<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 10, 1999.
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------------------
SELECTICA, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
-------------------------
<TABLE>
<S> <C> <C>
DELAWARE 7372 77-0432030
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
2890 ZANKER ROAD, SUITE 101, SAN JOSE CA 95134
(408) 570-9700
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
RAJEN JASWA
CHIEF EXECUTIVE OFFICER AND CHAIRMAN OF THE BOARD
SELECTICA, INC.
2890 ZANKER ROAD, SUITE 101, SAN JOSE CA 95134
(408) 570-9700
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
-------------------------
COPIES TO:
<TABLE>
<S> <C>
ROBERT V. GUNDERSON, JR., ESQ. MARK A. BERTELSEN, ESQ.
BENNETT L. YEE, ESQ. JOSE F. MACIAS, ESQ.
ANDREW BAW, ESQ. BETSEY SUE, ESQ.
THEODORE G. WANG, ESQ. JON C. AVINA, ESQ.
PARKER E. HOBSON, ESQ. BROOKE D. COLEMAN, ESQ.
GUNDERSON DETTMER STOUGH WILSON SONSINI GOODRICH & ROSATI
VILLENEUVE FRANKLIN & HACHIGIAN, LLP PROFESSIONAL CORPORATION
155 CONSTITUTION DRIVE 650 PAGE MILL ROAD
MENLO PARK, CALIFORNIA 94025 PALO ALTO, CALIFORNIA 94304
(650) 321-2400 (650) 493-9300
</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, as amended, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ] ____________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ____________
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
TITLE OF EACH CLASS OF PROPOSED MAXIMUM
SECURITIES TO BE REGISTERED AGGREGATE OFFERING PRICE(1) AMOUNT OF REGISTRATION FEE
<S> <C> <C>
- -------------------------------------------------------------------------------------------------------------------
Common Stock, $0.0001 par value.................. $75,000,000 $19,800
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of computing the amount of the registration
fee pursuant to Rule 457(o).
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SUCH SECTION 8(a), MAY DETERMINE. THE INFORMATION IN THIS
PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES
UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE
SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY
STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS
PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT
SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER
OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED , 2000
Shares
[Selectica Logo]
Common Stock
------------------
Prior to this offering, there has been no public market for our common
stock. The initial public offering price of our common stock is expected to be
between $ and $ per share. We have made application to list our
common stock on The Nasdaq Stock Market's National Market under the symbol
"SLTC."
The underwriters have an option to purchase a maximum of
additional shares to cover over-allotments of shares.
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" ON PAGE 6.
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS SELECTICA
---------------- ---------------- ----------------
<S> <C> <C> <C>
Per Share............................................ $ $ $
Total................................................ $ $ $
</TABLE>
Delivery of the shares of common stock will be made on or about
, 2000.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
CREDIT SUISSE FIRST BOSTON
THOMAS WEISEL PARTNERS LLC
U.S. BANCORP PIPER JAFFRAY
The date of this prospectus is , 2000.
<PAGE> 3
[DESCRIPTION OF ARTWORK
At the top of the page is the phrase: "Selectica's Internet Selling System
Solution:" The following phrase is beneath: "Managing the Sale and Lifecycle of
Complex Products and Services."
In the center of the page is a diagram with a small circle situated in the
middle of a larger ring. The small circle is darkly shaded and contains the
following text: "ACE Knowledge Base." The ring is divided into eight sections,
each of which has an arrow which points to and from the shaded circle. The outer
section of the ring contains the following text: "Proposal Preparation," "Order
Fulfillment," "Moves, Changes and Additions," "Needs Analysis," "Product/Service
Configuration," "Cross-Sell Up-Sell," "Financing/Support Configuration" and
"Pricing Quotation." The word "Internet" is between two of the arrows.
Above the ring are three screen shots of our customers' web sites. An arrow
links each screen shot to a section of the ring. Below the screen shot to the
left is the following text: "By using Selectica, BMW provides customers with its
full range of features, options and financing alternatives to configure and
price an automobile, and has had over 240 million hits to date." To the right of
the screen shot in the middle is the following text: "HP has built an advisor
using Selectica that analyzes users' needs and identifies the optimal product
match from among dozens of options." Below the screen shot to the right is the
following text: "3Com used Selectica to assist users in configuring complex
network routers in real time."
Below the ring are three screen shots out of customers' web sites. An arrow
links each screen shot to a section of the ring. Above the screen shot to the
left is the following text: "Selectica's technology is in use both in the U.S.
and internationally at companies such as Samsung where Korean resellers can
configure and buy PCs in an intuitive, guided selling environment." To the right
of the screen shot in the middle is the following text: "Aspect Communications
uses Selectica to keep its sales force current on pricing structures so that
quotes can be generated accurately and quickly." Above the screen shot to the
right is the following text: "3Com also used Selectica to build a network
advisor that is deployed on distributors' web sites."]
<PAGE> 4
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
PROSPECTUS SUMMARY.................. 3
RISK FACTORS........................ 6
SPECIAL NOTE REGARDING FORWARD-
LOOKING STATEMENTS................ 19
USE OF PROCEEDS..................... 20
DIVIDEND POLICY..................... 20
CAPITALIZATION...................... 21
DILUTION............................ 22
SELECTED CONSOLIDATED FINANCIAL
DATA.............................. 23
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS..................... 24
BUSINESS............................ 36
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
MANAGEMENT.......................... 47
RELATED PARTY TRANSACTIONS.......... 57
PRINCIPAL STOCKHOLDERS.............. 59
DESCRIPTION OF CAPITAL STOCK........ 63
SHARES ELIGIBLE FOR FUTURE SALE..... 66
UNDERWRITING........................ 68
NOTICE TO CANADIAN RESIDENTS........ 70
LEGAL MATTERS....................... 71
EXPERTS............................. 71
WHERE YOU CAN FIND MORE
INFORMATION....................... 71
INDEX TO CONSOLIDATED FINANCIAL
STATEMENTS........................ F-1
</TABLE>
------------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR TO
WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT. THIS DOCUMENT MAY ONLY BE USED WHERE IT IS LEGAL
TO SELL THESE SECURITIES. THE INFORMATION IN THIS DOCUMENT MAY ONLY BE ACCURATE
ON THE DATE OF THIS DOCUMENT.
DEALER PROSPECTUS DELIVERY OBLIGATION
UNTIL , 2000 (25 DAYS AFTER THE COMMENCEMENT OF THIS
OFFERING), ALL DEALERS THAT EFFECT TRANSACTIONS IN THESE SECURITIES, WHETHER OR
NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE DEALER'S OBLIGATION TO DELIVER A PROSPECTUS WHEN
ACTING AS AN UNDERWRITER AND WITH RESPECT TO UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
<PAGE> 5
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information regarding Selectica and the common stock being sold in this offering
in our financial statements and notes appearing elsewhere in this prospectus and
our risk factors beginning on page 6.
SELECTICA, INC.
Selectica is a leading provider of Internet selling system software and
services that enable companies to efficiently sell complex products and services
over intranets, extranets and the Internet. Our ACE suite of software products
is a comprehensive Internet selling system, or ISS, solution that gives sellers
the ability to manage the sales process in order to facilitate the conversion of
prospective buyers into customers. Our ISS solution allows companies to use the
Internet platform to deploy a selling application to many points of contact,
including personal computers, in-store kiosks and mobile devices, while offering
customers, partners and employees an interface customized to their specific
needs.
The Internet is transforming the business environment by increasing
competition and enabling the development of new business models. In order to
remain competitive, companies must find innovative ways to sell, increase
efficiencies in the sales cycle and deliver greater customer satisfaction. A
growing number of companies are seeking to leverage the Internet to market and
sell their products and services. To date, many electronic commerce transactions
have been simple purchases of products such as books, compact discs, stocks and
toys. We believe, however, that growth in electronic commerce will be driven by
the ability of companies to complete complex transactions such as
business-to-business electronic commerce and the sale of consumer products and
services involving multiple features and options.
The completion of a complex sales transaction depends on a seller's ability
to identify and satisfy a buyer's needs. In traditional sales, companies rely on
trained salespeople to interact with customers to address customer needs,
explain product features and ultimately consummate the sale. To date, many
electronic commerce web sites have been static collections of non-interactive
content, and have limited ability to assist and guide a customer through a
purchase decision. Using the Internet to complete complex sales transactions,
however, requires businesses to implement a sophisticated system that performs
the traditional role of the salesperson throughout the sales lifecycle of the
products and services.
In parallel with the growth of electronic commerce, the Internet is
becoming a technology platform for business application deployment. With the
emergence of the Internet platform, which includes intranets, extranets and the
public Internet, companies are able to more broadly and cost-effectively deploy
business applications to customers, partners and employees and make the most
current applications and information immediately available on Internet-enabled
devices.
Our ACE suite of products enables businesses to easily develop and rapidly
deploy an Internet sales channel that interactively assists their customers,
partners and employees through the selection, configuration, pricing, quoting
and fulfillment processes. ACE is a comprehensive Internet selling system that
meets the needs of companies looking to efficiently sell complex products and
services. Our product architecture has been designed specifically for the
Internet, providing our solution with scalability, reliability and flexibility.
Additionally, our ISS solution has been developed with an open architecture that
leverages data in existing enterprise applications, such as enterprise resource
planning systems, providing an easy-to-install application that is designed to
reduce deployment time.
Our current customers include 3Com, Aspect Communications, BMW, Centigram,
Cisco, Fireman's Fund, Fujitsu, Hewlett-Packard, Juniper Networks, LoanMarket,
Redback Networks, Samsung, Siemens and Watlow. We have developed strong working
relationships with system integrators, such as Arthur Andersen, EDS, A.T.
Kearny, KPMG and PricewaterhouseCoopers, with independent software vendors, such
as BroadVision, InterWorld, Netscape/AOL, Tibco and Vitria Technology, and with
application service providers such as Asera and Corio. Our strategic investors
are the Intel 64 Fund and ITOCHU Corporation.
Selectica was incorporated in June 1996. Our principal offices are located
at 2890 Zanker Road, Suite 101, San Jose, California 95134 and our telephone
number is (408) 570-9700. Our Internet address is www.selectica.com. The
information contained on our web site does not constitute a part of this
prospectus.
3
<PAGE> 6
THE OFFERING
Common stock offered...................... shares
Common stock to be outstanding after this
offering.................................. shares
Use of proceeds........................... Working capital and general
corporate purposes. See "Use of
Proceeds."
Proposed Nasdaq National Market symbol.... SLTC
The table above is based on shares outstanding as of September 30, 1999.
This table excludes:
- 3,024,350 shares of common stock issuable upon exercise of stock options
outstanding under our stock option plans at a weighted average exercise
price of $1.49 per share;
- 523,056 shares of common stock available for issuance under our 1996
Stock Plan;
- 222,537 shares of common stock issuable upon exercise of warrants with a
weighted average exercise price of $4.11 per share;
- 2,200,000 shares of common stock available for issuance under our 1999
Equity Incentive Plan; and
- 1,000,000 shares of common stock available for issuance under our 1999
Employee Stock Purchase Plan.
------------------
Except as otherwise indicated, information in this prospectus is based on
the following assumptions:
- the reincorporation of Selectica into the state of Delaware;
- conversion of all outstanding shares of preferred stock into shares of
common stock upon the consummation of this offering;
- exercise of outstanding warrants to purchase 279,537 shares of our common
stock; and
- no exercise of the underwriters' over-allotment option.
------------------
Selectica, ACE and Selectica's logo are our trademarks and we have filed
applications to register Selectica and ACE. Trade names, service marks or
trademarks of other companies appearing in this prospectus are the property of
their respective holders.
4
<PAGE> 7
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS ENDED
PERIOD FROM INCEPTION MARCH 31, SEPTEMBER 30,
(JUNE 6, 1996) TO ----------------- -----------------
MARCH 31, 1997 1998 1999 1998 1999
--------------------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Total revenues................................ $ 55 $ 170 $ 3,444 $ 734 $ 4,635
Loss from operations.......................... (256) (3,188) (7,636) (3,127) (7,623)
Net loss...................................... (251) (3,101) (7,537) (3,064) (7,575)
Net loss per share:
Basic and diluted........................... $(0.15) $ (0.91) $ (1.58) $ (0.71) $ (1.44)
Weighted average shares -- basic and
diluted................................... 1,634 3,425 4,782 4,291 5,278
Pro forma net loss per share:
Basic and diluted........................... $ (0.44) $ (0.36)
Weighted average shares -- basic and
diluted................................... 17,282 21,316
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
--------------------------
ACTUAL AS ADJUSTED
----------- -----------
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................... $12,833
Working capital............................................. 10,190
Total assets................................................ 18,404
Total stockholders' equity.................................. 12,400
</TABLE>
See Note 1 of Notes to Financial Statements for a description of the method
that we used to compute our basic and diluted net loss per share and pro forma
basic and diluted net loss per share.
The as adjusted column in the consolidated balance sheet data table above
reflects our sale of shares of common stock in this offering, at an
assumed initial public offering price of $ per share, after deducting
estimated underwriting discounts and commissions and estimated offering expenses
payable by us and the application of our net proceeds from this offering.
5
<PAGE> 8
RISK FACTORS
This offering and an investment in our common stock involve a high degree
of risk. You should carefully consider the following risk factors and the other
information in this prospectus before investing in our common stock. Our
business and results of operations could be seriously harmed by any of the
following risks. The trading price of our common stock could decline due to any
of these risks, and you may lose all or part of your investment.
RISKS RELATED TO OUR BUSINESS
THE UNPREDICTABILITY OF OUR QUARTERLY REVENUES AND RESULTS OF OPERATIONS MAKES
IT DIFFICULT TO PREDICT OUR FINANCIAL PERFORMANCE AND MAY CAUSE VOLATILITY OR A
DECLINE IN THE PRICE OF OUR COMMON STOCK.
In the past, our quarterly operating results have varied significantly, and
we expect these fluctuations to continue. Future operating results may vary
depending on a number of factors, many of which are outside of our control.
We expect our quarterly revenues to be significantly dependent on the sale
of a small number of relatively large orders for our products and services. In
addition, our products and services generally have a long sales cycle. Even
after purchase of our products, it often takes substantial time and resources to
implement our software and to integrate it with our customers' existing computer
systems. As a result, our quarterly revenues may fluctuate significantly if
there are delays in the progress of a project or we are unable to complete one
or more substantial sales in any given quarter.
License and services revenues on contracts that require us to provide
significant implementation, customization or services which are essential to the
functionality of the software are generally recognized over the period of each
engagement primarily using the percentage-of-completion method. In cases where
the license fee or service payments are contingent on acceptance, we defer
recognition of revenues until the acceptance criteria are met. As a result, any
delay in milestone achievement or customer acceptance will cause us to delay
recognizing license revenues, which may cause fluctuations in our operating
results. In contracts where we do not provide significant implementation,
customization or services that are essential to the functionality of the
software, license revenues may be recognized upon shipment.
In addition, because we rely on a limited number of customers, the timing
of milestone achievement or customer acceptance by, the amount of services we
provide to, or the recognition of significant license revenues upon shipment to
a single customer can significantly affect our operating results. For example,
our services revenues declined significantly in the quarter ended June 30, 1999
due to completion of a services contract with BMW of North America, one of our
significant customers. Our license and services revenues increased significantly
in the quarter ended September 30, 1999 generally due to the addition of two new
customers. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Quarterly Results of Operations." We intend to
significantly increase our operating expenses for the foreseeable future.
Because these expenses are relatively fixed in the near term, any shortfall from
anticipated revenues could cause our quarterly operating results to fall below
anticipated levels.
We may also experience seasonality in revenues. For example, our quarterly
results may fluctuate based upon our customers' calendar year budgeting cycles.
These seasonal variations may lead to fluctuations in our quarterly revenues and
operating results.
Based upon the foregoing, we believe that period-to-period comparisons of
our results of operations are not necessarily meaningful and that such
comparisons should not be relied upon as indications of future performance. In
some future quarter our operating results may be below the
6
<PAGE> 9
expectations of public market analysts and investors, which could cause
volatility or a decline in the price of our common stock.
WE HAVE INCURRED LOSSES AND WE EXPECT FUTURE LOSSES.
We have experienced operating losses in each quarterly and annual period
since inception. We incurred net losses of $3.1 million for the fiscal year
ended March 31, 1998, $7.5 million for the fiscal year ended March 31, 1999 and
$7.6 million for the six months ended September 30, 1999. As of September 30,
1999, we had an accumulated deficit of $18.9 million. We expect to significantly
increase our research and development, sales and marketing, and general and
administrative expenses, and consequently our losses will significantly increase
in the future. In order to accommodate our increase in employees, we have
recently leased a larger facility, and we will incur increased capital equipment
costs. We will need to generate significant increases in our revenues to achieve
and maintain profitability. If our revenue fails to grow or grows more slowly
than we anticipate or our operating expenses exceed our expectations, our losses
will significantly increase which would significantly harm our business and
operating results.
BECAUSE WE HAVE A LIMITED OPERATING HISTORY, IT IS DIFFICULT FOR YOU TO EVALUATE
OUR BUSINESS AND PROSPECTS.
We were founded in June 1996 and have a limited operating history. We began
marketing our ACE suite of products in early 1997 and released ACE 4.0 in
November 1999. Our business model is still emerging, and the revenue and income
potential of our business and market are unproven. You should consider the risks
and difficulties we may encounter as an early stage company in the new and
rapidly evolving market for Internet selling systems. Some of the factors that
may affect us include:
- the uncertain market demand for our products;
- the intense competition that we face;
- our need to keep pace with technological change;
- our limited experience with large-scale deployment of our products;
- our need to improve our accounting and financial control systems and
accurately manage the progress of our customer contracts; and
- our reliance on a limited number of customers for a significant portion
of our revenues.
If we fail to address any of these risks or difficulties adequately, our
business strategy may not be successful and our operating results would be
harmed.
IF THE MARKET FOR INTERNET SELLING SYSTEM SOFTWARE DOES NOT DEVELOP AS WE
ANTICIPATE, OUR OPERATING RESULTS WILL BE SIGNIFICANTLY HARMED.
The market for ISS software, which has only recently begun to develop, is
evolving rapidly and likely will have an increased number of competitors.
Because this market is new, it is difficult to assess its competitive
environment, growth rate and potential size. The growth of the market is
dependent upon the willingness of businesses and consumers to purchase complex
goods and services over the Internet and the acceptance of the Internet as a
platform for business applications. In addition, companies that have already
invested substantial resources in other methods of Internet selling may be
reluctant or slow to adopt a new approach or application that may replace, limit
or compete with their existing systems.
7
<PAGE> 10
The acceptance and growth of the Internet as a business platform may not
continue to develop at historical rates and a sufficiently broad base of
companies may not adopt Internet platform-based business applications, either of
which could significantly harm our business and operating results. The failure
of the market for ISS software to develop, or a delay in the development of this
market, would significantly harm our business and operating results.
WE FACE INTENSE COMPETITION, WHICH COULD REDUCE OUR SALES AND PREVENT US FROM
ACHIEVING OR MAINTAINING PROFITABILITY.
The market for software and services that enable electronic commerce is
new, intensely competitive and rapidly changing. We expect competition to
persist and intensify, which could result in price reductions, reduced gross
margins and loss of market share. Our principal competitors include Calico
Commerce, FirePond and Trilogy Software. BAAN, Oracle Corporation, SAP and
Siebel Systems offer integrated solutions for electronic commerce incorporating
some of the functionality of an ISS and may intensify their efforts in our
market. In addition, other enterprise software companies may offer competitive
products in the future.
Competitors vary in size and in the scope and breadth of the products and
services offered. Many of our competitors and potential competitors have a
number of significant advantages over us, including:
- a longer operating history;
- preferred vendor status with our customers;
- more extensive name recognition and marketing power; and
- significantly greater financial, technical, marketing and other
resources, giving them the ability to respond more quickly to new or
changing opportunities, technologies and customer requirements.
Our competitors may also bundle their products in a manner that may
discourage users from purchasing our products. Current and potential competitors
may establish cooperative relationships with each other or with third parties,
or adopt aggressive pricing policies to gain market share. Competitive pressures
may require us to reduce the prices of our products and services. We may not be
able to maintain or expand our sales if competition increases and we are unable
to respond effectively.
IF WE DO NOT KEEP PACE WITH TECHNOLOGICAL CHANGE, INCLUDING MAINTAINING
INTEROPERABILITY OF OUR PRODUCT WITH THE SOFTWARE AND HARDWARE PLATFORMS
PREDOMINANTLY USED BY OUR CUSTOMERS, OUR PRODUCT MAY BE RENDERED OBSOLETE AND
OUR BUSINESS MAY FAIL.
Our industry is characterized by rapid technological change, changes in
customer requirements, frequent new product and service introductions and
enhancements and emerging industry standards. In order to achieve broad customer
acceptance, our products must be compatible with major software and hardware
platforms used by our customers. Our products currently operate on the Microsoft
Windows NT and Sun Solaris operating systems. In addition, our products are
required to interoperate with electronic commerce applications and databases. We
must continually modify and enhance our products to keep pace with changes in
these operating systems, applications and databases. ISS technology is complex
and new products and product enhancements can require long development and
testing periods. If our products were to be incompatible with a popular new
operating system, electronic commerce application or database, our business
would be significantly harmed. In addition, the development of entirely new
technologies to replace existing software could
8
<PAGE> 11
lead to new competitive products that have better performance or lower prices
than our products and could render our products obsolete and unmarketable.
WE HAVE LIMITED EXPERIENCE WITH LARGE-SCALE DEPLOYMENT OF OUR PRODUCTS.
Our strategy requires that our products be highly scalable, or able to
accommodate substantial increases in the number of users concurrently using the
product. To date, only a limited number of our customers have deployed our ACE
products on a large scale. If our customers cannot successfully implement
large-scale deployments, or if they determine that we cannot accommodate
large-scale deployments, our business and operating results would be
significantly harmed.
IF WE FAIL TO IMPROVE OUR ACCOUNTING AND FINANCIAL CONTROL SYSTEMS OR ACCURATELY
MANAGE THE PROGRESS OF OUR CUSTOMER CONTRACTS, OUR OPERATING RESULTS WILL BE
SIGNIFICANTLY HARMED.
In the past, we have had difficulty managing our accounting and financial
reporting systems and the volume and complexity of our customer contracts. We
need to improve our financial and accounting controls, improve our reporting and
approval procedures, expand and train key personnel within our finance and
management organizations, implement more robust information systems, and
accurately record and track our customer contracts. If we fail to improve our
financial systems, procedures and controls or if we fail to effectively manage
our customer contracts, our business and operating results would be
significantly harmed.
WE HAVE RELIED AND EXPECT TO CONTINUE TO RELY ON A LIMITED NUMBER OF CUSTOMERS
FOR A SIGNIFICANT PORTION OF OUR REVENUES.
Our business and financial condition is dependent on a limited number of
customers. Our five largest customers accounted for approximately 85% and 76% of
our revenues for the fiscal year ended March 31, 1999 and the six months ended
September 30, 1999, respectively, and our ten largest customers accounted for
96% and 95% of our revenues for the fiscal year ended March 31, 1999 and the six
months ended September 30, 1999, respectively. Revenues from significant clients
as a percentage of total revenues are as follows:
FISCAL YEAR ENDED MARCH 31, 1999
<TABLE>
<S> <C>
BMW of North America........................................ 60%
Olicom...................................................... 10%
</TABLE>
SIX MONTHS ENDED SEPTEMBER 30, 1999
<TABLE>
<S> <C>
Aspect Communications....................................... 29%
3Com Corporation............................................ 22%
BMW of North America........................................ 10%
RTS Software................................................ 10%
</TABLE>
We expect that we will continue to depend upon a relatively small number of
customers for a substantial portion of our revenues for the foreseeable future.
Contracts with our customers can generally be terminated on short notice by the
customer. As a result, if we fail to successfully sell our products and services
to one or more customers in any particular period, or a large customer purchases
less of our products or services, defers or cancels orders, or terminates its
relationship with us, our business and operating results would be harmed.
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WE NEED TO INCREASE REVENUES FROM CUSTOMERS WHO ARE CURRENTLY ENGAGED IN OUR
PILOT PROGRAMS.
A number of our current customers have purchased a license for a small
portion of our products and services for pilot programs. Purchases of expanded
licenses and services by these customers will depend on their success in
deploying ACE, their satisfaction with our products and support services and
their perception of competitive alternatives. If these customers do not purchase
additional licenses to use our ISS solution, our revenues may fall short of
expectations, which would significantly harm our business and operating results.
OUR FAILURE TO MEET CUSTOMER EXPECTATIONS ON DEPLOYMENT OF OUR PRODUCTS COULD
RESULT IN NEGATIVE PUBLICITY AND SIGNIFICANTLY HARM OUR BUSINESS AND OPERATING
RESULTS.
In the past, our customers have experienced difficulties or delays in
completing implementation of our products. We may experience similar
difficulties or delays in the future. Our ISS solution relies on defining a
knowledge base that must contain all of the information about the products and
services being configured. We have found that extracting the information
necessary to construct a knowledge base can be more time consuming than we or
our customers anticipate. If our customers do not devote the resources necessary
to create the knowledge base, the deployment of our products can be delayed.
Deploying our ACE products can also involve time-consuming integration with our
customers' legacy systems, such as existing databases and enterprise resource
planning software. Failing to meet customer expectations on deployment of our
products could result in a loss of customers and negative publicity regarding us
and our products, which could adversely affect our ability to attract new
customers. In addition, time-consuming deployments may also increase the amount
of professional services we must allocate to each customer, thereby increasing
our costs and adversely affecting our business and operating results.
OUR LENGTHY SALES CYCLE MAY CAUSE FLUCTUATIONS IN OPERATING RESULTS, WHICH COULD
CAUSE OUR STOCK PRICE TO DECLINE.
The sales cycle of our products has historically averaged between four and
six months, and may sometimes be significantly longer. We are generally required
to provide a significant level of education regarding the use and benefits of
our products, and potential customers tend to engage in extensive internal
reviews before making purchase decisions. In addition, the purchase of our
products typically involves a significant commitment by our customers of capital
and other resources, and is therefore subject to delays that are beyond our
control, such as customers' internal budgetary procedures and the testing and
acceptance of new technologies that affect key operations. In addition, because
we intend to target large companies, our sales cycle can be lengthier due to the
decision process in large organizations. As a result of our products' long sales
cycles, we face difficulty predicting the quarter in which sales to expected
customers may occur. If anticipated sales from a specific customer for a
particular quarter are not realized in that quarter, our operating results for
that quarter could fall below the expectations of financial analysts and
investors, which could cause our stock price to decline.
IF WE ARE UNABLE TO MAINTAIN AND EXPAND OUR DIRECT SALES FORCE, OUR BUSINESS AND
OPERATING RESULTS WILL BE SIGNIFICANTLY HARMED.
We depend on our direct sales force for all of our current sales and our
future growth depends on the ability of our direct sales force to develop
customer relationships and increase sales to a level that will allow us to reach
and maintain profitability.
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<PAGE> 13
There is a shortage of the sales personnel we need, such as sales
engineers, and competition for qualified personnel is intense. In addition, it
will take time for new sales personnel to achieve full productivity. If we are
unable to hire or retain qualified sales personnel, or if newly hired personnel
fail to develop the necessary skills or to reach productivity when anticipated,
we may not be able to expand our sales organization and increase sales of our
products and services.
IF WE ARE UNABLE TO GROW AND MANAGE OUR PROFESSIONAL SERVICES ORGANIZATION, OUR
BUSINESS AND OPERATING RESULTS WOULD BE SIGNIFICANTLY HARMED.
As we increase licensing of our software products, we must grow our
professional services organization to assist our customers with implementation
and maintenance of our products. Because these professional services have been
expensive to provide, we must improve the management of our professional
services organizations to improve our results of operations. Improving the
efficiency of our consulting services is dependent upon attracting and retaining
experienced project managers. Competition for these project managers is intense,
particularly in the Silicon Valley and in India where the majority of our
professional services organization is based, and we may not be able to hire
qualified individuals to fill these positions.
Although services revenues are important to our business, services revenues
have lower gross margins than license revenues. As a result, a continued
increase in the percentage of total net revenues represented by services
revenues or an unexpected decrease in license revenues could have a detrimental
impact on our overall gross margins and our operating results.
We anticipate that customers will increasingly utilize third-party
consultants to install and deploy our products. Additionally, in the future we
intend to charge for our professional services on a time and materials rather
than a fixed-fee basis. To the extent that customers are unwilling to utilize
third-party consultants or require us to provide professional services on a
fixed fee basis, our cost of services revenues could increase and could cause us
to recognize a loss on a specific contract, either of which would adversely
affect our operating results. In addition, if we are unable to provide these
resources, we may lose sales or incur customer dissatisfaction and our business
and operating results could be significantly harmed.
FAILURE TO ESTABLISH AND MAINTAIN RELATIONSHIPS WITH SYSTEMS INTEGRATORS AND
CONSULTING FIRMS WOULD IMPEDE ACCEPTANCE OF OUR PRODUCTS AND THE GROWTH OF OUR
REVENUES.
We rely in part upon systems integrators and consulting firms to recommend
our products to their customers and to install and deploy our products. To
increase our revenues and implementation capabilities, we must develop and
expand our relationships with these systems integrators and consulting firms. If
systems integrators and consulting firms develop, market or recommend
competitive Internet selling systems, our revenues may decline. In addition, if
these systems integrators and consulting firms are unwilling to install and
deploy our products, we may not have the resources to provide adequate
implementation services to our customers and our business and operating results
could be significantly harmed.
OUR OPERATING RESULTS ARE SIGNIFICANTLY DEPENDENT UPON OUR ACE SUITE OF
PRODUCTS, INCLUDING THE NEW VERSION OF OUR PRODUCT RELEASED IN NOVEMBER 1999.
We expect that we will continue to depend on revenue from new and enhanced
versions of ACE for the foreseeable future, and if companies do not adopt or
expand their use of ACE, our business and operating results would be
significantly harmed. ACE 4.0 was introduced in November 1999.
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<PAGE> 14
Since ACE 4.0 has only recently been introduced, customers may discover errors
or other problems with the product, which may adversely affect its acceptance.
WE COULD SUFFER LOSSES AND NEGATIVE PUBLICITY IF NEW VERSIONS AND RELEASES OF
OUR PRODUCTS CONTAIN ERRORS OR DEFECTS.
Complex software products such as ours often contain errors or defects,
including errors relating to security, particularly when first introduced or
when new versions or enhancements are released. In the past, we have discovered
defects in our products and provided product updates to our customers to address
such defects. ACE and other future products may contain defects or errors, which
could result in lost revenues, a delay in market acceptance or negative
publicity, which would significantly harm our business and operating results.
MANY OF OUR EXECUTIVE OFFICERS AND KEY PERSONNEL ARE RELATIVELY NEW AND MUST BE
INTEGRATED INTO OUR ORGANIZATION.
Many of our executive officers and key personnel have recently joined
Selectica, including our Vice President of Marketing and our Chief Financial
Officer, each of whom have joined Selectica since June 1999. Our future
performance will depend, in part, on our ability to successfully integrate our
newly hired executive officers and key personnel into our management team, and
our ability to develop an effective working relationship among management.
OUR RAPID GROWTH PLACES A SIGNIFICANT STRAIN ON OUR MANAGEMENT SYSTEMS AND
RESOURCES AND IF WE FAIL TO MANAGE OUR GROWTH, OUR BUSINESS WILL BE HARMED.
We have recently experienced a period of rapid growth and expansion, which
places significant demands on our managerial, administrative, operational,
financial and other resources. From November 30, 1998 to November 30, 1999, we
expanded from 92 to 220 employees. We have also significantly expanded our
operations in the U.S. and internationally and we plan to continue to expand the
geographic scope of our operations. We intend to relocate our headquarters to a
new facility in San Jose, California in the fourth quarter of fiscal 2000.
During this move we could be susceptible to technical failures and other
disruptive problems. Any such problems could diminish our ability to provide our
products and services to our customers, which could significantly harm our
business and operating results.
To accommodate continued anticipated growth and expansion, we will be
required to improve existing and implement new operational and financial
systems, procedures and controls. In particular, we will be required to improve
our accounting and financial reporting systems and to successfully manage an
increasing number of relationships with customers, suppliers and employees, and
an increasing number of complex contracts. These demands will require the
addition of new management personnel, and we are currently in the process of
recruiting individuals to fill important management positions. If we are not
able to install adequate systems, procedures and controls to support our future
operations in an efficient and timely manner, or if we are unable to otherwise
manage growth effectively, our business would be harmed.
THE LOSS OF ANY OF OUR KEY PERSONNEL WOULD HARM OUR COMPETITIVENESS.
We believe that our success will depend on the continued employment of our
senior management team and key technical personnel, none of whom, except Rajen
Jaswa, our President and Chief Executive Officer, and Dr. Sanjay Mittal, our
Chief Technical Officer and Vice President of Engineering, has an employment
agreement with us. If one or more members of our senior
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management team or key technical personnel were unable or unwilling to continue
in their present positions, these individuals would be difficult to replace.
Consequently, our ability to manage day-to-day operations, including our
operations in Pune, India, develop and deliver new technologies, attract and
retain customers, attract and retain other employees and generate revenues would
be significantly harmed.
A SUBSTANTIAL PORTION OF OUR OPERATIONS ARE CONDUCTED BY INDIA-BASED PERSONNEL
AND ANY CHANGE IN THE POLITICAL AND ECONOMIC CONDITIONS OF INDIA OR IN
IMMIGRATION POLICIES COULD SIGNIFICANTLY HARM OUR BUSINESS.
We conduct quality assurance and professional services operations in India.
As of November 30, 1999, there were 77 persons employed in India. We are
dependent on our India-based operations for these aspects of our business and we
intend to grow our operations in India. As a result, we are directly influenced
by the political and economic conditions affecting India. Operating expenses
incurred by our operations in India are denominated in Indian currency and
accordingly, we are exposed to adverse movements in currency exchange rates.
This, as well as any other political or economic problems or changes in India,
could have a negative impact on our India-based operations, resulting in
significant harm to our business and operating results. Furthermore, the
intellectual property laws of India may not adequately protect our proprietary
rights. We believe that it is particularly difficult to find quality management
personnel in India, and we may not be able to timely replace our current
India-based management team if any of them were to leave our company.
Our training program for some of our India-based employees includes an
internship at our San Jose, California headquarters. Additionally, we provide
services to some of our customers internationally with India-based employees. We
presently rely on a number of visa programs to enable these India-based
employees to travel and work internationally. Any change in the immigration
policies of India or the countries to which these employees travel and work
could cause disruption or force the termination of these programs, which would
harm our business.
BECAUSE COMPETITION FOR QUALIFIED PERSONNEL IS INTENSE IN OUR INDUSTRY AND IN
OUR GEOGRAPHIC REGION, WE MAY NOT BE ABLE TO RECRUIT OR RETAIN PERSONNEL, WHICH
COULD IMPACT THE DEVELOPMENT OR SALES OF OUR PRODUCTS.
Our success depends on our ability to attract and retain qualified
management, engineering, sales and marketing and professional services
personnel. Competition for these types of personnel is intense, especially in
the Silicon Valley. We do not have employment agreements with most of our key
personnel. If we are unable to retain our existing key personnel, or attract and
train additional qualified personnel, our growth may be limited due to our lack
of capacity to develop and market our products.
IF WE BECOME SUBJECT TO PRODUCT LIABILITY LITIGATION, IT COULD BE COSTLY AND
TIME CONSUMING TO DEFEND.
Since our products are company-wide, mission-critical computer applications
with a potentially strong impact on our customers' sales, errors, defects or
other performance problems could result in financial or other damages to our
customers. Although our license agreements generally contain provisions designed
to limit our exposure to product liability claims, existing or future laws or
unfavorable judicial decisions could negate such limitation of liability
provisions. Product liability litigation, even if it were unsuccessful, would be
time consuming and costly to defend.
