conduct of Business.
-------------------
The chairman of any meeting of stockholders shall determine the order
of business and the procedure at the meeting, including the manner of voting and
the conduct of business.
<PAGE>
2.9 Voting.
------
(a) The stockholders entitled to vote at any meeting of stockholders
shall be determined in accordance with the provisions of Section 2.11 of these
Bylaws, subject to the provisions of Sections 217 and 218 of the General
Corporation Law of Delaware (relating to voting rights of fiduciaries, pledgors
and joint owners of stock and to voting trusts and other voting agreements).
(b) Except as may be otherwise provided in the Certificate of
Incorporation, each stockholder shall be entitled to one vote for each share of
capital stock held by such stockholder.
2.10 Waiver of Notice.
----------------
Whenever notice is required to be given under any provision of the
General Corporation Law of Delaware or of the Certificate of Incorporation or
these Bylaws, a written waiver thereof, signed by the person entitled to notice,
whether before or after the time stated therein, shall be deemed equivalent to
notice. Attendance of a person at a meeting shall constitute a waiver of notice
of such meeting, except when the person attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the stockholders need be specified in any written waiver of notice unless so
required by the Certificate of Incorporation or these Bylaws.
2.11 Record Date for Stockholder Notice; Voting.
------------------------------------------
In order that the Corporation may determine the stockholders entitled
to notice of or to vote at any meeting of stockholders or any adjournment
thereof or entitled to receive payment of any dividend or other distribution or
allotment of any rights, or entitled to exercise any rights in respect of any
change, conversion or exchange of stock or for the purpose of any other lawful
action, the Board of Directors may fix, in advance, a record date, which shall
not be more than 60 nor less than 10 days before the date of such meeting, nor
more than 60 days prior to any other action. If the Board of Directors does not
so fix a record date:
(a) The record date for determining stockholders entitled to notice of
or to vote at a meeting of stockholders shall be at the close of business on the
day next preceding the day on which notice is given, or, if notice is waived, at
the close of business on the day next preceding the day on which the meeting is
held.
(b) The record date for determining stockholders for any other purpose
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.
<PAGE>
2.12 Proxies.
-------
Each stockholder entitled to vote at a meeting of stockholders may
authorize another person or persons to act for such stockholder by a written
proxy, signed by the stockholder and filed with the secretary of the
Corporation, but no such proxy shall be voted or acted upon after three years
from its date, unless the proxy provides for a longer period. A proxy shall be
deemed signed if the stockholder's name is placed on the proxy (whether by
manual signature, typewriting, telegraphic transmission or otherwise) by the
stockholder or the stockholder's attorney-in-fact. The revocability of a proxy
that states on its face that it is irrevocable shall be governed by the
provisions of Section 212(e) of the General Corporation Law of Delaware.
ARTICLE III
DIRECTORS
---------
3.1 Powers.
------
Subject to the provisions of the General Corporation Law of Delaware
and any limitations in the Certificate of Incorporation or these Bylaws relating
to action required to be approved by the stockholders or by the outstanding
shares, the business and affairs of the Corporation shall be managed and all
corporate powers shall be exercised by or under the direction of the Board of
Directors.
3.2 Number of Directors.
-------------------
The number of directors of the corporation shall be not less than four
(4) nor more than seven (7). The exact number of directors shall be seven (7)
until changed, within the limits specified above, by a bylaw amending this
Section 3.2, duly adopted by the board of directors or by the shareholders.
3.3 Election, Qualification and Term of Office of Directors.
-------------------------------------------------------
Except as provided in Section 3.4 of these Bylaws, directors shall be
elected at each annual meeting of stockholders to hold office until the next
annual meeting. Directors need not be stockholders unless so required by the
Certificate of Incorporation or these Bylaws, wherein other qualifications for
directors may be prescribed. Each director, including a director elected to
fill a vacancy, shall hold office until his or her successor is elected and
qualified or until his or her earlier resignation or removal.
Elections of directors need not be by written ballot.
3.4 Resignation and Vacancies.
-------------------------
Any director may resign at any time upon written notice to the
attention of the secretary of the Corporation. When one or more directors so
resigns and the resignation is effective
<PAGE>
at a future date, a majority of the directors then in office, including those
who have so resigned, shall have power to fill such vacancy or vacancies, the
vote thereon to take effect when such resignation or resignations shall become
effective, and each director so chosen shall hold office as provided in this
section in the filling of other vacancies. A vacancy created by the removal of a
director by the vote 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 quorum. Each director so elected
shall hold office until the next annual meeting of the stockholders and until a
successor has been elected and qualified.
Unless otherwise provided in the Certificate of Incorporation or these
Bylaws:
(a) 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.
(b) 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 of Directors (as constituted immediately prior to any such
increase), then the Court of Chancery may, upon application of any stockholder
or stockholders holding at least 10% of the total number of the shares at the
time outstanding having the right to vote for such directors, summarily order an
election to be held to fill any such vacancies or newly created directorships,
or to replace the directors chosen by the directors then in office as aforesaid,
which election shall be governed by the provisions of Section 211 of the General
Corporation Law of Delaware as far as applicable.
3.5 Place of Meetings; Meetings by Telephone.
----------------------------------------
The Board of Directors of the Corporation may hold meetings, both
regular and special, either within or outside the State of Delaware.
<PAGE>
Unless otherwise restricted by the Certificate of Incorporation or
these Bylaws, members of the Board of Directors, or any committee designated by
the Board of Directors, may participate in a meeting of the Board of Directors,
or any committee, by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and such participation in a meeting shall constitute presence in
person at the meeting.
3.6 Regular Meetings.
----------------
Regular meetings of the Board of Directors may be held without notice
at such time and at such place as shall from time to time be determined by the
Board of Directors.
3.7 Special Meetings; Notice.
------------------------
Special meetings of the Board of Directors for any purpose or purposes
may be called at any time by the chairman of the board, the president, any vice
president, the secretary or any two directors.
Notice of the time and place of special meetings shall be delivered
personally or by telephone to each director or sent by first-class mail or
telegram, charges prepaid, addressed to each director at that director's address
as it is shown on the records of the Corporation. If the notice is mailed, it
shall be deposited in the United States mail at least four days before the time
of the holding of the meeting. If the notice is delivered personally or by
telephone or by telegram, it shall be delivered personally or by telephone or to
the telegraph company at least 48 hours before the time of the holding of the
meeting. Any oral notice given personally or by telephone may be communicated
either to the director or to a person at the office of the director who the
person giving the notice has reason to believe will promptly communicate it to
the director. The notice need not specify the purpose or the place of the
meeting, if the meeting is to be held at the principal executive office of the
Corporation.
3.8 Quorum.
------
At all meetings of the Board of Directors, a majority of the
authorized number of directors shall constitute a quorum for the transaction of
business and the act of a majority of the directors present at any meeting at
which there is a quorum shall be the act of the Board of Directors, except as
may be otherwise specifically provided by statute or by the Certificate of
Incorporation. If a quorum is not present at any meeting of the Board of
Directors, then the directors present thereat may adjourn the meeting from time
to time, without notice other than announcement at the meeting, until a quorum
is present.
A meeting at which a quorum is initially present may continue to
transact business notwithstanding the withdrawal of directors, if any action
taken is approved by at least a majority of the required quorum for that
meeting.
<PAGE>
3.9 Waiver of Notice.
----------------
Whenever notice is required to be given under any provision of the
General Corporation Law of Delaware or of the Certificate of Incorporation or
these Bylaws, a written waiver thereof, signed by the person entitled to notice,
whether before or after the time stated therein, shall be deemed equivalent to
notice. Attendance of a person at a meeting shall constitute a waiver of notice
of such meeting, except when the person attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the directors, or members of a committee of directors, need be specified in
any written waiver of notice unless so required by the Certificate of
Incorporation or these Bylaws.
3.10 Board Action by Written Consent without a Meeting.
-------------------------------------------------
Unless otherwise restricted by the Certificate of Incorporation or
these Bylaws, any action required or permitted to be taken at any meeting of the
Board of Directors, or of any committee thereof, may be taken without a meeting
if all members of the Board 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. Written consents
representing actions taken by the board or committee may be executed by telex,
telecopy or other facsimile transmission, and such facsimile shall be valid and
binding to the same extent as if it were an original.
3.11 Fees and Compensation of Directors.
----------------------------------
Unless otherwise restricted by the Certificate of Incorporation or
these Bylaws, the Board of Directors shall have the authority to fix the
compensation of directors. No such compensation shall preclude any director
from serving the Corporation in any other capacity and receiving compensation
therefor.
3.12 Approval of Loans to Officers.
-----------------------------
The Corporation may lend money to, or guarantee any obligation of, or
otherwise assist any officer or other employee of the Corporation or of its
subsidiary, including any officer or employee who is a director of the
Corporation or its subsidiary, whenever, in the judgment of the directors, such
loan, guaranty or assistance may reasonably be expected to benefit the
Corporation. The loan, guaranty or other assistance may be with or without
interest and may be unsecured, or secured in such manner as the Board of
Directors shall approve, including, without limitation, a pledge of shares of
stock of the Corporation. Nothing in this Section 3.2 contained shall be deemed
to deny, limit or restrict the powers of guaranty or warranty of the Corporation
at common law or under any statute.
3.13 Removal of Directors.
--------------------
<PAGE>
Unless otherwise restricted by statute, by the Certificate of
Incorporation or by these Bylaws, any director or the entire Board of Directors
may be removed, with or without cause, by the holders of a majority of the
shares then entitled to vote at an election of directors; provided, however,
that if the stockholders of the Corporation are entitled to cumulative voting,
if less than the entire Board of Directors is to be removed, no director may be
removed without cause if the votes cast against his removal would be sufficient
to elect him if then cumulatively voted at an election of the entire Board of
Directors.
No reduction of the authorized number of directors shall have the
effect of removing any director prior to the expiration of such director's term
of office.
3.14 Chairman of the Board of Directors.
----------------------------------
The Corporation may also have, at the discretion of the Board of
Directors, a chairman of the Board of Directors who shall not be considered an
officer of the Corporation.
ARTICLE IV
COMMITTEES
----------
4.1 Committees of Directors.
-----------------------
The Board of Directors may, by resolution passed by a majority of the
whole Board of Directors, designate one or more committees, with each committee
to consist of one or more of the directors of the Corporation. 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
the committee. In the absence or disqualification of a member of a committee,
the member or members thereof present at any meeting and not disqualified from
voting, whether or not such member or members constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member. Any such
committee, to the extent provided in the resolution of the Board of Directors or
in the Bylaws of the Corporation, shall have and may exercise all the powers and
authority of the Board of Directors in the management of the business and
affairs of the Corporation, and may authorize the seal of the Corporation to be
affixed to all papers that may require it; but no such committee shall have the
power or authority to (a) amend the Certificate of Incorporation (except that a
committee may, to the extent authorized in the resolution or resolutions
providing for the issuance of shares of stock adopted by the Board of Directors
as provided in Section 151(a) of the General Corporation Law of Delaware, fix
the designations and any of the preferences or rights of such shares relating to
dividends, redemption, dissolution, any distribution of assets of the
Corporation or the conversion into, or the exchange of such shares for, shares
of any other class or classes or any other series of the same or any other class
or classes of stock of the Corporation or fix the number of shares of any series
of stock or authorize the increase or decrease of the shares of any series), (b)
adopt an agreement of merger or consolidation under Sections 251 or 252 of the
General Corporation Law of Delaware, (c) recommend to the stockholders the sale,
lease or exchange of all or substantially all of
<PAGE>
the Corporation's property and assets, (d) recommend to the stockholders a
dissolution of the Corporation or a revocation of a dissolution, or (e) amend
the Bylaws of the Corporation; and, unless the board resolution establishing the
committee, the Bylaws or the Certificate of Incorporation expressly so provide,
no such committee shall have the power or authority to declare a dividend, to
authorize the issuance of stock, or to adopt a certificate of ownership and
merger pursuant to Section 253 of the General Corporation Law of Delaware.
4.2 Committee Minutes.
-----------------
Each committee shall keep regular minutes of its meetings and report
the same to the Board of Directors when required.
4.3 Meetings and Action of Committees.
---------------------------------
Meetings and actions of committees shall be governed by, and held and
taken in accordance with, the provisions of Section 3.5 (place of meetings and
meetings by telephone), Section 3.6 (regular meetings), Section 3.7 (special
meetings and notice), Section 3.8 (quorum), Section 3.9 (waiver of notice), and
Section 3.10 (action without a meeting) of these Bylaws, with such changes in
the context of such provisions as are necessary to substitute the committee and
its members for the Board of Directors and its members; provided, however, that
the time of regular meetings of committees may be determined either by
resolution of the Board of Directors or by resolution of the committee, that
special meetings of committees may also be called by resolution of the Board of
Directors and that notice of special meetings of committees shall also be given
to all alternate members, who shall have the right to attend all meetings of the
committee. The Board of Directors may adopt rules for the government of any
committee not inconsistent with the provisions of these Bylaws.
ARTICLE V
OFFICERS
--------
5.1 Officers.
--------
The officers of the Corporation shall be a chief executive officer, a
president, a secretary, and a chief financial officer. The Corporation may also
have, at the discretion of the Board of Directors, one or more vice presidents,
one or more assistant secretaries, one or more assistant treasurers, and any
such other officers as may be appointed in accordance with the provisions of
Section 5.3 of these Bylaws. Any number of offices may be held by the same
person.
5.2 Appointment of Officers.
-----------------------
The officers of the Corporation, except such officers as may be
appointed in accordance with the provisions of Sections 5.3 or 5.5 of these
Bylaws, shall be appointed by the Board of Directors, subject to the rights, if
any, of an officer under any contract of employment.
<PAGE>
5.3 Subordinate Officers.
--------------------
The Board of Directors may appoint, or empower the chief executive
officer or the president to appoint, such other officers and agents as the
business of the Corporation may require, each of whom shall hold office for such
period, have such authority, and perform such duties as are provided in these
Bylaws or as the Board of Directors may from time to time determine.
5.4 Removal and Resignation of Officers.
-----------------------------------
Subject to the rights, if any, of an officer under any contract of
employment, any officer may be removed, either with or without cause, by an
affirmative vote of the majority of the Board of Directors at any regular or
special meeting of the Board of Directors or, except in the case of an officer
chosen by the Board of Directors, by any officer upon whom such power of removal
may be conferred by the Board of Directors.
Any officer may resign at any time by giving written notice to the
attention of the secretary of the Corporation. Any resignation shall take
effect at the date of the receipt of that notice or at any later time specified
in that notice; and, unless otherwise specified in that notice, the acceptance
of the resignation shall not be necessary to make it effective. Any resignation
is without prejudice to the rights, if any, of the Corporation under any
contract to which the officer is a party.
5.5 Vacancies in Offices.
--------------------
Any vacancy occurring in any office of the Corporation shall be filled
by the Board of Directors.
5.6 Chief Executive Officer.
-----------------------
Subject to such supervisory powers, if any, as may be given by the
Board of Directors to the chairman of the board, if any, the chief executive
officer of the Corporation shall, subject to the control of the Board of
Directors, have general supervision, direction, and control of the business and
the officers of the Corporation. He or she shall preside at all meetings of the
stockholders and, in the absence or nonexistence of a chairman of the board, at
all meetings of the Board of Directors and shall have the general powers and
duties of management usually vested in the office of chief executive officer of
a corporation and shall have such other powers and duties as may be prescribed
by the Board of Directors or these Bylaws.
5.7 President.
---------
Subject to such supervisory powers, if any, as may be given by the
Board of Directors to the chairman of the board (if any) or the chief executive
officer, the president shall have general supervision, direction, and control of
the business and other officers of the Corporation. He or she shall have the
general powers and duties of management usually vested in the office of
president of a corporation and such other powers and duties as may be prescribed
by the Board of Directors or these Bylaws.
<PAGE>
5.8 Vice Presidents.
---------------
In the absence or disability of the chief executive officer and
president, the vice presidents, if any, in order of their rank as fixed by the
Board of Directors or, if not ranked, a vice president designated by the Board
of Directors, shall perform all the duties of the president and when so acting
shall have all the powers of, and be subject to all the restrictions upon, the
president. The vice presidents shall have such other powers and perform such
other duties as from time to time may be prescribed for them respectively by the
Board of Directors, these Bylaws, the president or the chairman of the board.
5.9 Secretary.
---------
The secretary shall keep or cause to be kept, at the principal
executive office of the Corporation or such other place as the Board of
Directors may direct, a book of minutes of all meetings and actions of
directors, committees of directors, and stockholders. The minutes shall show
the time and place of each meeting, the names of those present at directors'
meetings or committee meetings, the number of shares present or represented at
stockholders' meetings, and the proceedings thereof.
The secretary shall keep, or cause to be kept, at the principal
executive office of the Corporation or at the office of the Corporation's
transfer agent or registrar, as determined by resolution of the Board of
Directors, a share register, or a duplicate share register, showing the names of
all stockholders and their addresses, the number and classes of shares held by
each, the number and date of certificates evidencing such shares, and the number
and date of cancellation of every certificate surrendered for cancellation.
The secretary shall give, or cause to be given, notice of all meetings
of the stockholders and of the Board of Directors required to be given by law or
by these Bylaws. He or she shall keep the seal of the Corporation, if one be
adopted, in safe custody and shall have such other powers and perform such other
duties as may be prescribed by the Board of Directors or by these Bylaws.
5.10 Chief Financial Officer.
-----------------------
The chief financial officer shall keep and maintain, or cause to be
kept and maintained, adequate and correct books and records of accounts of the
properties and business transactions of the Corporation, including accounts of
its assets, liabilities, receipts, disbursements, gains, losses, capital
retained earnings, and shares. The books of account shall at all reasonable
times be open to inspection by any director.
The chief financial officer shall deposit all moneys and other
valuables in the name and to the credit of the Corporation with such
depositories as may be designated by the Board of Directors. He or she shall
disburse the funds of the Corporation as may be ordered by the Board of
Directors, shall render to the president, the chief executive officer, or the
directors, upon request, an
<PAGE>
account of all his or her transactions as chief financial officer and of the
financial condition of the Corporation, and shall have other powers and perform
such other duties as may be prescribed by the Board of Directors or the Bylaws.
5.11 Representation of Shares of Other Corporations.
----------------------------------------------
The chairman of the board, the chief executive officer, the president,
any vice president, the chief financial officer, the secretary or assistant
secretary of this Corporation, or any other person authorized by the Board of
Directors or the chief executive officer or the president or a vice president,
is authorized to vote, represent, and exercise on behalf of this Corporation all
rights incident to any and all shares of any other corporation or corporations
standing in the name of this Corporation. The authority granted herein may be
exercised either by such person directly or by any other person authorized to do
so by proxy or power of attorney duly executed by the person having such
authority.
5.12 Authority and Duties of Officers.
--------------------------------
In addition to the foregoing authority and duties, all officers of the
Corporation shall respectively have such authority and perform such duties in
the management of the business of the Corporation as may be designated from time
to time by the Board of Directors or the stockholders.
ARTICLE VI
INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES, AND OTHER AGENTS
-------------------------------------------------------------------
6.1 Indemnification of Directors and Officers.
-----------------------------------------
The Corporation shall, to the maximum extent and in the manner
permitted by the 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 (a) who is or was
a director or officer of the Corporation, (b) 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 (c) who was a director
or officer of a Corporation which was a predecessor corporation of the
Corporation or of another enterprise at the request of such predecessor
corporation.
6.2 Indemnification of Others.
-------------------------
The Corporation shall have the power, to the 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
<PAGE>
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 (a) who
is or was an employee or agent of the Corporation, (b) 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 (c) who was an
employee or agent of a corporation which was a predecessor corporation of the
Corporation or of another enterprise at the request of such predecessor
corporation.
6.3 Payment of Expenses in Advance.
------------------------------
Expenses incurred in defending any action or proceeding for which
indemnification is required pursuant to Section 6.1 or for which indemnification
is permitted pursuant to Section 6.2 following authorization thereof by the
Board of Directors shall be paid by the Corporation in advance of the final
disposition of such action or proceeding upon receipt of an undertaking by or on
behalf of the indemnified party to repay such amount if it shall ultimately be
determined that the indemnified party is not entitled to be indemnified as
authorized in this Article VI.
6.4 Indemnity Not Exclusive.
-----------------------
The indemnification provided by this Article VI shall not be deemed
exclusive of any other rights to which those seeking indemnification may be
entitled under any Bylaw, agreement, vote of shareholders or disinterested
directors or otherwise, both as to action in an official capacity and as to
action in another capacity while holding such office, to the extent that such
additional rights to indemnification are authorized in the Certificate of
Incorporation
6.5 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.
6.6 Conflicts.
---------
No indemnification or advance shall be made under this Article VI,
except where such indemnification or advance is mandated by law or the order,
judgment or decree of any court of competent jurisdiction, in any circumstance
where it appears:
(a) That it would be inconsistent with a provision of the Certificate
of Incorporation, these Bylaws, a resolution of the stockholders or an agreement
in effect at the time of the accrual of the alleged cause of the action asserted
in the proceeding in which the expenses were incurred or other amounts were
paid, which prohibits or otherwise limits indemnification; or
<PAGE>
(b) That it would be inconsistent with any condition expressly imposed
by a court in approving a settlement.
ARTICLE VII
RECORDS AND REPORTS
-------------------
7.1 Maintenance and Inspection of Records.
-------------------------------------
The Corporation shall, either at its principal executive offices or at
such place or places as designated by the Board of Directors, keep a record of
its stockholders listing their names and addresses and the number and class of
shares held by each stockholder, a copy of these Bylaws as amended to date,
accounting books, and other records.
Any stockholder of record, in person or by attorney or other agent,
shall, upon written demand under oath stating the purpose thereof, have the
right during the usual hours for business to inspect for any proper purpose the
Corporation's stock ledger, a list of its stockholders, and its other books and
records and to make copies or extracts therefrom. A proper purpose shall mean a
purpose reasonably related to such person's interest as a stockholder. In every
instance where an attorney or other agent is the person who seeks the right to
inspection, the demand under oath shall be accompanied by a power of attorney or
such other writing that authorizes the attorney or other agent to so act on
behalf of the stockholder. The demand under oath shall be directed to the
Corporation at its registered office in Delaware or at its principal place of
business.
7.2 Inspection by Directors.
-----------------------
Any director shall have the right to examine the Corporation's stock
ledger, a list of its stockholders, and its other books and records for a
purpose reasonably related to his or her position as a director. The Court of
Chancery is hereby vested with the exclusive jurisdiction to determine whether a
director is entitled to the inspection sought. The Court may summarily order
the Corporation to permit the director to inspect any and all books and records,
the stock ledger, and the stock list and to make copies or extracts therefrom.
The Court may, in its discretion, prescribe any limitations or conditions with
reference to the inspection, or award such other and further relief as the Court
may deem just and proper.
7.3 Annual Statement to Stockholders.
--------------------------------
The Board of Directors shall present at each annual meeting, and at
any special meeting of the stockholders when called for by vote of the
stockholders, a full and clear statement of the business and condition of the
Corporation.
<PAGE>
ARTICLE VIII
GENERAL MATTERS
---------------
8.1 Checks.
------
From time to time, the Board of Directors shall determine by
resolution which person or persons may sign or endorse all checks, drafts, other
orders for payment of money, notes or other evidences of indebtedness that are
issued in the name of or payable to the Corporation, and only the persons so
authorized shall sign or endorse those instruments.
8.2 Execution of Corporate Contracts and Instruments.
------------------------------------------------
The Board of Directors, except as otherwise provided in these Bylaws,
may authorize any officer or officers, or agent or agents, to enter into any
contract or execute any instrument in the name of and on behalf of the
Corporation; such authority may be general or confined to specific instances.
Unless so authorized or ratified by the Board of Directors or within the agency
power of an officer, no officer, agent or employee shall have any power or
authority to bind the Corporation by any contract or engagement or to pledge its
credit or to render it liable for any purpose or for any amount.
8.3 Stock Certificates; Partly Paid Shares.
--------------------------------------
The shares of the Corporation shall be represented by certificates,
provided that the Board of Directors of the Corporation may provide by
resolution or resolutions that some or all of any or all classes or series of
its stock shall be uncertificated shares. Any such resolution shall not apply
to shares represented by a certificate until such certificate is surrendered to
the Corporation. Notwithstanding the adoption of such a resolution by the Board
of Directors, every holder of stock represented by certificates and upon request
every holder of uncertificated shares shall be entitled to have a certificate
signed by, or in the name of the Corporation by the chairman or vice-chairman of
the Board of Directors, or the chief executive officer or the president or vice-
president, and by the chief financial officer or an assistant treasurer, or the
secretary or an assistant secretary of the Corporation representing the number
of shares registered in certificate form. Any or all of the signatures on the
certificate may be a facsimile. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed upon a
certificate has ceased to be such officer, transfer agent or registrar before
such certificate is issued, it may be issued by the Corporation with the same
effect as if he or she were such officer, transfer agent or registrar at the
date of issue.
The Corporation may issue the whole or any part of its shares as
partly paid and subject to call for the remainder of the consideration to be
paid therefor. Upon the face or back of each stock certificate issued to
represent any such partly paid shares, upon the books and records of the
Corporation in the case of uncertificated partly paid shares, the total amount
of the consideration to be paid therefor and the amount paid thereon shall be
stated. Upon the declaration of any
<PAGE>
dividend on fully paid shares, the Corporation shall declare a dividend upon
partly paid shares of the same class, but only upon the basis of the percentage
of the consideration actually paid thereon.
8.4 Special Designation on Certificates.
-----------------------------------
If the Corporation is authorized to issue more than one class of stock
or more than one series of any class, then the powers, the designations, the
preferences, and the relative, participating, optional or other special rights
of each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate that the Corporation shall
issue to represent such class or series of stock; provided, however, that,
except as otherwise provided in Section 202 of the General Corporation Law of
Delaware, in lieu of the foregoing requirements there may be set forth on the
face or back of the certificate that the Corporation shall issue to represent
such class or series of stock a statement that the Corporation will furnish
without charge to each stockholder who so requests the powers, the designations,
the preferences, and the relative, participating, optional or other special
rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights.
8.5 Lost Certificates.
-----------------
Except as provided in this Section 8.5, no new certificates for shares
shall be issued to replace a previously issued certificate unless the latter is
surrendered to the Corporation and canceled at the same time. The Corporation
may issue a new certificate of stock or uncertificated shares in the place of
any certificate previously issued by it, alleged to have been lost, stolen or
destroyed, and the Corporation may require the owner of the lost, stolen or
destroyed certificate, or the owner's legal representative, to give the
Corporation a bond sufficient to indemnify it against any claim that may be made
against it on account of the alleged loss, theft or destruction of any such
certificate or the issuance of such new certificate or uncertificated shares.
8.6 Construction; Definitions.
-------------------------
Unless the context requires otherwise, the general provisions, rules
of construction, and definitions in the Delaware General Corporation Law shall
govern the construction of these Bylaws. Without limiting the generality of
this provision, the singular number includes the plural, the plural number
includes the singular, and the term "person" includes both a corporation and a
natural person.
8.7 Dividends.
---------
The directors of the Corporation, subject to any restrictions
contained in (a) the General Corporation Law of Delaware or (b) the Certificate
of Incorporation, may declare and pay dividends upon the shares of its capital
stock. Dividends may be paid in cash, in property, or in shares of the
Corporation's capital stock.
<PAGE>
The directors of the Corporation may set apart out of any of the funds
of the Corporation available for dividends a reserve or reserves for any proper
purpose and may abolish any such reserve. Such purposes shall include but not be
limited to equalizing dividends, repairing or maintaining any property of the
Corporation, and meeting contingencies.
8.8 Fiscal Year.
-----------
The fiscal year of the Corporation shall be fixed by resolution of the
Board of Directors and may be changed by the Board of Directors.
8.9 Seal.
----
The Corporation may adopt a corporate seal, which may be altered at
pleasure, and may use the same by causing it or a facsimile thereof, to be
impressed or affixed or in any other manner reproduced.
8.10 Transfer of Stock.
-----------------
Upon surrender to the Corporation or the transfer agent of the
Corporation of a certificate for shares duly endorsed or accompanied by proper
evidence of succession, assignation or authority to transfer, it shall be the
duty of the Corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate, and record the transaction in its books.
8.11 Stock Transfer Agreements.
-------------------------
The Corporation shall have power to enter into and perform any
agreement with any number of stockholders of any one or more classes of stock of
the Corporation to restrict the transfer of shares of stock of the Corporation
of any one or more classes owned by such stockholders in any manner not
prohibited by the General Corporation Law of Delaware.
8.12 Registered Stockholders.
-----------------------
The Corporation shall be entitled to recognize the exclusive right of
a person registered on its books as the owner of shares to receive dividends and
to vote as such owner, shall be entitled to hold liable for calls and
assessments the person registered on its books as the owner of shares, and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of another person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware.
ARTICLE IX
AMENDMENTS
----------
The Bylaws of the Corporation may be adopted, amended or repealed by
the stockholders entitled to vote; provided, however, that the Corporation may,
in its Certificate of
<PAGE>
Incorporation, confer the power to adopt, amend or repeal Bylaws upon the
directors. The fact that such power has been so conferred upon the directors
shall not divest the stockholders of the power, nor limit their power to adopt,
amend or repeal Bylaws.
<PAGE>
CERTIFICATE OF ADOPTION OF BYLAWS
OF
ACTIVE SOFTWARE, INC.
ADOPTION BY INCORPORATOR
------------------------
The undersigned person appointed in the certificate of incorporation to act
as the Incorporator of Active Software, Inc. hereby adopts the foregoing bylaws
as the Bylaws of the corporation.
Executed this 19th day of May 1999.
/s/ Edward Y. Kim
---------------------------
Edward Y. Kim, Incorporator
CERTIFICATE BY SECRETARY OF ADOPTION BY INCORPORATOR
----------------------------------------------------
The undersigned hereby certifies that the undersigned is the duly elected,
qualified, and acting Secretary of Active Software, Inc., and that the foregoing
Bylaws were adopted as the Bylaws of the corporation on May 19, 1999, by the
person appointed in the certificate of incorporation to act as the Incorporator
of the corporation.
Executed this 19th day of May 1999.
/s/ Mark A. Medearis
---------------------------
Mark A. Medearis, Secretary
<PAGE>
Exhibit 10.1
INDEMNIFICATION AGREEMENT
-------------------------
This Indemnification Agreement (the "Agreement") is made as of ________,
---------
1999, by and between Active Software, Inc., a Delaware corporation (the
"Company"), and ________________(the "Indemnitee").
------- ----------
RECITALS
--------
The Company and Indemnitee recognize the increasing difficulty in obtaining
liability insurance for directors, officers and key employees, the significant
increases in the cost of such insurance and the general reductions in the
coverage of such insurance. The Company and Indemnitee further recognize the
substantial increase in corporate litigation in general, subjecting directors,
officers and key employees to expensive litigation risks at the same time as the
availability and coverage of liability insurance has been severely limited.
Indemnitee does not regard the current protection available as adequate under
the present circumstances, and Indemnitee and agents of the Company may not be
willing to continue to serve as agents of the Company without additional
protection. The Company desires to attract and retain the services of highly
qualified individuals, such as Indemnitee, and to indemnify its directors,
officers and key employees so as to provide them with the maximum protection
permitted by law.
AGREEMENT
---------
In consideration of the mutual promises made in this Agreement, and for
other good and valuable consideration, receipt of which is hereby acknowledged,
the Company and Indemnitee hereby agree as follows:
1. Indemnification.
---------------
(a) Third Party Proceedings. The Company shall indemnify Indemnitee
-----------------------
if Indemnitee is or was a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the Company) by reason of the fact that Indemnitee is or was a
director, officer, employee or agent of the Company, or any subsidiary of the
Company, by reason of any action or inaction on the part of Indemnitee while an
officer or director or by reason of the fact that Indemnitee is or was serving
at the request of the Company as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement (if such settlement is approved in advance by the Company, which
approval shall not be unreasonably withheld) actually and reasonably incurred by
Indemnitee in connection with such action, suit or proceeding if Indemnitee
acted in good faith and in a manner Indemnitee reasonably believed to be in or
not opposed to the best interests of the Company, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe Indemnitee's
conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo contendere or
its equivalent, shall not, of itself, create a presumption that Indemnitee did
not act in good faith and in a manner which Indemnitee
<PAGE>
reasonably believed to be in or not opposed to the best interests of the
Company, or, with respect to any criminal action or proceeding, that Indemnitee
had reasonable cause to believe that Indemnitee's conduct was unlawful.
(b) Proceedings By or in the Right of the Company. The Company shall
---------------------------------------------
indemnify Indemnitee if Indemnitee was or is a party or is threatened to be made
a party to any threatened, pending or completed action or proceeding by or in
the right of the Company or any subsidiary of the Company to procure a judgment
in its favor by reason of the fact that Indemnitee is or was a director,
officer, employee or agent of the Company, or any subsidiary of the Company, by
reason of any action or inaction on the part of Indemnitee while an officer or
director or by reason of the fact that Indemnitee is or was serving at the
request of the Company as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees) and, to the fullest extent permitted by
law, amounts paid in settlement (if such settlement is approved in advance by
the Company, which approval shall not be unreasonably withheld), in each case to
the extent actually and reasonably incurred by Indemnitee in connection with the
defense or settlement of such action or suit if Indemnitee acted in good faith
and in a manner Indemnitee reasonably believed to be in or not opposed to the
best interests of the Company and its stockholders, except that no
indemnification shall be made in respect of any claim, issue or matter as to
which Indemnitee shall have been finally adjudicated by court order or judgment
to be liable to the Company in the performance of Indemnitee's duty to the
Company and its stockholders unless and only to the extent that the court in
which such action or proceeding is or was pending shall determine upon
application that, in view of all the circumstances of the case, Indemnitee is
fairly and reasonably entitled to indemnity for such expenses which such court
shall deem proper.
(c) Mandatory Payment of Expenses. To the extent that Indemnitee has
-----------------------------
been successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in Section 1(a) or Section 1(b) or the defense of any
claim, issue or matter therein, Indemnitee shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by Indemnitee in
connection therewith.
2. No Employment Rights. Nothing contained in this Agreement is intended
--------------------
to create in Indemnitee any right to continued employment.
3. Expenses; Indemnification Procedure.
-----------------------------------
(a) Advancement of Expenses. The Company shall advance all expenses
-----------------------
incurred by Indemnitee in connection with the investigation, defense, settlement
or appeal of any civil or criminal action, suit or proceeding referred to in
Section l(a) or Section 1(b) hereof (including amounts actually paid in
settlement of any such action, suit or proceeding). Indemnitee hereby
undertakes to repay such amounts advanced only if, and to the extent that, it
shall ultimately be determined that Indemnitee is not entitled to be indemnified
by the Company as authorized hereby.
(b) Notice/Cooperation by Indemnitee. Indemnitee shall, as a
--------------------------------
condition precedent to his or her right to be indemnified under this Agreement,
give the Company notice in
-2-
<PAGE>
writing as soon as practicable of any claim made against Indemnitee for which
indemnification will or could be sought under this Agreement. Notice to the
Company shall be directed to the Chief Executive Officer of the Company and
shall be given in accordance with the provisions of Section 12(d) below. In
addition, Indemnitee shall give the Company such information and cooperation as
it may reasonably require and as shall be within Indemnitee's power.
(c) Procedure. Any indemnification and advances provided for in
---------
Section 1 and this Section 3 shall be made no later than twenty (20) days after
receipt of the written request of Indemnitee. If a claim under this Agreement,
under any statute, or under any provision of the Company's Certificate of
Incorporation or Bylaws providing for indemnification, is not paid in full by
the Company within twenty (20) days after a written request for payment thereof
has first been received by the Company, Indemnitee may, but need not, at any
time thereafter bring an action against the Company to recover the unpaid amount
of the claim and, subject to Section 11 of this Agreement, Indemnitee shall also
be entitled to be paid for the expenses (including attorneys' fees) of bringing
such action. It shall be a defense to any such action (other than an action
brought to enforce a claim for expenses incurred in connection with any action,
suit or proceeding in advance of its final disposition) that Indemnitee has not
met the standards of conduct which make it permissible under applicable law for
the Company to indemnify Indemnitee for the amount claimed, but the burden of
proving such defense shall be on the Company and Indemnitee shall be entitled to
receive interim payments of expenses pursuant to Section 3(a) unless and until
such defense may be finally adjudicated by court order or judgment from which no
further right of appeal exists. It is the parties' intention that if the
Company contests Indemnitee's right to indemnification, the question of
Indemnitee's right to indemnification shall be for the court to decide, and
neither the failure of the Company (including its Board of Directors, any
committee or subgroup of the Board of Directors, independent legal counsel, or
its stockholders) to have made a determination that indemnification of
Indemnitee is proper in the circumstances because Indemnitee has met the
applicable standard of conduct required by applicable law, nor an actual
determination by the Company (including its Board of Directors, any committee or
subgroup of the Board of Directors, independent legal counsel, or its
stockholders) that Indemnitee has not met such applicable standard of conduct,
shall create a presumption that Indemnitee has or has not met the applicable
standard of conduct.
(d) Notice to Insurers. If, at the time of the receipt of a notice of
------------------
a claim pursuant to Section 3(b) hereof, the Company has director and officer
liability insurance in effect, the Company shall give prompt notice of the
commencement of such proceeding to the insurers in accordance with the
procedures set forth in the respective policies. The Company shall thereafter
take all necessary or desirable action to cause such insurers to pay, on behalf
of the Indemnitee, all amounts payable as a result of such proceeding in
accordance with the terms of such policies.
(e) Selection of Counsel. In the event the Company shall be obligated
--------------------
under Section 3(a) hereof to pay the expenses of any proceeding against
Indemnitee, the Company, if appropriate, shall be entitled to assume the defense
of such proceeding, with counsel approved by Indemnitee, upon the delivery to
Indemnitee of written notice of its election so to do. After delivery of such
notice, approval of such counsel by Indemnitee and the retention of such counsel
-3-
<PAGE>
by the Company, the Company will not be liable to Indemnitee under this
Agreement for any fees of counsel subsequently incurred by Indemnitee with
respect to the same proceeding, provided that (i) Indemnitee shall have the
right to employ counsel in any such proceeding at Indemnitee's expense; and (ii)
if (A) the employment of counsel by Indemnitee has been previously authorized by
the Company, (B) Indemnitee shall have reasonably concluded that there may be a
conflict of interest between the Company and Indemnitee in the conduct of any
such defense or (C) the Company shall not, in fact, have employed counsel to
assume the defense of such proceeding, then the fees and expenses of
Indemnitee's counsel shall be at the expense of the Company.
4. Additional Indemnification Rights; Nonexclusivity.
-------------------------------------------------
(a) Scope. Notwithstanding any other provision of this Agreement, the
-----
Company hereby agrees to indemnify the Indemnitee to the fullest extent
permitted by law, notwithstanding that such indemnification is not specifically
authorized by the other provisions of this Agreement, the Company's Certificate
of Incorporation, the Company's Bylaws or by statute. In the event of any
change, after the date of this Agreement, in any applicable law, statute, or
rule which expands the right of a Delaware corporation to indemnify a member of
its board of directors or an officer, such changes shall be deemed to be within
the purview of Indemnitee's rights and the Company's obligations under this
Agreement. In the event of any change in any applicable law, statute or rule
which narrows the right of a Delaware corporation to indemnify a member of its
board of directors or an officer, such changes, to the extent not otherwise
required by such law, statute or rule to be applied to this Agreement shall have
no effect on this Agreement or the parties' rights and obligations hereunder.
(b) Nonexclusivity. The indemnification provided by this Agreement
--------------
shall not be deemed exclusive of any rights to which Indemnitee may be entitled
under the Company's Certificate of Incorporation, its Bylaws, any agreement, any
vote of stockholders or disinterested members of the Company's Board of
Directors, the General Corporation Law of the State of Delaware, or otherwise,
both as to action in Indemnitee's official capacity and as to action in another
capacity while holding such office. The indemnification provided under this
Agreement shall continue as to Indemnitee for any action taken or not taken
while serving in an indemnified capacity even though he or she may have ceased
to serve in any such capacity at the time of any action, suit or other covered
proceeding.
5. Partial Indemnification. If Indemnitee is entitled under any provision
-----------------------
of this Agreement to indemnification by the Company for some or a portion of the
expenses, judgments, fines or penalties actually or reasonably incurred in the
investigation, defense, appeal or settlement of any civil or criminal action,
suit or proceeding, but not, however, for the total amount thereof, the Company
shall nevertheless indemnify Indemnitee for the portion of such expenses,
judgments, fines or penalties to which Indemnitee is entitled.
6. Mutual Acknowledgment. Both the Company and Indemnitee acknowledge
---------------------
that in certain instances, Federal law or public policy may override applicable
state law and prohibit the Company from indemnifying its directors and officers
under this Agreement or otherwise.
-4-
<PAGE>
For example, the Company and Indemnitee acknowledge that the Securities and
Exchange Commission (the "SEC") has taken the position that indemnification is
---
not permissible for liabilities arising under certain federal securities laws,
and federal legislation prohibits indemnification for certain ERISA violations.
Indemnitee understands and acknowledges that the Company has undertaken or may
be required in the future to undertake with the SEC to submit the question of
indemnification to a court in certain circumstances for a determination of the
Company's right under public policy to indemnify Indemnitee.
7. Officer and Director Liability Insurance. The Company shall, from time
----------------------------------------
to time, make the good faith determination whether or not it is practicable for
the Company to obtain and maintain a policy or policies of insurance with
reputable insurance companies providing the officers and directors of the
Company with coverage for losses from wrongful acts, or to ensure the Company's
performance of its indemnification obligations under this Agreement. Among other
considerations, the Company will weigh the costs of obtaining such insurance
coverage against the protection afforded by such coverage. In all policies of
director and officer liability insurance, Indemnitee shall be named as an
insured in such a manner as to provide Indemnitee the same rights and benefits
as are accorded to the most favorably insured of the Company's directors, if
Indemnitee is a director; or of the Company's officers, if Indemnitee is not a
director of the Company but is an officer; or of the Company's key employees, if
Indemnitee is not an officer or director but is a key employee. Notwithstanding
the foregoing, the Company shall have no obligation to obtain or maintain such
insurance if the Company determines in good faith that such insurance is not
reasonably available, if the premium costs for such insurance are
disproportionate to the amount of coverage provided, if the coverage provided by
such insurance is limited by exclusions so as to provide an insufficient
benefit, or if Indemnitee is covered by similar insurance maintained by a parent
or subsidiary of the Company.
8. Severability. Nothing in this Agreement is intended to require or
------------
shall be construed as requiring the Company to do or fail to do any act in
violation of applicable law. The Company's inability, pursuant to court order,
to perform its obligations under this Agreement shall not constitute a breach of
this Agreement. The provisions of this Agreement shall be severable as provided
in this Section 8. If this Agreement or any portion hereof shall be invalidated
on any ground by any court of competent jurisdiction, then the Company shall
nevertheless indemnify Indemnitee to the full extent permitted by any applicable
portion of this Agreement that shall not have been invalidated, and the balance
of this Agreement not so invalidated shall be enforceable in accordance with its
terms.
9. Exceptions. Any other provision herein to the contrary
----------
notwithstanding, the Company shall not be obligated pursuant to the terms of
this Agreement:
(a) Claims Initiated by Indemnitee. To indemnify or advance expenses
------------------------------
to Indemnitee with respect to proceedings or claims initiated or brought
voluntarily by Indemnitee and not by way of defense, except with respect to
proceedings brought to establish or enforce a right to indemnification under
this Agreement or any other statute or law or otherwise as required under
Section 145 of the Delaware General Corporation Law, but such indemnification or
-5-
<PAGE>
advancement of expenses may be provided by the Company in specific cases if the
Board of Directors finds it to be appropriate;
(b) Lack of Good Faith. To indemnify Indemnitee for any expenses
------------------
incurred by Indemnitee with respect to any proceeding instituted by Indemnitee
to enforce or interpret this Agreement, if a court of competent jurisdiction
determines that each of the material assertions made by Indemnitee in such
proceeding was not made in good faith or was frivolous;
(c) Insured Claims. To indemnify Indemnitee for expenses or
--------------
liabilities of any type whatsoever (including, but not limited to, judgments,
fines, ERISA excise taxes or penalties, and amounts paid in settlement) to the
extent such expenses or liabilities have been paid directly to Indemnitee by an
insurance carrier under a policy of officers' and directors' liability insurance
maintained by the Company; or
(d) Claims under Section 16(b). To indemnify Indemnitee for expenses
--------------------------
or the payment of profits arising from the purchase and sale by Indemnitee of
securities in violation of Section 16(b) of the Securities Exchange Act of 1934,
as amended, or any similar successor statute.
10. Construction of Certain Phrases.
-------------------------------
(a) For purposes of this Agreement, references to the "Company" shall
-------
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, and employees or agents, so that
if Indemnitee is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such constituent
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, Indemnitee shall stand in
the same position under the provisions of this Agreement with respect to the
resulting or surviving corporation as Indemnitee would have with respect to such
constituent corporation if its separate existence had continued.
(b) For purposes of this Agreement, references to "other enterprises"
-----------------
shall include employee benefit plans; references to "fines" shall include any
-----
excise taxes assessed on Indemnitee with respect to an employee benefit plan;
and references to "serving at the request of the Company" shall include any
-------------------------------------
service as a director, officer, employee or agent of the Company which imposes
duties on, or involves services by, such director, officer, employee or agent
with respect to an employee benefit plan, its participants, or beneficiaries;
and if Indemnitee acted in good faith and in a manner Indemnitee reasonably
believed to be in the interest of the participants and beneficiaries of an
employee benefit plan, Indemnitee shall be deemed to have acted in a manner "not
---
opposed to the best interests of the Company" as referred to in this Agreement.
- --------------------------------------------
11. Attorneys' Fees. In the event that any action is instituted by
---------------
Indemnitee under this Agreement to enforce or interpret any of the terms hereof,
Indemnitee shall be entitled to be paid all court costs and expenses, including
reasonable attorneys' fees, incurred by Indemnitee
-6-
<PAGE>
with respect to such action, unless as a part of such action, the court of
competent jurisdiction determines that each of the material assertions made by
Indemnitee as a basis for such action were not made in good faith or were
frivolous. In the event of an action instituted by or in the name of the Company
under this Agreement or to enforce or interpret any of the terms of this
Agreement, Indemnitee shall be entitled to be paid all court costs and expenses,
including attorneys' fees, incurred by Indemnitee in defense of such action
(including with respect to Indemnitee's counterclaims and cross-claims made in
such action), unless as a part of such action the court determines that each of
Indemnitee's material defenses to such action were made in bad faith or were
frivolous.
12. Miscellaneous.
-------------
(a) Governing Law. This Agreement and all acts and transactions
-------------
pursuant hereto and the rights and obligations of the parties hereto shall be
governed, construed and interpreted in accordance with the laws of the State of
Delaware, without giving effect to principles of conflict of law.
(b) Entire Agreement; Enforcement of Rights. This Agreement sets
---------------------------------------
forth the entire agreement and understanding of the parties relating to the
subject matter herein and merges all prior discussions between them. No
modification of or amendment to this Agreement, nor any waiver of any rights
under this Agreement, shall be effective unless in writing signed by the parties
to this Agreement. The failure by either party to enforce any rights under this
Agreement shall not be construed as a waiver of any rights of such party.
(c) Construction. This Agreement is the result of negotiations
------------
between and has been reviewed by each of the parties hereto and their respective
counsel, if any; accordingly, this Agreement shall be deemed to be the product
of all of the parties hereto, and no ambiguity shall be construed in favor of or
against any one of the parties hereto.
(d) Notices. Any notice, demand or request required or permitted to
-------
be given under this Agreement shall be in writing and shall be deemed sufficient
when delivered personally or sent by telegram or forty-eight (48) hours after
being deposited in the U.S. mail, as certified or registered mail, with postage
prepaid, and addressed to the party to be notified at such party's address as
set forth below or as subsequently modified by written notice.
(e) Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
(f) Successors and Assigns. This Agreement shall be binding upon the
----------------------
Company and its successors and assigns, and inure to the benefit of Indemnitee
and Indemnitee's heirs, legal representatives and assigns.
(g) Subrogation. In the event of payment under this Agreement, the
-----------
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of
-7-
<PAGE>
Indemnitee, who shall execute all documents required and shall do all acts that
may be necessary to secure such rights and to enable the Company to effectively
bring suit to enforce such rights.
[Signature Page Follows]
-8-
<PAGE>
The parties hereto have executed this Agreement as of the day and year set
forth on the first page of this Agreement.
ACTIVE SOFTWARE, INC.
By:
--------------------------
Title:
--------------------------
Address: 3333 Octavius Drive
Santa Clara, CA 95054
AGREED TO AND ACCEPTED:
INDEMNITEE
- -------------------------
(Print Name)
- -------------------------
(Signature)
Address:
-9-
<PAGE>
EXHIBIT 10.7
================================================================================
ACTIVE SOFTWARE, INC.
AMENDED AND RESTATED
RIGHTS AGREEMENT
March 27, 1998
===============================================================================
<PAGE>
TABLE OF CONTENTS
Section 1. Termination of Prior Rights............................2
Section 2. Registration Rights....................................2
2.1 Definitions............................................2
2.2 Requested Registration.................................3
2.3 Company Registration...................................4
2.4 Obligations of the Company.............................4
2.5 Furnish Information....................................6
2.6 Expenses of Demand Registration........................6
2.7 Expenses of Company Registration.......................6
2.8 Underwriting Requirements..............................6
2.9 Delay of RegistratioN..................................7
2.10 Indemnification.......................................7
2.11 Reports Under Securities Exchange Act of 1934.........8
2.12 Form S-3 Registration.................................9
2.13 Assignment of Registration Rights....................10
2.14 Limitations on Subsequent Registration Rights........10
2.15 'Market Stand-Off' Agreement.........................11
2.16 Termination of Registration Rights...................11
Section 3. Additional Rights.....................................11
3.1 Right of First Offer..................................11
3.2 Delivery of Financial Statements......................13
3.3 Inspection............................................14
3.4 Approval of Budget by Board...........................14
3.5 Approval of Titles by Board...........................14
3.6 Non-Employee Director Expenses........................14
3.7 Employee Stock Purchase and Option Agreements.........14
3.8 Restriction on Dividends..............................15
3.9 Termination of Information and Inspection Covenants...15
Section 4. Miscellaneous.........................................15
4.1 Assignment............................................15
4.2 Third Parties.........................................15
4.3 Governing Law.........................................15
4.4 Counterparts..........................................16
4.5 Notices.L.............................................16
4.6 Severability..........................................16
4.7 Amendment and Waiver..................................16
4.8 Effect of Amendment or Waiver.........................17
4.9 Rights of Holders.....................................17
4.10 Delays or Omissions..................................17
<PAGE>
AMENDED AND RESTATED
RIGHTS AGREEMENT
THIS AMENDED AND RESTATED RIGHTS AGREEMENT (the "Agreement") is entered
into as of March 27, 1998, by and among Active Software, Inc., a California
corporation (the "Company"), those holders of the Company's Common Stock whose
names are set forth on Exhibit A attached hereto (the "Common Shareholders"),
Venture Lending & Leasing, Inc. ("Venture Lending"), those holders of the
Company's Series A Preferred Stock whose names are set forth on Exhibit A
attached hereto (the "Series A Shareholders"), those holders of the Company's
Series B Preferred Stock whose names are set forth on Exhibit A attached hereto
(the "Series B Shareholders"), and those holders of the Company's Series C
Preferred Stock whose names are set forth on Exhibit A attached hereto (the
"Series C Shareholders," and collectively with the Common Shareholders, Series A
Shareholders and Series B Shareholders, the "Shareholders").
RECITALS
--------
The Company and the Series A Shareholders have entered into a Series A
Preferred Stock Purchase Agreement dated February 1, 1996 (the "Series A
Purchase Agreement"), pursuant to which the Company issued and sold to the
Series A Shareholders shares of the Company's Series A Preferred Stock (the
"Series A Shares");
The Company and Venture Lending have entered into a Loan Agreement dated as
of September 27, 1996, pursuant to which the Company issued to Venture Lending a
warrant to purchase shares of the Company's Common Stock;
The Company and the Series B Shareholders have entered into a Series B
Preferred Stock Purchase Agreement dated April 1, 1997 (the "Series B Purchase
Agreement"), pursuant to which the Company issued and sold to the Series B
Shareholders shares of the Company's Series B Preferred Stock (the "Series B
Shares");
The Company and the Series C Shareholders are entering into a Series C
Preferred Stock Purchase Agreement of even date herewith (the "Series C Purchase
Agreement"), pursuant to which such Series C Shareholders will acquire shares of
the Company's Series C Preferred Stock (the "Series C Shares" and collectively
with the Series A Shares and Series B Shares, the "Shares");
Each of the parties hereto desires to set forth in a single document
certain covenants of the Company and certain of the pre-emptive rights,
registration rights and other rights of the Shareholders and Venture Lending;
NOW, THEREFORE, in consideration of the mutual promises, covenants and
conditions hereinafter set forth and for other good and valuable consideration,
the parties hereto agree as follows:
<PAGE>
AGREEMENT
---------
Section 1. Termination of Prior Rights. The parties hereto expressly
---------------------------
agree that this Amended and Restated Rights Agreement shall supersede the Rights
Agreement dated April 1, 1997 (the "Prior Agreement"), by and among the Company,
Venture Lending and the Shareholders named therein. Effective upon execution of
this Agreement by the Company, the Series C Shareholders and the holders of a
majority of the Registrable Securities (as defined in the Prior Agreement)
outstanding immediately prior to such execution, the Prior Agreement shall be
terminated and restated in its entirety as set forth in this Agreement. Each of
the undersigned Shareholders, to the extent such Shareholder is a party to the
Prior Agreement and holds the right of first offer set forth in Section 4.1 of
the Prior Agreement, hereby waives, on behalf of itself and all other holders of
Registrable Securities, such right of first offer with respect to the sale of
the Series C Shares pursuant to the Series C Purchase Agreement.
Section 2. Registration Rights.
-------------------
2.1 Definitions. As used in this Agreement:
-----------
(a) The terms "register," "registered," and "registration" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act of 1933, as amended (the "Act") and the
subsequent declaration or ordering of the effectiveness of such registration
statement.
(b) The term "Registrable Securities" means:
(i) the shares of Common Stock held by the Common Shareholders and
the shares of Common Stock issuable or issued upon conversion of the Shares (the
shares of Common Stock referred to in this paragraph (i) are referred to
hereafter as the "Stock");
(ii) any other shares of Common Stock of the Company issued as (or
issuable upon the conversion or exercise of any warrant, right or other security
which is issued as) a dividend or other distribution with respect to, or in
exchange for or in replacement of, the Stock, excluding in all cases, however,
any Registrable Securities sold by a person in a transaction in which his or her
rights under this Agreement are not assigned; provided, however, that Common
-------- -------
Stock or other securities shall only be treated as Registrable Securities if and
so long as they have not been (A) sold to or through a broker or dealer or
underwriter in a public distribution or a public securities transaction, or (B)
sold in a transaction exempt from the registration and prospectus delivery
requirements of the Act under Section 4(1) thereof so that all transfer
restrictions, and restrictive legends with respect thereto, if any, are removed
upon the consummation of such sale; and
(iii) solely for the purposes of Sections 2.3, 2.4, 2.5, 2.7, 2.8,
2.9, 2.10, 2.11, 2.13, 2.14, 2.15, 2.16 and 4, any shares of Common Stock of the
Company issued or issuable upon exercise of the Venture Lending Warrant (as
defined below).
-2-
<PAGE>
(c) The number of shares of "Registrable Securities then outstanding"
shall be determined by the number of shares of Common Stock outstanding which
are, and the number of shares of Common Stock issuable pursuant to then
exercisable or convertible securities which are, Registrable Securities.
(d) The term "Holder" means any holder of outstanding Registrable
Securities who, subject to the limitations set forth in Section 2.13 below,
acquired such Registrable Securities in a transaction or series of transactions
not involving any registered public offering.
(e) The term "Form S-3" means such form under the Act as in effect on
the date hereof or any registration form under the Act subsequently adopted by
the Securities and Exchange Commission ("SEC") which permits inclusion or
incorporation of substantial information by reference to other documents filed
by the Company with the SEC.
(f) The term "Venture Lending Warrant" means the Warrant dated as of
October 28, 1996, issued by the Company to Venture Lending.
2.2 Requested Registration.
----------------------
(a) If the Company shall receive at any time after the earlier of (i)
March 27, 2001, or (ii) six (6) months after the effective date of the first
registration statement for a public offering of securities of the Company (other
than a registration statement relating either to the sale of securities to
employees of the Company pursuant to a stock option, stock purchase or similar
plan or a Rule 145 transaction pursuant to Rule 145 promulgated by the SEC under
the Act), a written request from the Holders of at least a majority of the
Registrable Securities then outstanding that the Company file a registration
statement under the Act covering the registration of at least twenty percent
(20%) of the Registrable Securities then outstanding (or a lesser percent if the
anticipated aggregate offering price, net of underwriting discounts and
commissions, would exceed $5,000,000), then the Company shall, within ten (10)
days of the receipt thereof, give written notice of such request to all Holders
and shall, subject to the limitations of subsection 2.2(b), effect as soon as
practicable, and in any event within 90 days of the receipt of such request, the
registration under the Act of all Registrable Securities which the Holders
request to be registered within twenty (20) days of the mailing of such notice
by the Company in accordance with Section 4.5.
(b) If the Holders initiating the registration request hereunder
("Initiating Holders") intend to distribute the Registrable Securities covered
by their request by means of an underwriting, they shall so advise the Company
as a part of their request made pursuant to this Section 2.2 and the Company
shall include such information in the written notice referred to in subsection
2.2(a). In such event, the right of any Holder to include his Registrable
Securities in such registration shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting (unless otherwise mutually agreed by
a majority in interest of the Initiating Holders and such Holder) to the extent
provided herein. All Holders proposing to distribute their securities through
such
-3-
<PAGE>
underwriting shall (together with the Company as provided in subsection 2.4(e))
enter into an underwriting agreement in customary form with the underwriter or
underwriters selected for such underwriting by the Company (provided such
underwriter or underwriters are reasonably acceptable to a majority in interest
of the Initiating Holders). Notwithstanding any other provision of this Section
2.2, if the underwriter advises the Company in writing that marketing factors
require a limitation of the number of shares to be underwritten, then the
Company shall so advise all Holders of Registrable Securities which would
otherwise be underwritten pursuant hereto, and the number of shares of
Registrable Securities that may be included in the underwriting shall be
allocated among all Holders thereof, including the Initiating Holders, in
proportion (as nearly as practicable) to the amount of Registrable Securities of
the Company owned by each Holder.
(c) The Company is obligated to effect only two (2) such registrations
pursuant to this Section 2.2.
(d) Notwithstanding the foregoing, if the Company shall furnish to
Holders requesting a registration statement pursuant to this Section 2.2, a
certificate signed by the President of the Company stating that in the good
faith judgment of the Board of Directors of the Company, it would be seriously
detrimental to the Company and its shareholders for such registration statement
to be filed and it is therefore essential to defer the filing of such
registration statement, the Company shall have the right to defer such filing
for a period of not more than 90 days after receipt of the request of the
Initiating Holders; provided, however, that the Company may not utilize this
right more than once in any twelve (12) month period.
2.3 Company Registration. If (but without any obligation to do so) the
--------------------
Company proposes to register (including for this purpose a registration effected
by the Company for shareholders other than the Holders) any of its Common Stock
or other securities under the Act in connection with the public offering of such
securities solely for cash (other than a registration relating either to the
sale of securities to participants in a Company stock option, stock purchase or
similar plan or to an SEC Rule 145 transaction), the Company shall, at such
time, promptly give each Holder written notice of such registration. Upon the
written request of each Holder given within twenty (20) days after the mailing
of such notice by the Company in accordance with Section 4.5, the Company shall,
subject to the provisions of Section 2.8, cause to be registered under the Act
all of the Registrable Securities that each such Holder has requested to be
registered.
2.4 Obligations of the Company. Whenever required under this Section 2
--------------------------
to effect the registration of any Registrable Securities, the Company shall, as
expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration statement with respect
to such Registrable Securities and use its best efforts to cause such
registration statement to become effective, and, upon the request of the Holders
of a majority of the Registrable Securities registered thereunder, keep such
registration statement effective for up to one hundred twenty (120) days.
-4-
<PAGE>
(b) Prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Act with respect to the disposition of all securities covered by such
registration statement.
(c) Furnish to the Holders such numbers of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of the
Act, and such other documents as they may reasonably request in order to
facilitate the disposition of Registrable Securities owned by them.
(d) Use its best efforts to register and qualify the securities covered
by such registration statement under such other securities or Blue Sky laws of
such jurisdictions as shall be reasonably requested by the Holders, provided
that the Company shall not be required in connection therewith or as a condition
thereto to qualify to do business or to file a general consent to service of
process in any such states or jurisdictions.
(e) In the event of any underwritten public offering, enter into and
perform its obligations under an underwriting agreement, in usual and customary
form, with the managing underwriter of such offering. Each Holder participating
in such underwriting shall also enter into and perform its obligations under
such an agreement.
(f) Notify each Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Act of the happening of any event as a result
of which the prospectus included in such registration statement, as then in
effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing.
(g) Furnish, at the request of any Holder requesting registration of
Registrable Securities pursuant to this Section 2, on the date that such
Registrable Securities are delivered to the underwriters for sale in connection
with a registration pursuant to this Section 2, if such securities are being
sold through underwriters, or, if such securities are not being sold through
underwriters, on the date that the registration statement with respect to such
securities becomes effective, (i) an opinion, dated such date, of the counsel
representing the Company for the purposes of such registration, in form and
substance as is customarily given to underwriters in an underwritten public
offering, addressed to the underwriters, if any, and to the Holders requesting
registration of Registrable Securities and (ii) a letter dated such date, from
the independent certified public accountants of the Company, in form and
substance as is customarily given by independent certified public accountants to
underwriters in an underwritten public offering, addressed to the underwriters,
if any, and to the Holders requesting registration of Registrable Securities.
(h) In connection with any underwritten public offering involving the
sale of Registrable Securities pursuant to Section 2.2 above, (i) reasonably
cooperate with the selling Holders, the underwriters participating in such
offering and their respective counsel in any due diligence investigation in
connection therewith reasonably requested by the selling
-5-
<PAGE>
Holders or the underwriters, and (ii) cooperate, to the extent reasonably
requested by the selling Holders or the managing underwriter for such offering,
in efforts to sell the Registrable Securities under such offering (including,
without limitation, participating in a reasonable number of "roadshow" meetings
with prospective investors) that would be customary for a primary offering
involving a similar aggregate amount of equity securities by the Company.
2.5 Furnish Information. It shall be a condition precedent to the
-------------------
obligations of the Company to take any action pursuant to this Section 2 with
respect to the Registrable Securities of any selling Holder that such Holder
shall furnish to the Company such information regarding itself, the Registrable
Securities held by it, and the intended method of disposition of such securities
as shall be required to effect the registration of such Holder's Registrable
Securities.
2.6 Expenses of Demand Registration. All expenses other than
-------------------------------
underwriting discounts and commissions incurred in connection with
registrations, filings or qualifications pursuant to Section 2.2, including
(without limitation), all registration, filing and qualification fees, printers
and accounting fees, fees and disbursements of counsel for the Company, and the
reasonable fees and disbursements of one counsel for the selling Holders shall
be borne by the Company; provided, however, that the Company shall not be
-------- -------
required to pay for any expenses of any registration proceeding begun pursuant
to Section 2.2 if the registration request is subsequently withdrawn at the
request of the Holders of a majority of the Registrable Securities to be
registered (in which case all participating Holders shall bear such expenses),
unless the Holders of a majority of the Registrable Securities agree to forfeit
their right to one demand registration pursuant to Section 2.2; provided
--------
further, that if at the time of such withdrawal, the Holders have learned of a
- -------
material adverse change in the condition, business, or prospects of the Company
from that known to the Holders at the time of their request, then the Holders
shall not be required to pay any of such expenses and shall retain their rights
pursuant to Section 2.2.
2.7 Expenses of Company Registration. The Company shall bear and pay all
--------------------------------
expenses incurred in connection with the registrations, filings or
qualifications of Registrable Securities with respect to the registrations
pursuant to Section 2.3 for each Holder (which right may be assigned as provided
in Section 2.13), including (without limitation) all registration, filing, and
qualification fees, printers and accounting fees relating or apportionable
thereto and the fees and disbursements of one counsel for the selling Holders
selected by them, but excluding underwriting discounts and commissions relating
to Registrable Securities.
2.8 Underwriting Requirements. In connection with any offering involving
-------------------------
an underwriting of shares being issued by the Company, the Company shall not be
required under Section 2.3 to include any of the Holders' securities in such
underwriting unless they accept the terms of the underwriting in customary form
of the underwriters. If the total amount of securities, including Registrable
Securities, requested by shareholders to be included in such offering exceeds
the amount of securities sold other than by the Company that the underwriters
reasonably believe compatible with the success of the offering, then the Company
shall be required to include in the offering only that number of such
-6-
<PAGE>
securities, including Registrable Securities, which the underwriters believe
will not jeopardize the success of the offering (the securities so included to
be apportioned pro rata among the selling shareholders according to the total
amount of securities entitled to be included therein owned by each selling
shareholder or in such other proportions as shall mutually be agreed to by such
selling shareholders); but in no event shall (i) the amount of securities of the
selling Holders included in the offering be reduced below twenty percent (20%)
of the total amount of securities included in such offering, unless such
offering is the initial public offering of the Company's securities, in which
case the selling shareholders may be excluded if the underwriters make the
determination described above and no other shareholder's securities are included
or (ii) notwithstanding (i) above, any shares being sold by a shareholder
exercising a demand registration right similar to that granted in Section 2.2 be
excluded from such offering. For purposes of the preceding parenthetical
concerning apportionment, for any selling shareholder which is a holder of
Registrable Securities and which is a partnership or corporation, the partners,
retired partners, shareholders and entities which are "affiliates" (as such term
is defined in Rule 144(a) under the Act) of such holder, or the estates and
family members of any such partners and retired partners and any trusts for the
benefit of any of the foregoing persons shall be deemed to be a single "selling
shareholder," and any pro rata reduction with respect to such "selling
shareholder" shall be based upon the aggregate amount of shares carrying
registration rights owned by all entities and individuals included in such
"selling shareholder," as defined in this sentence.
2.9 Delay of Registration. No Holder shall have any right to obtain or
---------------------
seek an injunction restraining or otherwise delaying any such registration as
the result of any controversy that might arise with respect to the
interpretation or implementation of this Section 2.
2.10 Indemnification. In the event any Registrable Securities are
---------------
included in a registration statement under this Section 2:
(a) The Company will indemnify and hold harmless each Holder, any
underwriter (as defined in the Act) for such Holder and each person, if any, who
controls such Holder or underwriter within the meaning of the Act or the
Securities Exchange Act of 1934, as amended (the "1934 Act"), against any
losses, claims, damages, or liabilities (joint or several) to which they may
become subject under the Act, the 1934 Act or other federal or state law,
insofar as such losses, claims, damages, or liabilities (or actions in respect
thereof) arise out of or are based upon any of the following statements,
omissions or violations (collectively a "Violation"): (i) any untrue statement
or alleged untrue statement of a material fact contained in such registration
statement, including any preliminary prospectus or final prospectus contained
therein or any amendments or supplements thereto, (ii) the omission or alleged
omission to state therein a material fact required to be stated therein, or
necessary to make the statements therein not misleading, or (iii) any violation
or alleged violation by the Company of the Act, the 1934 Act, any state
securities law or any rule or regulation promulgated under the Act, the 1934 Act
or any state securities law; and the Company will pay as incurred to each such
Holder, underwriter or controlling person, any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, damage, liability, or action; provided, however, that the
indemnity agreement contained in this subsection 2.10(a) shall not apply to
amounts paid
-7-
<PAGE>
in settlement of any such loss, claim, damage, liability, or action if such
settlement is effected without the consent of the Company (which consent shall
not be unreasonably withheld), nor shall the Company be liable in any such case
for any such loss, claim, damage, liability, or action to the extent that it
arises out of or is based upon a Violation which occurs in reliance upon and in
conformity with written information furnished expressly for use in connection
with such registration by such Holder, underwriter or controlling person.
(b) Each selling Holder will indemnify and hold harmless the Company,
each of its directors, each of its officers who has signed the registration
statement, each person, if any, who controls the Company within the meaning of
the Act, any underwriter, any other Holder selling securities in such
registration statement and any controlling person of any such underwriter or
other Holder, against any losses, claims, damages, or liabilities (joint or
several) to which any of the foregoing persons may become subject, under the
Act, the 1934 Act or other federal or state law, insofar as such losses, claims,
damages, or liabilities (or actions in respect thereto) arise out of or are
based upon any Violation, in each case to the extent (and only to the extent)
that such Violation occurs in reliance upon and in conformity with written
information furnished by such Holder expressly for use in connection with such
registration; and each such Holder will pay, as incurred, any legal or other
expenses reasonably incurred by any person intended to be indemnified pursuant
to this subsection 2.10(b), in connection with investigating or defending any
such loss, claim, damage, liability, or action; provided, however, that the
indemnity agreement contained in this subsection 2.10(b) shall not apply to
amounts paid in settlement of any such loss, claim, damage, liability or action
if such settlement is effected without the consent of the Holder, which consent
shall not be unreasonably withheld; provided that in no event shall any
indemnity under this subsection 2.10(b) exceed the net proceeds from the
offering received by such Holder.
(c) Promptly after receipt by an indemnified party under this Section
2.10 of notice of the commencement of any action (including any governmental
action), such indemnified party will, if a claim in respect thereof is to be
made against any indemnifying party under this Section 2.10, deliver to the
indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party shall
have the right to retain its own counsel, with the fees and expenses to be paid
by the indemnifying party, if representation of such indemnified party by the
counsel retained by the indemnifying party would be inappropriate due to actual
or potential differing interests between such indemnified party and any other
party represented by such counsel in such proceeding. The failure to deliver
written notice to the indemnifying party within a reasonable time of the
commencement of any such action, if prejudicial to its ability to defend such
action, shall relieve such indemnifying party of any liability to the
indemnified party under this Section 2.10, but the omission so to deliver
written notice to the indemnifying party will not relieve it of any liability
that it may have to any indemnified party otherwise than under this Section
2.10.
-8-
<PAGE>
(d) The obligations of the Company and Holders under this Section 2.10
shall survive the completion of any offering of Registrable Securities in a
registration statement under this Section 2, and otherwise.
2.11 Reports Under Securities Exchange Act of 1934. With a view to
---------------------------------------------
making available to the Holders the benefits of Rule 144 promulgated under the
Act and any other rule or regulation of the SEC that may at any time permit a
Holder to sell securities of the Company to the public without registration or
pursuant to a registration on Form S-3, the Company agrees to:
(a) make and keep public information available, as those terms are
understood and defined in SEC Rule 144, at all times after ninety (90) days
after the effective date of the first registration statement filed by the
Company for the offering of its securities to the general public;
(b) take such action, including the voluntary registration of its
Common Stock under Section 12 of the 1934 Act, as is necessary to enable the
Holders to utilize Form S-3 for the sale of their Registrable Securities, such
action to be taken as soon as practicable after the end of the fiscal year in
which the first registration statement filed by the Company for the offering of
its securities to the general public is declared effective;
(c) file with the SEC in a timely manner all reports and other
documents required of the Company under the Act and the 1934 Act and
(d) furnish to any Holder, so long as the Holder owns any Registrable
Securities, forthwith upon request (i) a written statement by the Company that
it has complied with the reporting requirements of SEC Rule 144 (at any time
after ninety (90) days after the effective date of the first registration
statement filed by the Company), the Act and the 1934 Act (at any time after it
has become subject to such reporting requirements), or that it qualifies as a
registrant whose securities may be resold pursuant to Form S-3 (at any time
after it so qualifies), (ii) a copy of the most recent annual or quarterly
report of the Company and such other reports and documents so filed by the
Company, and (iii) such other information as may be reasonably requested in
availing any Holder of any rule or regulation of the SEC which permits the
selling of any such securities without registration or pursuant to such form.
2.12 Form S-3 Registration. In case the Company shall receive from any
---------------------
Holder or Holders owning in the aggregate at least 30% of the Registrable
Securities a written request or requests that the Company effect a registration
on Form S-3 and any related qualification or compliance with respect to all or a
part of the Registrable Securities owned by such Holder or Holders, the Company
will:
(a) promptly give written notice of the proposed registration, and any
related qualification or compliance, to all other Holders; and
(b) as soon as practicable, effect such registration and all such
qualifications and compliances as may be so requested and as would permit or
facilitate the sale
-9-
<PAGE>
and distribution of all or such portion of such Holder's or Holders' Registrable
Securities as are specified in such request, together with all or such portion
of the Registrable Securities of any other Holder or Holders joining in such
request as are specified in a written request given within 20 days after receipt
of such written notice from the Company; provided, however, that the Company
shall not be obligated to effect any such registration, qualification or
compliance, pursuant to this Section 2.12, (i) if Form S-3 is not available for
such offering by the Holders; (ii) if the Holders, together with the holders of
any other securities of the Company entitled to inclusion in such registration,
propose to sell Registrable Securities and such other securities (if any) at an
aggregate price to the public (net of any underwriters' discounts or
commissions) of less than $500,000; (iii) if the Company shall furnish to the
Holders a certificate signed by the president of the Company stating that in the
good faith judgment of the Board of Directors of the Company, it would be
seriously detrimental to the Company and its shareholders for such Form S-3
Registration to be effected at such time, in which event the Company shall have
the right to defer the filing of the Form S-3 registration statement for a
period of not more than 90 days after receipt of the request of the Holder or
Holders under this Section 2.12; provided, however, that the Company shall not
utilize this right more than once in any twelve month period; (iv) if the
Company has, within the twelve (12) month period preceding the date of such
request, already effected two registrations on Form S-3 for the Holders pursuant
to this Section 2.12; or (v) in any particular jurisdiction in which the Company
would be required to qualify to do business or to execute a general consent to
service of process in effecting such registration, qualification or compliance.
(c) Subject to the foregoing, the Company shall file a registration
statement covering the Registrable Securities and other securities so requested
to be registered as soon as practicable after receipt of the request or requests
of the Holders. All expenses incurred in connection with a registration
requested pursuant to this Section 2.12, including (without limitation) all
registration, filing, qualification, printer's and accounting fees and the
reasonable fees and disbursements of counsel for the selling Holder or Holders
and counsel for the Company, shall be borne pro rata by the Holder or Holders
participating in the Form S-3 Registration and, if it participates, the Company
(on a pro rata basis); provided, however, that the Company shall bear any
auditing expenses that shall be incurred in the normal course of business and
shall bear all regular salary expenses of its employees. Registrations effected
pursuant to this Section 2.12 shall not be counted as demands for registration
or registrations effected pursuant to Section 2.2 or 2.3.
2.13 Assignment of Registration Rights. The rights to cause the Company
---------------------------------
to register Registrable Securities pursuant to this Section 2 may be assigned by
a Holder to a transferee or assignee of at least the lesser of (a) all of such
Holder's Registrable Securities, or (b) 250,000 shares of such securities
provided the Company is, within a reasonable time after such transfer, furnished
with written notice of the name and address of such transferee or assignee and
the securities with respect to which such registration rights are being
assigned; and provided, further, that such assignment shall be effective only if
immediately following such transfer the further disposition of such securities
by the transferee or assignee is restricted under the Act. The foregoing
250,000 share limitation shall not apply, however, to transfers by a Shareholder
to any wholly-owned subsidiary or constituent shareholders or general or limited
partners (or former general or limited partners) or
-10-
<PAGE>
entities that are "affiliates" (as such term is defined in Rule 144(a) under the
Act), or contingent shareholders or partners of such affiliates, of the
Shareholder if all such transferees or assignees agree in writing to appoint a
single representative as their attorney in fact for the purpose of receiving any
notices and exercising their rights under this Section 2.
2.14 Limitations on Subsequent Registration Rights. From and after the
---------------------------------------------
date of this Agreement, the Company shall not, without the prior written consent
of the Holders of at least a majority of the outstanding Registrable Securities,
enter into any agreement with any holder or prospective holder of any securities
of the Company which would grant such holder or prospective holder any or all of
the registration rights contemplated herein; provided, however, that such
-------- -------
restriction shall not apply to registration rights granted in conjunction with
the issuance of up to an aggregate of 150,000 shares of Common Stock, including
rights to acquire Common Stock or securities convertible into Common Stock,
issued or issuable in connection with capital equipment leases, technology
acquisitions and other comparable transactions approved by the Board of
Directors.
2.15 "Market Stand-Off" Agreement. Each Shareholder hereby agrees that
----------------------------
during the 180-day period following the effective date of a registration
statement of the Company filed under the Act related to its initial public
offering of securities, and during the 90-day period following the effective
date of the registration statement of the Company filed under the Act related to
an offering other than the Company's initial public offering, it shall not, to
the extent requested by the Company and such underwriter, sell or otherwise
transfer or dispose of (other than to donees who agree to be similarly bound)
any Common Stock of the Company held by it at any time during such period except
Common Stock included in such registration; provided, however, that in each case
-------- -------
each of the officers, directors and 5% or greater shareholders of the Company
agree to be similarly bound, and further provided that, none of such officers,
directors or principal shareholders shall be released in any way from such
restrictions unless each such Shareholder is also released from such
restrictions.
To enforce the foregoing covenant, the Company may impose stop-transfer
instructions with respect to the Registrable Securities of the Holder (and the
shares or securities of every other person subject to the foregoing restriction)
until the end of such period.
2.16 Termination of Registration Rights. No Holder shall be entitled to
----------------------------------
exercise any right provided for in this Section 2 (a) after five (5) years
following the consummation of the initial public offering of securities of the
Company (other than an offering relating either to the sale of securities to
employees of the Company pursuant to a stock option, stock purchase or similar
plan or an SEC Rule 145 transaction) or (b) at such time following the Company's
initial public offering and for so long as such Holder holds one percent (1%) or
less of the total number of Registrable Securities outstanding as of the date of
this Agreement and may sell all of such Holder's Registrable Securities in any
one three month period pursuant to Rule 144 (or such successor rule as may be
adopted).
-11-
<PAGE>
Section 3. Additional Rights.
-----------------
3.1 Right of First Offer. Subject to the terms and conditions specified
--------------------
in this Section 3.1, the Company hereby grants to each Shareholder, so long as
such Shareholder holds at least 250,000 Shares (the "Rightholder"), a right of
first offer with respect to future sales by the Company of its New Securities
(as hereinafter defined). For purposes of this Section 3.1, the term
Rightholder includes any limited or general partners, former limited or general
partners, shareholders or affiliates, and any limited or general partners,
former limited or general partners or shareholders of such affiliates, of the
Rightholder. The Rightholder shall be entitled to apportion the right of first
offer hereby granted among itself and its limited or general partners, former
limited or general partners, shareholders and affiliates in such proportions as
it deems appropriate.
(a) In the event the Company proposes to issue New Securities, it shall
give the Rightholder written notice in accordance with Section 4.5 (the
"Notice") of its intention stating (i) a description of the New Securities it
proposes to issue, (ii) the number of shares of New Securities it proposes to
offer, and (iii) the price per share at which, and other terms on which, it
proposes to offer such New Securities.
(b) Within 20 calendar days after receipt of the Notice, the Rightholder
may elect to purchase or obtain, at the price and on the terms specified in the
Notice, up to that portion of such New Securities which equals the proportion
that the number of shares of Common Stock issued and held, or issuable upon
conversion of the Preferred Stock then held, by such Rightholder bears to the
total number of shares of Common Stock of the Company then outstanding (assuming
full conversion of all Preferred Stock). The Company shall promptly, in writing,
inform each Rightholder which purchases all the shares available to it ("Fully-
Exercising Rightholder") of any other Rightholder's failure to do likewise.
During the ten-day period commencing after receipt of such information, each
Fully-Exercising Rightholder shall be entitled to obtain that portion of the New
Securities for which Rightholders were entitled to subscribe but which were not
subscribed for by the Rightholders or other holders of similar rights of first
offer, which is equal to the proportion that the number of shares of Common
Stock issued and held, or issuable upon conversion of Preferred Stock then held,
by such Fully-Exercising Rightholder bears to the total number of shares of
Common Stock issued and held, or issuable upon conversion of the Preferred Stock
then held, by all Fully-Exercising Rightholders who wish to purchase some of the
unsubscribed shares. The closing of the sale of New Securities by the Company to
each Rightholder upon exercise of its rights under this Section 3.1 shall take
place simultaneously with the closing of the sale of New Securities to third
parties pursuant to subsection 3.1(c).
(c) If all New Securities which Investors are entitled to obtain
pursuant to subsection 3.1(b) are not elected to be obtained as provided in
subsection 3.1(b) hereof, the Company may, during the 90-day period following
the expiration of the period provided in subsection 3.1(b) hereof, offer the
remaining unsubscribed portion of such New Securities to any person or persons
at a price not less than, and upon terms no more favorable to the offeree than
those specified in the Notice. If the Company does not enter into an agreement
for the sale of the New Securities within such period, or if such agreement is
not consummated
-12-
<PAGE>
within 45 days of the execution thereof, the right provided hereunder shall be
deemed to be revived and such New Securities shall not be offered unless first
reoffered to the Rightholders in accordance herewith.
(d) "New Securities" shall mean any shares of, or securities convertible
into or exercisable for any shares of, any class of the Company's capital stock;
provided that "New Securities" does not include: (A) the Shares or shares of the
- --------
Company's Common Stock issuable upon conversion thereof; (B) securities issued
pursuant to the acquisition of another business entity by the Company by merger,
purchase of substantially all of the assets of such entity, or other
reorganization whereby the Company owns not less than a majority of the voting
power of such entity; (C) shares, or options to purchase shares, of the
Company's Common Stock and the shares of Common Stock issuable upon exercise of
such options, issued pursuant to any arrangement approved by the Board of
Directors to employees, officers and directors of, or consultants, advisors or
other persons performing services for, the Company; (D) shares of the Company's
Common Stock or Preferred Stock of any series issued in connection with any
stock split, stock dividend or recapitalization of the Company; (E) Common Stock
issued upon exercise of warrants, options or convertible securities if the
issuance of such warrants, options or convertible securities was a result of the
exercise of the right of first offer granted under this Section 3.1 or was
subject to the right of first offer granted under this Section 3.1; (F) capital
stock or warrants or options for the purchase of shares of capital stock issued
by the Company to a lender in connection with any bona fide arm's-length loan or
lease financing transaction that is unanimously approved by the Board of
Directors of the Company; (G) securities as to which the holders of at least a
majority of the outstanding shares of Registrable Securities consent in writing
that the right of first offer shall not apply; and (H) securities sold to the
public in an offering pursuant to a registration statement filed with the
Securities and Exchange Commission under the Act.
(e) The right of first offer granted under this Section 3.1 shall not
apply to and shall expire upon the consummation of the Company's sale of its
Common Stock in a bona fide, firm commitment underwriting pursuant to a
registration statement on Form S-1 under the Act (or a successor form under the
Act).
(f) The right of first offer granted under this section may be assigned
by the Rightholder to a transferee or assignee of the Rightholder's shares of
the Company's stock acquiring the lesser of (i) at least 250,000 of the
Rightholder's shares of the Company's Common Stock, or 100,000 of the
Rightholder's shares of the Company's Common Stock if such transferee or
assignee is an entity that is an "affiliate" (as such term is defined in Rule
144(a) under the Act) of the Rightholder, (treating all shares of Preferred
Stock for this purpose as though converted into Common Stock) (equitably
adjusted for any stock splits, subdivisions, stock dividends, changes,
combinations or the like) or (ii) all of the Rightholder's remaining shares of
the Company's stock. In the event that the Rightholder shall assign its right of
first offer pursuant to this Section 3.1 in connection with the transfer of less
than all of its shares of the Company's stock, the Rightholder shall also retain
its right of first offer.
3.2 Delivery of Financial Statements. So long as any Series A
--------------------------------
Shareholder, Series B Shareholder or Series C Shareholder
-13-
<PAGE>
(including, for the purposes of this Section 3.2, limited or general partners,
former limited or general partners, shareholders or affiliates, and limited or
general partners, former limited or general partners and shareholders of such
affiliates, of such Shareholder) holds at least 250,000 shares of Stock (or
Common Stock issuable upon conversion thereof), the Company shall deliver to
each such Shareholder:
(a) as soon as practicable, but in any event within ninety (90) days
after the end of each fiscal year of the Company, an income statement for such
fiscal year, a balance sheet of the Company as of the end of such year, and a
schedule as to the sources and applications of funds for such year, such year-
end financial reports to be in reasonable detail, prepared in accordance with
generally accepted accounting principles ("GAAP"), and audited and certified by
independent public accountants of nationally recognized standing selected by the
Company, if requested to be so audited by any Series A Shareholder, Series B
Shareholder or Series C Shareholder who holds at least 250,000 shares of Stock;
(b) within forty-five (45) days of the end of each fiscal quarter, an
unaudited income statement and schedule as to the sources and application of
funds and balance sheet for and as of the end of such quarter, in reasonable
detail;
(c) within thirty (30) days of the end of each month, an unaudited
income statement and schedule as to the sources and application of funds and
balance sheet and comparison to budget for and as of the end of such month, in
reasonable detail;
(c) as soon as practicable, but in any event thirty (30) days prior to
the beginning of each fiscal year, a budget of sales and expenses for the next
fiscal year;
(d) such other information relating to the financial condition,
business, prospects or corporate affairs of the Company as the Shareholder or
any assignee thereof may from time to time request, provided, however, that the
Company shall not be obligated to provide information which it deems in good
faith to be proprietary.
3.3 Inspection. The Company shall permit each Series A Shareholder,
----------
Series B Shareholder or Series C Shareholder, at such Shareholder's expense, to
visit and inspect the Company's properties, to examine its books of account and
records and to discuss the Company's affairs, finances and accounts with its
officers, all at such reasonable times as may be requested by such Shareholder;
provided, however, that the Company shall not be obligated pursuant to this
Section 3.3 to provide access to any information which it reasonably considers
to be a trade secret or similar confidential information.
3.4 Approval of Budget by Board. The Company shall submit an annual
---------------------------
budget of sales and expenses for a given fiscal year to the Board of Directors
of the Company at least thirty (30) days prior to the beginning of each such
fiscal year, and such budgets shall be subject to the approval of the Board of
Directors prior to thirty (30) days following the start of such fiscal year to
which such budget relates.
-14-
<PAGE>
3.5 Approval of Titles by Board. Titles of management of the Company
---------------------------
shall be subject to the unanimous approval of the Board of Directors prior to
their implementation.
3.6 Non-Employee Director Expenses. The Company will pay the reasonable
------------------------------
expenses incurred by non-employee directors in connection with participation in
the meetings of the Board of Directors of the Company, including, but not
limited to, reasonable transportation and accommodation expenses.
3.7 Employee Stock Purchase and Option Agreements. The Company agrees
---------------------------------------------
that it will utilize, in connection with any stock purchase or stock option
agreements entered into with officers, directors, employees and consultants
other than James Green, Rafael Bracho and Larry Henninger, vesting provisions
such that 1/4th of the original amount of stock issued pursuant to such stock
purchase or stock option agreement will vest on the date twelve (12) months
following the vesting commencement date, with 1/48th of the original number of
shares of stock subject to such agreement vesting on a monthly basis thereafter,
except as otherwise specifically approved by the Board of Directors. In
addition, each such stock purchase or stock option agreement shall contain a
"market stand-off" provision, pursuant to which the recipient of stock pursuant
to such agreement will agree not to sell or otherwise transfer any securities of
the Company during a period of up to 180 days following the effective date of
any registration statement pursuant to which the Company registers shares of its
Common Stock for sale to the public, provided that a majority of the Company's
officers and a majority of the Company's directors are similarly bound. The
stock purchase or stock option agreements entered into by and between the
Company and each of R. James Green, Rafael Bracho and Larry E. Henninger may not
be amended without the prior approval of James Gauer and Kevin Compton, if
members of the Board of Directors at such time, or other members of the Board of
Directors designated by the Series A Shareholders, Series B Shareholders and
Series C Shareholders, as the case may be.
3.8 Restriction on Dividends. The Company will not adopt a profit
------------------------
sharing plan and make any cash payments thereunder (other than performance
bonuses for management or employees approved by the Board of Directors) in any
year unless the Board of Directors has also declared and paid cash dividends in
such year at the preference rate set forth in the Company's Articles of
Incorporation in effect as of the date hereof. There shall be constituted a
compensation committee of the Board of Directors of the Company, which shall
include James Gauer and Kevin Compton, if members of the Board of Directors, or
other members of the Board of Directors designated by the Series A Shareholders,
Series B Shareholders and Series C Shareholders, as the case may be, and the
salaries and bonuses payable to executive officers of the Company, and any stock
options or warrants or similar rights to purchase shares of capital stock of the
Company, shall be subject to approval by such compensation committee.
3.9 Termination of Information and Inspection Covenants. The covenants
---------------------------------------------------
set forth in Sections 3.1, 3.2, 3.3, 3.4, 3.5, 3.6, 3.7 and 3.8 shall terminate
as to the Holders and be of no further force or effect immediately upon the
consummation of the Company's sale of its
-15-
<PAGE>
Common Stock in a bona fide, firm commitment underwriting pursuant to a
registration statement on Form S-1 under the Act (or a successor form under the
Act).
Section 4. Miscellaneous.
-------------
4.1 Assignment. Subject to the provisions of Section 2.13 hereof, the
----------
terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective successors and assigns of the parties hereto.
4.2 Third Parties. Nothing in this Agreement, express or implied, is
-------------
intended to confer upon any party, other than the parties hereto, and their
respective successors and assigns, any rights, remedies, obligations or
liabilities under or by reason of this Agreement, except as expressly provided
herein.
4.3 Governing Law. This Agreement shall be governed by and construed
-------------
under the laws of the State of California in the United States of America.
4.4 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
4.5 Notices.
-------
(a) All notices, requests, demands and other communications under this
Agreement or in connection herewith shall be given to or made upon the
respective parties as follows:
To the Company: Active Software, Inc.
3255-1 Scott Boulevard
Suite 201
Santa Clara, CA 95054
Telephone: (408) 988-0414
Fax: (408) 988-6469
Attention: President
To a Shareholder: At such Shareholder's address as set forth on Exhibit A
attached hereto.
(b) All notices, requests, demands and other communications given or
made in accordance with the provisions of this Agreement shall be in writing,
and shall be sent by airmail, return receipt requested, reputable overnight
courier or by telex or telecopy (facsimile) with confirmation of receipt, and
shall be deemed to be given or made when receipt is so confirmed.
-16-
<PAGE>
(c) Any party may, by written notice to the other, alter its address or
respondent, and such notice shall be considered to have been given ten (10) days
after the airmailing, telexing, telecopying or delivery thereof.
4.6 Severability. If one or more provisions of this Agreement are held
------------
to be unenforceable under applicable law, portions of such provisions, or such
provisions in their entirety, to the extent necessary, shall be severed from
this Agreement, and the balance of this Agreement shall be enforceable in
accordance with its terms.
4.7 Amendment and Waiver. Any provision of this Agreement may be amended
--------------------
with the written consent of the Company and the Holders of at least a majority
of the outstanding shares of Registrable Securities. Any amendment or waiver
effected in accordance with this paragraph shall be binding upon each Holder of
Registrable Securities, and the Company. In addition, the Company may waive
performance of any obligation owing to it, as to some or all of the Holders of
Registrable Securities, or agree to accept alternatives to such performance,
without obtaining the consent of any Holder of Registrable Securities. In the
event that an underwriting agreement is entered into between the Company and any
Holder, and such underwriting agreement contains terms differing from this
Agreement, as to any such Holder the terms of such underwriting agreement shall
govern.
4.8 Effect of Amendment or Waiver. Investor and its successors and
-----------------------------
assigns acknowledge that by the operation of Section 4.7 hereof the holders of a
majority of the outstanding Registrable Securities, acting in conjunction with
the Company, will have the right and power to diminish or eliminate all rights
pursuant to this Agreement.
4.9 Rights of Holders. Each Holder of Registrable Securities shall have
-----------------
the absolute right to exercise or refrain from exercising any right or rights
that such holder may have by reason of this Agreement, including, without
limitation, the right to consent to the waiver or modification of any obligation
under this Agreement, and such holder shall not incur any liability to any other
holder of any securities of the Company as a result of exercising or refraining
from exercising any such right or rights.
4.10 Delays or Omissions. No delay or omission to exercise any right,
-------------------
power or remedy accruing to any party to this Agreement, upon any breach or
default of the other party, shall impair any such right, power or remedy of such
non-breaching party nor shall it be construed to be a waiver of any such breach
or default, or an acquiescence therein, or of any similar breach or default
thereafter occurring; nor shall any waiver of any single breach or default be
deemed a waiver of any other breach or default theretofore or thereafter
occurring. Any waiver, permit, consent or approval of any kind or character on
the part of any party of any breach or default under this Agreement, or any
waiver on the part of any party of any provisions or conditions of this
Agreement, must be made in writing and shall be effective only to the extent
specifically set forth in such writing. All remedies, either under this
Agreement, or by law or otherwise afforded to any holder, shall be cumulative
and not alternative.
-17-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Rights Agreement as of
the date first above written.
COMPANY:
ACTIVE SOFTWARE, INC.
By: /R. JAMES GREEN/
----------------------------------
Title: CEO
-------------------------
Address: 3255-1 Scott Boulevard
Suite 201
Santa Clara, CA 95054
SHAREHOLDERS:
/R. JAMES GREEN/ /LARRY E. HENNINGER/
- ----------------------------------- --------------------------------
R. James Green Larry E. Henninger
Address: c/o Active Software, Inc. Address: 663 Christina Dr.
3255-1 Scott Blvd., Ste. 201 P.O. Box 7646
Santa Clara, CA 95054 Incline Village, NV 89450
/RAFAEL BRACHO/ MACDONALD FAMILY TRUST,
- ----------------------------------- DATED 10/12/87, STEPHEN AND
Rafael Bracho ROBIN MACDONALD, TRUSTEES
Address: c/o Active Software, Inc. /STEPHEN MACDONALD/
3255-1 Scott Blvd., Ste. 201 --------------------------------
Santa Clara, CA 95054 Stephen MacDonald, Trustee
Address: 11800 Francemont
Los Altos Hills, CA 94022
<PAGE>
CHARTER GROWTH CAPITAL SPRING CREEK VENTURES I, L.P.
By: Spring Creek Partners,
By: /KERI J. MCQUILLAN/ its general partner
--------------------------------
Title: GENERAL PARTNER By: /SPRING CREEK PARTNERS/
----------------------------- -------------------------------
Title: General Partner
----------------------------
Address: 525 University Avenue
Suite 1500
Palo Alto, CA 94301 Address: 330 Spring Creek Road
Rockford, IL 61107
CHARTER GROWTH CAPITAL BAYVIEW INVESTORS, LTD.
CO-INVESTMENT FUND
By: /BAYVIEW INVESTORS, LTD./
By: /KERI J. MCQUILLAN/ --------------------------------
------------------------------- Title: Chief Financial Officer
Title: GENERAL PARTNER -----------------------------
---------------------------- Address: Robertson, Stephens &
Company
Address: 525 University Avenue 555 California Street
Suite 1500 San Francisco, CA 94104
Palo Alto, CA 94301
CGC INVESTORS SIERRA VENTURES V, L.P.
By: SV Associates V, L.P.,
By: /KERI J. MCQUILLAN/ its general partner
------------------------------
Title: GENERAL PARTNER
--------------------------- By: /SV Associates V, L.P.'
-----------------------------
General Partner
Address: 525 University Avenue
Suite 1500
Palo Alto, CA 94301 Address: 3000 Sand Hill Road
Menlo Park, CA 94025
<PAGE>
ENTERPRISE PARTNERS III, L.P. OCEAN PARK VENTURES, L.P.
By: Enterprise Management Partners
III, L.P., its general partner By: /Jim Gauer
-----------------------------
General Partner
/ENTERPRISE MANAGEMENT Address: 12011 San Vicente Blvd.
By: PARTNERS III/ Suite 330
------------------------------- Los Angeles, CA 90049
General Partner
Address: 12011 San Vicente Blvd.
Suite 330
Los Angeles, CA 90049
ENTERPRISE PARTNERS III LEHMAN BROTHERS HOLDINGS INC.
ASSOCIATES, L.P.
By: Enterprise Management Partners By:/LEHMAN BROTHERS HOLDINGS
III, L.P., its general partner INC./
--------------------------------
Title: Vice President
--------------------------
By:/ENTERPRISE MANAGEMENT
PARTNERS III, L.P./
------------------------------- Address: 3 World Financial Center
General Partner New York, NY 10285
Address: 12011 San Vicente Blvd.
Suite 330 LB I GROUP INC.
Los Angeles, CA 90049
By:/LBI GROUP INC./
-----------------------------
Title: Senior Vice President
Address: 3 World Financial Center
New York, NY 10285
<PAGE>
KLEINER PERKINS CAUFIELD KPCB VII FOUNDERS FUND, L.P.
& BYERS VII, L.P.
By: KPCB VII Associates,
By: KPCB VII Associates, its general partner
its general partner
By: /KPCB VII ASSOCIATES/
By: /KPCB VII ASSOCIATES/ ---------------------
--------------------- General Partner
General Partner
Address: 2750 Sand Hill Road
Address: 2750 Sand Hill Road Menlo Park, CA 94025
Menlo Park, CA 94025
KPCB INFORMATION SCIENCES KPCB JAVA FUND, L.P.
ZAIBATSU FUND II, L.P.
By: /KPCB VII Associates/
By: KPCB VII Associates, its general partner
its general partner
By: /KPCB VII ASSOCIATES/
By: /KPCB VII ASSOCIATES/ ---------------------
--------------------- General Partner
General Partner
Address: 2750 Sand Hill Road
Address: 2750 Sand Hill Road Menlo Park, CA 94025
Menlo Park, CA 94025
<PAGE>
NIPPON INVESTMENT & FINANCE CO.
LTD.
By: /NIPPON INVESTMENT & FINANCE
CO. LTD./
- ---------
Title: Director
--------------------------
Address: NIF Ventures USA, Inc.
First Market Tower
525 Market Street
Suite 3420
San Francisco, CA 94105
INVESTMENT ENTERPRISE INVESTMENT ENTERPRISE
PARTNERSHIP "NIF 8" PARTNERSHIP "NIF 9"
By:/INVESTMENT ENTERPRISE By:/INVESTMENT ENTERPRISE
PARTNERSHIP "NIF 8" PARTNERSHIP "NIF 9"
- ------------------------- -------------------------
Title: Director Title: Director
------------------- -------------------
Address: NIF Ventures USA, Inc. Address: NIF Ventures USA, Inc.
First Market Tower First Market Tower
525 Market Street 525 Market Street
Suite 3420 Suite 3420
San Francisco, CA 94105 San Francisco, CA 94105
<PAGE>
INVESTMENT ENTERPRISE INVESTMENT ENTERPRISE
PARTNERSHIP "NIF 10-B" PARTNERSHIP "NIF 10-A"
- ------------------------- -----------------------
By:/INVESTMENT ENTERPRISE
PARTNERSHIP "NIF 10-A" By:/INVESTMENT ENTERPRISE
- ------------------------- PARTNERSHIP "NIF 10-B"
Title: Director --------------------------
------------------ Title: Director
Address: NIF Ventures USA, Inc. -------------------
First Market Tower Address: NIF Ventures USA, Inc.
525 Market Street First Market Tower
Suite 3420 525 Market Street
San Francisco, CA 94105 Suite 3420
San Francisco, CA 94105
<PAGE>
VLG INVESTMENTS 1996
By:/MARK L. SILVERMAN/ /MARK A. MEDEARIS/
--------------------------- ----------------------------
Mark A. Medearis
Title: Partner
------------------------
Address: c/o Venture Law Group Address: 527 Tennyson
2800 Sand Hill Road Palo Alto, CA 94301
Menlo Park, CA 94025
VLG INVESTMENTS 1997 CAMBRIDGE TECHNOLOGY CAPITAL
FUND I L.P.
By:/MARK L. SILVERMAN/ By: Cambridge Technology GPLP, L.P.
---------------------------
Title: Partner By: Cambridge Technology CGP, Inc.
-----------------------
By:/CAMBRIDGE
Address: c/o Venture Law Group TECHNOLOGY GLP, L.P./
2800 Sand Hill Road ---------------------
Menlo Park, CA 94025
Title: Managing Partner
----------------------
KPMG PEAT MARWICK LLP ASPECT TELECOMMUNICATIONS
CORPORATION
By:/JOSEPH E. HEINTZ/
--------------------------- By:/ASPECT
Title: Chief Financial Officer TELECOMMUNICATIONS
----------------------- CORPORATION/
----------------------------------
Title: Vice President
----------------------------
<PAGE>
EXHIBIT A
SHAREHOLDERS
<TABLE>
<CAPTION>
SERIES A SHAREHOLDERS:
- ----------------------
<S> <C>
Enterprise Partners III, L.P. Kleiner Perkins Caufield
12011 San Vicente Blvd. & Byers VII, L.P.
Suite 330 2750 Sand Hill Road
Los Angeles, CA 90049 Menlo Park, CA 94025
Enterprise Partners III Associates, L.P. KPCB VII Founders
12011 San Vicente Blvd. Fund, L.P.
Suite 330 2750 Sand Hill Road
Los Angeles, CA 90049 Menlo Park, CA 94025
Ocean Park Ventures, L.P. KPCB Information Sciences Zaibatsu
12011 San Vicente Blvd. Fund II, L.P.
Suite 330 2750 Sand Hill Road
Los Angeles, CA 90049 Menlo Park, CA 94025
Sierra Ventures V, L.P. VLG Investments 1996
3000 Sand Hill Road c/o Venture Law Group
Menlo Park, CA 94025 2800 Sand Hill Road
Menlo Park, CA 94025
Mark A. Medearis
527 Tennyson
Palo Alto, CA 94301
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
COMMON SHAREHOLDERS:
- --------------------
<S> <C>
R. James Green Larry E. Henninger
c/o Active Software, Inc. 663 Christina Dr.
3255-1 Scott Boulevard P.O. Box 7646
Santa Clara, CA 95054 Incline Village, NV 89450
Rafael Bracho Enterprise Partners III, L.P.
c/o Active Software, Inc. 12011 San Vicente Blvd.
3255-1 Scott Boulevard Suite 330
Santa Clara, CA 95054 Los Angeles, CA 90049
Enterprise Partners III Associates, L.P.
12011 San Vicente Blvd.
Suite 330
Los Angeles, CA 90049
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SERIES B SHAREHOLDERS:
- ----------------------
<S> <C>
Lehman Brothers Holdings Inc. Bayview Investors, Ltd.
3 World Financial Center Robertson, Stephens & Company
New York, NY 10285 555 California Street
San Francisco, CA 94104
Enterprise Partners III, L.P. Kleiner Perkins Caufield
12011 San Vicente Blvd. & Byers VII, L.P.
Suite 330 2750 Sand Hill Road
Los Angeles, CA 90049 Menlo Park, CA 94025
Enterprise Partners III Associates, L.P. KPCB Java Fund, L.P.
12011 San Vicente Blvd. 2750 Sand Hill Road
Suite 330 Menlo Park, CA 94025
Los Angeles, CA 90049
Ocean Park Ventures, L.P. KPCB Information Sciences Zaibatsu
Suite 330 Fund II, L.P.
Los Angeles, CA 90049 2750 Sand Hill Road
Menlo Park, CA 94025
Sierra Ventures V, L.P. MacDonald Family Trust, dated
3000 Sand Hill Road 10/12/87, Stephen and Robin
Menlo Park, CA 94025 MacDonald, trustees
c/o Active Software, Inc.
3255-1 Scott Boulevard
Santa Clara, CA 95054
Mark A. Medearis VLG Investments 1997
527 Tennyson c/o Venture Law Group
Palo Alto, CA 94301 2800 Sand Hill Road
Menlo Park, CA 94025
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SERIES C SHAREHOLDERS:
- ----------------------
<S> <C>
LB I Group Inc. Charter Growth Capital
3 World Financial Center 525 University Avenue
New York, NY 10285 Suite 1500
Palo Alto, CA 94301
Charter Growth Capital Co-Investment Fund CGC Investors
525 University Avenue 525 University Avenue
Suite 1500 Suite 1500
Palo Alto, CA 94301 Palo Alto, CA 94301
Spring Creek Ventures I, L.P. Nippon Investment and Finance Co. Ltd.
330 Spring Creek Road c/o NIF Ventures USA, Inc.
Rockford, IL 61107 First Market Tower
525 Market Street, Suite 3420
San Francisco, CA 94105
Investment Enterprise Partnership "NIF 8" Investment Enterprise Partnership "NIF 9"
c/o NIF Ventures USA, Inc. c/o NIF Ventures USA, Inc.
First Market Tower First Market Tower
525 Market Street, Suite 3420 525 Market Street, Suite 3420
San Francisco, CA 94105 San Francisco, CA 94105
Investment Enterprise Partnership "NIF 10-A" Investment Enterprise Partnership "NIF 10-B"
c/o NIF Ventures USA, Inc. c/o NIF Ventures USA, Inc.
First Market Tower First Market Tower
525 Market Street, Suite 3420 525 Market Street, Suite 3420
San Francisco, CA 94105 San Francisco, CA 94105
Enterprise Partners III, L.P. Enterprise Partners III Associates, L.P.
12011 San Vicente Blvd. 12011 San Vicente Blvd.
Suite 330 Suite 330
Los Angeles, CA 90049 Los Angeles, CA 90049
Ocean Park Ventures, L.P. KPCB Java Fund, L.P.
12011 San Vicente Blvd. 2750 Sand Hill Road
Suite 330 Menlo Park, CA 94025
Los Angeles, CA 90049
</TABLE>
<PAGE>
AMENDMENT TO
AMENDED AND RESTATED
RIGHTS AGREEMENT
THIS AMENDMENT TO AMENDED AND RESTATED RIGHTS AGREEMENT (the "Amendment"),
dated as of October 29, 1998, is entered into by and among Active Software,
Inc., a California corporation (the "Company"), the persons and entities listed
on Exhibit A attached hereto (each a "Shareholder" and collectively the
---------
"Shareholders") and Intel Corporation ("Intel"), with respect to the Amended and
Restated Rights Agreement, dated as of March 27, 1998, by and among the Company
and the other parties thereto (the "Agreement").
RECITALS
--------
A. The Company and the holders of the Company's Series C Preferred Stock
have amended that certain Series C Preferred Stock Purchase Agreement, dated as
of March 27, 1998, as amended on July 27, 1998 (the "Series C Purchase
Agreement"), to provide for the sale and issuance of 490,196 additional shares
of Series C Preferred Stock (the "Additional Series C Shares") to Intel.
B. The Company has proposed to issue a Warrant (the "Intel Warrant") to
Intel to acquire up to 24,509 shares of the Company's Common Stock (the shares
acquirable under the Intel Warrant being referred to herein as the "Intel
Warrant Shares").
C. Under the terms of the Series C Purchase Agreement and the Intel
Warrant, the Company must grant to Intel with respect to the Additional Series C
Shares and the Intel Warrant Shares the same registration rights, right of first
offer and other rights granted to the Shareholders pursuant to the Agreement.
D. Under Sections 2 and 5.7 of the Agreement, the Agreement may be amended
only with the written consent of the holders of at least a majority of the
voting power of the Registrable Securities (as defined in the Agreement).
E. In order to grant Intel the registration rights required under the
Intel Warrant, the parties hereto desire to enter into this Amendment in
accordance with Sections 2.14 and 4.7 of the Agreement.
IT IS THEREFORE AGREED THAT:
1. Definitions. All capitalized terms used herein without definition
-----------
shall have the meanings ascribed to them in the Agreement.
2. Amendments. The Agreement is hereby amended as follows:
----------
(a) Section 2.1(b) is hereby amended to read in its entirety as
follows:
<PAGE>
"(b) The term "Registrable Securities" means:
(i) the shares of Common Stock held by the
Common Shareholders, the shares of Common Stock issuable or issued upon
conversion of the Shares, the shares of Common Stock issuable or issued
upon conversion of the Additional Series C Shares and the Intel Warrant
Shares (the shares of Common Stock referred to in this paragraph (i)
are referred to hereafter as the "Stock");
(ii) any other shares of Common Stock of the
Company issued as (or issuable upon the conversion or exercise of any
warrant, right or other security which is issued as) a dividend or
other distribution with respect to, or in exchange for or in
replacement of, the Stock, excluding in all cases, however, any
Registrable Securities sold by a person in a transaction in which his
or her rights under this Agreement are not assigned; provided, however,
-------- -------
that Common Stock or other securities shall only be treated as
Registrable Securities if and so long as they have not been (A) sold to
or through a broker or dealer or underwriter in a public distribution
or a public securities transaction, or (B) sold in a transaction exempt
from the registration and prospectus delivery requirements of the Act
under Section 4(1) thereof so that all transfer restrictions, and
restrictive legends with respect thereto, if any, are removed upon the
consummation of such sale; and
(iii) solely for the purposes of Sections 2.3,
2.4, 2.5, 2.7, 2.8, 2.9, 2.10, 2.11, 2.13, 2.14, 2.15, 2.16 and 4, any
shares of Common Stock of the Company issued or issuable upon exercise
of the Venture Lending Warrant (as defined below)."
(b) Section 2.1 is hereby amended by adding the definitions of "Intel
Warrant" and "Intel Warrant Shares" as follows:
"(g) The term "Intel Warrant" means the Warrant dated as of
October ___, 1998, issued by the Company to Intel Corporation for the
purchase of up to 24,509 shares of Common Stock. The term "Intel
Warrant Shares" means the shares of Common Stock issuable upon exercise
of the Intel Warrant."
3. Waiver of Right of First Offer. Each of the Shareholders executing
------------------------------
this Amendment hereby waives, on behalf of itself and all other Shareholders,
the right of first offer and the notice provisions with respect to such right of
first offer set forth in Section 3.1 of the Agreement with respect to the
Additional Series C Shares, the Intel Warrant and the Intel Warrant Shares.
-2-
<PAGE>
4. Upon the effectiveness of this Amendment, as provided in Section 5
hereof, Intel agrees to be bound by all of the terms and conditions of the
Agreement applicable to Shareholders, to the extent provided herein.
5. Effectiveness. This Amendment shall become effective upon the
-------------
execution by (a) the Company and (b) the holders of a majority of the
outstanding Registrable Securities.
6. Effective Amendment. Except as amended as set forth above, the
-------------------
Agreement shall continue in full force and effect.
7. Counterparts. This Amendment may be signed in one or more
------------
counterparts, each of which shall be deemed an original and all of which, taken
together, shall be deemed one and the same document.
[signature pages follow]
-3-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the date first written above.
COMPANY:
ACTIVE SOFTWARE, INC.
By: /J.A. BODE/
-------------------------------
Title: CFO
----------------------------
SHAREHOLDERS:
- ----------------------------------
(print name of Shareholder)
- ----------------------------------
(signature)
- ----------------------------------
(title, if Shareholder is an entity)
INTEL CORPORATION
By:_______________________________
Title:____________________________
-4-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the date first written above.
COMPANY:
ACTIVE SOFTWARE, INC.
By:______________________________
Title:___________________________
SHAREHOLDERS:
- ----------------------------------
(print name of Shareholder)
- ----------------------------------
(signature)
- ----------------------------------
(title, if Shareholder is an entity)
INTEL CORPORATION
By: /ARVIND SODHANI/
-------------------------------
Title: VICE PRESIDENT AND
----------------------------
TREASURER
- ---------
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the date first written above.
COMPANY:
ACTIVE SOFTWARE, INC.
By:______________________________
Title:___________________________
SHAREHOLDERS:
ASPECT TELECOMMUNICATIONS CORPORATION
- ----------------------------------------
(print name of Shareholder)
/ASPECT TELECOMMUNICATIONS CORPORATION/
- ----------------------------------------
(signature)
VICE PRESIDENT
- ----------------------------------------
(title, if Shareholder is an entity)
INTEL CORPORATION
By:______________________________
Title:___________________________
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the date first written above.
COMPANY:
ACTIVE SOFTWARE, INC.
By:______________________________
Title:___________________________
SHAREHOLDERS:
RAFAEL BRACHO
- ---------------------------------
(print name of Shareholder)
/RAFAEL BRACHO/
- ---------------------------------
(signature)
CTO & FOUNDER
- ---------------------------------
(title, if Shareholder is an entity)
INTEL CORPORATION
By:______________________________
Title:___________________________
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the date first written above.
COMPANY:
ACTIVE SOFTWARE, INC.
By:______________________________
Title:___________________________
SHAREHOLDERS:
CAMBRIDGE TECHNOLOGY CAPITAL FUND I, L.P.
- -----------------------------------------
(print name of Shareholder)
/CAMBRIDGE TECHNOLOGY CAPITAL FUND I, L.P./
- -------------------------------------------
(signature)
- -------------------------------------------
(title, if Shareholder is an entity)
- -------------------------------------------
INTEL CORPORATION
By:______________________________
Title:___________________________
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the date first written above.
COMPANY:
ACTIVE SOFTWARE, INC.
By:______________________________
Title:___________________________
SHAREHOLDERS:
CGC INVESTORS
- ------------------------------------
(print name of Shareholder)
/KERI J. MCQUILLEN/
- ------------------------------------
(signature)
GENERAL PARTNER
- ------------------------------------
(title, if Shareholder is an entity)
INTEL CORPORATION
By:______________________________
Title:___________________________
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the date first written above.
COMPANY:
ACTIVE SOFTWARE, INC.
By:_______________________________
Title:____________________________
SHAREHOLDERS:
CHARTER GROWTH CAPITAL
- ------------------------------------
(print name of Shareholder)
/KERI J. MCQUILLAN/
- ------------------------------------
(signature)
PARTNER
- ------------------------------------
(title, if Shareholder is an entity)
INTEL CORPORATION
By:_______________________________
Title:____________________________
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the date first written above.
COMPANY:
ACTIVE SOFTWARE, INC.
By:_______________________________
Title:____________________________
SHAREHOLDERS:
CHARTER GROWTH CAPITAL CO-INVESTMENT FUND
- -----------------------------------------
(print name of Shareholder)
/KERI J. MCQUILLAN/
- -----------------------------------------
(signature)
GENERAL PARTNER
- -----------------------------------------
(title, if Shareholder is an entity)
INTEL CORPORATION
By:_______________________________
Title:____________________________
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the date first written above.