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IF WE ARE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY, OUR BUSINESS MAY BE
SIGNIFICANTLY HARMED.
We rely on a combination of trademark, trade secret and copyright law and
contractual restrictions to protect the proprietary aspects of our technology.
These legal protections afford only limited protection for our technology. We
currently have three pending U.S. patent applications and two pending U.S.
trademark applications. We do not have any foreign patents or patent
applications. Our trademark and patent applications might not result in the
issuance of any trademarks or patents. If any patent or trademark is issued, it
might be invalidated or circumvented or otherwise fail to provide us any
meaningful protection. We seek to protect source code for our software,
documentation and other written materials under trade secret and copyright laws.
We license our software pursuant to signed license agreements, which impose
certain restrictions on the licensee's ability to utilize the software. We also
seek to avoid disclosure of our intellectual property by requiring employees and
consultants with access to our proprietary information to execute
confidentiality agreements. Despite our efforts to protect our proprietary
rights, unauthorized parties may attempt to copy aspects of our products or to
obtain and use information that we regard as proprietary. In addition, the laws
of many countries do not protect our proprietary rights to as great an extent as
do the laws of the United States. Litigation may be necessary in the future to
enforce our intellectual property rights, to protect our trade secrets and to
determine the validity and scope of the proprietary rights of others. Our
failure to adequately protect our intellectual property could significantly harm
our business and operating results.
IF WE ARE SUBJECT TO INTELLECTUAL PROPERTY LITIGATION, WE MAY INCUR SUBSTANTIAL
COSTS.
Our success and ability to compete are dependent on our ability to operate
without infringing upon the proprietary rights of others. Any intellectual
property litigation could result in substantial costs and diversion of resources
and could significantly harm our business and operating results. In the past, we
received correspondence from two patent holders recommending that we license
their respective patents. After review of these patents, we informed these
patent holders that in our opinion, it would not be necessary to license these
patents. However, we may be required to license either or both patents or incur
legal fees to defend our position that such licenses are not necessary. We
cannot assure you that if required to do so, we would be able to obtain a
license to use either patent on commercially reasonable terms, or at all.
Any threat of intellectual property litigation could force us to do one or
more of the following:
- cease selling, incorporating or using products or services that
incorporate the challenged intellectual property;
- obtain from the holder of the infringed intellectual property right a
license to sell or use the relevant technology, which license may not be
available on reasonable terms;
- redesign those products or services that incorporate such technology; or
- pay money damages to the holder of the infringed intellectual property
right.
In the event of a successful claim of infringement against us and our
failure or inability to license the infringed technology on reasonable terms or
license a substitute technology or redesign our product to avoid infringement,
our business and operating results would be significantly harmed.
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RESTRICTIONS ON EXPORT OF ENCRYPTED TECHNOLOGY COULD CAUSE US TO INCUR DELAYS IN
INTERNATIONAL PRODUCT SALES.
Our software utilizes encryption technology, the export of which is
regulated by the United States government. If our export authority is revoked or
modified, if our software is unlawfully exported or if the United States adopts
new legislation restricting export of software and encryption technology, we may
experience delay or reduction in shipment of our products internationally.
Current or future export regulations could limit our ability to distribute our
products outside of the United States. While we take precautions against
unlawful exportation of our software, we cannot effectively control the
unauthorized distribution of software across the Internet.
INTERNATIONAL EXPANSION COULD BE DIFFICULT AND PRESENT RISKS TO OUR BUSINESS.
We intend to expand our operations internationally. This expansion may be
more difficult or take longer than we anticipate, and we may not be able to
successfully market, sell or deliver our products internationally. If successful
in our international expansion, we will be subject to a number of risks
associated with international operations, including:
- longer accounts receivable collection cycles;
- expenses associated with localizing products for foreign markets;
- difficulties in managing operations across disparate geographic areas;
- difficulties in hiring qualified local personnel;
- difficulties associated with enforcing agreements and collecting
receivables through foreign legal systems;
- unexpected changes in regulatory requirements that impose multiple
conflicting tax laws and regulations; and
- fluctuations in foreign exchange rates and the possible lack of financial
stability in foreign countries that prevent overseas sales growth.
YEAR 2000 COMPLIANCE ISSUES MAY ADVERSELY IMPACT US.
Many currently installed computer systems and software products are coded
to accept only two digit entries in the date code field. These date code fields
will need to accept four digit entries to distinguish 21st century dates from
20th century dates. This could result in system failures or miscalculations,
causing disruptions of operations including, among other things, a temporary
inability to process transactions, send invoices or engage in other normal
business activities. As a result, many companies' software and computer systems
may need to be upgraded or replaced in order to comply with such "Year 2000"
requirements. We use a number of computer software programs and operating
systems and our proprietary solutions include source code that must address the
Year 2000 issue. We have not historically made any material expenditures in
readying our information technology systems for the Year 2000. There can be no
assurance that there are not currently unknown and unforeseen problems that will
require us to make material expenditures in order to assess and remedy any
future Year 2000 problems.
Year 2000 errors or defects may be discovered in our current or future
products. Any failure by us to make our products Year 2000 compliant, could
result in a decrease in sales of our products, unanticipated expenses to address
Year 2000 problems or significant liabilities resulting from losses suffered by
our customers due to such Year 2000 problems, any of which could significantly
harm our
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business and operating results. We do not have a contingency plan for this
scenario, and it will be necessary for us to make the necessary expenditures to
assess and remedy the situation in the event it arises in the future, which
could have a material adverse effect on our business and operating results. In
addition, to the extent our customers' systems are not Year 2000 compliant,
problems in communications among industry participants could result in a delay
in our products achieving market acceptance.
Our solutions also utilize and depend on third-party equipment and software
that may not be Year 2000 compliant. We have not conducted audits of our
third-party providers to determine their level of Year 2000 compliance. Failure
of such third-party equipment or software, or of systems maintained by our
suppliers, to operate properly with regard to the Year 2000 and thereafter could
require us to incur unanticipated expenses to remedy any problems, which could
significantly harm our business and operating results.
YEAR 2000 ISSUES COULD FORCE US TO INCUR SIGNIFICANT COSTS OR CAUSE OUR
CUSTOMERS TO DELAY THE LICENSING OF OUR PRODUCTS.
Most of our license agreements with our customers represent and warrant
that our products are Year 2000 compliant. If our products do not operate
properly with date calculations involving the Year 2000 and subsequent dates, we
could incur unanticipated expenses to remedy any problems, which could
significantly harm our business and operating results. Our products are
generally integrated into computer systems involving sophisticated hardware and
complex software products, which may not be Year 2000 compliant. The failure of
our customers' systems to be Year 2000 compliant could impede the success of
applications that we have developed for them. Accordingly, known or unknown
defects that affect the operation of our software, including any defects or
errors in applications that include our products, could result in a delay or
loss of revenue, diversion of development resources, damage to our reputation or
increased service or warranty costs and litigation costs, which could harm our
business and operating results. We may also experience reduced licensing of our
software and services as current or potential customers place a priority on
correcting Year 2000 problems and defer purchase decisions for software
products.
RISKS RELATED TO THE INDUSTRY
IF USE OF THE INTERNET DOES NOT CONTINUE TO DEVELOP AND RELIABLY SUPPORT THE
DEMANDS PLACED ON IT BY ELECTRONIC COMMERCE, WE MAY NOT ACHIEVE ANTICIPATED
SALES GROWTH.
Growth in sales of our products and services depends upon the continued and
increased use of the Internet as a medium for commerce and communication. Growth
in the use of the Internet is a recent phenomenon and may not continue. In
addition, the Internet infrastructure may not be able to support the demands
placed on it by increased usage and bandwidth requirements. Other risks
associated with commercial use of the Internet could slow its growth, including:
- inadequate security of information distributed over the Internet,
resulting in privacy concerns;
- inadequate reliability of the network infrastructure;
- slow development of enabling technologies and complementary products; and
- limited accessibility and ability to deliver quality service.
In addition, the recent growth in the use of the Internet has caused
frequent periods of poor or slow performance, requiring components of the
Internet infrastructure to be upgraded. Delays in the
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development or adoption of new equipment and standards or protocols required to
handle increased levels of Internet activity, or increased government
regulation, could cause the Internet to lose its viability as a commercial
medium. If the Internet infrastructure does not develop sufficiently to address
these concerns, it may not develop as a commercial marketplace, which is
necessary for us to increase sales.
INCREASING GOVERNMENT REGULATION OF THE INTERNET COULD LIMIT THE MARKET FOR OUR
PRODUCTS AND SERVICES, OR IMPOSE GREATER TAX BURDENS ON US OR LIABILITY FOR
TRANSMISSION OF PROTECTED DATA.
As electronic commerce and the Internet continue to evolve, federal, state
and foreign governments may adopt laws and regulations covering issues such as
user privacy, taxation of goods and services provided over the Internet,
pricing, content and quality of products and services. If enacted, these laws
and regulations could limit the market for electronic commerce, and therefore
the market for our products and services. Although many of these regulations may
not apply directly to our business, we expect that laws regulating the
solicitation, collection or processing of personal or consumer information could
indirectly affect our business.
Laws or regulations concerning telecommunications might also negatively
impact us. Several telecommunications companies have petitioned the Federal
Communications Commission to regulate Internet service providers and online
service providers in a manner similar to long distance telephone carriers and to
impose access fees on these companies. This type of legislation could increase
the cost of conducting business over the Internet, which could limit the growth
of electronic commerce generally and have a negative impact on our business and
operating results.
RISKS RELATED TO THIS OFFERING
BECAUSE WE ARE IN THE INTERNET INDUSTRY, OUR STOCK PRICE MAY BE PARTICULARLY
VOLATILE, WHICH COULD LEAD TO CLASS ACTION LITIGATION.
The stock market in general has recently experienced extreme price and
volume fluctuations. In addition, the market prices of securities of technology
companies, particularly Internet-related companies, have been extremely
volatile, and have experienced fluctuations that have often been unrelated to or
disproportionate to the operating performance of these companies. These broad
market fluctuations could adversely affect the market price of our common stock.
In the past, securities class action litigation has often been brought
against a company following periods of volatility in the market price of its
securities. We may in the future be the target of similar litigation. Securities
litigation could result in substantial costs and divert management's attention
and resources, which could harm our business and operating results.
OUR EXECUTIVE OFFICER AND DIRECTORS WILL RETAIN SUBSTANTIAL VOTING CONTROL OVER
US AFTER THE OFFERING THAT WILL ALLOW THEM TO INFLUENCE THE OUTCOME OF MATTERS
SUBMITTED TO STOCKHOLDERS FOR APPROVAL.
On completion of this offering, our executive officers and directors and
their affiliates, based on ownership as of December 31, 1999, will beneficially
own, in the aggregate, approximately % of our outstanding common stock
(assuming no exercise of the underwriters' over-allotment option). As a result,
these stockholders will be able to exercise significant influence over all
matters requiring stockholder approval, including the election of directors and
approval of significant corporate transactions, which could have the effect of
delaying or preventing a third party from acquiring
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control over us. For more information regarding the ownership of our outstanding
stock by our executive officers and directors and their affiliates, see
"Principal Stockholders."
WE HAVE IMPLEMENTED ANTI-TAKEOVER PROVISIONS THAT COULD MAKE IT MORE DIFFICULT
TO ACQUIRE US.
Our certificate of incorporation, our bylaws and Delaware law contain
provisions that could make it more difficult for a third party to acquire us,
even if doing so would be beneficial to our stockholders. These provisions
include:
- authorizing the issuance of shares of blank check preferred stock;
- providing for a classified board of directors with staggered, three year
terms; and
- prohibiting specified stockholder action by written consent.
For information regarding these and other provisions, please see
"Description of Capital Stock." We are also currently considering other
anti-takeover measures, including a stockholders' rights plan.
SUBSTANTIAL SALES OF OUR COMMON STOCK COULD DEPRESS OUR STOCK PRICE.
If our stockholders sell substantial amounts of our common stock in the
public market following this offering, the market price of our common stock
could fall. Based on shares outstanding as of December 31, 1999, upon completion
of this offering, we will have outstanding shares of common
stock. Other than the shares of common stock sold in this offering,
shares will immediately be eligible for sale in the public market
immediately. Our stockholders will be subject to agreements with the
underwriters or us that restrict their ability to transfer their stock for 180
days from the date of this prospectus. After these agreements expire, an
additional shares will be eligible for sale in the public market.
For a detailed discussion of the shares eligible for future sale, please see
"Shares Eligible for Future Sale."
AS A NEW INVESTOR, YOU WILL INCUR SUBSTANTIAL DILUTION AS A RESULT OF THIS
OFFERING AND FUTURE EQUITY ISSUANCES.
The initial public offering price will be substantially higher than the
book value per share of our outstanding common stock. As a result, investors
purchasing common stock in this offering will incur immediate dilution of
$ a share, assuming an initial public offering price of $ per
share. The exercise of outstanding options and warrants would result in further
dilution.
WE HAVE BROAD DISCRETION TO USE THE PROCEEDS FROM THIS OFFERING FOR PURPOSES
WITH WHICH YOU MAY NOT AGREE, AND WE MAY NOT BE SUCCESSFUL IN INVESTING THESE
PROCEEDS.
We plan to use the proceeds from this offering for general corporate
purposes. Therefore, we will have broad discretion as to how we will spend the
proceeds, and our stockholders may not agree with the ways in which we use the
proceeds. We may not be successful in investing the proceeds from this offering
in our operations or external investments to yield a favorable return.
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements. These statements
relate to future events or our future financial performance. In some cases, you
can identify forward-looking statements by terminology; for instance, may, will,
should, intend, expect, plan, anticipate, believe, estimate, predict, potential
or continue, the negative of these 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 the Risk Factors section. 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 any other person nor we
assumes responsibility for the accuracy and completeness of the forward-looking
statements.
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USE OF PROCEEDS
Our net proceeds from the sale of the shares of common stock we
are offering are estimated to be $ million, after deducting estimated
underwriting discounts and commissions and estimated offering expenses. If the
underwriters' over-allotment option is exercised in full, we estimate that our
net proceeds will be approximately $ million. We expect to use the net
proceeds for general corporate purposes, including working capital. A portion of
the net proceeds may also be used for the acquisition of businesses, products
and technologies that are complementary to ours. We have no current agreements
or commitments for acquisitions of complementary businesses, products or
technologies. Pending these uses, we will invest the net proceeds of this
offering in short-term, investment grade and interest-bearing securities.
DIVIDEND POLICY
We have not paid any cash dividends since inception and do not currently
intend to pay any cash dividends.
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CAPITALIZATION
The following table sets forth the following information:
- our actual capitalization as of September 30, 1999;
- our pro forma capitalization after giving effect to the conversion of all
outstanding shares of preferred stock into common stock; and
- our pro forma as adjusted capitalization to reflect our receipt of the
estimated net proceeds from our sale of shares of common stock
in this offering, after deducting the estimated underwriting discounts
and commissions and estimated offering expenses, the filing of a new
certificate of incorporation after the closing of this offering and the
application of our proceeds from this offering.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Stockholders' equity:
Convertible preferred stock: $.0001 par value;
25,000,000 shares authorized, 18,205,255 shares
issued and outstanding, actual; 25,000,000 shares
authorized, no shares outstanding, pro forma;
10,000,000 shares authorized, no shares outstanding,
pro forma as adjusted................................ $ 2 $ --
Common stock: $.0001 par value; 40,000,000 shares
authorized, 6,195,984 shares issued and
outstanding, actual; 75,000,000 shares
authorized, 24,401,239 shares outstanding, pro
forma; 150,000,000 shares authorized,
shares outstanding, pro forma as adjusted....... 1 3
Additional paid-in capital........................... 36,650 36,650
Deferred compensation................................ (5,334) (5,334)
Accumulated deficit.................................. (18,919) (18,919)
-------- --------
Total stockholders' equity...................... 12,400 12,400
-------- --------
Total capitalization............................ $ 12,400 $ 12,400
======== ========
</TABLE>
This table excludes the following shares:
- 3,024,350 shares of common stock issuable upon exercise of stock options
outstanding as of September 30, 1999 at a weighted average exercise price
of $1.49 per share;
- 523,056 shares of common stock available for issuance under our 1996
Stock Plan;
- 222,537 shares of common stock issuable upon the exercise of warrants
outstanding as of September 30, 1999 at a weighted average exercise price
of $4.11 per share;
- 2,200,000 shares of common stock available for issuance under our 1999
Equity Incentive Plan; and
- 1,000,000 shares of common stock available for issuance under our 1999
Employee Stock Purchase Plan.
See "Management -- Employee Benefit Plans," and Notes 9 and 13 of "Notes to
Consolidated Financial Statements" for a description of our equity plans.
21
<PAGE> 24
DILUTION
Our pro forma net tangible book value as of December 31, 1999 was
$ million, or approximately $ per share. Net tangible book value
per share represents the amount of stockholders' equity, less intangible assets,
divided by shares of common stock outstanding after giving effect to
the conversion of all outstanding shares of preferred stock into shares of
common stock upon completion of this offering.
Net tangible book value dilution per share to new investors represents the
difference between the amount per share paid by purchasers of shares of common
stock in this offering and the net tangible book value per share of common stock
immediately after completion of this offering. After giving effect to our sale
of shares of common stock in this offering at an assumed initial
public offering price of $ per share and after deducting the estimated
underwriting discounts and commissions and estimated offering expenses, our net
tangible book value as of December 31, 1999 would have been $ million
or $ per share. This represents an immediate increase in net tangible book
value of $ per share to existing stockholders and an immediate dilution in
net tangible book value of $ per share to purchasers of common stock in the
offering, as illustrated in the following table:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $
Pro forma net tangible book value per share as of December
31, 1999.................................................... $
Increase per share attributable to new investors..........
------
Pro forma net tangible book value per share after the
offering..................................................
------
Dilution per share to new investors......................... $
======
</TABLE>
The following table presents on a pro forma basis as of December 31, 1999,
after giving effect to the conversion of all outstanding shares of preferred
stock into common stock upon completion of this offering, the differences
between the existing stockholders and the purchasers of shares in the offering
with respect to the number of shares purchased from us, the total consideration
paid and the average price paid per share:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------ -------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------- ------- -------- -------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders............ % $ % $
New stockholders.................
------- ------- ------- -------
Total....................... 100% $ 100%
======= ======= ======= =======
</TABLE>
As of December 31, 1999, there were options outstanding to purchase a total
of shares of common stock at a weighted average exercise price of
$ per share. In addition, as of December 31, 1999, there were warrants
outstanding to purchase shares of common stock at a weighted average
exercise price of $ per share. To the extent outstanding options or warrants
are exercised, there will be further dilution to new investors. For a
description of our equity plans, please see "Management -- Employee Benefit
Plans" and Notes 9 and 13 of Notes to Consolidated Financial Statements.
22
<PAGE> 25
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with the consolidated financial statements and related notes and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" appearing elsewhere in this prospectus. The consolidated statement
of operations data for the period from June 6, 1996 (inception) to March 31,
1997, the fiscal years ended March 31, 1998 and 1999 and for the six months
ended September 30, 1999 and the consolidated balance sheet data at March 31,
1997, 1998 and 1999 and at September 30, 1999 are derived from our consolidated
financial statements included elsewhere in this prospectus. The statement of
operations data for the six months ended September 30, 1998 is derived from
unaudited consolidated financial statements included elsewhere in this
prospectus and, in the opinion of our management, includes all adjustments,
consisting only of normal recurring adjustments, that are necessary for a fair
presentation of the results of operations for this period. The historical
results are not necessarily indicative of the operating results to be expected
in the future. Catalogics Software Corporation, our predecessor corporation, had
assets of $6,154 and an accumulated deficit of $89,451 at the date of
acquisition, July 1996.
<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS ENDED
PERIOD FROM INCEPTION MARCH 31, SEPTEMBER 30,
(JUNE 6, 1996) TO ----------------- -----------------
MARCH 31, 1997 1998 1999 1998 1999
--------------------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues:
License......................................... $ 50 $ 170 $ 1,656 $ 407 $ 2,833
Services........................................ 5 -- 1,788 327 1,802
------- ------- ------- ------- -------
Total revenues................................ 55 170 3,444 734 4,635
Cost of revenues:
License......................................... 3 9 184 67 142
Services........................................ -- -- 876 211 3,133
Services -- related party....................... -- 51 303 100 135
------- ------- ------- ------- -------
Total cost of revenues........................ 3 60 1,363 378 3,410
------- ------- ------- ------- -------
Gross profit...................................... 52 110 2,081 356 1,225
Operating expenses:
Research and development........................ 163 1,947 3,887 1,421 2,227
Sales and marketing............................. 62 1,055 4,403 1,556 4,789
General and administrative...................... 77 293 1,380 505 1,711
Amortization of deferred compensation........... 6 3 47 1 121
------- ------- ------- ------- -------
Total operating expenses...................... 308 3,298 9,717 3,483 8,848
------- ------- ------- ------- -------
Loss from operations.............................. (256) (3,188) (7,636) (3,127) (7,623)
Interest and other income, net.................... 5 87 99 63 98
------- ------- ------- ------- -------
Net loss before taxes............................. (251) (3,101) (7,537) (3,064) (7,525)
Provision for income taxes........................ -- -- -- -- 50
------- ------- ------- ------- -------
Net loss.......................................... $ (251) $(3,101) $(7,537) $(3,064) $(7,575)
======= ======= ======= ======= =======
Basic and diluted net loss per share.............. $ (0.15) $ (0.91) $ (1.58) $ (0.71) $ (1.44)
Shares used in computing basic and diluted net
loss per share.................................. 1,634 3,425 4,782 4,291 5,278
Pro forma basic and diluted net loss per share.... $ (0.44) $ (0.36)
Shares used in computing pro forma basic and
diluted net loss per share...................... 17,282 21,316
</TABLE>
<TABLE>
<CAPTION>
MARCH 31,
--------------- SEPTEMBER 30,
1998 1999 1999
------ ------ --------------
(IN THOUSANDS)
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments........... $ 504 $ -- $12,833
Working capital (deficit)................................... 422 (639) 10,190
Total assets................................................ 1,357 3,193 18,404
Total stockholders' equity.................................. 856 736 12,400
</TABLE>
23
<PAGE> 26
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 the notes to those statements that appear
elsewhere in this prospectus. The following discussion contains forward-looking
statements that reflect our plans, estimates and beliefs. Our actual results
could differ materially from those discussed in the forward-looking statements.
Factors that could cause or contribute to such differences include, but are not
limited to, those discussed below and elsewhere in this prospectus, particularly
in "Risk Factors."
OVERVIEW
Selectica is a leading provider of Internet selling system software and
services that enable companies to efficiently sell complex products and services
over intranets, extranets and the Internet. Our ACE suite of software products
is a comprehensive Internet selling system, or ISS, solution that gives sellers
the ability to manage the sales process in order to facilitate the conversion of
prospective buyers into customers. Our ISS solution allows companies to use the
Internet platform to deploy a selling application to many points of contact,
including personal computers, in-store kiosks and mobile devices, while offering
customers, partners and employees an interface customized to their specific
needs.
History
Selectica was incorporated in June 1996 and acquired the technology and
assets of Catalogics Software Corporation, a development stage Internet software
company founded by Dr. Sanjay Mittal, a co-founder of Selectica, in July 1996.
Selectica was a development-stage company until October 1997. In October 1997,
we released our first version of ACE, which consisted of the ACE Enterprise
Server and ACE Studio. During the following year, we primarily licensed our
products to businesses for pilot programs that involved limited deployments.
Beginning in calendar 1999, we licensed our products for larger scale
deployments and continued to develop and market our ACE suite of products,
expanding our product offering with ACE Enterprise Manager, ACE Quoter and ACE
Mobile. In November 1999, we released the current version of ACE, ACE 4.0, and
expanded our product offering with ACE Repository and ACE Connector.
In addition to our engineering and professional services employees based in
San Jose, California, we provide professional services and perform quality
assurance testing with the assistance of Selectica Configurators India Private
Limited, or Selectica India, a corporation located in Pune, India. Selectica
India was formed in June 1997. From June 1997 through July 1999, we purchased
services from Selectica India on an arms-length contract basis. In July 1999, we
completed an agreement to acquire a 99.9% ownership of Selectica India, making
it a subsidiary of Selectica, Inc. As of November 30, 1999, there were 77
employees of Selectica India. Because we believe that Selectica India provides
us with a strategic advantage in advancing our product development and
consulting activities, we plan to continue expanding this operation. See
"Related Party Transactions -- Selectica Configurators India Pvt. Ltd."
Revenues
We derive revenues from two sources: (1) the licenses of our software
products and (2) services we provide to our customers, which include
professional services, maintenance and training services. The amount of the
license fee charged to our customers is generally based on the number of
licensed products, on a per server and per user basis, and occasionally on an
enterprise or site license basis.
24
<PAGE> 27
Many customers purchase professional services, which are billed by us either on
a fixed fee basis or on a time and materials basis. To date, customers have
primarily purchased these services on a fixed fee basis. Customers who license
the software generally also purchase maintenance contracts that typically cover
a 12-month period. We also offer training services which are billed on a per
student or per class basis.
Our revenues are derived from licenses for our software and related
services, which include implementation and integration, technical support,
training and consulting. For contracts with multiple elements, and for which
vender-specific objective evidence of fair value for the undelivered elements
exists, we recognize revenue for the delivered elements based on the residual
contract value as prescribed by Statement of Position No. 98-9, "Modification of
SOP No. 97-2 with Respect to Certain Transactions."
License revenues are recognized when persuasive evidence of an agreement
exists, delivery of the product has occurred, we have no significant obligations
with regard to implementation or integration, the fee is fixed or determinable
and collectibility is probable. Provisions for sales returns are provided at the
time of revenue recognition based on estimated returns. We have not incurred
material charges for product returns to date.
Services revenues are primarily comprised of revenues from consulting fees,
maintenance contracts and training. Services revenues from consulting and
training are recognized as the services are performed or milestones are
achieved. Maintenance contracts include the right to unspecified upgrades and
ongoing support. Maintenance revenues are deferred and recognized on a
straight-line basis, as services revenues over the life of the related contract,
which is typically one year.
License and services revenues on contracts that require us to provide
significant implementation, customization or services which are essential to the
functionality of the software are generally recognized over the period of each
engagement using the percentage-of-completion method. Labor hours incurred are
generally used as the measure of progress towards completion. We classify
revenues for these arrangements as license revenues and services revenues based
on our estimates of fair value for each element and recognize the revenues based
on the percentage-of-completion ratio for the arrangement. A provision for
estimated losses on engagements is made in the period in which the loss becomes
probable and can be reasonably estimated. To date, we have recognized a majority
of our license revenues on a percentage-of-completion basis or acceptance and
expect a significant percentage of license revenues to continue to be recognized
on a percentage-of-completion basis.
In cases where license fees or service payments are contingent on
acceptance, we defer recognition of revenues until the acceptance criteria are
met. In addition, because we rely on a limited number of customers, the timing
of customer acceptance or milestone achievement from, or the amount of services
we provide to a single customer can significantly affect our operating results.
For example, our services revenues declined significantly in the quarter ended
June 30, 1999 due to the completion of services under a contract with BMW of
North America, one of our significant customers. Our license and services
revenues increased significantly in the quarter ended September 30, 1999
generally due to the addition of two new customers.
Customer billing occurs in accordance with contract terms. Customer
advances and amounts billed to customers in excess of revenue recognized are
recorded as deferred revenue. Amounts recognized as revenue in advance of
billing (typically under percentage-of-completion accounting) are recorded as
unbilled receivables.
25
<PAGE> 28
Factors Affecting Operating Results
A relatively small number of customers account for a significant portion of
our total revenues. For the fiscal year ended March 31, 1998, revenue from
Hewlett-Packard--Germany, Ascend Communications, InterVoice and Insight
accounted for 45%, 27%, 16% and 12% of our total revenues, respectively. For the
fiscal year ended March 31, 1999, revenue from BMW of North America and Olicom
accounted for 60% and 10% of our revenues, respectively. For the six months
ended September 30, 1999, revenue from Aspect Communications, 3Com Corporation,
RTS Software and BMW of North America accounted for 29%, 22%, 10% and 10% of our
revenues, respectively. We expect that revenues from a limited number of
customers will continue to account for a large percentage of total revenues in
future quarters.
To date, our revenues have been predominantly attributable to sales in the
United States. We plan to expand our international operations significantly,
because we believe international markets represent a significant growth
opportunity. Consequently, we expect that international revenues will increase
as a percentage of total revenues in the future. The expansion of our
international operations will be subject to a variety of risks that could
significantly harm our business and operating results. As our international
sales and operations expand, we anticipate that our exposure to foreign currency
fluctuations will increase because we have not adopted a hedging program to
protect us from risks associated with foreign currency fluctuations.
We have a limited operating history upon which we may be evaluated. We have
incurred significant losses since inception and, as of September 30, 1999, we
had an accumulated deficit of approximately $18.9 million. We believe our
success depends on the continued growth of our customer base and the development
of the emerging Internet selling system market. Accordingly, we intend to
continue to invest heavily in sales and marketing and research and development.
Furthermore, we expect to continue to incur substantial operating losses for the
foreseeable future.
In view of the rapidly changing nature of our business and our limited
operating history, we believe that period-to-period comparisons of revenues and
operating results are not necessarily meaningful and should not be relied upon
as indications of future performance. Our limited operating history makes it
difficult to forecast future operating results. Additionally, despite our recent
revenue growth, we do not believe that historical growth rates are necessarily
sustainable or indicative of future growth and we cannot be certain that
revenues will increase. Even if we were to achieve profitability in any period,
we may not be able to sustain or increase profitability on a quarterly or annual
basis.
Equity Transactions
During October 1999, we issued 1,503,452 shares of Series E preferred stock
to various investors, including related parties of Selectica, for gross proceeds
of $6,588,127. We issued these shares at $4.382 per share while the deemed fair
value of such preferred stock at that date was approximately $7.70. As a result,
in the third quarter of fiscal 2000 we will record approximately $4.8 million of
charges related to the difference between the actual issuance price of the
preferred stock and the deemed fair value. Of this amount, approximately $1.0
million will be accounted for as a dividend to stockholders in the fourth
quarter and the remaining amount will be amortized over a two year period in
connection with a development agreement with one of the investors.
In September 1999, we entered into a porting agreement with Intel, an
investor of Selectica, whereby we and Intel will work to port the current suite
of ACE products to additional platforms. In connection with the porting
agreement, we committed to issuing warrants to purchase 57,000 shares of Series
E preferred stock. Terms of the warrants will be defined in the warrant
agreement upon
26
<PAGE> 29
issuance. The warrants will be issued in the third quarter of fiscal 2000 and
will be valued using the Black-Scholes valuation model. The value of the
warrants will be expensed over the remaining life of the porting agreement,
which will not be more than 2 years.
In October 1999, we entered into a license agreement with Cisco, one of our
customers. In connection with this agreement, we committed to issue a warrant to
purchase 800,000 shares of common stock. The warrant is vested when certain
performance criteria are met and will have an exercise price of the lesser of
$13 or the initial public offering price of this offering. The value of the
warrants will be determined based upon a Black-Scholes valuation model.
RESULTS OF OPERATIONS
Selectica reports financial results on a fiscal year basis ending March 31.
Therefore, the following references to years relate to our fiscal years. Fiscal
1997 includes only ten months of financial results during which we had no
significant revenue while expenditures were of a start-up nature related to
research and development of our products. All revenue and expense categories for
fiscal 1998 have increased due to a full year of revenue and expenses and
increased activities as we introduced and expanded our initial product
offerings. Therefore, fiscal 1997 and 1998 are not comparable periods.
SIX MONTHS ENDED SEPTEMBER 30, 1998 AND 1999
Revenues
Our revenues increased from $734,000 in the six months ended September 30,
1998 to $4.6 million in the six months ended September 30, 1999. Revenues in the
six months ended September 30, 1998 were primarily attributable to a single
customer, BMW of North America.
License. License revenues increased from $407,000 in the six months ended
September 30, 1998 to $2.8 million in the six months ended September 30, 1999.
We attribute the increase in license revenues from the six months ended
September 30, 1998 to the six months ended September 30, 1999 to growth in our
customer base driven by growth in our direct sales force.
Services. Services revenues increased from $327,000 in the six months ended
September 30, 1998 to $1.8 million in the six months ended September 30, 1999.
Services revenues primarily consisted of professional services revenues in the
six months ended September 30, 1998 and 1999. We attribute the increase in
services revenues to the increase in professional services related to the growth
in our customer base.
Cost of Revenues
Cost of revenues increased from $378,000 in the six months ended September
30, 1998 to $3.4 million in the six months ended September 30, 1999.
License. Cost of license revenues consists primarily of the costs to
deliver our software products to our customers, including documentation,
shipping and other data transmission costs. Cost of license revenues increased
from $67,000 in the six months ended September 30, 1998 to $142,000 in the six
months ended September 30, 1999, consistent with the increase in license
revenues, and representing 16% and 5% of license revenues, respectively.
Services, including Related Party. Cost of services revenues includes
salaries and related expenses of our professional services organization and an
allocation of our facilities, overhead and depreciation expenses. For the period
from inception through June 30, 1999, cost of services revenues excludes
expenses of our professional services organization in Pune, India, which are
included in cost
27
<PAGE> 30
of services revenues-related party. Cost of services revenues, including related
party amounts, increased from $311,000 in the six months ended September 30,
1998 to $3.3 million in the six months ended September 30, 1999, representing
95% and 181% of professional services revenues, respectively. The increase in
cost of services revenues was due primarily to increased personnel in our
customer support and consulting organizations to support the increase in the
amount of professional services provided to our customers. Since services
revenues have substantially lower margins than license revenues, this expansion
would reduce our gross margins if our license revenues were not to increase
significantly. We expect cost of services revenues as a percentage of services
revenues to vary from period to period depending on the mix of services we
provide, whether the services are performed by our in-house staff or third party
consultant, and the overall utilization rates of our professional services
organization.
Gross Profit
Gross profit increased from $356,000 for the six months ended September 30,
1998 to $1.2 million for the six months ended September 30, 1999. Gross profit
represented 49% and 26% of total revenues, respectively.
We expect gross margin to fluctuate as a result of continued variation in
the mix of our revenue between high margin license revenues and lower margin
services revenues.
Operating Expenses
Research and Development. Our research and development costs primarily
consist of salaries and related costs of our engineering organization and an
allocation of facilities, overhead and depreciation costs. Research and
development costs increased from $1.4 million in the six months ended September
30, 1998 to $2.2 million in the six months ended September 30, 1999. The
increase in research and development costs was primarily due to an increase of
$665,000 from the hiring of additional technical personnel and the payment of a
$544,000 bonus to our Chief Technology Officer. We believe that it is essential
for us to continue to enhance our product offerings. Accordingly, we anticipate
our research and development expenses will increase in the future.
Sales and Marketing. Our sales and marketing expenses primarily consist of
salaries and related costs for our sales and marketing organization, sales
commissions, expenses for trade shows, public relations, collateral sales
materials, advertising and an allocation of facilities, overhead and
depreciation costs. Sales and marketing expenses increased from $1.6 million in
the six months ended September 30, 1998 to $4.8 million in the six months ended
September 30, 1999. The increase in sales and marketing expenses is primarily
attributable to increases in payroll expenses of $1.6 million from the hiring of
additional sales and marketing personnel, including our Vice President of Sales,
Americas and Vice President of Marketing, and $739,000 from increased sales
commissions resulting from higher revenues. We intend to increase sales and
marketing expenses to support our increased marketing efforts, expand our direct
sales force and open additional sales offices.
General and Administrative. Our general and administrative expenses include
compensation for administrative personnel, fees for outside professional
advisors and an allocation of overhead costs. General and administrative
expenses increased from $505,000 in the six months ended September 30, 1998 to
$1.7 million in the six months ended September 30, 1999. The increase in general
and administrative expenses primarily resulted from a $346,000 increase in
payroll expenses due to hiring additional administrative and support personnel,
including our Chief Financial Officer, and a $289,000 increase in legal and
accounting services to support our overall growth. We expect that general and
administrative expenses will continue to increase as we expand our operations
and incur additional costs related to being a public company.