COMPANY:
ACTIVE SOFTWARE, INC.
By:_______________________________
Title:____________________________
SHAREHOLDERS:
Enterprise Partners III, L.P.
- ------------------------------------
(print name of Shareholder)
/ANDREW SENJEI/
- ------------------------------------
(signature)
GENERAL PARTNER
- ------------------------------------
(title, if Shareholder is an entity)
INTEL CORPORATION
By:_______________________________
Title:____________________________
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the date first written above.
COMPANY:
ACTIVE SOFTWARE, INC.
By:_______________________________
Title:____________________________
SHAREHOLDERS:
Enterprise Partners III Associates, L.P.
- ----------------------------------------
(print name of Shareholder)
/ANDREW SENJEI/
- ----------------------------------------
(signature)
GENERAL PARTNER
- ----------------------------------------
(title, if Shareholder is an entity)
INTEL CORPORATION
By:_______________________________
Title:____________________________
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the date first written above.
COMPANY:
ACTIVE SOFTWARE, INC.
By:_______________________________
Title:____________________________
SHAREHOLDERS:
R. JAMES GREEN
- ------------------------------------
(print name of Shareholder)
/R. JAMES GREEN/
- ------------------------------------
(signature)
CEO
- ------------------------------------
(title, if Shareholder is an entity)
INTEL CORPORATION
By:_______________________________
Title:____________________________
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the date first written above.
COMPANY:
ACTIVE SOFTWARE, INC.
By:_______________________________
Title:____________________________
SHAREHOLDERS:
KPCB Information Sciences Zaibatsu Fund, L.P.
- -----------------------------------------------
(print name of Shareholder)
/KPCB INFORMATION SCIENCES ZAIBATSU FUND, L.P./
- -----------------------------------------------
(signature)
- ---------------------------------------------
(title, if Shareholder is an entity)
INTEL CORPORATION
By:_______________________________
Title:____________________________
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the date first written above.
COMPANY:
ACTIVE SOFTWARE, INC.
By: _______________________________
Title: ____________________________
SHAREHOLDERS:
KPCB Java Fund, L.P.
- ---------------------------------------------
(print name of Shareholder)
/KPCB JAVA FUND/
- ---------------------------------------------
(signature)
- ---------------------------------------------
(title, if Shareholder is an entity)
- ---------------------------------------------
INTEL CORPORATION
By: _______________________________
Title: ____________________________
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the date first written above.
COMPANY:
ACTIVE SOFTWARE, INC.
By: _______________________________
Title: ____________________________
SHAREHOLDERS:
Kleiner Perkins Caufield & Byers VII
- ---------------------------------------------
(print name of Shareholder)
/KLEINER PERKINS CAUFIELD & BYERS VII/
- ---------------------------------------------
(signature)
- ---------------------------------------------
(title, if Shareholder is an entity)
INTEL CORPORATION
By: _______________________________
Title:_____________________________
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the date first written above.
COMPANY:
ACTIVE SOFTWARE, INC.
By: _______________________________
Title:_____________________________
SHAREHOLDERS:
KPMG PEAT MARWICK LLP
- ---------------------------------------------
(print name of Shareholder)
/KPMG PEAT MARWICK LLP/
- ---------------------------------------------
(signature)
CHIEF FINANCIAL OFFICER
- ---------------------------------------------
(title, if Shareholder is an entity)
INTEL CORPORATION
By: _______________________________
Title:_____________________________
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the date first written above.
COMPANY:
ACTIVE SOFTWARE, INC.
By: _______________________________
Title:_____________________________
SHAREHOLDERS:
LBI GROUP INC.
- ---------------------------------------------
(print name of Shareholder)
/LBI GROUP INC./
- ---------------------------------------------
(signature)
SENIOR VICE PRESIDENT
- ---------------------------------------------
(title, if Shareholder is an entity)
INTEL CORPORATION
By: _______________________________
Title:_____________________________
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the date first written above.
COMPANY:
ACTIVE SOFTWARE, INC.
By: _______________________________
Title:_____________________________
SHAREHOLDERS:
Lehman Brothers Holdings Inc.
- ---------------------------------------------
(print name of Shareholder)
/Lehman Brothers Holdings Inc./
- ---------------------------------------------
(signature)
Vice President
- ---------------------------------------------
(title, if Shareholder is an entity)
INTEL CORPORATION
By: _______________________________
Title:_____________________________
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the date first written above.
COMPANY:
ACTIVE SOFTWARE, INC.
By: _______________________________
Title:_____________________________
SHAREHOLDERS:
MacDonald Family Trust
- ---------------------------------------------
(print name of Shareholder)
/MacDonald Family Trust/
- ---------------------------------------------
(signature)
Trustee for MacDonald Family Trust
- ---------------------------------------------
(title, if Shareholder is an entity)
INTEL CORPORATION
By: _______________________________
Title:_____________________________
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the date first written above.
COMPANY:
ACTIVE SOFTWARE, INC.
By: _______________________________
Title:_____________________________
SHAREHOLDERS:
Nippon Investment and Finance Co. Ltd.
- ---------------------------------------------
(print name of Shareholder)
/Nippon Investment and Finance Co. Ltd./
- ---------------------------------------------
(signature)
Director
- ---------------------------------------------
(title, if Shareholder is an entity)
INTEL CORPORATION
By: _______________________________
Title:_____________________________
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the date first written above.
COMPANY:
ACTIVE SOFTWARE, INC.
By: _______________________________
Title:_____________________________
SHAREHOLDERS:
Investment Enterprise Partnership "NIF 8"
- ---------------------------------------------
(print name of Shareholder)
/Investment Enterprise Partnership "NIF 8"/
- ---------------------------------------------
(signature)
Director
- ---------------------------------------------
(title, if Shareholder is an entity)
INTEL CORPORATION
By: _______________________________
Title:_____________________________
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the date first written above.
COMPANY:
ACTIVE SOFTWARE, INC.
By: _______________________________
Title:_____________________________
SHAREHOLDERS:
Investment Enterprise Partnership "NIF 9"
- ---------------------------------------------
(print name of Shareholder)
/Investment Enterprise Partnership "NIF 9"
- ---------------------------------------------
(signature)
Director
- ---------------------------------------------
(title, if Shareholder is an entity)
- ---------------------------------------------
INTEL CORPORATION
By: _______________________________
Title:_____________________________
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the date first written above.
COMPANY:
ACTIVE SOFTWARE, INC.
By: _______________________________
Title:_____________________________
SHAREHOLDERS:
Investment Enterprise Partnership "NIF 10-A"
- ----------------------------------------------
(print name of Shareholder)
/Investment Enterprise Partnership "NIF 10-A"/
- ----------------------------------------------
(signature)
Director
- ---------------------------------------------
(title, if Shareholder is an entity)
INTEL CORPORATION
By: _______________________________
Title:_____________________________
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the date first written above.
COMPANY:
ACTIVE SOFTWARE, INC.
By: _______________________________
Title:_____________________________
SHAREHOLDERS:
Investment Enterprise Partnership "NIF 10-B"
- ---------------------------------------------
(print name of Shareholder)
/Investment Enterprise Partnership "NIF
10-B"/
- ---------------------------------------------
(signature)
- ---------------------------------------------
(title, if Shareholder is an entity)
INTEL CORPORATION
By: _______________________________
Title:_____________________________
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the date first written above.
COMPANY:
ACTIVE SOFTWARE, INC.
By: _______________________________
Title:_____________________________
SHAREHOLDERS:
Ocean Park Ventures L.P.
- ---------------------------------------------
(print name of Shareholder)
/Ocean Park Ventures L.P./
- ---------------------------------------------
(signature)
GP
- ---------------------------------------------
(title, if Shareholder is an entity)
INTEL CORPORATION
By: _______________________________
Title:_____________________________
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the date first written above.
COMPANY:
ACTIVE SOFTWARE, INC.
By: _______________________________
Title:_____________________________
SHAREHOLDERS:
Sierra Ventures V, L.P.
- ---------------------------------------------
(print name of Shareholder)
/Sierra Ventures V, L.P./
- ---------------------------------------------
(signature)
GP
- ---------------------------------------------
(title, if Shareholder is an entity)
INTEL CORPORATION
By: _______________________________
Title:_____________________________
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the date first written above.
COMPANY:
ACTIVE SOFTWARE, INC.
By: _______________________________
Title:_____________________________
SHAREHOLDERS:
Spring Creek Ventures I, LP
- ---------------------------------------------
(print name of Shareholder)
/SPRING CREEK VENTURES I, LP/
- ---------------------------------------------
(signature)
- ---------------------------------------------
(title, if Shareholder is an entity)
INTEL CORPORATION
By: _______________________________
Title:_____________________________
<PAGE>
EXHIBIT A
SHAREHOLDERS
<TABLE>
<CAPTION>
SERIES A SHAREHOLDERS:
- ----------------------
<S> <C>
Enterprise Partners III, L.P. Kleiner Perkins Caufield
5000 Birch Street, Suite 6200 & Byers VII, L.P.
Newport Beach, CA 92660-2143 2750 Sand Hill Road
Menlo Park, CA 94025
Enterprise Partners III Associates, L.P. KPCB VII Founders
5000 Birch Street, Suite 6200 Fund, L.P.
Newport Beach, CA 92660-2143 2750 Sand Hill Road
Menlo Park, CA 94025
Ocean Park Ventures, L.P. KPCB Information Sciences
12011 San Vicente Blvd. Zaibatsu Fund II, L.P.
Suite 330 2750 Sand Hill Road
Los Angeles, CA 90049 Menlo Park, CA 94025
Sierra Ventures V, L.P. VLG Investments 1996
3000 Sand Hill Road c/o Venture Law Group
Menlo Park, CA 94025 2800 Sand Hill Road
Menlo Park, CA 94025
Mark A. Medearis
527 Tennyson
Palo Alto, CA 94301
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
COMMON SHAREHOLDERS:
- --------------------
<S> <C>
R. James Green Larry E. Henninger
c/o Active Software, Inc. 663 Christina Dr.
3255-1 Scott Boulevard P.O. Box 7646
Santa Clara, CA 95054 Incline Village, NV 89450
Rafael Bracho Enterprise Partners III, L.P.
c/o Active Software, Inc. 5000 Birch Street, Suite 6200
3255-1 Scott Boulevard Newport Beach, CA 92660-2143
Santa Clara, CA 95054
Enterprise Partners III Associates, L.P.
5000 Birch Street, Suite 6200
Newport Beach, CA 92660-2143
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SERIES B SHAREHOLDERS:
- ----------------------
<S> <C>
Lehman Brothers Holdings Inc. Bayview Investors, Ltd.
3 World Financial Center Robertson, Stephens & Company
New York, NY 10285 555 California Street
San Francisco, CA 94104
Enterprise Partners III, L.P. Kleiner Perkins Caufield
5000 Birch Street, Suite 6200 & Byers VII, L.P.
Newport Beach, CA 92660-2143 2750 Sand Hill Road
Menlo Park, CA 94025
Enterprise Partners III Associates, L.P. KPCB Java Fund, L.P.
5000 Birch Street, Suite 6200 2750 Sand Hill Road
Newport Beach, CA 92660-2143 Menlo Park, CA 94025
Ocean Park Ventures, L.P. KPCB Information Sciences
12011 San Vicente Blvd. Zaibatsu Fund II, L.P.
Suite 330 2750 Sand Hill Road
Los Angeles, CA 90049 Menlo Park, CA 94025
Sierra Ventures V, L.P. MacDonald Family Trust, dated
3000 Sand Hill Road 10/12/87, Stephen and Robin
Menlo Park, CA 94025 MacDonald, trustees
c/o Active Software, Inc.
3255-1 Scott Boulevard
Santa Clara, CA 95054
Mark A. Medearis VLG Investments 1997
527 Tennyson c/o Venture Law Group
Palo Alto, CA 94301 2800 Sand Hill Road
Menlo Park, CA 94025
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SERIES C SHAREHOLDERS:
- ----------------------
<S> <C>
LB I Group Inc. Charter Growth Capital
3 World Financial Center 525 University Avenue
New York, NY 10285 Suite 1500
Palo Alto, CA 94301
Charter Growth Capital Co-Investment Fund CGC Investors
525 University Avenue 525 University Avenue
Suite 1500 Suite 1500
Palo Alto, CA 94301 Palo Alto, CA 94301
Spring Creek Ventures I, L.P. Nippon Investment and Finance Co. Ltd.
330 Spring Creek Road c/o NIF Ventures USA, Inc.
Rockford, IL 61107 First Market Tower
525 Market Street, Suite 3420
San Francisco, CA 94105
Investment Enterprise Partnership "NIF 8" Investment Enterprise Partnership "NIF 9"
c/o NIF Ventures USA, Inc. c/o NIF Ventures USA, Inc.
First Market Tower First Market Tower
525 Market Street, Suite 3420 525 Market Street, Suite 3420
San Francisco, CA 94105 San Francisco, CA 94105
Investment Enterprise Partnership "NIF 10-A" Investment Enterprise Partnership "NIF 10-B"
c/o NIF Ventures USA, Inc. c/o NIF Ventures USA, Inc.
First Market Tower First Market Tower
525 Market Street, Suite 3420 525 Market Street, Suite 3420
San Francisco, CA 94105 San Francisco, CA 94105
Enterprise Partners III, L.P. Enterprise Partners III Associates, L.P.
5000 Birch Street, Suite 6200 5000 Birch Street, Suite 6200
Newport Beach, CA 92660-2143 Newport Beach, CA 92660-2143
Ocean Park Ventures, L.P. KPCB Java Fund, L.P.
12011 San Vicente Blvd. 2750 Sand Hill Road
Suite 330 Menlo Park, CA 94025
Los Angeles, CA 90049
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Kleiner Perkins Caufield KPCB Information Sciences Zaibatsu Fund II,
& Byers VII, L.P. L.P.
2750 Sand Hill Road 2750 Sand Hill Road
Menlo Park, CA 94025 Menlo Park, CA 94025
Sierra Ventures V, L.P. MacDonald Family Trust, dated 10/12/87,
3000 Sand Hill Road Stephen and Robin MacDonald, trustees
Building 4, Suite 210 11800 Francemont
Menlo Park, CA 94025 Los Altos Hills, CA 94022
KPMG Peat Marwick LLP Aspect Telecommunications Corporation
3 Chestnut Ridge Road 1730 Fox Drive
Montvale, NJ 07645 San Jose, CA 95131
Cambridge Technology Capital Fund I L.P.
11512 El Camino Real, Suite 215
San Diego, CA 92130
</TABLE>
<PAGE>
EXHIBIT 10.8
WARRANT
-------
THE WARRANT EVIDENCED OR CONSTITUTED HEREBY, AND ALL SHARES OF COMMON STOCK
ISSUABLE HEREUNDER, HAVE BEEN AND WILL BE ISSUED WITHOUT REGISTRATION UNDER THE
SECURITIES ACT OF 1933, AS AMENDED ("THE ACT") AND MAY NOT BE SOLD, OFFERED FOR
SALE, TRANSFERRED, PLEDGED OR HYPOTHECATED WITHOUT REGISTRATION UNDER THE ACT
UNLESS EITHER (i) THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL, IN FORM AND
SUBSTANCE REASONABLY SATISFACTORY TO THE COMPANY, TO THE EFFECT THAT
REGISTRATION IS NOT REQUIRED IN CONNECTION WITH SUCH DISPOSITION OR (ii) THE
SALE OF SUCH SECURITIES IS MADE PURSUANT TO SECURITIES AND EXCHANGE COMMISSION
RULE 144.
WARRANT TO PURCHASE COMMON STOCK OF ACTIVE SOFTWARE, INC.
(Subject to Adjustment)
NO. __
THIS CERTIFIES THAT, for value received, Intel Corporation, or its
permitted registered assigns ("Holder"), is entitled, subject to the terms and
------
conditions of this warrant, at any time or from time to time after the exercise
date specified in section 2.8 (the "Exercise Date"), and before the expiration
-------------
date specified in section 2.9 (the "Expiration Date"), to purchase from Active
---------------
Software, Inc. a California corporation (the "Company"), twenty four thousand
seven hundred and fifty two (24,509) shares of Warrant Stock (as defined in
section 1 below) of the company at a price per share of $6.12 (the "Purchase
Price"). Both the number of shares of Warrant Stock purchasable upon exercise
of this Warrant and the Purchase Price are subject to adjustment and change as
provided herein. This Warrant is issued in connection with that certain
Agreement, dated October 29, 1998 (the "Agreement"), between the Company and
---------
Holder.
1. CERTAIN DEFINITIONS. As used in this Warrant the following terms shall have
the following respective meanings:
"Fair Market Value" of a share of Common Stock as of a particular date
-----------------
shall mean:
(a) If traded on a securities exchange or the Nasdaq National Market,
the Fair Market Value shall be deemed to be the average of the closing prices of
the Common Stock of the Company on such exchange or market over the 5 business
days ending immediately prior to the applicable date of valuation;
(b) If actively traded over-the-counter, the Fair Market Value shall
be deemed to be the average of the closing bid prices over the 30-day period
ending immediately prior to the applicable date of valuation; and
(c) If there is no active public market, the Fair Market Value shall
be the value thereof, as determined in good faith by the Company's board of
directors; provided,
<PAGE>
however, that if the Holder objects in good faith to such determination, then
such value shall be determined by an independent valuation firm experienced in
valuing businesses such as that of the Company and jointly selected in good
faith by the Company and the Holder. Fees and expenses of the valuation firm
shall be shared equally by the Company and the Holder.
"HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act of
-------
1976.
"IPO" shall mean the Company's first firm commitment underwritten public
---
offering of the Company's Common Stock pursuant to a registration statement
filed with the Securities and Exchange Commission.
"Registered Holder" shall mean any Holder in whose name this Warrant is
-----------------
registered upon the books and records maintained by the Company.
"Warrant" as used herein, shall include this Warrant and any warrant
-------
delivered in substitution or exchange therefor as provided herein.
"Warrant Stock" shall mean the Common Stock of the Company and any other
-------------
securities at any time receivable or issuable upon exercise of this Warrant.
2. EXERCISE OF WARRANT
2.1. Payment. Subject to compliance with the terms and conditions of this
-------
Warrant and applicable securities laws, this Warrant may be exercised, in whole
or in part at any time or from time to time, on or before the Expiration Date by
the delivery (including, without limitation, delivery by facsimile) of the form
of Notice of Exercise attached hereto as Exhibit 1 (the "Notice of Exercise"),
duly executed by the Holder, at the principal office of the Company, and as soon
as practicable after such date, surrendering
(a) this Warrant at the principal office of the Company, and
(b) payment, (i) in cash (by check) or by wire transfer, (ii) by
cancellation by the Holder of indebtedness of the Company to the Holder; or
(iii) by a combination of (i) and (ii), of an amount equal to the product
obtained by multiplying the number of shares of Warrant Stock being purchased
upon such exercise by the then effective Purchase Price (the "Exercise Amount"),
except that if Holder is subject to HSR Act Restrictions (as defined in Section
2.5 below), the Exercise Amount shall be paid to the Company within five (5)
business days of the termination of all HSR Act Restrictions.
2.2. Net Issue Exercise. In lieu of the payment methods set forth in
------------------
Section 2.1(b) above, the Holder may elect to exchange all or some of the
Warrant for shares of Warrant Stock equal to the value of the amount of the
Warrant being exchanged on the date of exchange. If Holder elects to exchange
this Warrant as provided in this Section 2.2, Holder shall tender to the Company
the Warrant for the amount being exchanged, along with written notice of
Holder's election to exchange some or all of the Warrant, and the Company shall
issue to Holder the number of shares of Warrant Stock computed using the
following formula:
2
<PAGE>
X = Y (A-B)
-------
A
Where X = the number of shares of Warrant Stock to be issued to
Holder.
Y = the number of shares of Warrant Stock purchasable under the
amount of the Warrant being exchanged (as adjusted to the date of
such calculation).
A = the Fair Market Value of one share of the Company's Common Stock.
B = Purchase Price (as adjusted to the date of such calculation).
All references herein to an "exercise" of the Warrant shall include
an exchange pursuant to this Section 2.2. Notwithstanding the foregoing, in the
event of an acquisition of the Company by another entity by means of merger or
consolidation or the like or the sale of all or substantially all of the
Company's assets, the Holder may, in lieu of the net exercise procedure
described above, exchange all of the Warrant for eight thousand (8000) shares of
Warrant Stock.
4.4. Initial Public Offering. Upon receipt of a written notice of the
-----------------------
Company's intention to raise capital by selling shares of Common Stock in an IPO
(the "IPO Notice"), which notice shall be delivered to Holder at least thirty
----------
(30) but not more than ninety (90) days before the anticipated date of the
filing with the Securities and Exchange Commission of the registration statement
associated with the IPO, the Holder shall promptly notify the Company whether or
not the Holder will exercise this Warrant pursuant to this Section 2.2 prior to
consummation of the IPO. Notwithstanding whether or not an IPO Notice has been
delivered to Holder or any other provision of this Warrant to the contrary, if
Holder decides to exercise this Warrant while a registration statement is on
file with the Securities and Exchange Commission (the "SEC") in connection with
---
the IPO, this Warrant shall be deemed exercised immediately prior to the
consummation of the IPO and the Fair Market Value of a share of Common Stock
will be the price at which one share of Common Stock was sold to the public in
the IPO. If Holder has elected to exercise this Warrant pursuant to this
Section 2.2 while a registration statement is on file with the Securities and
Exchange Commission in connection with an IPO and the IPO is not consummated,
then Holder's exercise of this Warrant shall not be effective unless Holder
confirms in writing Holder's intention to go forward with the exercise of this
Warrant.
4.5. "Easy Sale" Exercise. In lieu of the payment methods set forth in
---------------------
Section 2.1(b) above, when permitted by law and applicable regulations
(including Nasdaq and NASD rules), the Holder may pay the Purchase Price through
a "same day sale" commitment from the Holder (and if applicable a broker-dealer
that is a member of the National Association of Securities Dealers (a "NASD
Dealer")), whereby the Holder irrevocably elects to exercise this Warrant and to
sell a portion of the Shares so purchased to pay for the Purchase Price and the
Holder (or, if applicable, the NASD Dealer) commits upon sale (or, in the case
of the NASD Dealer, upon receipt) of such Shares to forward the Purchase Price
directly to the Company.
2.5. Stock Certificates; Fractional Shares. As soon as practicable on or
-------------------------------------
after such date, the Company shall issue and deliver to the person or persons
entitled to receive the same a certificate or certificates for the number of
whole shares of Common Stock issuable upon such
3
<PAGE>
exercise, together with cash in lieu of any fraction of a share equal to such
fraction of the current Fair Market Value of one whole share of Common Stock as
of the date of exercise of this Warrant. No fractional shares or scrip
representing fractional shares shall be issued upon an exercise of this Warrant.
2.6. HSR Act. The Company hereby acknowledges that exercise of this
-------
Warrant by Holder may subject the Company and/or the Holder to the filing
requirements of the HSR Act and that Holder may be prevented from exercising
this Warrant until the expiration or early termination of all waiting periods
imposed by the HSR Act ("HSR Act Restrictions"). If on or before the Expiration
Date Holder has sent the Notice of Exercise to Company and Holder has not been
able to complete the exercise of this Warrant prior to the Expiration Date
because of HSR Act Restrictions, the Holder shall be entitled to complete the
process of exercising this Warrant in accordance with the procedures contained
herein notwithstanding the fact that completion of the exercise of this Warrant
would take place after the Expiration Date or the completion of the IPO.
2.7. Partial Exercise; Effective Date of Exercise. In case of any partial
--------------------------------------------
exercise of this Warrant, the Company shall cancel this Warrant upon surrender
hereof and shall execute and deliver a new Warrant of like tenor and date for
the balance of the shares of Warrant Stock purchasable hereunder. This Warrant
shall be deemed to have been exercised immediately prior to the close of
business on the date of its surrender for exercise as provided above. However,
if Holder is subject to HSR Act filing requirements this Warrant shall be deemed
to have been exercised on the date immediately following the date of the
expiration of all HSR Act Restrictions. The person entitled to receive the
shares of Warrant Stock issuable upon exercise of this Warrant shall be treated
for all purposes as the holder of record of such shares as of the close of
business on the date the Holder is deemed to have exercised this Warrant.
4.4. Exercise Date. This Warrant shall be exercisable for all shares of
-------------
Warrant Stock on the earlier to occur of: (i) the date when a joint engineering
team of Intel and the Company's engineers achieves a one hundred percent (100%)
increase in performance of Active Integration System(TM) on Intel Architecture-
base platforms, as these terms are defined in the Agreement, according to the
performance standards set forth in the Agreement (the "Performance Objective"),
---------------------
or (ii) immediately prior to the closing of an acquisition of the Company by
another entity by means of merger or consolidation or the like or the sale of
all or substantially all of the Company's assets.
4.5. Expiration Date. This Warrant shall expire on the earliest to
---------------
occur of the following: (i) October 29, 2005, (ii) August 31, 1999, in the event
that Intel shall not have achieved the Performance Objective by such date, (iii)
the termination of the Collaboration Agreement by Intel prior to the occurrence
of the Exercise Date, or (iv) the closing of an acquisition of the Company by
another entity by means of merger or consolidation or the like or the sale of
all or substantially all of the Company's assets.
3. VALID ISSUANCE; TAXES. All shares of Warrant Stock issued upon the exercise
of this Warrant shall be validly issued, fully paid and non-assessable, and the
Company shall pay all taxes and other governmental charges that may be imposed
in respect of the issue or delivery
4
<PAGE>
thereof. The Company shall not be required to pay any tax or other charge
imposed in connection with any transfer involved in the issuance of any
certificate for shares of Warrant Stock in any name other than that of the
Registered Holder of this Warrant, and in such case the Company shall not be
required to issue or deliver any stock certificate or security until such tax or
other charge has been paid, or it has been established to the Company's
reasonable satisfaction that no tax or other charge is due.
4. ADJUSTMENT OF PURCHASE PRICE AND NUMBER OF SHARES. The number of shares of
Warrant Stock issuable upon exercise of this Warrant (or any shares of stock or
other securities or property receivable or issuable upon exercise of this
Warrant) and the Purchase Price are subject to adjustment upon occurrence of the
following events:
4.1. Adjustment for Stock Splits, Stock Subdivisions or Combinations of
------------------------------------------------------------------
Shares. The Purchase Price of this Warrant shall be proportionally decreased
- ------
and the number of shares of Warrant Stock issuable upon exercise of this Warrant
(or any shares of stock or other securities at the time issuable upon exercise
of this Warrant) shall be proportionally increased to reflect any stock split or
subdivision of the Company's Common Stock. The Purchase Price of this Warrant
shall be proportionally increased and the number of shares of Warrant Stock
issuable upon exercise of this Warrant (or any shares of stock or other
securities at the time issuable upon exercise of this Warrant) shall be
proportionally decreased to reflect any combination of the Company's Common
Stock.
4.2. Adjustment for Dividends or Distributions of Stock or Other
-----------------------------------------------------------
Securities or Property. In case the Company shall make or issue, or shall fix a
- ----------------------
record date for the determination of eligible holders entitled to receive, a
dividend or other distribution with respect to the Common Stock (or any shares
of stock or other securities at the time issuable upon exercise of the Warrant)
payable in (a) securities of the Company or (b) assets (excluding cash dividends
paid or payable solely out of retained earnings), then, in each such case, the
Holder of this Warrant on exercise hereof at any time after the consummation,
effective date or record date of such dividend or other distribution, shall
receive, in addition to the shares of Warrant Stock (or such other stock or
securities) issuable on such exercise prior to such date, and without the
payment of additional consideration therefor, the securities or such other
assets of the Company to which such Holder would have been entitled upon such
date if such Holder had exercised this Warrant on the date hereof and had
thereafter, during the period from the date hereof to and including the date of
such exercise, retained such shares and/or all other additional stock available
by it as aforesaid during such period giving effect to all adjustments called
for by this Section 4.
4.3. Reclassification. If the Company, by reclassification of securities
----------------
or otherwise, shall change any of the securities as to which purchase rights
under this Warrant exist into the same or a different number of securities of
any other class or classes, this Warrant shall thereafter represent the right to
acquire such number and kind of securities as would have been issuable as the
result of such change with respect to the securities that were subject to the
purchase rights under this Warrant immediately prior to such reclassification or
other change and the Purchase Price therefore shall be appropriately adjusted,
all subject to further adjustment as provided in
5
<PAGE>
this Section 4. No adjustment shall be made pursuant to this Section 4.3 upon
any conversion or redemption of the Common Stock which is the subject of Section
4.5.
4.4. Adjustment for Capital Reorganization. In case of any capital
-------------------------------------
reorganization of the capital stock of the Company (other than a combination,
reclassification, exchange or subdivision of shares otherwise provided for
herein), then, as a part of such reorganization, lawful provision shall be made
so that the Holder of this Warrant shall thereafter be entitled to receive upon
exercise of this Warrant, during the period specified herein and upon payment of
the Purchase Price then in effect, the number of shares of stock or other
securities or property of the successor corporation resulting from such
reorganization that a holder of the shares deliverable upon exercise of this
Warrant would have been entitled to receive in such reorganization, if this
Warrant had been exercised immediately before such reorganization, all subject
to further adjustment as provided in this Section 4. The foregoing provisions
of this Section 4.4 shall similarly apply to successive reorganizations and to
the stock or securities of any other corporation that are at the time receivable
upon the exercise of this Warrant. If the per-share consideration payable to
the Holder hereof for shares in connection with any such transaction is in a
form other than cash or marketable securities, then the value of such
consideration shall be determined in good faith by the Company's Board of
Directors. In all events, appropriate adjustment (as determined in good faith
by the Company's Board of Directors) shall be made in the application of the
provisions of this Warrant with respect to the rights and interests of the
Holder after the transaction, to the end that the provisions of this Warrant
shall be applicable after that event, as near as reasonably may be, in relation
to any shares or other property deliverable after that event upon exercise of
this Warrant.
4.5. Conversion of Common Stock. In case all or any portion of the
---------------------------
authorized and outstanding shares of Common Stock of the Company are redeemed or
converted or reclassified into other securities or property pursuant to the
Company's Articles of Incorporation or otherwise, or the Common Stock otherwise
ceases to exist, then, in such case, the Holder of this Warrant, upon exercise
hereof at any time after the date on which the Common Stock is so redeemed or
converted, reclassified or ceases to exist (the "Termination Date"), shall
receive, in lieu of the number of shares of Common Stock that would have been
issuable upon such exercise immediately prior to the Termination Date, the
securities or property that would have been received if this Warrant had been
exercised in full and the Common Stock received thereupon had been
simultaneously converted immediately prior to the Termination Date, all subject
to further adjustment as provided in this Warrant. Additionally, the Purchase
Price shall be immediately adjusted to equal the quotient obtained by dividing
(x) the aggregate Purchase Price of the maximum number of shares of Common Stock
for which this Warrant was exercisable immediately prior to the Termination Date
by (y) the number of shares of Common Stock of the Company for which this
Warrant is exercisable immediately after the Termination Date, all subject to
further adjustment as provided herein.
5. CERTIFICATE AS TO ADJUSTMENTS. In each case of any adjustment in the
Purchase Price, or number or type of shares issuable upon exercise of this
Warrant, the Chief Financial Officer or Controller of the Company shall compute
such adjustment in accordance with the terms of this Warrant and prepare a
certificate setting forth such adjustment and showing in detail the facts upon
which such adjustment is based, including a statement of the
6
<PAGE>
adjusted Purchase Price. The Company shall promptly send (by facsimile and by
either first class mail, postage prepaid or overnight delivery) a copy of each
such certificate to the Holder.
6. LOSS OR MUTILATION. Upon receipt of evidence reasonably satisfactory to the
Company of the ownership of and the loss, theft, destruction or mutilation of
this Warrant, and of indemnity reasonably satisfactory to it, and (in the case
of mutilation) upon surrender and cancellation of this Warrant, the Company will
execute and deliver in lieu thereof a new Warrant of like tenor as the lost,
stolen, destroyed or mutilated Warrant.
7. RESERVATION OF COMMON STOCK. The Company hereby covenants that at all times
there shall be reserved for issuance and delivery upon exercise of this Warrant
such number of shares of Common Stock or other shares of capital stock of the
Company as are from time to time issuable upon exercise of this Warrant and,
from time to time, will take all steps necessary to amend its Articles of
Incorporation to provide sufficient reserves of shares of Common Stock issuable
upon exercise of this Warrant. All such shares shall be duly authorized, and
when issued upon such exercise, shall be validly issued, fully paid and non-
assessable, free and clear of all liens, security interests, charges and other
encumbrances or restrictions on sale and free and clear of all preemptive
rights, except encumbrances or restrictions arising under federal or state
securities laws. Issuance of this Warrant shall constitute full authority to the
Company's officers who are charged with the duty of executing stock certificates
to execute and issue the necessary certificates for shares of Common Stock upon
the exercise of this Warrant.
8. TRANSFER AND EXCHANGE. Subject to the terms and conditions of this Warrant
and compliance with all applicable securities laws, this Warrant and all rights
hereunder may be transferred to any Registered Holder parent, subsidiary or
affiliate, in whole or in part, on the books of the Company maintained for such
purpose at the principal office of the Company referred to above, by the
Registered Holder hereof in person, or by duly authorized attorney, upon
surrender of this Warrant properly endorsed and upon payment of any necessary
transfer tax or other governmental charge imposed upon such transfer. Upon any
permitted partial transfer, the Company will issue and deliver to the Registered
Holder a new Warrant or Warrants with respect to the shares of Warrant Stock not
so transferred. Each taker and holder of this Warrant, by taking or holding the
same, consents and agrees that when this Warrant shall have been so endorsed,
the person in possession of this Warrant may be treated by the Company, and all
other persons dealing with this Warrant, as the absolute owner hereof for any
purpose and as the person entitled to exercise the rights represented hereby,
any notice to the contrary notwithstanding; provided, however that until a
transfer of this Warrant is duly registered on the books of the Company, the
Company may treat the Registered Holder hereof as the owner for all purposes.
9. RESTRICTIONS ON TRANSFER. The Holder, by acceptance hereof, agrees that,
absent an effective registration statement filed with the SEC under the
Securities Act of 1933, as amended (the "1933 Act"), covering the disposition or
sale of this Warrant or the Warrant Stock issued or issuable upon exercise
hereof, as the case may be, and registration or qualification under applicable
state securities laws, such Holder will not sell, transfer, pledge, or
hypothecate any or all such Warrants or Warrant Stock, as the case may be,
unless either (i) the Company has received an opinion of counsel, in form and
substance reasonably satisfactory to the Company, to
7
<PAGE>
the effect that such registration is not required in connection with such
disposition or (ii) the sale of such securities is made pursuant to SEC Rule
144.
10. COMPLIANCE WITH SECURITIES LAWS. By acceptance of this Warrant, the holder
hereby represents, warrants and covenants that any shares of stock purchased
upon exercise of this Warrant or acquired upon conversion thereof shall be
acquired for investment only and not with a view to, or for sale in connection
with, any distribution thereof; that the Holder has had such opportunity as such
Holder has deemed adequate to obtain from representatives of the Company such
information as is necessary to permit the Holder to evaluate the merits and
risks of its investment in the Company; that the Holder is able to bear the
economic risk of holding such shares as may be acquired pursuant to the exercise
of this Warrant for an indefinite period; that the Holder understands that the
shares of stock acquired pursuant to the exercise of this Warrant or acquired
upon conversion thereof will not be registered under the 1933 Act (unless
otherwise required pursuant to exercise by the Holder of the registration
rights, if any, previously granted to the registered Holder) and will be
"restricted securities" within the meaning of Rule 144 under the 1933 Act and
that the exemption from registration under Rule 144 will not be available for at
least one year from the date of exercise of this Warrant, subject to any special
treatment by the SEC for exercise of this Warrant pursuant to Section 2.2, and
even then will not be available unless a public market then exists for the
stock, adequate information concerning the Company is then available to the
public, and other terms and conditions of Rule 144 are complied with; and that
all stock certificates representing shares of stock issued to the Holder upon
exercise of this Warrant may have affixed thereto a legend substantially in the
following form:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE SECURITIES
LAWS OF ANY STATE. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON
TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS
PERMITTED UNDER THE ACT AND THE APPLICABLE STATE SECURITIES LAWS, PURSUANT
TO REGISTRATION OR EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE THAT
THEY MAY BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN
INDEFINITE PERIOD OF TIME. THE ISSUER OF THESE SECURITIES MAY REQUIRE AN
OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER TO THE
EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH THE ACT
AND ANY APPLICABLE STATE SECURITIES LAWS.
11. NO RIGHTS OR LIABILITIES AS STOCKHOLDERS. This Warrant shall not entitle
the Holder to any voting rights or other rights as a stockholder of the Company.
In the absence of affirmative action by such Holder to purchase Warrant Stock by
exercise of this Warrant, no provisions of this Warrant, and no enumeration
herein of the rights or privileges of the Holder hereof shall cause such Holder
hereof to be a stockholder of the Company for any purpose.
8
<PAGE>
12. REGISTRATION RIGHTS. All shares of Warrant Stock issuable upon exercise of
this Warrant shall be "Registrable Securities" or such other definition of
securities entitled to registration rights pursuant to the Amended and Restated
Rights Agreement dated March 27, 1998, as amended, by and among the Company, the
Holder and other holders of the Company's securities.
13. NOTICES. All notices and other communications from the Company to the
Holder shall be given in accordance with the Agreement.
14. HEADINGS. The headings in this Warrant are for purposes of convenience in
reference only, and shall not be deemed to constitute a part hereof.
15. LAW GOVERNING. This Warrant shall be construed and enforced in accordance
with, and governed by, the laws of the State of California.
16. NO IMPAIRMENT. The Company will not, by amendment of its Articles of
Incorporation or bylaws, or through reorganization, consolidation, merger,
dissolution, issue or sale of securities, sale of assets or any other voluntary
action, avoid or seek to avoid the observance or performance of any of the terms
of this Warrant, but will at all times in good faith assist in the carrying out
of all such terms and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the Registered Holder of this
Warrant against impairment. Without limiting the generality of the foregoing,
the Company (a) will not increase the par value of any shares of stock issuable
upon the exercise of this Warrant above the amount payable therefor upon such
exercise, and (b) will take all such action as may be necessary or appropriate
in order that the Company may validly and legally issue fully paid and non-
assessable shares of Common Stock upon exercise of this Warrant.
17. NOTICES OF RECORD DATE. In case:
17.1. the Company shall take a record of the holders of its Common Stock
(or other stock or securities at the time receivable upon the exercise of this
Warrant), for the purpose of entitling them to receive any dividend or other
distribution, or any right to subscribe for or purchase any shares of stock of
any class or any other securities or to receive any other right; or
17.2. of any consolidation or merger of the Company with or into another
corporation, any capital reorganization of the Company, any reclassification of
the Capital Stock of the Company, or any conveyance of all or substantially all
of the assets of the Company to another corporation in which holders of the
Company's stock are to receive stock, securities or property of another
corporation; or
17.3. of any voluntary dissolution, liquidation or winding-up of the
Company; or
17.4. of any redemption of all outstanding Common Stock;
then, and in each such case, the Company will mail or cause to be mailed to the
Registered Holder of this Warrant a notice specifying, as the case may be, (i)
the date on which a record is to be taken for the purpose of such dividend,
distribution or right, or (ii) the date on which such
9
<PAGE>
reorganization, reclassification, consolidation, merger, conveyance,
dissolution, liquidation, winding-up, redemption or conversion is to take place,
and the time, if any is to be fixed, as of which the holders of record of Common
Stock or (such stock or securities as at the time are receivable upon the
exercise of this Warrant), shall be entitled to exchange their shares of Common
Stock (or such other stock or securities), for securities or other property
deliverable upon such reorganization, reclassification, consolidation, merger,
conveyance, dissolution, liquidation or winding-up. Such notice shall be
delivered at least thirty (30) days prior to the date therein specified.
18. SEVERABILITY. If any term, provision, covenant or restriction of this
Warrant is held by a court of competent jurisdiction to be invalid, void or
unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect and shall
in no way be affected, impaired or invalidated.
19. COUNTERPARTS. For the convenience of the parties, any number of
counterparts of this Warrant may be executed by the parties hereto and each such
executed counterpart shall be, and shall be deemed to be, an original
instrument.
20. NO INCONSISTENT AGREEMENTS. The Company will not on or after the date of
this Warrant enter into any agreement with respect to its securities which is
inconsistent with the rights granted to the Holders of this Warrant or otherwise
conflicts with the provisions hereof. The rights granted to the Holders
hereunder do not in any way conflict with and are not inconsistent with the
rights granted to holders of the Company's securities under any other
agreements, except rights that have been waived.
21. SATURDAYS, SUNDAYS AND HOLIDAYS. If the Expiration Date falls on a
Saturday, Sunday or legal holiday, the Expiration Date shall automatically be
extended until 5:00 p.m. the next business day.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
10
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Warrant as of the
Effective Date.
INTEL CORPORATION ACTIVE SOFTWARE, INC.
By: /s/ Arvind Sodhani By: /s/ Jon A. Bode
------------------------ --------------------------------
Arvind Sodhani Jon A. Bode
- ---------------------------- ------------------------------------
Printed Name Printed Name
Vice President and Treasurer Chief Financial Officer
- ---------------------------- ------------------------------------
Title Title
SIGNATURE PAGE TO WARRANT
11
<PAGE>
EXHIBIT 1
NOTICE OF EXERCISE
(To be executed upon exercise of Warrant)
Active Software, Inc. WARRANT NO. ___
The undersigned hereby irrevocably elects to exercise the right of purchase
represented by the within Warrant Certificate for, and to purchase thereunder,
the securities of Active Software, Inc., as provided for therein, and (check the
applicable box):
Tenders herewith payment of the exercise price in full in the form of cash
or a certified or official bank check in same-day funds in the amount of
$____________ for _________ such securities.
Elects the Net Issue Exercise option pursuant to Section 2.2 of the
Warrant, and accordingly requests delivery of a net of ______________ of
such securities, according to the following calculation:
X = Y (A-B) ( ) = (____) [(_____) - (_____)]
------- --------------------------
A (_____)
Where X = the number of shares of Common Stock to be issued to Holder.
Y = the number of shares of Common Stock purchasable under the amount
of the Warrant being exchanged (as adjusted to the date of such
calculation).
A = the Fair Market Value of one share of the Company's Common Stock.
B = Purchase Price (as adjusted to the date of such calculation).
Elects the Easy Sale Exercise option pursuant to Section 2.4 of the
Warrant, and accordingly requests delivery of a net of ______________ of
such securities.
Please issue a certificate or certificates for such securities in the name of,
and pay any cash for any fractional share to (please print name, address and
social security number):
Name: -----------------------------
Address: --------------------------
Signature: ------------------------
Note: The above signature should correspond exactly with the name on the first
page of this Warrant Certificate or with the name of the assignee appearing in
the assignment form below.
If said number of shares shall not be all the shares purchasable under the
within Warrant Certificate, a new Warrant Certificate is to be issued in the
name of said undersigned for the balance remaining of the shares purchasable
thereunder rounded up to the next higher whole number of shares.
12
<PAGE>
EXHIBIT 2
ASSIGNMENT
(To be executed only upon assignment of Warrant Certificate) WARRANT NO. ___
For value received, hereby sells, assigns and transfers unto _________________
the within Warrant Certificate, together with all right, title and interest
therein, and does hereby irrevocably constitute and appoint __________________
___________________ attorney, to transfer said Warrant Certificate on the books
of the within-named Company with respect to the number of Warrants set forth
below, with full power of substitution in the premises:
<TABLE>
<CAPTION>
Name(s) of Assignee(s) Address # of Warrants
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
</TABLE>
And if said number of Warrants shall not be all the Warrants represented by the
Warrant Certificate, a new Warrant Certificate is to be issued in the name of
said undersigned for the balance remaining of the Warrants registered by said
Warrant Certificate.
Dated: 19
----------------------------------
Signature: ------------------------------
Notice: The signature to the foregoing Assignment must correspond to the name as
written upon the face of this security in every particular, without alteration
or any change whatsoever; signature(s) must be guaranteed by an eligible
guarantor institution (banks, stock brokers, savings and loan associations and
credit unions with membership in an approved signature guarantee medallion
program) pursuant to Securities and Exchange Commission Rule 17Ad-15.
13
<PAGE>
EXHIBIT 10.9
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT
AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE
SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE
OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT AND ANY APPLICABLE
STATE SECURITIES LAWS.
WARRANT TO PURCHASE
28,000 SHARES OF COMMON STOCK OF
ACTIVE SOFTWARE, INC.
(Void after September 30, 2004)
This certifies that VENTURE LENDING & LEASING, INC., a Maryland
corporation, or assigns (the "Holder"), for value received, is entitled to
purchase from ACTIVE SOFTWARE, INC., a California corporation (the "Company"),
28,000 fully paid and nonassessable shares of the Company's Common Stock
("Common Stock") for cash at a price of $1.00 per share (the "Stock Purchase
Price") at any time or from time to time up, to and including 5:00 p.m.
(Pacific time) on August 31, 2004 (the "Expiration Date"), upon surrender to the
Company at its principal office at 1043 North Shoreline Blvd., Suite 201
Mountain View, CA 94043 (or at such other location as the Company may advise
Holder in writing) of this Warrant properly endorsed with the Form of
Subscription attached hereto duly filled in and signed and upon payment in cash
or by check of the aggregate Stock Purchase Price for the number of shares for
which this Warrant is being exercised determined in accordance with the
provisions hereof. The Stock Purchase Price and the number of shares purchasable
hereunder are subject to adjustment as provided in Section 4 of this Warrant.
This Warrant is subject to the following terms and conditions:
1. Exercise; Issuance of Certificates; Payment
-------------------------------------------
for Shares.
----------
(a) Unless an election is made pursuant to clause (b) of this Section
1, this Warrant shall be exercisable at the option of the Holder, at any time or
from time to time, on or before the Expiration Date for all or any portion of
the shares of Common Stock (but not for a fraction of a share) which may be
purchased hereunder for the Stock Purchase Price multiplied by the number of
shares to be purchased. The Company agrees that the shares of Common Stock
purchased under this Warrant shall be and are deemed to be issued to the holder
hereof as the record owner of such shares as of the close of business on the
date on which this
<PAGE>
Warrant shall have been surrendered and payment made for such shares. Subject to
the provisions of Section 2, certificates for the shares of Common Stock so
purchased, together with any other securities or property to which the Holder
hereof is entitled upon such exercise, shall be delivered to the Holder hereof
by the Company at the Company's expense within a reasonable time after the
rights represented by this Warrant have been so exercised. Except as provided in
clause (b) of this Section 1, in case of a purchase of less than all the shares
which may be purchased under this Warrant, the Company shall cancel this Warrant
and execute and deliver a new Warrant or Warrants of like tenor for the balance
of the shares purchasable under the Warrant surrendered upon such purchase to
the Holder hereof within a reasonable time. Each stock certificate so delivered
shall be in such denominations of Common Stock as may be requested by the Holder
hereof and shall be registered in the name of such Holder or such other name as
shall be designated by such Holder, subject to the limitations contained in
Section 2.
(b) The Holder, in lieu of exercising this Warrant by the payment of
the Stock Purchase Price pursuant to clause (a) of this Section 1, may elect, at
any time on or before the Expiration Date, to receive, through conversion of
this Warrant or any portion hereof into that number of shares of Common Stock
equal to the quotient of: (i) the difference between (A) the Per Share Price (as
hereinafter defined) of the Common Stock, less (B) the Stock Purchase Price then
in effect, multiplied by the number of shares of Common Stock the Holder would
otherwise have been entitled to purchase hereunder pursuant to clause (a) of
this Section 1 (or such lesser number of shares as the Holder may designate in
the case of a partial exercise of this Warrant); over (ii) the Per Share Price.
(c) For purposes of clause (b) of this Section 1, "Per Share Price"
means (i) if the Company's Common Stock is then listed or admitted to trading on
any national securities exchange or traded on any national market system, the
average of the closing bid and asked prices of the Company's Common Stock as
reported on such exchange or market system for the ten (10) consecutive trading
days prior to the date of the Holder's election to convert hereunder; (ii) if
this Warrant is being converted in conjunction with a public offering of stock,
the price to the public per share pursuant to the offering; or (iii) if no
shares of the Company's Common Stock are listed or admitted to trading on any
national securities exchange or traded on any national market system, the price
per share which the Company would obtain from a willing buyer for shares sold by
the Company from authorized but unissued shares as such price shall be agreed
upon by the Holder and the Company or, if agreement cannot be reached within
ten(10) business days of the Holder's election hereunder, as
2
<PAGE>
such price shall be determined by the Board of Directors of the Company, acting
in good faith.
2. Limitation on Transfer.
----------------------
(a) The Warrant and the Common Stock shall not be transferable except
upon the conditions specified in this Section 2, which conditions are intended
to insure compliance with the provisions of the Securities Act. Each holder of
this Warrant or the Common Stock issuable hereunder will cause any proposed
transferee of the Warrant or Common Stock to agree to take and hold such
securities subject to the provisions and upon the conditions specified in this
Section 2.
(b) Each certificate representing this Warrant or the Common Stock
shall (unless otherwise permitted by the provisions of this Section 2 or unless
such securities have been registered under the Securities Act or sold under Rule
144) be stamped or otherwise imprinted with a legend substantially in the
following form (in addition to any legend required under applicable state
securities laws):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR
ANY STATE SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED
IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID
ACT AND ANY APPLICABLE STATE SECURITIES LAWS.
(c) The Holder of this Warrant and each person to whom this Warrant is
subsequently transferred represents and warrants to the Company (by acceptance
of such transfer) that it will not transfer the Warrant (or securities issuable
upon exercise hereof unless a registration statement under the Securities Act
was in effect with respect to such securities at the time of issuance thereof)
except pursuant to (i) an effective registration statement under the Securities
Act,(ii) Rule 144 under the Securities Act (or any other rule under the
Securities Act relating to the disposition of securities), or (iii) an opinion
of counsel, reasonably satisfactory to counsel for the Company, that an
exemption from such registration is available.
3. Shares to be Fully Paid; Reservation of Shares. The Company covenants
----------------------------------------------
and agrees that all shares of Common Stock which may be issued upon the exercise
of the rights represented by this Warrant will, upon issuance, be duly
authorized, validly issued, fully paid and nonassessable and free from all
preemptive rights of any shareholder and free of all taxes, liens and charges
with respect to the issue thereof. The Company further covenants and agrees that
during the period within which the rights represented by this
3
<PAGE>
Warrant may be exercised, the Company will at all times have authorized and
reserved, for the purpose of issue or transfer upon exercise of the subscription
rights evidenced by this Warrant, a sufficient number of shares of authorized
but unissued Common Stock, or other securities and property, when and as
required to provide for the exercise of the rights represented by this Warrant.
The Company will take all such action as may be necessary to assure that such
shares of Common Stock may be issued as provided herein without violation of any
applicable law or regulation, or of any requirements of any domestic securities
exchange upon which the Common Stock may be listed. The Company will not take
any action which would result in any adjustment of the Stock Purchase Price (as
defined in Section 4 hereof) (i) if the total number of shares of Common Stock
issuable after such action upon exercise of all outstanding warrants, together
with all shares of Common Stock then outstanding and all shares of Common Stock
then issuable upon exercise of all options and upon the conversion of all
convertible securities then outstanding, would exceed the total number of shares
of Common Stock then authorized by the Company's Articles of Incorporation.
4. Adjustment of Stock Purchase Price Number of Shares. The Stock
---------------------------------------------------
Purchase Price and the number of shares purchasable upon the exercise of this
Warrant shall be subject to adjustment from time to time upon the occurrence of
certain events described in this Section 4. Upon each adjustment of the Stock
Purchase Price, the Holder of this Warrant shall thereafter be entitled to
purchase, at the Stock Purchase Price resulting from such adjustment, the number
of shares obtained by multiplying the Stock Purchase Price in effect immediately
prior to such adjustment by the number of shares purchasable pursuant hereto
immediately prior to such adjustment, and dividing the product thereof by the
Stock Purchase Price resulting from such adjustment.
4.1 Subdivision or Combination of Stock. In case the Company shall at
-----------------------------------
any time subdivide its outstanding shares of Common Stock into a greater number
of shares, the Stock Purchase Price in effect immediately prior to such
subdivision shall be proportionately reduced, and conversely, in case the
outstanding shares of Common Stock of the Company shall be combined into a
smaller number of shares, the Stock Purchase Price in effect immediately prior
to such combination shall be proportionately increased.
4.2 Dividends in Preferred Stock, Other Stock, Property,
---------------------------------------------------
Reclassification. If at any time or from time to time the holders of Common
- ----------------
Stock (or any shares of stock or other securities at the time receivable upon
the exercise of this Warrant) shall have received or become entitled to receive,
without payment therefor,
4
<PAGE>
(a) by way of dividend or other distribution any shares of stock
or other securities, whether or not such securities are at any time directly or
indirectly convertible into or exchangeable for Common Stock, or any rights or
options to subscribe for, purchase or otherwise acquire any of the foregoing, or
(b) any cash paid or payable otherwise than as a cash dividend,
or
(c) additional stock or other securities or property (including
cash) by way of spinoff, split-up, reclassification, combination of shares or
similar corporate rearrangement, (other than shares of Common Stock issued as a
stock split, adjustments in respect of which shall be covered by the terms of
Section 4.1 above),
then and in each such case, the Holder hereof shall, upon the exercise of this
Warrant, be entitled to receive, in addition to the number of shares of Common
Stock receivable thereupon, and without payment of any additional consideration
therefore, the amount of stock and other securities and property (including cash
in the cases referred to in clauses (b) and (c) above) which such Holder would
hold on the date of such exercise had he been the holder of record of such
Common Stock as of the date on which holders of Common Stock received or became
entitled to receive such shares and/or all other additional stock and other
securities and property.
4.3 Reorganization, Reclassification, Consolidation, Merger or Sale.
---------------------------------------------------------------
If any capital reorganization of the capital stock of the Company, or any
consolidation or merger of the Company with another corporation, or the sale of
all or substantially all of its assets to another corporation shall be effected
in such a way that holders of Common Stock shall be entitled to receive stock,
securities or assets with respect to or in exchange for Common Stock, then, as a
condition of such reorganization, reclassification, consolidation, merger or
sale, lawful and adequate provisions shall be made whereby the holder hereof
shall thereafter have the right to purchase and receive(in lieu of the shares of
the Common Stock of the Company immediately theretofore purchasable and
receivable upon the exercise of the rights represented hereby) such shares of
stock, securities or assets as may be issued or payable with respect to or in
exchange for a number of outstanding shares of such Common Stock equal to the
number of shares of such stock immediately theretofore purchasable and
receivable upon the exercise of the rights represented hereby. In any such case,
appropriate provision shall be made with respect to the rights and interests of
the holder of this Warrant to the end that the provisions hereof(including,
without limitation, provisions for adjustments of
5
<PAGE>
the Stock Purchase Price and of the number of shares purchasable and receivable
upon the exercise of this Warrant) shall thereafter be applicable, as nearly as
may be possible, in relation to any shares of stock, securities or assets
thereafter deliverable upon the exercise hereof. The Company will not effect any
such consolidation, merger or sale unless, prior to the consummation thereof,
the successor corporation (if other than the Company) resulting from such
consolidation or the corporation purchasing such assets shall assume by written
instrument, executed and mailed or delivered to the registered Holder hereof at
the last address of such Holder appearing on the books of the Company, the
obligation to deliver to such Holder such shares of stock, securities or assets
as, in accordance with the foregoing provisions, such Holder may be entitled to
purchase.
4.4 Notice of Adjustment. Upon any adjustment of the Stock Purchase
--------------------
Price, and/or any increase or decrease in the number of shares purchasable upon
the exercise of this Warrant the Company shall give written notice thereof, by
first class mail, postage prepaid, addressed to the registered holder of this
Warrant at the address of such holder as shown on the books of the Company. The
notice shall be signed by the Company's chief financial officer and shall state
the Stock Purchase Price resulting from such adjustment and the increase or
decrease, if any, in the number of shares purchasable at such price upon the
exercise of this Warrant, setting forth in reasonable detail the method of
calculation and the facts upon which such calculation is based.
4.5 Other Notices. If at any time:
-------------
(a) the Company shall declare any cash dividend upon any of its
stock;
(b) the Company shall declare any dividend upon its stock
payable in stock, or make any special dividend or other distribution to the
holders of its stock;
(c) the Company shall offer for subscription pro rata to the
holders of its Common Stock any additional shares of stock of any class or other
rights;
(d) there shall be any capital reorganization or
reclassification of the capital stock of the Company, or consolidation or merger
of the Company with, or sale of all or substantially all of its assets to,
another corporation;
(e) there shall be a voluntary or involuntary dissolution,
liquidation or winding-up of the Company; or
6
<PAGE>
(f) the Company shall take or propose to take any other action,
notice of which is actually provided to holders of the Common Stock;
then, in any one or more of said cases, the Company shall give, by first class
mail, postage prepaid, addressed to the holder of this Warrant at the address of
such holder as shown on the books of the Company, (i) at least 10 day's prior
written notice of the date on which the books of the Company shall close or a
record shall be taken for such dividend, distribution or subscription rights or
for determining rights to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding-up, or other action and (ii) in the case of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding-up, or other action, at least 10 day's written notice of the date when
the same shall take place. Any notice given in accordance with the foregoing
clause (i) shall also specify, in the case of any such dividend, distribution or
subscription rights, the date on which the holders of stock shall be entitled
thereto. Any notice given in accordance with the foregoing clause (ii) shall
also specify the date on which the holders of Common Stock shall be entitled to,
exchange their Common Stock for securities or other property deliverable upon
such reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or winding-up, or other action as the case may be.