28
<PAGE> 31
Amortization of Deferred Compensation. In connection with the granting of
options to purchase our common stock to certain employees, directors and
consultants, we recorded deferred compensation representing the difference
between the exercise price of options granted and the deemed fair value of our
common stock at the time of grant. Amortization of deferred compensation
increased from $1,000 in the six months ended September 30, 1998 to $121,000 in
the six months ended September 30, 1999.
Interest and Other Income, Net
Interest and other income, net primarily consists of interest earned on
cash balances, offset by interest expense related to convertible debt issued in
the first quarter of fiscal 2000 and converted in the same quarter. Interest and
other income, net increased from $63,000 for the six months ended September 30,
1998 to $98,000 in the six months ended September 30, 1999.
Provision for Income Taxes
We have recorded a tax provision of $50,000 for the six months ended
September 30, 1999. The provision for income taxes consists primarily of state
income taxes and foreign taxes.
FASB Statement No. 109 provides for the recognition of deferred tax assets
if realization of such assets is more likely than not. Based upon the weight of
available evidence, which includes our historical operating performance and the
reported cumulative net losses in all prior years, we have provided a full
valuation allowance against its net deferred tax assets. We intend to evaluate
the realizability of the deferred tax assets on a quarterly basis.
FISCAL YEARS ENDED MARCH 31, 1997, 1998 AND 1999
Revenues
Total revenues increased from $170,000 in fiscal 1998 to $3.4 million in
fiscal 1999. We had no material revenues in fiscal 1997.
License. License revenues increased from $170,000 in fiscal 1998 to $1.7
million in fiscal 1999. We attribute the increase in license revenues from
fiscal 1998 to fiscal 1999 to growth in our customer base and an increase in the
average contract amount of license agreements, each of which was driven by
growth in our direct sales force, and the release of our new ACE Enterprise
Manager, ACE Quoter and ACE Mobile products and new versions of existing
products.
Services. We did not recognize any services revenues in fiscal 1998.
Services revenues were $1.8 million in fiscal 1999. Services revenues in fiscal
1999 were attributable to our initial customers electing to utilize our
professional services organization for product deployment, maintenance, support
and training.
Cost of Revenues
Cost of revenues increased from $60,000 in fiscal 1998 to $1.4 million in
fiscal 1999. Cost of revenues was not material in fiscal 1997.
License. Cost of license revenues increased from $9,000 in fiscal 1998 to
$184,000 in fiscal 1999, consistent with the increase in license revenues and
representing 5% and 11% of license revenues, respectively.
29
<PAGE> 32
Services. Cost of services revenues, including related party amounts, were
$51,000 in fiscal 1998. Cost of services revenues, including related party
amounts, were $1.2 million in fiscal 1999, representing 66% of services
revenues. Cost of services revenues in fiscal 1999 is primarily attributable to
the development of our customer support and consulting organizations.
Operating Expenses
Research and Development. Research and development expenses increased from
$163,000 in fiscal 1997 to $1.9 million in fiscal 1998 and to $3.9 million in
fiscal 1999. The increase in research and development expenses from fiscal 1997
to fiscal 1998 were primarily due to a $1.2 million increase in salaries expense
from growth in engineering personnel. The increase in research and development
expenses from fiscal 1998 to fiscal 1999 was primarily due to a $1.3 million
increase in salaries expense from growth in engineering personnel. To date, all
software development costs have been expensed in the period incurred.
Sales and Marketing. Sales and marketing expenses increased from $62,000 in
fiscal 1997 to $1.1 million in fiscal 1998 and to $4.4 million in fiscal 1999.
The increase in sales and marketing expenses from fiscal 1997 to fiscal 1998 was
due primarily to a $539,000 increase in salaries expense from the growth in our
sales and marketing organizations and a $137,000 increase from the expansion of
our marketing programs, including increased marketing expenses for trade shows
and travel. The increase in sales and marketing expenses from fiscal 1998 to
fiscal 1999 was due primarily to a $2.0 million increase in salaries expense
from the growth in our sales and marketing organizations, and a $633,000
increase from the expansion of our marketing programs, including increased
marketing expenses for trade shows and travel.
General and Administrative. General and administrative expenses increased
from $77,000 in fiscal 1997 to $293,000 in fiscal 1998 and to $1.4 million in
fiscal 1999. The increase in general and administrative expenses from fiscal
1997 to fiscal 1998 primarily resulted from a $106,000 increase in payroll
expenses due to hiring additional administrative and support personnel. The
increase in general and administrative expenses from fiscal 1998 to fiscal 1999
primarily resulted from a $503,000 increase in payroll expenses due to hiring
additional administrative and support personnel.
Interest and Other Income, Net
Interest and other income, net consists primarily of interest earned on our
cash, cash equivalents and short-term investments offset by interest expense
incurred with respect to our line of credit obligation. Interest and other
income, net increased from $87,000 in fiscal 1998 to $99,000 in fiscal 1999 and
was immaterial in fiscal 1997. The increase in interest income and other income,
net relates primarily to interest earned on proceeds from our equity financing
in June 1998.
Provision for Income Taxes
No provision for federal or state income taxes has been recorded because we
experienced net losses through fiscal 1999.
30
<PAGE> 33
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth, for the periods presented, selected data
from our consolidated statements of operations. The data has been derived from
our unaudited consolidated financial statements, and, in the opinion of our
management, include all adjustments, consisting only of normal recurring
adjustments, that are necessary for a fair presentation of the results of
operations for these periods. This unaudited information should be read in
conjunction with the consolidated financial statements and notes included
elsewhere in this prospectus. The operating results in any quarter are not
necessarily indicative of the results that may be expected for any future
period. We have incurred losses in each quarter since inception and expect to
continue to incur losses for the foreseeable future.
<TABLE>
<CAPTION>
QUARTERS ENDED
----------------------------------------------------------------------
JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30,
1998 1998 1998 1999 1999 1999
-------- --------- -------- -------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues:
License........................................ $ 164 $ 243 $ 563 $ 686 $ 708 $ 2,125
Services....................................... 219 108 683 778 493 1,309
------- ------- ------- ------- ------- -------
Total revenues............................... 383 351 1,246 1,464 1,201 3,434
Cost of revenues:
License........................................ 28 39 51 66 52 90
Services....................................... 93 118 270 395 1,064 2,069
Services -- related party...................... 50 50 53 150 135 --
------- ------- ------- ------- ------- -------
Total cost of revenues....................... 171 207 374 611 1,251 2,159
------- ------- ------- ------- ------- -------
Gross profit (loss).......................... 212 144 872 853 (50) 1,275
Operating expenses:
Research and development....................... 594 827 1,074 1,392 1,474 753
Sales and marketing............................ 781 775 1,114 1,733 1,869 2,920
General and administrative..................... 212 293 352 523 497 1,214
Amortization of deferred compensation.......... -- 1 21 25 27 94
------- ------- ------- ------- ------- -------
Total operating expenses..................... 1,587 1,896 2,561 3,673 3,867 4,981
------- ------- ------- ------- ------- -------
Loss from operations............................. (1,375) (1,752) (1,689) (2,820) (3,917) (3,706)
Interest and other income (expense), net......... 3 60 31 5 (47) 145
------- ------- ------- ------- ------- -------
Net loss before taxes............................ (1,372) (1,692) (1,658) (2,815) (3,964) (3,561)
Provision for income taxes....................... -- -- -- -- 26 24
------- ------- ------- ------- ------- -------
Net loss......................................... $(1,372) $(1,692) $(1,658) $(2,815) $(3,990) $(3,585)
======= ======= ======= ======= ======= =======
AS A PERCENTAGE OF TOTAL REVENUES:
Revenues:
License........................................ 43% 69% 45% 47% 59% 62%
Services....................................... 57 31 55 53 41 38
------- ------- ------- ------- ------- -------
Total revenues............................... 100 100 100 100 100 100
Cost of revenues:
License........................................ 7 11 4 5 4 3
Services....................................... 24 34 22 27 89 60
Services -- related party...................... 13 14 4 10 11 --
------- ------- ------- ------- ------- -------
Total cost of revenues....................... 44 59 30 42 104 63
------- ------- ------- ------- ------- -------
Gross profit (loss).......................... 56 41 70 58 (4) 37
Operating expenses:
Research and development....................... 155 236 86 95 123 22
Sales and marketing............................ 204 221 89 118 156 85
General and administrative..................... 55 83 28 36 41 35
Amortization of deferred compensation.......... -- -- 2 2 2 3
------- ------- ------- ------- ------- -------
Total operating expenses..................... 414 540 205 251 322 145
------- ------- ------- ------- ------- -------
Loss from operations............................. (358) (499) (135) (193) (326) (108)
Interest and other income (expense), net......... 1 17 2 -- (4) 4
------- ------- ------- ------- ------- -------
Net loss before taxes............................ (357) (482) (133) (193) (330) (104)
Provision for income taxes....................... -- -- -- -- 2 1
------- ------- ------- ------- ------- -------
Net loss......................................... (357)% (482)% (133)% (193)% (332)% (105)%
======= ======= ======= ======= ======= =======
</TABLE>
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<PAGE> 34
Total revenues declined significantly in the quarter ended June 30, 1999
due to the completion of a services contract with a single customer, and
increased significantly in the quarter ended September 30, 1999 primarily as a
result of the addition of two new customers. We experience significant
variability in license and services revenues from quarter to quarter due to our
dependence on a limited number of customers, the large transaction size of
contracts with these customers, the timing of customer acceptance and the timing
of milestone achievement under contracts with recognition of revenues on a
percentage-of-completion basis. Gross profit has also fluctuated as a result of
increased investment in the development of our customer support and consulting
organizations to support the increase in professional services provided to our
customers. Cost of services revenues are affected by our allocation of overhead
costs by department based upon headcount. As headcount in our professional
services organization has increased as a percentage of overall headcount from
fiscal 1999 through the second quarter of fiscal 2000, an increasing percentage
of overhead costs were allocated to cost of services revenues, resulting in a
corresponding reduction in the allocation of overhead costs to research and
development, sales and marketing and general and administrative expenses in
those quarters. We expect gross margin to continue to fluctuate as a result of
continued variation in the mix of our revenues between high margin license
revenues and lower margin services revenues.
Our operating expenses have increased significantly from inception through
the first six months of fiscal 2000 as we have transitioned from a development
stage to the commercialization of our services. Research and development
expenses fluctuated from the end of fiscal 1999 through the first two quarters
of fiscal 2000, with an increase in the quarter ended June 30, 1999 as a result
of the payment of a $544,000 bonus to our Chief Technology Officer, offset by a
reduction in the allocation of overhead costs. Sales and marketing expenses
increased significantly during the second quarter of fiscal 2000 as a result of
the additional hiring of sales and marketing personnel, including our Vice
President of Sales, Americas and Vice President of Marketing, increased sales
commissions resulting from higher revenues and increased advertising and
promotion expenses, offset by a reduction in the allocation of overhead costs.
General and administrative expenses increased significantly during the second
quarter of fiscal 2000 as a result of an increase in payroll expenses due to
hiring additional administrative and support personnel and an increase in legal
and accounting services, offset by a reduction in the allocation of overhead
costs.
We plan to increase our operating expenses as we continue to increase sales
and marketing operations, expand our professional services organization and
continue to fund research and development. Consequently, our losses will
increase in the future. Although we have experienced revenue growth in recent
periods, we cannot be certain that such growth will continue at its current rate
or at all. If our revenue growth is slower than we anticipate or our operating
expenses exceed our expectations, our losses will be significantly greater.
In the past, our quarterly operating results have varied significantly, and
we expect these fluctuations to continue. Future operating results may vary
depending on a number of factors, many of which are outside of our control.
In the short term, we expect our quarterly revenues to be significantly
dependent on the sale of a small number of relatively large orders for our
products and services. In addition, our products and services generally have a
long sales cycle. As a result, our quarterly revenues may fluctuate
significantly if we are unable to complete one or more substantial sales in any
given quarter. In many cases, we recognize revenues from licenses and services
on a percentage-of-completion basis. Deployment of our products requires a
substantial commitment of resources by our customers or their consultants over
an extended period of time. The time required to complete a deployment may vary
from customer to customer and may be protracted due to unforeseen circumstances.
Our ability to recognize these revenues thus may be delayed if we are unable to
meet milestones on a timely basis.
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<PAGE> 35
We intend to significantly increase our operating expenses for the foreseeable
future. Because these expenses are relatively fixed in the near term, any
shortfall in anticipated revenues could cause our quarterly operating results to
fall below anticipated levels.
We may also experience seasonality in revenues. For example, our quarterly
results may fluctuate based upon our customers' calendar year budgeting cycles.
These seasonal variations may lead to fluctuations in our quarterly revenues and
operating results.
Based upon the foregoing, we believe that period-to-period comparisons of
our results of operations are not necessarily meaningful and that such
comparisons should not be relied upon as indications of future performance. In
some future quarter, our operating results may be below the expectations of
public market analysts and investors, which could cause volatility or a decline
in the price of our common stock.
LIQUIDITY AND CAPITAL RESOURCES
We have funded our operations since inception primarily through the private
placement of our equity securities through which we have raised net proceeds of
approximately $29.7 million as of September 30, 1999. At September 30, 1999, our
principal sources of liquidity included approximately $12.8 million of cash and
cash equivalents.
Cash used in operations was $6.6 million in fiscal 1999 primarily as a
result of our net losses and increases in accounts receivable corresponding to
increased revenues, which were partially offset by an increase of $902,000 in
deferred revenues, an increase of $484,000 in accounts payable and, to a lesser
degree, increases in accrued liabilities and accrued payroll and related
liabilities. Cash used in operations for the six months ended September 30, 1999
was $4.5 million primarily as a result of our net loss and increases in accounts
receivable corresponding to increased revenues, partially offset by a $2.2
million increase in deferred revenues, a $579,000 increase in accrued
liabilities and a $528,000 increase in accounts payable.
Cash used in investing activities was $731,000 in fiscal 1999 and $1.7
million for the six months ended September 30, 1999. We have made substantial
investments in computer equipment and computer software to support our increased
headcount.
Net cash provided by financing activities was $7.1 million in 1999 and
$18.9 million for the six months ended September 30, 1999. Net cash from
financing activities resulted primarily from the sale of preferred stock and
common stock. For the six months ended September 30, 1999, cash provided by
financing was also due to the issuance of $1.0 million of convertible notes,
partially offset by common stock repurchases totaling $456,000.
We currently anticipate that the net proceeds from this offering, together
with our current cash, cash equivalent and short-term investments, will be
sufficient to meet our anticipated cash needs for working capital and capital
expenditures for the next 12 months. However, we may need to raise additional
funds sooner to fund more rapid expansion, to develop new or enhance existing
services or products, to respond to competitive pressures or to acquire
complementary products, businesses or technologies. If adequate funds are not
available on acceptable terms, our business and operating results could be
harmed.
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<PAGE> 36
YEAR 2000 COMPLIANCE
Background of Year 2000 Issues
The "year 2000 issue" refers generally to the problems that some software
may have in determining the correct date as a result of the millennium change.
We define "Year 2000 Ready" to mean that testing has revealed that the
electronic components at issue will recognize and properly perform date
sensitive functions into and beyond the year 2000. Software with date sensitive
information that is not Year 2000 Ready may not be able to distinguish whether
"00" means 1900 or 2000, which may result in system failures or the creation of
erroneous results. We are subject to potential year 2000 issues affecting our
products, our internal systems and the systems of our suppliers and customers,
any of which could harm our business.
State of Readiness
Our ACE products are coded Year 2000 Ready and are designed to be Year 2000
Ready upon implementation provided they are configured and used in accordance
with our specifications, and provided that the underlying operating systems and
any other software used with the product are also Year 2000 Ready. Substantial
testing of the ACE suite of products to date has confirmed that there are no
year 2000 issues of which we are currently aware.
However, we have not tested independently installed third-party software
that may be integrated within our customers' systems. Such integrated software
could be susceptible to year 2000 issues and the failure of our customers'
systems to be Year 2000 Ready could impede the success of our applications in
their systems. Accordingly, any year 2000 issues inherent within our software or
within systems which contain our software could result in harm to our business
by way of delay or loss of revenues, diversion of development resources, damage
to our reputation, or increased service or warranty costs, any of which could
harm our business.
Risks Related to Year 2000 Issues
A significant majority of our license agreements with our customers
represent and warrant that our product is Year 2000 Ready. If our products are
not Year 2000 Ready, we could incur unanticipated expenses to remedy any
problems, which could significantly harm our business and operating results.
Our current or future customers may incur significant expenses to achieve
year 2000 readiness. If our customers are not Year 2000 Ready, they may
experience material costs to remedy problems, they may face litigation costs and
they may delay purchases or implementation of our products. Year 2000 issues
could reduce or eliminate the budgets that current or potential customers could
have for purchases of our products and services. Also, customers may look to us
to remediate any year 2000 issues associated with their systems. As a result,
our business, financial condition and results of operations could be seriously
harmed.
We have also completed an assessment of our internal systems, including
software and hardware technology utilized by us, as well as third-party vendors
related to our facilities or otherwise related to our business. We have
inventoried our internal software and hardware systems, as well as products and
services provided by vendors. These systems include those related to product
delivery, customer service, internal and external communications, accounting and
payroll. To the extent that we are not able to test the technology provided by
third-party vendors, we are seeking assurances from such vendors that their
systems are Year 2000 Ready. We are not currently aware of any unresolved
material operational issues or costs associated with preparing our internal
systems for the year 2000.
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However, we may experience material unanticipated problems and costs caused by
undetected errors, defects in the technology used in our internal systems or by
outside occurrences beyond our control.
We have not adopted a formal contingency plan designed to address year 2000
issues that may result if our products, our internal systems, or the systems of
our suppliers or customers are not Year 2000 Ready.
We have funded our year 2000 remediation efforts from available cash and
have incurred approximately $44,000 in expenses for such efforts. We currently
estimate that we will incur approximately $10,000 in expenses for additional
year 2000 remediation efforts. Significant uncertainty exists concerning the
potential costs and effects associated with year 2000 compliance. Any year 2000
compliance problem experienced by us or our customers could decrease demand for
our products that could seriously harm our business and operating results.
However, we may experience unanticipated problems and material costs with
unknown year 2000 issues that could harm our business.
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1998, the AICPA issued SOP No. 98-1, Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use. SOP No. 98-1 requires
entities to capitalize certain costs related to internal-use software once
certain criteria have been met. We expect that the adoption of SOP No. 98-1 will
not have a material impact on our financial position, results of operations or
cash flows. We have implemented SOP No. 98-1 in the current fiscal year.
In April 1998, the AICPA issued SOP No. 98-5, Reporting on the Costs of
Start-Up Activities. SOP No. 98-5 requires that all start-up costs related to
new operations must be expensed as incurred. In addition, all start-up costs
that were capitalized in the past must be written off when SOP No. 98-5 is
adopted. We expect that the adoption of SOP No. 98-5 will not have a material
impact on our financial position, results of operations or cash flows. We have
implemented SOP No. 98-5 in the current fiscal year.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133
establishes methods for derivative financial instruments and hedging activities
related to those instruments, as well as other hedging activities. Because we do
not currently hold any derivative instruments and do not engage in hedging
activities, we expect that the adoption of SFAS No. 133 will not have a material
impact on our financial position, results of operations or cash flows. We will
be required to implement SFAS No. 133 for the year ending March 31, 2002.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
We develop products in the United States and India and sell them worldwide.
As a result, our financial results could be affected by factors such as changes
in foreign currency exchange rates or weak economic conditions in foreign
markets. Since our sales are currently priced in U.S. dollars and are translated
to local currency amounts, a strengthening of the dollar could make our products
less competitive in foreign markets. Interest income is sensitive to changes in
the general level of U.S. interest rates, particularly since our investments are
in short-term instruments calculated at variable rates. Based on the short-term
nature and current levels of our investments, we have concluded that there is no
current material market risk exposure.
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BUSINESS
OVERVIEW
Selectica is a leading provider of Internet selling system software and
services that enable companies to efficiently sell complex products and services
over intranets, extranets and the Internet. Using our ISS software, businesses
can guide their customers, partners and employees through the selection,
configuration, pricing, quotation and fulfillment processes. Our ISS solution
allows companies to use the Internet platform to deploy a selling application to
many points of contact, including personal computers, in-store kiosks and mobile
devices, while offering customers, partners and employees an interface
customized to their specific needs. Our product architecture has been designed
specifically for the Internet, providing our solution with scalability,
reliability and flexibility. Additionally, our ISS solution has been developed
with an open architecture that leverages data in existing applications, such as
enterprise resource planning, or ERP, systems, providing an easy-to-install
application designed to reduce deployment time. Our current customers include
3Com, Aspect Communications, BMW, Centigram, Cisco, Fireman's Fund, Fujitsu,
Hewlett-Packard, Juniper Networks, LoanMarket, Redback Networks, Samsung,
Siemens and Watlow.
INDUSTRY BACKGROUND
Evolution of Electronic Commerce
The Internet is transforming the business environment by increasing
competition and enabling the development of new business models. People,
businesses and other organizations are using the Internet as a platform to
communicate, collaborate, access information and conduct business with greater
speed and efficiency. As a result, business-to-business, business-to-consumer
and business-to-employee interactions are being fundamentally altered. In order
to remain competitive, companies must find innovative ways to sell, increase
efficiencies in the sales cycle and deliver greater customer satisfaction.
Forrester Research estimates that the combined value of business-to-consumer and
business-to-business transactions conducted via the Internet will grow to over
$1.4 trillion by 2003. A growing number of companies are seeking to leverage the
Internet to market and sell their products and services. To date, many
electronic commerce transactions have been simple purchases of products such as
books, compact discs, stocks and toys. We believe, however, that the growth in
electronic commerce will be driven by the ability of companies to complete
complex transactions such as business-to-business electronic commerce and the
sale of consumer products and services involving multiple features, options or
involving custom pricing or service options.
Complexity in Electronic Commerce
Complexity in the selling process manifests itself in many ways. One type
is product complexity, where the product has many possible features, with
factors interacting with one another and with other factors to influence the
performance or manufacturability of that item. Examples of complex products
include networking and telecommunications equipment, automobiles and computers.
A second type of complexity is needs complexity, in which the product or service
itself may be relatively simple, such as an insurance policy or a printer, but
the factors that go into evaluating a specific customer's needs and pairing
those needs with the optimal product or service may be complex. A third type of
complexity comes from flexible or customized pricing and discounting schemes,
including those based on the features of the product.
The completion of a complex sales transaction depends on a seller's ability
to identify and satisfy a buyer's needs. In traditional sales, companies rely on
trained salespeople to interact with customers
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to address customer needs, explain product features and ultimately consummate
the sale. To date, many electronic commerce web sites have been static
collections of non-interactive content, and have limited ability to assist and
guide a customer through a purchase decision. Using the Internet to complete
complex sales transactions, however, requires businesses to implement a
sophisticated system that performs the traditional role of the salesperson
throughout the sales lifecycle of the products and services. We believe that
such a system must also be able to take advantage of the emergence of the
Internet as an application platform.
The Internet as an Emerging Platform for Business Applications
In parallel with the growth of electronic commerce, the Internet is
becoming a technology platform for business application deployment.
Traditionally, companies seeking to improve their operations have implemented
applications such as ERP, customer relationship management, or CRM, or sales
force automation, or SFA, software based on client-server architectures that
require a significant part of the application to be loaded on every user's
computer. With the emergence of the Internet platform, companies are able to
more broadly and cost effectively deploy business applications to customers,
partners and employees and make the most current application and information
immediately available on Internet-enabled devices. We believe that a selling
application based on the Internet platform offers significant advantages over
one based on traditional client-server architectures, such as the ability to be
deployed on a broad range of browser-enabled devices and easy integration with
other Internet-based applications and legacy systems, including those running on
relational database management systems, or RDBMS.
Limitations of Existing Solutions
Until recently, businesses have generally attempted to address the
challenges of complexity in the selling process by building in-house solutions.
These solutions often require significant up-front development costs and lengthy
deployment periods. Furthermore, due to the rapid pace of change in products and
business processes, companies often find it difficult and expensive to maintain
these systems and integrate new functionality and technologies. As a result,
businesses are seeking to implement third-party packaged applications.
Current commercially available software designed to help companies address
the challenges of complexity in the selling process may have one or more of the
following limitations:
- have not been engineered for the Internet platform and as such are not
easily deployed across a broad range of Internet-enabled devices;
- require significant custom programming;
- provide a limited interactive experience; or
- employ application architectures that limit their scalability and
reliability.
We believe that there is a significant opportunity for an Internet selling
system that leverages the Internet platform to enable companies to efficiently
sell complex products and services using a broad range of Internet-enabled
devices.
THE SELECTICA SOLUTION
Our ACE suite of products is a comprehensive ISS solution that enables
businesses to easily develop and rapidly deploy an Internet sales channel that
interactively assists their customers, partners and employees through the
selection, configuration, pricing, quoting and fulfillment processes.
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Our ISS solution allows companies to use the Internet platform to deploy a
selling application to many points of contact including personal computers,
in-store kiosks and mobile devices while offering customers, partners and
employees an interface customized to meet their specific needs. ACE is built on
a Java platform and utilizes a multi-threaded architecture to rapidly deploy,
without custom programming, a cost-effective, robust and highly scalable,
Internet-enhanced sales channel.
Some of the major benefits of Selectica's ISS solution are described below:
Provides Comprehensive Solution. ACE provides all of the functionality for
Internet selling in a single comprehensive solution. Our ISS solution has been
developed with an open architecture that leverages data in existing enterprise
applications, such as ERP systems, providing an easy-to-install application that
is designed to reduce deployment time.
Opportunity for Increased Sales. We enable sellers of complex products and
services to reach and sell to additional customers by enabling them to use the
Internet as an effective sales channel. Our ISS solution is designed for the
Internet platform, providing increased scalability and allowing companies to
sell over a broad range of Internet-enabled devices, including devices with
limited processing power, such as mobile devices.
Shorten Sales Cycle. Generally, in a traditional sales environment for
complex products and services, prospective buyers repeatedly interact with a
seller's sales force to determine an appropriate configuration and pricing.
Selectica's ACE software is designed to enable companies to reduce the time
required to convert interested prospects into customers in several ways,
including:
- providing comprehensive product information to the customer or sales
person at the point of sale without requiring interaction with product
experts; and
- automating the pricing and configuration of complex products and
services, thereby providing customers with accurate information in
real-time.
Improves Efficiency of the Indirect Sales Channel. Using our ISS solution,
companies can enable their channel partners, such as distributors and resellers
to access their selling tools and product information. This allows distributors
and resellers to effectively sell complex products and services with less
support from the company. It also improves order accuracy, which ultimately
leads to greater efficiency and increased customer satisfaction.
Opportunity for Greater Revenue per Customer. Sellers can use our ISS
solution to perform real-time analysis and optimization to identify
cross-selling and up-selling opportunities, thereby increasing average order
size. For example, a prospective buyer of a computer may be prompted by ACE to
consider additional features such as increased memory or complementary products
such as a printer, based on specific selections made. In addition, by enabling
companies to build an easy-to-use selling channel that is always available to
their customers, ACE allows companies to capture a greater percentage of their
customers' business.
Allows Selling Process to Support Key Business Goals. ACE enables companies
to ensure that all orders conform to specific criteria. For example, if a
company had a minimum gross margin requirement for a given product, ACE could
ensure that the features and options chosen will result in a product that meets
the company's margin objectives. ACE also improves inventory management. For
example, ACE can automatically promote the sale of a product for which there is
excess inventory.
Enhances Customer Relations. ACE enables a seller of complex products and
services to present each customer with different options based upon the
customer's specified needs. This customization of the selling process actively
engages the customer in the decision making process.
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<PAGE> 41
ACE also ensures that customers arrive at a product configuration that meets the
business and manufacturing guidelines of the company. We believe that ACE's
functionality enhances customer loyalty and satisfaction, ultimately resulting
in increased sales.
Rapid Deployment and Reduced Costs of Ownership. An effective Internet
selling system requires the user to build a knowledge base that captures its
product configurations and selling rules. ACE allows users to build, tailor and
maintain their knowledge base without custom programming. This enables users to
rapidly deploy our ISS solution. It also reduces the need for expensive
technical specialists and programmers to maintain and enhance their businesses'
ISS.
STRATEGY
Our objective is to become the leading platform for Internet selling
systems. Key components of our strategy include:
Maintain Technology Leadership. We have developed ACE to be a comprehensive
Internet selling system that meets the needs of companies looking to efficiently
sell complex products and services. Our product architecture has been
specifically designed for the Internet, providing our solution with scalability,
reliability and flexibility. We intend to continue to invest heavily in research
and development to introduce new functionality and develop innovative products
that enable our customers to increase their selling efficiency.
Pursue Vertical Market Strategy. To date, we have targeted the computer,
networking systems, automotive and communication services industries. By
offering a high-performance and feature-rich ISS solution to meet complex and
evolving needs, we have established reference accounts with high-profile, market
leaders including 3Com, BMW AG, BMW of North America, Fujitsu PC, Fujitsu
Networking Communications and Hewlett-Packard. We intend to expand our position
in these markets and leverage this position to target other markets with complex
products and services such as financial services and manufacturing. In addition,
we intend to leverage our experience in specific industries to develop solutions
that incorporate the business processes and product knowledge used in those
industries.
Continue to Build Relationships with Technology Providers. We believe that
establishing relationships with key technology providers is essential in
providing a comprehensive business solution for our customers. We intend to
focus on enhancing our ISS functionality while partnering with other leading
technology providers to offer enhanced infrastructure and complementary
applications such as one-to-one marketing, supply chain management, SFA or CRM.
Leverage and Expand Strategic Relationships. Our strategy is to complement
our direct sales force and professional service organization with strategic
partnerships with leading systems integrators and application service providers,
or ASPs. We believe that these partnerships will enable us to expand our market
reach, extend into new vertical markets and increase access to senior decision-
makers. These firms influence a customer's technology selection and their
recommendation represents a significant endorsement of our products. In
addition, our relationships with systems integrators and ASPs provide additional
implementation and integration resources.
Expand Internationally. As Internet adoption accelerates overseas, we
believe that international market demand for ISS software and services will
increase. We plan to devote significant resources to grow our sales and
marketing efforts in order to penetrate international markets. We intend to
continue to target businesses characterized by high sales volumes and countries
characterized by high growth in demand for ISS products and services.
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SELECTICA PRODUCTS
The following table provides a list of our products and a brief description
of the features and benefits to our customers.
<TABLE>
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------
PRODUCT FEATURES BENEFITS
- ------------------------------------------------------------------------------------------------------
ACE Enterprise Server Electronic commerce configuration Enables customized, one-to-one
engine selling on the Internet
Highly scalable Internet-architecture Can scale to support millions of
simultaneous users by simply
installing more servers
Java-based Platform independence
Supports open standard integration Seamlessly integrates with other
interfaces Internet based applications and
legacy systems
Dynamic information update Can update product information
without stopping selling process
Easy-to-use, dynamically generated, Maximizes sales for productivity by
customized interface reducing sales training time
Supports devices with limited Can be deployed on a broad range of
processing power devices
HTML-based client Runs on any device with a standard
Internet browser
- ------------------------------------------------------------------------------------------------------
ACE Mobile Includes the features of ACE
Enterprise with the following
additional features:
Complete stand-alone selling system Enables mobile users to access our
that runs on laptop computers customers' ISS with the same user
interface as a connected system
Automatically synchronizes knowledge Ensures accurate product and pricing
bases and quotes information and orders
- ------------------------------------------------------------------------------------------------------
ACE Enterprise Manager Administers multiple ACE Enterprise Add and remove ACE Enterprise Servers
Servers and ACE Mobile without stopping the selling process
Dynamically scales the load Optimizes available CPU resources
distribution as more servers are
added
- ------------------------------------------------------------------------------------------------------
ACE Quoter Central server and storage facility Enables users to generate, save and
for customer orders, configurations revise quotes online
and pricing information
Provides easy access from remote Eliminates errors in quotes and
devices to quote archives orders
- ------------------------------------------------------------------------------------------------------
ACE Studio Model, test and debug using a single Simplifies development process
tool
Graphical knowledge base and user Enables application deployment and
interface development tools maintenance by non-technical
personnel
- ------------------------------------------------------------------------------------------------------
ACE Repository Database that stores knowledge base Provides an audit trail for the
in readable, queryable format maintenance of large knowledge bases
- ------------------------------------------------------------------------------------------------------
ACE Connector Provides access to other enterprise Enables easy integration and reduces
applications costs and deployment time
- ------------------------------------------------------------------------------------------------------
</TABLE>
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[INSERT DIAGRAM]
[Descriptions of Graphics
Surrounding the entire graphics is a large box. To the left of the box is a
rectangle. Above the rectangle is the text: "Users." The rectangle is divided
into two parts. In the top of the rectangle is a lap-top computer. Below the
lap-top is the text "Remote Sales Force."
In the lower portion of the rectangle are a computer, a kiosk, a mobile phone
and a personal digital assistant. Beneath these items is the text: "Customers,"
"Partners" and "Internal users."
To the right of the rectangle is a cloud. A two-headed arrow runs from the
cloud to the picture of the multiple devices inside the first rectangle. Inside
the cloud is the following text: "Intranet," "Extranet" and "Internet."
To the right of the cloud is a rectangle. A two-headed arrow runs from the
cloud to this rectangle. Inside the rectangle is the following text: "Web
Server."
To the right of the second rectangle is a large box. Inside the box are a set
of rectangles. Inside the first rectangle is the following text: "ACE Enterprise
Manager." A two-headed arrow runs from this rectangle to the prior rectangle.
The next rectangle to the right is divided into two parts. The top portion
contains the following text "ACE Mobile." A two-headed arrow runs from this
portion of the rectangle to the lap-top computer on the first rectangle.
The lower portion of this rectangle contains the following text: "ACE
Enterprise Server."
The next rectangle to the right is divided into two sections. The top section
contains the following text: "ACE Repository." The bottom section contains the
following text: "ACE Quoter."
The final rectangle in the large box is a rectangle that contains the
following text: "ACE Connectors." A two headed arrow runs from this rectangle to
a vertical line. The vertical line connects to four rectangles by four short
lines.
Above the four rectangles is the following text: "Legacy Systems." The first
rectangle contains the following text: "Order Entry." The next rectangle
contains the following text "RDBMS." The next rectangle contains the following
text: "ERP." The bottom rectangle contains the following text: "CRM/SFA."]
SELECTICA SERVICES
Professional Services
We maintain a highly qualified and experienced professional services
organization to deliver quality ISS solutions. Our professional services
organization offers a broad range of services through its consulting, customer
education and technical support groups. These services include product
education, presales prototype development, training seminars, product
installation, application development, customizations, integration and a full
range of education and technical support. This organization is also responsible
for training our partners to provide professional services and technical support
to our customers. The professional services organization consisted of 86 people
as of November 30, 1999, 28 of which are based in San Jose, California, 2 of
which are based in Dusseldorf, Germany and 56 of which are based in Pune, India.
Because significant portions of ISS implementations can be performed away from
the customer's site, we have the flexibility of being able to provide services
from either our U.S. or India-based operations.
Customer Support
In addition to professional services, we offer various levels of product
maintenance to our customers. Maintenance services are typically subject to an
annual, renewable contract and are typically priced as a percentage of product
license fees. Customers under maintenance contracts receive technical product
support and product upgrades as they are released throughout the life of the
maintenance contracts. We also provide Select Onsite, which consists of
specialized services provided at our customers' locations.