4.6 Certain Events. If any change in the outstanding Common Stock of
the Company or any other event occurs as to which the other provisions of this
Section 4 are not strictly applicable or if strictly applicable would not fairly
protect the purchase rights of the Holder of the Warrant in accordance with the
essential intent and principles of such provisions, then the Board of Directors
of the Company shall make an adjustment in the number and class of shares
available under the Warrant, the Stock Purchase Price and/or the application of
such provisions, in accordance with such essential intent and principles, so as
to protect such purchase rights as aforesaid. The adjustment shall be such as
will give the Holder of the Warrant upon exercise for the same aggregate Stock
Purchase Price the total number, class and kind of shares as he would have owned
had the Warrant been exercised prior to the event and had he continued to hold
such shares until after the event requiring adjustment.
5. Issue Tax. The issuance of certificates for shares of Common Stock
---------
upon the exercise of the Warrant shall be made without charge to the Holder of
the Warrant for any issue tax in respect thereof; provided, however, that the
Company shall not be required to pay any tax which may be payable in respect of
any transfer involved in the issuance
7
<PAGE>
and delivery of any certificate in a name other than that of the then Holder of
the Warrant being exercised.
6. Closing of Books. The Company will at no time close its transfer books
----------------
against the transfer of any Warrant or of any shares of Common Stock issued or
issuable upon the exercise of any warrant in any manner which interferes with
the timely exercise of this Warrant.
7. No Voting or Dividend Rights; Limitation of Liability. Nothing
-----------------------------------------------------
contained in this Warrant shall be construed as conferring upon the Holder
hereof the right to vote or to consent as a shareholder in respect of meetings
of shareholders for the election of directors of the Company or any other
matters or any rights whatsoever as a shareholder of the Company. No dividends
or interest shall be payable or accrued in respect of this Warrant or the
interest represented hereby or the shares purchasable hereunder until, and only
to the extent that, this Warrant shall have been exercised. No provisions
hereof, in the absence of affirmative action by the holder to purchase shares of
Common Stock, and no mere enumeration herein of the rights or privileges of the
Holder hereof, shall give rise to any liability of such Holder for the Stock
Purchase Price or as a shareholder of the Company, whether such liability is
asserted by the Company or by its creditors.
8. Intentionally Deleted.
---------------------
9. Registration Rights. The Holder hereof shall be entitled, with respect
-------------------
to the shares of Common Stock issued upon exercise hereof to all of the
registration rights set forth in the Section 3 of the Company's Rights Agreement
dated as of February 1, 1996 (other than those set forth in Section 3.2 and
3.12) to the same extent and on the same terms and conditions as possessed by
the Series A Shareholders thereunder. The Company shall take such action as may
be reasonably necessary to assure that the granting of such registration rights
to the Holder does not violate the provisions of such agreement or any of the
Company's charter documents or rights of prior grantees of registration rights.
10. Rights and Obligations Survive Exercise of Warrant. The rights and
--------------------------------------------------
obligations of the Company, of the Holder of this Warrant and of the holder of
shares of Common Stock issued upon exercise of this Warrant, contained in
Sections 6 and 9 shall survive the exercise of this Warrant.
11. Modification and Waiver. This Warrant and any provision hereof may be
-----------------------
changed, waived, discharged or terminated only by an instrument in writing
signed by the party against which enforcement of the same is sought.
12. Notices. Any notice, request or other document
-------
8
<PAGE>
required or permitted to be given or delivered to the holder hereof or the
Company shall be deemed to have been given (i) upon receipt if delivered
personally or by courier, (ii) upon confirmation of receipt if by telecopy, or
(iii) three business days after deposit in the U.S. mail, with postage prepaid
and certified or registered, to each such holder at its address as shown on the
books of the Company or to the Company at the address indicated therefor in the
first paragraph of this Warrant.
13. Binding Effect on Successors. This Warrant shall be binding upon any
----------------------------
corporation succeeding the Company by merger, consolidation or acquisition of
all or substantially all of the Company's assets. All of the obligations of the
Company relating to the Common Stock issuable upon the exercise of this Warrant
shall survive the exercise and termination of this Warrant. All of the covenants
and agreements of the Company shall inure to the benefit of the successors and
assign of the holder hereof. The Company will, at the time of the exercise of
this Warrant, in whole or in part, upon request of the Holder hereof but at the
Company's expense, acknowledge in writing its continuing obligation to the
Holder hereof in respect of any rights (including, without limitation, any right
to registration of the shares of Common Stock) to which the holder hereof shall
continue to be entitled after such exercise in accordance with this Warrant;
provided, that the failure of the holder hereof to make any such request shall
not affect the continuing obligation of the Company to the Holder hereof in
respect of such rights.
14. Descriptive Headings and Governing Law. The descriptive headings of
--------------------------------------
the several sections and paragraphs of this Warrant are inserted for convenience
only and do not constitute a part of this Warrant. This Warrant shall be
construed and enforced in accordance with, and the rights of the parties shall
be governed by, the laws of the State of California.
15. Lost Warrants or Stock Certificates. The Company represents and
-----------------------------------
warrants to the Holder hereof that upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction, or mutilation of
any Warrant or stock certificate and, in the case of any such loss, theft or
destruction, upon receipt of an indemnity reasonably satisfactory to the
Company, or in the case of any such mutilation upon surrender and cancellation
of such Warrant or stock certificate, the Company at its expense will make and
deliver a new Warrant or stock certificate, of like tenor, in lieu of the lost,
stolen, destroyed or mutilated Warrant or stock certificate.
9
<PAGE>
16. Fractional Shares. No fractional shares shall be issued upon exercise
-----------------
of this Warrant. The Company shall, in lieu of issuing any fractional share, pay
the holder entitled to such fraction a sum in cash equal to such fraction
multiplied by the then effective Stock Purchase Price.
17. Representations of Holder. With respect to this Warrant and any
-------------------------
securities issued upon exercise thereof, Holder represents and warrants to the
Company as follows:
17.1 Experience. It is experienced in evaluating and investing
----------
in companies engaged in businesses similar to that of the Company; it
understands that investment in the Warrant involves substantial risks; it has
made detailed inquiries concerning the Company, its business and services, its
officers and its personnel; the officers of the Company have made available to
Holder any and all written information it has requested; the officers of the
Company have answered to Holder's satisfaction all inquiries made by it; in
making this investment it has relied upon information made available to it by
the Company; it has such knowledge and experience in financial and business
matters that it is capable of evaluating the merits and risks of investment in
the Company and it is able to bear the economic risk of that investment; and it
is an "accredited investor" as defined in Regulation D promulgated by the
Securities and Exchange Commission.
17.2 Investment. It is acquiring the Warrant and any securities
----------
issued upon exercise thereof for investment for its own account and not with a
view to, or for resale in connection with, any distribution thereof. It
understands that the Warrant and the shares of Common Stock issuable upon
exercise thereof, have not been registered under the Securities Act of 1933, as
amended, nor qualified under applicable state securities laws.
17.3 Rule 144. It acknowledges that the Warrant and the Common
--------
Stock must be held indefinitely unless they are subsequently registered under
the Securities Act or an exemption from such registration is available. It has
been advised or is aware of the provisions of Rule 144 promulgated under the
Securities Act.
17.4 Access to Data. It has had an opportunity to discuss the
--------------
Company's business, management and financial affairs with the Company's
management and has had the opportunity to inspect the Company's facilities.
18. Additional Representations and Covenants of the Company. The
-------------------------------------------------------
Company hereby represents, warrants and agrees as follows:
18.1 Corporate Power. The Company has all requisite corporate
---------------
power and corporate authority to issue
10
<PAGE>
this Warrant and to carry out and perform its obligations hereunder.
18.2 Authorization. All corporate action on the part of the
-------------
Company, its directors and shareholders necessary for the authorization,
execution, delivery and performance by the Company of this has been taken. This
Warrant is a valid and binding obligation of the Company, enforceable in
accordance with its terms.
18.3 Offering. Subject in part to the truth and accuracy of
--------
Holder's representations set forth in Section 17 hereof, the offer, issuance and
sale of the Warrant is, and the issuance of Common Stock upon exercise of the
Warrant will be exempt from the registration requirements of the Securities Act,
and are exempt from the qualification requirements of any applicable state
securities laws; and neither the Company nor anyone acting on its behalf will
take any action hereafter that would cause the loss of such exemptions.
18.4 Stock Issuance. Upon exercise of the Warrant, the Company
--------------
will use its best efforts to cause stock certificates representing the shares of
Common Stock purchased pursuant to the exercise to be issued in the individual
names of Holder, its nominees or assignees, as appropriate at the time of such
exercise.
18.5 Articles and By-Laws. The Company has provided Holder with
--------------------
true and complete copies of the Company's Articles or Certificate of
Incorporation, By-Laws, and each Certificate of Determination or other charter
document setting, forth any rights, preferences and privileges of Company's
capital stock, each as amended and in effect on the date of issuance of this
Warrant.
18.6 Financial and Other Reports. From time to time up to the
---------------------------
earlier of the Expiration Date or the complete exercise of this Warrant, the
Company shall furnish to Holder (i) within 90 days after the close of each
fiscal year of the Company an audited balance sheet and statement of changes in
financial position at and as of the end of such fiscal year, together with an
audited statement of income for such fiscal year; (ii) within 45 days after the
close of each fiscal quarter of the Company, an unaudited balance sheet and
statement of cash flows at and as of the end of such quarter, together with an
unaudited statement of income for such quarter; and (iii) promptly after
sending, making available, or filing, copies of all reports, proxy statements,
and financial statements that the Company sends or makes available to its
shareholders generally and all registration statements and reports that the
Company files with the SEC.
11
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed by its officers, thereunto duly authorized this 27th day of September,
1996.
ACTIVE SOFTWARE, INC.
By: /s/ R. James Green
---------------------------------
Title: CHAIRMAN
-----------------------------
12
<PAGE>
FORM OF SUBSCRIPTION
--------------------
(To be signed only upon exercise of Warrant)
To: _________________________________________
The undersigned, the holder of the within Warrant, hereby irrevocably
elects to exercise the purchase right represented by such Warrant for, and to
purchase thereunder,_______________ (____) (1) shares of Common Stock of________
__________________________ and herewith makes payment of
__________________________ Dollars ($_______)therefor, and requests that the
certificates for such shares be issued in the name of, and delivered
to, __________________________________________, whose address is
________________________________________________.
The undersigned represents that it is acquiring such Common Stock for
its own account for investment and not with a view to or for sale in connection
with any distribution thereof (subject, however, to any requirement of law that
the disposition thereof shall at all times be within its control.
DATED:_______________________________________
_____________________________________________
(Signature must conform in all
respects to name of holder as specified
on the face of the Warrant)
_____________________________________________
_____________________________________________
(Address)
____________________
(1) Insert here the number of shares called for on the face of the Warrant (or,
in the case of a partial exercise, the portion thereof as to which the
Warrant is being exercised), in either case without making any adjustment
for additional Common Stock or any other stock or other securities or
property or cash which, pursuant to the adjustment provisions of the
Warrant, may be deliverable upon exercise.
13
<PAGE>
ASSIGNMENT
----------
FOR VALUE RECEIVED, the undersigned, the holder of the within Warrant,
hereby sells, assigns and transfers all of the rights of the undersigned under
the within Warrant, With respect to the number of shares of Common Stock covered
thereby set forth hereinbelow, unto:
Name of Assignee Address No. of Shares
- ------------------------------------------------------------------------------
Dated:______________________________
________________________________________
(Signature must conform in all
respects to name of holder as
specified on the face of the
Warrant)
14
<PAGE>
EXHIBIT 10.10
================================================================================
LOAN AGREEMENT
Dated as of September 27, 1996
between
ACTIVE SOFTWARE, INC.
as Borrower,
and
VENTURE LENDING & LEASING, INC.,
as Lender
================================================================================
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE 1 - DEFINITIONS................................................. 1
ARTICLE 2 - THE COMMITMENT AND LOANS.................................... 4
2.1 The Commitment............................................. 4
2.2 Limitation on Loans........................................ 4
2.3 Notes Evidencing Loans; Repayment.......................... 4
2.4 Procedures for Borrowing................................... 5
2.5 Interest................................................... 5
2.6 Interest Rate Calculation.................................. 5
2.7 Default Interest........................................... 5
2.8 Lender's Records........................................... 6
2.9 Security................................................... 6
2.10 Issuance of Warrant to Lender.............................. 6
ARTICLE 3 - REPRESENTATIONS AND WARRANTIES.............................. 6
3.1 Due Organization........................................... 6
3.2 Authorization, Validity and Enforceability................. 6
3.3 Compliance with Applicable Laws............................ 6
3.4 Copyrights, Patents, Trademarks and Licenses............... 7
3.5 No Conflict................................................ 7
3.6 No Litigation, Claims or Proceedings....................... 7
3.7 Correctness of Financial Statements........................ 7
3.8 No Subsidiaries............................................ 7
3.9 Environmental Matters...................................... 7
3.10 No Event of Default........................................ 7
ARTICLE 4 - CONDITIONS PRECEDENT........................................ 7
4.1 Conditions to First Loan................................... 7
4.2 Conditions to All Loans.................................... 8
ARTICLE 5 - AFFIRMATIVE COVENANTS....................................... 9
5.1 Notice to Lender........................................... 9
5.2 Financial Statements....................................... 9
5.3 Managerial Assistance from Lender.......................... 9
5.4 Existence.................................................. 10
5.5 Accounting Records......................................... 11
5.6 Compliance With Laws....................................... 11
5.7 Taxes and Other Liabilities................................ 11
5.8 Financial Covenants........................................ 11
5.9 Use of Proceeds............................................ 11
ARTICLE 6 - NEGATIVE COVENANTS.......................................... 11
6.1 Changes/Mergers............................................ 11
6.2 Sales of Assets............................................ 11
ARTICLE 7 - EVENTS OF DEFAULT........................................... 11
7.1 Events of Default.......................................... 11
ARTICLE 8 - GENERAL PROVISIONS.......................................... 12
8.1 Notices.................................................... 12
8.2 Binding Effect............................................. 13
8.3 No Waiver.................................................. 13
8.4 Rights Cumulative.......................................... 13
8.5 Unenforceable Provisions................................... 13
8.6 Accounting Terms........................................... 13
8.7 Indemnification; Exculpation............................... 13
8.8 Reimbursement.............................................. 14
8.9 Execution in Counterparts.................................. 14
8.10 Entire Agreement........................................... 14
8.11 Governing Law and Jurisdiction............................. 14
8.12 Waiver of Jury Trial....................................... 15
</TABLE>
<PAGE>
LIST OF EXHIBITS
----------------
Exhibit "A" Form of Note
Exhibit "B" Form of Borrowing Request
Exhibit "C" Security Agreement (Equipment)
Exhibit "D" Form of Warrant
<PAGE>
LOAN AGREEMENT
This LOAN AGREEMENT is entered into as of September 27, 1996, between
ACTIVE SOFTWARE, INC., a California corporation ("Borrower"), and VENTURE
LENDING & LEASING, INC., a Maryland corporation ("VLLI" or "Lender").
WHEREAS, Lender has agreed to make available to Borrower a loan
facility upon the terms and conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual agreements, provisions
and covenants contained herein, the parties agree as follows:
ARTICLE 1 - DEFINITIONS
The definitions appearing in this Agreement or any supplement or
addendum to this Agreement, shall be applicable to both the singular and plural
forms of the defined terms:
"Additional Interest" means, with respect to each Loan, an amount of
interest payable thereon, in addition to Basic Interest, payable on the Maturity
Date of such Loan in an amount equal to fifteen percent (15.00%) of the original
principal amount of such Loan.
"Affiliate" means any Person which directly or indirectly controls, is
controlled by, or is under common control with, Borrower. "Control," "controlled
by" and "under common control with" means direct or indirect possession of the
power to direct or cause the direction of management or policies (whether
through ownership of voting securities, by contract or otherwise); provided that
control shall be conclusively presumed when any Person or affiliated group
directly or indirectly owns five percent or more of the securities having
ordinary voting power for the election of directors of a corporation.
"Agreement" means this Loan Agreement as it may be amended or
supplemented from time to time.
"Bankruptcy Code" means the Federal Bankruptcy Reform Act of 1978 (11
U.S.C. (S)101, et seq.), as amended.
-- ----
"Basic Interest" means the fixed rate of interest payable on the
outstanding balance of each Loan at the applicable Designated Rate.
"Borrowing Date" means the Business Day on which the proceeds of a
Loan are disbursed by Lender.
"Business Day" means any day other than a Saturday, Sunday or other
day on which commercial banks in New York City or San Francisco are authorized
or required by law to close.
"Closing Date" means the date of this Agreement.
<PAGE>
"Collateral" has the meaning ascribed thereto in the Security
Agreement.
"Commitment" means the obligation of Lender to make Loans to Borrower
in an aggregate, original principal amount not exceeding Eight Hundred Thousand
Dollars ($800,000.00).
"Default" means an event which with the giving of notice, passage of
time, or both would constitute an Event of Default.
"Default Rate" is defined in Section 2.7.
-----------
"Designated Rate" means a fixed rate of interest of nine and 40/100
(9.40%) per annum applicable to a Loan.
"Environmental Laws" means all federal, state or local laws, statutes,
common law duties, rules, regulations, ordinances and codes, together with all
administrative orders, directed duties, requests, licenses, authorizations and
permits of, and agreements with, any governmental authorities, in each case
relating to environmental, health, or safety matters.
"Equipment" means all of Debtor's specific equipment and software
identified and described on Schedule 1 attached to the Security Agreement and
----------
incorporated herein by reference (as such Schedule may be amended or
supplemented from time to time) all replacements, parts, accessions and
additions thereto, and all proceeds thereof arising from the sale, lease, rental
or other use or disposition thereof, including all rights to payment with
respect to insurance or condemnation, returned premiums, or any cause of action
relating to any of the foregoing.
"Event Of Default" means any event described in Article 7.
"GAAP" means generally accepted accounting principles and practices
consistent with those principles and practices promulgated or adopted by the
Financial Accounting Standards Board and the Board of the American Institute of
Certified Public Accountants, their respective predecessors and successors. Each
accounting term used but not otherwise expressly defined herein shall have the
meaning given it by GAAP.
"Indebtedness" of any Person means at any date, without duplication
and without regard to whether matured or unmatured, absolute or contingent: (i)
all obligations of such Person for borrowed money; (ii) all obligations of such
Person evidenced by bonds, debentures, notes, or other similar instruments;
(iii) all obligations of such Person to pay the deferred purchase price of
property or services, except trade accounts payable arising in the ordinary
course of business; (iv) all obligations of such Person as lessee under capital
leases; (v) all obligations of such Person to reimburse or prepay any bank or
other Person in respect of amounts paid under a letter of credit, banker's
acceptance, or similar instrument, whether drawn or undrawn; (vi) all
obligations of such Person to purchase securities which arise out of or in
connection with the sale of the same or substantially similar securities; (vii)
all obligations of such Person in connection with any agreement to purchase,
redeem, exchange, convert or otherwise acquire for
<PAGE>
value any capital stock of such Person or any warrants, rights or options to
acquire such capital stock, now or hereafter outstanding, except to the extent
that such obligations remain performable solely at the option of such Person;
(viii) all obligations to repurchase assets previously sold (including any
obligation to repurchase any accounts or chattel paper under any factoring,
receivables purchase, or similar arrangement); (ix) obligations of such Person
under interest rate swap, cap, collar or similar hedging arrangements; and (x)
all obligations of others of any type described in clause (i) through clause
---------- ------
(ix) above guaranteed by such Person.
- ----
"Insolvency Proceeding" means (a) any case, action or proceeding
before any court or other governmental authority relating to bankruptcy,
reorganization, insolvency, liquidation, receivership, dissolution, winding-up
or relief of debtors, or (b) any general assignment for the benefit of
creditors, composition, marshalling of assets for creditors, or other, similar
arrangement in respect of its creditors generally or any substantial portion of
its creditors, undertaken under U.S. Federal, state or foreign law, including
the Bankruptcy Code.
"Lien" means any voluntary or involuntary security interest, mortgage,
pledge, claim, charge, encumbrance, title retention agreement, or third party
interest, covering all or any part of the property of Borrower or any other
Person
"Loan" means an extension of credit by Lender under Section 2 of this
---------
Agreement.
"Loan Documents" means, individually and collectively, this Agreement,
each Note, the Security Agreement and any other security or pledge agreement(s),
and all other contracts, instruments, addenda and documents executed in
connection with this Agreement or the extensions of credit which are the subject
of this Agreement.
"Material Adverse Effect" or "Material Adverse Change" means (a) a
material adverse change in, or a material adverse effect upon, the operations,
business, properties, or condition (financial or otherwise) of Borrower; (b) a
material impairment of the ability of Borrower to perform under any Loan
Document and to avoid any Event of Default; or (c) a material adverse effect
upon the legality, validity, binding effect or enforceability against Borrower
of any Loan Document.
"Maturity Date" means, with regard to each Note, the date on which
payment of all outstanding principal and accrued interest, including Additional
Interest, is due, whether at stated maturity or by acceleration.
"Note" means a promissory note substantially in the form of Exhibit
-------
"A" hereto, executed by Borrower evidencing each Loan.
- ---
"Obligations" means all advances, debts, liabilities, obligations,
covenants and duties arising under any Loan Document, owing by Borrower to
Lender, whether direct or indirect (including those acquired by assignment),
absolute or contingent, due or to become due, now existing or hereafter arising.
<PAGE>
"Person" means any individual or entity.
"Qualified Public Offering" means the closing of a firmly underwritten
public offering of Borrower's common stock with aggregate proceeds of not less
than $10,000,000 (prior to underwriting expenses and commissions).
"Related Person" means any Affiliate of Borrower, or any officer,
employee, director or shareholder of Borrower or any Affiliate.
"Security Agreement" means the Security Agreement substantially in the
form of Exhibit "C" hereto, executed by Borrower.
-----------
"Termination Date" means the earlier of: (a) the date Lender may
terminate making loans or extending the credit pursuant to the rights of Lender
under Article 7, or (b) August 31, 1997.
"UCC" means the Uniform Commercial Code as enacted in the applicable
jurisdiction, in effect on the Closing Date and as amended from time to time.
ARTICLE 2 - THE COMMITMENT AND LOANS
2.1 The Commitment. Subject to the terms and conditions of this
Agreement, Lender agrees to make term loans to Borrower from time to time from
the Closing Date and to, but not including, the Termination Date in an aggregate
principal amount not exceeding the Commitment for purposes of financing
Borrower's acquisition of Equipment. The Commitment is not a revolving credit
commitment, and Borrower shall not have the right to repay and reborrow
hereunder.
2.2 Limitation On Loans. Each Loan shall be in an amount not to exceed
one hundred percent (100%) of the amount paid or payable by Borrower to a non-
affiliated manufacturer, vendor or dealer for an item of Equipment as shown on
an invoice therefor (excluding any commissions and any portion of the payment
which relates to the servicing of the equipment and sales taxes payable by
Borrower upon acquisition, and delivery charges). Lender shall not be obligated
to make any Loan under its Commitment if at the time of or after giving effect
to the proposed Loan Lender would no longer qualify as: (A) a "venture capital
operating company" under U.S. Department of Labor Regulations Section 2510.3
101(d), Title 29 of the Code of Federal Regulations, as amended; and (B) a
"business development company" under the provisions of federal Investment
Company Act of 1940, as amended; and (C) a "regulated investment company" under
the provisions of the Internal Revenue Code of 1986, as amended. Each Loan
requested by Borrower to be made on a single Business Day shall be for a
principal amount of Fifty Thousand Dollars ($50,000.00) or a multiple thereof,
except to the extent the remaining Commitment is a lesser amount.
2.3 Notes Evidencing Loans; Repayment. Each Loan shall be evidenced by a
separate Note payable to the order of Lender substantially in the form of
Exhibit "A" to this Agreement, in the total principal amount of the Loan. Each
- -----------
Note shall be payable as follows' Principal and Basic Interest shall be paid in
forty two (42) equal and successive monthly payments, in advance,
<PAGE>
beginning on the Borrowing Date and continuing on the first Business Day of each
month thereafter; provided, that if the Borrowing Date of a Loan is not the
--------
first day of a month, then (i) the 42-month amortization period shall commence
on the first day of the next month following the Borrowing Date, and (ii)
Borrower shall pay to Lender, in advance on the Borrowing Date a payment of
Basic Interest that will accrue on such Loan from the Borrowing Date through the
last day of such month. Borrower shall also prepay on the Borrowing Date the
first amortization installment payment. The Additional Interest on each Loan
shall be paid on the first Business Day of the forty third (43rd) full month
after the Borrowing Date of such Loan. The payment of amortization installments
of principal of and interest on a Loan in advance results in a higher effective
rate of interest than the stated Designated Rate applicable to such Loan.
2.4 Procedures For Borrowing.
(a) Borrower shall give Lender at least five (5) Business Days'
prior to a proposed Borrowing Date written notice of any request for borrowing
hereunder (a "Borrowing Request"). Each Borrowing Request shall be in
substantially the form of Exhibit "B" hereto, shall be executed by the chief
-----------
financial officer of Borrower, and shall state how much is requested, and shall
be accompanied by copies of invoices for the Equipment to be financed and such
additional information and documentation as Lender may deem reasonably necessary
to determine whether the proposed borrowing will comply with the limitations in
Section 2.2. To the Borrower's best knowledge after due inquiry of its senior
- -----------
officers, the Borrowing Request shall also certify that all Equipment to be
financed thereby is owned by Borrower free and clear of all Liens except in
favor of Lender.
(b) No later than 1:00 p.m. Pacific Standard Time on the Borrowing
Date, if Borrower has satisfied the conditions precedent in Article 4, Lender
shall make the Loan available to Borrower in immediately available funds.
2.5 Interest. Basic Interest on the outstanding principal balance of the
each Loan shall accrue daily from the Borrowing Date until the Maturity Date at
the Designated Rate. On the Maturity Date of a Loan, Borrower shall pay the
Additional Interest thereon.
2.6 Interest Rate Calculation. Basic Interest, along with charges and fees
under this Agreement and any Loan Document, shall be calculated for actual days
elapsed on the basis of a 360-day year, which results in higher interest, charge
or fee payments than if a 365-day year were used. In no event shall Borrower be
obligated to pay Lender interest, charges or fees at a rate in excess of the
highest rate permitted by applicable law from time to time in effect.
2.7 Default Interest. Any unpaid payments of principal or interest with
respect to any Loan shall bear interest from their respective maturities,
whether scheduled or accelerated, at the Designated Rate for such Loan plus five
-----
percent (5.00%) per annum, until paid in full, whether before or after judgment
(the "Default Rate"). Borrower shall pay such interest within 15 days of demand.
<PAGE>
2.8 Lender's Records. Principal, Basic Interest, Additional Interest and
all other sums owed under any Loan Document shall be evidenced by entries in
records maintained by Lender for such purpose. Each payment on and any other
credits with respect to principal, Basic Interest, Additional Interest and all
other sums outstanding under any Loan Document shall be evidenced by entries in
such records. Absent manifest error, Lender's records shall be conclusive
evidence thereof.
2.9 Security. As security for all Obligations to Lender, Borrower shall
grant concurrently to Lender, or ensure that Lender is concurrently granted,
perfected security interests of first priority in all of the Equipment and other
Collateral pursuant to the Security Agreement, subject only to Liens disclosed
to and approved by Lender prior to the Closing Date to this Agreement.
2.10 Issuance of Warrant to Lender. As additional consideration for the
making of the Loans under this Agreement, upon the making of, and as a condition
to, the initial Loan, Lender shall be entitled to receive a warrant to purchase
a number of shares of common stock of Borrower ("Warrant Shares") with an
aggregate initial exercise price of $28,000 determined on the basis of a per
share exercise price of $1.00. The warrant issued under this Agreement shall be
in substantially the form attached hereto as Exhibit "D"; shall be transferable
-----------
by Lender, subject to compliance with applicable securities laws shall expire
not earlier than September 30, 2004; and shall be entitled to piggy-back
registration rights and "net issuance" provisions, and anti-dilution protections
reasonably satisfactory to Lender and its counsel. Lender hereby makes the
representations to Borrower set forth in Section 17 of the Warrant.
ARTICLE 3 - REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants that as of the Closing Date and each
Borrowing Date:
3.1 Due Organization. Borrower is a corporation duly organized and validly
existing in good standing under the laws of California, and is duly qualified to
conduct business and is in good standing in each other jurisdiction in which its
business is conducted or its properties are located.
3.2 Authorization, Validity and Enforceability. The execution, delivery
and performance of all Loan Documents executed by Borrower are within Borrower's
powers have been duly authorized, and are not in conflict with Borrower's
articles of incorporation or by-laws, or the terms of any charter or other
organizational document of Borrower, as amended from time to time; and all such
Loan Documents constitute valid and binding obligations of Borrower, enforceable
in accordance with their terms (except as may be limited by bankruptcy,
insolvency and similar laws affecting the enforcement of creditors' rights in
general, and subject to general principles of equity).
3.3 Compliance with Applicable Laws. Borrower has complied with all
licensing, permit and fictitious name requirements necessary to lawfully conduct
the business in which it is engaged, and to any sales, leases or the furnishing
of services by Borrower, including without limitation those requiring consumer
or other disclosures, the noncompliance with which would have a Material Adverse
Effect.
<PAGE>
3.4 Copyrights, Patents, Trademarks and Licenses.
(a) Borrower owns or is licensed or otherwise has the right to use
all of the patents, trademarks, service marks, trade names, copyrights,
contractual franchises, authorizations and other rights that are reasonably
necessary for the operation of its business, without conflict with the rights of
any other Person.
(b) No slogan or other advertising device, product, process,
method, substance, part or other material now employed, or now contemplated to
be employed, by Borrower infringes upon any rights held by any other Person.
(c) No claim or litigation regarding any of the foregoing is
pending or threatened, which, in either case, could reasonably be expected to
have a Material Adverse Effect.
3.5 No Conflict. The execution, delivery, and performance by Borrower of
all Loan Documents are not in conflict with any law, rule, regulation, order or
directive, or any indenture, agreement, or undertaking to which Borrower is a
party or by which Borrower may be bound or affected.
3.6 No Litigation, Claims or Proceedings. There is no litigation, tax
claim, proceeding or dispute pending, or, to the knowledge of Borrower,
threatened against or affecting Borrower or its property which would have a
Material Adverse Effect.
3.7 Correctness Of Financial Statements. Borrower's financial statements
which have been delivered to Lender fairly and accurately reflect Borrower's
financial condition as of March 31, 1996; and, since that date there has been no
Material Adverse Change.
3.8 No Subsidiaries. Borrower is not a majority owner of or in a control
relationship with any other business entity.
3.9 Environmental Matters. Borrower has reviewed, or caused to be reviewed
on its behalf, all Environmental Laws applicable to its business operations and
materials handled therein, and as a result thereof has reasonably concluded that
Borrower is in compliance with such Environmental Laws, except to the extent a
failure to be in such compliance could not reasonably be expected to have a
Material Adverse Effect on Borrower's operations, properties or financial
condition.
3.10 No Event of Default. No Default or Event of Default has occurred and
is continuing.
ARTICLE 4 - CONDITIONS PRECEDENT
4.1 Conditions to First Loan. The obligation of Lender to make its first
Loan hereunder is, in addition to the conditions precedent specified in Section
-------
4.2, subject to the fulfillment of the following conditions and to the receipt
- ---
by Lender of the documents described below, duly executed and in form and
substance satisfactory to Lender and its counsel:
<PAGE>
(a) Resolutions. A certified copy of the resolutions of the Board
of Directors of Borrower authorizing the execution, delivery and performance by
Borrower of the Loan Documents.
(b) Incumbency and Signatures. A certificate of the secretary of
Borrower certifying the names of the officer or officers of Borrower authorized
to sign the Loan Documents, together with a sample of the true signature of each
such officer.
(c) Opinion of Counsel. The opinion of Venture Law Group, counsel
for Borrower, together with any opinions, certificates and other matters on
which such opinion relies.
(d) Articles and By-laws. Certified copies of the Articles of
Incorporation and By-Laws of Borrower, as amended through the Closing Date.
(e) The Agreement. A counterpart of this Agreement with all
schedules completed and attached thereto, and disclosing such information as is
acceptable to Lender.
(f) Security Agreement. A Security Agreement executed by
Borrower, substantially in the form of Exhibit "C", together with filing copies
-----------
(or other evidence of filing satisfactory to Lender and its counsel) of such
Uniform Commercial Code financing statements, collateral assignments and
termination statements, with respect to the Collateral (as defined in such
Security Agreement) as Lender shall request.
(g) Lien Searches. A Uniform Commercial Code lien search of
Borrower from the California Secretary of State, as of a date reasonably
satisfactory to Lender and its counsel.
(h) Good Standing Certificate. A Certificate of Good Standing as of
a date acceptable to Lender with respect to Borrower from the California
Secretary of State.
(i) Warrant. A warrant issued by Borrower to Lender exercisable for
the Warrant Shares, as described in Section 2.10 hereof.
------------
4.2 Conditions to All Loans. The obligation of Lender to make its initial
Loan and each subsequent Loan is subject to the following further conditions
precedent that:
(a) No Default. No Default or Event of Default has occurred and is
continuing or will result from the making of any such Loan, and the
representations and warranties of Borrower contained in Article 3 of this
Agreement are true and correct as of the Borrowing Date of such Loan.
(b) No Adverse Material Change. No Material Adverse Change shall
have occurred since the date of the most recent financial statements
submitted to Lender.
(c) Note. Borrower shall have delivered an executed Note evidencing
such Loan, in form and substance satisfactory to Lender.
<PAGE>
(d) Borrowing Request. Borrower shall have delivered to Lender a
Borrowing request for such Loan.
(e) VCOC Limitation. The making of the Loan will not result in a
violation of the condition applicable to Lender described in Section 2.2.
-----------
ARTICLE 5 - AFFIRMATIVE COVENANTS
During the term of this Agreement and until its performance of all
Obligations to Lender, Borrower will:
5.1 Notice to Lender. Promptly give written notice to each Lender of:
(a) Any litigation or administrative or regulatory proceeding
affecting Borrower where the amount claimed against Borrower is Fifty Thousand
Dollars ($50,000) or more, or where the granting of the relief requested would
have a Material Adverse Effect.
(b) Any substantial dispute which may exist between Borrower or any
governmental or regulatory authority.
(c) The occurrence of any Event of Default or any event which with
the giving of notice, the passage of time, or both, would constitute an Event of
Default.
(d) Any change in the location of any of Borrower's places of
business at least thirty (30) days in advance of such change, or of the
establishment of any new, or the discontinuance of any existing, place of
business.
(e) Any other matter which has resulted or might result in a Material
Adverse Change.
5.2 Financial Statements. Deliver to each Lender or cause to be delivered
to Lender, in form and detail satisfactory to Lender the following financial
information, which Borrower warrants shall be accurate and complete in all
material respects:
(a) Monthly Financial Statements. As soon as available but no later
than thirty (30) days after the end of each month, Borrower's balance sheet as
of the end of such period, and Borrower's income statement for such period and
for that portion of Borrower's financial reporting year ending with such period,
prepared and attested by a responsible financial officer of Borrower as fairly
presenting Borrower's financial condition and the results of Borrower's
operations. After a Qualified Public Offering, the foregoing interim financial
statements shall be delivered no later than 45 days after each fiscal quarter
and for the quarter-annual fiscal period then ended.
(b) Year-End Financial Statements. As soon as available but no later
than ninety (90) days after and as of the end of each financial reporting year,
a complete copy of Borrower's audit report, which shall include balance sheet,
income statement, statement of changes in equity and statement of cash flows for
such year, prepared and certified by an
<PAGE>
independent certified public accountant selected by Borrower and reasonably
satisfactory to Lender (the "Accountant") . The Accountant's certification shall
not be qualified or limited due to a restricted or limited examination by the
Accountant of any material portion of Borrower's records or otherwise.
(c) Compliance Certificates. Simultaneously with the delivery of each
set of financial statements referred to in paragraphs (a) and (b) above, a
certificate of the chief financial officer of Borrower stating whether any
Default or Event of Default exists on the date of such certificate, and if so,
setting forth the details thereof and the action which Borrower is taking or
proposes to take with respect thereto.
(d) Government Required Reports; Press Releases. Promptly after
sending, issuing, making available, or filing, all reports, proxy statements,
and financial statements that Borrower sends or makes available to its
stockholders, and, not later than five (5) days after actual filing or the date
such filing was first due, all registration statements and reports that Borrower
files or is required to file with the Securities and Exchange Commission.
(e) Other Information. Such other statements, lists of property and
accounts, budgets, forecasts, reports, or other information as any Lender may
reasonably from time to time request.
5.3 Managerial Assistance from Lender. Permit Lender, as a "venture
capital operating company" to participate in, and influence the conduct of
management of Borrower through the exercise of "management rights, as such terms
are defined in 29 C.F.R. (S) 2510.3-101(d), and:
(a) Permit Lender to make available to Borrower, at no cost to
Borrower, "significant managerial assistance", as defined in Section 2(a)(47) of
the Investment Company Act of 1940, as amended, either in the form of: (i)
consulting arrangements with Lender or any of its officers, directors, employees
or affiliates, (ii) Borrower's allowing Lender to provide recommendations of
prospective candidates for election to Borrower's Board of Directors, or (iii)
Lender, at Borrower's request, seeking the services of third-party consultants
to aid Borrower with respect to its management and operations;
(b) Permit Lender to make available consulting and advisory services
to officers of Borrower regarding Borrower's equipment acquisition and financing
plans, and such other matters affecting the business, financial condition and
prospects of Borrower as Lender shall reasonably deem relevant; and
(c) If Lender reasonably believes that financial or other
developments affecting Borrower have impaired or are likely to impair Borrower's
ability to perform its obligations under this Agreement, permit Lender
reasonable access to Borrower's management and/or Board of Directors and
opportunity to present Lender's views with respect to such developments.
5.4 Existence. Maintain and preserve Borrower's existence, present
form of business, and all rights and privileges necessary or desirable in the
normal course of its business.
<PAGE>
5.5 Accounting Records. Maintain adequate books, accounts and records, and
prepare all financial statements in accordance with GAAP, and in compliance with
the regulations of any governmental or regulatory authority having jurisdiction
over Borrower or Borrower's business; and permit employees or agents of Lender
at such reasonable times as Lender may request, at Borrower's expense, to
inspect Borrower's properties, and to examine, and make copies and memoranda of
Borrower's books, accounts and records.
5.6 Compliance With Laws. Comply with all laws (including Environmental
Laws), rules, regulations applicable to, and all orders and directives of any
governmental or regulatory authority having jurisdiction over, Borrower or
Borrower's business, and with all material agreements to which Borrower is a
party, except to the extent that any such noncompliance would not have a
Material Adverse Effect.
5.7 Taxes and Other Liabilities. Pay all Borrower's obligations when due;
pay all taxes and other governmental or regulatory assessments before
delinquency or before any penalty attaches thereto, except as may be contested
in good faith by the appropriate procedures and for which Borrower shall
maintain appropriate reserves; and timely file all required tax returns.
5.8 Financial Covenants. Comply with the terms of all financial covenants
contained in any addendum to this Agreement.
5.9 Use Of Proceeds. Use the proceeds of Loans only as set forth in
Article 2 of this Agreement; and not directly or indirectly to purchase or carry
any margin stock, as defined from time to time by the Board of Governors of the
Federal Reserve System in Federal Regulation U.
ARTICLE 6 - NEGATIVE COVENANTS
During the term of this Agreement and until the performance of all
obligations to Lender hereunder, Borrower will not:
6.1 Changes/Mergers. Liquidate or dissolve, or enter into any
consolidation or merger unless the shareholders of the Borrower immediately
preceding such consolidation or merger own, directly or indirectly, more than
50% of the surviving entity.
6.2 Sales of Assets. Sell, transfer, lease or otherwise dispose of any of
Borrower's assets except for fair consideration and in the ordinary course of
its business; or enter into any sale or leaseback agreement covering any of
Borrower's fixed or capital assets.
ARTICLE 7 - EVENTS OF DEFAULT
7.1 Events of Default. Upon the occurrence and during the continuation of
any Default, the obligation of Lender to make any additional Loan shall be
suspended. The occurrence of any of the following shall terminate any obligation
of Lender to make any additional Loan; and shall, at the option of Lender (1)
make all sums of Basic Interest, principal, Additional Interest and any other
amounts owing under any Loan Documents immediately due and payable without
notice of default, presentment or demand for payment, protest or notice of
nonpayment or dishonor or any other notices
<PAGE>
or demands, and (2) give Lender the right to exercise any other right or remedy
provided by contract or applicable law:
(a) Borrower shall fail to make any payment of principal or interest
under this Agreement, or to pay any fees or other charges when due under any
Loan Document, and such failure continues for five (5) Business Days or more
after the same first becomes due.
(b) Any representation or warranty made, or financial statement,
certificate or other document provided, by Borrower shall prove to have been
false or misleading in any material respect when made or deemed made herein.
(c) Borrower shall fail to pay its debts generally as they become due
or shall commence any Insolvency Proceeding with respect to itself; an
involuntary Insolvency Proceeding shall be filed against Borrower, or a
custodian, receiver, trustee, assignee for the benefit of creditors, or other
similar official, shall be appointed to take possession, custody or control of
the properties of Borrower, and such involuntary Insolvency Proceeding, petition
or appointment is acquiesced to by Borrower or is not dismissed within sixty
(60) days; or the dissolution or termination of the business of Borrower.
(d) Borrower shall be in default beyond any applicable period of
grace or cure under any other agreement involving the borrowing of money, the
purchase of property, the advance of credit or any other monetary liability of
any kind to Lender or to any Person which results in the acceleration of payment
of such obligation in an amount in excess of One Hundred Thousand Dollars
($100,000).
(e) Any governmental or regulatory authority shall take any judicial
or administrative action, or any defined benefit pension plan maintained by
Borrower shall have any unfunded liabilities, any of which, in the reasonable
judgment of Lender, might have a Material Adverse Effect.
(f) Any sale, transfer or other disposition of all or a substantial
or material part of the assets of Borrower other than in the ordinary course of
business, including without limitation to any trust or similar entity, shall
occur.
(g) Any judgment(s) singly or in the aggregate in excess of One
Hundred Thousand Dollars ($100,000) shall be entered against Borrower which
remain unsatisfied unvacated or unstayed pending appeal for thirty (30) or more
days after entry thereof.
(h) Borrower shall fail in a material respect to perform any of its
duties or obligations under any Loan Document not specifically referenced in
this Article 7, which failure continues for 30 days after notice thereof from
Lender.
ARTICLE 8 - GENERAL PROVISIONS
8.1 Notices. Any notice given by any party under any Loan Document shall
be in writing and personally delivered, sent by overnight courier, or United
States mail, postage prepaid, or sent by facsimile, to be promptly confirmed in
writing, or other authenticated message, charges prepaid, to the
<PAGE>
other party's or parties' addresses shown on the signature pages hereto. Each
party may change the address or facsimile number to which notices, requests and
other communications are to be sent by giving written notice of such change to
each other party. Notice given by hand delivery shall be deemed received on the
date delivered, or if such date is not a Business Day, on the next Business Day
thereafter; if sent by overnight courier, on the next Business Day after
delivery to the courier service; if by first class mail, on the third Business
Day after deposit in the U.S. Mail; and if by telecopy, on the date of
transmission, or if such date is not a Business Day, on the next Business Day
thereafter.
8.2 Binding Effect. The Loan Documents shall be binding upon and inure to
the benefit of Borrower and Lender and their respective successors and assigns;
provided, however, that Borrower may not assign or transfer Borrower's rights or
obligations under any Loan Document without each Lender's prior written consent.
Lender reserves the right to sell, assign, transfer, negotiate or grant
participations in all or any part of, or any interest in, Lender's rights and
obligations under the Loan Documents subject to compliance with applicable
securities laws. In connection with any of the foregoing, Lender may disclose
all documents and information which Lender now or hereafter may have relating to
the Loans, Borrower, or its business.
8.3 No Waiver. Any waiver, consent or approval by Lender of any Event, of
Default or breach of any provision, condition, or covenant of any Loan Document
must be in writing and shall be effective only to the extent set forth in
writing. No waiver of any breach or default shall be deemed a waiver of any
later breach or default of the same or any other provision of any Loan Document.
No failure or delay on the part of Lender in exercising any power, right, or
privilege under any Loan Document shall operate as a waiver thereof, and no
single or partial exercise of any such power, right, or privilege shall preclude
any further exercise thereof or the exercise of any other power, right or
privilege. Lender has the right at its sole option to continue to accept
interest and/or principal payments due under the Loan Documents after default,
and such acceptance shall not constitute a waiver of said default or an
extension of the Maturity Date unless Lender agrees otherwise in writing.
8.4 Rights Cumulative. All rights and remedies existing under the Loan
Documents are cumulative to, and not exclusive of, any other rights or remedies
available under contract or applicable law.
8.5 Unenforceable Provisions. Any provision of any Loan Document executed
by Borrower which is prohibited or unenforceable in any jurisdiction, shall be
so only as to such jurisdiction and only to the extent of such prohibition or
unenforceability, but all the remaining provisions of any such Loan Document
shall remain valid and enforceable.
8.6 Accounting Terms. Except as otherwise provided in this Agreement,
accounting terms and financial covenants and information shall be determined and
prepared in accordance with GAAP.
8.7 Indemnification; Exculpation. Borrower shall pay and protect, defend
and indemnify Lender and Lender's employees, officers, directors, shareholders,
affiliates, correspondents, agents and representatives (other than Lender,
collectively "Agents") against, and hold Lender and each such Agent harmless
from, all claims, actions, proceedings, liabilities, damages,
<PAGE>
losses, expenses (including, without limitation, attorneys' fees and costs) and
other amounts incurred by Lender and each such Agent, arising from (i) the
matters contemplated by this Agreement or any other Loan Documents or (ii) any
contention that Borrower has failed to comply with any law, rule, regulation,
order or directive applicable to Borrower's business; provided, however, that
this indemnification shall not apply to any of the foregoing incurred solely as
the result of Lender's or any Agent's gross negligence or willful misconduct or
breach of this Agreement. This indemnification shall survive the payment and
satisfaction of all of Borrower's Obligations to Lender.
8.8 Reimbursement. Borrower shall reimburse Lender for all costs and
expenses, including without limitation reasonable attorneys' fees and
disbursements expended or incurred by Lender in any arbitration, mediation,
judicial reference, legal action or otherwise in connection with (a) the
enforcement of the Loan Documents, including without limitation during any
workout, attempted workout (b) collecting any sum which becomes due Lender under
any Loan Document. For the purposes of this section, attorneys' fees shall
include, without limitation, fees incurred in connection with the following: (1)
contempt proceedings; (2) discovery; (3) any motion, proceeding or other
activity of any kind in connection with an Insolvency Proceeding; (4)
garnishment, levy, and debtor and third party examinations; and (5) postjudgment
motions and proceedings of any kind, including without limitation any activity
taken to collect or enforce any judgment. All of the foregoing costs and
expenses shall be payable upon demand by Lender, and if not paid within forty-
five (45) days of presentation of invoices shall bear interest at the highest
applicable Default Rate.
8.9 Execution in Counterparts. This Agreement may be executed in any
number of counterparts which, when taken together, shall constitute but one
agreement.
8.10 Entire Agreement. The Loan Documents are intended by the parties as
the final expression of their agreement and therefore contain the entire
agreement between the parties and supersede all prior understandings or
agreements concerning the subject matter hereof. This Agreement may be amended
only in a writing signed by Borrower and Lender.
8.11 Governing Law and Jurisdiction.
(a) THIS AGREEMENT AND THE LOAN DOCUMENTS SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF CALIFORNIA.
(b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR
ANY OTHER LOAN DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF
CALIFORNIA OR OF THE UNITED STATES FOR THE NORTHERN, CENTRAL OR SOUTHERN
DISTRICT OF CALIFORNIA, AND BY EXECUTION AND DELIVERY OF THIS AGREEMENT,
EACH OF BORROWER AND LENDER CONSENTS, FOR ITSELF AND IN RESPECT OF ITS
PROPERTY, TO THE NON-EXCLUSIVE JURISDICTION OF THOSE COURTS. EACH OF
BORROWER AND LENDER IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING ANY
OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON
CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY
ACTION OR PROCEEDING IN SUCH JURISDICTION IN RESPECT OF THIS AGREEMENT OR
ANY DOCUMENT RELATED HERETO. BORROWER AND LENDER EACH
<PAGE>
WAIVE PERSONAL SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER PROCESS, WHICH
MAY BE MADE BY ANY OTHER MEANS PERMITTED BY CALIFORNIA LAW.
8.12 Waiver of Jury Trial. BORROWER AND LENDER EACH WAIVES ITS RESPECTIVE
RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING
OUT OF OR RELATED TO THIS AGREEMENT, THE OTHER LOAN DOCUMENTS, OR THE
TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, IN ANY ACTION, PROCEEDING OR OTHER
LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES AGAINST ANY OTHER PARTY OR
ANY PARTICIPANT OR ASSIGNEE, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT
CLAIMS, OR OTHERWISE. BORROWER AND LENDER EACH AGREES THAT ANY SUCH CLAIM OR
CAUSE OF ACTION SHALL BE TRIED BY A COURT TRIAL WITHOUT A JURY. WITHOUT LIMITING
THE FOREGOING, THE PARTIES FURTHER AGREE THAT THEIR RESPECTIVE RIGHT TO A TRIAL
BY JURY IS WAIVED BY OPERATION OF THIS SECTION AS TO ANY ACTION, COUNTERCLAIM OR
OTHER PROCEEDING WHICH SEEMS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR
ENFORCEABILITY OF THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS OR ANY PROVISION
HEREOF OR THEREOF. THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS,
RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS.
IN WITNESS WHEREOF, Borrower and Lender have executed this Agreement
as of the date set forth in the preamble.
Addresses for Notices: ACTIVE SOFTWARE, INC.
- ----------------------
1043 N. Shoreline Blvd. Suite 201
Mountain View, CA 94043 By: /s/ R. James Green
Attn: Jim Green -----------------------------------
Fax: 415-254-1814 Name: R. James Green
---------------------------------
Its: CHAIRMAN
----------------------------------
Venture Lending & Leasing, Inc. VENTURE LENDING & LEASING, INC.
2010 North First Street, Suite 310
San Jose, CA 95131
Attn: Salvador O. Gutierrez By: /s/ Salvador O. Gutierrez
--------------------------------
Chief Financial Officer
Fax No. 408-435-8625 Name: Salvador O. Gutierrez
--------------------------------
Its: PRESIDENT & CFO
--------------------------------
<PAGE>
EXHIBIT A
Note No. 50-001
PROMISSORY NOTE
$401,216.83 December 20, 1996
San Jose, California
The undersigned ("Borrower") promises to pay to the order of VENTURE
LENDING & LEASING, INC., a Maryland corporation ("Lender") at its office at 2010
North First Street, Suite 310, San Jose, California 95131, or at such other
place as Lender may designate in writing, in lawful money of the United States
of America, the principal sum of Four Hundred One Thousand Two Hundred Sixteen
and 83/100 Dollars ($401,216.83), with Basic Interest thereon from the date
hereof until maturity, whether scheduled or accelerated, at a fixed rate per
annum of nine and 40/100 percent (9.40%), and with Additional Interest in the
sum of Sixty Thousand One Hundred Eighty Two and 52/100 Dollars ($60,182.52)
payable on the Maturity Date.
This Note is one of the Notes referred to in, and is entitled to all the
benefits of, a Loan Agreement dated September 27, 1996, between Borrower and
Lender. Each capitalized term not otherwise defined herein shall have the
meaning set forth in the Loan Agreement. The Loan Agreement contains provisions
for the acceleration of the maturity of this Note upon the happening of certain
stated events.
Principal of and interest on this Note shall be payable as follows:
On the Borrowing Date, Borrower shall pay (i) Basic Interest, in advance,
on the outstanding principal balance of this Note at the Designated Rate for the
period from the Borrowing Date through December 31, 1996; and (ii) a first (1st)
and last (42nd) amortization installment of principal and Basic Interest in the
amount of $22,307.66, in advance for the month of January 1, 1997 and June,
2000.
Commencing on the first day of the second full month after the Borrowing
Date, and continuing on the first day of each consecutive month thereafter,
principal and Basic Interest shall be payable, in advance, in thirty-nine (39)
equal consecutive installments of Eleven Thousand One Hundred Fifty Three and
83/100 Dollars ($11,153.83) each, with a fortieth (40th) installment equal to
the entire unpaid principal balance and accrued Basic Interest on May 1, 2000.
The Additional Interest amount shall be payable on July 1, 2000.
Any unpaid payments of principal or interest on this Note shall bear
interest from their respective maturities, whether scheduled or accelerated, at
a rate per annum equal to the Default Rate. Borrower shall pay such interest
within 15 days on demand.
<PAGE>
Interest, charges and fees shall be calculated for actual days elapsed on
the basis of a 360-day year, which results in higher interest, charge or fee
payments than if a 365-day year were used, In no event shall Borrower be
obligated to pay interest, charges or fees at a rate in excess of the highest
rate permitted by applicable law from time to time in effect.
This Note shall be governed by, and construed in accordance with, the laws
of the State of California.
ACTIVE SOFTWARE, INC.
By: /s/ Stephen A. MacDonald
---------------------------
Its: President + CEO
--------------------------
Name: S.A. Mac Donald
-------------------------
<PAGE>
EXHIBIT B
BORROWER REQUEST
_____________,1996
Venture Lending & Leasing, Inc.
2010 North First Street, Suite 310
San Jose, CA 95131
Re: ACTIVE SOFTWARE, INC.
Gentlemen:
Reference is made to the Loan Agreement dated as of September 27, 1996 (as
it has been and may be amended from time to time, the "Loan Agreement", the
capitalized terms used herein as defined therein), between Venture Lending &
Leasing, Inc. and Active Software, Inc. (the "Company").
The undersigned is the Chief Financial Officer of the Company, and hereby
requests a Loan under the Loan Agreement, and in that connection certifies as
follows:
1. The amount of the proposed Loan is $____________. The Business Day of
the proposed Loan is____________1996.
2. As of this date, no Default or Event of Default has occurred and is
continuing, or will result from the making of the proposed Loan, and the
representations and warranties of the Company contained in Article 3 of the Loan
Agreement are true and correct.
3. No Material Adverse Change has occurred since the date of the most
recent financial statements submitted to you by the Company.
The Company agrees to notify you promptly before the funding of the Loan if
any of the matters to which I have certified above shall not be true and correct
on the Borrowing Date.
Very Truly Yours,
-----------------------
Chief Financial Officer
<PAGE>
EXHIBIT C
SECURITY AGREEMENT
(EQUIPMENT)
This Agreement is made as of September 27, 1996, by ACTIVE SOFTWARE, INC.,
a California corporation ("Debtor") in favor of VENTURE LENDING & LEASING, INC.,
a Maryland corporation ("Secured Party").
ARTICLE I - DEFINITIONS
The following definitions shall be applicable to both the singular and
plural forms of the defined terms:
"Agreement" means this Security Agreement, as it may be amended from time
to time.
"Collateral" means all Debtor's Equipment and Fixtures now owned or
hereafter acquired, wherever located, and whether held by Debtor or any third
party, and all proceeds and products thereof, including all insurance and
condemnation proceeds ("Proceeds"), and all Records necessary to the operation
of the Equipment.
"Equipment" means all of Debtor's specific equipment and software
identified and described on Schedule 1 attached to this Agreement and
----------
incorporated herein by reference (as such Schedule may be amended or
supplemented from time to time), all replacements, parts, accessions and
additions thereto, and all proceeds thereof arising from the sale, lease, rental
or other use or disposition thereof, including all rights to payment with
respect to insurance or condemnation, returned premiums, or any cause of action
relating to any of the foregoing.
"Event of Default" means an event described in Article 6.
"Fixtures" means all items of Equipment that are so related to the real
property upon which they are located that an interest in them arises under real
property law, and all proceeds thereof arising from the sale, lease, rental or
other use or disposition thereof.
"Indebtedness" means all debts, obligations and liabilities of Debtor to
Secured Party currently existing or now or hereafter made, incurred or created,
whether pursuant to the Loan Documents, whether voluntary or involuntary and
however arising or evidenced, whether direct or acquired by Secured Party by
assignment or succession, whether due or not due, absolute or contingent,
liquidated or unliquidated, determined or undetermined, and whether Debtor may
be liable individually or jointly, or whether recovery upon such debt may be or
become barred by any statute of limitations or otherwise unenforceable
<PAGE>
and all renewals, extensions and modifications thereof, and all attorneys' fees
and costs incurred by Secured Party in connection with the collection and
enforcement thereof.