CUSTOMERS
Our customer base consists of a diverse group of companies operating in a
wide range of industries that are adopting electronic business strategies to
sell their complex products and services. Our current customers include:
<TABLE>
<S> <C> <C>
3Com Fireman's Fund Redback Networks
Aspect Communications Fujitsu Samsung
BMW Hewlett-Packard Siemens
Centigram Juniper Networks Watlow
Cisco LoanMarket
</TABLE>
CASE STUDIES
The following case studies provide insights into how certain businesses are
benefiting from our ISS solution:
Aspect Communications. Aspect Communications is a worldwide vendor of CRM
solutions. As part of a business restructuring, Aspect changed their strategic
direction from selling individual products to providing comprehensive CRM
solutions. This required that Aspect's sales people and distributors learn a new
selling process. Providing a comprehensive solution required Aspect's sales
people to configure a complete package of products and services based on each
customer's needs. Selectica provided Aspect with an ISS that prompts sales
people with an automated set of questions to determine the customers need and
then recommend a comprehensive CRM solution based upon customer responses. With
ACE, Aspect's configuration, quotation and order processing is standardized,
simple and streamlined. In addition, the new selling system ensures greater
accuracy and faster quote generation.
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BMW. One of the world's most respected auto manufacturers for high quality
and brand loyalty is utilizing Selectica's ISS for their vehicle configurator to
remain a leader in the rapidly changing marketing and sales conditions of the
Web. BMW of North America and BMW AG each created their own web sites to compete
with the proliferation of third party Internet auto portals. By using
Selectica's Internet selling system, BMW of North America and BMW AG each
provide customers with the full range of features, options and financing
alternatives to configure and price their vehicles, thereby enabling customers
to custom design vehicles. Using this vehicle configurator, BMW analyzes
configurations that have been saved by users for marketing trends and product
development direction. Through the implementation of Selectica's technology, BMW
hopes customer satisfaction is increased and dealers experience faster sales
cycles.
3Com Corporation. The 3Com Corporation, a $5.8 billion networking equipment
manufacturer, has a corporate-wide e-Business strategy that mandates that a
certain percentage of its total sales revenues come from its web site.
Selectica's ISS helps 3Com's customers buy products and services via the
Internet by providing them with accurate product information and automated
assistance. Our solution automates needs analysis, pricing, quoting and
configuration and also helps users select modems, network interface cards,
notebook PC cards, multi-service access platforms and switches. Previously,
orders for products were either phoned in or faxed into 3Com by direct sales,
distributors and retailers, requiring a manual process. Selectica technology has
increased sales volumes by providing 24 hours a day, seven days a week
availability to 3Com's customers, simplifying the complexity of product
decisions, guaranteeing accuracy, and ease of buying processes for customers, as
well as reduced sales cost.
TECHNOLOGY
We have developed a unique architecture for developing a personalized,
intuitive, interactive and scalable ISS solution that includes selection,
configuration, pricing, quoting and fulfillment processes. The four key
technological advantages of our ISS solution include:
- a declarative constraint engine;
- an integrated modeling environment;
- a multi-threaded server; and
- a scalable, thin-client architecture.
Declarative constraint engine
Most existing configurators are custom programs that were written
specifically for the product or family of products being configured. This means
both the configuration logic and the data describing product attributes are
combined in a single computer program that necessitates significant
reprogramming to reflect simple product changes. In contrast, our ISS solution
utilizes a constraint-based engine that is completely separate from the data
describing the product attributes. This means that a business can easily create
and modify the knowledge base to reflect product changes utilizing our
integrated modeling environment thereby eliminating the need for expensive
programming teams.
Our engine, written in Java, is easily deployed on various operating
platforms. The use of Java allows us to support a range of deployment
environments including Java applications in a notebook computer and ACE
Enterprise server generated browser-readable pages, with the same engine and the
same knowledge base.
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Integrated modeling environment
We have developed an integrated modeling environment that allows our
customers to easily create a sophisticated ISS solution without any programming.
Our ISS solution utilizes drag and drop tools that enable sales and marketing
personnel, rather than expensive programmers, to maintain and enhance their
businesses' ISS. Using these drag and drop tools, businesses can:
- easily create and update knowledge bases containing product attributes;
- create HTML-based graphical user interface, or GUI, applications;
- conduct regression tests on knowledge bases and batch order checks;
- verify the semantics of the knowledge base and identify some semantic
errors; and
- create flex models from individual models.
Multi-threaded server
We have a unique highly scalable server architecture for deploying our
customers' applications. The n-tier architecture allows us to support a range of
configurations from a single ACE Enterprise Server, to several ACE Enterprise
Servers managed via a single ACE Enterprise Manager running on an HTTP server or
another server. An ACE Enterprise Manager can manage a single server running ACE
Enterprise Server or multiple, possibly overlapping servers all running ACE
Enterprise Servers. Our multi-threaded technologies enhance the performance for
each buyer session because each session state is preserved as the buyer makes
subsequent selections. Furthermore, our ACE Enterprise Server supports a large
number of concurrent user sessions because the engine uses a very small amount
of memory for each incremental user session.
Scalable thin-client architecture
Our software, employing a thin-client architecture, supports an Internet
computing model, enabling users to access an ISS with only an industry-standard
browser on a broad range of Internet-enabled devices. Our ACE Enterprise Servers
use our engine to process the user request from an HTML session, using the
knowledge base and legacy data as needed, to enforce rules, eliminate incorrect
choices and make calculations and then suggest choices by generating the next
HTML screen dynamically. Our servers can also be accessed by custom applications
using our thin-client application programming interfaces. Our ACE Enterprise
Server can communicate with our ACE Quoter or one or more database servers from
other vendors, and other enterprise resources, including legacy resources using
ACE Connectors.
SALES AND MARKETING
Our sales and marketing objective is to achieve broad market penetration
through targeted sales and increased brand name recognition. As of November 30,
1999, our sales and marketing team consisted of 58 persons, with sales and field
support personnel in Atlanta, Chicago, Dallas, New York, San Jose, Seattle,
Canada and Germany and 15 marketing personnel located in San Jose.
We sell our ACE products primarily through a direct sales force supported
by telesales, system engineering and integration support. We believe that the
integration of these support networks assists in both the establishment and
enhancement of customer relationships. We have developed programs to attract and
retain high quality, motivated sales representatives that have the necessary
technical skills and consultative sales experience.
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Our marketing department is engaged in a wide variety of activities, such
as awareness and lead generation programs and product management. These
activities include public relations, speaking programs, seminars, direct mail,
trade shows and advertising.
STRATEGIC RELATIONSHIPS
Our business development group focuses on developing strategic
relationships with vendors who will help us rapidly penetrate key markets with
our comprehensive ISS solution. We have developed strong working relationships
with system integrators, such as, Arthur Andersen, EDS, A.T. Kearny, KPMG and
PricewaterhouseCoopers, with independent software vendors such as BroadVision,
InterWorld, Netscape/AOL, Tibco and Vitria Technology, and with application
service providers such as Asera and Corio.
STRATEGIC INVESTORS
One of our investors is the Intel 64 Fund. The Intel 64 Fund is a quarter
billion dollar equity fund that invests in emerging technologies for
next-generation servers and workstations utilizing Intel's IA-64 architecture.
The Fund is coordinated by Intel and Compaq, Dell, HP, Intel, NEC, and SGI as
co-investors. The Fund's other investors, managed by Morgan Stanley Dean Witter,
include Bank of America, The Boeing Company, Cicuit City, Enron, Ford Motor
Company, General Electric, McKessonHBOC, Morgan Stanley Dean Witter, Reuters,
Sabre, SmithKline Beecham, Sumitomo Corp., SunAmerica and Telmex. In October
1999, the Intel 64 Fund purchased shares of our preferred stock as part of a
private sale of our securities.
RESEARCH AND DEVELOPMENT
To date we have invested substantial resources in research and development.
At November 30, 1999, we had approximately 50 full-time engineers and technical
writing specialists that primarily work on product development, documentation,
quality assurance and testing.
We expect that most of our new products and enhancements to existing
products will be developed internally. However, we will evaluate on an ongoing
basis externally developed technologies for integration into our suite of
products. Enhancements to our existing products are released periodically to add
new features, improve functionality and incorporate feedback and suggestions
from our current customer base. These updates are usually provided as part of
separate maintenance agreement sold with the product license.
COMPETITION
The market for software products that enable electronic commerce is
intensely competitive, and we expect competition in the ISS software market to
increase substantially. We encounter competition from a number of different
sources, including in-house and customized Internet-development companies,
companies focused on Internet selling systems and other enterprise software
companies. We expect competition to persist and intensify, which could result in
price reductions, reduced gross margins and loss of market share. Our principal
competitors include Calico Commerce, FirePond and Trilogy Software. BAAN, Oracle
Corporation, SAP and Siebel Systems offer integrated solutions for electronic
commerce incorporating some of the functionality of an ISS and may intensify
their efforts in our market. In addition, other enterprise software companies
may offer competitive products in the future.
Competitors vary in size and in the scope and breadth of the products and
services offered. Many of our competitors and potential competitors have a
number of significant advantages over us, including:
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<PAGE> 47
- a longer operating history;
- a preferred vendor status with our customers;
- a more extensive name recognition and marketing power; and
- significantly greater financial, technical, marketing and other
resources, giving them the ability to respond more quickly to new or
changing opportunities, technologies and customer requirements.
Our competitors may also bundle their products in a manner that may
discourage users from purchasing our products. Current and potential competitors
may establish cooperative relationships with each other or with third parties,
or adopt aggressive pricing policies to gain market share. Competitive pressures
may require us to reduce the prices of our products and services. We may not be
able to maintain or expand our sales if competition increases and we are unable
to respond effectively.
PROPRIETARY RIGHTS
We rely on a combination of trademark, trade secret and copyright law and
contractual restrictions to protect the proprietary aspects of our technology.
These legal protections afford only limited protection for our technology. We
currently have three pending U.S. patent applications. In addition, we have
three trademarks and have applied to register two of them in the United States.
Our trademark and patent applications might not result in the issuance of any
trademarks or patents. If any patent or trademark is issued, it might be
invalidated or circumvented or otherwise fail to provide us any meaningful
protection. We seek to protect the source code for our software, documentation
and other written materials under trade secret and copyright laws. We license
our software pursuant to signed license agreements, which impose certain
restrictions on the licensee's ability to utilize the software. We also seek to
avoid disclosure of our intellectual property by requiring employees and
consultants with access to our proprietary information to execute
confidentiality agreements. Despite our efforts to protect our proprietary
rights, unauthorized parties may attempt to copy aspects of our products or to
obtain and use information that we regard as proprietary. In addition, the laws
of many countries do not protect our proprietary rights to as great an extent as
do the laws of the United States. Litigation may be necessary in the future to
enforce our intellectual property rights, to protect our trade secrets and to
determine the validity and scope of the proprietary rights of others. Our
failure to adequately protect our intellectual property could have a material
adverse effect on our business and operating results.
Our success and ability to compete are dependent on our ability to operate
without infringing upon the proprietary rights of others. Any intellectual
property litigation could result in substantial costs and diversion of resources
and could significantly harm our business and operating results. In the past, we
received correspondence from two patent holders recommending that we license
their respective patents. After review of these patents, we informed these
patent holders that in our opinion, it would not be necessary to license these
patents. However, we may be required to license either or both patents or incur
legal fees to defend our position that such licenses are not necessary. We may
not be able to obtain a license to use either patent on commercially reasonable
terms, or at all.
Any threat of intellectual property litigation could force us to do one or
more of the following:
- cease selling, incorporating or using products or services that
incorporate the challenged intellectual property;
- obtain from the holder of the infringed intellectual property right a
license to sell or use the relevant technology, which license may not be
available on reasonable terms;
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<PAGE> 48
- redesign those products or services that incorporate such technology; or
- pay money damages to the holder of the infringed intellectual property
right.
In the event of a successful claim of infringement against us and our
failure or inability to license the infringed technology on reasonable terms or
license a substitute technology or redesign our product to avoid infringement,
our business and operating results would be significantly harmed.
EMPLOYEES
At November 30, 1999, we had a total of 220 employees, 77 of whom were
based in India. Of the total, 136 were in engineering, consulting and research
and development, 58 were engaged in sales, marketing and business development
and 26 were in administration and finance. None of our employees is represented
by a labor union and we consider our relations with our employees to be good.
FACILITIES
Our principal administrative, sales, marketing and research and development
facility occupies approximately 22,700 square feet of space at 2890 Zanker Road,
Suite 101, San Jose, California 95134, pursuant to two leases that expire in
December 1999 and January 2003, respectively. We have entered into a lease for
approximately 80,000 square feet of office space at 3 West Plumeria, San Jose,
California 95134. The lease extends through November 2009. We are in the process
of moving our operations to the new facility. During this move we could be
susceptible to technical failures and other disruptive problems. Any such
problems could diminish our ability to provide our products and services to our
customers, which could harm our business and operating results. We believe the
office space in the new facility will be adequate to meet our needs for the next
twelve months. We also have regional offices in Chicago, Dallas, New York,
Dusseldorf, Germany, and Pune, India.
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MANAGEMENT
Our executive officers and directors and their ages and positions as of
November 30, 1999 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Rajen Jaswa............................. 47 Chairman of the Board, Chief Executive Officer
and President
Dr. Sanjay Mittal....................... 46 Chief Technical Officer, Vice President of
Engineering, Secretary and Director
Dr. S.S. Sundarajan..................... 49 Vice President of Indian Operations
Daniel A. Carmel........................ 38 Vice President of Marketing
Stephen Bennion......................... 53 Chief Financial Officer, Vice President of
Finance
Ashish Mathur........................... 42 Vice President of Worldwide Professional
Services
Charles Pendell......................... 45 Vice President of Sales, Americas
Betsy Atkins(1)......................... 44 Director
John Fisher(1).......................... 41 Director
Michael Lyons(2)........................ 57 Director
Robin Richards Donohoe.................. 34 Director
Thomas Neustaetter(2)................... 47 Director
</TABLE>
- -------------------------
(1) Member of the Compensation Committee
(2) Member of the Audit Committee
Rajen Jaswa, a co-founder of Selectica, has served as our Chairman,
President and Chief Executive Officer since our inception. Prior to Selectica,
Mr. Jaswa co-founded and served as President of OPTi, a supplier of PC
compatible chipsets from January 1995 to January 1996 and as Vice President of
Sales and Marketing from August 1989 to December 1994. Mr. Jaswa received his
B.Tech in Electrical Engineering from the Indian Institute of Technology, his
M.S.E.E. in Electrical Engineering from the University of Toronto and his M.B.A.
from Stetson University.
Dr. Sanjay Mittal, a co-founder of Selectica, has served as our Chief
Technical Officer, Vice President of Engineering, Secretary and a Director since
our inception. Prior to co-founding Selectica, from April 1992 to July 1996, Dr.
Mittal was the founder and President of Catalogics Software, a configuration
software company acquired by Selectica in July 1996. From 1990 to April 1992,
Dr. Mittal managed a development team at Metaphor, a business software company.
Prior to that, Dr. Mittal was a senior research scientist at Xerox's Palo Alto
Research Center (PARC) from 1982 to 1990. Dr. Mittal received his B.Tech in
Electrical Engineering from the Indian Institute of Technology and his M.S. and
Ph.D. in Computer Science from Ohio State University.
Dr. S.S. Sundarajan has served as our Vice President of Indian Operations
since June 1998. Prior to joining Selectica, Dr. Sundarajan served as Chief
Executive of Datapro Electronics, a software company focusing on real time
systems, in Pune, India, from April 1986 to June 1998. Dr. Sundarajan received
his B.S. in Engineering from Pune University and his M.S. in Electrical
Engineering and Ph.D. from Ohio State University.
Daniel A. Carmel has served as our Vice President of Marketing and Business
Development since July 1999. Prior to joining Selectica, Mr. Carmel served as
Executive Vice President for Sonnet Financial, an Internet financial services
company, from August 1994 to July 1999. Mr. Carmel received his B.S. and M.S. in
Engineering at the University of Pennsylvania and his M.B.A. from Stanford
University.
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Stephen Bennion has served as our Chief Financial Officer and Vice
President of Finance since September 1999. From April 1998 to September 1999,
Mr. Bennion served in various capacities for Cohesive Technology Solutions, a
technology consulting company, including Vice President and Chief Financial
Officer and Western Region Managing Partner. From April 1995 to April 1998, Mr.
Bennion served as Executive Vice President and Chief Financial Officer for
Worldtalk Communications, an Internet e-mail software company. Mr. Bennion
received his B.S. in accounting from Weber State University and is a Certified
Public Accountant.
Ashish Mathur has served as our Vice President of Worldwide Professional
Services since April 1997. Prior to joining Selectica, Mr. Mathur served as Vice
President of Worldwide Professional Services for Pure Atria from June 1992 to
April 1997. Mr. Mathur received his B.Tech in Electrical Engineering from the
Indian Institute of Technology and his M.S. in Computer Science from the
University of Southern California.
Charles Pendell joined as our Vice President of Sales, Americas in October
1998. Prior to joining Selectica, Mr. Pendell served as Vice President of
Worldwide Sales and Field Operations for Action Technologies, an Internet-based
workflow software company, from December 1994 to September 1998. Mr. Pendell
received his B.S. in Business Administration from Washington State University.
Betsy Atkins has served as a director since February 1997. Since 1995, Ms.
Atkins has served as Chief Executive Officer of Baja Corporation, a consulting
firm. Prior to joining Baja, Ms. Atkins was the Chief Executive Officer of NCI,
a manufacturing company. Ms. Atkins is both a founder and serves on the board of
directors of Ascend, a Lucent Network Solutions company. She also serves on the
board of directors of Paradyne, a digital subscriber line networking company,
and Polycom, a video-teleconferencing company. Ms. Atkins received her B.A. in
History from the University of Massachusetts and her B.A. from Trinity College
at Oxford.
John Fisher has served as a director since July 1997. Since 1991, Mr.
Fisher has served as the Managing Director of Draper Fisher Jurveston, a venture
capital firm. Mr. Fisher serves on the boards of directors of Aloha Networks,
Convoy Corporation, Entegrity Solutions, Paraxon, RealNames, Sonnet Financial,
Transactor Networks and WIT Capital Group. Mr. Fisher received his B.A., Magna
Cum Laude, in History of Science and his M.B.A. from Harvard University.
Michael Lyons has served as a director since July 1998. Since 1997, Mr.
Lyons has served as the General Partner of Zilkha Venture Partners, a venture
capital firm. Since June 1992, Mr. Lyons has served as the General Partner of
Potrero Management, a venture capital firm. Since 1989, Mr. Lyons has been a
Consulting Associate Professor at the Stanford University Department of
Management Science and Engineering. Mr. Lyons is a member of the board of
directors of Informed Diagnostics, a sensor technology company and Advanced
Interactive Systems, a firearms training simulation company. Mr. Lyons received
his B.S.E.P. in Engineering Physics from Cornell University, M.S. in Electrical
Engineering from Stanford and M.B.A. with distinction from the Pepperdine
Presidential/ Key Executive Program.
Robin Richards Donohoe has served as a director since January 1997. Since
1995, Ms. Donohoe has served as General Partner of Draper International India,
L.P., a venture capital firm. Ms. Donohoe is also a General Partner of Draper
Richards L.P., a venture capital firm. Ms. Donohoe received her B.A. Phi Beta
Kappa in International Studies from the University of North Carolina and her
M.B.A. from Stanford University.
Thomas Neustaetter has served as a director since July 1999. Since March
1999, Mr. Neustaetter has been an Executive Member of JK&B Capital, a venture
capital firm. Prior to joining JK&B Capital, Mr. Neustaetter was a Partner of
the Chatterjee Group, an affiliate of Soros Fund Management, from January 1996
to February 1999. Prior to working at the Chatterjee Group, Mr. Neustaetter was
the President and founder of Bancroft Capital, a general consulting firm, from
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December 1994 to December 1995. Mr. Neustaetter serves on the boards of
directors of MGC Communications, 21st Century Telecom Group, Gloss.com, Update
Marketing and Vertex Holdings. Mr. Neustaetter earned his B.A. Phi Beta Kappa in
Philosophy from the University of California, Berkeley, and his M.B.A. and M.S.
in Information Science from University of California, Los Angeles.
BOARD OF DIRECTORS
We currently have authorized seven directors. Upon the completion of the
offering, the terms of the office of the board of directors will be divided into
three classes: Class A, whose term will expire at the annual meeting of the
stockholders to be held in 2000; Class B, whose term will expire at the annual
meeting of stockholders to be held in 2001; and Class C, whose term will expire
at the annual meeting of stockholders to be held in 2002. The Class A directors
will be Robin Richards Donohoe and Betsy Atkins; the Class B directors will be
John Fisher, Michael Lyons and Rajen Jaswa; and the Class C directors will be
Thomas Neustaetter and Sanjay Mittal. At each annual meeting of stockholders
after the initial classification, each elected director will serve from the time
of his election and qualification until the third annual meeting following his
or her election. This classification of the board of directors may have the
effect of delaying or preventing changes in control or management. All of our
officers serve at the discretion of the board of directors. There are no family
relationships among our directors and officers.
Board Committees
The board of directors has a compensation committee and an audit committee.
Compensation Committee. The compensation committee of the board of
directors reviews and makes recommendations to the board regarding all forms of
compensation provided to our executive officers and directors and our subsidiary
including stock compensation and loans. In addition, the compensation committee
reviews and makes recommendations on bonus and stock compensation arrangements
for all of our employees. As part of these responsibilities, the compensation
committee also administers our 1996 Stock Plan, 1999 Equity Incentive Plan and
1999 Employee Stock Purchase Plan. The current members of the compensation
committee are Ms. Atkins and Mr. Fisher.
Audit Committee. The audit committee of the board of directors reviews and
monitors our corporate financial reporting and our internal and external audits,
including our internal audit and control functions, the results and scope of the
annual audit and other services provided by our independent auditors and our
compliance with legal matters that have a significant impact on our financial
reports. The audit committee also consults with management and our independent
auditors before the presentation of financial statements to stockholders and, as
appropriate, initiates inquiries into aspects of our financial affairs. In
addition, the audit committee is responsible for considering and recommending
the appointment of, and reviewing fee arrangements with, our independent
auditors. The current members of the audit committee are Messrs. Neustaetter and
Lyons.
Director Compensation
Ms. Atkins received an option for 30,000 shares of common stock on February
4, 1997 at an exercise price of $0.025 per share. Under our 1999 Equity
Incentive Plan, each non-employee director who first becomes a board member
following this offering will receive an automatic option grant of 30,000 shares
of our common stock on the date when he or she initially becomes a board member.
Each non-employee director who will continue to be a board member following an
annual meeting of stockholders will receive an annual automatic option grant of
7,500 shares at each annual meeting under our 1999 Equity Incentive Plan,
beginning at the 2001 annual meeting. Please see "Employee Benefit Plans -- 1999
Equity Incentive Plan" for more details.
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<PAGE> 52
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The compensation committee of the board of directors currently consists of
Ms. Atkins and Mr. Fisher. No interlocking relationship exists between any
member of our board of directors or our compensation committee and any member of
the board of directors or compensation committee of any other company, and no
interlocking relationship has existed in the past. For disclosure of any related
party transactions between the members of the compensation committee and
Selectica, please see the section below entitled "Related Party Transactions."
INDEMNIFICATION
Our Second Amended and Restated Certificate of Incorporation, to be
effective after the closing of this offering, includes a provision that
eliminates the personal liability of our directors and officers for monetary
damages for breach of fiduciary duty as a director or officer, except for
liability:
- for any breach of the director's or officer's duty of loyalty to us or
our stockholders;
- for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
- under Section 174 of the Delaware General Corporation Law regarding
unlawful dividends and stock purchases; or
- for any transaction from which the director or officer derived an
improper personal benefit.
These provisions are permitted under Delaware law.
Our bylaws provide that:
- we must indemnify our directors and officers to the fullest extent
permitted by Delaware law, subject to very limited exceptions;
- we may indemnify our other employees and agents to the same extent that
we indemnified our officers and directors; and
- we must advance expenses, as incurred, to our directors and officers in
connection with a legal proceeding to the fullest extent permitted by
Delaware law, subject to very limited exceptions.
We have also entered into indemnification agreements with our officers and
directors containing provisions that may require us to indemnify our officers
and directors against liabilities that may arise by reason of their status or
service as directors or officers, other than liabilities arising from willful
misconduct of a 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' and officers' insurance if available on reasonable terms.
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EXECUTIVE COMPENSATION
Summary Compensation Table
The following table presents compensation information for fiscal year 1999
paid by us for services by our chief executive officer and our four other
highest-paid executive officers whose total salary and bonus for the fiscal year
exceeded $100,000:
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
------------
ANNUAL COMPENSATION SECURITIES
------------------- UNDERLYING
NAME AND PRINCIPAL POSITION(1) SALARY BONUS OPTIONS
------------------------------ -------- ------- ------------
<S> <C> <C> <C>
Rajen Jaswa................................................. $139,583 $ -- --
Chief Executive Officer and President
Dr. Sanjay Mittal........................................... 139,583 -- --
Chief Technical Officer, Vice President of Engineering and
Secretary
Ashish Mathur............................................... 139,583 -- --
Vice President of Worldwide Professional Services
Charles Pendell(2).......................................... 146,250 -- 300,000
Vice President of Sales, Americas
Vasudev Bhandarkar(3)....................................... 143,621 5,000 --
Vice President, Business Development and Marketing
</TABLE>
- -------------------------
(1) Mr. Daniel A. Carmel commenced service with us as Vice President of
Marketing and Business Development in September 1999, and his annual base
salary is currently $175,000. Mr. Stephen Bennion commenced service with us
as Vice President and Chief Financial Officer in September 1999, and his
annual base salary is currently $175,000.
(2) Mr. Pendell commenced service with us as Vice President of Sales, Americas
in October 1998, and his annual base salary is currently $150,000.
(3) Mr. Bhandarkar ceased service as Vice President, Business Development and
Marketing as of March 19, 1999.
Option Grants in Last Fiscal Year
The following table designates each grant of stock options during fiscal
year 1999 to our chief executive officer and our four other highest-paid
executive officers.
The figures representing percentages of total options granted to employees
in the last fiscal year are based on a total of 1,361,804 option shares granted
to our employees under our 1996 Stock Plan during fiscal year 1999.
The exercise price of each option granted is equal to the fair value of our
common stock as valued by our board of directors on the date of grant. The
exercise price may be paid in cash, in shares of our common stock valued at fair
value on the exercise date or through a cashless exercise procedure involving a
same-day sale of the purchased shares. We may also finance the option exercise
by lending the optionee sufficient funds to pay the exercise price for the
purchased shares. See "Related Party Transactions -- Loans."
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The calculation of the potential realizable value is based on the ten-year
term of the option at the time of grant. Stock price appreciation of 5% and 10%
is assumed according to rules promulgated by the Securities and Exchange
Commission and does not represent our prediction of our stock price performance.
The potential realizable value at 5% and 10% appreciation is calculated by
assuming that the exercise price on the date of grant appreciates at the
indicated rate for the entire term of the option and that the option is
exercised at the exercise price and sold on the last day of its term at the
appreciated price.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
---------------------------------------------------------- ANNUAL RATES OF
NUMBER OF PERCENT OF TOTAL STOCK PRICE
SECURITIES OPTIONS GRANTED APPRECIATION FOR
UNDERLYING TO EMPLOYEES EXERCISE OPTION TERM
OPTIONS IN THE FISCAL PRICE EXPIRATION ---------------------
NAME GRANTED YEAR(%) ($/SHARE) DATE 5% 10%
---- ---------- ------------------ ---------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Rajen Jaswa........................ -- -- -- -- -- --
Dr. Sanjay Mittal.................. -- -- -- -- -- --
Ashish Mathur...................... -- -- -- -- -- --
Charles Pendell.................... 300,000 22.03 $0.25 9/22/08 $4,717 $11,953
Vasudev Bhandarkar................. -- -- -- -- -- --
</TABLE>
Mr. Mathur was granted an option to purchase 100,000 shares of our common
stock on April 20, 1999 at an exercise price of $1.50 per share. Mr. Pendell was
granted options to purchase a total of 75,000 shares of our common stock on
October 1, 1999 at an exercise price of $2.50 per share.
Aggregate Option Exercises in Last Fiscal Year and Fiscal Year End Option
Values
The following table presents all unexercised options held by our chief
executive officer and our four highest-paid executive officers during fiscal
year 1999.
The options listed in the table become vested as follows: upon the
completion of 12 months of service, 25% of the option shares vest and upon the
completion of each of the next 36 months of service, 1/48 of the option shares
vest.
The fair value for our common stock at the end of fiscal year 1999 was
$1.60 per share.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
NAME FISCAL YEAR END FISCAL YEAR END
---- ---------------------- --------------------
<S> <C> <C>
Rajen Jaswa................................................. -- --
Dr. Sanjay Mittal........................................... -- --
Ashish Mathur............................................... -- --
Charles Pendell............................................. 300,000 $405,000
Vasudev Bhandarkar.......................................... -- --
</TABLE>
EMPLOYEE BENEFIT PLANS
1996 Stock Plan.
As of September 30, 1999, options to purchase 3,024,350 shares of common
stock were outstanding under the 1996 Stock Plan and options to purchase
1,894,821 shares had been exercised. Options granted under the 1996 Stock Plan
are subject to terms substantially similar to those described below with respect
to options granted under the 1999 Equity Incentive Plan, except that upon an
involuntary termination following a change in control, the options granted under
the 1996 Stock Plan do not accelerate.
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<PAGE> 55
1999 Equity Incentive Plan.
Our board of directors adopted our 1999 Equity Incentive Plan on November
18, 1999. We will also seek stockholder approval of this plan. We have reserved
2,200,000 shares of our common stock for issuance under the 1999 Equity
Incentive Plan. As of January 1 of each year, starting in 2001, the number of
shares reserved for issuance under our 1999 Equity Incentive Plan will be
increased automatically by 5% of the total number of shares of common stock then
outstanding or, if less, 1,800,000 shares. No options have yet been granted
under the 1999 Equity Incentive Plan.
Under the 1999 Equity Incentive Plan, the persons eligible to receive
awards are:
- employees;
- non-employee members of the board of directors; and
- consultants.
The types of awards that may be made under the 1999 Equity Incentive Plan
are:
- options to purchase shares of common stock;
- stock appreciation rights;
- restricted shares; and
- stock units.
Options may be incentive stock options that qualify for favorable tax
treatment for the optionee under Section 422 of the Internal Revenue Code of
1986 or nonstatutory stock options not designed to qualify for favorable tax
treatment. With limited restrictions, if shares awarded under the 1999 Equity
Incentive Plan are forfeited, those shares will again become available for new
awards under the 1999 Equity Incentive Plan.
The compensation committee of our board of directors administers the 1999
Equity Incentive Plan. The committee has complete discretion to make all
decisions relating to the interpretation and operation of our 1999 Equity
Incentive Plan. The committee has the discretion to determine which eligible
individuals are to receive an award, and to determine the type, number, vesting
requirements and other features and conditions of each award.
The exercise price for incentive stock options granted under the 1999
Equity Incentive Plan may not be less than 100% of the fair market value of our
common stock on the option grant date. The exercise price for non-statutory
options granted under the 1999 Equity Incentive Plan may not be less than 85% of
the fair market value of our common stock on the option grant date.
Our 1999 Equity Incentive Plan provides that no participant may receive
options or stock appreciation rights covering more than 330,000 shares in the
same year, except that a newly hired employee may receive options or stock
appreciation rights covering up to 660,000 shares in the first year of
employment.
The exercise price may be paid with:
- cash;
- outstanding shares of common stock;
- the cashless exercise method through a designated broker;
- a pledge of shares to a broker; or
- a promissory note.
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<PAGE> 56
The purchase price for newly issued restricted shares awarded under the
1999 Equity Incentive Plan may be paid with:
- cash;
- a promissory note; or
- the rendering of past services.
The committee may reprice options and may modify, extend or assume
outstanding options and stock appreciation rights. The committee may accept the
cancellation of outstanding options or stock appreciation rights in return for
the grant of new options or stock appreciation rights. The new option or right
may have the same or a different number of shares and the same or a different
exercise price.
Each individual who first joins our board of directors as a non-employee
director after the effective date of this offering will receive at that time an
option for 30,000 shares of our common stock. This option becomes vested as to
25% of the option shares upon the completion of 12 months of service and as to
1/48 of the option shares upon the completion of each month of service
thereafter. In addition, at each of our annual stockholders' meetings, beginning
in 2001, each non-employee director who will continue to be a director after
that meeting will automatically be granted at that meeting an option for 7,500
shares of our common stock. However, any non-employee director who receives an
option for 30,000 shares under this plan will first become eligible to receive
the annual option for 7,500 shares at the annual meeting that occurs during the
calendar year following the year in which he or she received the option for
30,000 shares. The option for 7,500 shares becomes vested upon the completion of
12 months of service from the grant date. If there is a change in control, or a
termination as a result of death, disability or retirement after reaching age
65, the options granted to non-employee directors will become fully vested.
If a change in control occurs, an option or other award under the 1999
Equity Incentive Plan will become fully exercisable and fully vested if the
option or award is not assumed by the surviving corporation or its parent or
subsidiary or if the surviving corporation or its parent or subsidiary does not
substitute comparable awards for the awards granted under the 1999 Equity
Incentive Plan. If a change in control occurs and an optionee is involuntarily
terminated within 12 months following this change in control, then the vesting
of options held by the optionee will accelerate, as if the optionee provided
another 12 months of service. This vesting acceleration will not occur if it
prevents us from completing a transaction that is a "pooling of interest"
transaction.
A change in control includes:
- a merger or consolidation after which our then-current stockholders own
less than 50% of the surviving corporation;
- a sale of all or substantially all of our assets;
- a proxy contest that results in replacement of more than one-half of our
directors over a 24-month period; or
- an acquisition of 50% or more of our outstanding stock by a person other
than a person related to us, including a corporation owned by our
stockholders.
If a merger or other reorganization occurs, the agreement of merger or
reorganization may provide that outstanding options and other awards under the
1999 Equity Incentive Plan shall be assumed by the surviving corporation or its
parent, shall be continued by us if we are the surviving corporation, shall have
accelerated vesting and then expire early or shall be cancelled for a cash
payment.
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<PAGE> 57
Our board of directors may amend or terminate the 1999 Equity Incentive
Plan at any time. If our board amends the plan, stockholder approval of the
amendment will be sought only if required by applicable law. The 1999 Equity
Incentive Plan will continue in effect indefinitely unless the board decides to
terminate the plan earlier.
1999 Employee Stock Purchase Plan
Our 1999 Employee Stock Purchase Plan was adopted by our board of directors
on November 18, 1999. We will also seek stockholder approval of this plan. We
have reserved 1,000,000 shares of our common stock for issuance under our 1999
Employee Stock Purchase Plan. As of February 15 each year, starting in 2001, the
number of shares reserved for issuance under our 1999 Employee Stock Purchase
Plan will be increased automatically by 2% of the total number of shares of
common stock then outstanding or, if less, 1,000,000 shares. Our 1999 Employee
Stock Purchase Plan is intended to qualify under Section 423 of the Internal
Revenue Code.
Eligible employees may begin participating in the 1999 Employee Stock
Purchase Plan at the start of an offering period. Each offering period lasts 24
months. Two overlapping offering periods will start on February 15 and August 15
of each calendar year. However, the first offering period will start on the
effective date of this offering and end on February 14, 2002. Purchases of our
common stock will occur on approximately February 14 and August 14 of each
calendar year during an offering period.
Our 1999 Employee Stock Purchase Plan will be administered by the
compensation committee of our board of directors. Each of our employees is
eligible to participate if he or she is employed by us for more than 20 hours
per week and for more than five months per year.
Our 1999 Employee Stock Purchase Plan permits each eligible employee to
purchase common stock through payroll deductions. Each employee's payroll
deductions may not exceed 15% of the employee's cash compensation. The initial
purchase period during which payroll deductions may be contributed will begin on
the effective date of this offering and end on August 14, 2000. Each participant
may purchase up to 750 shares on any purchase date.
The price of each share of common stock purchased under our 1999 Employee
Stock Purchase Plan will be 85% of the lower of:
- the fair market value per share of common stock on the date immediately
before the first date of the applicable offering period; or
- the fair market value per share of common stock on the purchase date.
In the case of the first offering period, the price per share under the
plan will be 85% of the lower of:
- the price offered to the public in this offering; or
- the fair market value per share of common stock on the purchase date.
Employees may end their participation in the 1999 Employee Stock Purchase
Plan at any time. Participation ends automatically upon termination of
employment with us.
If a change in control occurs, our 1999 Employee Stock Purchase Plan will
end and shares will be purchased with the payroll deductions accumulated to date
by participating employees, unless this plan is assumed by the surviving
corporation or its parent. Our board of directors may amend or terminate the
1999 Employee Stock Purchase Plan at any time. If our board increases the number
of shares of common stock reserved for issuance under the 1999 Employee Stock
Purchase Plan, it must seek the approval of our stockholders.
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<PAGE> 58
EMPLOYMENT AGREEMENTS, SEVERANCE AGREEMENTS AND CHANGE OF CONTROL ARRANGEMENTS
Under their respective employment agreements, our Chief Executive Officer,
Rajen Jaswa, and our Chief Technical Officer and Vice President of Engineering,
Dr. Sanjay Mittal, will receive their most recent base salary for 12 months
after their date of termination if they are terminated without cause. In
addition, our repurchase right with respect to the shares of our common stock
that they currently hold will lapse entirely and all of such shares will become
fully vested upon a termination without cause.
Mr. Vasudev Bhandarkar, our former Vice President, Business Development and
Marketing, executed a severance agreement with us on March 19, 1999. Under this
severance agreement, we paid to Mr. Bhandarkar his then base salary and any
COBRA premiums for a 12-month period following his termination date in
consideration for his execution of a release of claims against us. Under the
terms of his offer letter with us, all of the options and shares of our common
stock held by him became fully vested on his termination date.
If a change in control occurs, an option or other award under the 1999
Equity Incentive Plan will become fully exercisable and fully vested if the
option or award is not assumed by the surviving corporation or its parent or
subsidiary or if the surviving corporation or its parent or subsidiary does not
substitute comparable awards for the awards granted under the 1999 Equity
Incentive Plan. In addition, if an optionee is involuntarily terminated within
12 months following a change in control, he or she will become vested in an
additional number of option shares as if he or she completed another 12 months
of service. This vesting acceleration will not occur if it prevents us from
completing a transaction that is a pooling of interest transaction.
Under our 1996 Stock Plan, upon a merger or asset sale, if the options or
stock purchase rights are not assumed by the surviving corporation or its parent
or subsidiary or if the surviving corporation or its parent or subsidiary does
not substitute comparable awards for the options or stock purchase rights, then
the options and stock purchase rights will become fully vested.
If a change in control occurs and an executive officer or certain of our
key employees are involuntarily terminated within 12 months following this
change in control, then he or she will become vested in an additional number of
option shares equal to the greater of 50% of the then unvested option shares or
the number of option shares the executive officer would become vested in if he
or she completed another 12 months of service.
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<PAGE> 59
RELATED PARTY TRANSACTIONS
Equity Financings. Since our inception we have financed our growth
primarily through the sale of Preferred Stock, resulting in the issuance of an
aggregate of 1,700,000 shares of Series A Preferred Stock at an effective
purchase price of $.091667 per share, 3,750,000 shares of Series B Preferred
Stock at a purchase price of $0.2667 per share, 3,253,126 shares of Series C
Preferred Stock at a purchase price of $0.922 per share, 4,863,935 shares of
Series D Preferred Stock at a purchase price of $1.47 per share and 6,141,646
shares of Series E Preferred Stock at a purchase price of $4.382 per share. The
buyers of our Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock and Series E Preferred Stock included
the following directors, executive officers and 5% stockholders.
<TABLE>
<CAPTION>
SERIES A SERIES B SERIES C SERIES D SERIES E
--------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C>
DIRECTORS AND EXECUTIVE OFFICERS
Betsy Atkins........................................ -- 93,750 81,328 -- 40,165
Stephen Bennion..................................... -- -- -- -- 22,820
Daniel A. Carmel.................................... -- -- -- -- 57,051
John Fisher......................................... -- -- -- -- 114,103
Rajen Jaswa......................................... 740,000.. 281,250 -- -- --
Thomas Neustaetter.................................. -- -- -- -- 22,820
ENTITIES ASSOCIATED WITH DIRECTORS AND 5%
STOCKHOLDERS
Entities associated with Draper Fisher
Jurveston(1)...................................... -- -- 2,439,844 714,285 342,308
Draper International India, L.P.(2)................. -- 2,812,500 542,188 510,204 117,103
Entities associated with Zilkha Venture
Partners(3)....................................... -- -- -- 2,448,979 228,206
JK&B Capital(4)..................................... -- -- -- -- 1,141,030
Entities associated with Chatterjee Management
Company........................................... -- -- -- 1,020,407 433,592
</TABLE>
- -------------------------
(1) John Fisher, one of our directors, is a general partner of venture funds
associated with Draper Fisher Jurveston.
(2) Robin Richards Donohoe, one of our directors, is a general partner of Draper
International India, L.P.
(3) Michael Lyons, one of our directors, is a general partner of venture funds
associated with Zilkha Venture Partners.
(4) Thomas Neustaetter, one of our directors, is a general partner of JK&B
Capital.
Bridge Financing. On May 14, 1999 we entered into a Note and Warrant
Purchase Agreement with Draper International, L.P., Draper Fisher Associates
Fund IV, Draper Fisher Partners IV and Betsy Atkins, collectively, the Bridge
Investors. Pursuant to that Note and Warrant Purchase Agreement, the Bridge
Investors agreed to loan us an aggregate of $1,000,000 accruing interest at a
rate of 1% plus the prime rate, in exchange for a promissory note, which would
either convert into our securities upon our next round of equity financing or be
repaid by June 30, 1999 and warrants to purchase an aggregate of 15,000 shares
of Series E Preferred Stock.
Selectica Configurators India Pvt. Ltd. Beginning in June 1997, Selectica
Configurators India Pvt. Ltd., Selectica India, an Indian corporation, has
conducted research and development and quality assurance operations in India for
us. This company was owned by the parents of Rajen Jaswa, our President and
Chief Executive Officer. We paid $51,000 and $303,000 in fiscal years 1998 and
1999, respectively for consulting services. On July 1, 1999, we purchased
637,500 previously unissued shares of Selectica India. Following this purchase,
we owned 99.997% of the outstanding shares of SCIPL and Mr. Jaswa's parents own
the remaining .003%.
Employment Agreements and Bonuses. In August 1996, we entered into
employment agreements with Rajen Jaswa and Dr. Sanjay Mittal. These agreements
are substantially similar in form and provide for employment on an "at will"
basis and severance payments in an amount equal to
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<PAGE> 60
12 months salary in the event that these employees are terminated without cause.
In June 1999, we paid Dr. Mittal a bonus of $544,000 in exchange for services
rendered to us since our inception.
Catalogics. In July 1996, we purchased all of the outstanding shares of
Catalogics. Catalogics was founded and was majority owned by Dr. Mittal, our
Chief Technology Officer. We exchanged 1,500,000 shares of our common stock for
3,250,000 shares of Catalogics common stock that was owned by Dr. Mittal. After
our purchase of all of the capital stock of Catalogics from Dr. Mittal and the
other Catalogics shareholder, we owned all the stock of Catalogics, and
Catalogics became a wholly owned subsidiary.
Loans. In connection with our start-up phase, on July 25, 1996, Mr. Jaswa
loaned to us the principal sum of $50,000 which accrued interest at a rate of 2%
plus the prime rate compounded annually. Such loan was repaid in January 1997 in
connection with the issuance of our Series B Preferred Stock. On November 4,
1999, Daniel A. Carmel exercised his option to purchase 400,000 shares of common
stock. He paid for those shares with a promissory note bearing 6.02% annual
interest, secured by the purchased shares. On October 15, 1999, Stephen Bennion
exercised his option to purchase 300,000 shares of common stock. He paid for
those shares with a promissory note bearing 6.02% annual interest, secured by
the purchased shares. On October 25, 1999, Charles Pendell exercised his option
to purchase 375,000 shares of common stock. He paid for these shares with a
promissory note bearing 6.02% annual interest, secured by the purchased shares.
Repurchase of Common Stock. In June 1999, we purchased 228,200 shares of
our common stock from Dr. Mittal at a price of $2.00 per share.
Indemnification. We have entered into an indemnification agreement with
each of our officers and directors. See "Management -- Indemnification" for a
description of the indemnification available to our officers and directors under
our Second Amended and Restated Certificate of Incorporation, to be effective
after the closing of this offering and our bylaws.
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<PAGE> 61
PRINCIPAL STOCKHOLDERS
The following table presents selected information regarding beneficial
ownership of our outstanding common stock as of September 30, 1999, and as
adjusted to reflect the sale of the common stock being sold in this offering
for:
- each of our directors, our chief executive officer and our four other
highest-paid executive officers;
- all of our directors and executive officers as a group; and
- each other person known by us to own beneficially more than 5% of our
common stock.
Except as otherwise indicated, we believe that the beneficial owners of the
common stock listed below, on the information furnished by such owners, have
sole voting power and investment power with respect to such shares. Beneficial
ownership is determined in accordance with the rules of the Securities and
Exchange Commission. In computing the number of shares beneficially owned by a
person and the percent ownership of that person, shares of common stock subject
to options or warrants held by that person that are currently exercisable or
will become exercisable within 60 days after September 30, 1999 are deemed
outstanding, while such shares are not deemed outstanding for purposes of
computing percent ownership of any other person. Percent of beneficial ownership
is based upon 24,401,239 shares of our common stock outstanding as of September
30, 1999, as adjusted to reflect the conversion of all outstanding shares of
preferred into common stock upon the closing of this offering.
The numbers shown in the table below assume no exercise by the underwriters
of their over-allotment option. We and Dr. Sanjay Mittal, our Chief Technical
Officer, have granted the underwriters an option to purchase up to
shares to cover over-allotments, if any.
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<PAGE> 62
Unless otherwise indicated, the address for each listed stockholder is: c/o
Selectica, Inc. 2890 Zanker Road, Suite 101, San Jose, California 95134. To our
knowledge, except as indicated in the footnotes to this table and under
applicable community property laws, the persons or entities identified in this
table have sole voting and investment power with respect to all shares of common
stock shown as beneficially owned by them. The percentages contained in the
"After Offering" column assumes that the underwriters do not exercise their
over-allotment option for up to additional shares.
<TABLE>
<CAPTION>
PERCENT OF SHARES
OUTSTANDING
SHARES ----------------------
BENEFICIALLY OWNED PRIOR TO AFTER
NAME OF BENEFICIAL OWNER PRIOR TO OFFERING OFFERING OFFERING
------------------------ ------------------ ---------- ---------
<S> <C> <C> <C>
DIRECTORS AND EXECUTIVE OFFICERS
Rajen Jaswa......................................... 2,301,250 9.43%
Dr. Sanjay Mittal(1)................................ 2,803,050 11.49%
Dr. S.S. Sundarajan(2).............................. 75,000 *
Ashish Mathur(3).................................... 500,000 2.04%
Stephen Bennion(4).................................. 322,820 1.31%
Daniel A. Carmel(5)................................. 457,051 1.84%
Charles Pendell(6).................................. 375,000 1.51%
Betsy Atkins(7)..................................... 237,493 *
Robin Richards Donohoe(8)........................... 3,981,995 16.32%
John Fisher(9)...................................... 3,620,290 14.83%
Michael Lyons(10)................................... 2,677,185 10.97%
Thomas Neustaetter(11).............................. 1,163,851 4.77%
5% SHAREHOLDERS
Draper International India, L.P..................... 3,981,995 16.32%
Entities associated with Draper Fisher
Jurveston(12)..................................... 3,690,283 15.12%
Entities associated with Zilkha Venture
Partners(13)...................................... 2,677,185 10.97%
Entities associated with Chaterjee Management
Company(14)....................................... 1,453,999 5.96%
All executive officers and directors as a group (12
persons)(15)...................................... 18,584,978 72.41%
</TABLE>
- -------------------------
* Less than 1% of the outstanding shares of common stock.
(1) Includes 300,000 shares of common stock held by Smita Mittal and Shikha
Mittal, Dr. Mittal's daughters. Dr. Mittal has granted the underwriters a
30-day option to purchase up to 150,000 shares to cover over-allotments, if
any. If such option is exercised in full, following completion of the
offering, Dr. Mittal will beneficially own 2,653,050 or % of our
common stock.
(2) Includes 75,000 shares of common stock issuable pursuant to options
exercisable within 60 days of September 30, 1999.
(3) Includes 100,000 shares of common stock issuable pursuant to options
exercisable within 60 days of September 30, 1999.
(4) Includes 300,000 shares of common stock issuable pursuant to options
exercisable within 60 days of September 30, 1999.
(5) Includes 400,000 shares of common stock issuable pursuant to options
exercisable within 60 days of September 30, 1999.
(6) Includes 375,000 shares of common stock issuable pursuant to options
exercisable within 60 days of September 30, 1999.
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<PAGE> 63
(7) Includes 2,250 shares of common stock issuable pursuant to a warrant
exercisable within 60 days of September 30, 1999. Ms. Atkins address is 10
Edgewater Drive, Penthouse F, Coral Gables, Florida 33133.
(8) Includes 3,978,995 shares and a warrant to purchase 3,000 shares of common
stock issuable pursuant to a warrant exercisable within 60 days of
September 30, 1999 by Draper International India, L.P., located at 50
California Street, Suite 2925, San Francisco, California 94025. Ms.
Richards Donohoe, a general partner of Draper International India, L.P.,
disclaims beneficial ownership of such shares except to the extent of her
pecuniary interests therein.
(9) This number includes:
- 3,251,687 shares and a warrant to purchase 9,068 shares of common stock
issuable pursuant to a warrant exercisable within 60 days of September
30, 1999 held by Draper Fisher Associates IV, L.P.;
- 244,750 shares and a warrant to purchase 682 shares of common stock
issuable pursuant to a warrant exercisable within 60 days of September
30, 1999 held by Draper Fisher Partners IV L.L.C.; and
- 114,103 shares held by Mr. John Fisher. Mr. Fisher is either a managing
member of the entities listed above or a managing member of the general
partner of the entities listed above.
Mr. Fisher disclaims beneficial ownership of such shares except to the
extent of his pecuniary interests therein. The address of these individuals
and entities is Draper Fisher Jurveston, 400 Seaport Court, Suite 250,
Redwood City, California 94063.
(10) Includes 2,448,979 shares held by Selectica L.P. and 228,206 shares held by
Zilkha Venture Partners L.P. Mr. Lyons, a member of Zilkha Venture
Investments, LLC, the General Partner of both of the entities in the
preceding sentence, disclaims beneficial ownership of such shares except to
the extent of his pecuniary interests therein. Mr. Lyons address is Zilkha
Ventures, 1510 Page Mill Road, Palo Alto, California 94304.
(11) Includes 1,141,031 shares held by JK&B Capital II, L.P. Mr. Neustaetter, a
general partner of the entity in the preceding sentence, disclaims
beneficial ownership of such shares except to the extent of his pecuniary
interest therein. Mr. Neustaetter's address is 888 7th Avenue, Suite 3000,
New York, New York 10106.
(12) This number includes:
- 3,251,687 shares and a warrant to purchase 9,068 shares of common stock
issuable pursuant to a warrant exercisable within 60 days of September
30, 1999 held by Draper Fisher Associates IV, L.P.;
- 244,750 shares and a warrant to purchase 682 shares of common stock
issuable pursuant to a warrant exercisable within 60 days of September
30, 1999 held by Draper Fisher Partners IV L.L.C.;
- 114,103 shares held by Mr. John Fisher. Mr. Fisher is either a managing
member of the entities listed above or a managing member of the general
partner of the entities listed above;
- 45,461 shares held by Ms. Polly Draper. Ms. Draper is the sister of Tim
Draper. Mr. Draper is either a managing member of the entities listed
above or a managing member of the general partner of the entities listed
above;
- 22,821 shares held by Mr. Steve Jurveston. Mr. Jurveston is either a
managing member of the entities listed above or a managing member of the
general partner of the entities listed above;
- 1,141 shares held by the Fonstad Living Trust Dated March 26, 1999. Ms.
Fonstad is either a member of the entities listed above or a member of
the general partner of the entities listed above; and
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<PAGE> 64
- 570 shares held by Mr. Warren Packard. Mr. Packard is either a member of
the entities listed above or a member of the general partner of the
entities listed above.
Mr. Fisher disclaims beneficial ownership of such shares except to the
extent of his pecuniary interests therein. The address of these individuals
and entities is Draper Fisher Jurveston, 400 Seaport Court, Suite 250,
Redwood City, California 94063.
(13) This number includes the shares beneficially owned by the persons and
entities described in footnote 10.
(14) Includes 624,959 shares held by Winston Partners II, LLC and 829,040 shares
held by Winston Partners, L.P.
(15) This number includes the shares beneficially owned by the persons and
entities described in the footnotes above and includes (a) warrants to
purchase an aggregate of 15,000 shares of common stock issuable pursuant to
warrants exercisable within 60 days of September 30, 1999 and (b) 1,250,000
shares of common stock issuable pursuant to options exercisable within 60
days of September 30, 1999.
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<PAGE> 65
DESCRIPTION OF CAPITAL STOCK
Upon the consummation of this offering, we will be authorized to issue
150,000,000 shares of common stock, and 10,000,000 shares of undesignated
preferred stock. The following is a summary description of our capital stock.
Our bylaws and our Second Amended and Restated Certificate of Incorporation, to
be effective after the closing of this offering, provide further information
about our capital stock.
COMMON STOCK
As of September 30, 1999, there were 24,401,239 shares of common stock
outstanding, as adjusted to reflect the conversion of all outstanding shares of
preferred stock into common stock upon the closing of this offering, that were
held of record by approximately 174 stockholders. After giving effect to the
sale of the shares of common stock to the public offered in this prospectus,
there will be shares of common stock outstanding, assuming no exercise
of the underwriters' over-allotment option and assuming no exercise after
September 30, 1999 of outstanding options or warrants.
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 dividends, if any, as may be declared from time to time by
the board of directors out of funds legally available. See "Dividend Policy." In
the event of our liquidation, dissolution or winding up, the holders of common
stock are entitled to share ratably in all assets remaining after payment of
liabilities, subject to prior distribution rights of preferred stock, if any,
then outstanding. The common stock has no preemptive or conversion rights or
other subscription rights. There are no redemption or sinking fund provisions
applicable to the common stock. All outstanding shares of common stock are fully
paid and nonassessable, and the shares of common stock to be issued upon
completion of this offering will be fully paid and nonassessable.
PREFERRED STOCK
The board of directors has the authority, without action by the
stockholders, to designate and issue preferred stock in one or more series and
to fix the rights, preferences, privileges and related restrictions, including
dividend rights, dividend rates, conversion rights, voting rights, terms of
redemption, redemption prices, liquidation preferences and the number of shares
constituting any series or the designation of the series. The issuance of
preferred stock may have the effect of delaying, deferring or preventing a
change in control of us without further action by the stockholders and may
adversely affect the voting and other rights of the holders of common stock. The
issuance of preferred stock with voting and conversion rights may adversely
affect the voting power of the holders of common stock, including the loss of
voting control to others. At present, we have no plans to issue any of our
preferred stock.
WARRANTS
Immediately following the closing of this offering there will be
outstanding warrants to purchase a total of 20,408 shares of common stock at an
average exercise price of $1.47 per share. The warrants expire in April 2005.
REGISTRATION RIGHTS
After this offering, the holders of approximately 16,331,852 shares of
common stock will be entitled to rights with respect to the registration of
these shares under the Securities Act. Under the terms of the agreement between
us and the holders of these registrable securities, if we propose to
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<PAGE> 66
register any of our securities under the Securities Act, either for our own
account or for the account of other security holders exercising registration
rights, these holders are entitled to notice of registration and are entitled to
include their shares of common stock in the registration. Holders of 16,331,852
shares of the registrable securities are also entitled to specified demand
registration rights under which they may require us to file a registration
statement under the Securities Act at our expense with respect to our shares of
common stock, and we are required to use our best efforts to effect this
registration. Further, the holders of these demand rights may require us to file
additional registration statements on Form S-3. All of these registration rights
are subject to conditions and limitations, among them the right of the
underwriters of an offering to limit the number of shares included in the
registration and our right not to effect a requested registration within six
months following the initial offering of our securities, including this
offering.
ANTI-TAKEOVER PROVISIONS
Selected provisions of Delaware law, and our certificate of incorporation
and bylaws, effective upon the closing of this offering, could make more
difficult the acquisition of us by means of a tender offer or a proxy contest
and the removal of incumbent officers and directors. These provisions,
summarized below, are expected to discourage particular types of coercive
takeover practices and inadequate takeover bids and to encourage persons seeking
to acquire control of us to first negotiate with us. We believe that the
benefits of increased protection of our potential ability to negotiate with the
proponent of an unfriendly or unsolicited proposal to acquire or restructure us
outweigh the disadvantages of discouraging these proposals because, among other
things, negotiation of these proposals could result in an improvement of their
terms. However, these provisions could have the effect of discouraging others
from making tender offers for our shares and, as a consequence, they may also
inhibit fluctuations in the market price of our shares that could result from
actual or rumored takeover attempts.
Stockholder Meetings. Under our bylaws, only our board of directors, the
Chairman of the Board and the Chief Executive Officer may call special meetings
of stockholders.
Requirements for Advance Notification of Stockholder Nominations and
Proposals. Our bylaws establish advance notice procedures with respect to
stockholder proposals and the nomination of candidates for election as
directors, other than nominations made by or at the direction of our board of
directors or a related committee.
Delaware Anti-Takeover Law. We are subject to Section 203 of the Delaware
General Corporation Law, an anti-takeover law. Generally, Section 203 of the
Delaware General Corporation Law 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 of the transaction in which the person
became an interested stockholder, unless:
- before the date of the business combination, the transaction is approved
by the board of directors of the corporation;
- upon consummation of the transaction which resulted in the stockholder
becoming an interested stockholder, the interested stockholder owns at
least 85% of the outstanding stock; or
- on or after the date the transaction is approved by the board and by the
affirmative vote of at least 66 2/3% of the outstanding voting stock
which is not owned by the interested stockholder.
A "business combination" includes mergers, asset sales and other
transactions resulting in a financial benefit to the stockholder. An "interested
stockholder" is a person who, together with affiliates and associates, owns (or
within three years, did own) 15% or more of the corporation's voting stock. The
existence of this provision would be expected to have an anti-takeover effect
with
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<PAGE> 67
respect to transactions not approved in advance by our board of directors,
including discouraging attempts that might result in a premium over the market
price for the shares of common stock held by stockholders.
Classified Board of Directors. Our certificate of incorporation provides
that our board of directors will be divided into three classes of directors
serving staggered three-year terms. As a result, only one of the three classes
of our board of directors will be elected each year. The classification system
of electing directors may tend to discourage a third party from making a tender
offer or otherwise attempting to obtain control of us and may maintain the
incumbency of our board of directors by increasing the difficulty of replacing a
majority of the directors.
Elimination of Stockholder Action by Written Consent. Our certificate of
incorporation eliminates the right of stockholders to act by written consent
without a meeting.
Undesignated Preferred Stock. The authorization of undesignated preferred
stock makes it possible for our board of directors to issue preferred stock with
voting or other rights or preferences that could impede the success of any
attempt to obtain control of us.
Amendment of Restated Charter. The amendment of any of the above provisions
would require approval by holders of at least 66 2/3% of our outstanding common
stock.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock is
NASDAQ NATIONAL MARKET LISTING
We have applied to list our common stock on The Nasdaq Stock Market's
National Market under the symbol "SLTC."
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<PAGE> 68
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, we will have shares of
common stock outstanding, assuming no exercise of options after December 31,
1999. Of these shares, the shares sold in this offering will be
freely tradable without restriction or further registration under the Securities
Act, except that any shares held by persons that directly or indirectly control,
or are controlled by, or are under common control with us, may generally only be
sold in compliance with the limitations of Rule 144 described below.
SALES OF RESTRICTED SHARES
The remaining shares of common stock are deemed restricted
shares under Rule 144. The number of shares of common stock available for sale
in the public market is limited by restrictions under the Securities Act and
lock-up agreements under which the holders of the shares have agreed not to sell
or dispose of any of their shares for a period of 180 days after the date of
this prospectus without the prior written consent of Credit Suisse First Boston
Corporation. On the date of this prospectus, shares other than
the shares being sold in this offering will be eligible for sale.
Beginning 180 days after the date of this prospectus, or earlier with the
consent of Credit Suisse First Boston Corporation, restricted
shares will become available for sale in the public market subject to the
limitations of Rule 144 of the Securities Act.
In general, under Rule 144 of the Securities Act as currently in effect,
beginning 90 days after this offering, a person, or persons whose shares are
aggregated, who has beneficially owned restricted shares for at least one year,
including a person who may be deemed an affiliate, is entitled to sell within
any three-month period a number of shares of common stock that does not exceed
the greater of 1% of the then-outstanding shares of our common stock,
approximately shares after giving effect to this offering, and
the average weekly trading volume of our common stock on the Nasdaq National
Market during the four calendar weeks preceding this sale. Sales under Rule 144
of the Securities Act are subject to restrictions relating to manner of sale,
notice and the availability of current public information about us. A person who
is not our affiliate at any time during the 90 days preceding a sale, and who
has beneficially owned shares for at least two years, would be entitled to sell
these shares immediately following this offering without regard to the volume
limitations, manner of sale provisions or notice or other requirements of Rule
144 of the Securities Act. However, the transfer agent may require an opinion of
counsel that a proposed sale of shares comes within the terms of Rule 144 of the
Securities Act before effecting a transfer of these shares.
Before this offering, there has been no public market for our common stock
and no predictions can be made of the effect, if any, that the sale or
availability for sale of shares of additional common stock will have on the
market price of our common stock. Nevertheless, sales of substantial amounts of
these shares in the public market, or the perception that these sales could
occur, could adversely affect the market price of the common stock and could
impair our future ability to raise capital through an offering of our equity
securities.
OPTIONS
As of September 30, 1999, options to purchase a total of 3,024,350 shares
of common stock, all of which were issued under the 1996 Stock Plan, were
outstanding and exercisable. All of the shares subject to options are subject to
lock-up agreements. An additional 523,056 shares of common stock were available
as of September 30, 1999 for future option grants or direct issuances under the
1996 Stock Plan. In addition, in November 1999, 1,000,000 shares were reserved
for issuance under our 1999 Equity Incentive Plan and 2,200,000 shares were
reserved for issuance under our 1999 Employee Stock Purchase Plan. See
"Management -- Employee Benefit Plans -- 1996 Stock Plan,"
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<PAGE> 69
"-- 1999 Equity Incentive Plan" and "-- 1999 Employee Stock Purchase Plan" and
Notes 9 and 13 of Notes to Consolidated Financial Statements.
Rule 701 under the Securities Act provides that shares of common stock
acquired on the exercise of outstanding options may be resold by persons other
than our affiliates, beginning 90 days after the date of this prospectus,
subject only to the manner of sale provisions of Rule 144, and by affiliates,
beginning 90 days after the date of this prospectus, subject to all provisions
of Rule 144 except its one-year minimum holding period. We intend to file one or
more registration statements on Form S-8 under the Securities Act to register
all shares of common stock subject to outstanding stock options and common stock
issued or issuable under our 1999 Stock Plan.
We expect to file the registration statement covering shares offered under
the 1996 Stock Plan, the 1999 Employee Stock Purchase Plan and the 1999 Equity
Incentive Plan approximately 30 days after the closing of this offering. These
registration statements are expected to become effective upon filing. Shares
covered by these registration statements will then be eligible for sale in the
public markets, subject to the lock-up agreements.
WARRANTS
As of September 30, 1999, we had outstanding warrants to purchase 222,537
shares of common stock. When these warrants are exercised and the exercise price
is paid in cash, the shares must be held for one year before they can be sold
under Rule 144. All warrants to purchase shares of common stock contain "net
exercise provisions." These provisions allow a holder to exercise a warrant for
a lesser number of shares of common stock in lieu of paying cash. The number of
shares which would be issued in this case would be based upon the market price
of the common stock at the time of the net exercise. If the warrant had been
held for at least one year, the shares of common stock could be publicly sold
under Rules 144 and 145. After the lock-up agreements described above expire,
warrants to purchase 20,408 shares of our common stock, which also contain net
exercise provisions, will have been outstanding for at least one year.
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<PAGE> 70
UNDERWRITING
Under the terms and subject to the conditions contained in an underwriting
agreement dated , 2000, we have agreed to sell to the
underwriters named below, for whom Credit Suisse First Boston Corporation,
Thomas Weisel Partners LLC and U.S. Bancorp Piper Jaffray Inc. are acting as
representatives, the following respective number of shares of common stock:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
----------- ----------
<S> <C>
Credit Suisse First Boston Corporation......................
Thomas Weisel Partners LLC..................................
U.S. Bancorp Piper Jaffray Inc..............................
----------
Total.............................................
==========
</TABLE>
The underwriting agreement provides that the underwriters are obligated to
purchase all the shares of common stock in the offering if any are purchased,
other than those shares covered by the over-allotment option described below.
The underwriting agreement also provides that if an underwriter defaults the
purchase commitments of non-defaulting underwriters may be increased or the
offering of common stock may be terminated.
We and the selling stockholder have granted to the underwriters a 30-day
option to purchase on a pro rata basis up to additional shares
from us and outstanding shares from the selling stockholder at the
initial public offering price less the underwriting discounts and commissions.
This option may be exercised only to cover any over-allotments of common stock.
The underwriters propose to offer the shares of common stock initially at
the public offering price on the cover page of this prospectus and to selling
group members at that price less a concession of $ per share. The
underwriters and selling group members may allow a discount of $ per share
on sales to other broker/dealers. After the initial public offering, the public
offering price and concession and discount to broker/dealers may be changed by
the representatives.
The following table summarizes the compensation and estimated expenses we
and the selling stockholder will pay.
<TABLE>
<CAPTION>
PER SHARE TOTAL
------------------------------- -------------------------------
WITHOUT WITH WITHOUT WITH
OVER-ALLOTMENT OVER-ALLOTMENT OVER-ALLOTMENT OVER-ALLOTMENT
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Underwriting Discounts and
Commissions paid by us................. $ $ $ $
Expenses payable by us................. $ $ $ $
Underwriting Discounts and
Commissions paid by selling
stockholder............................ $-- $ $-- $
Expenses payable by the selling
stockholder............................ $-- $ $-- $
</TABLE>
The underwriters have informed us that they do not expect discretionary
sales to exceed 5% of the shares of common stock being offered.
We, our officers and directors and substantially all of our stockholders
have agreed that we and they will not offer, sell, contract to sell, pledge or
otherwise dispose of, directly or indirectly, or file with the Securities and
Exchange Commission a registration statement under the Securities Act relating
to, any additional shares of our common stock or securities convertible into or
exchangeable or exercisable for any of our common stock, or publicly disclose
the intention to make any such offer,
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<PAGE> 71
sale, pledge, disposition or filing, without the prior written consent of Credit
Suisse First Boston Corporation for a period of 180 days after the date of this
prospectus, except, in our case, issuances pursuant to the exercise of employee
stock options outstanding on the date hereof.
The underwriters have reserved for sale, at the initial public offering
price up to shares of the common stock for employees, directors
and other persons associated with us who have expressed an interest in
purchasing common stock in the offering. The number of shares available for sale
to the general public in the offering will be reduced to the extent such persons
purchase such reserved shares. Any reserved shares not so purchased will be
offered by the underwriters to the general public on the same terms as the other
shares.
We and the selling stockholder have agreed to indemnify the underwriters
against liabilities under the Securities Act, or contribute to payments which
the underwriters may be required to make in that respect.
We will make application to list the shares of common stock on The Nasdaq
Stock Market's National Market under the symbol "SLTC."
Before this offering, there has been no public market for our common stock.
The initial public offering price will be determined by negotiation between us
and the underwriters. The principal factors to be considered in determining the
public offering price include:
- the information set forth in this prospectus and otherwise available to
the underwriters;
- the history and the prospects for the industry in which we will compete;
- the ability of our management;
- the prospects for our future earnings;
- the present state of our development and our current financial condition;
- the general condition of the securities markets at the time of this
offering; and
- the recent market prices of, and the demand for, publicly traded common
stock of generally comparable companies.
Thomas Weisel Partners LLC, one of the representatives of the underwriters,
was organized and registered as a broker/dealer in December 1998. Since December
1998, Thomas Weisel Partners has acted as a lead or co-manager on numerous
public offerings of equity securities. Thomas Weisel Partners does not have any
material relationship with us or any of our officers, directors or other
controlling persons, except with respect to its contractual relationship with us
under the underwriting agreement entered into in connection with this offering.
The representatives may engage in over-allotment, stabilizing transactions,
syndicate covering transactions and penalty bids in accordance with Regulation M
under the Exchange Act.
- Over-allotment involves syndicate sales in excess of the offering size,
which creates a syndicate short position.
- Stabilizing transactions permit bids to purchase the underlying security
so long as the stabilizing bids do not exceed a specified maximum.
- Syndicate covering transactions involve purchases of the common stock in
the open market after the distribution has been completed in order to
cover syndicate short positions.
- Penalty bids permit the representatives to reclaim a selling concession
from a syndicate member when the common stock originally sold by the
syndicate member is purchased in a syndicate covering transaction to
cover syndicate short positions.
These stabilizing transactions, syndicate covering transactions and penalty bids
may cause the price of the common stock to be higher than it would otherwise be
in the absence of these transactions. These transactions may be effected on The
Nasdaq National Market or otherwise and, if commenced, may be discontinued at
any time.
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<PAGE> 72
NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of the common stock in Canada is being made only on a
private placement basis exempt from the requirement that we prepare and file a
prospectus with the securities regulatory authorities in each province where
trades of common stock are effected. Accordingly, any resale of the common stock
in Canada must be made in accordance with applicable securities laws which will
vary depending on the relevant jurisdiction, and which may require resales to be
made in accordance with available statutory exemptions or pursuant to a
discretionary exemption granted by the applicable Canadian securities regulatory
authority. Purchasers are advised to seek legal advice prior to any resale of
the common stock.
REPRESENTATIONS OF PURCHASERS
Each purchaser of common stock in Canada who receives a purchase
confirmation will be deemed to represent to us and the dealer from whom the
purchase confirmation is received that (i) the purchaser is entitled under
applicable provincial securities laws to purchase the common stock without the
benefit of a prospectus qualified under the securities laws, (ii) where required
by law, that the purchaser is purchasing as principal and not as agent, and
(iii) the purchaser has reviewed the text above under "Resale Restrictions."
RIGHTS OF ACTION (ONTARIO PURCHASERS)
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
Ontario securities law. As a result, Ontario purchasers must rely on other
remedies that may be available, including common law rights of action for
damages or recession or rights of action under the civil liability provisions of
the U.S. federal securities laws.
ENFORCEMENT OF LEGAL RIGHTS
All of the issuer's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be possible
for Canadian purchasers to effect service of process within Canada upon the
issuer or these persons. All or a substantial portion of the assets of the
issuer and these persons may be located outside of Canada and, as a result, it
may not be possible to satisfy a judgment against the issuer or these persons in
Canada or to enforce a judgment obtained in Canadian courts against the issuer
or these persons outside of Canada.
NOTICE TO BRITISH COLUMBIA RESIDENTS
A purchaser of common stock to whom the Securities Act (British Columbia)
applies is advised that the purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any
common stock acquired by the purchaser in this offering. Such report must be in
the form attached to British Columbia Securities Commission Blanket Order BOR
#95/17, a copy of which may be obtained from us. Only one report must be filed
in respect of common stock acquired on the same date and under the same
prospectus exemption.