"Lien" means any voluntary or involuntary security interest, mortgage,
pledge, claim, charge, encumbrance, title retention agreement, or third party
interest covering all or any part of the property of Debtor or any other Person.
"Loan Agreement" means that certain Loan Agreement between Debtor and
Secured Party of even date herewith, as amended from time to time.
"Person" means any individual or entity, including without limitation
Secured Party where the context so permits and in Secured Party's sole
discretion.
"Records" means all Debtor's computer programs, software, hardware, source
codes and data processing information and all written documents necessary for
the operation of the Equipment.
"Uniform Commercial Code" means the California Uniform Commercial Code, as
amended from time to time.
Terms not specifically defined in this Agreement have the meanings
prescribed in the Loan Agreement, and if not defined therein then the meanings
prescribed in the Uniform Commercial Code.
ARTICLE 2 - GRANT OF SECURITY INTEREST
To secure the timely payment of the Indebtedness and performance of all
obligations of Debtor to Secured Party, Debtor grants to Secured Party a
security interest in the Collateral.
ARTICLE 3 - REPRESENTATIONS AND WARRANTIES
Debtor represents and warrants that, at all times during the term of this
Agreement:
3.1 Governmental Actions. Debtor has obtained all consents and actions of,
and has performed all filings with, any governmental or regulatory authority
required to authorize the execution, delivery or performance of this Agreement.
Debtor has, at the time Lender makes a Loan with respect to an item of equipment
in accordance with Section 2.2 of the Loan Agreement, and at all times
thereafter while such Loan is outstanding, obtained all consents and actions of,
and has performed all filings with, any governmental or regulatory authority
required to grant and perfect Secured Party's security interest in such item of
equipment which is part of the Collateral.
2
<PAGE>
3.2 Title. Except for the security interests created by this Agreement,
Debtor is and will be the unconditional legal and beneficial owner of the
Collateral. The Collateral is subject to no Liens, rights or defenses of others,
except Liens permitted Under the Loan Agreement.
3.3 Collateral Not Inventory. Debtor is not in the business of selling
goods of the kind included within the Collateral subject to this Agreement.
3.4 Chief Executive Office. Debtor's chief executive office is located at:
1043 N. Shoreline Blvd., Suite 201
Mountain View, CA 94043
3.5 Records Location. Other than as set forth in Section 3.4, Records are
maintained at:
1043 N. Shoreline Blvd., Suite 201
Mountain View, CA 94043
3.6 Equipment or Fixtures Location. Other than as set forth in Section
3.4, Equipment or Fixtures are located at:
3.7 Other Places of Business. In addition to the locations set forth in
Sections 3.5 through 3.7, Debtor maintains the following place(s) of business:
3.8 Business Names. Debtor has conducted business in the following names
other than as stated in the preamble to this Agreement:
3.9 Financing Statements. Copies of all financing statements and all other
documents publicly recorded or filed naming Debtor as debtor or obligor have
been delivered to Secured Party, prior to the date of this Agreement.
<PAGE>
ARTICLE 4 - AFFIRMATIVE COVENANTS
During the term of this Agreement and until payment of all the Indebtedness
and performance of all obligations to Secured Party, Debtor will, unless Secured
Party otherwise consents in writing:
4.1 Use of Proceeds. Use the proceeds of any credit extended by Secured
Party to Debtor only in accordance with the terms of the Loan Documents.
4.2 Delivery of Certain Items. Deliver to Secured Party promptly (a) after
an Event of Default, all Proceeds; (b) such specific acknowledgments,
assignments or other agreements as Secured Party may reasonably request relating
to the Collateral; and (c) copies of such Records and other reports in such form
and detail and at such times as Secured Party may reasonably require relating to
the Collateral.
4.3 Maintenance of Collateral; Inspection. Do all things necessary to
maintain, preserve, protect and keep all Collateral in good working order and
saleable condition, dealing with the Collateral in all ways as are considered
good practice by owners of like property, and use the Collateral lawfully and
only as permitted by Debtor's insurance policies. Debtor hereby authorizes
Secured Party's officers, employees, representatives and agents, upon reasonable
notice, at reasonable times and with reasonable frequency, to inspect the
Collateral and to discuss the Collateral and the Records relating thereto with
Debtor's officers.
4.4 Maintenance of Records; Inspection. Maintain, or cause to be
maintained, complete and accurate Records relating to the Collateral. Secured
Party, its officers, employees, agents and representatives, upon reasonable
notice, shall have the right, from time to time, to examine the Records relating
to the Collateral and to make copies or extracts therefrom.
4.5 Debtor's Duty to Give Notice. Give prompt notice to Secured Party of:
(a) any material decrease in the value of any Collateral and the amount of such
decrease (other than depreciation calculated in the ordinary course of business
under applicable tax laws and regulations and in accordance with generally
accepted accounting principles); (b) any threatened or asserted dispute or claim
with respect to the Collateral; (c) any litigation or administrative or
regulatory proceeding which is reasonably likely to have a material adverse
effect on Debtor or its business; and (d) the occurrence of any Event of Default
or of any other development, financial or otherwise, which is reasonably likely
to materially adversely affect the Collateral or Debtor's ability to pay the
indebtedness or perform its obligations to Secured Party.
4
<PAGE>
4.6 Financing Statements and Other Actions. Execute and deliver to Secured
Party, and file or record at Debtor's expense all financing statements, notices
and other documents from time to time requested by Secured Party to maintain a
first perfected security interest in the Collateral in favor of Secured Party,
all in form and substance satisfactory to Secured Party, perform such other acts
and execute and deliver to Secured Party such additional conveyances,
assignments, agreements and instruments, as Secured Party may at any time
reasonably request in connection with the administration and enforcement of this
Agreement or Secured Party's rights, powers and remedies hereunder.
4.7 Decals, Markings. At the request of Secured Party, firmly affix a
decal, stencil or other marking to designated items of Collateral, indicating
thereon the security interest of Secured Party.
4.8 Agreement With Real Property Owner/Landlord. Obtain and maintain such
acknowledgments, consents, waivers and agreements from the owner, lienholder,
mortgagee and landlord with respect to any real property on which Collateral is
located as Secured Party may reasonably require, all in form and substance
satisfactory to Secured Party.
ARTICLE 5 - NEGATIVE COVENANTS
During the term of this Agreement and until payment of all the Indebtedness
and performance of all obligations to Secured Party, Debtor will not, without
Secured Party's prior written consent:
5.1 Liens. Create, incur, assume or permit to exist any Lien on any
Collateral, except Liens permitted under the Loan Agreement.
5.2 Documents of Title. Sign or authorize the signing of any financing
statement or other document naming Debtor as debtor or obligor, except those
which do not relate to the Collateral or which, with respect to the Collateral
are permitted under the Loan Agreement, or acquiesce or cooperate in the
issuance of any warehouse receipt or other document of title with respect to any
Collateral, except those negotiated to Secured Party or those naming Secured
Party as secured party.
5.3 Disposition of Collateral. Sell, transfer, lease or otherwise dispose
of any Collateral.
5.4 Change in Location, Name, Legal Structure. If and to the extent the
same would in any manner impair the creation, perfection or priority of Secured
Party's security interest in the Collateral, (a) maintain Records, its chief
executive office
5
<PAGE>
or residence, or a place of business at a location other than as specified in
Article 3; or (b) change its name, mailing address, the nature of its business,
or its legal structure.
ARTICLE 6 - EVENTS OF DEFAULT
6.1 Events of Default. The occurrence of any of the following shall
constitute an Event of Default:
(a) Any "Event of Default" as defined in the Loan Agreement.
(b) Secured Party shall not have a first perfected security interest
in any Collateral for ten (10) or more days after notice to Debtor;
(c) Secured Party reasonably determines, in good faith, that its
security interest in the Collateral is materially impaired for ten (10) or more
days after notice to Debtor;
(d) Secured Party reasonably determines, in good faith, that any or
all of the Collateral, including any proceeds, is in danger of dissipation,
loss, theft, damage or destruction, or otherwise in jeopardy such as would
materially impair the value of the Collateral (with due consideration to
applicable insurance coverage);
(e) Debtor shall fail to perform any of its duties or obligations
under this Agreement not specifically referenced in this Article 6 and such
failure remains uncured for thirty (30) or more days after notice to Debtor;
6.2 Acceleration and Remedies. Upon the occurrence of any Event of Default
Secured Party shall be entitled to, at Secured Party's option, without notice or
demand of any kind, (a) declare all or any part of the Indebtedness immediately
due and payable; (b) exercise any or all of the rights and remedies available to
a secured party under the Uniform Commercial Code or any other applicable law;
and (c) exercise any or all of Secured Party's rights and remedies provided for
in this Agreement and in any other Loan Document. The obligations of Debtor
under this Agreement shall continue to be effective or be reinstated, as the
case may be, if at any time any payment of any Indebtedness is rescinded or must
otherwise be returned by Secured Party upon, on account of, or in connection
with, the insolvency, bankruptcy or reorganization of Debtor, or otherwise, all
as though such payment had not been made.
6.3 Sale of Collateral. After the occurrence of an Event of Default
Secured Party may sell all or any part of the Collateral, at public or private
sales, to itself, a wholesaler, retailer or investor, for cash, upon credit or
for future
6
<PAGE>
delivery, and at such price or prices as Secured Party may reasonably deem
commercially reasonable. To the extent permitted by law, Debtor-hereby
specifically waives all rights of redemption and any rights of stay or appraisal
which it has or may have under any applicable law in effect from time to time.
Any such public or private sales shall be held at such times and at such
place(s) as Secured Party may determine. In case of the sale of all or any part
of the Collateral on credit or for future delivery, the Collateral so sold may
be retained by Secured Party until the selling price is paid by the purchaser,
but Secured Party shall not incur any liability in case of the failure of such
purchaser to pay for the Collateral and, in case of any such failure, such
Collateral may be resold. Secured Party may, instead of exercising its power of
sale, proceed to enforce its security interest in the Collateral by seeking a
judgment or decree of a court of competent jurisdiction.
6.4 Debtor's Obligation Upon Default. Upon the request of Secured Party
after the occurrence of an Event of Default Debtor will:
(a) Assemble and make available to Secured Party the Collateral at
such place(s) as Secured Party shall designate, segregating all Collateral so
that each item is capable of identification; and
(b) Permit Secured Party, by Secured Party's officers, employees,
agents and representatives, to enter any premises where any Collateral is
located, to take possession of the Collateral and to remove the Collateral or to
conduct any public or private sale of the Collateral, all without any liability
of Secured Party for rent or other compensation for the use of Debtor's
premises.
ARTICLE 7 - SPECIAL COLLATERAL PROVISIONS
7.1 Performance of Debtor's Obligations. Without having any obligation to
do so, Secured Party may perform or pay any obligation which Debtor has agreed
to perform or pay under this Agreement, including, without limitation, the
payment or discharge of taxes or Liens levied or placed on or threatened against
the Collateral. In so performing or paying, Secured Party shall determine the
action to be taken and the amount necessary to discharge such obligations.
Debtor shall reimburse Secured Party on demand for any amounts paid by Secured
Party pursuant to this Section, which amounts shall constitute Indebtedness
secured by the Collateral and shall bear interest from the date of demand at the
rate applicable to overdue payments under the Loan Agreement.
7.2 Power of Attorney. For the purpose of protecting, preserving and
enforcing the Collateral and Secured Party's
7
<PAGE>
rights under this Agreement, Debtor hereby irrevocably appoints Secured Party,
with full power of substitution, effective following an Event of Default, as its
attorney-in-fact with full power and authority to do any act which Debtor is
obligated to do, or Secured Party has the right to do, hereunder; to exercise
such rights with respect to the Collateral as Debtor might exercise; to use such
Equipment, Fixtures or other property as Debtor might use; to enter Debtor's
premises; to give notice of Secured Party's security interest in and to collect
the Collateral and the Proceeds; and to execute and file in Debtor's name any
financing statements, amendments and continuation statements necessary or
desirable to perfect or continue the perfection of Secured Party's security
interests in the Collateral. Debtor hereby ratifies all that Secured Party shall
lawfully do or cause to be done by virtue of this appointment.
7.3 Authorization for Secured Party to Take Certain Action. The power of
attorney created in Section 7.3 is a power coupled with an interest and shall be
irrevocable. The powers conferred on Secured Party hereunder are solely to
protect its interests in the Collateral and shall not impose any duty upon
Secured Party to exercise such powers. Secured Party shall be accountable only
for amounts that it actually receives as a result of the exercise of such powers
and in no event shall Secured Party or any of its directors, officers,
employees, agents or representatives be responsible to Debtor for any act or
failure to act, except for gross negligence or willful misconduct. Secured Party
may exercise this power of attorney without notice to or assent of Debtor, in
the name of Debtor, or in Secured Party's own name, from time to time following
an Event of Default in Secured Party's sole discretion and at Debtor's expense.
To further carry out the terms of this Agreement, Secured Party may upon the
occurrence of an Event of Default:
(a) Execute any statements or documents to take possession of, and
endorse and collect and receive delivery or payment of, any checks, drafts,
notes, acceptances or other instruments and documents constituting the payment
of amounts due and to become due or any performance to be rendered with respect
to the Collateral;
(a) Sign and endorse any invoices, freight or express bills, bills of
lading, storage or warehouse receipts; drafts, certificates and statements under
any commercial or standby letter of credit, assignments, leases, bills of sale,
or any other documents relating to the Collateral, including without limitation
the Records;
(c) Use or operate Collateral or any other property of Debtor for the
purpose of preserving or liquidating Collateral;
(d) File any claim or take any other action or proceeding in any court
of law or equity or as otherwise deemed
8
<PAGE>
appropriate by Secured Party for the purpose of collecting any and all monies
due or securing any performance to be rendered with respect to the Collateral;
(e) Commence, prosecute or defend any suits, actions or proceedings or
as otherwise deemed appropriate by Secured Party for the purpose of protecting
or collecting the Collateral. In furtherance of this right, upon the occurrence
of an Event of Default Secured Party may apply for the appointment of a receiver
or similar official to operate Debtor's business, and, to the fullest extent
permitted by law, Debtor hereby waives any right to oppose such appointment;
(f) Prepare, adjust, execute, deliver and receive payment under
insurance claims, and collect and receive payment of and endorse any instrument
in payment of loss or returned premiums or any other insurance refund or return,
and apply such amounts, at Secured Party's sole discretion, toward repayment of
the Indebtedness or replacement of the Collateral.
7.4 Application of Proceeds. Any Proceeds and other monies or property
received by Secured Party pursuant to the terms of this Agreement or any Loan
Document may be applied by Secured Party first to the payment of expenses of
collection, including without limitation to reasonable attorneys' fees, and then
to the payment of the Indebtedness in such order of application as Secured Party
may elect. Notwithstanding the rights given to Debtor pursuant to California
Civil Code sections 1479 and 2822 or equivalent provisions in the laws of the
state specified in the governing law clause of this document (and any amendments
or successors thereto), to designate how payments will be applied, Debtor hereby
waives such rights and Secured Party shall have the right in its sole discretion
to determine the order and method of the application of payments received from
Debtor or from the sale or disposition of the Collateral and to revise such
application prospectively or retroactively at its discretion.
7.5 Deficiency. If the proceeds of any sale of the Collateral are
insufficient to cover all costs and expenses of such sale and the payment in
full of all Indebtedness, plus all other sums required to be expended or
distributed by Secured Party, then Debtor shall be liable for any such
deficiency.
7.6 Secured Party Transfer. Upon the transfer of all or any part of the
Indebtedness, Secured Party may transfer all or any part of its interest in the
Collateral and shall be fully discharged thereafter from all liability and
responsibility with respect to such interest in the Collateral so transferred,
and the transferee shall be vested with all the rights and powers of Secured
Party hereunder with respect to such interest in the Collateral so transferred.
9
<PAGE>
ARTICLE 8 - GENERAL PROVISIONS
8.1 Notices. Any notice given by any party under this Agreement shall be
given in the manner prescribed in the Loan Agreement.
8.2 Binding Effect. This Agreement shall be binding upon Debtor, its
permitted successors, representatives and assigns, and shall inure to the
benefit of Secured Party and its successors, representatives and assigns;
provided however that Debtor may not assign or transfer Debtor's obligations
under this Agreement without Secured Party's prior written consent. Secured
Party reserves the right to sell, assign, or transfer its rights and powers
under this Agreement in whole or in part without notice to Debtor. In that
connection, Secured Party may disclose all documents and information which
Secured Party now or hereafter may have relating to this Agreement, Debtor or
Debtor's business.
8.3 No Waiver. Any waiver, consent or approval by Secured Party of any
Event of Default or breach of any provision, condition or covenant of this
Agreement or any Loan Document must be in writing and shall be effective only to
the extent set forth in writing. No waiver or any breach of default shall be
deemed a waiver of any later breach or default of the same or any other
provision of this Agreement or any of the Loan Documents. No failure or delay on
the part of Secured Party in exercising any power, right or privilege under this
Agreement or any Loan Document shall operate as a waiver thereof, and no single
or partial exercise of any such power, right or privilege shall preclude any
further exercise thereof, or the exercise of any further power, right or
privilege.
8.4 Rights Cumulative. All rights and remedies existing under this
Agreement are cumulative to, and not exclusive of, any other rights or remedies
available under contract or applicable law.
8.5 Unenforceable Provisions. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall be so only as to such
jurisdiction and only to the extent of such prohibition or unenforceability, but
all the remaining provisions of this Agreement shall remain valid and
enforceable.
8.6 Governing Law, Waiver of Notice. Except as may be otherwise provided
by the Uniform Commercial Code or in any addendum hereto, this Agreement shall
be governed by and construed in accordance with the laws of the State of
California. To the fullest extent permitted by law, Debtor hereby waives
presentment, demand, protest, notice of dishonor and all other
10
<PAGE>
notices and demands as well as any applicable statute of limitations.
8.7 Entire Agreement. This Agreement, together with the other Loan
Documents, is intended by Debtor and Secured Party as the final expression of
Debtor's obligations to Secured Party in connection with the Collateral and
supersedes all prior understandings or agreements concerning the subject matter
hereof. This Agreement may be amended only by a writing signed by Debtor and
accepted by Secured Party in writing.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date set
forth in the preamble.
ACTIVE SOFTWARE, INC. VENTURE LENDING & LEASING, INC.
By: /s/ R. James Green By: /s/ Salvador O. Gutierrez
------------------ ---------------------------
SALVADOR O. GUTIERREZ
Chief Financial Officer
11
<PAGE>
Schedule 1 to Security Agreement
Description of Equipment
Quantity Article Make Y. Mfq. Model Serial or
- -------- ------- ---- ------- ----- ---------
Motor No.
- --------
See attached continuation to Schedule 1
together with all improvements, replacements, accessions and additions thereto,
wherever located, and all Proceeds thereof arising from the sale, lease, rental
or other use or disposition of any such property, including all rights to
payment with respect to insurance or condemnation, returned premiums, or any
cause of action relating to any of the foregoing.
ACTIVE SOFTWARE, INC.
By:/s/ R. James Green
------------------
VENTURE LENDING & LEASING, INC.
By: /s/ Salvador O. Gutierrez
--------------------------------
SALVADOR O. GUTIERREZ
Chief Financial Officer
<PAGE>
EXHIBIT A TO FINANCING STATEMENT
BETWEEN
ACTIVE SOFTWARE, INC.,
AS DEBTOR,
AND
VENTURE LENDING & LEASING, INC.,
AS SECURED PARTY
------------------------------------------
Item 6 continued:
----------------
All of Debtor's right, title and interest in and to the Collateral, as such
term is defined below.
"Collateral" means all Debtor's Equipment and Fixtures now owned or
hereafter acquired, wherever located, and whether held by Debtor or any third
party, and all proceeds and products thereof, including all insurance and
condemnation proceeds ("Proceeds"), and all Records necessary for the operation
of the Equipment.
"Equipment" means all of Debtor's specific equipment and software
identified and described on Schedule 1 attached to this Agreement and
----------
incorporated herein by reference (as such Schedule may be amended or
supplemented from time to time), all replacements, parts, accessions and
additions thereto, and all proceeds thereof arising from the sale, lease, rental
or other use or disposition thereof, including all rights to payment with
respect to insurance or condemnation, returned premiums, or any cause of action
relating to any of the foregoing.
"Fixtures" means all items of Equipment that are so related to the real
property upon which they are located that an interest in them arises under real
property law, and all proceeds thereof arising from the sale, lease, rental or
other use or disposition thereof.
"Records" means all Debtor's computer programs, software, hardware, source
codes and data processing information and all written documents necessary for
the operation of the Equipment.
<PAGE>
EXHIBIT D
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT
AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE
SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE
OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT AND ANY APPLICABLE
STATE SECURITIES LAWS.
WARRANT TO PURCHASE
28,000 SHARES OF COMMON STOCK OF
ACTIVE SOFTWARE, INC.
(Void after September 30, 2004)
This certifies that VENTURE LENDING & LEASING, INC., a Maryland
corporation, or assigns (the "Holder"), for value received, is entitled to
purchase from ACTIVE SOFTWARE, INC., a California corporation (the "Company"),
28,000 fully paid and nonassessable shares of the Company's Common Stock
("Common Stock") for cash at a price of $1.00 per share (the "Stock Purchase
Price") at any time or from time to time up to and including 5:00 p.m. (Pacific
time) on August 31, 2004 (the "Expiration Date"), upon surrender to the Company
at its principal office at 1043 North Shoreline Blvd., Suite 201 Mountain View,
CA 94043 (or at such other location as the Company may advise Holder in writing)
of this Warrant properly endorsed with the Form of Subscription attached hereto
duly filled in and signed and upon payment in cash or by check of the aggregate
Stock Purchase Price for the number of shares for which this Warrant is being
exercised determined in accordance with the provisions hereof. The Stock
Purchase Price and the number of shares purchasable hereunder are subject to
adjustment as provided in Section 4 of this Warrant.
This Warrant is subject to the following terms and conditions:
1. Exercise; Issuance of Certificates; Payment
-------------------------------------------
for Shares.
-----------
(a) Unless an election is made pursuant to clause (b) of this Section
1, this Warrant shall be exercisable at the option of the Holder, at any time or
from time to time, on or before the Expiration Date for all or any portion of
the shares of Common Stock (but not for a fraction of a share) which may be
purchased hereunder for the Stock Purchase Price multiplied by the number of
shares to be purchased. The Company agrees that the shares of Common Stock
purchased under this Warrant shall be and are deemed to be issued to the holder
hereof as the record owner of such shares as of the close of business on the
date on which this
<PAGE>
Warrant shall have been surrendered and payment made for such shares. Subject to
the provisions of Section 2, certificates for the shares of Common Stock so
purchased, together with any other securities or property to which the Holder
hereof is entitled upon such exercise, shall be delivered to the Holder hereof
by the Company at the Company's expense within a reasonable time after the
rights represented by this Warrant have been so exercised. Except as provided in
clause (b) of this Section 1, in case of a purchase of less than all the shares
which may be purchased under this Warrant, the Company shall cancel this Warrant
and execute and deliver a new Warrant or Warrants of like tenor for the balance
of the shares purchasable under the Warrant surrendered upon such purchase to
the Holder hereof within a reasonable time. Each stock certificate so delivered
shall be in such denominations of Common Stock as may be requested by the Holder
hereof and shall be registered in the name of such Holder or such other name as
shall be designated by such Holder, subject to the limitations contained in
Section 2.
(b) The Holder, in lieu of exercising this Warrant by the payment of
the Stock Purchase Price pursuant to clause (a) of this Section 1, may elect, at
any time on or before the Expiration Date, to receive, through conversion of
this Warrant or any portion hereof into that number of shares of Common Stock
equal to the quotient of: (i) the difference between (A) the Per Share Price (as
hereinafter defined) of the Common Stock, less (B) the Stock Purchase Price then
in effect, multiplied by the number of shares of Common Stock the Holder would
otherwise have been entitled to purchase hereunder pursuant to clause (a) of
this Section 1 (or such lesser number of shares as the Holder may designate in
the case of a partial exercise of this Warrant); over (ii) the Per Share Price.
(c) For purposes of clause (b) of this Section 1, "Per Share Price"
means (i) if the Company's Common Stock is then listed or admitted to trading on
any national securities exchange or traded on any national market system, the
average of the closing bid and asked prices of the Company's Common Stock as
reported on such exchange or market system for the ten (10) consecutive trading
days prior to the date of the Holder's election to convert hereunder; (ii) if
this Warrant is being converted in conjunction with a public offering of stock,
the price to the public per share pursuant to the offering; or (iii) if no
shares of the Company's Common Stock are listed or admitted to trading on any
national securities exchange or traded on any national market system, the price
per share which the Company would obtain from a willing buyer for shares sold by
the Company from authorized but unissued shares as such price shall be agreed
upon by the Holder and the Company or, if agreement cannot be reached within ten
(10) business days of the Holder's election hereunder, as
2
<PAGE>
such price shall be determined by the Board of Directors of the Company, acting
in good faith.
2. Limitation on Transfer.
----------------------
(a) The Warrant and the Common Stock shall not be transferable except
upon the conditions specified in this Section 2, which conditions are intended
to insure compliance with the provisions of the Securities Act. Each holder of
this Warrant or the Common Stock issuable hereunder will cause any proposed
transferee of the Warrant or Common Stock to agree to take and hold such
securities subject to the provisions and upon the conditions specified in this
Section 2.
(b) Each certificate representing this Warrant or the Common Stock
Shall (unless otherwise permitted by the provisions of this Section 2 or unless
such securities have been registered under the Securities Act or sold under Rule
144) be stamped or otherwise imprinted with a legend substantially in the
following form (in addition to any legend required under applicable state
securities laws):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR
ANY STATE SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED
IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID
ACT AND ANY APPLICABLE STATE SECURITIES LAWS.
(c) The Holder of this Warrant and each person to whom this Warrant is
subsequently transferred represents and warrants to the Company (by acceptance
of such transfer) that it will not transfer the Warrant (or securities issuable
upon exercise hereof unless a registration statement under the Securities Act
was in effect with respect to such securities at the time of issuance thereof)
except pursuant to (i) an effective registration statement under the Securities
Act, (ii) Rule 144 under the Securities Act (or any other rule under the
Securities Act relating to the disposition of securities), or (iii) an opinion
of counsel, reasonably satisfactory to counsel for the Company, that an
exemption from such registration is available.
3. Shares to be Fully Paid; Reservation of Shares. The Company covenants
----------------------------------------------
and agrees that all shares of Common Stock which may be issued upon the exercise
of the rights represented by this Warrant will, upon issuance, be duly
authorized, validly issued, fully paid and nonassessable and free from all
preemptive rights of any shareholder and free of all taxes, liens and charges
with respect to the issue thereof. The Company further covenants and agrees that
during the period within which the rights represented by this
3
<PAGE>
Warrant maybe exercised, the Company will at all times have authorized and
reserved, for the purpose of issue or transfer upon exercise of the subscription
rights evidenced by this Warrant, a sufficient number of shares of authorized
but unissued Common Stock, or other securities and property, when and as
required to provide for the exercise of the rights represented by this Warrant.
The Company will take all such action as may be necessary to assure that such
shares of Common Stock may be issued as provided herein without violation of any
applicable law or regulation, or of any requirements of any domestic securities
exchange upon which the Common Stock may be listed. The Company will not take
any action which would result in any adjustment of the Stock Purchase Price (as
defined in Section 4 hereof) (i) if the total number of shares of Common Stock
issuable after such action upon exercise of all outstanding warrants, together
with all shares of Common Stock then outstanding and all shares of Common Stock
then issuable upon exercise of all options and upon the conversion of all
convertible securities then outstanding, would exceed the total number of shares
of Common Stock then authorized by the Company's Articles of Incorporation.
4. Adjustment of Stock Purchase Price Number of Shares. The Stock
---------------------------------------------------
Purchase Price and the number of shares purchasable upon the exercise of this
Warrant shall be subject to adjustment from time to time upon the occurrence of
certain events described in this Section 4. Upon each adjustment of the Stock
Purchase Price, the Holder of this Warrant shall thereafter be entitled to
purchase, at the Stock Purchase Price resulting from such adjustment, the number
of shares obtained by multiplying the Stock Purchase Price in effect immediately
prior to such adjustment by the number of shares purchasable pursuant hereto
immediately prior to such adjustment, and dividing the product thereof by the
Stock Purchase Price resulting from such adjustment.
4.1 Subdivision or Combination of Stock. In case the Company shall at
-----------------------------------
any time subdivide its outstanding shares of Common Stock into a greater number
of shares, the Stock Purchase Price in effect immediately prior to such
subdivision shall be proportionately reduced, and conversely, in case the
outstanding shares of Common Stock of the Company shall be combined into a
smaller number of shares, the Stock Purchase Price in effect immediately prior
to such combination shall be proportionately increased.
4.2 Dividends in Preferred Stock, Other Stock, Property,
---------------------------------------------------
Reclassification. If at any time or from time to time the holders of Common
- ----------------
Stock (or any shares of stock or other securities at the time receivable upon
the exercise of this Warrant) shall have received or become entitled to receive,
without payment therefor,
4
<PAGE>
(a) by way of dividend or other distribution any shares of stock
or other securities, whether or not such securities are at any time directly or
indirectly convertible into or exchangeable for Common Stock, or any rights or
options to subscribe for, purchase or otherwise acquire any of the foregoing, or
(b) any cash paid or payable otherwise than as a cash dividend,
or
(c) additional stock or other securities or property (including
cash) by way of spinoff, split-up, reclassification, combination of shares or
similar corporate rearrangement, (other than shares of Common Stock issued as a
stock split, adjustments in respect of which shall be covered by the terms of
Section 4.1 above),
then and in each such case, the Holder hereof shall, upon the exercise of this
Warrant, be entitled to receive, in addition to the number of shares of Common
Stock receivable thereupon, and without payment of any additional consideration
therefore, the amount of stock and other securities and property (including cash
in the cases referred to in clauses (b) and (c) above) which such Holder would
hold on the date of such exercise had he been the holder of record of such
Common Stock as of the date on which holders of Common Stock received or became
entitled to receive such shares and/or all other additional stock and other
securities and property.
4.3 Reorganization Reclassification, Consolidation, Merger or Sale.
--------------------------------------------------------------
If any capital reorganization of the capital stock of the Company, or any
consolidation or merger of the Company with another corporation, or the sale of
all or substantially all of its assets to another corporation shall be effected
in such a way that holders of Common Stock shall be entitled to receive stock,
securities or assets with respect to or in exchange for Common Stock, then, as a
condition of such reorganization, reclassification, consolidation, merger or
sale, lawful and adequate provisions shall be made whereby the holder hereof
shall thereafter have the right to purchase and receive(in lieu of the shares of
the Common Stock of the Company immediately theretofore purchasable and
receivable upon the exercise of the rights represented hereby) such shares of
stock, securities or assets as may be issued or payable with respect to or in
exchange for a number of outstanding shares of such Common Stock equal to the
number of shares of such stock immediately theretofore purchasable and
receivable upon the exercise of the rights represented hereby. In any such case,
appropriate provision shall be made with respect to the rights and interests of
the holder of this Warrant to the end that the provisions hereof (including,
without limitation, provisions for adjustments of
5
<PAGE>
the Stock Purchase Price and of the number of shares purchasable and receivable
upon the exercise of this Warrant) shall thereafter be applicable, as nearly as
may be possible, in relation to any shares of stock, securities or assets
thereafter deliverable upon the exercise hereof. The Company will not effect any
such consolidation, merger or sale unless, prior to the consummation thereof,
the successor corporation (if other than the Company) resulting from such
consolidation or the corporation purchasing such assets shall assume by written
instrument, executed and mailed or delivered to the registered Holder hereof at
the last address of such Holder appearing on the books of the Company, the
obligation to deliver to such Holder such shares of stock, securities or assets
as, in accordance with the foregoing provisions, such Holder may be entitled to
purchase.
4.4 Notice of Adjustment. Upon any adjustment of the Stock Purchase
--------------------
Price, and/or any increase or decrease in the number of shares purchasable upon
the exercise of this Warrant the Company shall give written notice thereof, by
first class mail, postage prepaid, addressed to the registered holder of this
Warrant at the address of such holder as shown on the books of the Company. The
notice shall be signed by the Company's chief financial officer and shall state
the Stock Purchase Price resulting from such adjustment and the increase or
decrease, if any, in the number of shares purchasable at such price upon the
exercise of this Warrant, setting forth in reasonable detail the method of
calculation and the facts upon which such calculation is based.
4.5 Other Notices. If at any time:
-------------
(a) the Company shall declare any cash dividend upon any of its
stock;
(b) the Company shall declare any dividend upon its stock
payable in stock, or make any special dividend or other distribution to the
holders of its stock;
(c) the Company shall offer for subscription pro rata to the
holders of its Common Stock any additional shares of stock of any class or other
rights;
(d) there shall be any capital reorganization or
reclassification of the capital stock of the Company, or consolidation or merger
of the Company with, or sale of all or substantially all of its assets to,
another corporation;
(e) there shall be a voluntary or involuntary dissolution,
liquidation or winding-up of the Company; or
6
<PAGE>
(f) the Company shall take or propose to take any other action,
notice of which is actually provided to holders of the Common Stock;
then, in anyone or more of said cases, the Company shall give, by first class
mail, postage prepaid, addressed to the holder of this Warrant at the address of
such holder as shown on the books of the Company, (i) at least 10 day's prior
written notice of the date on which the books of the Company shall close or a
record shall be taken for such dividend, distribution or subscription rights or
for determining rights to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding-up, or other action and (ii) in the case of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding-up, or other action, at least 10 day's written notice of the date when
the same shall take place. Any notice given in accordance with the foregoing
clause (i) shall also specify, in the case of any such dividend, distribution or
subscription rights, the date on which the holders of stock shall be entitled
thereto. Any notice given in accordance with the foregoing clause (ii) shall
also specify the date on which the holders of Common Stock shall be entitled to
exchange their Common Stock for securities or other property deliverable upon
such reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or winding-up, or other action as the case may be.
4.6 Certain Events. If any change in the outstanding Common Stock of
the Company or any other event occurs as to which the other provisions of this
Section 4 are not strictly applicable or if strictly applicable would not fairly
protect the purchase rights of the Holder of the Warrant in accordance with the
essential intent and principles of such provisions, then the Board of Directors
of the Company shall make an adjustment in the number and class of shares
available under the Warrant, the Stock Purchase Price and/or the application of
such provisions, in accordance with such essential intent and principles, so as
to protect such purchase rights as aforesaid. The adjustment shall be such as
will give the Holder of the Warrant upon exercise for the same aggregate Stock
Purchase Price the total number, class and kind of shares as he would have owned
had the Warrant been exercised prior to the event and had he continued to hold
such shares until after the event requiring adjustment.
5. Issue Tax. The issuance of certificates for shares of Common Stock
---------
upon the exercise of the Warrant shall be made without charge to the Holder of
the Warrant for any issue tax in respect thereof; provided, however, that the
Company shall not be required to pay any tax which may be payable in respect of
any transfer involved in the issuance
7
<PAGE>
and delivery of any certificate in a name other than that of the then Holder of
the Warrant being exercised.
6. Closing of Books. The Company will at no time close its transfer books
----------------
against the transfer of any Warrant or of any shares of Common Stock issued or
issuable upon the exercise of any warrant in any manner which interferes with
the timely exercise of this Warrant.
7. No Voting or Dividend Rights; Limitation of Liability. Nothing
-----------------------------------------------------
contained in this Warrant shall be construed as conferring upon the Holder
hereof the right to vote or to consent as a shareholder in respect of meetings
of shareholders for the election of directors of the Company or any other
matters or any rights whatsoever as a shareholder of the Company. No dividends
or interest shall be payable or accrued in respect of this Warrant or the
interest represented hereby or the shares purchasable hereunder until, and only
to the extent that, this Warrant shall have been exercised. No provisions
hereof, in the absence of affirmative action by the holder to purchase shares of
Common Stock, and no mere enumeration herein of the rights or privileges of the
Holder hereof, shall give rise to any liability of such Holder for the Stock
Purchase Price or as a shareholder of the Company, whether such liability is
asserted by the Company or by its creditors.
8. Intentionally Deleted.
---------------------
9. Registration Rights. The Holder hereof shall be entitled, with respect
-------------------
to the shares of Common Stock issued upon exercise hereof to all of the
registration rights set forth in the Section 3 of the Company's Rights Agreement
dated as of February 1, 1996 (other than those set forth in Section 3.2 and
3.12) to the same extent and on the same terms and conditions as possessed by
the Series A Shareholders thereunder. The Company shall take such action as may
be reasonably necessary to assure that the granting of such registration rights
to the Holder does not violate the provisions of such agreement or any of the
Company's charter documents or rights of prior grantees of registration rights.
10. Rights and Obligations Survive Exercise of Warrant. The rights and
--------------------------------------------------
obligations of the Company, of the Holder of this Warrant and of the holder of
shares of Common Stock issued upon exercise of this Warrant, contained in
Sections 6 and 9 shall survive the exercise of this Warrant.
11. Modification and Waiver. This Warrant and any provision hereof may be
-----------------------
changed, waived, discharged or terminated only by an instrument in writing
signed by the party against which enforcement of the same is sought.
12. Notices. Any notice, request or other document
-------
8
<PAGE>
required or permitted to be given or delivered to the holder hereof or the
Company shall be deemed to have been given (i) upon receipt if delivered
personally or by courier, (ii) upon confirmation of receipt if by telecopy, or
(iii) three business days after deposit in the U.S. mail, with postage prepaid
and certified or registered, to each such holder at its address as shown on the
books of the Company or to the Company at the address indicated therefor in the
first paragraph of this Warrant.
13. Binding Effect on Successors. This Warrant shall be binding upon any
----------------------------
corporation succeeding the Company by merger, consolidation or acquisition of
all or substantially all of the Company's assets. All of the obligations of the
Company relating to the Common Stock issuable upon the exercise of this Warrant
shall survive the exercise and termination of this Warrant. All of the covenants
and agreements of the Company shall inure to the benefit of the successors and
assign of the holder hereof. The Company will, at the time of the exercise of
this Warrant, in whole or in part, upon request of the Holder hereof but at the
Company's expense, acknowledge in writing its continuing obligation to the
Holder hereof in respect of any rights (including, without limitation, any right
to registration of the shares of Common Stock) to which the holder hereof shall
continue to be entitled after such exercise in accordance with this Warrant;
provided, that the failure of the holder hereof to make any such request shall
not affect the continuing obligation of the Company to the Holder hereof in
respect of such rights.
14. Descriptive Headings and Governing Law. The descriptive headings of
--------------------------------------
the several sections and paragraphs of this Warrant are inserted for convenience
only and do not constitute a part of this Warrant. This Warrant shall be
construed and enforced in accordance with, and the rights of the parties shall
be governed by, the laws of the State of California.
15. Lost Warrants or Stock Certificates. The Company represents and
-----------------------------------
warrants to the Holder hereof that upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction, or mutilation of
any Warrant or stock certificate and, in the case of any such loss, theft or
destruction, upon receipt of an indemnity reasonably satisfactory to the
Company, or in the case of any such mutilation upon surrender and cancellation
of such Warrant or stock certificate, the Company at its expense will make and
deliver a new Warrant or stock certificate, of like tenor, in lieu of the lost,
stolen, destroyed or mutilated Warrant or stock certificate.
9
<PAGE>
16. Fractional Shares. No fractional shares shall be issued upon exercise
-----------------
of this Warrant. The Company shall, in lieu of issuing any fractional share, pay
the holder entitled to such fraction a sum in cash equal to such fraction
multiplied by the then effective Stock Purchase Price.
17. Representations of Holder. With respect to this Warrant and any
-------------------------
securities issued upon exercise thereof, Holder represents and warrants to the
Company as follows:
17.1 Experience. It is experienced in evaluating and investing in
----------
companies engaged in businesses similar to that of the Company; it understands
that investment in the Warrant involves substantial risks; it has made detailed
inquiries concerning the Company, its business and services, its officers and
its personnel; the officers of the Company have made available to Holder any and
all written information it has requested; the officers of the Company have
answered to Holder's satisfaction all inquiries made by it; in making this
investment it has relied upon information made available to it by the Company;
it has such knowledge and experience in financial and business matters that it
is capable of evaluating the merits and risks of investment in the Company and
it is able to bear the economic risk of that investment; and it is an
"accredited investor" as defined in Regulation D promulgated by the Securities
and Exchange Commission.
17.2 Investment. It is acquiring the Warrant and any securities
----------
issued upon exercise thereof for investment for its own account and not with a
view to, or for resale in connection with, any distribution thereof. It
understands that the Warrant and the shares of Common Stock issuable upon
exercise thereof, have not been registered under the Securities Act of 1933, as
amended, nor qualified under applicable state securities laws.
17.3 Rule 144. It acknowledges that the Warrant and the Common Stock
--------
must be held indefinitely unless they are subsequently registered under the
Securities Act or an exemption from such registration is available. It has been
advised or is aware of the provisions of Rule 144 promulgated under the
Securities Act.
17.4 Access to Data. It has had an opportunity to discuss the
--------------
Company's business, management and financial affairs with the Company's
management and has had the opportunity to inspect the Company's facilities.
18. Additional Representations and Covenants of the Company. The Company
-------------------------------------------------------
hereby represents, warrants and agrees as follows:
18.1 Corporate Power. The Company has all requisite corporate power
---------------
and corporate authority to issue
10
<PAGE>
this Warrant and to carry out and perform its obligations hereunder.
18.2 Authorization. All corporate action on the part of the Company,
-------------
its directors and shareholders necessary for the authorization, execution,
delivery and performance by the Company of this has been taken. This Warrant is
a valid and binding obligation of the Company, enforceable in accordance with
its terms.
18.3 Offering. Subject in part to the truth and accuracy of Holder's
--------
representations set forth in Section 17 hereof, the offer, issuance and sale of
the Warrant is, and the issuance of Common Stock upon exercise of the Warrant
will be exempt from the registration requirements of the Securities Act, and are
exempt from the qualification requirements of any applicable state securities
laws; and neither the Company nor anyone acting on its behalf will take any
action hereafter that would cause the loss of such exemptions.
18.4 Stock Issuance. Upon exercise of the Warrant, the Company will
--------------
use its best efforts to cause stock certificates representing the shares of
Common Stock purchased pursuant to the exercise to be issued in the individual
names of Holder, its nominees or assignees, as appropriate at the time of such
exercise.
18.5 Articles and By-Laws. The Company has provided Holder with true
--------------------
and complete copies of the Company's Articles or Certificate of Incorporation,
By-Laws, and each Certificate of Determination or other charter document
setting, forth any rights, preferences and privileges of Company's capital
stock, each as amended and in effect on the date of issuance of this Warrant.
18.6 Financial and Other Reports. From time to time up to the earlier
---------------------------
of the Expiration Date or the complete exercise of this Warrant, the Company
shall furnish to Holder (i) within 90 days after the close of each fiscal year
of the Company an audited balance sheet and statement of changes in financial
position at and as of the end of such fiscal year, together with an audited
statement of income for such fiscal year; (ii) within 45 days after the close of
each fiscal quarter of the Company, an unaudited balance sheet and statement of
cash flows at and as of the end of such quarter, together with an unaudited
statement of income for such quarter; and (iii) promptly after sending, making
available, or filing, copies of all reports, proxy statements, and financial
statements that the Company sends or makes available to its shareholders
generally and all registration statements and reports that the Company files
with the SEC.
11
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed by its officers, thereunto duly authorized this ___ day of September,
1996.
ACTIVE SOFTWARE, INC.
By:_____________________________________
Title:__________________________________
12
<PAGE>
FORM OF SUBSCRIPTION
--------------------
(To be signed only upon exercise of Warrant)
To:________________________________
The undersigned, the holder of the within Warrant, hereby irrevocably
elects to exercise the purchase right represented by such Warrant for, and to
purchase thereunder, ____________________________________________(________) (1)
shares of Common Stock of_____________________________________ and herewith
makes payment of _______________________________
Dollars ($_________) therefor, and requests that the certificates for such
shares be issued in the name of, and delivered to,
_________________________________, whose address is ___________________________.
The undersigned represents that it is acquiring such Common Stock for
its own account for investment and not with a view to or for sale in connection
with any distribution thereof (subject, however, to any requirement of law that
the disposition thereof shall at all times be within its control.
DATED:_____________________________
________________________________________
(Signature must conform in all
respects to name of holder as
specified on the face of the Warrant)
_______________________________________
_______________________________________
(Address)
____________________
(1) Insert here the number of shares called for on the face of the Warrant (or,
in the case of a partial exercise, the portion thereof as to which the
Warrant is being exercised), in either case without making any adjustment
for additional Common Stock or any other stock or other securities or
property or cash which, pursuant to the adjustment provisions of the
Warrant, may be deliverable upon exercise.
13
<PAGE>
ASSIGNMENT
----------
FOR VALUE RECEIVED, the undersigned, the holder of the within Warrant,
hereby sells, assigns and transfers all of the rights of the undersigned under
the within Warrant, with respect to the number of shares of Common Stock covered
thereby set forth hereinbelow, unto:
Name of Assignee Address No. of Shares
- --------------------------------------------------------------------------------
DATED:_______________________________
________________________________________
(Signature must conform in all
respects to name of holder as specified
on the face of the Warrant)
14
<PAGE>
EXHIBIT 10.11
SecureWeb Toolkit/(TM)/Developer & Joint Development Agreement
Effective as of July 23, 1996, ( Effective Date"), Terisa Systems, Inc. a
-------------
Delaware corporation with offices at 4984 El Camino Real, Los Altos, California
("Terisa") and Active Software, Inc., a California corporation with principal
offices at 1043 N. Shoreline Blvd. Suite 201, Mountain View, CA 94043 ("Active")
agree as follows:
1. BACKGROUND
1.1 Active is developing a suite of products which allow end users to access
various data sources/sinks ("Legacy Applications") from WWW browsers (Netscape's
in particular) by using Java applets to connect to an "Information Broker"
communicating with the Legacy Applications through a series of "Adapters"
(together labeled "the Active Products"). Active intends to offer a
communications security option, utilizing the SSL protocol, at all levels of the
Active Products including the Information Broker, the Adapters, and the WWW
browser Java applets.
1.2 Active intends to license Terisa's SecureWeb Toolkit and rights to create
derivative works thereof solely for the purpose of providing communications
security to the servers (Information Brokers) and viewers (Adapters and browser
lava applets) which make up the Active Products.
1.3 Since secure communications between Product will require support for SSL
at the browser point of access and Netscape does not currently support Java
access to the browser's own SSL facilities, Terisa and Active intend to co-
develop a "Plug-in" to the Netscape browser which will allow SSL-based
communications from Java applications ("SSL-for-Java Plug-in" or just "Plug-
in").
1.4 Active's need for a SSL-for-Java capability is urgent and critical to its
product strategy. However, Active's need for the SSL-for-Java Plug-in is
speculative (likely to be temporary) given the possibility that Netscape may
eventually provide such a capability native to its browser. Active chooses to
develop the Plug-in to eliminate the risk that Netscape will not provide the
capability soon enough to meet Active's needs.
1.5 Terisa's interest in an SSL-for-Java Plug-in is speculative on two
grounds: first, there may not be a market for such a product: second, any
prospective market for such a product would be eliminated if Netscape provides a
native capability in its browser. Terisa chooses to cooperate in the development
of the Plug-in primarily to meet Active's needs as a Terisa customer, and
secondarily to potentially exploit the possibly temporary market for the Plug-
in.
1.6 Active anticipates that they will redistribute to third parties, at most,
one thousand units of its Information Broker product (which Terisa considers
servers for the purpose of licensing) incorporating the SecureWeb Toolkit in its
first year of operation. Additionally, Active estimates that in actual
configurations, that there will be well less than ten Adapters (which Terisa is
willing to consider clients for the purpose of licensing) per Information
Broker.
1.7 Active intends to embed the Plug-in into its Active Products. Terisa
intends to own all rights to the Plug-in and possibly license it as a Terisa
product to third parties.
2. DEFINITIONS
2.1 "Confidential Information" means (i) the Toolkit in source code form and
(ii) the SecureWeb library API documentation and (iii) any other confidential or
proprietary information labeled as confidential either at the time of delivery
or on Exhibit A hereto, or, if disclosed verbally or by examination, identified
as confidential at the time and reduced to writing within 30 days thereafter.
2.2 "Computer" means one computer system under the control of a single
instance of an operating system.
2.3 "Interface Modifications" means any ports, interfaces, and other software
required to incorporate the RSA Source Code into the Toolkit as modified by
Active under the terms of this Agreement.
2.4 "Licensed Computers" means the specific computers designated by Active and
identified by manufacturer, model, serial number and location as the licensed
computers for the purpose of running specific forms of the Toolkit and/or Secure
Products.
2.5 "RSA Component" means the software component of the RSA Software known as
TIPEM.
2.6 "RSA Software" means software for public key cryptography licensed to
Terisa by RSA Data Security Inc. to Terisa ("RSA Software") and sublicensed by
Terisa to Active within the Toolkit.
2.7 "RSA Source Code" means the source code form of the RSA Component, which
source code shall be deemed to be Confidential Information.
2.8 "Secure Product(s)" means Server Products, and Viewer Products.
2.9 "Server Product" means software developed by or for Active which acts as a
web network communication server and which incorporates portions of the Toolkit
in object code form together with substantial additional value in the form of
software.
2.10 "Site" means the office of Active located at the following address: 1043
N, Shoreline Blvd. Suite 201, Mountain View, CA 94043.
2.11 "Toolkit" means either or both of Terisa's SecureWeb Viewer Toolkit (the
"Viewer Toolkit") and/or Terisa's SecureWeb Server Toolkit (the "Server
Toolkit") as further identified in Exhibit A: Description
Confidential treatment has been requested for portions of this exhibit. The copy
filed herewith omits the information subject to the confidentiality request.
Omissions are designated as * . A complete version of this exhibit has been
filed separately with the Securities and Exchange Commission.
1
<PAGE>
of the SecureWeb Viewer and Server Toolkits, and related user manuals and other
documentation ("Documentation") and any Updates thereto as supplied by Terisa
hereunder. "Updates" means any releases, updates, enhancements, or error
corrections for a software program provided by Terisa to Active pursuant to
Section 5 below.
2.12 "Viewer Product" means software developed by or for Active which works
with a World Wide Web browser to communicate over the network with a Server
Product and which incorporates portions of the Toolkit in object code form
together with substantial additional value in the form of software.
3. GRANT OF LICENSE FOR DEVELOPMENT OF SECURE PRODUCTS
3.1 License for Secure Product Development. Subject to the terms of this
--------------------------------------
Agreement. Terisa grants to Active and Active accepts a nonexclusive,
nontransferable, nonassignable, worldwide license to use, display, copy, modify
and prepare derivative works of those of the following forms of the Toolkit as
selected by Active on the accompanying License Order Form:
3.1.1 The Viewer Toolkit in object code form (i) solely for the purposes of
developing Viewer Products and for testing, supporting, and maintaining such
Viewer Products; and (ii) solely on five (5) Licensed Computers by no more than
four (4) developers.
3.1.2 The Server Toolkit in object code form (i) solely for the purposes of
developing Server Products and for testing, supporting, and maintaining such
Server Products; and (ii) solely on five (5) Licensed Computers by no more than
four (4) developers.
3.1.3 The SecureWeb Toolkit in source code form (i) for use solely at the Site;
and (ii) solely for the purposes of developing, supporting, and maintaining
Secure Products for the following platforms: Win 95, Windows NT, Macintosh,
Solaria, Hewlett Packard, Silicon Graphics.
3.2 License to the RSA Source Code for Porting to New Platforms. If Active has
-----------------------------------------------------------
selected i) a limited license to the RSA Source Code on the accompanying License
Order Form; and ii) licensed the SecureWeb Toolkit in source code form (2.1.3),
then subject to the terms of this Agreement Terisa grants to Active and Active
accepts a nonexclusive, nontransferable, nonassignable, worldwide license,
without the right to grant sublicenses, to use, copy and modify the RSA Source
Code, solely at the Site and solely as required for the limited purpose of
porting the RSA Component to new platforms and for no other purpose or use
whatsoever.
3.3 Grant of License to the Plug-in. Upon approval and acceptance of the SSL-
-------------------------------
for-Java Plug-in as described in Paragraph 4.2, Terisa shall grant Active a non-
exclusive, irrevocable, world-wide (subject to applicable laws), royalty-free
license to distribute the SSL-for-Java Plug-in for use with Active's Products.
3.4 Archival Copies. Active may make one(1) copy of each Toolkit for archival
---------------
purposes
4. LIMITATIONS ON LICENSES
4.1 No Right To Distribute. This SecureWeb Toolkit Developer Agreement does
----------------------
not give Active any right to sublicense or distribute the Toolkit or Active's
Secure Products. Such rights shall be provided upon execution of the SecureWeb
Distribution Agreement.
4.2 No Reverse Engineering. Active shall not modify, reverse engineer,
----------------------
decompile, disassemble or otherwise attempt to derive source code from the
Toolkit or any part thereof which was delivered to Active solely in object code
form.
4.3 Integration of Object Code. Secure Products must be designed so that an
--------------------------
experienced programmer cannot easily access the security functions provided by
the Toolkit in order to use them with software that is not a Secure Product.
Active agrees (i) that Secure Products will not make the security functions of
the Toolkit directly accessible to the user, (ii) not to include in the
documentation or provide to third parties any description of the interface
between the security portions and other parts of a Secure Product and (iii) not
to design or distribute the security portions of a Secure Product as a
dynamically linked module such as a Dynamic Link Library (DLL) unless it
satisfies all of the following requirements: (a) no function call into the
module can have a similar name or provide substantially the same function as any
Toolkit API function call; (b) the module must have substantial additional value
in the form of program logic; and (c) Active has obtained Terisa's written
approval. Terisa agrees to respond within 10 business days to such requests,
such approval not to be unreasonable withheld. Terisa will permit Active to make
the specifications of an approved dynamically linked security module public, if,
in Terisa's sole judgment, Active has either constructed the module so that it
will not function with software other than a Secure Product or the module
includes additional software that makes it difficult to use it with any software
other than the Secure Product.
4.4 RSA Software Not Separable. Active agrees not to (i) use the RSA Source
--------------------------
Code separately from the Toolkit (whether in source or object code form) or
(ii) modify the RSA Source Code or (iii) access RSA Software's functions in any
way other than through Terisa's interface, except that, provided Active has
selected a license to the RSA Source Code per Paragraph 2.2, Active may then
directly access and modify the RSA Software as required to create Interface
Modifications for the sole purpose of porting the Toolkit to a new platform and
provided that the resulting Secure Product retains substantial value from
portions of the Toolkit other than the RSA Software itself. Active hereby agrees
not to assert against Terisa or RSA any patent rights Active may have now or in
the future with respect to any interfaces developed by Terisa or RSA without
reference to the
2
<PAGE>
source code developed by Active for Active's Interface Modifications. Active is
not granted the right hereunder to distribute, and Active agrees not to
distribute, the RSA Source Code.
4.5 Certificates. Active shall not use the RSA Software to issue electronic
------------
certificates to identify users and verify data integrity unless such right is
granted to Active pursuant to an agreement with VeriSign, Inc., a Delaware
corporation, or its successors in interest.
4.6 Preservation of Notices. Active agrees not to remove or destroy any
-----------------------
proprietary, trademark or copyright markings, or confidentiality legends placed
upon or contained within the Toolkit or any related materials or documentation.
Additionally, Active shall reproduce all of Terisa's proprietary notices on all
copies of the Toolkit or portions thereof made by Active in the same manner that
Terisa includes such notices or in any other manner reasonably requested by
Terisa. Active agrees to insert and maintain a copyright notice in the name of
Active or Terisa within each Secure Application and any related materials or
documentation.
5. JOINT DEVELOPMENT
5.1 Development of the Plug-In. In exchange for discounts in license fees for
--------------------------
the Terisa's SecureWeb Toolkit products, access thereto, and limited technical
assistance (as further described herein), Active shall author and develop the
Plug-in and technical documentation in accordance with Terisa's reasonable
commercial software product standards. All Plug-in product development plans
must be reviewed and approved by Terisa prior to development and/or distribution
by Active.
5.2 Toolkit Delivery and Start of Development. Terisa shall deliver to Active
-----------------------------------------
copies of the SecureWeb/(TM) /Toolkit in both source and object code forms upon
execution of this Agreement and SecureWeb Distribution Agreement. Active shall
begin engineering development of the alpha-test Plug-in no later than July 30,
1996.
5.3 Plug-in Delivery and Acceptance. Active shall deliver to Terisa an alpha-
-------------------------------
test Plug-in no later than four months after the effective date of this
Agreement for Terisa's review, approval, and acceptance. If Terisa fails to
approve and accept such Plug-in, Terisa shall provide Active instructions so
that Active can promptly implement the necessary modifications and resubmit the
alpha-test Plug-in for Terisa's approval/acceptance.
5.4 Delivery of Code, and Documentation. With regard to the Plug-in, Active
-----------------------------------
shall provide Terisa will all Plug-in source code, object code, documentation,
test programs, and related information, in a timely fashion throughout the
development period.
5.5 Press Releases. Periodically during the development of the Active
--------------
Products, Active and Terisa, either separately or jointly shall issue press
releases announcing the joint development relationship envisioned by this
Agreement. Wording of any press release which mentions the name of the other
party is subject to prior approval by such party.