TAXATION AND ELIGIBILITY FOR INVESTMENT
Canadian purchasers of common stock should consult their own legal and tax
advisors with respect to the tax consequences of an investment in the common
stock in their particular circumstances and with respect to the eligibility of
the common stock for investment by the purchaser under relevant Canadian
legislation.
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<PAGE> 73
LEGAL MATTERS
The validity of the common stock being offered will be passed upon for
Selectica by Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP,
Menlo Park, California. The underwriters have been represented by Wilson Sonsini
Goodrich & Rosati, Palo Alto, California. As of the date of this prospectus,
some members and employees of Gunderson Dettmer Stough Villeneuve Franklin &
Hachigian, LLP beneficially owned an aggregate of 28,631 shares of our stock.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements and schedule at March 31, 1998 and 1999 and September 30,
1999 and for the period from June 6, 1996 (inception) through March 31, 1997,
and for each of the two years in the period ended March 31, 1999, and for the
six months ended September 30, 1999 as described in their report. We have
included our financial statements and schedule in the prospectus and elsewhere
in the registration statement in reliance on Ernst & Young LLP's report, given
upon their authority as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act with respect to the common stock
being offered. This prospectus does not contain all of the information presented
in the registration statement and the exhibits to the registration statement.
For further information with respect to Selectica and our common stock we are
offering, reference is made to the registration statement and the exhibits filed
as a part of the registration statement. Statements contained in this prospectus
concerning the contents of any contract or any other document referred to may be
only summaries of these documents. The exhibits to this registration statement
should be referenced for the complete contents of these contracts and documents.
Each statement is qualified in all respects by reference to the exhibit. The
registration statement, including the exhibits, may be inspected without charge
at the public reference facilities maintained by the Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and copies of
all or any part may be obtained from this office after payment of fees
prescribed by the Commission. The Commission maintains a World Wide Web site
that contains reports, proxy and information statements and other information
regarding registrants, including us, that file electronically with the
Commission. The address of the site is www.sec.gov.
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SELECTICA, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Ernst & Young LLP, Independent Auditors........... F-2
Consolidated Balance Sheets................................. F-3
Consolidated Statements of Operations....................... F-4
Consolidated Statements of Stockholders' Equity............. F-5
Consolidated Statements of Cash Flows....................... F-8
Notes to Consolidated Financial Statements.................. F-9
</TABLE>
F-1
<PAGE> 75
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Selectica, Inc.
We have audited the accompanying consolidated balance sheets of Selectica,
Inc. as of March 31, 1998 and 1999 and September 30, 1999, and the related
statements of operations, stockholders' equity, and cash flows for the period
from June 6, 1996 (inception) through March 31, 1997 and for each of the two
years in the period ended March 31, 1999, and for the six months ended September
30, 1999. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Selectica, Inc.
at March 31, 1998 and 1999, and September 30, 1999, and the consolidated results
of its operations and its cash flows for the period from June 6, 1996
(inception) through March 31, 1997 and for each of the two years in the period
ended March 31, 1999, and for the six months ended September 30, 1999, in
conformity with generally accepted accounting principles.
San Jose, California
December 3, 1999, except for
Note 13, as to which the date
is December 10, 1999
- --------------------------------------------------------------------------------
The foregoing report is in the form that will be signed upon the completion
of the reincorporation in Delaware described in Note 13 to the financial
statements.
/s/ ERNST & YOUNG LLP
San Jose, California
December 10, 1999
F-2
<PAGE> 76
SELECTICA, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
PRO FORMA
MARCH 31, STOCKHOLDERS' EQUITY
-------------------------- SEPTEMBER 30, SEPTEMBER 30,
1998 1999 1999 1999
----------- ------------ ------------- ---------------------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................................. $ 206,040 $ -- $ 12,832,672
Short-term investments..................................... 297,539 -- --
Accounts receivable, net of allowance for doubtful accounts
of $29,750 at March 31, 1998, $104,000 at March 31, 1999,
and 254,000 at September 30, 1999........................ 387,944 1,634,577 2,872,430
Advances to related party.................................. 1,620 17,730 29,532
Prepaid expenses and other current assets.................. 30,400 166,454 417,865
----------- ------------ ------------
Total current assets........................................ 923,543 1,818,761 16,152,499
Property and equipment, net................................. 292,583 1,012,469 2,039,684
Goodwill, net of amortization of $58,975 at March 31, 1998,
$92,675 at March 31, 1999, and $107,025 at September 30,
1999....................................................... 77,025 53,325 41,475
Advances to related party, noncurrent....................... -- 155,000 --
Investments, restricted..................................... -- 99,845 99,845
Other assets................................................ 63,926 53,926 70,968
----------- ------------ ------------
Total assets................................................ $ 1,357,077 $ 3,193,326 $ 18,404,471
=========== ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable........................................... $ 101,780 $ 585,610 $ 1,113,907
Accrued payroll and related liabilities.................... 365 258,105 837,425
Other accrued liabilities.................................. -- 328,609 534,919
Deferred revenues.......................................... 383,182 1,285,144 3,476,216
Advances from officers..................................... 16,023 332 332
----------- ------------ ------------
Total current liabilities................................... 501,350 2,457,800 5,962,799
Other long-term liabilities................................. -- -- 41,738
Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.0001 par value:
Authorized shares -- 25,000,000 at September 30, 1999 and
pro forma.
Aggregate liquidation preference of $32,202,381 at
September 30, 1999
Series A convertible preferred stock:
Authorized shares -- 1,800,000
Issued and outstanding -- 1,700,000 at March 31, 1998 and
1999 and September 30, 1999 and none pro forma........... 170 170 170 $ --
Series B convertible preferred stock:
Authorized shares -- 4,000,000
Issued and outstanding -- 3,750,000 at March 31, 1998 and
1999 and September 30, 1999 and none pro forma........... 375 375 375 --
Series C convertible preferred stock:
Authorized shares -- 3,300,000
Issued and outstanding -- 3,253,126 at March 31, 1998 and
1999 and September 30, 1999 and none pro forma........... 325 325 325 --
Series D convertible preferred stock:
Authorized shares -- 5,000,000
Issued and outstanding -- none at March 31, 1998 and
4,863,935 at March 31, 1999 and September 30, 1999 and
none pro forma........................................... -- 486 486 --
Series E convertible preferred stock:
Authorized shares -- 6,000,000
Issued and outstanding -- none at March 31, 1998 and 1999
and 4,638,194 at September 30, 1999 and none pro forma... -- -- 464 --
Common stock, $0.0001 par value:
Authorized shares -- 40,000,000 at September 30, 1999 and
75,000,000 pro forma
Issued and outstanding -- 5,520,561 at March 31, 1998,
6,237,877 at March 31, 1999, 6,195,984 at September 30,
1999, and 24,401,239
pro forma................................................ 552 624 620 2,440
Additional paid-in capital................................. 4,211,023 11,878,365 36,650,430 36,650,430
Deferred compensation...................................... (4,386) (255,586) (5,333,912) (5,333,912)
Accumulated deficit........................................ (3,352,332) (10,889,233) (18,919,024) (18,919,024)
----------- ------------ ------------ ------------
Total stockholders' equity.................................. 855,727 735,526 12,399,934 $ 12,399,934
----------- ------------ ------------ ============
Total liabilities and stockholders' equity.................. $ 1,357,077 $ 3,193,326 $ 18,404,471
=========== ============ ============
</TABLE>
See accompanying notes.
F-3
<PAGE> 77
SELECTICA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
JUNE 6, 1996 SIX MONTHS ENDED
(INCEPTION) YEARS ENDED MARCH 31, SEPTEMBER 30,
THROUGH ------------------------- -------------------------
MARCH 31, 1997 1998 1999 1998 1999
-------------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
License........................ $ 50,000 $ 169,505 $ 1,656,015 $ 406,998 $ 2,832,500
Services..................... 4,500 -- 1,788,467 327,557 1,801,649
--------- ----------- ----------- ----------- -----------
Total revenues................. 54,500 169,505 3,444,482 734,555 4,634,149
Cost of revenues:
License...................... 2,500 9,000 183,715 67,099 142,082
Services..................... -- -- 876,017 211,219 3,133,434
Services-related party....... -- 51,200 302,511 100,000 135,000
--------- ----------- ----------- ----------- -----------
Total cost of revenues......... 2,500 60,200 1,362,243 378,318 3,410,516
--------- ----------- ----------- ----------- -----------
Gross profit................... 52,000 109,305 2,082,239 356,237 1,223,633
Research and development..... 163,051 1,946,560 3,886,750 1,421,298 2,227,524
Sales and marketing.......... 61,873 1,054,798 4,402,868 1,555,160 4,789,017
General and administrative... 76,623 292,494 1,380,554 505,331 1,710,404
Amortization of deferred
compensation.............. 6,256 3,541 47,500 1,452 121,426
--------- ----------- ----------- ----------- -----------
Total operating expenses....... 307,803 3,297,393 9,717,672 3,483,241 8,848,371
--------- ----------- ----------- ----------- -----------
Loss from operations........... (255,803) (3,188,088) (7,635,433) (3,127,004) (7,624,738)
Other income (expense), net.... (1,600) 5,091 -- -- --
Interest income................ 6,520 81,548 127,388 78,409 159,322
Interest expense............... -- -- (28,856) (15,960) (60,257)
--------- ----------- ----------- ----------- -----------
Loss before provision for
income taxes................. (250,883) (3,101,449) (7,536,901) (3,064,555) (7,525,673)
Provision for income taxes..... -- -- -- -- 50,000
--------- ----------- ----------- ----------- -----------
Net loss....................... $(250,883) $(3,101,449) $(7,536,901) $(3,064,555) $(7,575,673)
========= =========== =========== =========== ===========
Basic and diluted, net loss per
share........................ $ (0.15) $ (0.91) $ (1.58) $ (0.71) $ (1.44)
Weighted-average shares of
common stock outstanding used
in computing basic and
diluted, net loss per
share........................ 1,633,988 3,425,395 4,782,235 4,290,510 5,277,689
Pro forma basic and diluted,
net loss per share........... $ (0.44) $ (0.36)
Weighted-average shares used in
computing pro forma basic and
diluted, net loss per
share........................ 17,281,930 21,316,193
</TABLE>
See accompanying notes.
F-4
<PAGE> 78
SELECTICA, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
CONVERTIBLE PREFERRED STOCK
---------------------------------------------------------------------------------
SERIES A SERIES B SERIES C SERIES D
------------------ ------------------ ------------------ ------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
--------- ------ --------- ------ --------- ------ --------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of common stock to founder for cash
at $0.01 per share......................... -- $ -- -- $ -- -- $ -- -- $ --
Issuance of common stock to founder in
exchange for services....................... -- -- -- -- -- -- -- --
Issuance of common stock in exchange for
Catalogics................................. -- -- -- -- -- -- -- --
Issuance of common and convertible preferred
stock to founder in exchange for the assets
of Alma Enterprises........................ 200,000 20 -- -- -- -- -- --
Exercise of stock options by employees and
consultants................................ -- -- -- -- -- -- -- --
Issuance of common stock to consultants in
exchange for services...................... -- -- -- -- -- -- -- --
Issuance of stock to employees.............. -- -- -- -- -- -- -- --
Issuance of Series A convertible preferred
stock in July 1996 for cash at $0.091667
per share.................................. 1,500,000 150 -- -- -- -- -- --
Issuance of Series B convertible preferred
stock in January 1997 for cash at $0.26667
per share (net of issuance costs of
$5,000).................................... -- -- 3,750,000 375 -- -- -- --
Deferred compensation related to options
granted at less than fair value............ -- -- -- -- -- -- -- --
Amortization of deferred compensation....... -- -- -- -- -- -- -- --
Net loss.................................... -- -- -- -- -- -- -- --
--------- ---- --------- ---- --------- ---- --------- ----
Balance at March 31, 1997................... 1,700,000 170 3,750,000 375 -- -- -- --
<CAPTION>
CONVERTIBLE PREFERRED STOCK
------------------
SERIES E COMMON STOCK ADDITIONAL
------------------ ------------------ PAID-IN DEFERRED
SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION
--------- ------ --------- ------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Issuance of common stock to founder for cash
at $0.01 per share......................... -- $ -- 1,250,000 $125 $ 12,375 $ --
Issuance of common stock to founder in
exchange for services....................... -- -- 1,250,000 125 12,375 --
Issuance of common stock in exchange for
Catalogics................................. -- -- 1,500,000 150 14,850 --
Issuance of common and convertible preferred
stock to founder in exchange for the assets
of Alma Enterprises........................ -- -- 100,000 10 19,193 --
Exercise of stock options by employees and
consultants................................ -- -- 562,500 56 5,544 --
Issuance of common stock to consultants in
exchange for services...................... -- -- 35,061 4 392 --
Issuance of stock to employees.............. -- -- 473,000 47 3,853 --
Issuance of Series A convertible preferred
stock in July 1996 for cash at $0.091667
per share.................................. -- -- -- -- 137,350 --
Issuance of Series B convertible preferred
stock in January 1997 for cash at $0.26667
per share (net of issuance costs of
$5,000).................................... -- -- -- -- 994,625 --
Deferred compensation related to options
granted at less than fair value............ -- -- -- -- 14,183 (14,183)
Amortization of deferred compensation....... -- -- -- -- -- 6,256
Net loss.................................... -- -- -- -- -- --
--------- ---- --------- ---- ---------- --------
Balance at March 31, 1997................... -- -- 5,170,561 517 1,214,740 (7,927)
<CAPTION>
TOTAL
ACCUMULATED STOCKHOLDERS'
DEFICIT EQUITY
----------- -------------
<S> <C> <C>
Issuance of common stock to founder for cash
at $0.01 per share......................... $ -- $ 12,500
Issuance of common stock to founder in
exchange for services....................... -- 12,500
Issuance of common stock in exchange for
Catalogics................................. -- 15,000
Issuance of common and convertible preferred
stock to founder in exchange for the assets
of Alma Enterprises........................ -- 19,223
Exercise of stock options by employees and
consultants................................ -- 5,600
Issuance of common stock to consultants in
exchange for services...................... -- 396
Issuance of stock to employees.............. -- 3,900
Issuance of Series A convertible preferred
stock in July 1996 for cash at $0.091667
per share.................................. -- 137,500
Issuance of Series B convertible preferred
stock in January 1997 for cash at $0.26667
per share (net of issuance costs of
$5,000).................................... -- 995,000
Deferred compensation related to options
granted at less than fair value............ -- --
Amortization of deferred compensation....... -- 6,256
Net loss.................................... (250,883) (250,883)
--------- ---------
Balance at March 31, 1997................... (250,883) 956,992
</TABLE>
See accompanying notes.
F-5
<PAGE> 79
SELECTICA, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (CONTINUED)
<TABLE>
<CAPTION>
CONVERTIBLE PREFERRED STOCK
---------------------------------------------------------------------------------
SERIES A SERIES B SERIES C SERIES D
------------------ ------------------ ------------------ ------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
--------- ------ --------- ------ --------- ------ --------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of Series C convertible preferred
stock in October 1997 for cash at $0.922
per share (net of issuance costs of
$11,000)................................... -- $ -- -- $ -- 3,253,126 $325 -- $ --
Exercise of stock options by employees and
consultants............................. -- -- -- -- -- -- -- --
Issuance of common stock to consultants in
exchange for services................... -- -- -- -- -- -- -- --
Amortization of deferred compensation..... -- -- -- -- -- -- -- --
Net loss.................................. -- -- -- -- -- -- -- --
--------- ---- --------- ---- --------- ---- --------- ----
Balance at March 31, 1998.................. 1,700,000 170 3,750,000 375 3,253,126 325 -- --
Issuance of Series D convertible preferred
stock in June, July, and August 1998 for
cash at $1.47 per share (net of issuance
costs of $57,658)....................... -- -- -- -- -- -- 4,863,935 486
Exercise of stock options by employees and
consultants, net of repurchases......... -- -- -- -- -- -- -- --
Issuance of common stock to consultants in
exchange for services................... -- -- -- -- -- -- -- --
Warrants issued in conjunction with credit
agreement............................... -- -- -- -- -- -- -- --
Deferred compensation related to options
granted at less than fair value......... -- -- -- -- -- -- -- --
Compensation expense related to
acceleration of stock options........... -- -- -- -- -- -- -- --
Amortization of deferred compensation..... -- -- -- -- -- -- -- --
Net loss.................................. -- -- -- -- -- -- -- --
--------- ---- --------- ---- --------- ---- --------- ----
Balance at March 31, 1999.................. 1,700,000 170 3,750,000 375 3,253,126 325 4,863,935 486
<CAPTION>
CONVERTIBLE PREFERRED STOCK
------------------
SERIES E COMMON STOCK ADDITIONAL
------------------ ------------------ PAID-IN DEFERRED
SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION
--------- ------ --------- ------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Issuance of Series C convertible preferred
stock in October 1997 for cash at $0.922
per share (net of issuance costs of
$11,000)................................... -- $ -- -- $ -- $ 2,988,058 $ --
Exercise of stock options by employees and
consultants............................. -- -- 338,000 34 7,306 --
Issuance of common stock to consultants in
exchange for services................... -- -- 12,000 1 919 --
Amortization of deferred compensation..... -- -- -- -- -- 3,541
Net loss.................................. -- -- -- -- -- --
--------- ---- --------- ---- ----------- ---------
Balance at March 31, 1998.................. -- -- 5,520,561 552 4,211,023 (4,386)
Issuance of Series D convertible preferred
stock in June, July, and August 1998 for
cash at $1.47 per share (net of issuance
costs of $57,658)....................... -- -- -- -- 7,091,856 --
Exercise of stock options by employees and
consultants, net of repurchases......... -- -- 671,012 67 38,507 --
Issuance of common stock to consultants in
exchange for services................... -- -- 46,304 5 42,565 --
Warrants issued in conjunction with credit
agreement............................... -- -- -- -- 25,714 --
Deferred compensation related to options
granted at less than fair value......... -- -- -- -- 298,700 (298,700)
Compensation expense related to
acceleration of stock options........... -- -- -- -- 170,000 --
Amortization of deferred compensation..... -- -- -- -- -- 47,500
Net loss.................................. -- -- -- -- -- --
--------- ---- --------- ---- ----------- ---------
Balance at March 31, 1999.................. -- -- 6,237,877 624 11,878,365 (255,586)
<CAPTION>
TOTAL
ACCUMULATED STOCKHOLDERS'
DEFICIT EQUITY
----------- -------------
<S> <C> <C>
Issuance of Series C convertible preferred
stock in October 1997 for cash at $0.922
per share (net of issuance costs of
$11,000)................................... $ -- $ 2,988,383
Exercise of stock options by employees and
consultants............................. -- 7,340
Issuance of common stock to consultants in
exchange for services................... -- 920
Amortization of deferred compensation..... -- 3,541
Net loss.................................. (3,101,449) (3,101,449)
----------- -----------
Balance at March 31, 1998.................. (3,352,332) 855,727
Issuance of Series D convertible preferred
stock in June, July, and August 1998 for
cash at $1.47 per share (net of issuance
costs of $57,658)....................... -- 7,092,342
Exercise of stock options by employees and
consultants, net of repurchases......... -- 38,574
Issuance of common stock to consultants in
exchange for services................... -- 42,570
Warrants issued in conjunction with credit
agreement............................... -- 25,714
Deferred compensation related to options
granted at less than fair value......... -- --
Compensation expense related to
acceleration of stock options........... -- 170,000
Amortization of deferred compensation..... -- 47,500
Net loss.................................. (7,536,901) (7,536,901)
----------- -----------
Balance at March 31, 1999.................. (10,889,233) 735,526
</TABLE>
See accompanying notes.
F-6
<PAGE> 80
SELECTICA, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (CONTINUED)
<TABLE>
<CAPTION>
CONVERTIBLE PREFERRED STOCK
---------------------------------------------------------------------------------
SERIES A SERIES B SERIES C SERIES D
------------------ ------------------ ------------------ ------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
--------- ------ --------- ------ --------- ------ --------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of Series E convertible preferred
stock in June, July, and August 1999 for
cash at $4.382 per share (net of issuance
costs of $930,921)......................... -- $ -- -- $ -- -- $ -- -- $ --
Issuance of Series E convertible preferred
stock in June 1999 at $4.382 per share
in exchange for convertible notes
payable (net of issuance costs of
$48,173)................................ -- -- -- -- -- -- -- --
Repurchase of common stock................ -- -- -- -- -- -- -- --
Exercise of stock options by employees and
consultants, net of repurchase.......... -- -- -- -- -- -- -- --
Issuance of common stock to consultants in
exchange for services................... -- -- -- -- -- -- -- --
Warrants issued in connection with Series
E convertible preferred stock
financing............................... -- -- -- -- -- -- -- --
Warrants issued in connection with
convertible notes payable............... -- -- -- -- -- -- -- --
Deferred compensation related to options
granted at less than fair value......... -- -- -- -- -- -- -- --
Compensation expense related to
acceleration of stock options........... -- -- -- -- -- -- -- --
Amortization of deferred compensation..... -- -- -- -- -- -- -- --
Net loss.................................. -- -- -- -- -- -- -- --
--------- ---- --------- ---- --------- ---- --------- ----
Balance at September 30, 1999.............. 1,700,000 $170 3,750,000 $375 3,253,126 $325 4,863,935 $486
========= ==== ========= ==== ========= ==== ========= ====
<CAPTION>
CONVERTIBLE PREFERRED STOCK
------------------
SERIES E COMMON STOCK ADDITIONAL
------------------ ------------------ PAID-IN DEFERRED
SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION
--------- ------ --------- ------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Issuance of Series E convertible preferred
stock in June, July, and August 1999 for
cash at $4.382 per share (net of issuance
costs of $930,921)......................... 4,408,318 $441 -- $ -- $17,770,429 $ --
Issuance of Series E convertible preferred
stock in June 1999 at $4.382 per share
in exchange for convertible notes
payable (net of issuance costs of
$48,173)................................ 229,876 23 -- -- 944,447 --
Repurchase of common stock................ -- -- (228,200) (23) (2,259) --
Exercise of stock options by employees and
consultants, net of repurchase.......... -- -- 159,237 16 64,231 --
Issuance of common stock to consultants in
exchange for services................... -- -- 27,070 3 64,405 --
Warrants issued in connection with Series
E convertible preferred stock
financing............................... -- -- -- -- 615,654 --
Warrants issued in connection with
convertible notes payable............... -- -- -- -- 49,781 --
Deferred compensation related to options
granted at less than fair value......... -- -- -- -- 5,199,752 (5,199,752)
Compensation expense related to
acceleration of stock options........... -- -- -- -- 65,625 --
Amortization of deferred compensation..... -- -- -- -- -- 121,426
Net loss.................................. -- -- -- -- -- --
--------- ---- --------- ---- ----------- -----------
Balance at September 30, 1999.............. 4,638,194 $464 6,195,984 $620 $36,650,430 $(5,333,912)
========= ==== ========= ==== =========== ===========
<CAPTION>
TOTAL
ACCUMULATED STOCKHOLDERS'
DEFICIT EQUITY
------------ -------------
<S> <C> <C>
Issuance of Series E convertible preferred
stock in June, July, and August 1999 for
cash at $4.382 per share (net of issuance
costs of $930,921)......................... $ -- $17,770,870
Issuance of Series E convertible preferred
stock in June 1999 at $4.382 per share
in exchange for convertible notes
payable (net of issuance costs of
$48,173)................................ -- 944,470
Repurchase of common stock................ (454,118) (456,400)
Exercise of stock options by employees and
consultants, net of repurchase.......... -- 64,247
Issuance of common stock to consultants in
exchange for services................... -- 64,408
Warrants issued in connection with Series
E convertible preferred stock
financing............................... -- 615,654
Warrants issued in connection with
convertible notes payable............... -- 49,781
Deferred compensation related to options
granted at less than fair value......... -- --
Compensation expense related to
acceleration of stock options........... -- 65,625
Amortization of deferred compensation..... -- 121,426
Net loss.................................. (7,575,673) (7,575,673)
------------ -----------
Balance at September 30, 1999.............. $(18,919,024) $12,399,934
============ ===========
</TABLE>
See accompanying notes.
F-7
<PAGE> 81
SELECTICA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
JUNE 6, 1996 YEARS ENDED SIX MONTHS ENDED
(INCEPTION) MARCH 31, SEPTEMBER 30,
THROUGH ------------------------- -------------------------
MARCH 31, 1997 1998 1999 1998 1999
-------------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss............................................. $ (250,883) $(3,101,449) $(7,536,901) $(3,064,555) $(7,575,673)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation....................................... 8,563 59,359 208,947 60,143 476,294
Amortization....................................... 25,275 33,700 33,700 16,851 11,850
Issuance of stock in exchange for services......... 22,396 920 42,570 20,810 64,408
Amortization of deferred compensation.............. 6,256 3,541 47,500 1,452 121,426
Accrued interest on convertible notes converted to
convertible preferred stock...................... -- -- -- -- 7,317
In-process research and development................ 16,500 -- -- -- --
Warrants issued in conjunction with credit
agreement........................................ -- -- 25,714 25,714 --
Warrants issued in conjunction with debt
financing........................................ -- -- -- -- 35,107
Accelerated vesting of stock options to
employees........................................ -- -- 170,000 -- 65,625
Changes in assets and liabilities:
Accounts receivable.............................. -- (387,944) (1,246,633) (219,125) (1,237,853)
Advances to related party........................ -- (1,620) (171,110) 220 293,198
Prepaid expenses and other current assets........ (7,765) (22,635) (136,054) (56,992) (251,411)
Other assets..................................... -- (51,427) -- -- (17,042)
Accounts payable................................. 25,870 75,910 483,830 12,228 528,297
Accrued payroll and related liabilities.......... 164 202 257,740 105,429 579,320
Other accrued liabilities........................ -- -- 328,609 (14,072) 206,310
Deferred revenues................................ -- 383,182 901,962 241,918 2,191,072
Advances from officers........................... 200 15,823 (15,691) -- --
Other long-term liabilities...................... -- -- -- -- 41,738
---------- ----------- ----------- ----------- -----------
Net cash used in operating activities................ (153,424) (2,992,438) (6,605,817) (2,869,979) (4,460,017)
INVESTING ACTIVITIES
Capital expenditures................................. (53,405) (287,877) (928,833) (326,760) (1,503,509)
Purchases of available-for-sale investments.......... (790,735) (8,569,135) (5,576,918) (5,576,918) --
Sales of available-for-sale investments.............. 100,000 8,962,331 5,774,612 1,984,548 --
Acquisition of Catalogics, Inc....................... (150,000) -- -- --
Acquisition of Selectica, India...................... -- -- -- -- (150,000)
---------- ----------- ----------- ----------- -----------
Net cash provided by (used in) investing
activities......................................... (894,140) 105,319 (731,139) (3,919,130) (1,653,509)
FINANCING ACTIVITIES
Net proceeds from issuance of convertible preferred
stock.............................................. 1,132,500 2,988,383 7,092,342 7,092,322 18,338,351
Repurchase of common stock........................... -- -- -- -- (456,400)
Proceeds from issuance of convertible notes.......... -- -- -- -- 1,000,000
Proceeds from issuance of common stock............... 12,500 7,340 38,574 27,864 64,247
---------- ----------- ----------- ----------- -----------
Net cash provided by financing activities............ 1,145,000 2,995,723 7,130,916 7,120,186 18,946,198
---------- ----------- ----------- ----------- -----------
Net increase (decrease) in cash and cash
equivalents........................................ 97,436 108,604 (206,040) 331,077 12,832,672
Cash and cash equivalents at beginning of the
period............................................. -- 97,436 206,040 206,040 --
---------- ----------- ----------- ----------- -----------
Cash and cash equivalents at end of the period....... $ 97,436 $ 206,040 $ -- $ 537,117 $12,832,672
========== =========== =========== =========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest............................... $ -- $ -- $ 3,142 $ 1,571 $ 17,833
Issuance of stock in exchange for
Catalogics, Inc.................................... $ 15,000 $ -- $ -- $ -- $ --
Issuance of stock in exchange for fixed assets....... $ 19,223 $ -- $ -- $ -- $ --
Deferred compensation related to stock options....... $ 14,183 $ -- $ 298,700 $ 224,414 $ 5,199,752
Convertible notes payable and accrued interest
converted to convertible preferred stock........... $ -- $ -- $ -- $ -- $ 944,470
Warrants issued in conjunction with convertible notes
payable............................................ $ -- $ -- $ -- $ -- $ 49,781
Warrants issued in conjunction with convertible
preferred stock financing.......................... $ -- $ -- $ -- $ -- $ 615,654
</TABLE>
See accompanying notes.
F-8
<PAGE> 82
SELECTICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1998 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Business
Selectica, Inc. (the Company or Selectica) was incorporated in the state of
California on June 6, 1996. The Company was organized to develop and market
Internet selling system software for electronic commerce, sales force
automation, and build-to-order applications.
Unaudited Interim Consolidated Financial Statements
The accompanying unaudited interim consolidated financial statements for
the six month period ended September 30, 1998 have been prepared in accordance
with generally accepted accounting principles for interim financial information.
In the opinion of management, the accompanying unaudited consolidated financial
statements have been prepared on the same basis as the audited consolidated
financial statements and include all adjustments, consisting only of normal
recurring adjustments, necessary for the fair presentation of the Company's
results of its operations for the six months ended September 30, 1998.
Principles of Consolidation
The consolidated financial statements include all the accounts of the
Company and those of its wholly-owned subsidiary. All significant intercompany
accounts and transactions have been eliminated.
Foreign Currency Transactions
Foreign currency transactions in foreign operations are measured using the
U.S. dollar as the functional currency. Accordingly, monetary accounts
(principally cash and cash equivalents, accounts receivable, accounts payable,
and accrued liabilities) are remeasured using the foreign exchange rate at the
balance sheet date. Operations accounts and nonmonetary balance sheet accounts
are remeasured at the rate in effect at the date of transaction. The effects of
foreign currency remeasurement are reported in current operations and were
immaterial for all periods presented.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash, cash equivalents,
short-term investments, and accounts receivable. The Company places its
short-term investments in high-credit quality financial institutions. The
Company is exposed to credit risk in the event of default by these institutions
to the extent of the amount recorded on the balance sheet. Accounts receivable
are derived from revenues earned from customers primarily located in the United
States. The Company performs ongoing credit evaluations of its
F-9
<PAGE> 83
SELECTICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1998 IS UNAUDITED)
customers' financial condition and generally does not require collateral. The
Company maintains reserves for potential credit losses, and historically, such
losses have been immaterial.
Customer Concentrations
A limited number of customers have historically accounted for a substantial
portion of the Company's revenues.
Customers who accounted for at least 10% of total revenues were as follows:
<TABLE>
<CAPTION>
PERIOD FROM
JUNE 6, 1997 YEARS ENDED SIX MONTHS ENDED
(INCEPTION) MARCH 31, SEPTEMBER 30,
THROUGH ------------ -------------------
MARCH 31, 1997 1998 1999 1998 1999
-------------- ---- ---- ----------- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
BMW of North America................ * * 60% 50% 10%
Olicom, Inc......................... * * 10% 37% *
Hewlett Packard of Germany.......... * 45% * * *
Ascend Communications,
Inc............................... * 27% * * *
InterVoice, Inc..................... * 16% * * *
Insight Enterprises, Inc............ * 12% * * *
V*Mall Corporation.................. 100% * * * *
3Com Corporation.................... * * * * 22%
RTS Software........................ * * * * 10%
Aspect Communications............... * * * * 29%
</TABLE>
- -------------------------
* Revenues were less than 10%.
Cash Equivalents and Short-Term Investments
Cash equivalents consist of short-term, highly liquid financial
instruments, principally money markets funds and commercial paper with
insignificant interest rate risk that are readily convertible to cash and have
maturities of three months or less from the date of purchase. Short-term
investments consist of money market funds and commercial paper that are readily
convertible to cash. The fair market value, based on quoted market prices, of
cash equivalents and short-term investments is substantially equal to their
carrying value at March 31, 1998 and 1999, and at September 30, 1999.
Under the Financial Accounting Standards Board's Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities", management classifies investments as available-for-sale at
the time of purchase and periodically reevaluates such designation. Unrecognized
gains or losses on available-for-sale securities are included, net of tax, in
stockholders' equity until their disposition. Realized gains and losses and
declines in value judged to be other than temporary on available-for-sale
securities are included in interest income. The cost of securities sold is based
on the specific-identification method.
F-10
<PAGE> 84
SELECTICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1998 IS UNAUDITED)
Property and Equipment
Property and equipment are stated at cost. Depreciation and amortization
are computed using the straight-line method over the estimated useful lives of
the assets, generally the shorter of the lease term or three to five years.
Goodwill and Other Intangible Assets
Goodwill represents the excess of the purchase price of acquired companies
over estimated fair values of tangible and intangible net assets acquired.
Goodwill is amortized on a straight-line basis over the estimated useful life,
generally five years. The carrying values of long-term assets and intangibles
are reviewed if facts and circumstances suggest that they may be impaired. If
this review indicates that carrying values of long-term assets, other
intangibles, and associated goodwill will not be recoverable based on projected
undiscounted future cash flows, carrying values are reduced to estimated fair
values by first reducing goodwill and second by reducing long-term assets and
other intangibles.
Revenue Recognition
The Company's revenues are derived from licenses for its software and
related services, which include implementation and integration, technical
support, training and consulting. For contracts with multiple elements, and for
which vender-specific objective evidence of fair value for the undelivered
elements exists, the Company recognizes revenue for the delivered elements based
on the residual contract value as prescribed by Statement of Position No. 98-9,
"Modification of SOP No. 97-2 with Respect to Certain Transactions."
License revenues are recognized when persuasive evidence of an agreement
exists, delivery of the product has occurred, no significant Company obligations
with regard to implementation or integration exist, the fee is fixed or
determinable and collectibility is probable. Provisions for sales returns are
provided at the time of revenue recognition based on estimated returns. The
Company has not incurred material charges for product returns to date.
Services revenue primarily comprises revenue from consulting fees,
maintenance contracts and training. Services revenue from consulting and
training is recognized as the services are performed.
Maintenance contracts include the right to unspecified upgrades and ongoing
support. Maintenance revenues are deferred and recognized on a straight-line
basis, as services revenues, over the life of the related contract, which is
typically one year.
License and services revenues on contracts involving significant
implementation, customization or services which are essential to the
functionality of the software is recognized over the period of each engagement,
primarily using the percentage-of-completion method. Labor hours incurred are
generally used as the measure of progress towards completion. The Company
classifies revenues for theses arrangements as license revenues and services
revenues based on its estimates of fair value for each element and recognizes
the revenues based on the percentage-of-completion ratio for the arrangement. A
provision for estimated losses on engagements is made in the period in which the
loss becomes probable and can be reasonably estimated.
F-11
<PAGE> 85
SELECTICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1998 IS UNAUDITED)
In cases where license fee or service payments are contingent on
acceptance, the Company defers recognition of revenues until the acceptance
criteria are met.
Customer billing occurs in accordance with contract terms. Customer
advances and amounts billed to customers in excess of revenue recognized are
recorded as deferred revenues. Amounts recognized as revenue in advance of
billing (typically under percentage-of-completion accounting) are recorded as
unbilled receivables.
Advertising Expense
The cost of advertising is expensed as incurred. Advertising expense for
the six month period ended September 30, 1999 was $162,000. Advertising expenses
were immaterial for all other periods presented.
Development Costs
Costs incurred in the research and development of new software products and
enhancements to existing software products are expensed as incurred until
technological feasibility has been established. The Company believes its current
process for developing software is essentially completed concurrently with the
establishment of technological feasibility; accordingly, software costs incurred
after the establishment of technological feasibility have not been material and,
therefore, have been expensed.
Comprehensive Loss
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" (FAS
130). FAS 130 establishes standards for the reporting and displaying of
comprehensive income and its components in a full set of general purpose
financial statements and is effective for fiscal years beginning after December
15, 1997. The Company adopted FAS 130 in the year ended March 31, 1999. The
Company had no items of other comprehensive income to report in any of the
periods presented.
Net Loss Per Share
Basic and diluted net loss per common share is presented in conformity with
Statement of Financial Accounting Standards No. 128, "Earnings Per Share" (FAS
128), for all periods presented. Pursuant to the Securities and Exchange
Commission Staff Accounting Bulletin No. 98, common stock and convertible
preferred stock issued or granted for nominal consideration prior to the
anticipated effective date of the Company's initial public offering must be
included in the calculation of basic and diluted net loss per common share as if
they had been outstanding for all periods presented. (see Note 13)
In accordance with FAS 128, basic and diluted net loss per share have been
computed using the weighted-average number of shares of common stock outstanding
during the period, less shares subject to repurchase. Pro forma basic and
diluted net loss per share, as presented in the statements of operations, have
been computed as described above and also gives effect, under Securities and
F-12
<PAGE> 86
SELECTICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1998 IS UNAUDITED)
Exchange Commission guidance, to the conversion of the convertible preferred
stock (using the if-converted method) from the original date of issuance.
The following table presents the computation of basic and diluted and pro
forma basic and diluted net loss per share:
<TABLE>
<CAPTION>
PERIOD FROM SIX MONTHS ENDED
JUNE 6, 1996 YEARS ENDED MARCH 31, SEPTEMBER 30,
(INCEPTION) THROUGH ------------------------- -------------------------
MARCH 31, 1997 1998 1999 1998 1999
------------------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net loss............................ $ (250,883) $(3,101,449) $(7,536,901) $(3,064,555) $(7,575,673)
========== =========== =========== =========== ===========
Basic and diluted:
Weighted-average shares of common
stock outstanding............... 3,933,538 5,243,255 5,987,019 5,802,055 6,200,125
Less weighted-average shares
subject to repurchase........... (2,299,550) (1,817,860) (1,204,784) (1,511,545) (922,436)
---------- ----------- ----------- ----------- -----------
Weighted-average shares used in
computing basic and diluted, net
loss per common share........... 1,633,988 3,425,395 4,782,235 4,290,510 5,277,689
========== =========== =========== =========== ===========
Basic and diluted, net loss per
common share...................... $ (0.15) $ (0.91) $ (1.58) $ (0.71) $ (1.44)
========== =========== =========== =========== ===========
Pro forma:
Shares used above............... 4,782,235 5,277,689
Pro forma adjustment to reflect
weighted-average effect of the
assumed conversion of
convertible preferred stock... 12,499,695 16,038,504
----------- -----------
Shares used in computing pro
forma basic and diluted, net
loss per share................ 17,281,930 21,316,193
=========== ===========
Pro forma basic and diluted, net
loss per share................ $ (0.44) $ (0.36)
=========== ===========
</TABLE>
The Company has excluded all outstanding stock options and shares subject
to repurchase by the Company from the calculation of basic and diluted net loss
per share because these securities are antidilutive for all periods presented.
Options and warrants to purchase 655,000, 1,279,600, 1,444,058, 1,322,100, and
3,246,887 shares of common stock for the period from June 6, 1996 (inception)
through March 31, 1997, for the years ended March 31, 1998 and 1999, and for the
six month periods ended September 30, 1998 and 1999, respectively, were not
included in the computation of diluted net loss per share because the effect
would be antidilutive. Such securities, had they been dilutive, would have been
included in the computation of diluted net loss per share using the treasury
stock method.
Stock-Based Compensation
The Company accounts for employee stock-based compensation under Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB
Opinion No. 25), and
F-13
<PAGE> 87
SELECTICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1998 IS UNAUDITED)
related interpretations. Pro forma net loss, as presented in Note 9, is a
disclosure required by Financial Accounting Standards Board's Statement of
Financial Accounting Standards No. 123, "Accounting for Stock Based
Compensation" (FAS 123).
Segment Information
The Company adopted Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information" (FAS 131),
in fiscal 1998. FAS 131 supersedes FAS 14, "Financial Reporting for Segments of
a Business Enterprise," and establishes standards for reporting information
about operating segments. Operating segments are defined as components of an
enterprise about which separate financial information is available that is
evaluated regularly by the chief operating decision maker or group in deciding
how to allocate resources and in assessing performance. The Company operates in
one segment, Internet selling system software for electronic commerce. The
Company primarily markets its products in the United States. For the fiscal year
ended March 31, 1998, sales to international locations, principally Europe,
represented 46% of total revenues. Foreign sales were less than 10% for all
other periods presented.
Export revenues are attributable to countries based on the location of the
customers. The Company holds long-lived assets in India with a net book value of
$157,023 at September 30, 1999.
Unaudited Pro Forma Stockholders' Equity
If the offering contemplated by this prospectus is consummated, each share
of convertible preferred stock outstanding will automatically be converted into
one share of common stock. Unaudited pro forma stockholders' equity at September
30, 1999, as adjusted for the assumed conversion of convertible preferred stock
based on the shares of convertible preferred stock outstanding at September 30,
1999, is disclosed on the balance sheet.
Unaudited basic and diluted pro forma net loss per share, as presented in
the consolidated statements of operations, has been computed using the
weighted-average number of common shares outstanding, adjusted to include the
pro forma effects of the conversion of the preferred stock to common stock as if
such conversion had occurred on April 1, 1998 for the year ended March 31, 1999
and on April 1, 1999 for the six month period ended September 30, 1999, or at
the date of original issuance, if later.
New Accounting Pronouncements
In March 1998, the AICPA issued Statement of Position No. 98-1, "Accounting
for the Costs of Computer Software Developed or Obtained for Internal Use" (SOP
98-1). SOP 98-1 requires entities to capitalize certain costs related to
internal-use software once certain criteria have been met. SOP 98-1 is effective
for years beginning after December 15, 1998. The Company adopted SOP 98-1 for
the fiscal year ending March 31, 2000. The adoption of SOP 98-1 did not have a
material impact on the Company's financial position or results of operations.
In April 1998, the AICPA issued Statement of Position No. 98-5, "Reporting
on the Costs of Start-Up Activities" (SOP 98-5). SOP 98-5 requires that all
start-up costs related to new operations must be expensed as incurred. In
addition, all start-up costs that were capitalized in the past must be
F-14
<PAGE> 88
SELECTICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1998 IS UNAUDITED)
written off when SOP 98-5 is adopted. The Company implemented SOP 98-5 on
January 1, 1999. The adoption of SOP 98-5 did not have a material impact on its
financial position or results of operations.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" (FAS 133). FAS 133 establishes accounting methods for
derivative financial instruments and hedging activities related to those
instruments as well as other hedging activities. The Company will be required to
implement FAS 133 for the fiscal year ending March 31, 2002. Because the Company
does not currently hold any derivative instruments and does not engage in
hedging activities, the Company does not expect that the adoption of FAS 133
will have a material impact on its financial position or results of operations.
2. CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
All cash equivalents and short-term investments as of March 31, 1998, 1999,
and September 30, 1999 are classified as available-for-sale securities and
consist of the following:
<TABLE>
<CAPTION>
MARCH 31,
------------------ SEPTEMBER 30,
1998 1999 1999
-------- ------- -------------
<S> <C> <C> <C>
Cash equivalents:
Money market fund................................ $ 7,277 $ -- $12,832,672
Commercial paper............................... 198,763 -- --
-------- ------- -----------
Total....................................... $206,040 $ -- $12,832,672
======== ======= ===========
Short-term investments:
Commercial paper............................... $297,539 $99,845 $ 99,845
======== ======= ===========
</TABLE>
The Company has an operating lease that requires a security deposit to be
maintained at a financial institution for the term of the lease. The security
deposit in the amount of $99,845 is classified as a restricted long-term
investment and is held in commercial paper. The interest earned on the
investment can be used in operations.
Unrealized holding gains and losses on available-for-sale securities at
March 31, 1998, 1999, and September 30, 1999 and gross realized gains and losses
on sales of available-for-sale securities during the period from June 6, 1996
(inception) through March 31, 1997, for the years ended March 31, 1998 and 1999,
and for the six-month periods ended September 30, 1998 and 1999 were not
significant.
F-15
<PAGE> 89
SELECTICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1998 IS UNAUDITED)
3. PROPERTY AND EQUIPMENT
Property and equipment, at cost, consist of the following:
<TABLE>
<CAPTION>
MARCH 31,
--------------------- SEPTEMBER 30,
1998 1999 1999
-------- ---------- -------------
<S> <C> <C> <C>
Furniture and equipment........................ $105,019 $ 191,681 $ 381,794
Computers and software......................... 255,486 1,097,657 2,246,594
Leasehold improvements......................... -- -- 164,459
-------- ---------- ----------
360,505 1,289,338 2,792,847
Less accumulated depreciation and
amortization................................. (67,922) (276,869) (753,163)
-------- ---------- ----------
Total net fixed assets....................... $292,583 $1,012,469 $2,039,684
======== ========== ==========
</TABLE>
4. OPERATING LEASE COMMITMENTS
The Company leases office space under operating lease agreements that
expire at various dates through 2004. In October 1999, the Company entered into
a lease agreement for new head quarter facilities in San Jose, California. The
lease terminates in November 2009. Amounts due under the terms of this lease are
included in the lease commitment below.
Aggregate future minimum annual payments under these lease agreements,
which have noncancelable lease terms, as of September 30, 1999, are as follows:
<TABLE>
<S> <C>
2000........................................................ $ 1,670,159
2001........................................................ 2,187,727
2002........................................................ 2,343,090
2003........................................................ 2,188,021
2004........................................................ 2,181,495
Thereafter.................................................. 12,820,352
-----------
Total....................................................... $23,390,844
===========
</TABLE>
Rent expense was $14,752, $147,710, and $489,649 for the period from June
6, 1996 (inception) through March 31, 1997, and for the years ended March 31,
1998 and 1999 and $192,925 and $434,611 for the six months ended September 30,
1998 and 1999, respectively.
5. LITIGATION
From time to time, the Company may be a party to various litigation and
claims in the ordinary course of business. Although the results of litigation
and claims cannot be predicted with certainty, the Company believes that the
final outcome of such matters will not have a material adverse effect on the
Company's financial position, results of operations, or cash flows.
F-16
<PAGE> 90
SELECTICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1998 IS UNAUDITED)
6. LINE OF CREDIT
The Company's credit agreement with a bank expired in June 1999.
The Company also has a $50,000 available letter of credit in connection
with the Company's lease agreement. No amounts were committed under this letter
of credit at September 30, 1999.
7. CONVERTIBLE PROMISSORY NOTES
In May 1999, the Company issued convertible promissory notes in the
principal amount of $1,000,000 that earned interest at a rate of prime plus 1%.
During June 1999, the convertible promissory notes and related accrued but
unpaid interest of $6,182 were converted into 228,206 shares of Series E
convertible preferred stock.
8. ACQUISITIONS
Catalogics Acquisition
In July 1996, the Company acquired the assets of Catalogics Software
Corporation (Catalogics), a development stage software company in the business
of internet software development. In exchange for the assets of Catalogics, the
Company paid $150,000 and issued 1,500,000 shares of the Company's common stock
with a fair value of $15,000. Through this acquisition, the Company received
various fixed assets, an assembled workforce consisting solely of the founder of
Catalogics, and the rights to software in the development stage. The acquisition
was accounted for as a purchase, and the total purchase price was allocated as
described below. The assembled workforce intangible is being amortized over
three years, and the related goodwill is being amortized over five years, their
estimated useful lives.
<TABLE>
<S> <C>
Workforce intangible........................................ $ 30,000
In-process research and development......................... 16,500
Goodwill.................................................... 118,500
--------
$165,000
========
</TABLE>
As of March 31, 1998 and 1999, and September 30, 1999, accumulated
amortization of intangible assets was approximately $58,975, $92,675, and
$107,025, respectively.
Alma Acquisition
In October 1996, the Company acquired the assets of Alma Enterprises, a
development stage software company in the business of software consulting, in
exchange for 200,000 shares of Series A convertible preferred stock and 100,000
shares of the Company's common stock. The transaction was accounted for as a
purchase. The cost of the transaction was allocated to the various fixed assets
acquired in the transaction. The amount of consideration given, $19,223,
approximated the fair value of the fixed assets obtained.
F-17
<PAGE> 91
SELECTICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1998 IS UNAUDITED)
Selectica India Acquisition
In July 1999, the Company converted $150,000 of advances to Selectica
Configurators India Pvt. Ltd. (Selectica India) into 637,500 shares of common
stock of Selectica India, representing 99.9% of total outstanding shares.
Through this acquisition, the Company received various fixed assets and an
assembled workforce and assumed various liabilities. The acquisition was
accounted for as a purchase, and the total purchase price was allocated to net
tangible assets.
9. STOCKHOLDERS' EQUITY
Common Stock
In July 1996, the Company issued 2,500,000 shares of common stock to the
founders of the Company in exchange for $12,500, the then estimated fair value
of common stock. Such shares vest ratably over 48 months. As of March 31, 1998
and 1999, and September 30, 1999, 1,406,250, 781,250, and 468,750 shares are
subject to repurchase at $0.01 per share, respectively.
Common Stock Reserved for Future Issuance
At September 30, 1999, common stock reserved for future issuance was as
follows:
<TABLE>
<S> <C>
Stock option plan:
Outstanding................................................. 3,024,350
Reserved for future grants................................ 523,056
Warrants to purchase Series D convertible preferred stock... 20,408
Warrants to purchase Series E convertible preferred stock... 202,129
Conversion of preferred stock............................... 18,205,255
----------
Total common stock reserved for future issuance........ 21,975,198
==========
</TABLE>
Convertible Preferred Stock
Series E convertible preferred stockholders are entitled to receive, prior
and in preference to any distribution to other preferred or common stockholders,
$4.382 per share plus any declared but unpaid dividends. Series A, B, C, and D
convertible preferred stock have a liquidation preference of $0.091667,
$0.266666, $0.922190, and $1.5876 per share, respectively, plus declared but
unpaid dividends prior and in preference to distribution to common stockholders.
Any remaining assets of the Company are to be distributed between Series E
convertible preferred stockholders and common stockholders on a pro rata, if
converted, basis until such point as holders of Series E convertible preferred
stock have received total distributions of $8.764. Any amounts in excess of this
amount will be distributed to common stockholders. Each share of Series E
convertible preferred stock shall automatically convert into shares of common
stock upon a liquidation in which holders of Series E convertible preferred
stock would receive aggregate proceeds of more than $10.955 per share, if
converted. Series A, B, C, and D convertible preferred stockholders are entitled
to noncumulative dividends at the rate of $0.0055, $0.0213, $0.0736, $.1176, and
$0.3506 per share, per annum, respectively, or if greater on an as converted
basis, an amount equal to that paid on common stock when and if declared by the
Board of Directors and in preference to common stock dividends. No dividends
have been declared or paid by the Company as of any year presented.
F-18
<PAGE> 92
SELECTICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1998 IS UNAUDITED)
The holders of each share of Series A, B, C, D, and E convertible preferred
stock are entitled to one vote for each share of common stock into which such
convertible preferred share may be converted. The shares are convertible at any
time at the option of the holder and will automatically convert on a one-for-one
basis in the event of an underwritten public offering of the Company's common
stock in which the aggregate proceeds are at least $25,000,000, provided that
such automatic conversion shall only occur with respect to Series E convertible
preferred stock if the per share offering price of such offering is not less
than $6.573, as adjusted. Such conversion can occur for Series A, B, and C
convertible preferred stock upon the consent of the holders of a majority of the
then outstanding shares of convertible preferred stock with Series A, B, and C
voting as a single class. Such conversion can occur for Series D convertible
preferred stock upon the consent of a majority of the then outstanding shares of
Series D convertible preferred stock, and for Series E convertible preferred
stock upon the consent of two-thirds of the then outstanding shares of Series E
convertible preferred stock, The conversion rate of the Series A, B, C, D, and E
convertible preferred stock is subject to adjustment in the event of, among
other things, certain dilutive issuances of stock, business combinations, stock
splits, and stock dividends.
Warrants
In association with a credit agreement entered into with a financial
institution (see Note 6), the Company issued a warrant that entitles the holder
to purchase 20,408 shares of Series D convertible preferred stock at an exercise
price of $1.47 per share. The warrant expires April 17, 2005. The fair value of
the warrant, $25,714, was amortized over the life of the credit agreement. The
Company determined the fair value of the warrants using the Black-Scholes
valuation model assuming a fair value of the Company's Series D convertible
preferred stock of $1.47, a risk-free interest rate of 6.0%, a volatility factor
of 147%, and a life of five years.
In connection with the convertible promissory notes issued in May 1999, the
Company issued warrants to purchase 15,000 shares of Series E convertible
preferred stock at $4.382 per share. This transaction resulted in the valuation
of warrants of $49,781 of which $35,107 was amortized as interest expense prior
to the conversion of the convertible debt into Series E convertible preferred
stock on June 16, 1999. The Company determined the fair value of the warrants
using the Black-Scholes valuation model assuming a fair value of the Company's
Series E convertible preferred stock of $4.382, risk free interest rate of 5.9%,
volatility factor of 96.1%, and a life of five years. The warrants expire in May
2004.
In connection with the issuance of shares of the Company's Series E
convertible preferred stock, the Company issued warrants to purchase 187,129
shares of the Company's Series E convertible preferred stock at $4.382 per
share. The warrants expire on May 14, 2004. The Company determined the fair
value of the warrants using the Black-Scholes valuation model assuming a fair
value of the Company's Series E convertible preferred stock of $4.382, risk free
interest rate of 5.78%, volatility factor of 96.1%, and a life of five years.
Stock Option Plan
The Company's 1996 Stock Plan (the Plan) was adopted by the Board of
Directors on August 26, 1996. The Plan provides for granting of incentive stock
options to employees and
F-19
<PAGE> 93
SELECTICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1998 IS UNAUDITED)
nonstatutory stock options to outside directors and consultants. Incentive stock
options are granted at an exercise price of not less than the fair value per
share of the common stock on the date of grant as determined by the Board of
Directors. Nonstatutory stock options are granted at an exercise price of not
less than 85% of the fair value per share on the date of grant as determined by
the Board of Directors. Vesting and exercise provisions are determined by the
Board of Directors at the time of grant. Options generally vest with respect to
25% of the shares one year after the options' vesting commencement date and the
remainder ratably over the following three years. Options granted under the Plan
have a maximum term of ten years. Options can be exercised at any time and stock
issued under the Plan may be, as determined by the Board of Directors, subject
to repurchase by the Company. This right to repurchase generally lapses over
four years from the original date of issuance or grant.
Activity under the stock option plan is as follows:
<TABLE>
<CAPTION>
OUTSTANDING STOCK OPTIONS
---------------------------------------------------------
NUMBER WEIGHTED-
SHARES OF EXERCISE AVERAGE
AVAILABLE SHARES PRICE EXERCISE PRICE
---------- --------- --------------- --------------
<S> <C> <C> <C> <C>
Beginning authorized.................... 1,650,000 -- $ -- $ --
Options granted......................... (1,252,561) 1,252,561 $0.010 - $0.030 $0.02
Options exercised..................... -- (597,561) $0.010 - $0.030 $0.01
---------- --------- -----
Balance at March 31, 1997............... 397,439 655,000 $0.010 - $0.030 $0.02
Increase in shares reserved........... 1,339,500 -- $ -- $ --
Options granted....................... (982,100) 982,100 $0.030 - $0.100 $0.07
Options exercised..................... -- (350,000) $0.010 - $0.100 $0.02
Options canceled...................... 7,500 (7,500) $0.100 $0.10
---------- --------- -----
Balance at March 31, 1998............... 762,339 1,279,600 $0.030 - $0.100 $0.06
Increase in shares reserved........... 750,000 -- $ -- $ --
Options granted....................... (1,361,804) 1,361,804 $0.100 - $1.250 $0.37
Options exercised..................... -- (748,566) $0.030 - $0.500 $0.05
Options canceled...................... 469,188 (469,188) $0.030 - $0.500 $0.10
Shares repurchased.................... 31,250 -- $0.010 $0.01
---------- --------- -----
Balance at March 31, 1999............... 650,973 1,423,650 $0.030 - $1.250 $0.35
Increase in shares reserved........... 1,659,090 -- $ -- $ --
Options granted....................... (1,900,570) 1,900,570 $1.500 - $2.50 $2.18
Options exercised..................... -- (198,694) $0.010 - $2.000 $0.39
Options canceled...................... 101,176 (101,176) $0.100 - $1.750 $0.61
Shares repurchased.................... 12,387 -- $0.100 - $0.500 $0.26
---------- --------- -----
Balance at September 30, 1999........... 523,056 3,024,350 $0.030 - $2.500 $1.49
========== ========= =====
</TABLE>
F-20
<PAGE> 94
SELECTICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1998 IS UNAUDITED)
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS VESTED
--------------------------------------- -------------------------
NUMBER OF WEIGHTED- WEIGHTED-
OUTSTANDING AVERAGE WEIGHTED- OPTIONS AVERAGE
SHARES AS OF REMAINING AVERAGE VESTED AT AGGREGATE
RANGE OF SEPTEMBER 30, CONTRACTUAL EXERCISE SEPTEMBER 30, PURCHASE
EXERCISE PRICES 1999 LIFE PRICE 1999 PRICE
--------------- ------------- ----------- --------- ------------- ---------
<S> <C> <C> <C> <C> <C>
$0.01 - $0.10............... 305,600 8.37 $0.10 98,411 $0.10
$0.20 - $0.50............... 703,250 8.97 $0.26 47,287 $0.25
$1.00 - $1.25............... 194,500 9.37 $1.09 7,448 $1.09
$1.50 - $2.50............... 1,821,000 9.87 $2.24 35,240 $1.67
--------- -------
$0.01 - $2.50............... 3,024,350 9.48 $1.49 188,386 $0.47
========= =======
</TABLE>
All shares granted under the Plan are exercisable, however, shares
exercised but not vested are subject to repurchase. At September 30, 1999,
290,220 shares were subject to repurchase under the Plan.
Deferred Compensation
During the years ended March 31, 1998 and 1999, and the six month period
ended September 30, 1999, the Company recorded aggregate deferred compensation
of $5,498,452 representing the difference between the exercise price of stock
options granted and the then deemed fair value of the Company's common stock.
The amortization of deferred compensation is charged to operations over the
vesting period of the options using the straight-line method, which is typically
four years. For the period from June 6, 1996 (inception) through March 31, 1997,
for the years ended March 31, 1998 and 1999, and for the six month periods ended
September 30, 1998 and 1999, the Company amortized $6,256, $3,541, $47,500,
$1,452, and $121,426, respectively.
Accounting for Stock-Based Compensation
Pro forma information regarding net loss is required by FAS 123 and has
been determined as if the Company has accounted for its employee stock options
granted under the fair value method of FAS 123. The fair value of options
granted was estimated at the date of grant using the minimum-value method and
the following weighted-average assumptions: a risk-free interest rate for the
period from June 6, 1996 (inception) through March 31, 1997, for the years ended
March 31, 1998 and 1999, and for the six month periods ended September 30, 1998
and 1999 of 6.67%, 5.94%, 5.05%, 4.95%, and 5.82%, respectively; no dividend
yield or volatility factor; and an expected life of seven years. The
weighted-average fair value of options granted in the period from June 6, 1996
(inception) through March 31, 1997, for the years ended March 31, 1998 and 1999,
and for the six-month periods ended September 30, 1998 and 1999 was $0.11,
$0.02, $0.01, $0.06 and $0.46, respectively.
The option valuation model was developed for use in estimating the fair
value of nonpublicly traded options that have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions, including the expected life and risk-free
interest rate. Because the Company's options have characteristics significantly
different from those of traded options and because the changes in the subjective
input assumptions can materially affect the
F-21
<PAGE> 95
SELECTICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1998 IS UNAUDITED)
fair value estimate, the existing model do not necessarily provide a reliable
single measure of the fair value of its options.
Had compensation cost for the Company's stock-based compensation plan been
determined based on the fair value at the grant date for awards under those
plans consistent with the method of FAS 123, the Company's net loss and net loss
per share would have increased to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
PERIOD FROM
JUNE 6,
1996
(INCEPTION) SIX MONTHS ENDED
THROUGH YEARS ENDED MARCH 31, SEPTEMBER 30,
MARCH 31, ------------------------- -------------------------
1997 1998 1999 1998 1999
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net loss:
As reported................. $(250,883) $(3,101,449) $(7,536,901) $(3,064,555) $(7,575,673)
Pro forma................. $(252,666) $(3,111,548) $(7,551,879) $(3,067,973) $(7,613,675)
Basic and diluted, pro forma
net loss per share........ $ (0.15) $ (0.91) $ (1.58) $ (0.72) $ (1.44)
</TABLE>
10. INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
SEPTEMBER 30,
1999
-------------
<S> <C>
Current provision:
State...................................................... $20,000
Foreign.................................................. 30,000
-------
$50,000
=======
</TABLE>
F-22
<PAGE> 96
SELECTICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1998 IS UNAUDITED)
The difference between the provision for income taxes and the amount
computed by applying the federal statutory income tax rate (35%) to income
before taxes is explained below:
<TABLE>
<CAPTION>
PERIOD FROM
JUNE 6,
1996 SIX MONTHS
(INCEPTION) ENDED
THROUGH YEARS ENDED MARCH 31, SEPTEMBER 30,
MARCH 31, ------------------------- ---------------------------
1997 1998 1999 1998 1999
----------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Tax (benefit) at federal
statutory rate............ (88,000) $(1,085,000) $(2,637,000) $(1,073,000) $(2,616,000)
Loss for which no tax
benefit is currently
recognizable................ 88,000 1,085,000 2,637,000 1,073,000 2,616,000
State taxes................. -- -- -- -- 20,000
Foreign taxes............... -- -- -- -- 30,000
------- ----------- ----------- ----------- -----------
Total provision........ $ -- $ -- $ -- $ -- $ 50,000
======= =========== =========== =========== ===========
</TABLE>
Significant components of the Company's deferred tax assets are as follows:
<TABLE>
<CAPTION>
MARCH 31,
-------------------------- SEPTEMBER 30,
1998 1999 1999
----------- ----------- -------------
<S> <C> <C> <C>
Deferred tax assets:
Net operating loss carryforwards............... $ 1,188,000 $ 3,967,000 $ 6,488,000
Tax credit carryforwards..................... 103,000 296,000 342,000
Deferred revenue............................. 153,000 314,000 340,000
Accruals and reserves not currently
deductible................................ -- 136,000 333,000
----------- ----------- -----------
Total deferred tax assets...................... 1,444,000 4,713,000 7,503,000
Valuation allowance............................ (1,444,000) (4,713,000) (7,503,000)
----------- ----------- -----------
Net deferred tax assets................... $ -- $ -- $ --
=========== =========== ===========
</TABLE>
The Company has recorded a tax provision of $50,000 for the six months
ended September 30, 1999. The provision for income taxes consists primarily of
state income taxes and foreign taxes. There is no provision for income taxes for
the period from June 6, 1996 (inception) through March 31, 1997, for the years
ended March 31, 1998 and 1999, and for the six-month period ended September 30,
1998.
Financial Accounting Standards Board Statement No. 109 provides for the
recognition of deferred tax assets if realization of such assets is more likely
than not. Based on the weight of available evidence, which includes the
Company's historical operating performance and the reported cumulative net
losses in all prior years, the Company has provided a full valuation allowance
against its net deferred tax assets.
The valuation allowance increased by $3,269,000 and $2,790,000 during the
year ended March 31, 1999 and the six month period ended September 30, 1999,
respectively.
F-23
<PAGE> 97
SELECTICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1998 IS UNAUDITED)
As of September 30, 1999, the Company had federal and state net operating
loss carryforwards of approximately $16,800,000 and $13,400,000, respectively.
As of September 30, 1999, the Company also had federal and state research and
development tax credit carryforwards of approximately $200,000.
The net operating loss and tax credit carryforwards will expire at various
dates beginning in 2005 through 2020, if not utilized.
Utilization of the net operating loss and tax credit carryforwards may be
subject to a substantial annual limitation due to the ownership change
limitations provided by the Internal Revenue Code and similar state provisions.
The annual limitation may result in the expiration of the net operating loss and
credit carryforwards before utilization.
11. RELATED PARTY
During the years ended March 31, 1998 and 1999 and the six month period
ended September 30, 1999, certain of the Company's services efforts were done by
Selectica Configurators India Pvt. Ltd. (Selectica India), a related party.
These efforts included quality and assurance testing and consulting services.
Prior to June 30, 1999, Selectica India was owned by the parents of the chief
executive officer and founder of the Company. Total expenses related to these
efforts, which are included in the Company's statements of operations, by
Selectica India, amounted to $51,200, $302,511, and $135,000 for the years ended
March 31, 1998 and 1999 and for the six month period ended September 30, 1999,
respectively. The Company also advanced $155,000 to Selectica India during 1999
for future services efforts. No expenses were incurred related to Selectica
India during fiscal 1997. Amounts included in accounts payable were immaterial
for all periods presented. During July 1999, the Company acquired a majority
ownership of Selectica, India. See Note 8 for further details.
12. BENEFIT PLAN
Effective February 1998, the Company adopted a tax-deferred savings plan,
the Selectica 401(k) Plan (the 401(k) Plan), for the benefit of qualified
employees. The 401(k) Plan is designed to provide employees with an accumulation
of funds at retirement. Qualified employees may elect to make contributions to
the 401(k) Plan on a monthly basis. The 401(k) Plan does not require the Company
to make any contributions. No contributions were made by the Company for the
years ended March 31, 1998 and 1999 and the six month periods ended September
30, 1998 and 1999. Administrative expenses relating to the 401(k) Plan are
insignificant.
13. SUBSEQUENT EVENTS
1999 Employee Stock Purchase Plan
On November 18, 1999, the Company's Board of Directors approved, subject to
shareholder approval, the adoption of the 1999 Employee Stock Purchase Plan (the
Purchase Plan). A total of 1,000,000 shares of common stock has been reserved
for issuance under the Purchase Plan. On each February 15, starting in 2001, the
number of shares will be automatically increased by the lesser of 2% of then
outstanding shares of common stock or 1,000,000 shares. Each offering period
will consist
F-24
<PAGE> 98
SELECTICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1998 IS UNAUDITED)
of four consecutive purchase periods of six months duration. The initial
offering period is expected to begin on the effective date of this offering and
ends on February 14, 2002.
The Purchase Plan permits eligible employees to purchase common stock
through payroll deductions, which may not exceed 15% of an employee's
compensation, at a price equal to the lower of 85% of the fair market value of
the Company's common stock at the beginning of each offering period or at the
end of each purchase period. Employees who work more than five months per year
and more than twenty hours per week are eligible to participate in the Purchase
Plan. Stockholders who own more than 5% of outstanding common stock are excluded
from participating in the Purchase Plan. Each eligible employee is limited to
purchase no more than 750 shares per purchase date (1,500 per year) and no more
than $25,000 of stock per calendar year. If not terminated earlier, the Purchase
Plan has a term of twenty years.
1999 Equity Incentive Plan
On November 18, 1999, the Company's Board of Directors approved, subject to
shareholder approval, the 1999 Equity Incentive Plan (the Equity Incentive
Plan). A total of 2,200,000 shares of common stock has been reserved under the
Equity Incentive Plan. On each January 1, starting in 2001, the number of shares
will be automatically increased by the lesser of 5% of then outstanding shares
or 1,800,000. The Equity Incentive Plan includes Incentive Stock Options,
Nonstatutory Stock Options, Stock Appreciation Rights, Shares of Restricted
Stock, and Stock Units. All employees, nonemployee directors, and consultants
are eligible to participate in the Equity Incentive Plan. Each eligible
participant is limited to being granted 330,000 shares per year, except in the
first year of employment where the limit is 660,000 shares. The Equity Incentive
Plan has a term of 10 years.
Notes Receivable From Stockholders
During October and November 1999, in consideration for the issuance of the
Company's common stock, various key employees executed promissory notes in the
principal amount of $2,012,500. The notes bear interest at the rate of 6.02% per
annum and are due and payable four years from the date of the issuance. The
notes are full recourse, and in addition, each of the employees has pledged the
common stock, 1,075,000 shares of common stock in aggregate, as collateral to
secure the obligations under the notes.
Reincorporation
In October 1999, the Board of Directors approved the Company's
reincorporation in the state of Delaware, and the designation of common stock
and preferred stock with $0.0001 par value per share. In addition, the Company's
Certificate of Incorporation will be amended to authorize 75,000,000 shares of
common stock, and 25,000,000 shares of undesignated preferred stock upon
reincorporation.
The Board of Directors has the authority, without action by the
stockholders, to designate and issue the preferred stock in one or more series
and to fix the rights, preferences, privileges and related restrictions,
including dividend rights, dividend rates, conversion rights, voting rights,
terms of redemption, redemption prices, liquidation preferences and the number
of shares constituting any
F-25
<PAGE> 99
SELECTICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1998 IS UNAUDITED)
series or the designation of the series. The accompanying consolidated financial
statements have been retroactively restated to give effect to the
reincorporation.
Initial Public Offering
In October 1999 the Board of Directors approved the filing of a
Registration Statement with the Securities and Exchange Commission permitting
the Company to sell common stock to the public. Upon completion of the initial
public offering the Company's Certificate of Incorporation will be amended to
authorize 150,000,000 shares of common stock and 10,000,000 shares of preferred
stock.
Equity Transactions
During October 1999, the Company issued 1,503,452 shares of Series E
convertible preferred stock to various investors, including related parties of
the Company for gross proceeds of $6,588,127. These shares were issued at $4.382
per share while the deemed fair value of our preferred stock at that date
approximated $7.70. The Company will record approximately $4.8 million of
charges related to cheap stock valuation in the third quarter of fiscal 2000. Of
this amount approximately $1.0 million will be accounted for as a dividend to
stockholders in the fourth quarter and the remaining amount will be amortized
over a two year period in connection with a development agreement with one of
the investors.
In September 1999, the Company entered into a porting agreement with an
investor whereby the investor and the Company will work to port the current
suite of ACE products to additional platforms. In connection with the porting
agreement the Company committed to issuing warrants to purchase 57,000 shares of
Series E convertible preferred stock.Terms of the warrants will be detailed when
the warrant agreements are issued. The warrants will be issued in the third
quarter of fiscal 2000 and will be valued using the Black-Scholes valuation
model. The value of the warrants will be expensed over the life of the porting
agreement, approximately 2 years.
In October 1999, the Company entered into a license agreement with a
customer and in connection with the agreement committed to the issuance of a
warrant to purchase 800,000 shares of common stock. The warrant is vested when
certain performance criteria are met and will have an exercise price of the
lesser of $13 or the initial public offering price of the Company. The value of
the warrants will be determined based upon a Black-Scholes valuation model.
F-26
<PAGE> 100
Inside Back Cover
[DESCRIPTION OF ARTWORK
At the top of the page is the name "Selectica" with the company's logo to
the left of it. The following caption is beneath the name of the company and
its logo: "The Internet Selling System Company."
In the upper middle portion of the page is the following text: "Selectica
Delivers Internet Selling Systems and Services to these Global Companies."
Beneath the text is a broad, shaded arrow pointing downward.
Beneath the arrow are our customers' logos.
Beneath the logos, at the bottom of the page is the following text:
"Selectica is enabling companies in a wide range of industries to adopt
electronic business strategies for selling their complex products and
services."]
<PAGE> 101
[Selectica Logo]
<PAGE> 102
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table presents 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 fees.
<TABLE>
<S> <C>
SEC Registration fee........................................ $19,800
NASD fee.................................................... 8,000
Nasdaq National Market listing fee..........................
Printing and engraving expenses.............................
Legal fees and expenses.....................................
Accounting fees and expenses................................
Blue sky fees and expenses..................................
Custodian and transfer agent fees...........................