6. CONFIDENTIALITY
6.1 Nondisclosure. Active agrees not to disclose Confidential Information to
-------------
any other party without Terisa's written permission or to use any Confidential
Information for any purpose other than exercising its rights hereunder. Active
agrees to promptly report to Terisa any unauthorized use or disclosure. The
provisions of this Section a shall not apply to the extent that such information
(i) is or becomes known to the public from a source other than Active, or (ii)
is shown by documentary evidence to have been know by Active prior to its
receipt from Terisa. A copyright notice in and of itself shall not constitute
evidence of a publication or public disclosure. Active acknowledges that the
restrictions contained in this Section 4 are reasonable and necessary to protect
Terisa's legitimate interests and that any violation of these restrictions will
cause irreparable damage to Terisa within a short period of time and Active
agrees that Terisa will be entitled to injunctive relief against each violation.
6.2 Security. Active agrees to use the source code for the Toolkit under
--------
carefully controlled, secure conditions for the purposes set forth in this
Agreement, and to inform all employees who are given access to the source code
for the Toolkit that such materials are confidential trade secrets of Terisa and
are licensed to Active as such. Active shall restrict access to the source code
of the Toolkit to those employees and contractors of Active who have agreed to
be bound by a confidentiality obligation which incorporates the protections and
restrictions substantially as set forth therein, and who have a need to know in
order to carry out the purposes of this Agreement. Upon request by Terisa,
Active shall provide Terisa with the names of all individuals who have accessed
such materials, and shall take all actions reasonably required to recover any
such materials in the event of loss or misappropriation, or to otherwise prevent
their unauthorized disclosure or use. Active shall be fully responsible for the
conduct of all its employees, contractors, agents and representatives who may in
any way breach this Agreement
7. SUPPORT AND UPGRADES
7.1 Initial Technical Assistance. Terisa shall provide Active reasonable and
----------------------------
appropriate technical assistance consisting of one half day per week beginning
with execution of this Agreement and extending two months thereafter. If Active
is unable to develop an alpha-test Plug-in within the two month development
period, Active shall assign more of its own personnel resources to the Plug-in
development project before requesting additional technical assistance from
TERISA.
7.2 Post-Alpha Technical Assistance. Subsequent to the alpha-test stage,
-------------------------------
Terisa's technical assistance will be
3
<PAGE>
reduced to a level equivalent to Terisa's standard support as further described
in Exhibit B: Extended Support.
7.3 Updates. If Terisa chooses to field a product based-upon or derived-from
-------
the Plug-in, Terisa will provide Active with source and object code that it
makes available to its other customers, for the period of three (3) years after
the completion of alpha test but no longer than the term of this Agreement.
Active shall provide Terisa with Plug-in updates in source and object code form
for the period of three (3) years after the completion of its own Plug-in alpha
test but no longer than the term of this Agreement.
8. LICENSE FEES
8.1 Total License, Support and Distribution Fees. Active shall pay Terisa
--------------------------------------------
[*] in exchange for: (i) the license rights to Terisa's standard SecureWeb
Toolkit as described in section 2.1 above, for use in Active's products (ii)
technical assistance described above, (iii) one year of Terisa's standard
"source licensee technical support", (iv) twelve months of redistribution rights
for the Active products incorporating Terisa's SecureWeb Toolkit as further
described in the Distribution Agreement, the term of which is to begin upon the
first revenue shipment from Active or six months after execution of the
Agreements, whichever occurs first.
8.2 Payment Schedule. Such fee shall be nonrefundable and shall be deemed
----------------
earned and due as follows: i) one half no later than thirty days after execution
of this Agreement; and ii) the remainder no later than three months after
execution of this Agreement.
8.3 Annual Redistribution Fees. One year after the Effective Date, Active
--------------------------
shall pay Terisa redistribution fees in accordance with Terisa's standard run-
time redistribution fees for Server Secure Products. If Active distributes more
than ten (10) Viewer Secure Products (Adapters) per Information Broker to any
given customer, Active shall also pay Terisa a run-time distribution fee in
accordance with Terisa's standard run-time redistribution fee schedule as
provided on the attached License Order Form (subject to standard price increases
which shall not exceed ten percent (10%) per year). For example, if a customer
orders twenty (20) Information Brokers, Active may deliver 200 viewers
(Adapters) without fee, but Active must pay a runtime fee Terisa for the 201st
copy and each additional copy thereafter.
8.4 Annual Software Support. Active shall pay Terisa an annual software
-----------------------
support fee of [*] deemed earned and due one year after the Effective Date,
and on the anniversary of that date each year thereafter.
8.5 Taxes. In addition to other payments due under this Agreement, Active
-----
shall pay any taxes, duties or charges of any kind (including any withholding or
value added taxes) imposed by any federal, state or local governmental entity
for products or services provided under this Agreement, excluding only taxes
based solely on Terisa's net income, unless Active provides Terisa with a valid
tax exemption certificate authorized by the appropriate taxing authority.
9. HARDWARE
9.1 Active will maintain at its own site a list of the Licensed Computers
under each subsection of Section 3 and will make the list available to Terisa,
at Terisa's request. Active will not use the Toolkit on any computer which is
not the Licensed Computer for such Toolkit. Active will use reasonable efforts
to make sure that the Secure Products are not used on computers which are not
Licensed Computers. Terisa reserves the right to insert software in future
releases to ensure compliance with this provision. A single back-up or
replacement computer may be used as a substitute for a Licensed Computer at any
time provided that within seven (7) days Active updates the list of Licensed
Computers
10. OWNERSHIP OF RIGHTS AND PUBLICITY.
10.1 Terisa's Rights in the Plug-in. Terisa shall assume all right and license
------------------------------
in the Plug-in including copyright, trademark, and patent rights (if any).
10.2 Rights in Trademarks. By reason of this Agreement or the performance
--------------------
hereof, Active shall acquire no rights of any kind in any Terisa trademark,
trade name, logo or product designation under which the Toolkit were or are
marketed and Active shall not make any use of the same for any reason except as
expressly authorized by this Agreement or otherwise authorized in writing by
Terisa. Active agrees not to use a name or trademark for a Secure Product that
is confusingly similar to a name or trademark used by Terisa.
10.3 Rights in Copyright. The Toolkits are copyrighted materials and are
-------------------
protected by United States Copyright laws and international treaty provisions.
Active's rights in the Toolkit are limited to those rights specifically granted
in this Agreement. Subject only to the right of Active to use the Toolkit
granted in accordance with the terms and conditions of this Agreement, Terisa
and its licensors shall retain sole and exclusive ownership of all rights, title
and interest in and to the Toolkit and in any and all related patents,
trademarks, copyrights or proprietary or-trade secret rights.
10.4 Government Rights. Any possession, use, sublicense or distribution of the
-----------------
Toolkit and/or the Plug-in by or to the U.S. Department of Defense and all
applicable related agencies or departments shall be subject to restrictions as
"commercial computer software" in accordance with the terms of this Agreement as
specified in 48 C.F.R. 227.7202-3 of the Defense Federal Acquisition Regulations
Supplement (DFARs) as from time to time amended. Any possession, use, sublicense
or distribution of the Toolkit by or to civilian agencies of the United States
government shall be subject to restrictions as "commercial computer software" in
accordance with the terms of this Agreement as specified in 48 C.F.R.
* Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed separately with the Securities and Exchange
Commission.
<PAGE>
12.212 of the Federal Acquisition Regulations (FARs) as from time to time
amended.
10.5 Publicity. Terisa shall have the right during the term of this Agreement
---------
to disclose to third parties that Active is a licensee of the Toolkit. Any press
release or public announcement which include additional statements about Active
or Secure Products require written or verbal approval by Active.
11. WARRANTIES
11.1 Conformance with Specifications. Except for the Application Examples,
-------------------------------
Terisa warrants that the Toolkit will operate in material conformance to
Terisa's published specifications for such Toolkit for a period of ninety (90)
days from the Effective Date of this Agreement. "Application Examples" means
portions of the Toolkit which are supplied as an example of how to use the
SecureWeb Library and are not part of the SecureWeb Library itself. Terisa does
not warrant that the Toolkit or any portion thereof are error-free. Active's
exclusive remedy, and Terisa's entire liability shall be for Terisa to correct
such warranted nonconformity in the Toolkit as provided in the SecureWeb
Developer's Technical Services Agreement. This limited warranty shall not apply
to any modifications to the Toolkit made by Active or any nonconformities caused
thereby.
11.2 Except as expressly provided in Section 9.1, TERISA DISCLAIMS ALL
WARRANTIES EXPRESS, IMPLIED OR STATUTORY, AS TO ANY MATTER WHATSOEVER,
INCLUDING ALL IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR
PURPOSE AND NONINFRINGEMENT OF INTELLECTUAL PROPERTY RIGHTS. TERISA DISCLAIMS
ANY WARRANTY OR REPRESENTATION TO ANY PERSON OTHER THAN THE ACTIVE WITH RESPECT
TO THE TOOLKIT.
12. LIMITATION OF LIABILITY
12.1 IN NO EVENT SHALL Terisa HAVE ANY LIABILITY TO LICENSEE OR ANY PARTY
CLAIMING OUT OF OR THROUGH LICENSEE FOR LOST PROFITS, LOSS OF DATA, BUSINESS
COSTS OF PROCUREMENT OF SUBSTITUTE GOODS SERVICES OR FOR ANY INCIDENTAL,
SPECIAL, INDIRECT, EXEMPLARY OR CONSEQUENTIAL DAMAGES ARISING IN ANY WAY OUT OF
THIS AGREEMENT UNDER ANY CAUSE OF ACTION AND WHETHER OR NOT Terisa HAS BEEN
ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. IN NO EVENT SHALL TERISA'S LIABILITY
UNDER THIS AGREEMENT EXCEED THE AMOUNTS RECEIVED BY Terisa FROM LICENSEE
HEREUNDER REGARDLESS OF WHETHER ANY ACTION OR CLAIM IS BASED ON WARRANTY,
CONTRACT, TORT OR OTHERWISE. THESE LIMITATIONS SHALL APPLY NOTWITHSTANDING THE
FAILURE OF THE ESSENTIAL PURPOSE OF ANY LIMITED REMEDY.
13. TERM AND TERMINATION
13.1 Termination. This Agreement shall become effective on the Effective Date
-----------
and shall continue in force thereafter unless terminated by Active upon thirty
(30) days' prior written notice to Terisa or by Terisa, immediately upon written
notice, if Active is in default of its payment obligations hereunder and such
default continues for thirty (30) days following receipt of written notice from
Terisa or if Active is in default of an other material obligation hereunder and
such default continues for sixty (60) days following receipt of written notice.
Additionally, if Terisa declines to approve and accept the alpha-test Plug-in
(as further described in Paragraphs 4.1 and 4.2) within six months after
Effective Date, or if Active terminates its development of the secure Active
Product or otherwise terminates operation, Terisa shall have the right, at its
sole discretion to terminate this Agreement including all licenses and
distribution rights conveyed and/or referenced herein without further notice.
13.2 Optional License Following Termination by Active. Upon termination by
------------------------------------------------
Active, Active may retain license and distribution rights to the SecureWeb
Toolkit upon payment to Terisa of the difference between the standard license
fees for the SecureWeb Toolkit and that amount paid by Active through the date
of termination.
13.3 Effect of Termination. On termination unless otherwise permitted under
---------------------
Section 13.2, the licenses hereunder shall immediately terminate and Active
shall return or destroy, as Terisa may request, all copies of the Toolkit and/or
Plug-in or any portion thereof, including portions incorporated into Secure
Products, in the possession of Active and an officer of Active shall certify to
Terisa that Active has discontinued use and has returned or destroyed all copies
of the Toolkit and/or Plug-in.
13.4 Survival. The following provisions shall survive the termination of this
--------
Agreement: Section 6 (Confidentiality), Section 10 (Ownership of Rights),
Section 11 (Warranties), Section 12 (Limitation of Liability), Section 13.4
(Survival), Section 14 (Miscellaneous) and Active's obligation to pay any fees
accrued or accruable under Section 8 (License Fees).
14. MISCELLANEOUS PROVISIONS
14.1 Assignment. This Agreement shall not be assignable by Active, by
operation of law or otherwise, without the prior written consent of Terisa
unless such assignment is in connection with the sale (including without
limitation by way of merger or consolidation, sale of assets or otherwise) or
change of control of all or substantially all of the Licensee's business. With
the exception of the sale of the Licensee's business, any such purported
assignment or delegation without Terisa's written consent shall be void and of
no effect. Except as otherwise provided herein, this Agreement shall be
5
<PAGE>
binding upon, and inure to the benefit of, the successors, executors, heirs,
representatives, administrators and permitted assigns of the parties hereto.
14.2 Applicable Law. This Agreement shall be governed by the laws of the State
--------------
of California, without reference to conflict of law principles.
14.3 Jurisdiction. Any dispute arising out of this Agreement shall be brought
------------
in, and the parties consent to personal and exclusive jurisdiction of and venue
in, the state and federal courts within Santa Clara County, California.
14.4 Notices. All notices and other communications required or permitted
-------
hereunder shall be in writing and shall be mailed by registered or certified
mail, postage prepaid, or otherwise delivered by hand, by commercial express
courier service addressed as specified at the head of this Agreement, Such
notices shall be deemed to have been served when delivered or, if delivery is
not accomplished by reason of some fault of the addressee, when tendered. The
address for notices may be changed on written notice to the other party.
14.5 Severability. If any provision of this Agreement is held to be invalid by
------------
a court of competent jurisdiction, then the remaining provisions shall
nevertheless remain in full force and effect. The parties agree to negotiate in
good faith a substitute, valid and enforceable provision that most nearly
effects the parties' intent and to be bound by such mutually agreed substitute
provision.
14.6 Entire Agreement. This Agreement and the exhibits and schedules hereto
----------------
constitute the entire, final and complete and exclusive agreement between the
parties with respect to the subject matter hereto and supersedes all previous
agreements, oral or written. This Agreement may not be modified or amended
except in a writing signed by a duly authorized representative of each party.
14.7 Amendment and Waivers. Any term or provision of this Agreement may be
---------------------
amended and the observance of any term of this Agreement may be waived, only in
writing and signed by the party to be bound thereby. The waiver by either party
of a breach of or a default under any provision of this Agreement by the other
party shall not be construed as a waiver of any subsequent breach of the same or
any other provisions of this Agreement, nor shall any delay or omission on the
part of either party to exercise or avail itself of any right or remedy that it
has or may have hereunder operate as a waiver of any right or remedy by such
party.
14.8 Section Heading. Titles and section headings are provided for convenience
---------------
and should be not be used in interpreting the Agreement.
14.9 Attorneys' Fees. Should suit be brought to enforce or interpret any part
---------------
of this Agreement, the prevailing party shall be entitled to recover, as an
element of the costs of suit and not as damages, reasonable attorneys' fees to
be fixed by the court (including without limitation, costs, expenses and fees on
any appeal).
14.10 Counterparts. This Agreement may be executed in counterparts, each of
------------
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
14.11 Export Restrictions. The Toolkit is subject to export controls by the
-------------------
United States Government. Use of the Toolkit may be additionally controlled by
the Department of State's Defense Trade Regulations (formerly known as
International Traffic in Arms Regulations (ITAR)), 22 CFR 120-130. LICENSEE
AGREES TO COMPLY WITH ALL UNITED STATES GOVERNMENT LAWS, REGULATIONS, ORDERS AND
OTHER RESTRICTIONS CONCERNING THE EXPORT OF THE TOOLKIT, SECURE PRODUCTS AND
INFORMATION PERTAINING THERETO.
14.12 Third Party Beneficiaries. Nothing express or implied in this Agreement
-------------------------
is intended to confer, nor shall anything herein confer, upon any person other
than Terisa, Active and Terisa's licensors, Netscape, Inc. and RSA Data Security
Inc., and the respective successors or assigns of the parties, any rights
remedies, obligations or liabilities whosoever. Notwithstanding anything to the
contrary contained herein RSA and Netscape shall be deemed to be third party
beneficiaries of Terisa under this Agreement and shall be entitled to enforce
Active's obligations under Sections 2 (Grant of License), 3 (Limitations on
Licenses), 4 (Confidentiality and Security), 7 (Ownership of Rights), and 11
(Term and Termination).
IN WITNESS WHEREOF, the parties by their duly authorized representatives have
executed this Agreement as of the date set forth above.
TERISA SYSTEMS INC.
By: /s/ Terisa Systems
------------------------
Name: ________________________
Title: ________________________
ACTIVE SOFTWARE, INC.
By: /s/ R. James Green
------------------------
Name: R. JAMES GREEN
------------------------
Title: CHAIRMAN
------------------------
6
<PAGE>
Exhibit A:
Description of the SecureWeb Viewer and Server Toolkits, SecureWeb Toolkit
Source Code and RSA Software
SecureWeb Viewer Toolkit version 2.0 includes:
. Domestic SecureWeb library in object form (includes RSA Software)
. Export-enabling SecureWeb library in object form (includes RSA Software)
. Library API header files
. Library testing framework
. SecureWeb library API documentation
. Viewer application examples source code
SecureWeb Server Toolkit version 2.0 includes:
. Domestic SecureWeb library in object form (includes RSA Software)
. Export-enabling SecureWeb library in object form (includes RSA Software)
. Library API header files
. Library testing framework
. SecureWeb library API documentation
. Server application examples source code
SecureWeb Toolkit Source Code version 2.0 includes source code for both the
Server Toolkit and Viewer Toolkit itemized above.
RSA SOURCE CODE includes the software component of the RSA Software known as
TIPEM, in source code form.
7
<PAGE>
Exhibit B: SecureWeb Toolkit Extended
Technical Support
B1. Definitions
In addition to the capitalized terms defined elsewhere in this Agreement, the
following terms shall have the meanings ascribed to them below:
B1.1. "Error" shall mean any reproducible programming error in the current,
unaltered Toolkit (excluding Application Example) which cause the Toolkit to
operate in material nonconformance with the appropriate SecureWeb Reference
Manual.
B1.2. "First Level Support" shall consist of accepting and handling
Distributor and End User calls and troubleshooting to the point to verifying
that there is an Error in the Toolkit.
B1.3. "Active Contact" shall mean an individual designated in writing by
Active who is authorized to contact Terisa for support under this Support
Agreement.
B1.4. "Release" shall mean revisions, updates, modifications and
enhancements within the licensed Version of the Toolkit as indicated by a change
in the release number to the right of the decimal point (i.e. from version 1.2
to 1.3)
B1.5. "Version" shall mean a set of Releases with similar functionality as
indicated by having the same release number to the left of the decimal point
(such as versions 2.0, 2.1 and 2.2).
B2. Customer Services Provided by Terisa.
B2.1 Updates. Terisa shall provide Active notification in writing or
-------
electronically of new Releases within the licensed Version of the Toolkit as
they become available.
B2.2 The contents of all Releases shall be decided upon by Terisa in its
sole discretion and will generally include changes that correct defects as well
as enhancements and upgrades to update the Toolkit to the most current release
of the Toolkit then being generally distributed that is within the licensed
Version. New Versions are not included in this Support Agreement.
B2.3 Terisa will provide Releases at no additional charge.
B2.4 Active may obtain Releases by downloading the Release from Terisa's
Electronic Customer Service bulletin board or by such other means as Terisa may
specify in the Release notification.
B2.5 Only the designated Active Contacts are entitled to receive notices
and obtain Releases.
B2.6 Releases may only be used as Updates for Toolkits on a licensed
Computer covered by a Support Contract at the time the Release is provided to
Active.
B2.2 Error corrections. During the term of this Support Agreement, Terisa
-----------------
shall use its reasonable efforts to correct any Errors. Terisa shall apply a
level of effort commensurate with the severity of the Error, provided that
Terisa shall have no obligation to correct all Errors in the Toolkit. Upon
identification of any programming Error, Active shall notify Terisa of such
Error and provide Terisa with enough information to duplicate the Error. Terisa
shall not be responsible for correcting any error not attributable to Terisa.
Recognizing that Active may have the right and desire to perform some
modifications to the Toolkit on its own, Errors attributable to Terisa shall be
those that are reproducible by Terisa on an unmodified Toolkit running under the
designated operating system.
B2.3 Electronic & Telephone Support. Terisa will provide up to three (3)
------------------------------
hours per quarter of support to Active via electronic mail or, if necessary, via
telephone for each Regular Support Contract. Support shall include the
following:
B2.3.1 Technical Support. Terisa personnel shall be available to answer
-----------------
questions and address problems regarding the use of Terisa Software including,
but not limited to (i) Terisa Toolkit installation and configuration, (ii) use
of the Toolkit Documentation, and (iii) use and operation of the Toolkit.
B2.3.2 Availability Terisa's experts are on duty Monday through Friday from
------------
8:00 am to 5:00 pm PST (excluding Terisa holidays), to monitor technical support
requests submitted via electronic mail or telephone.
B2.3.3 On Line Information. Technical notes addressing SecureWeb technical
-------------------
and implementation issues may be accessed via the Interact as they become
available.
B2.4 Additional Platform Contracts. If Active has licensed additional
-----------------------------
platforms (within the same platform class) for use by the same developer, Active
may receive support for such platforms under an Additional Platform Contract.
Requests for technical support will be treated as requests under the associated
Regular Support Contract and must be made by the same Active Contact.
B2.5 Special Services. Terisa agrees to use reasonable efforts to respond
----------------
to any requests by Active for maintenance and support services not specifically
provided for above. Active acknowledges that all such services provided by
Terisa shall be at Terisa's then current terms and conditions for such services.
B3. Active Responsibilities
B3.1. Active Assistance. Active agrees to provide Terisa reasonable access
-----------------
to all necessary personnel to answer questions about any problems reported by
Active regarding the Toolkit Active also agrees to promptly implement all
Releases and error corrections provided by Terisa under this Support Agreement.
8
<PAGE>
B3.2 . Contact People. For each Regular Support Contract, Active may
--------------
designate one person (normally the Toolkit user) to serve as Active Contact. The
Active Contacts as of the Effective Date are listed in Exhibit B2. Active may
change a Active Contact at any time on written notice to Terisa.
Regular Support Contact 1:_________________Toolkit,
________________ Platform
Name
Address
Telephone
E-mail address
Regular Support Contact 2:_________________Toolkit,
_________________Platform
Name
Address
Telephone
E-mail address
B3.3. First Level Support. If Active has a license to distribute Secure
-------------------
Products, Active or its Distributors shall be responsible for providing First
Level Support for the Secure Products. Active agrees that any Documentation
distributed by Active shall clearly state that End Users should call Active or
its Distributors (or another person designated by Active) for technical support
for the Secure Products. Terisa shall have no obligation to provide any support
directly to any of Active's Distributors and End Users.
B4. EXCLUSIONS.
B4.1. Excluded Problems. Terisa is not required to provide any maintenance
-----------------
or support services relating to problems arising out of (i) Portions of the
Toolkit which provided as application examples (ii) Active's failure to
implement all error corrections and Releases to the Toolkit which are issued
under this Support Agreement, (iii) changes to the operating system or
environment which adversely affect the Toolkit: (iv) any alterations of or
additions to the Toolkit performed by parties other than Terisa; (v) use of the
Toolkit in a manner for which, it was not designed; (vi) accident, negligence,
or misuse of the Toolkit; (vii) operation outside of the environmental
specifications; (viii) interconnection of the Toolkit with other software
products which do not comply with the Toolkit's protocols and interface
requirements as specified in the Toolkit documentation; or (ix) use of the
Toolkit on a CPU or operating system other than those for which such Toolkit was
designed for and licensed for use on.
B4.2. Support for Earlier Versions. Terisa shall only be obligated to
----------------------------
support the then current production version of the Toolkit and the immediately
prior Release for a period of six (6) months after such release. Support for any
earlier version or release or for other problems not covered under this Support
Agreement may be obtained at Terisa's then current rates for special technical
services.
B5. Compensation
Active shall pay Terisa the Extended Support Fee noted on the attached License
Order Form in accordance with Section 6 of the Agreement. Such support may be
renewed annually by paying the then-current corresponding support fee. Charges
for any special services will be invoiced monthly as such expenses are incurred:
payment of such invoices shall be due within thirty (30) days of the date of the
invoice.
9
<PAGE>
Exhibit 10.12
SecureWeb(TM) Distribution Agreement
Terisa Systems, Inc., a Delaware corporation with offices at 4984 El Camino
Real, Los Altos, California ("Terisa") and Active Software, Inc., a California
corporation with principal offices at 1043 N. Shoreline Blvd. Suite 201,
Mountain View, CA 94043 ("Active") Active are parties to a SecureWeb Toolkit
Developer and Joint Development Agreement (the "Developer Agreement") granting
Active certain rights to use the Terisa's Toolkit in the development of Active's
Secure Products. The Developer Agreement is incorporated herein by reference and
made a part hereof. Effective as of 23 July '96, Terisa and Active enter into
this SecureWeb Distribution Agreement concerning the distribution of such Secure
Products (the "Distribution Agreement") and agree as follows:
1. Definitions
1.1 "Agreement Year" means the period beginning with the first revenue
shipment of Secure Products from Active or six months after execution of the
Developer Agreement, whichever occurs first, and ending one year thereafter, and
each consecutive twelve month period thereafter.
1.2 "Distributor" means a dealer or distributor in the business of reselling
or redistributing Secure Products by virtue of authority of Active.
1.3 "End User" means a person or entity sublicensing the Secure Product for
personal or Internal Business Use.
1.4 "Internal Business Use" means use by employees, contractors and others
affiliated with the End User under the direction of and for the benefit of the
End User. Internal Use may also include initiating or responding electronically
to requests from a third party whether or not the End User or third party is
paying a fee for being a party to such communications. Internal Business Use
does not include the right to provide the software to third parties whether by
lease, rental, sale, sublicense or any other means.
1.5 Capitalized terms used and not otherwise defined in this Distribution
Agreement shall have the meanings designated for such terms in the Developer
Agreement.
2. Grant of License
2.1 Distribution Licenses. In addition to the rights granted in the Developer
----------------------
Agreement and subject to the terms of the Developer Agreement and this
Distribution Agreement, Terisa grants to Active and Active accepts a
nonexclusive, nontransferable, worldwide license to
2.1.1. End User Use, reproduce and distribute to End Users i) in the first
--------
Agreement Year that number of copies consistent with the Developer Agreement;
ii) in all following Agreement Years, that number of copies licensed as
specified by Active on Terisa's standard distribution license order form..
Distribution of Secure Products shall be pursuant to an End User agreement
which shall include, as a minimum, provisions at least as protective of Terisa
and its licensors' rights as those set forth in Exhibit A. End User agreements
may be in the form of on-line, "shrink-wrap" or "break seal" licenses.
2.1.2. Subdistributors Active may exercise its distribution rights through
---------------
Distributors provided that they execute a signed, written Distributor
agreement containing, as a minimum, provisions at least as protective of
Terisa and its licensors' rights as those set forth in Exhibit B. Distributors
shall have no right to modify the Secure Product. The Distributor shall be
considered an End User of any copies licensed for use by the Distributor and
such copies shall be subject to same minimum terms as those required in an End
User agreement.
2.1.3. Enforcement Active shall use
-----------
reasonable efforts to ensure that all Distributors and End Users abide the
terms of their agreements.
2.2 Trademark License Subject to the terms and conditions of the Developer
-----------------
and Distribution Agreements, Terisa grants to Active the right to indicate to
the public that its Secure Products contain the Toolkit or portions thereof
using the trademarks identified in Exhibit B attached hereto ("Licensed
Trademarks") subject to the limitations specified below.
2.2.1. Required Use of Marks. For all Secure Products, Active agrees to
---------------------
use its best efforts to use the SecureWeb trademark or a statement that the
product incorporates SecureWeb technology from Terisa Systems in their user
interfaces (for example, within the splash screens and "about" screen, as
appropriate), user documentation, printed product collateral, product
packaging and, optionally, advertisements for the Secure Products. The wording
of such statements is subject to approval by Terisa.
2.2.2. Required Use of RSA Seal. For all Secure Products, Active agrees
------------------------
include the appropriate RSA "Active Seal" from the form
-1-
<PAGE>
attached as part of Exhibit C-2 within the splash screens (if any) which are
displayed upon first use of any security functionality which uses the RSA
Software within a given on-line session and a statement that the Secure
Product contains the RSA Software.
2.2.3. Quality Review. Active shall use the Licensed Trademarks only in
---------------
conjunction with a Secure Product which has been produced in accordance with
the standards of quality in design, workmanship, and use in conformance with
the published quality control specifications for software products
incorporating the Toolkit ("Quality Criteria"). Terisa may, at its sole
option, review and test any and all Secure Products which are marketed in
conjunction with a Licensed Trademark to determine whether such Secure Product
conforms with the Quality Criteria. In the event that Terisa elects to review
and test a Secure Product under this Section, Terisa shall provide Active, in
writing, a grant of approval or disapproval within twenty (20) days from the
date of receipt of such Secure Product. Such approval shall be based solely
upon the Quality Criteria and shall not be unreasonably withheld. In the event
that Terisa denies its approval of a Secure Product under this Section 2.2.3,
Active must either (i) immediately cease any further distribution of such
Secure Product or (ii) immediately cease any use of the Licensed Trademarks
and cease making any claim that the Secure Product is compatible with
SecureWeb, S-HTTP or SSL until such time as approval can be obtained. If
Terisa requests an additional review and test of a Secure Product which is
unchanged from the version previously approved by Terisa, Terisa shall not
disapprove the Secure Product unless, in Terisa's opinion, the Secure
Product's failure to comply with the Quality Criteria causes a severe
degradation of the security provided by the Secure Product or its ability to
interoperate with other products satisfying the Quality Criteria.
2.2.4. Trademark Use. Active agrees that any use of the Licensed
--------------
Trademarks will comply with all of the requirements for use of Licensed
Trademarks contained in Trademark Usage Guides attached as part of Exhibit D
and as updated from time to time by the trademark owner with written notice to
Active by Terisa.
3. Limitations on Distribution Licenses
3.1 Territory Limitation. Active shall not grant sublicenses for use of the
---------------------
Secure Product in any foreign country where Active has not licensed or is not
concurrently licensing (including as part of a Secure Product) its own software
of comparable importance. In distributing and sublicensing the Secure Product in
any foreign country, Active shall use, in addition to the requirements expressly
set forth in the Developer and Distribution Agreements, the same precautions
that Active uses in licensing its own software of comparable importance in such
country, but in no event less than reasonable precautions to protect the
intellectual property rights of Terisa and its licensors.
3.2 Government Rights. Any possession, use, sublicense or distribution of the
------------------
Secure Product by or to the U.S. Department of Defense and all applicable
related agencies or departments shall be subject to restrictions as "commercial
computer software" in accordance with the terms of this Agreement as specified
in 48 C.F.R. 227.7202-3 of the Defense Federal Acquisition Regulations
Supplement (DFARs) as from time to time amended. Any possession, use, sublicense
or distribution of the Toolkit by or to civilian agencies of the United States
government shall be subject to restrictions as "commercial computer software" in
accordance with the terms of this Agreement as specified in 48 C.F.R. 12.212 of
the Federal Acquisition Regulations (FARs) as from time to time amended. Any
such sublicense shall set forth all of such restrictions and any documentation
delivered with the Secure Product shall contain a restricted rights legend
conforming to the requirements of the current applicable DFARS or FAR.
3.3 Distributor's Use of Marks, Active shall promptly notify Terisa if a
--------------------------
Distributor is licensed to distribute Secure Products under a private label
instead of under Active's own trademark. The written notice shall include (i)
the Active Secure Product being distributed, (ii) the private trademark(s) being
used by Distributor and (iii) the name and address of the Distributor. Failure
to provide such notice and distribution of a Secure Product by a Distributor
without notice shall be deemed a material breach of the Developer and
Distribution Agreements.
4. Distribution Fees
4.1 Distribution Fees In consideration for the rights granted under Section 3
-----------------
of this Distribution Agreement, Active agrees to pay the following:
4.1.1. Pre-Paid Royalty. A prepaid royalty as described in Section 8.1 of
-----------------
the Developer Agreement for the first Agreement year.
4.1.2. Annual Royalty. Thereafter Active agrees to pay Terisa a
---------------
distribution royalty in the amount described in Section 8.3 of the Developer
Agreement.
4.2 One Computer per Copy. Each copy of a Secure Product may licensed for
----------------------
use on only one
-2-
<PAGE>
Licensed Computer. If a copy is to be used by more than one Computer, then for
the purposes of calculating licenses and license fees, the number of copies
distributed will be considered to be the number of Computers authorized to use
the copy. In a networked environment, Active may count the number copies as
either the number of authorized users or the number of concurrent users,
whichever matches the method selected by the Active and End User for calculating
fees due to Active for the Secure Application.
4.3 Royalty-free Copies. Copies meeting the requirements specified below may
---------------------
be sublicensed without payment of a royalty to Terisa and do not count towards
the total number of sublicenses specified in Section 4.1.1. (Pre-Paid
Royalties).
4.3.1. Demonstration Copies. No royalties are due on the distribution of
---------------------
suitably crippled demonstration copies of the Secure Products. Active shall
submit for Terisa's approval, in Terisa's sole discretion, the method and
extent of the crippling of the demonstration versions. No royalties are due on
copies licensed to Distributors solely for demonstration purposes whether or
not such copies are crippled.
4.3.2. Beta Test Copies. No royalties are due on beta copies provided (i)
-----------------
the purpose of such licenses is the testing of products prior to general
commercial distribution, (ii) such copies are licensed for a single period of
no more than ninety (90) consecutive days, (iii).no license fee is charged,
(iv) the license is signed and in writing and (v) at the end of the term,
Active makes a reasonable effort to insure that the End User either
discontinues use of the Secure Product or obtains a regular license.
5. Payments
5.1 Payment Address. Payments to Terisa shall be made in United States
-----------------
dollars and shall be sent to the Controller of Terisa at the following address
or such other address as specified in writing by Terisa:
Terisa Systems, Inc.
Attn: Controller
4984 El Camino
Real Los Altos, CA 94022
5.2 Due Dates. Payment of the Pre-Paid License fee is due in accordance with
----------
Section 8.2 of the Developer Agreement. Payment of subsequent Annual Royalties
is due on the first day of each Agreement Year and payable within thirty (30)
days.
5.3 Reports. Active agrees to provide Terisa with a written report setting
--------
forth the number of copies distributed by Active and signed by a responsible
officer of Active. The report shall be provided within sixty (60) days of the
end the Agreement Year for any Agreement Year in which Active distributes at
least one copy of a Secure Product. The report shall include, at a minimum, the
following information with respect to the Agreement Year: the total number of
copies paid for, the total number of copies of each Secure Product licensed or
otherwise distributed by Active during the period and cumulatively and a
subtotal for each country in which Active distributes Secure Products.
5.4 Audits. If this Distribution Agreement includes a Pre-paid License,
-------
Active shall keep and maintain all appropriate books and records necessary for
the verification of the number of copies of Secure Products distributed and the
license fees due Terisa, including license fees arising out of Active's
Distributors' use or distribution of the Secure Products, for a period of three
(3) years following the year to which such records relate. During the term of
this Agreement, and for a period of one year thereafter, Terisa or its certified
public accountant shall be entitled not more than once annually, to review
Active's books and records for the purpose of verifying the accuracy of the
license fees paid to Terisa. Alternately, Terisa, at its request, may elect to
have Active's independent certified public accountant review Active's annual
audit by said accountant for the sole purpose of verifying the accuracy of the
license fees paid to Terisa and the number of copies distributed. Such review
shall be conducted during Active's normal business hours upon reasonable notice
to Active. If the number of copies distributed is less than the number reported,
Active shall be credited for the difference. Any additional license fees, along
with the, shall be payable within thirty (30) days of such invoice. If such
review verifies an under-reporting error of greater than 5% or any distribution
in excess of the number of licensed copies, the costs of such review shall be
paid for by Active in addition to payment for the copies at the then current
royalty rates and a late payment penalty assessed in accordance with Section 5.6
(Late Fees); otherwise, such costs shall be paid for Terisa. Such payment does
not effect Terisa's right to pursue all remedies due to it for such breaches of
the Agreement. All information provided pursuant to this Section shall be
maintained in confidence by Terisa, except (i) as may be required to enforce the
payment obligations hereunder and (ii) that Terisa may provide the information
on a confidential, need to know basis to its third party licensors, solely for
the purpose of verifying royalty payments due to them by Terisa.
5.5 Taxes. The fees payable hereunder are exclusive of taxes. Active shall
------
pay or reimburse Terisa for all taxes, including sales or use taxes, however
designated, imposed as a result of the existence or operation of this Agreement,
except any income and franchise tax imposed on Terisa by any governmental
entity. If Active is required to make
-3-
<PAGE>
any deduction or withholding for any non-refundable tax, duty or other charge
imposed by a governmental entity, such payments shall be increased to an amount
which, after such deduction or withholding, will result in payment to the Terisa
of the full amount Terisa would have received had no such deduction or
withholding been made.
5.6 Late Fees. A late payment penalty of one and one-half (1 1/2%) or the
----------
maximum allowed by law, whichever is less, of any license fees not paid when due
shall be assessed for each thirty (30) day period or portion thereof during
which such payment is delayed.
6. Indemnification
6.1 Terisa Obligation to Defend. Subject to the limitations set forth below,
----------------------------
Terisa, at its own expense, shall: (i) defend or at its option settle, any
claim, suit or proceeding against the Active on the basis of infringement of any
United States patent, copyright or trade secret by the unmodified Toolkit as
delivered by Terisa or any claim that Terisa has no right to license the Toolkit
hereunder; and (ii) pay any final judgment entered or settlement against the
Active of such issue in any such suit or proceeding defended by Terisa. Terisa
shall have no obligation to the Active pursuant to this Section unless: (a) the
Active gives Terisa prompt written notice of the claim; (b) Terisa is given the
right to control and direct the investigation, preparation, defense and
settlement of the claim; and (c) Active provides Terisa with reasonable
assistance in the defense or settlement thereof. Notwithstanding the foregoing,
Terisa assumes no liability for infringement claims arising from (i) combination
of the Toolkit or any part thereof with other hardware or software not provided
by Terisa where such infringement would not have arisen from the use of such
Toolkit or portion thereof standing alone, and (ii) modification of the Toolkit
or portion thereof by anyone other than Terisa where such infringement would not
have occurred but for such modifications.
6.2 Remedies. If Terisa receives notice of an alleged infringement, Terisa
---------
shall have the right, at its sole option, to obtain the right to continued use
of Toolkit or to replace or modify the Toolkit so that it is no longer
infringing. If neither of the foregoing options is reasonably available to
Terisa, then Terisa may terminate the Developer and Distribution Agreements and
return license fees paid hereunder less a sum to account for actual use as
amortized over a forty-eight (48) month life.
6.3 Disclaimers. THE RIGHTS AND REMEDIES SET FORTH IN THIS SECTION CONSTITUTE
------------
THE ENTIRE OBLIGATION OF TERISA AND THE EXCLUSIVE REMEDIES OF THE ACTIVE
CONCERNING TERISA'S PROPRIETARY RIGHTS INFRINGEMENT OF ANY INTELLECTUAL PROPERTY
RIGHTS BY THE TOOLKIT OR DOCUMENTATION LICENSED HEREUNDER.
7. Indemnification of Terisa.
LICENSEE EXPRESSLY INDEMNIFIES AND HOLDS HARMLESS TERISA, ITS SUBSIDIARIES,
AGENTS AND AFFILIATES FROM' (I) ANY AND ALL LIABILITY OF ANY KIND OR NATURE
WHATSOEVER TO LICENSEE'S RECIPIENTS AND THIRD PARTIES WHICH MAY ARISE FROM ACTS
OF LICENSEE OR FROM THE LICENSE OF SECURE PRODUCT(S) BY LICENSEE OR ANY
DOCUMENTATION, SERVICES OR ANY OTHER ITEM FURNISHED BY LICENSEE TO ITS
RECIPIENTS; AND (II) ANY LIABILITY ARISING IN CONNECTION WITH AN UNAUTHORIZED
REPRESENTATION OR ANY MISREPRESENTATION OF FACT MADE BY LICENSEE OR ITS AGENTS,
EMPLOYEES OR DISTRIBUTORS TO ANY PARTY WITH RESPECT TO THE TOOLKIT OR SECURE
PRODUCTS.
8. Trade Names and Publicity.
8.1 Toolkit Representations. Active is authorized to represent to third
------------------------
parties only such facts about the Toolkit as Terisa states in its published
product descriptions, advertising and promotional materials or as may be stated
in other non confidential written material furnished by Terisa.
8.2 Joint Marketing In order to promote sales of the Secure Products, Active
---------------
and Terisa agree to undertake the following marketing efforts and each
authorizes the other to use their name and trademarks for that purpose.
8.2.1. Terisa and Active may issue joint press releases at agreement and
product release times.
8.2.2. In addition, Active agrees to include and use reasonable efforts to
have its Distributors include (i) information about SecureWeb security
benefits in their Secure Product marketing collateral,(ii) a URL pointing to
Terisa Systems in any of Active's Secure Product marketing materials available
electronically or distributed with their product.
8.2.3. Terisa may refer in its marketing activities to Active's license of
the Toolkit and that the Secure Products incorporate the SecureWeb technology.
8.2.4. Active shall provide to Terisa, solely for Terisa's internal use
and for display
-4-
<PAGE>
purposes, one (1) working copy of each Secure Product.
9. Termination
9.1 Term This Distribution Agreement shall become effective on the Effective
----
Date and shall continue in force thereafter unless terminated in accordance with
Section 6.2 (Remedies) or as set forth herein:
9.1.1. Automatically on distribution of the total number of pre-paid
copies obtained under the Distribution Agreement if the license is a Pre-Paid
License.
9.1.2. Automatically on termination of the Developer Agreement.
9.1.3. By Active upon thirty (30) days' prior written notice to Terisa.
9.1.4. By Terisa, immediately upon written notice, (i) if Active is in
default of its payment obligations hereunder and such default continues for
thirty (30) days following receipt of written notice from Terisa or (ii) if
Active is in default of an other material obligation hereunder or and such
default continues for sixty (60) days following receipt of written notice.
9.2 Effect of Termination. On termination, the license hereunder shall
-----------------------
immediately terminate (except as provided in Section 9.3) and Active shall
return or destroy, as Terisa may request, all copies of the Toolkit, or any
portion thereof, including portions incorporated into Secure Products, in the
possession of Active (except as provided in Section 9.3) and an officer of
Active shall certify to Terisa that Active has discontinued use and has returned
or destroyed all such copies of the Toolkit.
9.3 Survival of Use Rights. However, on termination in accordance with
------------------------
Section 9.1 but not with respect to termination under Section 6.2 of the
Distribution Agreement:
9.3.1. If terminated under Section 9.1.1 or 9.1.3, Active may continue to
use all object code copies of the Toolkit and Secure Products on the Licensed
Computers for which a license fee has been paid, solely for the purpose of
supporting Secure Products previously licensed to End Users.
9.3.2. If terminated under Sections 9.1.2 or 9.1.4, Active may continue to
use a single copy each in object code form of the Toolkit and Secure Products
solely for the purpose of supporting Secure Products previously licensed to
End Users.
9.3.3. Active's End Users may continue to use previously licensed Secure
Products for which a license fee has been paid pursuant to the terms of their
End User Agreement.
9.4 Survival. The following provisions shall survive the termination of the
---------
Agreement: Section 5 (Payments), Section 6 (Indemnification) and Section 7
(Indemnification of Terisa) and Section 9.4 (Survival) and Active's obligation
to pay any fees accrued or accruable under Section 4 (Distribution Fees).
10. Amendment of Termination Rights Under the Developer Agreement
-------------------------------
10.1 Terisa and Active agree to amend the Developer Agreement as follows:
10.1.1 Section 11.1 (Termination). The following is added after the last
---------------------------
sentence of Section 11.1:
"This Agreement terminates immediately upon termination of the
Distribution Agreement."
10.1.2 Section 11.2 (Effect of Termination) The following is added to the
------------------------------------
beginning of Section 11.2:
"Except as otherwise provided under Sections 9.2 and 9.3 of the
Distribution Agreement,"
10.2 Effect of Amendment Except as expressly amended above, the Developer
-------------------
Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, the parties by their duly authorized representatives have
executed this Agreement as of the date set forth above.
TERISA SYSTEMS INC.
By: /s/ Terisa Systems Inc.
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
ACTIVE SYSTEMS, INC.:
By: /s/ R. James Green
-----------------------------------
Name: R. James Green
---------------------------------
Title: Chairman
--------------------------------
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<PAGE>
Exhibit A
Minimum Sublicense Terms
1. Mandatory Sublicense Terms for All Sublicenses
All sublicenses of Secure Products shall include substantially the following
restrictions:
1.1. The sublicensee shall agree not to remove or destroy any proprietary,
trademark or copyright markings, or confidentiality legends placed upon or
contained within the Toolkit or any related materials or documentation. The
sublicensee shall include all such notices and legends in all copies of the
Secure Product made in accordance with the terms of its sublicense.
1.2. The sublicensee shall agree that, except for the limited licenses
granted under the sublicense agreement, Terisa and its licensors shall retain
sole and exclusive ownership of all rights, title and interest in and to the
Toolkit and in any and all related patents, trademarks, copyrights or
proprietary or trade secret rights.
1.3. The sublicensee shall agree not to modify, reverse engineer, decompile
or disassemble the Secure Product or any part thereof.
1.4. Any possession, use or sublicense of the Secure Product by or to the
United States government shall be subject to restrictions as set forth in
subparagraph (c)(1)(ii) of Defense Federal Acquisition Regulations Supplement
(DFARS) Section 252.227-7013 for Department of Defense contracts and as set
forth in Federal Acquisition Regulations (FAR) Section 52.227-19 for civilian
agency contracts or any successor regulations.
1.5. All sublicense agreements shall be expressly made subject to any federal
laws, regulations, orders or other restrictions on the export from the United
States of America of the Secure Product or information about the Secure Product
which may be in effect from time to time. The sublicensee shall agree not export
or reexport, directly or indirectly any Secure Product or information pertaining
thereto without first obtaining any necessary export license or other
governmental approval.
2. Additional Mandatory Sublicense Terms for End User Sublicenses
In addition to the mandatory terms for all sublicenses, all sublicense
agreements of Secure Products to End Users shall include substantially the
following restrictions:
2.1 Sublicenses to End Users may grant the right to use, display and copy the
Secure Product solely for personal or internal business use, including
communication with third parties.
2.2 The End User may not copy the Secure Product except to make the number of
copies it is licensed to use and for backup purposes.
2.3 Active shall have the right to terminate the license for the End User's
breach of a material term. The End User will agree that, upon termination, the
End User will return to Active all copies of the Secure Product and
documentation or certify to Active that it has destroyed all such copies.
2.4 The End User shall have no right to sublicense, assign or otherwise
transfer the Secure Product except for the right to transfer its entire interest
in a Secure Product in connection with the sale of all or substantially all of
its business or relevant business unit.
2.5 Active shall prohibit its End Users from using the RSA Software for
issuing electronic certificates to identify users and verify data integrity
unless such right is granted to the End User pursuant to an agreement with
VeriSign, Inc., a Delaware corporation, or its successors in interest.
3. Additional Mandatory Sublicense Terms for Distributor Sublicenses
In addition to the mandatory terms for all sublicenses, all sublicense
agreements of Secure Products to Distributors shall include substantially the
following restrictions:
3.1. Sublicenses to Distributors may grant the right to copy and distribute
Secure Products but shall not include any right to modify the Secure Product.
Distributors may license the right to use the Secure Application on terms
substantially similar to the terms of an End User Agreement. Distributors may
distribute Secure Products in conjunction with other products but may not
incorporate the Secure Product into another product.
3.2 Distributor agrees to use and/or not remove the SecureWeb(TM) trademark
or a statement that the product incorporates SecureWeb technology from Terisa
Systems in the user interfaces (for example, within the splash screens and
"about" screen), user documentation, printed product collateral, product
packaging and advertisements for the Secure Products. Use of the SecureWeb mark
is subject to the Terisa Trademark Guidelines.
3.3 To the extent that the Distributor develops its own marketing materials,
Active has also agreed to use reasonable efforts to obtain the Distributor's
commitment to include (i) information about Secure Web' s security benefits in
their Secure
-6-
<PAGE>
Product marketing collateral, (ii) a URL pointing to Terisa Systems in any of
Distributor's Secure Product marketing materials available electronically or
distributed with their product, and (iii) the SecureWeb trademark or a statement
that the product incorporates SecureWeb technology in their printed Secure
Product collateral, product packaging and advertisements.
3.4 Active shall have the right to terminate the license for Distributor's
breach of a material terms. Distributor will agree that, upon termination, the
Distributor will return to Active all copies of the Secure Product and
documentation or certify to Active that it has destroyed all such copies.
Exhibit B
Licensed Trademark
The following trademark is licensed for use with all Secure Products subject
to the requirements of the Terisa Trademark Usage Guide:
SecureWeb(TM)
The RSA Active Seal is licensed for use with Secure Products incorporating the
RSA encryption algorithms subject to the RSA Logo Guidelines.
-7-
<PAGE>
Exhibit C
Trademark Usage Guides
1. Terisa Trademark Usage Guide
Use of the Mark
The SecureWeb trademark is to be used by Terisa Systems' licensees to
indicate that licensed products incorporate the Terisa Systems' security
toolkit. The trademark nay only be used on products that satisfy the
Quality Criteria (see below). The preferred wording of such statement is:
"[Licensee's product name] uses SecureWeb(TM) transaction security
technology from Terisa Systems, Inc."
Other phrases require prior approval from Terisa Systems.
Design of the Mark
The mark itself consists of the word "SecureWeb" written as one word with a
capital "S" and a capital "W"
The mark should be black, in bold, italic, Times New Roman font. The font
size should be a step up from surrounding text, i.e. 14 point in a field of
12 point text.
The (TM)symbol should be used unless the mark is used in literature and
accompanied by the disclaimer, "SecureWeb is trademark of Terisa Systems,
Inc." as a footnote or on the publication's credit page.
Quality Criteria
Products bearing the SecureWeb trademark must satisfy the following quality
criteria or such other criteria as spelled in your license agreement with
Terisa Systems:
1. The Secure Product properly implements the Secure HTTP protocol
as specified in the Toolkit product specifications.
2. The Secure Product operates compatibly with either the Secure
HTTP Reference Implementation or such other verification software as
Terisa Systems may make available.
<PAGE>
2. RSA Logo, Seals and Trademark Guidelines
RSA encourages its licensees to use RSA seals, logos and trademarks on
licensee product data sheets, packaging and advertising... but it is important
to use them properly.
When using RSA trademark in ads, product packaging, documentation or
collateral materials, be sure to use the correct trademark designator: (R) for
registered trademarks, and (TM) for claimed or pending trademarks. RSA
trademarks and their correct designator are depicted below. To ensure proper
usage, please allow RSA Marketing to review any materials using or mentioning
RSA trademarks prior to general release - we promise to give you a quick
turnaround!
Using these licensee seals ( and the nearly identical seals that identify
other RSA algorithm implementations like RC2 and RC4 ) does not require
written permission; in fact, we encourage you to use them on your product
packaging and collateral!
[LOGOS OF RSA APPEARS HERE]
<PAGE>
However, please obtain written permission before using these corporate logos.
[LOGOS OF RSA APPEARS HERE]
RSA Digital Signature(TM), RSA Digital Envelope(TM)
RC2(TM) Symmetric Block Cipher, RC4(TM) Symmetric Stream Cipher
BSAFE(TM), TIPEM(TM)
Certificate Issuing System(TM), Co-Issuer Tool(TM)
MailSafe(TM), RSA Secure(TM)
RSA Sign(R), RSA Check(R)
Because some things are better left unread.(R)
The keys to privacy and authentication(R).
RSA Public Key Cryptosystem(TM)
MD(TM), MD2(TM), MD4(TM), MD5(TM)
<PAGE>
EXHIBIT 10.13
SUBLEASE AGREEMENT
This Sublease is made and entered into as of March 1, 1999, by and between The
Vantive Corporation, a California corporation ("Sublessor"), and Active
Software, a California corporation ("Sublessee"), with respect to the following
facts:
Sublessor leases that certain free-standing one-story building located at
3333 Octavius Drive, Santa Clara, California consisting of approximately
24,000 square feet (the "Premises") pursuant to that certain Lease
Agreement dated September 4, 1996, between John Arrillaga, Trustee, or his
successor trustee, UTA dated 7/20/77 (Arrillaga Family Trust) as mended,
and Richard T. Peery, Trustee, or his successor trustee, UTA dated 7/20/77
(Richard T. Peery Separate Property Trust) as amended (together, the
"Landlord"), and Sublessor as the "Tenant" thereunder (the "Lease"). A copy
of the Lease is attached hereto as Attachment I.
1. Demise of Premises; Use: Sublessor leases to Sublessee and Sublessee leases
from Sublessor the entire Premises, as more particularly shown on Exhibit A to
the Lease, upon all of the terms, covenants and conditions contained in this
Sublease. Sublessee shall use the Premises for general office, software
development, research and development, and other uses in accordance with
Paragraph 1 of the Lease.
2. Basic Rent; Security Deposit; Operating Expenses:
2.1 Basic Rent. Beginning as of the Commencement Date, Sublessee shall
------------
pay to Sublessor as Basic Rent for the Premises the following sums, without
deduction, offset, prior notice or demand, for the periods indicated:
Months 1 through 12 $1.90 psf $45,600.00 per month
Months 13 through 24 $1.95 psf $46,800.00 per month
Months 25 through 36 $2.00 psf $48,000.00 per month
Months 37 through 48 $2.05 psf $49,200.00 per month
Months 49 through 55 $2.10 psf $50,400.00 per month
Basic Rent shall be payable by Sublessee to Sublessor in consecutive monthly
installments on or before the first day of each calendar month during the
Sublease Term.
2.2 Payment of First Month's Rent. Upon execution of this Sublease by
-----------------------------
Sublessee, Sublessee shall deposit with Sublessor the sum of Forty Five Thousand
Six Hundred Dollars ($45,600.00) as payment of the first month's Basic Rent.
2.3 Security Deposit. Upon execution of this Sublease by Sublessee,
----------------
Sublessee shall deposit with Sublessor the sum of One Hundred Thirty-Six
Thousand Eight Hundred Dollars ($136,800.00), which sum shall be held by
Sublessor as a security deposit in accordance with the
1
<PAGE>
provisions of Paragraph 4.G. of the Lease. If Sublessee has not been in default
under this Sublease beyond any applicable cure period during the first twelve
(12) months of the Sublease Term, Sublessor shall decrease the security deposit
by Forty-Six Thousand Eight Hundred Dollars ($46,800.00) and apply said amount
to the Basic Rent owing for the thirteenth calendar month of the Sublease Term.
2.4 Additional Rent. Throughout the Sublease Term, Sublessee shall pay to
---------------
Sublessor, in addition to Basic Rent, all items of additional rent described in
Paragraph 4.D. of the Lease ("Additional Rent") within the time periods
prescribed therein.
3. Sublease Term:
3.1 Sublease Term. The term of this Sublease (the "Sublease Term") shall
-------------
commence on May 01, 1999 (the "Commencement Date") and expire four (4) years and
seven (7) months after the Commencement Date (the "Expiration Date"). In the
event the Lease is terminated for any reason other than a voluntary termination
by Sublessor or a termination resulting from Sublessor's breach of the Lease,
this Sublease shall terminate concurrently therewith without any liability of
Sublessor to Sublessee on account of such termination.
3.2 Delay in Commencement. If for any reason Sublessor cannot deliver
---------------------
possession of the Premises to Sublessee on the scheduled Commencement Date,
Sublessor shall not be subject to any liability on account of said failure to
deliver, nor shall such failure affect the validity of this Sublease or the
obligations of Sublessee hereunder or extend the term hereof, but in such event,
Sublessee shall not be obligated to pay rent or any additional mounts for the
Premises until possession of the Premises is tendered to Sublessee in the
condition required hereby. Notwithstanding the foregoing, if Sublessor cannot
deliver possession of the Premises to Sublessee by April 30, 1999, Sublessee may
elect to terminate this Sublease upon written notice to Sublessor at any time
prior to delivery of possession, and Sublessor shall promptly refund all monies
previously tendered by Sublessee.
3.3 Early Entry. Sublessor shall use its best efforts to prepare the
-----------
Premises for entry by Sublessee and contractors by April 15, 1999, but in no
event later than April 26, 1999, provided the Landlord has previously consented
to this Sublease. Such entry shall be for the purpose of installing Sublessee's
trade fixtures and equipment, telephone equipment, security systems and cabling
for computers. Any entry or installation work by Sublessee and its contractors
in the Premises pursuant to this paragraph shall not be deemed to be occupancy
or possession of the Premises for purposes of this Sublease. Such early entry
shall be at Sublessee's own risk and all the terms and conditions of this
Sublease shall apply equally to such early entry, except that, so long as
Sublessee does not commence the use of the Premises for the purpose stated in
Paragraph 1 above, Sublessee shall have no obligation to pay Basic Rent,
utilities, real property taxes, property insurance premiums or operating
expenses during such early possession.
4. Provisions Constituting Sublease:
2
<PAGE>
4.1 Subject to Lease. This Sublease is subject and subordinate to all
----------------
of the terms and conditions of the Lease. Sublessee shall not commit or permit
to be committed in or about the Premises any act or omission which shall violate
any of the terms or conditions of the Lease. Whenever the provisions of the
Lease incorporated as provisions of this Sublease require the written consent of
Landlord, said provisions shall be construed to require the written consent of
both Landlord and Sublessor, provided that Sublessor shall not unreasonably
withhold or delay its consent or approval if the Landlord has consented or
approved of the matter for which their consent or approval is sought. Sublessor
shall not modify the Lease in any way which will materially or adversely affect
the rights or obligations of Sublessee hereunder without the prior written
consent of Sublessee.
4.2 Incorporation. It is expressly understood, acknowledged and agreed by
-------------
Sublessee that all of the other terms, conditions and covenants of this Sublease
shall be those stated in the Lease except as specifically excluded below,
modified as appropriate in the circumstances so as to make such Paragraphs
therein applicable only to the subleasing hereunder by Sublessor of the
Premises. Sublessee shall satisfy all applicable terms and conditions of the
Lease for the benefit of both Sublessor and Landlord, it being understood and
agreed that wherever in the Lease the word "Landlord" appears, for purposes of
this Sublease, the word "Sublessor" shall be substituted, and wherever in the
Lease the word "Tenant" appears, for purposes of this Sublease, the word
"Sublessee" shall be substituted. Notwithstanding the foregoing, Sublessor shall
not be responsible for the performance or the furnishing of any repair,
replacement or other obligations of Landlord under the Lease, and Sublessee
agrees to look solely to Landlord for the performance of such obligations. In
the event of any conflict between the express terms of this Sublease and the
incorporated provisions of the Lease, the terms of this Sublease shall control.
4.3 Exclusions from Lease. The terms and provisions of the following
---------------------
Paragraphs and portions of the Lease are not incorporated herein, or are
incorporated as modified below:
Preamble
Paragraph 2: Term
Paragraph 3: Possession
Paragraph 4.A.: Basic Rent
Paragraph 4.G.: Security Deposit is incorporated herein except that the
reference to the amount of the security deposit shall be replaced with the
amount specified above in Section 2.3.
Paragraph 43: Basic Rent.
Paragraph 44: As-Is Basis.
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Paragraph 59: Option To Extend Lease For Five (5) Years
4.4 Sublessor's Obligations. Sublessor agrees to maintain the Lease in
-----------------------
force during the entire term of this Sublease and to pay rent to Landlord in
accordance with the terms of the Lease; subject, however, to any earlier
termination of the Lease without the fault of the Sublessor. Sublessor shall use
commercially reasonable efforts to cause Landlord to perform its obligations
under the Lease for the benefit of Sublessee. Sublessor hereby assigns to
Sublessee all of Sublessor's rights, privileges and causes of action against
Landlord in connection with the Lease, and Sublessee shall be entitled to
exercise all of Sublessor's rights, privileges and causes of action in that
regard, provided that if Sublessee exercises any of such rights of Sublessor,
Sublessee shall indemnify, defend, protect and hold harmless Sublessor from and
against all claims, expenses (including reasonable attorneys' fees),
liabilities, penalties and damages ("Claims") arising from such litigation or
enforcement action, except for Claims arising from Sublessor's gross negligence
or willful misconduct. Notwithstanding the foregoing, Sublessee agrees not to
exercise its rights under the foregoing sentence unless Sublessor fails to take
all reasonable actions required to fully enforce the Landlord's obligations
promptly after written demand upon Sublessor by Sublessee.
5. Sublessor's Representations. To the best of Sublessor's knowledge, and in
addition to the representations and warranties set forth in Section 12 below,
Sublessor represents and warrants with respect to the Premises that:
A. The document attached hereto as Attachment I is a true, correct
and complete copy of the Lease and the term of the Lease does not expire prior
to the Expiration Date hereof. The Lease is in full force and effect, and there
exists under the Lease no default or event of default, nor has there occurred
any event which, with the giving of notice Or passage of time or both, could
constitute such a default or event of default.
B. There are no pending or threatened actions, suits or proceedings
before any court or administrative agency against Sublessor or against Landlord
which could, in the aggregate, adversely affect the Premises or the ability of
Landlord to perform its obligations under the Lease or of Sublessor to perform
its obligations under this Sublease, and Sublessor is not aware of any facts
which might result in any such actions, suits or proceedings.
C. Sublessor has not received any notice from any insurance company
of any defects or inadequacies in the Premises or any part thereof which could
adversely affect the insurability of the Premises or the premiums for the
insurance thereof.
D. Except as expressly set forth in Section 5, Section 6 and Section
12 hereof, Sublessor makes no warranty or representation of any kind whatsoever
as to the use or occupancy which may be made of the Premises, nor as to the
condition or repair of the Premises, including without limitation, the condition
or functionality of the cabling in and to the Premises.
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6. Condition of Premises. Sublessor shall deliver the Premises to Sublessee in
"broom clean" condition and with the HVAC, plumbing, electrical systems,
existing tenant improvements and roof membrane in good condition and repair. If
during the first ninety (90) days after the Commencement Date (the "Warranty
Period"), the foregoing items are not in the condition required hereby,
Sublessee shall promptly notify Sublessor of the need for repair, and the repair
shall be promptly completed at no expense to Sublessee. Except with respect to
necessary repairs for which Sublessor receives written notice within five (5)
days after the expiration of the Warranty Period, Sublessor shall have no
liability or responsibility for the repair of such items. Sublessor and
Sublessee agree and acknowledge that prior to the Commencement Date Sublessor
may remove all of its furniture and personal property from the Premises.
7. Alterations: Sublessee's rights to make alterations to the Premises are
subject to the provisions of Paragraph 9 of the Lease, including without
limitation the requirement that Sublessee obtain the consent of Sublessor and
Landlord prior to making any proposed alterations or additions. Sublessor shall
provide Sublessee with an improvement allowance (the "Allowance") equal to $1.50
per square foot of the Premises or Thirty Six Thousand Dollars ($36,000.00) to
be applied toward costs incurred at the outset of the Sublease Term for (i)
making improvements to the Premises and (ii) cleaning and maintenance work in
the Premises, including painting and carpet cleaning (collectively, the "Tenant
Improvements"). The Allowance (or such lesser amount actually spent by Sublessee
on the Tenant Improvements) shall be paid to Sublessee's contractor or other
service provider, as appropriate, within thirty (30) days after receipt of (i)
the final invoice, (ii) proof of payment as to any portion of the final invoice
to be paid by Sublessee, (iii) a conditional lien release in the form prescribed
by (S) 3262 of the California Civil Code (Conditional Waiver And Release Upon
Final Payment), and (iv) proof of recordation of a notice of completion for the
improvements. As to (iii) and (iv) above, such conditions to payment of the
Allowance shall be applicable only if the nature of the work performed is such
that the attachment of a lien to the Premises in connection therewith is
possible. Notwithstanding anything to the contrary contained in this Sublease or
the Lease, Sublessee shall not be (a) obligated to remove the alterations
installed in the Premises by or on behalf of Sublessor upon the expiration or
earlier termination of this Sublease, or (b) liable for any violations of law by
Sublessor or Sublessor's agents or contractors.
8. Repairs and Maintenance of Premises: All of the Tenant's repair and
maintenance obligations set forth in the Lease with respect to the Premises have
been incorporated herein pursuant to Paragraph 4 above and shall be the
responsibility of Sublessee.
9. Insurance. Sublessee agrees to carry the insurance coverage described in
Paragraph 13 of the Lease during the term of this Sublease. Sublessee shall name
Sublessor and Landlord as additional insureds under the required insurance
policies. Upon execution of this Sublease, Sublessee shall deliver a certificate
of insurance evidencing the above to Sublessor.
10. Signs: Sublessee shall be allowed to place a sign on the front door of the
Premises and on
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the exterior monument sign boards, subject to the terms and conditions of the
Lease. Sublessee shall be responsible for the cost of its signage.
11. [Intentionally Deleted].
12. Hazardous Materials: Sublessor, to the best of Sublessor's knowledge,
represents and warrants to Sublessee that, as of the Commencement Date the
Premises and the operations conducted thereon by Sublessor prior to the
Commencement Date are in compliance with all Environmental Laws. Sublessor
further represents and warrants that, to the best of Sublessor's knowledge, no
litigation has been brought or threatened, nor any settlements reached with any
governmental or private party, concerning the actual or alleged presence or
Hazardous Materials on or about the Premises nor has Sublessor received any
notice of any violation or alleged violation of any Environmental Laws relating
to the Premises. Sublessee, its agents, employees, contractors, officers,
directors, shareholders, successors or assigns shall not be responsible for, and
Sublessor shall indemnify, defend with counsel reasonably acceptable to
Sublessee and hold Sublessee harmless against any claim, obligation, liability,
cause of action, penalty, attorneys' fees, consultants' cost, expense or damage
owing or alleged to be owing with respect to any Hazardous Materials caused by
Sublessor, its agents, employees or contractors to be present on or about the
Premises prior to the Commencement Date. Sublessor's representations and
indemnification under this Section 12 shall survive the termination of this
Sublease and the Lease. Notwithstanding the foregoing, Paragraph 50 of the Lease
regarding Hazardous Materials is incorporated herein pursuant to Paragraph 4.2
of this Sublease.
13. Termination of Lease by Sublessor. Notwithstanding the provisions of
Paragraph 16 of this Sublease, Sublessor shall not voluntarily terminate the
Lease during the Sublease Term unless and until Landlord has agreed in writing
to continue this Sublease in full force and effect as a direct lease between
Landlord and Sublessee upon and subject to all of the terms, covenants and
conditions of this Sublease for the balance of the Sublease Term. If Landlord so
consents, Sublessee shall attorn to Landlord in connection with any such
voluntary termination and shall execute an attornment agreement in such form as
may reasonably be requested by Landlord; provided, however, that the attornment
agreement does not materially or adversely affect the use by Sublessee of the
Premises in accordance with the terms of this Sublease, materially increase
Sublessee's obligations under this Sublease or materially decrease Sublessee's
rights under this Sublease.
14. Authorization to Direct Sublease Payments. Sublessor hereby acknowledges
that Sublessor's failure to pay the Basic Rent and other sums owing by Sublessor
to Landlord under the Lease will cause Sublessee to incur damages, costs and
expenses not contemplated by this Sublease, especially in those cases where
Sublessee has paid sums to Sublessor hereunder which correspond in whole or in
part to the mounts owing by Sublessor to Landlord under the Lease. Accordingly,
Sublessee shall have the right to pay all rent and other sums owing by Sublessee
to Sublessor hereunder for those items which also are owed by Sublessor to
Landlord under the Lease directly to Landlord if either (i) Sublessee reasonably
believes that Sublessor has failed to
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make any payment required to be made by Sublessor to Landlord under the Lease
and Sublessor fails to provide adequate proof of payment within two (2) business
days after Sublessee's written demand requesting such proof; or (ii) Sublessee
reasonably believes that Sublessor shall fail to make any payment required to be
made by Sublessor to Sublessee under the Lease and Sublessor fails to provide
assurance of future performance within two (2) business days after Sublessee's
written demand requesting such assurance. Sublessee agrees to provide to
Sublessor concurrently with any payment to Landlord reasonable evidence of such
payment. If Sublessor notifies Sublessee that it disputes any mount demanded by
Landlord, Sublessee shall not make any such payment to Landlord unless Landlord
has provided a three-day notice to pay such amount or forfeit the Lease. Any
sums paid directly by Sublessee to Landlord in accordance with this Section
shall be credited toward the mounts payable by Sublessee to Sublessor under this
Sublease.
15. Quiet Enjoyment; Right to Cure. Sublessee shall peacefully have, hold and
enjoy the Premises, subject to the terms and conditions of this Sublease,
provided that Sublessee pays all Rent and Additional Rent and performs all of
Sublessee's covenants and agreements contained herein. In the event, however,
that Sublessor defaults in the performance or observance of any of its
obligations under the Lease or fails to perform Sublessor's stated obligations
under this Sublease to enforce, for Sublessee's benefit, the Landlord's
obligations under the Lease, then Sublessee shall give Sublessor notice
specifying in what manner Sublessor has defaulted, and if such default shall not
be cured by Sublessor within thirty (30) days thereafter (except that if such
default cannot be cured within said thirty (30)-day period, this period shall be
extended for an additional reasonable time, provided that Sublessor commences to
cure such default within such thirty (30)-day period and proceeds diligently
thereafter to effect such cure as quickly as possible), then in addition,
Sublessee shall be entitled, at Sublessee's option, to cure such default and
promptly collect from Sublessor Sublessee's reasonable expenses in so doing
(including, without limitation, reasonable attorneys' fees and court costs).
Sublessee shall not be required, however, to wait the entire cure period
described herein if earlier action is required to avoid a forfeiture of the
Lease or to comply with any applicable governmental law, regulation or order.
16. Assignment and Subleasing. Sublessee shall be permitted to further
sublease the Premises or assign this Sublease, subject to the prior consent of
the Landlord and Sublessor in accordance with Paragraph 49 of the Lease. For
purposes hereof, the sale of Sublessee's stock on any public exchange shall not
be deemed a sublease or assignment.
If Landlord and Sublessor jointly and voluntarily elect, for any reason
whatsoever, to terminate the Lease prior to the scheduled Lease termination
date, then this Sublease (if then still in effect) shall terminate concurrently
with the termination of the Lease. Sublessee expressly acknowledges and agrees
that (i) the voluntary termination of the Lease by Landlord and Sublessor and
the resulting termination of this Sublease shall not give Sublessee any right or
power to make any legal or equitable claim against Landlord, including without
limitation any claim for interference with contract or interference with
prospective economic advantage, and (ii) Sublessee hereby waives any and all
rights it may have under law or at equity against Landlord
7
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to challenge such an early termination of the Sublease, and unconditionally
releases and relieves Landlord, and its officers, directors, employees and
agents, from any and all claims, demands, and/or causes of action whatsoever
(collectively, "Claims"), whether such matters are known or unknown, latent or
apparent, suspected or unsuspected, foreseeable or unforeseeable, which
Sublessee may have arising out of or in connection with any such early
termination of this Sublease. Sublessee knowingly and intentionally waives any
and all protection which is or may be given by Section 1542 of the California
Civil Code which provides as follows: "A general release does not extend to
claims which the creditor does not know or suspect to exist in his favor at the
time of executing the release, which if known by him must have materially
affected his settlement with debtor."
The term of this Sublease is therefore subject to early termination.
Sublessee's initials here below evidence (a) Sublessee's consideration of and
agreement to this early termination provision, (b) Sublessee's acknowledgment
that, in determining the net benefits to be derived by Sublessee under the terms
of this Sublease, Sublessee has anticipated the potential for early termination,
and (c) Subtenant's agreement to the general waiver and release of Claims above.
Initials: JB Initials:________
--------
Sublessee Sublessor
17. Attorneys' Fees. If either Sublessor or Sublessee brings any action or
proceeding, whether legal, equitable or administrative, to enforce rights and
obligations under this Sublease, or to declare rights hereunder, the prevailing
party in any such action or proceeding shall be entitled to recover from the
other party reasonable attorneys' fees and costs of suit, in addition to any
other relief allowed by the court.
18. Brokers. Sublessor is represented by Cushman & Wakefield of California,
Inc. and Sublessee is represented by Wayne Mascia Associates. The parties agree
that no other brokers have been involved in this transaction and they each agree
to indemnify and hold each other harmless from and against any damage or expense
incurred by reason of any other broker claiming a right to any commission or
compensation as a result of its dealings with the indemnifying, party.
19. Authority to Execute. Sublessee and Sublessor each represent and warrant
to the other that the person(s) executing this Sublease on behalf of each party
is (are) duly authorized to execute and deliver this Sublease on that party's
behalf.
20. Incorporation of Prior Agreements. This Sublease incorporates all
agreements of the parties with respect to the subject matter hereof, and
supersedes all prior agreements and understandings of the parties, whether oral
or written, pertaining to the subject matter hereof.
21. Modifications. This Sublease may be modified or amended only by an
instrument in writing, executed by both parties in interest hereunder.
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22. Governing Law; Severability. This Sublease shah be governed by and
construed in accordance with the laws of the State of California. If any term or
provision of this Sublease is found by a court of competent jurisdiction to be
void or unenforceable, such term or provision shall be deemed severed from the
remainder of the terms and provisions of this Sublease, and said remainder shall
remain in full force and effect, according to its terms, to the extent permitted
by law.
23. Notices: All notices, demands, consents and approvals which may or are
required to be given by either party to the other hereunder shall be given in
the manner provided in the Lease, at the addresses shown on the signature page
hereof. Sublessor shall promptly provide to Sublessee copies of written notices
received from the Landlord which pertain to the Premises.
24. Condition: The obligations of the parties to the Sublease are conditioned
upon receipt of the consent of the Landlord on terms reasonably satisfactory to
both parties, including in the case of Sublessee, consent by the Landlord to the
installation of Alterations proposed to be made by Sublessee to the Premises
and, if such consent has not been received with thirty (30) days after the
execution and delivery of this Sublease by both parties, either party may
terminate this Sublease effective upon written notice to the other, delivered at
any time until the consent of Landlord as provided above shall have been
delivered to Sublessee. Sublessor agrees to promptly seek the written consent of
Landlord to this Sublease upon Sublessee's execution and delivery hereof to
Sublessor.
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IN WITNESS WHEREOF the parties have executed this Sublease intending to be bound
as of the date of execution and delivery by both parties, and satisfaction of
the condition set forth above.
SUBLESSOR: SUBLESSEE:
THE VANTIVE CORPORATION, ACTIVE SOFTWARE,
A California Corporation A California Corporation
By: The Vantive Corporation By: Jon A. Bode
------------------------ ------------------------
Date: 3/23/99 Date: 3.19.99
---------------------- ----------------------
Title: CFO Title: CFO
--------------------- ---------------------
Address:___________________ Address:___________________
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ATTACHMENT I
Lease
<PAGE>
CONSENT OF LANDLORD
The undersigned, Landlord under the Lease attached as Attachment I, hereby
consents to the subletting of the Premises described herein on the terms and
conditions contained in the Sublease dated as of March 1, 1999, by and between
The Vantive Corporation and Active Software. This Consent shall apply only to
this Sublease and shall not be deemed to be a consent to any other subletting or
assignment.
In the event the Lease is terminated prior to the expiration date thereof,
Landlord agrees to recognize Sublessee as the tenant of the Premises, provided
that Sublessee is not then be in default beyond any applicable cure period, and
the Sublease shall continue in full force and effect as a direct lease between
Landlord and Sublessee under the terms and conditions of the Sublease.
Landlord:
John Arrillaga Survivor's Trust
By:
John Arrillaga, Trustee
Date:________________________________
Richard T. Peery Separate Property Trust
By:
Richard T. Peery, Trustee
Date:
<PAGE>
Date:
LEASE AGREEMENT
THIS LEASE, made this 4th day of September , 1996 between JOHN ARRILLAGA,
Trustee, or his Successor Trustee, UTA dated 7/20/77 (ARRILLAGA FAMILY TRUST) as
amended and RICHARD T. PERRY, Trustee, or his Successor Trustee, UTA dated
7/20/77 (RICHARD T. PEERY SEPARATE PROPERTY TRUST) as amended , hereinafter
called Landlord, And THE VANTIVE CORPORATION, a California corporation
hereinafter called Tenant.
WITNESSETH:
Landlord hereby leases to Tenant and Tenant hereby hires and takes from
Landlord those certain premises (the "Premises") outlined in red on Exhibit "A",
attached hereto and incorporated herein by this reference thereto more
particularly described as follows:
All of that certain 24,000 +/- square foot, one-story building located
at 3333 Octavius Drive, Santa Clara, California 95054. Said Premises
is more particularly shown within the area outlined in Red on Exhibit
-------
A. The entire parcel, of which the Premises is a part, is shown within
-
the area outlined in Green on Exhibit A attached hereto. The Premises
---------
is leased on an "as-is" basis, in its present condition, and in the
configuration as shown in Red on Exhibit B attached hereto.
---------
As used herein the Complex shall mean and include all of the land outlined in
Green and described in Exhibit "A", attached hereto, and all of the buildings,
improvements, fixtures and equipment now or hereafter situated on said land.
Said letting and hiring is upon and subject to the terms, covenants
and conditions hereinafter set forth and Tenant covenants as a material part
of the consideration for this Lease to Perform and observe each and all of
said terms, covenants and conditions. This Lease is made upon the conditions
of such performance and observance.
1. USE Tenant shall use the Premises only in conformance with applicable
governmental laws, regulations, rules and ordinances for the purpose of general
office, light manufacturing, research and development, and storage and other
uses necessary for Tenant to conduct Tenant's business, provided that such uses
shall be, in accordance with all applicable governmental laws and ordinances and
for no other purpose. Tenant shall not do or permit to be done in or about the
Premises or the Complex nor bring or keep or permit to be brought or kept in or
about the Premises or the Complex anything which is prohibited by or will in any
way increase the existing rate of (or otherwise affect) fire or any insurance
covering the Complex or any part thereof, (unless Tenant agrees to pay any
increased portion of any premium for such insurance) or any of its contents, or
will cause a cancellation of any insurance covering the Complex or any part
thereof, or any of its contents. Tenant shall not do or permit to be done
anything in, on or about the Premises or the Complex which will in any way
obstruct or interfere with the rights of other tenants or occupants of the
Complex or injure or annoy them, or use or allow the Premises to be used for any
unlawful purpose, nor shall Tenant cause, maintain or permit any nuisance in, on
or about the Premises or the Complex. No sale by auction shall be permitted on
the Premises. Tenant shall not place any loads upon the floors, walls, or
ceiling, which endanger the structure, or place any harmful fluids or other
materials in the drainage system of the building, or overload existing
electrical or other mechanical systems. No waste materials or refuse shall be
dumped upon or permitted to remain upon any part of the Premises or outside of
the building in which the Premises are a part, except in trash containers placed
inside exterior enclosures designated by Landlord for that purpose or inside of
the building proper where designated by Landlord. No materials supplies,
equipment, finished products or semi-finished products, raw materials or
articles of any nature shall be stored upon or permitted to remain outside the
Premises or on any portion of common area of the Complex. No loudspeaker or
other device, system or apparatus which can be heard outside the Premises shall
be used in or at the Premises without the prior written consent of Landlord.
Tenant shall not commit or suffer to be committed any waste in or upon the
Premises. Tenant shall indemnify, defend and hold Landlord harmless against any
loss, expense, damage, attorneys' fees, or liability arising out of failure to
Tenant to comply with any applicable law, governing Tenant's use of the
Premises. Tenant shall comply with any covenant, condition, or restriction
("CC&R's") affecting the Premises, of which Tenant has notice. The provisions of
this paragraph are for the benefit of Landlord only and shall not be construed
to be for the benefit of any tenant or occupant of the Complex.
2. TERM It is agreed in the event said Lease commences on a date other than
the first day of the month the term of the Lease will be extended to account for
the number of days in the partial month. The Basic Rent during the resulting
partial month will be pro-rated (for the number of days in the partial month) at
the Basic Rent scheduled for the projected commencement date as shown in
Paragraph 43.
A. The term of the lease shall be for a period of SEVEN ( 7) YEARS
(unless sooner terminated as hereinafter provided) and, subject to Paragraphs
2(B) and 3, shall commence on the 1st day of January , 1997 and end the 31st day
December , of 2003.
B. Possessions of the Premises shall be deemed tendered and the term of
this Lease shall commence on January 1, 1997, or
(d) As otherwise agreed in writing.
3. POSSESSION If Landlord, for any reason whatsoever, cannot deliver
possession of said premises to Tenant at the commencement of the said term, as
hereinbefore specified, this Lease shall not be void or voidable; no obligation
of Tenant shall be affected thereby; nor shall Landlord or Landlord's agents be
liable to Tenant for any loss or damage resulting therefrom; but in that event
the commencement and termination dates of the Lease, and all other dates
affected thereby shall be revised to conform to the date of Landlord's delivery
of possession, as specified in Paragraph 2(b), above. The above is, however,
subject to the provision that the period of delay, of delivery of the premises
shall not exceed 30 days from the commencement date herein (except those delays
caused by Acts of God, strikes, war utilities, governmental bodies, weather,
unavailable materials, and delays beyond Landlord's control shall be excluded in
calculating such period) in which instance Tenant, at its option, may, by
written notice to Landlord, terminate this Lease.
It is agreed in the event said Lease commences on a date other than the first
day of the month the term of the lease will be extended to account for the
number of days in the partial month. The Basic Rent during the resulting partial
month will be pro-rated (for the number of days in the partial month) at the
Basic Rent scheduled for the projected commencement date as shown, in Paragraph
43.
[SIGNATURE ILLEGIBLE]
page 1 of 8
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4. RENT
A. Basic Rent. Tenant agrees to pay to Landlord at such place as Landlord
may designate without deduction, offset, prior notice, or demand, and Landlord
agrees to accept as Basic Rent for the leased Premises the total sum of FOUR
MILLION THIRTY TWO THOUSAND AND NO/10 IS 4,032,000.00) Dollars in lawful money
of the United States of America, payable as follows:
See Paragraph 43 for Basic Rent Schedule
B. Time for Payment. In the event that the term of this Lease commences
on a date other than the first day of a calendar month, on the date of
commencement of the term hereof Tenant shall pay to Landlord as rent for the
period from such date of commencement to the first day of the next succeeding
calendar month that proportion of the monthly rent hereunder which the number of
days between such date of commencement and the first day of the next succeeding
calendar month bears to thirty (30) in the event that the term of this Lease for
any reason ends on a date other than the last day of a calendar month, on the
first day of the last calendar month of the term hereof Tenant shall pay to
Landlord as rent for the period from said first day of said last calendar month
to and including the last day of the term hereof that proportion of the monthly
rent hereunder which the number of days between said first day of said last
calendar month and the last day of the term hereof bears to thirty (30).
C. Late Charge. Notwithstanding any other provision of this Lease, if
Tenant is in default in the payment of rental as set forth in this Paragraph 4
when due, or any part thereof, Tenant agrees to pay Landlord, in addition to the
delinquent rental due, a late charge for each rental payment in default ten (10)
days. Said late charge shall equal ten (10%) percent of each rental payment so
in default.
D. Additional Rent. Beginning with the commencement date of the term of
this Lease, Tenant shall pay to Landlord in addition to the Basic Rent and as
Additional Rent the following:
(a) Tenant's proportionate share of all Taxes relating to the Complex as
set forth in Paragraph 12, and
(b) Tenant's proportionate share of all insurance premiums relating to the
Complex, as set forth in Paragraph 15, and
(c) Tenant's proportionate share of expenses for the operation,
management, maintenance and repair of the Building (including common
areas of the Building) and Common Areas of the Complex in which the
Premises are located as set forth in Paragraph 7, and
(d) All charges, costs and expenses, which Tenant is required to pay
hereunder, together with all interest and penalties, costs and
expenses including attorneys' fees and legal expenses, that may accrue
thereto in the event of Tenant's failure to pay such amounts, and all
damages, reasonable costs and expenses which Landlord may incur by
reason of default of Tenant or failure on Tenant's part to comply with
the terms of this Lease. In the event of nonpayment by Tenant of
Additional Rent, Landlord shall have all the rights and remedies with
respect thereto as Landlord has for nonpayment of rent.
The additional Rent due hereunder shall be paid to Landlord or Landlord's agent
(i) within five days for taxes and insurance and within thirty (30) days for all
other Additional Rent items after presentation of invoice from Landlord or
Landlord's agent setting forth such Additional Rent and/or (ii) at the option of
Landlord. Tenant shall pay to Landlord monthly, in advance, Tenant's prorata
share of an amount estimated by Landlord to be Landlord's approximate average
monthly expenditure for such Additional Rent items, which estimated amount shall
be reconciled at within 120 days of at the end of each calendar year or more
frequently if Landlord so elects to do so at Landlord's sole and absolute
discretion, as compared to Landlord's actual expenditure for said Additional
Rent items, with Tenant paying to Landlord, upon demand, any amount of actual
expenses expended by Landlord in excess of said estimated amount, or Landlord
refunding to Tenant (providing Tenant is not in default in the performance of
any of the terms, covenants and conditions of this Lease) any amount of
estimated payments made by Tenant in excess of Landlord's actual expenditures
for said Additional Rent items.
The respective obligations of Landlord and Tenant under this paragraph
shall survive the expiration or other termination of the term of this Lease, and
if the term hereof shall expire or shall otherwise terminate on a day other than
the last day of a calendar year, the actual Additional Rent incurred for the
calendar year in which the term hereof expires or otherwise terminates shall be
determined and settled on the basis of the statement of actual Additional Rent
for such calendar year and shall be prorated in the proportion which the number
of days in such calendar year preceding such expiration of termination bears to
365. See Paragraph 54
E. Fixed Management Fee. Beginning with the Commencement Date of the Term
of this Lease, Tenant shall pay to Landlord, in addition to the Basic Rent and
Additional Rent, a fixed monthly management fee equal to 2% of the Basic Rent
due for each month during the Lease Term ("Management Fee").
F. Place of Payment of Rent and Additional Rent. All basic Rent hereunder
and all payments hereunder for Additional Rent shall be paid to Landlord at the
office of Landlord at Peery/Arrillaga, file 1504, box 60000, San Francisco, CA
94160 or to such other person or to such other place as Landlord may from time
to time designate in writing.
G. Security Deposit. Concurrently with Tenant's execution of this Lease,
Tenant shall deposit with Landlord the sum or ONE HUNDRED THREE THOUSAND TWO
HUNDRED AND NO 100. ($103, 200.00) Dollars. Said sum shall be held by Landlord
as a Security Deposit for the faithful performance by Tenant of all of the
terms., covenants, and conditions of this Lease to be kept and performed by
Tenant during the term hereof. If Tenant defaults with respect to any provisions
of this Lease, including, but not limited to, the provisions relating to the
payment of rent and any of the monetary sums due herewith. Landlord may (but
shall not be required to) use, apply or retain all or any part of this Security
Deposit for the payment of any other amount which Landlord may spend by reason
of Tenant's default or to compensate Landlord for any other loss or damage which
Landlord may suffer by reason of Tenant's default. If any portion of said
Deposit is so used or applied, Tenant shall, within ten (10) days after written
demand therefor, deposit cash with Landlord in the amount sufficient to restore
the Security Deposit to its original amount. Tenant's failure to do so shall be
a material breach of this Lease. Landlord shall not be required to deep this
Security Deposit separate from its general funds, and Tenant shall not be
entitled to interest on such Deposit. If Tenant full and faithfully performs
every provision of this Lease to be performed by it, the Security Deposit to any
balance thereof shall be returned to Tenant (or at Landlord's option, to the
last assignee of Tenant's interest hereunder) within thirty (30) days following
the expiration of this Lease term and after Tenant has vacated the Premises. In
the event of termination of Landlord's interest in this Lease, Landlord shall
transfer said Deposit to Landlord's successor in interest whereupon Tenant
agrees to release Landlord from liability for the return of such deposit or the
accounting therefor.
5. RULES AND REGULATIONS AND COMMON AREA Subject to the terms and conditions
of this Lease and such reasonable Rules and Regulations as Landlord may from
time to time prescribe, Tenant and Tenant's employees, invitees and customers
shall, in common with other occupants of the Complex in which the Premises are
located, and their respective employees, invitees and customers, and others
entitled to the use thereof, have the non-exclusive right to use the access
roads, parking areas, and facilities provided and designated by Landlord for the
general use and convenience of the occupants of the Complex in which the
Premises are located, which areas and facilities are referred to herein as
"Common Area". This right shall terminate upon the termination of this Lease.
Landlord reserves the right from time to time to make changes in the shape, size
location, amount and extent of Common Area. Landlord further reserves the right
to promulgate such reasonable rules and regulations relating to the use of the
Common Area, and any part or parts thereof, as Landlord may deem appropriate for
the best interests of the occupants of the Complex. The Rules and Regulations
shall be bringing upon Tenant upon delivery of a copy of them to Tenant, and
Tenant shall abide by them and cooperate in their observance. Such Rules and
Regulations may be amended by Landlord from time to time , with or without
advance notice, and all amendments shall be effective upon delivery of a copy to
Tenant. Landlord shall not be responsible to Tenant for the non-performance by
any other tenant or occupant of the Complex of any of said Rules and
Regulations.
Landlord shall operate, manage and maintain the Common Area. The manner in
which the Common Area shall be maintained and the expenditures for such
maintenance shall be at the discretion of Landlord.
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6. PARKING Tenant shall have the right to use with other tenants or occupants
of the Complex 96 parking spaces in the common parking areas of the Complex.
Tenant agrees, that Tenant, Tenant's employees, agents, representatives and/or
invitees shall not use parking spaces in excess of said 96 spaces allocated to
Tenant hereunder. Landlord shall have the right, at Landlord's sole discretion,
to specifically designate the location of Tenant's parking spaces within the
common parking areas of the Complex in the event of a dispute among the tenants
occupying the building and/or Complex referred to herein, in which event Tenant
agrees that Tenant, Tenant's employees, agents, representatives and/or invitees
shall not use any parking spaces other than those parking spaces specifically
designated by Landlord for Tenant's use. Said parking spaces, if specifically
designated by Landlord to Tenant, may be relocated by Landlord at any time, and
from time to time. Landlord reserves the right, at Landlord's sole discretion,
to rescind any specific designation of parking spaces, thereby returning
Tenant's parking spaces to the common parking area. Landlord shall give Tenant
written notice of any change in Tenant's parking spaces. Tenant shall not, at
any time, park, or permit the parking of Tenant's trucks or other vehicles
adjacent to the loading areas so as to interfere in any way with the use of such
areas, nor shall Tenant at any time park, or permit the parking of Tenant's
trucks or other vehicles or the trucks and vehicles of Tenant's suppliers or
others, in any portion of the common area not designated by Landlord for such
use by Tenant. Tenant shall not park nor permit to be parked any inoperative
vehicles or equipment on any portion of the common parking area or other common
areas of the Complex. Tenant agrees to assume responsibility for compliance by
its employees with the parking provision contained herein. If Tenant or its
employees park in other than such designated parking areas, then Landlord may
charge Tenant, as an additional charge, and Tenant agrees to pay, ten ($10.00)
Dollars per day for each day or partial day each such vehicle is parked in any
area other than that designated. Tenant hereby authorizes Landlord at Tenant's
sole expense to tow away from the Complex any vehicle belonging to Tenant or
Tenant's employees parked in violation of these provisions, or to attach
violation stickers or notices to such vehicles. Tenant shall use the parking
areas for vehicle parking only, and shall not use the parking areas for storage.
7. EXPENSES OF OPERATION, MANAGEMENT, AND MAINTENANCE OF THE COMMON AREAS OF
THE COMPLEX. As Additional Rent and in accordance with Paragraph 4D of this
Lease, Tenant shall pay to Landlord Tenant's proportionate share (calculated on
a square footage or other equitable basis as calculated by Landlord) of all
expenses of operation, management, maintenance and repair of the Common Areas of
the Complex including, but not limited to, license, permit and inspection fees;
security; utility charges associated with exterior landscaping and lighting
(including water and sewer charges); all charges incurred in the maintenance of
landscaped areas, lakes, parking lots, sidewalks, driveways; maintenance, repair
and replacement of all fixtures and electrical, mechanical, and plumbing
systems; structural elements and exterior surfaces of the buildings; salaries
and employee benefits of personnel and payroll taxes applicable thereto;
supplies, materials, equipment and tools; the amortized cost of capital
expenditures which have the effect of reducing operating expenses, provided,
however, that in the event Landlord makes such capital improvements, Landlord
shall amortize its investment in said improvements over the useful life thereof
(together with interest at the rate of fifteen (15%) percent per annum on the
unamortized balance) as an operating expense in accordance with standard
accounting practices, provided, that such amortization is not at a rate greater
than the reasonably anticipated savings in the operating expenses.
"Additional Rent" as used herein shall not include Landlord's debt
repayments; interest on charges; expenses directly or indirectly incurred by
Landlord for the benefit of any other tenant; cost for the installation of
partitioning or any other tenant improvements; cost of attracting tenants;
depreciation; interest, or executive salaries.
8. ACCEPTANCE AND SURRENDER OF PREMISES Subject to Paragraphs 44, 51 and 53,
and by entry hereunder, Tenant accepts the Premises as being in good and
sanitary order, condition and repair and accepts the building and improvements
included in the Premises in their present condition and without representation
or warranty by Landlord as to the condition of such building or as the use or
occupancy which may be made thereof. Any exceptions to the foregoing must be by
written agreement executed by Landlord and Tenant. Tenant agrees on the last day
of the Lease term, or on the sooner termination of this Lease, to surrender the
Premises promptly and peaceably to Landlord in good condition and repair (damage
by Acts of God, fire, normal wear and tear excepted), with all interior walls
painted, or cleaned so that they appear freshly painted, and repaired and
replaced, if damaged; all floors cleaned and waxed; all carpets cleaned and
shampooed; the air-conditioning and heating equipment serviced by a reputable
and licensed service firm and in good operating condition (providing the
maintenance of such equipment has been Tenant's responsibility to pay for during
the term of the Lease) together with all alterations, additions, and
improvements which may have been made in, to or on the Premises (except movable
trade fixtures installed at the expense of Tenant) except that Tenant shall
ascertain from Landlord within thirty (30) days before the end of the term of
this Lease whether Landlord desires to have the Premises or any part of parts
thereof restored to their condition and configuration as when the Premises were
delivered to Tenant and if Landlord shall so desire, then Tenant shall restore
said Premises or such part or parts thereof before the end of this Lease at
Tenant's sole cost and expense. Tenant, on or before the end of the term of
sooner termination of this Lease, shall remove all of Tenant's personal property
and trade fixtures from the Premises, and all property not so removed on or
before the end of the term or sooner termination of this Lease shall be deemed
abandoned by Tenant and title to same shall thereupon pass to Landlord without
compensation to Tenant. Landlord may, upon termination of this Lease, remove all
movable furniture and equipment so abandoned by Tenant, at Tenant's sole cost,
and repair any damage caused by such removal at Tenant's sole cost. If the
Premises be not surrendered at the end of the term or sooner termination of this
Lease, Tenant shall indemnify Landlord against loss or liability resulting from
the delay by Tenant in so surrendering the Premises including, without
limitation, any claims made by any succeeding tenant found on such delay.
Nothing contained herein shall be construed as an extension of the term thereof
or as a consent of Landlord to any holding over by Tenant. The voluntary or
other surrender of this Lease or the Premises by Tenant or a mutual cancellation
of this Lease shall not work as a merger and at the option of Landlord, shall
either terminate all or any existing subleases or subtenancies or operate as an
assignment to Landlord of any such subleases or subtenancies.
9. ALTERATIONS AND ADDITIONS Tenant shall not make, or suffer to be made, any
alteration or addition to the premises, or any part thereof, without the written
consent of Landlord first had obtained by Tenant, but at the cost of Tenant, and
any addition to, or alteration of, the Premises, except moveable furniture and
trade fixtures, shall at once become a part of the Premises and belong to the
Landlord. Landlord reserves the right to reasonably approve all contractors and
mechanics proposed by Tenant to make such alterations and additions. Tenant
shall retain title to all moveable furniture and trade fixtures placed on the
Premises. All heating, lighting, electrical, air-conditioning floor to ceiling
partitioning, drapery, carpeting, and floor installations made by Tenant,
together with all property that has become an integral part of the Premises,
shall not be deemed trade fixtures. Tenant agrees that it will not proceed to
make such alteration or additions, without having obtained consent from the
Landlord to do so, and until five (5) days from the receipt of such consent, in
order that Landlord may post appropriate notices to avoid any liability to
contractors or material suppliers for payment for Tenant's improvements. Tenant
will at all times permit such notices to be posted and to remain posted until
the completion of work. Tenant shall, if required by Landlord, secure at
Tenants own cost and expense, a completion and lien indemnity bond, satisfactory
to Landlord, for such work. Tenant further covenants and agrees that any
mechanics lien filed against the Premises or against the Complex for work
claimed to have been done for, or materials claimed to have been furnished to
Tenant, will be discharged by Tenant, by bond or otherwise, within ten (10) days
after the filing thereof, at the cost and expense of Tenant. Any exceptions to
the foregoing must be made in writing and executed by both Landlord and Tenant.
10. TENANT MAINTENANCE Tenant shall, at it's sole cost and expense, keep and
maintain the Premises (including appurtenances) and every part thereof in a high
standard of maintenance and repair, and in good and sanitary condition. Tenants
maintenance and repair responsibilities herein referred to include, but are not
limited to, all windows, window frames, plate glass, glazing, truck doors,
plumbing systems (such as water and drain lines, sinks, toilets, faucets,
drains, showers, and water fountains), electrical systems (such as panels,
conduits, outlets, lighting fixtures, lamps bulbs, tubes, ballasts), heating and
air-conditioning systems (such as compressors, fans, air handlers, ducts, mixing
boxes, thermostats, time clocks, boiler, heaters, supply and return grills)
store fronts, roofs, downspouts, all interior improvements within the premises
including but not limited to wall coverings, window coverings, carpet, floor
coverings, partitioning, ceilings, doors (both interior and exterior, including
closing mechanisms, latches, locks, skylights (if any), automatic fire
extinguishing systems, and elevators and all other interior improvements of any
nature whatsoever. Tenant agrees to provide carpet shields under all rolling
chairs or to otherwise be responsible for wear and tear of the carpet caused by
such rolling chairs if such wear and tear exceeds that caused by normal foot
traffic in surrounding areas. Areas of excessive wear shall be replaced at
Tenants sole expense upon Lease termination. Tenant hereby waives all rights
under, and benefits of, subsection 1 of Section 1932 and Section 1941 of the
California Civil Code and under any similar law, statute or ordinance now or
hereafter in effect.
11. UTILITIES Tenant shall pay promptly, as the same become due, all charges
for water, gas, electricity, telephone, telex, and other electronic
communications service, sewer service, waste pick-up and any other utilities,
materials or services furnished directly or used by Tenant on or about the
Premises during the term of this Lease, including, without limitation, any
temporary or permanent utility surcharge or other exactions whether or not
hereinafter imposed.
Landlord shall not be liable for and Tenant shall not be entitle to any
abatement or reduction of rent by reason of any interruption or failure of
utility services to the Premises when such interruption or failure is caused by
accident, breakage, repair, strikes, lockouts, or other labor disturbances or
labor disputes of any nature, or by any other cause, similar or dissimilar,
beyond the reasonable control of Landlord.
12. TAXES A. As Additional Rent and in accordance with Paragraph 4 D of this
Lease, Tenant shall pay to Landlord Tenants proportionate share of all Real
Property Taxes, which prorata share shall be allocated to the leased Premises by
square footage or other equitable basis, as calculated by Landlord. The term
"Real Property Taxes", as used herein, shall mean (i) all taxes, assessments,
levies and other charges of any other kind to nature whatsoever, general and
special, foreseen and unforeseen (including all installments of principal and
interest required to pay any general or special assessments for public
improvements and any increases resulting from reassessments caused by
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any change in ownership of the Complex) now or hereafter imposed by any
governmental or quasi-governmental authority or special district having the
direct of indirect power to tax or levy assessments, which are levied or
assessed against, or with respect to the value, occupancy or use of all or any
portion of the Complex (as now constructed or as may at any time hereafter be
constructed, altered or otherwise changed) or Landlord's interest therein; any
improvements located within the Complex (regardless of ownership); the fixtures,
equipment and other property of Landlord, real or personal, that are an integral
part of and located in the Complex; or parking areas, public utilities, or
energy within the Complex; (ii) all charges, levies or fees imposed by reason of
environmental regulation or other governmental control of the Complex and (iii)
all costs and fees (including reasonable attorneys fees) incurred by Landlord in
contesting any Real Property Tax and in negotiating with public authorities as
to any Real Property Tax. If at any time during the term of this Lease the
taxation or assessment of the Complex prevailing as of the commencement date of
this Lease shall be altered so that in lieu of or in addition to any Real
Property Tax described above there shall be levied, assessed or imposed (whether
by reason of a change in the method of taxation or assessment, creation of a new
tax or charge, or any other cause) an alternate or additional tax or charge (i)
on the value, use or occupancy of the Complex or Landlord's interest therein or
(ii) on or measured by the gross receipts, income or rentals from the Complex,
on Landlord's business of leasing the Complex, or computed in any manner with
respect to the operation of the Complex, then any such tax or charge, however
designated, shall be included within the meaning of the term "real Property
Taxes" for purposes of this Lease. If any Real Property Tax is based upon
property or rents unrelated to the Complex, then only that part of such real
Property Tax that is fairly allocable to the Complex shall be included within
the meaning of the term "Real Property Taxes". Notwithstanding the foregoing,
the term "Real Property Taxes" shall not include estate, inheritance, gift or
franchise taxes of Landlord or the federal or state net income tax imposed on
Landlord's income from all sources, or interest charges or other penalties or
fines for Landlord's late payment of Property Taxes, provided Tenant has paid
its Taxes by the due date as stated herein.
B. Taxes on Tenant's Property
(a) Tenant shall be liable for and shall pay ten days before
delinquency, taxes levied against any personal property or trade fixtures placed
by Tenant in or about the Premises. If any such taxes on Tenant's personal
property or trade fixtures are levied against Landlord or Landlord's property or
if the assessed value of the Premises is increased by the inclusion therein of a
value placed upon such personal property or trade fixtures of Tenant and if
Landlord, after written notice to Tenant, pays the taxes based on such increased
assessment, which Landlord shall have the right to do regardless of the validity
thereof, but only under proper protest if requested by Tenant, Tenant shall upon
demand,, as the case may be, repay to Landlord the taxes so levied against
Landlord, or the proportion of such taxes resulting from such increase in the
assessment; provide that in any such event Tenant shall have the right, in the
name of Landlord and with Landlord's full cooperation, to bring suit in any
court of competent jurisdiction to recover the amount of any such taxes so paid
under protest, and any amount so recovered shall belong to Tenant.
(b) if the Tenant improvements in the Premises, whether installed,
and/or paid for by Landlord or Tenant and whether or not affixed to the real
property so as to become a part thereof, are assessed for real property tax
purposes at a valuation higher than the valuation at which standard office
improvements in other space in the Complex are assessed, then the real property
taxes and assessments levied against Landlord or the Complex by reason of such
excess assess valuation shall be deemed to be taxes levied against personal
property of Tenant and shall be governed by the provisions of 12Ba, above. If
the records of the County Assessor are available and sufficiently detailed to
serve as a basis for determining whether said Tenant improvements are assessed
at higher valuation than standard office improvements in other space in the
Complex, such records shall be binding on both the Landlord and the Tenant. If
the records of the County Assessor are not available or sufficiently detailed to
serve as a basis for making said determination, the actual cost of construction
shall be used.
13. LIABILITY INSURANCE Tenant at Tenant's expense, agrees to keep in force
during the term of the Lease a policy of commercial general liability insurance
with combined single limit coverage of not less than Two Million Dollars
($2,000,000) for injuries to or death of persons occurring in, on, or about the
Premises or the Complex, and property damage insurance with limits of $500,000.
The policy or policies affecting such insurance, certificates of insurance of
which shall be furnished to Landlord, shall name Landlord as additional
insureds, and shall insure any liability of Landlord, contingent or otherwise,
as respects acts or omissions of Tenant, its agents, employees or invitees or
otherwise by any conduct or transactions of any of said persons in or about or
concerning the Premises, including any failure of Tenant to observe or perform
any of its obligations hereunder, shall be issued by an insurance company
admitted to transact business in the State of California; and shall provide that
the insurance effected thereby shall not be canceled, expect upon thirty (30)
days prior written notice to Landlord. If during the term of this Lease, in the
considered opinion of Landlord's Lender or insurance advisor, the amount of
insurance described in this paragraph 13 is not adequate. Tenant agrees to
increase said coverage of such reasonable amount as Landlord's Lender, insurance
advisor, or counsel shall deem adequate. Landlord agrees that such adjustments
shall not take place more than one time in any twelve (12) month period
14. TENANT'S PERSONAL PROPERTY INSURANCE AND WORKMAN'S COMPENSATION INSURANCE
Tenant shall maintain a policy or policies of fire and property damage insurance
in "all risk" form with a sprinkler leakage endorsement insuring the personal
property, inventory, trade fixtures, and leasehold improvements within the
leased Premises for the full replacement value thereof. The proceeds from any of
such policies shall be used for the repair or replacement of such items so
insured. Tenant shall also maintain a policy or policies of workman's
compensation insurance and any other employees benefit insurance sufficient to
comply with all laws.
15. PROPERTY INSURANCE Landlord shall purchase and keep in force and as
Additional Rent and in accordance with Paragraph 4D of Lease, Tenant shall pay
to Landlord (or Landlord's agent if so directed by Landlord) Tenant's
proportionate share (calculated on a square footage or other equitable basis as
calculated by Landlord) of the deductibles on insurance claims and the cost of
policy or policies of insurance covering loss or damage to the Premises and
Complex in the amount of the full replacement value thereof, providing
protection against those perils included within the classification of "all
risks" insurance and flood and/or earthquake insurance, if available, plus a
policy of rental income insurance in the amount of one hundred (100%) percent of
twelve (12) months Basic Rent, plus sums paid as Additional Rent and any
deductibles related thereto. If such insurance cost is increased solely due to
Tenant's use of the Premises of the Complex, Tenant agrees to pay to Landlord
the full cost of such increase or its pro rata share if the increase results
from two or more tenants' uses. Tenant shall have no interest in nor any right
to the proceeds of any insurance procured by Landlord for the Complex. Any other
provision of this Lease to the contrary notwithstanding, Landlord and Tenant do
each hereby respectively release the other, to the extent of the insurance
coverage of the releasing party, from any liability for loss of damage caused by
fire or any of the extended coverage casualties included in the releasing
party's insurance policies, irrespective of the cause of such fire or casualty;
provided, however, that if the insurance policy of either releasing party
prohibits such waiver, then this waiver shall not take effect until consent to
such waiver is obtained. If such waiver is so prohibited, the insured party
affected shall promptly notify the other party thereof.
16. INDEMNIFICATION Landlord shall not be liable to Tenant and Tenant hereby
waives all claims against Landlord for any injury to or death of any person or
damage to or destruction of property in or about the Premises or the Complex by
or from any cause whatsoever, including, without limitation, gas, fire, oil,
electricity or leakage of any character from the roof, walls, basement or other
portion of the Premises or the Complex but excluding, however, the willful
misconduct or negligence of Landlord, its agents, servants, employees, invitees,
or contractors of which negligence Landlord has knowledge and reasonable time to
correct. Except as to injury to persons or damage to property to the extent
arising from the willful misconduct or the negligence of Landlord its agents,
servants, employees, invitees, or contractors. Tenant shall hold Landlord
harmless from and defend Landlord against any and all expenses, including
reasonable attorney's fees, in connection therewith, arising out of any injury
to or death of any person or damage to or destruction of property occurring in,
on, or about the Premises, or any part thereof, from any cause whatsoever.
17. COMPLIANCE Tenant, at its sole cost and expense, shall promptly comply with
all laws, statutes, ordinances and governmental rules, regulations or
requirements not or hereafter in effect; with the requirements of any board of
fire underwriters or other similar body now or hereafter constituted; and with
an direction or occupancy certificate issued pursuant to law by any public
officer; provided, however, that no such failure shall be deemed a breach of the
provisions if Tenant, immediately upon notification commences to remedy or
rectify said failure. The judgment of any court of competent jurisdiction or the
admission of Tenant in any action against Tenant, whether Landlord be a party
thereto or not, that tenant has violated any such law, statute, ordinance or any
governmental role, regulation, requirement direction or provision, shall be
conclusive of that fact as between Landlord and Tenant. This paragraph shall not
be interpreted as requiring Tenant to make structural changes or improvements,
except to the extent such changes or improvements are required as a result of
Tenants particular use of the Premises. Tenant shall at its sole cost and
expense, comply with any and all requirements pertaining to said Premises, of
any insurance organization or company, necessary for the maintenance of
reasonable fire and public liability insurance covering the Premises. See
Paragraph 53.
18. LIENS Tenant shall keep the Premises and the Complex free from any liens
arising out of any work performed, material furnished or obligation incurred by
Tenant. In the event that Tenant shall not, with ten (10) days following the
imposition of such lien, cause the same to be released of record, Landlord shall
have, in addition to all other remedies provided herein and by law, the right,
but no obligation. To cause the same to be released by such means as it shall
deem proper, including payment of the claim giving rise to such lien. All sums
paid by Landlord for such purpose, and all expenses incurred by it in connection
therewith shall be payable to Landlord by Tenant on demand with interest at the
prime rate of interest as quoted by the Bank of America.
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19. ASSIGNMENT AND SUBLETTING
See Paragraph 49
20. SUBORDINATION AND MORTGAGES In the event Landlord's title or leasehold
interest is now or hereafter encumbered by a deed of trust, upon the interest of
Landlord in the land and buildings in which the demised Premises are located, to
secure a loan from a lender (hereinafter referred to as "lender") to Landlord,
Tenant shall, at the request of Landlord or Lender, execute in writing an
agreement subordinating its rights under this Lease to the lien of such deed of
trust, or, if so requested agreeing that the lien of Lender's deed of trust
shall be or remain subject and subordinate to the rights of Tenant under this
Lease. Notwithstanding any such subordination, Tenant's possession under this
Lease shall not be disturbed if Tenant is not in default and so long as Tenant
shall pay all rent and observe and perform all of the provisions set forth in
this Lease.
See Paragraph 56
21. ENTRY BY LANDLORD Landlord reserves, and shall at all reasonable times
after at least 24 hours notice (except in emergencies) have, the right to enter
the Premises to inspect them; to perform any services to be provided by Landlord
hereunder; to submit the Premises to prospective purchasers, mortgagers or
(during the last eighteen (18) months of the Term of this Lease) tenants; to
post notices of nonresponsibility; and to alter, improve or repair the Premises
and any portion of the Complex, all without abatement of rent; and may erect
scaffolding and other necessary structures in or through the Premises where
reasonably required by the character of the work to be performed; provided,
however that the business of Tenant shall be interfered with to the least extent
that is reasonably practical. For each of the foregoing purposes, Landlord shall
at all times have and retain a key with which to unlock all of the doors in an
emergency in order to obtain entry to the Premises, and any entry to the
Premises obtained by Landlord by any of said means, or otherwise, shall not
under any circumstance be construed or deemed to be a forcible or unlawful entry
into or a detainer of the Premises or an eviction, actual or constructive, of
Tenant from the Premises or any portion thereof. Landlord shall also have the
right at any time to change the arrangement or location of entrances or
passageways, doors and doorways, and corridors, elevators, stairs, toilets or
other public parts of the Complex and to change the name, number or designation
by which the Complex is commonly known, and none of the foregoing shall be
deemed an actual or constructive eviction of Tenant, or shall entitle Tenant to
any reduction of rent hereunder. See Paragraph 57
22. BANKRUPTCY AND DEFAULT The commencement of a bankruptcy action or
liquidation action or reorganization action or insolvency action or an
assignment of or by Tenant for the benefit of creditors, or any similar action
undertaken by Tenant, or the insolvency of Tenant, shall, at Landlord's option
constitute a breach of this Lease by Tenant. If the trustee or receiver
appointed to serve during a bankruptcy, liquidation, reorganization, insolvency
or similar action elects to reject Tenant's unexpired Lease, the trustee or
receiver shall notify Landlord in writing of its election within thirty (30)
days after an order for relief in a liquidation action or within thirty (30)
days after the commencement of any action.
Within thirty (30) days after court approval of the assumption of this
Lease, the trustee or receiver shall cure (or provide adequate assurance to the
reasonable satisfaction of Landlord that the trustee or receiver shall cure) and
all previous defaults under the unexpired Lease and shall compensate Landlord
for all actual pecuniary loss and shall provide adequate assurance of future
performance under said Lease to the reasonable satisfaction of Landlord.
Adequate assurance of future performance, as used herein, includes, but shall
not be limited to: (i) assurance of source and payment of rent, and other
consideration due under this Lease; (ii) assurance that the assumption or
assignment of this Lease will not breach substantially any provision, such as
radius, location, use, or exclusivity provision, in any agreement relating to
the above described Premises.
Nothing contained in this section shall affect the existing right of
Landlord to refuse to accept an assignment upon commencement f or in connection
with a bankruptcy, liquidation, reorganization or insolvency action or an
assignment of Tenant for the benefit of creditors or other similar act. Nothing
contained in this Lease shall be construed as giving or granting or creating an
equity in the demised Premises to Tenant. In no event shall the leasehold estate
under this Lease or any interest therein, be assigned by voluntary or
involuntary bankruptcy proceeding without the prior written consent of Landlord.
In no event shall this Lease or any rights or privileges hereunder be an asset
of Tenant under any bankruptcy, insolvency or reorganization proceedings.
The failure to perform or honor any covenant, condition or representation
made under this Lease shall constitute a default hereunder by Tenant upon
expiration of the appropriate grace period hereinafter provided. Tenant shall
have a period of five (5) days from the date of written notice within which to
cure any default in the payment of rental or adjustment thereto. Tenant shall
have a period of thirty (30) days from the date of the written notice from
Landlord within which to cure any other default under this Lease; provided,
however, that if the nature of Tenant's failure is such that more than thirty
(30) days is reasonably required to cure the same, Tenant shall not be in
default so long as Tenant commences performance within such thirty (30) day
period and thereafter prosecutes the same to completion. Upon an uncured default
of this Lease by Tenant, Landlord shall have the following rights and remedies
in addition to any other rights or remedies available to Landlord at law or in
equity.
(a). The rights and remedies provided for by California Civil Code Section
1951.2, including but not limited to, recovery of the worth at the time of award
of the amount by which the unpaid rent for the balance of the term after the
time of award exceeds the amount of rental loss for the same period that Tenant
proves could be reasonably avoided, as computed pursuant to subsection (b) of
said Section 1951.2. Any proof by Tenant under subparagraphs (2) and (3) of
Section 1951.2 of the California Civil Code of the amount of rental loss that
could be reasonably avoided shall be made in the following manner: Landlord and
Tenant shall each select a licensed real estate broker in the business of
renting property of the same type and use as the Premises and in the same
geographic vicinity. Such two real estate brokers shall select a third licensed
real estate broker, and the three licensed real estate brokers so selected shall
determine the amount of the rental loss that could be reasonably avoided from
the balance of the term of this Lease after the time of award. The decision of
the majority of said licensed real estate brokers shall be final and binding
upon the parties hereto.
(b) The rights and remedies provided by California Civil Code Section
which allows Landlord to continue the Lease in effect and to enforce all of its
rights and remedies under this Lease, including the right to recover rent as it
becomes due, for so long as Landlord does not terminate Tenant's right to
possession; acts of maintenance or preservation, efforts to relet the Premises,
or the appointment of a receiver upon Landlord's initiative to protect its
interest under this Lease shall not constitute a termination of Tenant's right
to possession.
(c) The right to terminate this Lease by giving notice to Tenant in
accordance with applicable law.
(d) The right and power; to the extent permitted by law to enter the
Premises and remove all persons and property, to store such property in a public
warehouse or elsewhere at the cost of and for the account of Tenant and to sell
such property and apply such proceeds therefrom pursuant to applicable
California law. Landlord may from time to time sublet the Premises or any part
thereof for such term or terms (which may extend beyond the term of this Lease)
and at such rent and such other terms as Landlord in its sole discretion may
deem advisable, with the right to make alterations and repairs to the Premises.
Upon each subletting, (i) Tenant shall be immediately liable to pay Landlord, in
addition to indebtedness other that rent due hereunder, the cost of such
subletting, including, but not limited to, reasonable attorney's fees, and any
real estate commissions actually paid, and the costs of such alterations and
repairs incurred by Landlord and the amount, if any, by which the rent hereunder
for the period of such subletting (to the extent such period does not exceed the
term hereof) exceeds the amount to be paid as rent for the Premises for such
period or (ii) at the options of Landlord, rents received from such subletting
shall be applied first to payment of indebtedness other than rent due hereunder
from Tenant to Landlord; second, to the payment of any costs of such alterations
and repairs; third to payment of rent due and unpaid hereunder; and the residue,
if any, shall be held by Landlord and applied in payment of future rent as the
same becomes due hereunder. If Tenant has been credited from such subletting
under option (ii) during any months be less than that to be paid during that
month by Tenant hereunder, Tenant shall pay any such deficiency to Landlord.
Such deficiency shall be calculated and paid monthly. No taking possession of
the Premises by Landlord, shall be construed as an election on its part to
terminate this Lease unless a written notice of such
/s/ [SIGNATURE ILLEGIBLE]
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<PAGE>
intention be given to Tenant. Notwithstanding any such subletting without
termination. Landlord may at any time hereafter elect to terminate this Lease
for such previous breach.
(e). The right to have a receiver appointed for Tenant upon application by
Landlord, to take possession of the Premises and to apply any rental collected
from the Premises and to exercise all other rights and remedies granted to
Landlord pursuant to subparagraph d, above.
23. ABANDONMENT Tenant shall not vacate or abandon the Premises at any time
during the term of this Lease (except that Tenant may vacate so long as it pays
rent, provides an on-site security guard during normal business hours from
Monday through Friday, and otherwise performs its obligations hereunder) and if
Tenant shall abandon, vacate or surrender said Premises, or be dispossessed by
the process of law, or otherwise, any personal property belonging to Tenant and
left on the Premises shall be deemed to be abandoned, at the option of Landlord,
except such property as may be mortgaged to Landlord.
24. DESTRUCTION In the event the Premises are destroyed in whole or in part
from any cause, except for routine maintenance and repairs and incidental damage
and destruction caused from vandalism and accidents for which Tenant is
responsible for under Paragraph 10, Landlord may, at its option:
(a) Rebuild or restore the Premises to their condition prior to the damage
or destruction, or
(b) Terminate this Lease. (providing that the Premises is damaged to the
extent of 33 1/3% of the replacement cost)
If Landlord does not give Tenant notice in writing within thirty (30) days
from the destruction of the Premises of its election to either rebuild and
restore them and the estimated time required to rebuild or restore or to
terminate this Lease, Landlord shall be deemed to have elected to rebuild or
restore them, in which event Landlord agrees, at its expense, promptly to
rebuild or restore the Premises to their condition prior to the damage or
destruction. Tenant shall be entitled to a reduction in rent while such repair
is being made in the proportion that the area of the Premises rendered
untenantable by such damage bears to the total area of the Premises. If Landlord
initially estimates that the rebuilding or restoration will exceed 180 days or
if Landlord does not complete the rebuilding or restoration within on hundred
eighty (180) days following the date of destruction (such period of time to be
extended for delays caused by the fault or neglect of Tenant or because of Acts
of God, acts of public agencies, labor disputes, strikes, fires, freight
embargoes, rainy or stormy weather, inability to obtain materials, supplies or
fuels, acts of contractors or subcontractors or delay of the contractors or
subcontractors due to such causes or other contingencies beyond the control of
Landlord), then Tenant shall have the right to terminate this Lease by giving
fifteen (15) days prior written notice to Landlord. Notwithstanding anything
herein to the contrary, Landlord's obligation to rebuild or restore shall be
limited to the building and interior improvements constructed by Landlord as
they existed as of the commencement date of the Lease and shall not include
restoration of Tenant's trade fixtures, equipment, merchandise, or any
improvements, alterations or additions made by Tenant to the Premises, which
Tenant shall forthwith replace or fully repair at Tenant's sole cost and expense
provided this Lease is not cancelled according to the provisions above.
Unless this Lease is terminated pursuant to the foregoing provisions, this
Lease shall remain in full force and effect. Tenant hereby expressly waives the
provisions Section 1932, Subdivision 2, in Section 1933, Subdivision 4 of the
California Civil Code.
In the event that the building in which the Premises are situated is
damaged or destroyed to the extent of not less than 131/3% of the replacement
cost thereof, Landlord may elect to terminate this Lease, whether the Premises
be injured or not.
25. EMINENT DOMAIN If all or any part of the Premises shall be taken by any
public or quasi-public authority under the power of eminent domain or conveyance
in lieu thereof, this Lease shall terminate as to any portion of the Premises so
taken or conveyed on the date when title vests in the condemnor, and Landlord
shall be entitled to any and all payment, income, rent, award, or any interest
therein whatsoever which may be paid or made in connection with such taking or
conveyance, and Tenant shall have no claim against Landlord or otherwise for the
value of any unexpired term of this Lease. Notwithstanding the foregoing
paragraph, any compensation specifically awarded Tenant for loss of business,
Tenant's personal property, moving cost or loss of good will, shall be and
remain the property of Tenant.
If (i) any action or proceeding is commenced for such taking of the
Premises or any part thereof, or if Landlord is advised in writing by any entity
or body having the right or power of condemnation of its intention to condemn
the premises or any portion thereof, or (ii) any of the foregoing events occur
with respect to the taking of any space in the Complex not leased hereby, or if
any such spaces so taken or conveyed in lieu of such taking and Landlord shall
decide to discontinue the use and operation of the Complex, or decide to
demolish, alter or rebuild the Complex, then, in any of such events Landlord
shall have the right to terminate this Lease by giving Tenant written notice
thereof within sixty (60) days of the date of receipt of said written advice, or
commencement of said action or proceeding, or taking conveyance, which
termination shall take place as of the first to occur of the last day of the
calendar month next following the month in which such notice is given or the
date on which title to the Premises shall vest in the condemnor.
In the event of such a partial taking or conveyance of the Premises, if the
portion of the Premises taken or conveyed is so substantial that the Tenant can
no longer reasonably conduct its business, Tenant shall have the privilege of
terminating this Lease within sixty (60) days from the date of such taking or
conveyance, upon written notice to Landlord of its intention so to do, and upon
giving of such notice this Lease shall terminate on the last day of the calendar
month next following the month in which such notice is given, upon payment by
Tenant of the rent from the date of such taking or conveyance to the date of
termination.
If a portion of the Premises be taken by condemnation or conveyance in lieu
thereof and neither Landlord nor Tenant shall terminate this Lease as provided
herein, this Lease shall continue in full force and effect as to the part of the
Premises not so taken or conveyed, and the rent herein shall be apportioned as
of the date of such taking or conveyance so that thereafter the rent to be paid
by Tenant shall be in the ratio that the area of the portion of the Premises not
so taken or conveyed bears to the total area of the Premises prior to such
taking.
26. SALE OR CONVEYANCE BY LANDLORD In the event of a sale or conveyance of the
Complex or any interest therein, by any owner of the reversion then constituting
Landlord, the transferor shall thereby be released from any further liability
upon any of the terms, covenants or conditions (express or implied) herein
contained in favor of Tenant, and in such event, insofar as such transfer is
concerned, Tenant agrees to look solely to the responsibility of the successor
in interest of such transferor in and to the Complex and this Lease. This Lease
shall not be affected by any such sale or conveyance, and Tenant agrees to
attorn to the successor in interest of such transferor.
See Paragraph 58
27. ATTORNMENT TO LENDER OR THIRD PARTY In the event the interest of Landlord
in the land and buildings in which the leased Premises are located (whether such
interest of Landlord is a fee title interest or a leasehold interest) is
encumbered by deed of trust, and such interest is acquired by the lender or any
third party through judicial foreclosure or by exercise of a power of sale at
private trustee's foreclosure sale, Tenant hereby agrees to attorn to the
purchaser at any such foreclosure sale and to recognize such purchaser as the
Landlord under this Lease. In the event the lien of the deed of trust securing
the loan from a Lender to Landlord is prior and paramount to the Lease, this
Lease shall nonetheless continue in full force and effect for the remainder of
the unexpired term hereof, at the same rental herein reserved and upon all the
other terms, conditions and covenants herein contained.
28. HOLDING OVER Any holding over by Tenant after expiration or other
termination of the term of this Lease with the written consent of Landlord
delivered to Tenant shall not constitute a renewal or extension of the Lease or
give Tenant any rights in or to the leased Premises except as expressly provided
in this Lease. Any holding over after the expiration or other termination of the
term of this Lease, with the consent of Landlord, shall be construed to be a
tenancy from month to month, on the same terms and conditions herein specified
insofar as applicable except that the monthly Basic Rent shall be increased to
an amount equal to one hundred fifty (150%) percent of the monthly Basic Rent
required during the last month of the Lease term.
29. CERTIFICATE OF ESTOPPEL Either party shall at any time upon not less than
ten (10) days prior written notice from the other party execute, acknowledge and
deliver to the requesting party a statement in writing (i) certifying that this
Lease is unmodified and in full force and effect (or, if modified, stating the
nature of such modification and certifying that this Lease, as so modified, is
in full force and effect) and the date to which the rent and other charges are
paid in advance, if any, and (ii) acknowledging that there are not, to the best
of such party's knowledge, any uncured defaults on the part of the other party
hereunder, or specifying such defaults, if any, are claimed. Any such statement
may be conclusively relied upon by any prospective purchaser or encumbrancer of
the Premises. A party's failure to delivery such statement within such time
shall be conclusive upon the party receiving such request that this lease is in
full force and effect, without modification except as may be represented by
Landlord; that there are no uncured defaults in the requesting party's
performance, and that not more than one month's rent has been paid in advance.
30. CONSTRUCTION CHANGES It is understood that the description of the Premises
and the location of ductwork, plumbing and other facilities therein are subject
to such minor changes as Landlord or Landlord's architect determines to be
desirable in the course of construction of the Premises, and no such changes, or
any changes in plans for any other portions of the Complex shall affect this
Lease or entitle Tenant to any reduction of rent hereunder or result in any
liability of Landlord to Tenant. Landlord does not guarantee the accuracy of any
drawings supplied to Tenant and verification of the accuracy of such drawings
rests with Tenant.
31. RIGHT OF LANDLORD TO PERFORM All terms, covenants and conditions of this
Lease to be performed or observed by Tenant shall be performed or observed by
Tenant at Tenant's sole cost and expense and without any reduction of rent. If
Tenant shall fail to pay any sum of money, or other rent, required to be paid by
it hereunder of shall fail to perform any other term or covenant hereunder on
its part to be performed, and such failure shall continue for five (5) days
after written notice thereof by Landlord. Landlord, without waiving or releasing
Tenant from any obligations of Tenant hereunder, may, but shall not be obligated
to, make any such payment or perform
/s/[SIGNATURE ILLEGIBLE]
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<PAGE>
any such other term or covenant on Tenant's part to be performed. All sums so
paid by Landlord and all necessary costs of such performance by Landlord
together with interest thereon at the rate of the prime rate of Interest per
annum as quoted by the Bank of America from the date of such payment or
performance by Landlord, shall be paid (and Tenant covenants to make such
payment) to Landlord on demand by Landlord, and Landlord shall have (in addition
to any other right or remedy of Landlord) the same rights and remedies in the
event of nonpayment by Tenant in the case of failure by Tenant in the payment of
rent hereunder.
32. ATTORNEY'S FEES.
(A) In the event that either Landlord or Tenant should bring suit for the
possession of the Premises, for the recovery of any sum due under this Lease, or
because of the breach of any provision of this Lease, or for any other relief
against the other party hereunder, then all costs and expenses, including
reasonable attorneys' fees, incurred by the prevailing party therein shall be
paid by the other party, which obligation on the part of the other party shall
be deemed to have accrued on the date of the commencement of such action and
shall be enforceable whether or not the action is prosecuted to judgement.
(B) Should Landlord be named as a defendant in any suit brought against
Tenant in connection with or arising out of Tenant's occupancy hereunder, Tenant
shall pay to Landlord its costs and expenses incurred in such suit, including a
reasonable attorney's fee.
33. WAIVER The waiver by either party of the other party's failure to perform
or observe any term, covenant or condition herein contained to be performed or
observed by such waiving party shall not be deemed to be a waiver of such term,
covenant or condition or of any subsequent failure of the party failing to
perform or observe the same or any other such term, covenant or condition
therein contained, and no custom or practice which may develop between the
parties hereto during the term hereof shall be deemed a waiver of, or in any way
affect, the right of either party to insist upon performance and observance by
the other party in strict accordance with the terms hereof.
34. NOTICES All notices, demands, requests, advices or designations which may
be or are required to be given by either party to the other hereunder shall be
in writing. All notices, demands, requests, advices or designations by Landlord
to Tenant shall be sufficiently given, made or delivered if personally served on
Tenant by leaving the same at the Premises or if sent by United States certified
or registered mail, postage prepaid, addressed to Tenant at the Premises. All
notices demands, requests, advices or designations by Tenant to Landlord shall
be sent by the United States certified or registered mail, postage prepaid,
addressed to Landlord at its offices at Peery/Arrillaga, 2560 Mission College
-------------------------------------
Blvd., Suite 101, Santa Clara, CA 95054. Each notice, request, demand, advice
- ---------------------------------------
or designation referred to in this paragraph shall be deemed received on the
date of the personal service or the date of actual receipt or refusal of
delivery, as the case may be.
35. EXAMINATION OF LEASE Submission of this instrument for examination or
signature by Tenant does not constitute a reservation of or option for a lease,
and this instrument is not effective as a lease or otherwise until its execution
and delivery by both Landlord and Tenant.
36. DEFAULT BY LANDLORD Landlord shall not be in default unless Landlord fails
to perform obligations required of Landlord within a reasonable time, but in no
event earlier than thirty (30) days after written notice by Tenant to Landlord
and to the holder of any first mortgage or deed of trust covering the Premises
whose name and address shall have heretofore been furnished to Tenant in
writing, specifying wherein Landlord has failed to perform such obligations;
provided, however, that if the nature of Landlord's obligations is such that
more than thirty (30) days are required for performance, then Landlord shall not
be in default if Landlord commences performance within such thirty (30) day
period and thereafter diligently prosecutes the same to completion.
37. CORPORATE AUTHORITY If Tenant is a corporation, (or a partnership) each
individual executing this Lease on behalf of said corporation (or partnership)
represents and warrants that he is duly authorized to execute and deliver this
Lease on behalf of said corporation (or partnership) in accordance with the by-
laws of said corporation (or partnership in accordance with the partnership
agreement) and that this Lease is binding upon said corporation (or partnership)
in accordance with its terms. If Tenant is a corporation, Tenant shall, within
(30)days after execution of the Lease, deliver to Landlord a certified copy of
the resolution of the Board of Directors of said corporation authorizing or
ratifying the execution of this Lease.
39. LIMITATION OF LIABILITY In consideration of the benefits accruing
hereunder, Tenant and all successors and assigns covenant and agree that, in the
event of any actual or alleged failure, breach or default hereunder by Landlord:
(i) the sole and exclusive remedy shall be against Landlord' interest in
the Premises leased herein;
(ii) no partner of Landlord shall be sued or named as party in any suit
or action (except as may be necessary to secure jurisdiction of the
partnership)
(iii) no service of process shall be made against any partner of Landlord
(except as may be necessary to secure jurisdiction of the
partnership)
(iv) no partner of Landlord shall be required to answer or otherwise
plead to any service of process:
(v) no judgement will be taken against any partner of Landlord;
(vi) any judgement taken against any partner of Landlord may be vacated
and set aside at any time without hearing:
(vii) no writ of execution will ever be levied against the assets of any
partner of Landlord;
(viii) these covenants and agreements are enforceable both by Landlord and
also by any partner of Landlord.
Tenant agrees that each of the foregoing covenants and agreements shall be
applicable to any covenant or agreement either expressly contained in this Lease
or imposed by statute or at common law.
40. MISCELLANEOUS AND GENERAL PROVISIONS
a. Tenant shall not, without the written consent of Landlord, use the
name of the building for any purpose other than as the address of the
business conducted by Tenant in the Premises.
b. This Lease shall in all respects be governed by and construed in
accordance with the laws of the State of California. If any provision of
this Lease shall be invalid, unenforceable or ineffective for any reason
whatsoever, all other provisions hereof shall be and remain in full force
and effect.
c. The term "Premises" includes the space leased hereby and any
improvements now or hereafter installed therein or attached thereto. The
term "Landlord" or any pronoun used in place thereof includes the plural as
well as the singular and the successors and assigns of Landlord. The term
"Tenant" or any pronoun used in place thereof includes the plural as well
as the singular and individuals, firms, associations, partnerships and
corporations, and their and each of their respective heirs, executors,
administrators, successors and permitted assigns, according to the context
hereof, and the provisions of this Lease shall inure to the benefit of and
bind such heirs, executors, administrators, successors and permitted
assigns.
d. Time is of the essence of this Lease and of each and all of its
provisions.
/s/[SIGNATURE ILLEGIBLE]
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<PAGE>
e. At the expiration or earlier termination of this Lease, Tenant shall
execute, acknowledge and deliver to Landlord, within ten (10) days after
written demand from Landlord to Tenant, any quitclaim deed or other
document required by any reputable title company, licensed to operate in
the State of California, to remove the cloud or encumbrance created by this
Lease from the real property of which Tenant's Premises are a part.
f. This instrument along with any exhibits and attachments hereto
constitutes the entire agreement between Landlord and Tenant relative to
the Premises and this agreement and the exhibits and attachments may be
altered, amended or revoked only by an instrument in writing signed by both
Landlord and Tenant. Landlord and Tenant agree hereby that all prior or
contemporaneous oral agreements between and among themselves and their
agents or representatives relative to the leasing of the Premises are
merged in or revoked by this agreement.
g. Neither Landlord nor Tenant shall record this Lease or a short form
memorandum hereof without the consent of the other.
h. Tenant further agrees to execute any amendments required by a lender
to enable Landlord to obtain financing, so long as Tenant's rights
hereunder are not substantially affected.
i. Paragraphs 43 through 60 are added hereto and are included as a part
-- --
of this Lease.
j. Clauses, plats and riders, if any, signed by Landlord and Tenant and
endorsed on or affixed to this Lease are a part hereof.
k. Tenant covenants and agrees that no diminution or shutting off of
light, air or view by any structure which may be hereafter erected (whether
or not by Landlord) shall in any way affect his Lease, entitle Tenant to
any reduction of rent hereunder or result in any liability of Landlord or
Tenant.
41. BROKERS Tenant warrants that it had dealings with only the following real
estate brokers or agents in connection with the negotiation of this Lease: none
----
and that it knows of no other real estate broker or agent who is entitled to a
commission in connection with this Lease.
42. SIGNS No sign, placard, picture, advertisement, name or notice shall be
inscribed, displayed or printed or affixed on or to any part of the outside of
the Premises or any exterior windows of the Premises without the written consent
of Landlord first had and obtained (such consent not be unreasonably withheld)
and Landlord shall have the right to remove any such sign, placard, picture,
advertisement, name or notice without notice to and at the expense of Tenant. If
Tenant is allowed to print or affix or in any way place a sign in, on or about
the Premises, upon expiration or other sooner termination of this Lease, Tenant
at Tenant's sole cost and expense shall both remove such sign and repair all
damage in such a manner as to restore all aspects of the appearance of the
Premises to the condition prior to the placement of said sign.
All approved signs or lettering on outside doors shall be printed, painted,
affixed or inscribed at the expense of Tenant by a person approved of by
Landlord.
Tenant shall not place anything or allow anything to be placed near the
glass of any window, door partition or wall which may appear unsightly from
outside the Premises. During the Term of this Lease in which Tenant is the sole
occupant of said Premises, Tenant shall be entitled to use the entire monument
sign designated for said building.
IN WITNESS WHEREOF, Landlord and Tenant have executed and delivered this
Lease as of the day and year last written below.
LANDLORD: TENANT:
ARRILLAGA FAMILY TRUST THE VANTIVE CORPORATION
a California Corporation
By /s/ John Arrillaga By /s/ Michael Loo
---------------------------------- -----------------------------------
John Arrillaga, Trustee Michael Loo, Director of Finance
Date: 12/02/96 Date: 28-OCT-96
------------------------------- --------------------------------
RICHARD T. PERRY SEPARATE PROPERTY TRUST
By /s/ Richard T. Perry
----------------------------------
Richard T. Perry, Trustee
Date:_______________________________
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<PAGE>
Paragraphs 43 through 60 to Lease Agreement Dated September 4, 1996, By and
Between the Arrillaga Family Trust and the Richard T. Peery Separate Property
Trust, as Landlord, and The VANTIVE CORPORATION, a California corporation, as
Tenant for 24,000+ Square Feet of Space Located at 3333 Octavius Drive, Santa
Clara, California.
43. BASIC RENT: In accordance with Paragraph 4A herein, the total aggregate sum
----------
of FOUR MILLION THIRTY TWO THOUSAND AND NO/100 DOLLARS ($4,032,000.00), shall be
payable as follows:
On January 1, 1997, the sum of FORTY FOUR THOUSAND FOUR HUNDRED AND NO/100
DOLLARS ($44,400.00) shall be due, and a like sum due on the first day of each
month thereafter, through and including December 1, 1997.
On January 1, 1998, the sun of FORTY FIVE THOUSAND SIX HUNDRED AND NO/100
DOLLARS ($45,600.00) shall be due, and a like sum due on the first day of each
month thereafter, through and including December 1, 1998.
On January 1, 1999, the sum of FORTY SIX THOUSAND EIGHT HUNDRED AND NO/100
DOLLARS ($46,800.00) shall be due, and a like sum due on the first day of each
month thereafter, through and including December 1, 1999.
On January 1, 2000, the sum of FORTY EIGHT THOUSAND AND NO/100 DOLLARS
($48,000.00) shall be due, and a like sum due on the first day of each month
thereafter, through and including December 1, 2000.
On January 1,2001, the sum of FORTY NINE THOUSAND TWO HUNDRED AND NO/100
DOLLARS ($49,200.00) shall be due, and a like sum due on the first day of each
month thereafter, through and including December 1,2001.
On January 1, 2002, the sum of FIFTY THOUSAND FOUR HUNDRED AND NO/100
DOLLARS ($50,400.00) shall be due, and a like sum due on the first day of each
month thereafter, through and including December 1, 2002.
On January 1, 2003, the sum of FIFTY ONE THOUSAND SIX HUNDRED AND NO/100
DOLLARS (.$51,600.00) shall be due, and a like sum due on the first day of each
month thereafter, through and including December 1, 2003; or until the entire
aggregate sum of FOUR MILLION THIRTY TWO THOUSAND AND NO/100 DOLLARS
($4,032,000.00) has been paid.
44. "AS-IS" BASIS: Subject only to Paragraphs 51, 52, 53 and 55, it is hereby
-------------
agreed that the Premises leased hereunder is leased strictly on an "as-is" basis
and in its present condition, and in the configuration as shown on Exhibit B
---------
attached hereto, and by reference made a part hereof. Except as specifically
noted herein, it is specifically agreed between the parties that Landlord shall
not be required to make, nor be responsible for any cost, in connection with any
repair, restoration, and/or improvement to the Premises in order for this Lease
to commence, or thereafter, throughout the Term of this Lease. Landlord makes no
warranty or representation of any kind or nature whatsoever as to the condition
or repair of the Premises, nor as to the use or occupancy which may be made
thereof.
45. CONSENT. Whenever the consent of one party to the other is required
-------
hereunder, such consent shall not be unreasonably withheld.
46. CHOICE OF LAW: SEVERABILITY. This Lease shall in all respects be governed
---------------------------
by and construed in accordance with the laws of the State of California. If any
provisions of this Lease shall be invalid, unenforceable, or ineffective for any
reason whatsoever, all other provisions hereof shall be and remain in full force
and effect.
47. AUTHORITY TO EXECUTE. The parties executing this Lease Agreement hereby
----------------------
warrant and represent that they are properly authorized to execute this Lease
Agreement and bind the parties on behalf of whom they execute this Lease
Agreement and to all of the terms, covenants and conditions of this Lease
Agreement as they relate to the respective parties hereto.
Page 9 Initial: [ILLEGIBLE]
<PAGE>
48. ASSESSMENT CREDITS: The demised property herein may be subject to a
------------------
special assessment levied by the City of Santa Clara as part of an Improvement
District. As a part of said special assessment proceedings (if any), additional
bonds were or may be sold and assessments were or may be levied to provide for
construction contingencies and reserve funds. Interest shall be earned on such
funds created for contingencies and on reserve funds which will be credited for
the benefit of said assessment district. To the extent surpluses are created in
said district through unused contingency funds, interest earnings or reserve
funds, such surpluses shall be deemed the property of Landlord. Notwithstanding
that such surpluses may be credited on assessments otherwise due against the
Leased Premises, Tenant shall pay to Landlord, as additional rent if, and at
the time of any such credit of surpluses, an amount equal to all such surpluses
so credited. For example: if (i) the property is subject to an annual assessment
of $1,000.00, and (ii) a surplus of $200.00 is credited towards the current
year's assessment which reduces the assessment amount shown on the property tax
bill from $1,000.00 to $800.00, Tenant shall, upon receipt of notice from
Landlord, pay to Landlord said $200.00 credit as Additional Rent.
49. ASSIGNMENT AND SUBLETTING:
-------------------------
A. Subject to Paragraph 49B below, Tenant shall not assign, transfer, or
hypothecate the leasehold estate under this Lease, or any interest therein, and
shall not sublet the Premises, or any part thereof, or any right or privilege
appurtenant thereto, or suffer any other person or entity to occupy or use the
Premises, or any portion thereof, without, in each case, the prior written
consent of Landlord which consent shall not be unreasonably withheld. As a
condition for granting this consent to any assignment, transfer, subletting or
sub-subletting, Landlord may require that Tenant agrees to pay to Landlord, as
Additional Rent, fifty percent (50%) of all rents or additional consideration
(net of reasonable third party broker fees) received by Tenant from its
assignees, transferees, subtenants, and/or sub-subtenants (if any, which in any
and all cases require the written approval of Landlord) in excess of the rent
payable by Tenant to Landlord hereunder. Tenant shall, by thirty (30) days
written notice, advise Landlord of its intent to assign or transfer Tenant's
interest in the Lease or sublet the Premises or any portion thereof for any part
of the term hereof. Within two (2) weeks after receipt of said written notice,
Landlord may, at its sole discretion, elect to terminate this Lease as to the
portion of the Premises described in Tenant's notice on the date specified in
Tenant's notice by giving written notice of such election to terminate, however,
Tenant may, within three (3) business days after receipt of such election by
Landlord, rescind its request to assign or transfer Tenant's interest in the
Lease by providing Landlord written notice thereof, in which event Landlord's
election to terminate shall be null and void. If no such notice to terminate is
given to Tenant within said two (2) week period, Tenant may proceed to locate an
acceptable sublessee, assignee, or other transferee for presentment to Landlord
for Landlord's approval, all in accordance with the terms, covenants and
conditions of this Paragraph. If Tenant intents to sublet the entire Premises
and Landlord elects to terminate this Lease, this Lease shall be terminated on
the date specified in Tenant's notice. If, however, this Lease shall terminate
pursuant to the foregoing with respect to less than all the Premises, the rent,
as defined and reserved hereinabove shall be adjusted on a pro rata basis to the
number of square feet retained by Tenant, and this Lease as so amended shall
continue in Full force and effect. In the event Tenant is allowed to assign,
transfer or sublet the whole or any part of the Premises, with the prior written
consent of Landlord, which consent shall not be unreasonably withheld, no
assignee, transferee, subtenant or sub-subtenant shall assign or transfer this
Lease, either in whole or in part, or sublet the whole or any part of the
Premises, without also having obtained the prior written consent of Landlord,
which consent shall not be unreasonably withheld. A consent of Landlord to one
assignment, transfer, hypothecation, subletting, sub-subletting, occupation or
use by any other person shall not release Tenant from any of Tenant's
obligations hereunder or be deemed to be a consent to any subsequent similar or
dissimilar assignment, transfer, hypothecation, subletting, sub-subletting,
occupation or use by any other person. Any such assignment, transfer,
hypothecation, subletting, sub-subletting, occupation or use without such
consent shall be void and shall constitute a breach of this Lease by Tenant and
shall, at the option of Landlord exercised by written notice to Tenant,
terminate this Lease. The leasehold estate under this Lease shall not, nor shall
any interest therein, be assignable for any purpose by operation of law without
the written consent of Landlord, which consent shall not be unreasonably
withheld. As a condition to its consent, Landlord may require Tenant to pay all
expenses in connection with the assignment, and Landlord may require Tenant's
assignee or transferee (or other assignees or transferees) to assume in writing
all of the obligations under this Lease and for Tenant to remain liable to
Landlord under the Lease.
B. In addition to and notwithstanding anything to the contrary in
Paragraph 49A above, Tenant shall be entitled to assign or sublet without
Landlord's consent (but shall still give Landlord notice thereof) to: (i) any
parent or subsidiary corporation, or corporation with which consolidates, or
(ii) any third party or entity to whom Tenant sells all or substantially all of
its assets, provided, that the net worth of the resulting or acquiring
corporation has a net worth after the merger
Page 10 Initial: [ILLEGIBLE]
<PAGE>
consolidation or acquisition equal to or greater than the net worth of Tenant at
the time of such merger, consolidation or acquisition. No such assignment or
subletting will release the Tenant from its liability and responsibility under
this Lease to the extent Tenant continues in existence following such
transaction.
C. Any and all sublease agreement(s) between Tenant and any and all
subtenant(s) (which agreements must be consented to by Landlord, pursuant to the
requirements of this Lease) shall contain the following language:
"If Landlord and Tenant jointly and voluntarily elect, for any reason
whatsoever, to terminate the Master Lease prior to the scheduled Master
Lease termination date, then this Sublease (if then still in effect) shall
terminate concurrently with the termination of the Master Lease. Subtenant
expressly acknowledges and agrees that (1) the voluntary termination of the
Master Lease by Landlord and Tenant and the resulting termination of this
Sublease shall not give Subtenant any right or power to make any legal or
equitable claim against Landlord, including without limitation any claim
for interference with contract or interference with prospective economic
advantage, and (2) Subtenant hereby waives any and all rights it may have
under law or at equity against Landlord to challenge such an early
termination of the Sublease, and unconditionally releases and relieves
Landlord, and its officers, directors, employees and agents, from any and
all claims, demands, and/or causes of action whatsoever (collectively,
"Claims"), whether such matters are known or unknown, latent or apparent,
suspected or unsuspected, foreseeable or unforeseeable, which Subtenant may
have arising out of or in - connection with any such early termination of
this Sublease. Subtenant knowingly and - intentionally waives any and all
protection which is or may be given by Section 1542 of the California Civil
Code which provides as follows: "A general release does not extend to
claims which the creditor does not know or suspect to exist in his favor at
the time of executing the release, which if known by him must have
materially affected his settlement with debtor.
The term of this Sublease is therefore subject to early termination.
Subtenant's initials here below evidence (a) Subtenant's consideration of
and agreement to this early termination provision, (b) Subtenant's
acknowledgment that, in determining the net benefits to be derived by
Subtenant under the terms of this Sublease, Subtenant has anticipated the
potential for early termination, and (c) Subtenant's agreement to the
general waiver and release of Claims above.
Initials:___________ Initials:_____________"
Subtenant Tenant
50. HAZARDOUS MATERIALS: Landlord and Tenant agree as follows with respect to
-------------------
the existence or use of "Hazardous Materials" (as defined herein) on, in, under
or about the Premises and real property located beneath said Premises
(hereinafter collectively referred to as the "Property") and the Complex:
A. As used herein, the term "Hazardous Materials" shall mean any
hazardous or toxic substance, material or waste which is or becomes subject to
or regulated by any local governmental authority, the State of California, or
the United States Government. The term "Hazardous Materials" includes, without
limitation any material or hazardous substance which is (i) listed under Article
9 or defined as "hazardous" or "extremely hazardous" pursuant to Article 11 of
Title 22 of the California Administrative Code, Division 4, Chapter 30, (ii)
listed or defined as a "hazardous waste" pursuant to the Federal Resource
Conservation and Recovery Act, Section 42 U.S.C. Section 6901 et. seq., (iii)
listed or defined as a "hazardous substance" pursuant to the Comprehensive
Environmental Response, Compensation and Liability Act, 42 U.S.C. Section 9601
et. seq. (42 U.S.C. Section 9601), (iv) petroleum or any derivative of
petroleum, or (v) asbestos.
B. Subject to the terms of this Paragraph 50, Tenant shall have no
obligation to "clean up", reimburse, release, indemnify, or defend Landlord with
respect to any Hazardous Materials or wastes which Tenant (prior to and during
the term of the Lease) or other parties on the Property (during the term of this
Lease) did not store, dispose, or transport in, use, or cause to be on the
Property in violation of applicable law.
C. Tenant will be 100 percent liable and responsible for (i) any and all
"cleanup" of said Hazardous Materials contamination which Tenant, its agents,
employees, contractors, invitees or its future subtenants and/or assignees (if
any), or other parties (other than Landlord or Landlord's employees, agents,
contractors or invitees)on the Property, does store, dispose, or transport in,
use or cause to be on the Property and which Tenant, its agents, employees,
contractors, invitees or its future
Page 11 Initial: [ILLEGIBLE]
<PAGE>
subtenants and/or assignees (if any), or other parties on the Property, does
store, dispose, or transport in, use or cause to be on the Property, and (ii)
any claims, including third party claims, resulting from such Hazardous
Materials contamination described in clause (i) above. Tenant shall indemnify
Landlord and hold Landlord harmless from any liabilities, demands, costs,
expenses and damages, including, with-out limitation, attorney fees incurred as
a result of any claims resulting from such Hazardous Materials contamination
described in clause (i) above.
D. Tenant also agrees not to use or dispose of any Hazardous Materials on
the Property or the Complex without first obtaining Landlord's written
consent, except for the normal use in day-to- day operations of substances which
are substances which in certain strengths or quantities would be deemed
hazardous Materials, but which are typical for office us (e.g., so-called
-----
"liquid paper", copier toner, etc.). In the event consent is granted by
Landlord, Tenant agrees to complete compliance with governmental regulations,
and prior to the termination of said Lease Tenant agrees to follow the proper
closure procedures and will obtain a clearance from the local fire department
and/or the appropriate city agency. If Tenant uses Hazardous Materials, Tenant
also agrees: (i) to install, at Tenant's expense, such Hazardous Materials
monitoring devices as Landlord reasonably deems necessary and (ii) at Tenant's
sole cost and expense, each year upon the anniversary of the Commencement Date
of the Lease Term ("Anniversary Date"), to hire a qualified environmental
consultant, acceptable to Landlord, to evaluate whether Tenant is in compliance
with all applicable Governmental Regulations pertaining to Hazardous Materials.
Tenant shall submit to Landlord a report from such environmental consultant
which discusses the environmental consultant's findings within two (2) months of
each Anniversary Date. Tenant shall promptly take all steps necessary to correct
any and all problems identified by the environmental consultant and provide
Landlord with documentation of all such corrections. It is agreed that the
Parties' responsibilities related to Hazardous Materials will survive the
Termination Date of the Lease and that Landlord may obtain specific performance
of Tenant's responsibilities under this Paragraph 50.
51. MAINTENANCE OF THE PREMISES:
---------------------------
A. Roof: In addition to, and notwithstanding anything to the contrary in
----
Paragraphs 10, 44, and 55 Landlord shall, during the first six (6) months of the
Term of this Lease, be responsible for any costs for repair or damage (but not
maintenance) to the roof membrane covering the Leased Premises: provided that if
Tenant has caused such damage, Tenant shall be responsible for one hundred
(100%) percent of any such costs for repair or damage to the roof membrane so
caused by Tenant. Following the expiration of such six (6) month period Tenant
shall be responsible for paying one hundred percent (100%) of the cost of
repairs, maintenance and the replacement of the roof membrane throughout the
Term of the Lease as described in Paragraphs 4(D) and 7 above.
B. Building Systems: In addition to, and notwithstanding anything to the
----------------
contrary contained in Paragraphs 10 and 45, Landlord shall repair or cause to be
repaired, at Landlord's expense, any necessary repairs, as reasonably determined
by Landlord, (excluding maintenance) to the HVAC system, plumbing and standard
electrical wiring during the first six (6) month period in the initial Lease
Term, provided however, any repair resulting from Tenant's use will be paid for
one hundred (100%) percent by Tenant. Tenant shall notify Landlord of any such
necessary repairs and Landlord will approve such repairs and the related cost
before such repairs are made.
52. AMORTIZATION OF CAPITAL IMPROVEMENTS: Notwithstanding anything to the
------------------------------------
contrary in Paragraphs 7 and 10, Landlord shall amortize the cost of capital
improvements (if any) as an operating expense in accordance with standard
accounting practices and Tenant shall pay its pro rata share of said capital
improvement cost based on the remaining Term (and/or extended Term, if any) of
the Lease. For example: (i) Landlord incurs capital improvement costs of $I0,000
one year prior to Lease Termination Date, and (ii) said capital improvement's
life is ten (10) years; Tenant shall pay upon receipt of invoice from Landlord
its pro rata share of $1.000.00).
In the event the Term of the Lease is extended for any reason whatsoever,
Tenant's pro rata share of the capital improvement cost shall be increased to
include the additional amount payable to Landlord due to the Extended Term of
the Lease. For Example: In the event: (i) Landlord incurred capital improvement
costs illustrated above; and (ii) this Lease is extended for an additional three
year period, Tenant would be liable for an additional payment to Landlord of
$3,000.00 as Additional Rent. Said payment would be due in full immediately upon
Tenant's execution of Lease documentation related to said Lease extension.
Page 12 Initial: [ILLEGIBLE]
<PAGE>
53. COMPLIANCE (CONTINUED): Any non-conformance of the Tenant Improvements
----------------------
installed and paid for by Landlord as set forth on Exhibit B, required to be
----------
corrected by a governing agency, shall be corrected at the cost and expense of
Landlord if such non-conformance exists as of the Commencement Date of the Lease
and further provided that such governing agency's requirement to "correct the
non-conformance is not initiated as a result of: (i) any future improvements
made by Tenant; or (ii) any permit request made to a governing agency by Tenant.
Any non-conformance of the Premises occurring after the Commencement Date of
this Lease Agreement shall be the responsibility of Tenant to correct at
Tenant's cost and expense.
54. ADDITIONAL RENT (CONTINUED): Notwithstanding anything to the contrary in
---------------------------
Paragraph 4D, Landlord shall provide a written reconciliation in reasonable
detail of the foregoing expenses within one hundred twenty (120) days after the
end of each calendar year, or more frequently if Landlord elects to do so, at
Landlord's sole and absolute discretion. Within thirty (30) days after receipt
of Landlord's reconciliation, Tenant shall have the right, at Tenant's sole
expense, to audit, at a mutually convenient time at Landlord's office,
Landlord's records relating to the foregoing expenses. Such audit must be
conducted by Tenant or an independent nationally recognized accounting firm that
is not being compensated by Tenant or other third part), on a contingency fee
basis. If such audit reveals that Landlord has overcharged Tenant, the amount
overcharged shall be credited to Tenant's account within thirty (30) days after
the audit is concluded. If the audit reveals Tenant has been undercharged,
Tenant shall pay the amount of the undercharge within thirty (30) days of
receipt of a statement from Landlord.
The following items shall be excluded from "Additional Rent":
A. Any expense reasonably allocable to a particular building in the
Complex, rather than to the Complex as a whole; provided however, that
any expense incurred by Landlord for Tenant's Leased Premises shall be
included as Additional Rent.
B. Leasing commissions, attorney's fees, costs, disbursements, and other
expenses incurred in connection with negotiations with other tenants,
or disputes between Landlord and other tenants, or in connection with
marketing, leasing, renovating, or improving space for other current
or prospective tenants or other current or prospective occupants of
the Complex.
C. The cost of any service sold to any other tenant or other occupant for
which Landlord is entitled to be reimbursed as an additional charge or
rental over and above the basic rent and additional rent payable under
the lease agreement with said other tenant or other occupant
(including, without limitation, after-hours HVAC costs or over-
standard electrical consumption costs incurred by other tenants or
occupants).
D. Any costs for which Landlord is reimbursed by others.
E. Any costs, fines, or penalties incurred due to violations by Landlord
of any governmental role or authority.
F. Management costs to the extent they exceed two percent (2%) of the
monthly Basic Rent due under the Lease.
G. Wages, salaries, or other compensation paid to executive employees
above the grade of Property Manager.
H. The cost of correcting any building code or other violations which are
violations prior to the Lease Commencement Date and which violations
were not caused by or contributed to by Tenant.
I. Repairs or other work occasioned by fire, windstorm, or other insured
casualty or hazard, to the extent that Landlord shall receive proceeds
of such insurance or would have received such proceeds had Landlord
maintained the insurance coverage required under this Lease.
J. Repairs or building necessitated by condemnation.
K. Depreciation and amortization, other than as permitted pursuant to
this Lease.
L. Except as otherwise noted in this Lease, debt service payments on any
indebtedness
Page 13 Initial: [ILLEGIBLE]
<PAGE>
applicable to the Complex or any portion thereof, including any
mortgage debt, or ground rents or any other amounts payable under any
ground lease for the Property.
M. Space planning fees and commissions.
N. Any amounts paid to any person, firm or corporation related or
otherwise affiliated with Landlord or any general partner, officer, or
director of Landlord or any general partners, to the extent same
exceeds arms-length competitive prices paid in the Santa Clara,
California metropolitan area for the services or goods provided.
55. COMMON AREA MAINTENANCE: Subject to Paragraph 5, ("Rules and Regulations
-----------------------
and Common Area ) and Paragraph 7, ("Expenses of Operation, Management, and
Maintenance of the Common Areas of the Complex and Building in Which the
Premises are Located"), Landlord shall maintain or cause to be maintained and
repaired the Common Areas of the Complex (such as Common Area elevators, stairs,
corridors, restrooms and sidewalks), all landscaping, parking areas and all
portions of the Complex, the maintenance of which is not the express obligation
of Tenant or other occupants of the Complex, and Tenant shall pay its pro rata
share of said costs and expenses for said maintenance and repairs.
56. SUBORDINATION AND MORTGAGES (CONTINUED): Notwithstanding anything to
---------------------------------------
contrary contained in Paragraph 20 of this Lease, Tenant's agreement to
subordinate to any existing or future lender shall be conditional upon the
receipt by Tenant of a non-disturbance agreement on such lender's commercially
reasonable form, executed by Landlord and such lender.
57. ENTRY BY LANDLORD (CONTINUED): Notwithstanding anything to the contrary
-----------------------------
contained in Paragraph 21 of this Lease, Tenant shall have the right to require
that Landlord be accompanied by a representative of Tenant during any entry of
the Premises pursuant to the provisions of Paragraph 21 of the Lease (except in
the case of emergency).
58. SALE OR CONVEYANCE BY LANDLORD (CONTINUED): Not withstanding anything to
------------------------------------------
the contrary in the Lease, if Landlord sells or otherwise conveys its interest
in the Premises, Landlord shall not be relieved of its obligation under the
Lease, unless and until Landlord transfers the balance of Tenant's Security
Deposit (if any) to its successor and the successor assumes in writing Landlords
obligations under the Lease.
59. OPTION TO EXTEND LEASE. FOR FIVE (5) YEARS: Provided Tenant is not in
------------------------------------------
default (pursuant to Paragraph 22 of the Lease, i.e., Tenant has received notice
-----
and any applicable cure period has expired without cure) of any of the terms,
covenants, and conditions of this Lease Agreement, Landlord hereby grants to
Tenant an Option to Extend this Lease Agreement for an additional five (5) year
period (the "Extended Term") upon the following terms and conditions.
A. Tenant shall give Landlord written notice of Tenant's exercise of this
Option to Extend not later than twelve (12) months prior to the scheduled Lease
Termination Date, which date is currently projected to be December 31, 2003, in
which event the Lease shall be considered extended for an additional five (5)
years subject to the Basic Rental set forth below and with: (i) the terms and
conditions subject to amendment by Landlord (Landlord, in its sole and absolute
discretion, may, but is not required to, incorporate its current Lease
provisions that are standard in Landlord's leases as of the date or Tenant's
exercise of its Option to Extend) and (ii) this Paragraph 39, deleted. In the
event that Tenant fails to timely exercise Tenants option as set forth herein in
writing, Tenant shall have no further Option to Extend this Lease, and this
Lease shall continue in full force and effect for the full remaining term
hereof, absent this Paragraph 59.
B. The following summarizes the Basic Monthly Rental and the related per
square foot charge by period under the Lease Agreement that would be applied to
the Extended Term:
Page 14 Initial: [ILLEGIBLE]
<PAGE>
Monthly
Period PSF Rate Basic Rental
01/01/04 - 12/31/04 $2.20 $52,800.00
01/01/05 - 12/31/05 $2.25 $54,000.00
01/01/06 - 12/31/06 $2.30 $55,200.00
01/01/07 - 12/31/07 $2.35 $56,400.00
01/01/08 - 12/31/08 $2.40 $57,600.00
C. The option rights of Tenant under this Paragraph 59, and the Extended Term
thereunder, are granted for Tenant's personal benefit and may not be assigned or
transferred by Tenant, (except to a parent or subsidiary corporation, or
corporation with which Tenant merges or consolidates or to whom Tenant sells all
or substantially all of its assets as provided for in Paragraph 49), either
voluntarily or by operation of law, in any manner whatsoever. In the event that
Landlord consents to a sublease or assignment under Paragraph 49, the option
granted herein and any Extended Term thereunder shall be void and of no force
and effect, whether or not Tenant shall have purported to exercise such option
prior to such assignment or sublease.
D. INCREASED SECURITY DEPOSIT: In the event the term of Tenant's Lease is
--------------------------
extended pursuant to this Paragraph 59, Tenant's Security Deposit shall be
increased to equal twice the Basic Rental due for the last month of the extended
term (i.e. $57.600.00 per month X 2 = $115,200.00).
60. MAINTENANCE OF THE PREMISES: Notwithstanding anything to the contrary in
---------------------------
Paragraph 10, Landlord shall repair damage to the structural shell, foundation,
and roof structure (but not the interior improvements, roof membrane, or
glazing) of the building leased hereunder at Landlord's cost and expense
provided Tenant has not caused such damage, in which event Tenant shall be
responsible for 100 percent of any such costs for repair or damage so caused by
the Tenant. Notwithstanding the foregoing, a crack in the foundation, or
exterior walls that does not endanger the structural integrity of the building,
or which is not life-threatening, shall not be considered material, and shall
not require either Landlord or Tenant to repair the same (unless Tenant has
caused the damage, in which case Tenant shall be responsible for the cost of
said repair(s) regardless of how minor said repair(s) may be).
<PAGE>
[SITE PLAN APPEARS HERE]
Park Square - Phase 2
Buildings 1 - 6
Santa Clara, California 95051
EXHIBIT A TO LEASE AGREEMENT DATED SEPTEMBER 4, 1996 BY AND BETWEEN THE
- ---------
ARRILLAGA FAMILY TRUST AND THE RICHARD T. PEERY SEPARATE PROPERTY TRUST, AS
LANDLORD AND THE VANTIVE CORPORATION, AS TENANT.
<PAGE>
[PLAN APPEARS HERE]
EXHIBIT B TO LEASE AGREEMENT DATED SEPTEMBER 4, 1996 BY AND BETWEEN THE
- ---------
ARRILLAGA FAMILY TRUST AND THE RICHARD T. PEERY SEPARATE PROPERTY TRUST, AS
LANDLORD, AND THE VANTIVE CORPORATION, AS TENANT.
<PAGE>
EXHIBIT 10.14
FY'99 Executive Incentive Plan
Objective
The objective of the Executive Incentive Plan is to compensate Plan participants
for their contribution toward achievement of the Company's 1999 business
objectives.
Effective Date
This Plan is effective July 1, 1998 through July 1, 1999, and supersedes,
replaces, and cancels all earlier incentive or bonus plans effective prior to
the effective date of this Plan.
Eligibility and Plan Participation
This Plan is limited to Active Software's executive staff. For the purposes of
the 1999 Plan year, eligible positions include:
Chief Financial Officer
Vice President, Professional Services
Vice President of Engineering
SR. Vice President, Sales
Vice President, Marketing
Eligibility will commence upon the outset of employment with Active Software for
all eligible new hires within the Plan year, or upon a transfer or promotion of
an existing employee to an eligible position.
Incentive Plan Elements
The Executive Incentive Plan includes the following elements of cash
compensation:
Base Salary
Base salary is the amount of fixed pay earned by the Plan participant for the
entire year in accordance with Active Software policies and procedures,
excluding any general bonus or special awards. The annual base salary will be
prorated and paid in accordance with Active Software's semi-monthly payroll
schedule.
1
<PAGE>
Target Incentive
The target bonus amount for performance to company performance measures is based
on salaries, which are set at mid-year (around July/August) and are computed
using quarterly objectives. If the Plan participant is hired during a quarter,
this target amount will be prorated from the date of hire. The target bonus
amount typically remains fixed for the plan year, unless there is a change that
affects participation.
The company's financial performance must be at 75% of the Plan revenue goals
before any bonuses will be paid. Once the performance threshold has been
attained, the percent of bonus payout will be equal to the percent attainment to
each performance measure. The maximum bonus amount is 200% of plan. For example,
if the company attained 120% of the Plan revenue goals, then the portion of the
individual bonus tied to revenue would pay out at 120% of the targeted amount.
If the company only attained 70% of the Plan revenue goals, then there would be
no bonus payout.
Incentive bonuses will be paid quarterly, within 30 days following the end-of-
quarter close.
Plan Design
The plan is based on three measures of performance: two financial measures and a
product plan measure.
The financial components are:
1. Bookings: Defined as the dollar amount of quarterly bookings.
2. Departmental Expenses: Defined as actual expenses against planned expenses.
3. The Product Plan component is measured by performance against critical
milestones in the product release schedules.
The company performance measures will be set annually at the beginning of the
fiscal year, and may be modified as needed by the CEO after consultation with
the Senior Staff.
Additional Plan Guidelines
Leave of Absence
In the event of an extended leave of absence (more than 60 days), the payout may
be prorated based on the following formula: number of weeks of active employment
during the plan quarter divided by 13, times the calculated payout.
2
<PAGE>
Change of Status
In the event of a change in status from full-time to part-time, the targeted
award will be prorated based on the number of weeks of full-time employment, and
the number of weeks of part-time employment.
In the event of a transfer to a position within the company that does not meet
the participation criteria, the payout will be prorated based on the number of
weeks the employee was in the eligible position.
Terminations/Resignations
In the event of a voluntary termination, a termination due to performance
issues, or a termination due to a violation of Active Software policies, prior
to the date that bonuses are paid, the Plan participant will not be eligible for
any portion of the bonus.
In the event of a termination of employment due to anything other than those
listed in the previous paragraph, the Plan participant may be eligible to
receive a prorated payment based on the following formula: number of weeks
employed during the plan quarter divided by 13, times the calculated payout.
Plan Modifications
The plan is administered by the Chief Executive Officer. To keep the plan
equitable and preserve its objectives, the CEO reserves the right to make any
adjustments necessary to account for unforeseen events and business conditions
that could materially alter corporate performance or affect the operation of the
plan. The company reserves the right to discontinue or change the plan at any
time in the future. If the plan is suspended during a plan year, no payout under
the plan need be made. Participation in the plan is not to be considered a
guarantee of employment for any duration with the company. Nor does it modify
the "at will" employment relationship between the Plan participant and the
company.
All changes to the Plan must be in writing and require the written approval of
the CEO.
Attachments
FY'99 Company Performance Measures
(Including any revisions by quarter)
3
<PAGE>
Executive Incentive Plan
Fiscal Year 1999
_________________ _________________
Name Title
Plan Elements
Base Salary
Target Incentive @ 100% of Plan
Bookings %
Expense %
Product %
Total Compensation at 100% Annual Target
Plan Participant's Agreement
The plan participant's signature indicates his/her acknowledgment and acceptance
of this plan, including all appendixes and worksheets annexed to the plan, as
well as other referenced documents.
_____________________________ __________________________
Signature Date
____________________________ __________________________
Chief Executive Officer Date
Active Software
4
<PAGE>
EXHIBIT 21.1
List of Subsidiaries of Active Software, Inc.
<TABLE>
<CAPTION>
Name of Subsidiary Jurisdiction Doing Business As
- ------------------ ------------ -----------------
<S> <C> <C>
Active Software California Active Software
International, Inc. International, Inc.
Active Software Europe Netherlands Active Software
B.V. Europe B.V.
Active Software (UK) Ltd. United Kingdom Active Software
(UK) Ltd.
</TABLE>
Active Software International, Inc. is a wholly owned subsidiary of Active
Software, Inc. Active Software Europe B.V. and Active Software (UK) Ltd. are
wholly owned subsidiaries of Active Software International, Inc.
<PAGE>
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
"We consent to the use in this Registration Statement of Active Software, Inc.
on Form S-1 of our report dated January 22, 1999 (June 10, 1999 as to the Note
10) appearing in the Prospectus, which is part of the Registration Statement
and of our report dated January 22, 1999 relating to the financial statement
schedule appearing elsewhere in this Registration Statement. We also consent to
the reference to us under the headings "Selected Consolidated Financial Data"
and "Experts" in such Prospectus.
San Jose, California
June 10, 1999"
The consolidated financial statements of Active Software, Inc. included in
the Prospectus have been adjusted to give effect to the three-for-two common
and convertible redeemable preferred stock split as described in the sixth
paragraph of Note 10 to the consolidated financial statements. The above
consent is in the form that will be signed by Deloitte & Touche LLP upon the
effectiveness of such event assuming that from June 10, 1999 to the effective
date of such event, no other events shall have occurred that would affect the
accompanying consolidated financial statements or notes thereto.
DELOITTE & TOUCHE LLP
San Jose, California
June 10, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1999
<PERIOD-START> JAN-01-1998 JAN-01-1999
<PERIOD-END> DEC-31-1998 MAR-31-1999
<CASH> 7,461 5,745
<SECURITIES> 0 0
<RECEIVABLES> 3,562 2,865
<ALLOWANCES> 200 200
<INVENTORY> 0 0
<CURRENT-ASSETS> 11,318 9,047
<PP&E> 1,697 1,944
<DEPRECIATION> 901 1,025
<TOTAL-ASSETS> 12,294 10,269
<CURRENT-LIABILITIES> 3,825 4,058
<BONDS> 0 0
0 0
25,117 25,117
<COMMON> 836 2,828
<OTHER-SE> 17,592 21,818
<TOTAL-LIABILITY-AND-EQUITY> 12,294 10,269
<SALES> 7,599 3,562
<TOTAL-REVENUES> 7,599 3,562
<CGS> 2,767 1,379
<TOTAL-COSTS> 2,767 1,379
<OTHER-EXPENSES> 14,429 4,784
<LOSS-PROVISION> 118 0
<INTEREST-EXPENSE> 42 41
<INCOME-PRETAX> (9,326) (2,580)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (9,326) (2,580)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (9,326) (2,580)
<EPS-BASIC> 0.60 0.14
<EPS-DILUTED> 0.60 0.14
</TABLE>