Miscellaneous fees and expenses.............................
-------
Total............................................. $
=======
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law authorizes a court to
award or a corporation's board of directors to grant indemnification to
directors and officers in terms sufficiently broad to permit indemnification
under limited circumstances for liabilities, including reimbursement for
expenses incurred, arising under the Securities Act of 1933, as amended (the
"Securities Act"). Article VI, Section 6.1 of our bylaws provides for mandatory
indemnification of our directors, officers and employees to the maximum extent
permitted by the Delaware General Corporation Law. Our Certificate of
Incorporation provides that, under Delaware law, our officers and directors
shall not be liable for monetary damages for breach of the officers' or
directors' fiduciary duty as officers or directors to our stockholders and us.
This provision in the Certificate of Incorporation does not eliminate the
officers' or directors' fiduciary duty, and in appropriate circumstances,
equitable remedies like injunctive or other forms of non-monetary relief will
remain available under Delaware law. In addition, each officer or director will
continue to be subject to liability for breach of the officer's or director's
duty of loyalty to us for acts or omissions not in good faith or involving
intentional misconduct, for knowing violations of law, for actions leading to
improper personal benefit to the officer or director and for payment of
dividends or approval of stock repurchases or redemptions that are unlawful
under Delaware law. The provision also does not affect an officer's or
director's responsibilities under any other law, such as the federal securities
laws or state or federal environmental laws. We have entered into
indemnification agreements with our officers and directors, a form of which is
attached as Exhibit 10.1 and incorporated by reference. The indemnification
agreements provide our officers and directors with further indemnification to
the maximum extent permitted by the Delaware General Corporation Law. Reference
is made to Section 7 of the underwriting agreement contained in Exhibit 1.1 to
this prospectus, indemnifying officers and directors of ours against limited
liabilities.
II-1
<PAGE> 103
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since June 1996, we have issued and sold the following securities:
1. We granted direct issuances or stock options to purchase 5,770,035
shares of our common stock at exercise prices ranging from $0.10 to $4.38
per share to employees, consultants, directors and other service providers
under our 1996 Stock Plan.
2. We issued and sold an aggregate of 3,180,019 shares of our common
stock to employees, consultants, and other service providers for aggregate
consideration of approximately $2,332,406 under direct issuances or
exercises of options granted under our 1996 Stock Plan.
3. In July 1996, we issued and sold 1,500,000 shares of our Series A
Preferred Stock for an aggregate purchase price of approximately $137,501
to Rajen Jaswa under a stock purchase agreement.
4. In July 1996, we issued an aggregate of 2,700,000 shares of our
common stock to Dr. Sanjay Mittal in exchange for 3,250,000 shares of
Catalogics and past services.
5. In October 1996, we issued 200,000 shares of our Series A
Preferred Stock and 89,900 shares of our common stock to Vasudev Bhandarkar
in exchange for the fixed assets of Alma Enterprises.
6. In January 1997, we issued and sold 3,750,000 shares of our Series
B Preferred Stock for an aggregate purchase price of approximately
$1,001,330 to a group of investors under a stock purchase agreement.
7. From July 24, 1997 through October 1, 1997, we issued and sold
3,253,126 shares of our Series C Preferred Stock for an aggregate purchase
price of approximately $2,999,382 to a group of investors under a stock
purchase agreement.
8. On April 17, 1998 we issued a warrant to purchase 32,609 shares of
our Series C Preferred Stock with an exercise price of $0.92 per share to
Imperial Bank. The warrant was subsequently amended on July 1, 1998 to be
exercisable for 20,408 shares of our Series D Preferred Stock with an
exercise price of $1.47 per share.
9. From June 17, 1998 through July 27, 1998 we issued and sold
4,863,935 shares of our Series D Preferred Stock for an aggregate purchase
price of approximately $7,149,984 to a group of investors under a stock
purchase agreement.
10. On February 11, 1999, we issued a warrant to purchase 187,129
shares of our Series E Preferred Stock with an exercise price of up to
$4.38 per share to Deutsche Bank Securities. Upon consummation of the
initial public offering, we will terminate the warrant unless it is
previously exercised in accordance with its terms.
11. On May 14, 1999, we issued warrants to purchase 15,000 shares of
our Series E Preferred Stock with an exercise price of $4.38 per share to a
group of investors under a note and warrant purchase agreement. On November
15, 1999, two holders exercised their respective warrants to purchase an
aggregate of 5,250 shares of Series E Preferred Stock. Upon consummation of
the initial public offering, we will terminate the remaining warrants
unless they are previously exercised in accordance with their terms.
12. From June 16, 1999 through October 12, 1999 we issued and sold
6,141, 646 shares of our Series E Preferred Stock for an aggregate purchase
price of approximately $26,912,693 to a group of investors under a stock
purchase agreement.
II-2
<PAGE> 104
The sale of the above securities was deemed to be exempt from registration
under the Securities Act in reliance upon Section 4(2) of the Securities Act or
Regulation D promulgated thereunder, or Rule 701 promulgated under Section 3(b)
of the Securities Act as transactions by an issuer not involving any public
offering or transactions under compensation benefit plans and contracts relating
to compensation as provided under Rule 701. The recipients of securities in each
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 and appropriate legends were affixed to the share certificates
issued in these transactions. All recipients had adequate access, through their
relationships with us, to information about us.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
1.1* Form of Underwriting Agreement.
3.1* Amended and Restated Certificate of Incorporation of the
Registrant.
3.2* Form of Second Amended and Restated Certificate of
Incorporation to be filed immediately following the closing
of the offering made under this Registration Statement.
3.3* Bylaws of the Registrant.
4.1* Reference is made to Exhibits 3.1, 3.2 and 3.3.
4.2* Form of Registrant's Common Stock certificate.
4.3 Amended and Restated Investor Rights Agreement dated June
16, 1999.
4.4 Warrant to Purchase Stock between the Registrant and
Imperial Bank, dated April 17, 1998; First Amendment to
Warrant between the Registrant and Imperial Bank, dated July
1, 1998.
5.1* Opinion of Gunderson Dettmer Stough Villeneuve Franklin &
Hachigian, LLP.
10.1* Form of Indemnification Agreement.
10.2 1996 Stock Plan.
10.3 1999 Employee Stock Purchase Plan.
10.4 1999 Equity Incentive Plan.
10.5 Lease between Spieker Properties L.P. and the Registrant,
dated December 8, 1997.
10.6 Lease between John Arrilliga Survivors Trust and the Richard
T. Perry Separate Property Trust as Landlord and the
Registrant as Tenant, dated October 1, 1999.
10.7+* Major Account License Agreement between the Registrant and
Fujitsu Network Communications, dated November 4, 1998.
10.8+* Agreement for Web Site Design and Development Service
between the Registrant and BMW of North America, dated July
15, 1998.
10.9+* Major Account License Agreement between the Registrant and
the Fireman's Fund Insurance Company, dated June 24, 1999.
10.10+* Major Account License Agreement between the Registrant and
LoanMarket Resources, dated June 30, 1999.
10.11+* Major Account License Agreement between the Registrant and
Aspect Telecommunications, dated May 17, 1999.
10.12+* A Consulting Engagement Proposal from the Registrant to
3Com, dated July 29, 1999.
10.13+* A Consulting Engagement Proposal from the Registrant to
3Com, dated August 10, 1999.
10.14 Employment Agreement between the Registrant and Rajen Jaswa
dated as of July 1, 1997.
10.15 Employment Agreement between the Registrant and Dr. Sanjay
Mittal dated as of July 1, 1997.
10.16 Offer letter from the Registrant to Stephen Bennion dated as
of September 16, 1999.
10.17 Offer letter from the Registrant to Daniel A. Carmel dated
as of July 23, 1999.
</TABLE>
II-3
<PAGE> 105
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
23.1 Consent of Ernst & Young LLP, independent auditors.
23.2* Consent of Counsel. Reference is made to Exhibit 5.1.
24.1 Power of Attorney. Reference is made to page II-5.
27.1 Financial Data Schedule.
</TABLE>
- ---------------
* To be filed by amendment.
+ Confidential treatment requested.
ITEM 17. UNDERTAKINGS
We undertake to provide to the underwriters at the closing specified in the
underwriting agreement, certificates in the denominations and registered in the
names as required by the underwriters to permit prompt delivery to each
purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant under the Delaware General Corporation Law, the Certificate of
Incorporation or our bylaws, the underwriting agreement, or otherwise, we have
been advised that in the opinion of the Securities and Exchange Commission this
indemnification is against public policy as expressed in the Securities Act, and
is, therefore, unenforceable. In the event that a claim for indemnification
against these liabilities, other than the payment by us of expenses incurred or
paid by a director, officer, or controlling person of ours in the successful
defense of any action, suit or proceeding, is asserted by a director, officer or
controlling person in connection with the securities being registered in this
offering, we will, unless in the opinion of our counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question of whether this indemnification by us is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of this issue.
We undertake that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by us under Rule 424(b)(1) or (4) or 497(h) under
the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered, and the offering of these securities at that time shall be deemed
to be the initial bona fide offering.
(b) The following financial schedule is filed with this registration
statement:
Schedule II -- Valuation and Qualifying Accounts
II-4
<PAGE> 106
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of San Jose, State of
California, on this 10th day of December, 1999.
SELECTICA, INC.
By: /s/ RAJEN JASWA
---------------------------------------
Rajen Jaswa
Chief Executive Officer and President
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each individual whose signature
appears below constitutes and appoints Rajen Jaswa and Stephen Bennion, and each
of them, his or her true and lawful attorneys-in-fact and agents with full power
of substitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to sign any registration
statement for the same offering covered by this Registration Statement that is
to be effective on filing pursuant to Rule 462(b) promulgated under the
Securities Act of 1933, and all post-effective amendments thereto, and to file
the same, with all exhibits thereto and all documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he or she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or his or her or their substitute
or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons on behalf
of the Registrant and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ RAJEN JASWA Chief Executive Officer, President December 10, 1999
- --------------------------------------- (Principal Executive Officer) and
Rajen Jaswa Chairman of the Board
/s/ SANJAY MITTAL Chief Technology Officer, Vice December 10, 1999
- --------------------------------------- President Engineering and Director
Sanjay Mittal
/s/ STEPHEN BENNION Chief Financial Officer (Principal December 10, 1999
- --------------------------------------- Financial and Accounting Officer)
Stephen Bennion
/s/ BETSY S. ATKINS Director December 10, 1999
- ---------------------------------------
Betsy S. Atkins
/s/ ROBIN RICHARDS DONOHOE Director December 10, 1999
- ---------------------------------------
Robin Richards Donohoe
</TABLE>
II-5
<PAGE> 107
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ MICHAEL LYONS Director December 10, 1999
- ---------------------------------------
Michael Lyons
/s/ THOMAS NEUSTAETTER Director December 10, 1999
- ---------------------------------------
Thomas Neustaetter
/s/ JOHN FISHER Director December 10, 1999
- ---------------------------------------
John Fisher
</TABLE>
II-6
<PAGE> 108
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNT
SELECTICA, INC.
SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
BALANCE ADDITIONS
AS OF CHARGED TO BALANCE AS
BEGINNING COSTS AND OF END
DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS OF PERIOD
----------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Year ended March 31, 1997
Deducted from asset accounts:
Allowance for doubtful accounts........... $ -- $ -- $ -- $ --
Year ended March 31, 1998
Deducted from asset accounts:
Allowance for doubtful accounts........... $ -- $ 29,750 $ -- $ 29,750
Year ended March 31, 1999
Deducted from asset accounts:
Allowance for doubtful accounts........... $ 29,750 $ 74,250 $ -- $104,000
Six months ended September 30, 1999
Deducted from asset accounts:
Allowance for doubtful accounts........... $104,000 $150,000 $ -- $254,000
</TABLE>
<PAGE> 109
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
1.1* Form of Underwriting Agreement.
3.1* Amended and Restated Certificate of Incorporation of the
Registrant.
3.2* Form of Second Amended and Restated Certificate of
Incorporation to be filed immediately following the closing
of the offering made under this Registration Statement.
3.3* Bylaws of the Registrant.
4.1* Reference is made to Exhibits 3.1, 3.2 and 3.3.
4.2* Form of Registrant's Common Stock certificate.
4.3 Amended and Restated Investor Rights Agreement dated June
16, 1999.
4.4 Warrant to Purchase Stock between the Registrant and
Imperial Bank, dated April 17, 1998; First Amendment to
Warrant between the Registrant and Imperial Bank, dated July
1, 1998.
5.1* Opinion of Gunderson Dettmer Stough Villeneuve Franklin &
Hachigian, LLP.
10.1* Form of Indemnification Agreement.
10.2 1996 Stock Plan.
10.3 1999 Employee Stock Purchase Plan.
10.4 1999 Equity Incentive Plan.
10.5 Lease between Spieker Properties L.P. and the Registrant,
dated December 8, 1997.
10.6 Lease between John Arrilliga Survivors Trust and the Richard
T. Perry Separate Property Trust as Landlord and the
Registrant as Tenant, dated October 1, 1999.
10.7+* Major Account License Agreement between the Registrant and
Fujitsu Network Communications, Inc., dated November 4,
1998.
10.8+* Agreement for Web Site Design and Development Service
between the Registrant and BMW of North America, Inc., dated
July 15, 1998.
10.9+* Major Account License Agreement between the Registrant and
the Fireman's Fund Insurance Company, dated June 24, 1999.
10.10+* Major Account License Agreement between the Registrant and
LoanMarket Resources, LLC., dated June 30, 1999.
10.11+* Major Account License Agreement between the Registrant and
Aspect Telecommunications, dated May 17, 1999.
10.12+* A Consulting Engagement Proposal from the Registrant to
3Com, dated July 29, 1999.
10.13+* A Consulting Engagement Proposal from the Registrant to
3Com, dated August 10, 1999.
10.14 Employment Agreement between the Registrant and Rajen Jaswa
dated as of July 1, 1997.
10.15 Employment Agreement between the Registrant and Dr. Sanjay
Mittal dated as of July 1, 1997.
10.16 Offer letter from the Registrant to Stephen Bennion dated as
of September 16, 1999.
10.17 Offer letter from the Registrant to Daniel A. Carmel dated
as of July 23, 1999.
23.1 Consent of Ernst & Young LLP, independent auditors.
23.2* Consent of Counsel. Reference is made to Exhibit 5.1.
24.1 Power of Attorney. Reference is made to page II-5.
27.1 Financial Data Schedule.
</TABLE>
- ---------------
* To be filed by amendment.
+ Confidential treatment requested.
<PAGE> 1
EXHIBIT 4.3
SELECTICA, INC.
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
JUNE 16, 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. Registration Rights....................................................2
1.1 Definitions................................................2
1.2 Request for Registration...................................2
1.3 Company Registration.......................................4
1.4 Obligations of the Company.................................4
1.5 Furnish Information........................................5
1.6 Expenses of Demand Registration............................5
1.7 Expenses of Company Registration...........................5
1.8 Underwriting Requirements..................................6
1.9 Delay of Registration......................................6
1.10 Indemnification...........................................6
1.11 Reports Under Securities Exchange Act of 1934.............8
1.12 Form S-3 Registration.....................................9
1.13 Assignment of Registration Rights........................10
1.14 "Market Stand-Off" Agreement.............................10
1.15 Termination of Registration Rights.......................11
1.16 Limitations on Subsequent Registration Rights............11
2. Covenants of the Company..............................................11
2.1 Delivery of Financial Statements..........................11
2.2 Termination of Covenants..................................12
2.3 Participation Right.......................................12
2.4 Employee Agreements.......................................13
2.5 Observer Right............................................13
2.6 Pro Rata Repurchase.......................................14
2.7 Most Favored Status.......................................14
3. Miscellaneous.........................................................14
3.1 Successors and Assigns....................................14
3.2 Governing Law.............................................14
3.3 Counterparts..............................................14
3.4 Titles and Subtitles......................................15
3.5 Notices...................................................15
3.6 Expenses..................................................15
3.7 Amendments and Waivers....................................15
3.8 Severability..............................................15
3.9 Aggregation of Stock......................................15
3.10 Entire Agreement.........................................15
SCHEDULE A - Schedule of Investors
</TABLE>
i
<PAGE> 3
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
THIS INVESTOR RIGHTS AGREEMENT is made as of the 16th day
of June, 1999, by and between Selectica, Inc., a California
corporation (the "Company") and the investors listed on the Schedule of
Investors attached as Schedule A hereto, each of which is herein referred to as
an "Investor."
RECITALS
WHEREAS, the Company and certain of the Investors are
parties to a certain Investor Rights Agreement dated June 17, 1998 (the "Prior
Rights Agreement"), pursuant to which such Investors received rights to cause
the Company to register shares of its Common Stock issuable to such Investors
and certain other matters as set forth therein;
WHEREAS, the Company and certain of the Investors are
parties to a certain Series B Preferred Stock Purchase Agreement dated January
29, 1997 (the "Series B Agreement"), pursuant to which the Company issued to
certain of the Investors shares of the Company's Series B Preferred Stock (the
"Series B Preferred Stock");
WHEREAS, the Company and certain of the Investors are
parties to a certain Series C Preferred Stock Purchase Agreement dated July 24,
1997 (the "Series C Agreement"), pursuant to which the Company issued to certain
of the Investors shares of the Company's Series C Preferred Stock (the "Series C
Preferred Stock");
WHEREAS, the Company and certain of the Investors are
parties to a certain Series D Preferred Stock Purchase Agreement of date June
17, 1998 (the "Series D Agreement"), pursuant to which the Company issued to
certain of the Investors shares of the Company's Series D Preferred Stock (the
"Series D Preferred Stock");
WHEREAS, the Company and certain of the Investors are
parties to a certain Series E Preferred Stock Purchase Agreement dated as of the
date hereof (the "Series E Agreement"), pursuant to which the Company is issuing
shares to certain of the Investors of the Company's Series E Preferred Stock
(the "Series E Preferred Stock");
WHEREAS, in order to induce the Company to enter into the
Series E Agreement and to induce certain of the Investors to invest funds in the
Company pursuant to the Series E Agreement, the Investors and the Company desire
to amend and restate the Prior Rights Agreement to include the Series E
Preferred Stock within the definition of "Registrable Securities" (as defined in
the Prior Rights Agreement);
WHEREAS, the Prior Rights Agreement may be amended with the
written consent of the Company, the holders of a majority of the outstanding
Registrable Securities and each investor holding at least 900,000 shares of
Series A, Series B, Series C; Series D or Series E Preferred Stock (the
"Preferred Stock"); and
<PAGE> 4
WHEREAS, the Company and the holders of a majority of the
outstanding Registrable Securities and each Investor holding at least 900,000
shares of Preferred Stock are parties hereto.
NOW, THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Registration Rights. The Company covenants and agrees as
follows:
1.1 Definitions. For purposes of this Section 1:
(a) The term "register," "registered," and
"registration" refer to a registration effected by preparing and filing a
registration statement or similar document in compliance with the Securities Act
of 1933, as amended (the "Act"), and the declaration or ordering of
effectiveness of such registration statement or document;
(b) The term "Registrable Securities" means (1)
the Common Stock of the Company issuable or issued upon conversion of the
Preferred Stock issued pursuant to the Series B Agreement, Series C Agreement,
Series D Agreement or Series E Agreement, and (2) any 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, such Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock or Series E
Preferred Stock;
(c) The number of shares of "Registrable
Securities then outstanding" shall be determined by the number of shares of
Common Stock then outstanding, and the number of shares of Common Stock issuable
pursuant to then exercisable or convertible securities, that are Registrable
Securities;
(d) The term "Initial Public Offering" means the
initial sale of the Company's Common Stock in a firmly underwritten public
offering of Common Stock pursuant to a registration statement under the Act,
with aggregate proceeds to the Company of at least $25,000,000 and a per share
purchase price of at least $6.573 per share (as adjusted for stock splits,
combinations, stock dividends, recapitalizations and the like);
(e) The term "Holder" means any person owning or
having the right to acquire Registrable Securities or any assignee thereof in
accordance with Section 1.13 hereof; and
(f) 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.
1.2 Request for Registration.
(a) If the Company shall receive at any time after
the earlier of (i) an Initial Public Offering or (ii) the second anniversary
after the date hereof, a written request
2
<PAGE> 5
from the Holders of at least thirty-five percent (35%) of the Registrable
Securities then outstanding, that the Company file a registration statement
under the Act for a public offering in which the aggregate proceeds from the
offering would exceed $7,500,000, then the Company shall, within twenty (20)
days of the receipt thereof, give written notice of such request to all Holders
and shall, subject to the limitations of subsection 1.2(b) hereof, effect as
soon as practicable, and in any event shall use its best efforts to effect
within one hundred twenty (120) 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 3.5 hereof.
(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 1.2
and the Company shall include such information in the written notice referred to
in subsection 1.2(a) hereof. The underwriter will be selected by a majority in
interest of the Initiating Holders and shall be reasonably acceptable to the
Company. In such event, the right of any Holder to include its Registrable
Securities in such registration shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting (unless otherwise mutually agreed by
a majority in interest of the Initiating Holders and such Holder) to the extent
provided herein. All Holders proposing to distribute their securities through
such underwriting shall (together with the Company as provided in subsection
1.4(e) hereof) enter into an underwriting agreement in customary form with the
underwriter or underwriters selected for such underwriting by a majority in
interest of the Initiating Holders. Notwithstanding any other provision of this
Section 1.2, if the underwriter advises the Initiating Holders in writing that
marketing factors require a limitation of the number of shares to be
underwritten, then the Initiating Holders shall so advise all Holders of
Registrable Securities 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; provided, however,
that the number of shares of Registrable Securities to be included in such
underwriting shall not be reduced unless all other securities are first entirely
excluded from the underwriting.
(c) The Company is obligated to effect only two
(2) such registrations pursuant to this Section 1.2.
(d) Notwithstanding the foregoing, if the Company
shall furnish to Holders requesting a registration statement pursuant to this
Section 1.2, a certificate signed by the President of the Company stating that
in the good faith judgment of the Board of Directors of the Company, it would be
seriously detrimental to the Company and its 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 taking action
with respect to such filing for a period of not more than ninety (90) days after
receipt of the request of the Initiating Holders. This right shall not be
utilized more than once in any twelve month period.
3
<PAGE> 6
1.3 Company Registration. If (but without any
obligation to do so) the Company proposes to register (including for this
purpose a registration effected by the Company for shareholders other than the
Holders) any of its stock or other securities under the Act in connection with a
public offering of such securities solely for cash (other than a registration
relating solely to the sale of securities to participants in a Company stock
plan, or a registration on any form which does not include substantially the
same information as would be required to be included in a registration statement
covering the sale of the Registrable Securities), the Company shall, at such
time, promptly give each Holder written notice of such registration. Upon the
written request of each Holder given within twenty (20) days after mailing of
such notice by the Company in accordance with Section 3.5 hereof, the Company
shall, subject to the provisions of Section 1.8 hereof, cause to be registered
under the Act all of the Registrable Securities that each such Holder has
requested to be registered ("Piggyback Rights"). No shareholder of the Company
shall be granted Piggyback Rights superior to the rights in this Section 1.3
without the prior consent of Holders holding at least a majority of the then
outstanding Registrable Securities.
1.4 Obligations of the Company. Whenever required under
this Section 1 to effect the registration of any Registrable Securities, the
Company shall, as expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration
statement with respect to such Registrable Securities and use its best efforts
to cause such registration statement to become effective, and, upon the request
of the Holders of a majority of the Registrable Securities registered
thereunder, keep such registration statement effective for up to one hundred
twenty (120) days.
(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(s) of such
offering. Each Holder participating in such underwriting shall also enter into
and perform its obligations under such an agreement.
4
<PAGE> 7
(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.
1.5 Furnish Information.
(a) It shall be a condition precedent to the
obligations of the Company to take any action pursuant to this Section 1 with
respect to the Registrable Securities of any selling Holder that such Holder
shall furnish to the Company such information regarding itself, the Registrable
Securities held by it, and the intended method of disposition of such securities
as shall be required to effect the registration of such Holder's Registrable
Securities.
(b) The Company shall have no obligation with
respect to any registration requested pursuant to Section 1.12 hereof if, due to
the operation of subsection 1.5(a), the number of shares or the anticipated
aggregate offering price of the Registrable Securities to be included in the
registration does not equal or exceed the number of shares or the anticipated
aggregate offering price required to originally trigger the Company's obligation
to initiate such registration as specified in subsection 1.12(b)(2).
1.6 Expenses of Demand Registration. All expenses other
than underwriting discounts and commissions incurred in connection with
registrations, filings or qualifications pursuant to Section 1.2 hereof,
including (without limitation) all registration, filing and qualification fees,
printers' and accounting fees, fees and disbursements of counsel for the
Company, and the reasonable fees and disbursements of one counsel for the
selling Holders shall be borne by the Company; provided, however, that the
Company shall not be required to pay for any expenses of any registration
proceeding begun pursuant to Section 1.2 hereof if the registration request is
subsequently withdrawn at the request of the Holders of a majority of the
Registrable Securities to be registered (in which case all participating Holders
shall bear such expenses), unless the Holders of a majority of the Registrable
Securities agree to forfeit their right to one demand registration pursuant to
Section 1.2 hereof; provided further, however, that if at the time of such
withdrawal, the Holders have learned of a material adverse change in the
condition or business 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 full rights pursuant to Section 1.2 hereof.
1.7 Expenses of Company Registration. The Company shall
bear and pay all expenses incurred in connection with any registration, filing,
or qualification of Registrable Securities with respect to the registrations
pursuant to Section 1.3 hereof for each Holder, 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 hereunder, but excluding underwriting discounts and
commissions relating to the Registrable Securities
5
<PAGE> 8
1.8 Underwriting Requirements. In connection with any
offering involving an underwriting of shares of the Company's capital stock, the
Company shall not be required under Section 1.3 hereof to include any of the
Holders' securities in such underwriting unless they accept the terms of the
underwriting as agreed upon between the Company and the underwriters selected by
it (or by other persons entitled to select the underwriters), and then only in
such quantity as the underwriters determine in their sole discretion will not
jeopardize the success of the offering by the Company. If the total amount of
securities, including Registrable Securities, requested by shareholders to be
included in such offering exceeds the amount of securities sold other than by
the Company that the underwriters determine in their sole discretion is
compatible with the success of the offering, then the Company shall be required
to include in the offering only that number of such securities, including
Registrable Securities, which the underwriters determine in their sole
discretion will not jeopardize the success of the offering (the securities so
included to be apportioned pro rata among the selling 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 the amount of securities of
the selling Holders included in the offering be reduced below twenty-five
percent (25%) of the total amount of securities requested by each such selling
Holders to be included in such offering, unless such offering is the Company's
Initial Public Offering in which case the selling shareholders may be excluded
if the underwriters make the determination described above. For purposes of the
preceding sentence concerning apportionment, for any selling shareholder which
is a holder of Registrable Securities and which is a partnership or corporation,
the partners, retired partners, and shareholders 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.
1.9 Delay of Registration. No Holder shall have any
right to obtain or seek an injunction restraining or otherwise delaying any such
registration as the result of any controversy that might arise with respect to
the interpretation or implementation of this Section 1.
1.10 Indemnification. In the event any Registrable
Securities are included in a registration statement under this Section 1:
(a) To the extent permitted by law, the Company
will indemnify and hold harmless each Holder, any underwriter (as defined in the
Act) for such Holder and each person, if any, who controls such Holder or
underwriter within the meaning of the Act or the 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,
or 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
6
<PAGE> 9
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, or the 1934 Act or any state securities law; and the
Company will pay to each such Holder, underwriter or controlling person, as
incurred, any legal or other expenses reasonably incurred by them in connection
with investigating or defending any such loss, claim, damage, liability, or
action; provided, however, that the indemnity agreement contained in this
subsection 1.10(a) shall not apply to amounts paid in settlement of any such
loss, claim, damage, liability, or action if such settlement is effected without
the consent of the Company (which consent shall not be unreasonably withheld),
nor shall the Company be liable in any such case for any such loss, claim,
damage, liability, or action to the extent that it arises out of or is based
upon a Violation 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) To the extent permitted by law, each selling
Holder, severally and not jointly, 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, or the 1934 Act, or other federal or state law, insofar as such losses,
claims, damages, or liabilities (or actions in respect thereto) arise out of or
are based upon any Violation, in each case to the extent (and only to the
extent) that such Violation occurs in reliance upon and in conformity with
written information furnished by such Holder expressly for use in connection
with such registration; and each such Holder will pay, as incurred, any legal or
other expenses reasonably incurred by any person intended to be indemnified
pursuant to this subsection 1.10(b), in connection with investigating or
defending any such loss, claim, damage, liability, or action; provided, however,
that the indemnity agreement contained in this subsection 1.10(b) shall not
apply to amounts paid in settlement of any such loss, claim, damage, liability
or action if such settlement is effected without the consent of the Holder,
which consent shall not be unreasonably withheld. Each Selling Holder's
indemnity obligations under this Agreement shall be limited to an amount not to
exceed the amount of net proceeds received by such Selling Holder in such
offering.
(c) Promptly after receipt by an indemnified party
under this Section 1.10 of notice of the commencement of any action (including
any governmental action), such indemnified party will, if a claim in respect
thereof is to be made against any indemnifying party under this Section 1.10,
deliver to the indemnifying party a written notice of the commencement thereof
and the indemnifying party shall have the right to participate in, and, to the
extent the indemnifying party so desires, jointly with any other indemnifying
party similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party
(together with all other indemnified parties which may be represented without
conflict by one counsel) shall have the right to retain one separate counsel,
with the fees and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due
7
<PAGE> 10
to actual or potential differing interests between such indemnified party and
any other party represented by such counsel in such proceeding. The failure to
deliver written notice to the indemnifying party within a reasonable time of the
commencement of any such action, if prejudicial to its ability to defend such
action, shall relieve such indemnifying party of any liability to the
indemnified party under this Section 1.10, but the omission so to deliver
written notice to the indemnifying party will not relieve it of any liability
that it may have to any indemnified party otherwise than under this Section
1.10. The indemnifying party shall not be liable for any settlement of any
proceeding without its written consent or, in the alternative, without full
release of its liability.
(d) If the indemnification provided for in this
Section 1.10 is held by a court of competent jurisdiction to be unavailable to
an indemnified party with respect to any loss, liability, claim, damage, or
expense referred to therein, then the indemnifying party, in lieu of
indemnifying such indemnified party hereunder, shall contribute to the amount
paid or payable by such indemnified party as a result of such loss, liability,
claim, damage, or expense in such proportion as is appropriate to reflect the
relative fault of the indemnifying party on the one hand and of the indemnified
party on the other in connection with the statements or omissions that resulted
in such loss, liability, claim, damage, or expense as well as any other relevant
equitable considerations. The relative fault of the indemnifying party and of
the indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement or omission.
(e) Notwithstanding the foregoing, to the extent
that the provisions on indemnification and contribution contained in the
underwriting agreement entered into in connection with the underwritten public
offering are in conflict with the foregoing provisions, the provisions in the
underwriting agreement shall control.
(f) The obligations of the Company and Holders
under this Section 1.10 shall survive the completion of any offering of
Registrable Securities in a registration statement under this Section 1, and
otherwise.
1.11 Reports Under Securities Exchange Act of 1934.
With a view to making available to the Holders the benefits of Rule 144
promulgated under the Act and any other rule or regulation of the SEC that may
at any time permit a Holder to sell securities of the Company to the public
without registration or pursuant to a registration on Form S-3, the Company
agrees to:
(a) make and keep public information available, as
those terms are understood and defined in SEC Rule 144, at all times after
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;
8
<PAGE> 11
(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.
1.12 Form S-3 Registration. In case the Company shall
receive from any Holder or Holders of at least ten percent (10%) of the
Registrable Securities then outstanding a written request or requests that the
Company effect a registration on Form S-3 and any related qualification or
compliance with respect to all or a part of the Registrable Securities owned by
such Holder or Holders, the Company will:
(a) promptly give written notice of the proposed
registration, and any related qualification or compliance, to all other Holders;
and
(b) as soon as practicable, effect such
registration and all such qualifications and compliances as may be so requested
and as would permit or facilitate the sale and distribution of all or such
portion of such Holder's or Holders' Registrable Securities as are specified in
such request, together with all or such portion of the Registrable Securities of
any other Holder or Holders joining in such request as are specified in a
written request given within 15 days after receipt of such written notice from
the Company; provided, however, that the Company shall not be obligated to
effect any such registration, qualification or compliance, pursuant to this
Section 1.12: (1) if Form S-3 is not available for such offering; (2) if the
Holders, together with the holders of any other securities of the Company
entitled to inclusion in such registration, propose to sell Registrable
Securities and such other securities (if any) at an aggregate price to the
public (net of any underwriters' discounts or commissions) of less than
$2,000,000; (3) if the Company shall furnish to the Holders a certificate signed
by the President of the Company stating that in the good faith judgment of the
Board of Directors of the Company, it would be seriously detrimental to the
Company and its 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 sixty (60)
days after receipt of the request of the Holder or Holders under this Section
1.12; provided,
9
<PAGE> 12
however, that the Company shall not utilize this right more than once in any
twelve-month period; (4) if the Company has already effected two registrations
on Form S-3 for the Holders pursuant to this Section 1.12 within the prior
twelve-month period; or (5) 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 1.12, 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, but excluding any underwriters'
discounts or commissions associated with Registrable Securities, shall be borne
by the Company. Registrations effected pursuant to this Section 1.12 shall not
be counted as demands for registration or registrations effected pursuant to
Sections 1.2 or 1.3, respectively.
1.13 Assignment of Registration Rights. The rights to
cause the Company to register Registrable Securities pursuant to this Section 1
may be assigned (but only with all related obligations) by a Holder to a
transferee or assignee of such securities who, after such assignment or
transfer, (a) holds at least 100,000 shares of Registrable Securities (subject
to appropriate adjustment for stock splits, stock dividends, combinations, and
other recapitalizations) (or a lesser number if all such shares held by the
transferor or assignor are being transferred), (b) the transfer is to any
relative of the transferor or a trust for the benefit of the transferor, (c) the
transfer is in connection with a transfer of all of the securities of the
transferor, (d) the transfer involves an aggregate of at least 100,000 shares of
Registrable Securities or (e) the transferees are constituent partners or
shareholders who agree to act through a single representative, 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. Such
assignment shall be effective only if immediately following such transfer the
further disposition of such securities by the transferee or assignee is
restricted under the Act. For the purposes of determining the number of shares
of Registrable Securities held by a transferee or assignee, the holdings of
transferees and assignees of a partnership who are partners or retired partners
of such partnership (including spouses and ancestors, lineal descendants, and
siblings of such partners or spouses who acquire Registrable Securities by gift,
will, or intestate succession) shall be aggregated together and with the
partnership; provided that all assignees and transferees who would not qualify
individually for assignment of registration rights shall have a single
attorney-in-fact for the purpose of exercising any rights, receiving notices, or
taking any action under this Section 1.
1.14 "Market Stand-Off" Agreement. Each of the
Investors hereby agrees that, during the period of duration (not to exceed 180
days) specified by the Company and an underwriter of Common Stock or other
securities of the Company, following the effective date of the Initial Public
Offering of Company securities, it shall not, to the extent requested by the
Company and such underwriter, directly or indirectly, sell, offer to sell,
contract to sell
10
<PAGE> 13
(including, without limitation, any short sale), grant any option to purchase or
otherwise transfer or dispose of (other than to donees who agree to be similarly
bound) any securities of the Company held by it at any time during such period
except Common Stock included in such registration; provided, however, that all
officers, directors, entities that are affiliates of any director and any
shareholder owning at least 5% of the outstanding shares of the Company enter
into similar agreements.
In order to enforce the foregoing covenant, the Company
may impose stop-transfer instructions with respect to the Registrable Securities
of Investor (and the shares or securities of every other person subject to the
foregoing restriction) until the end of such period.
1.15 Termination of Registration Rights. No Holder
shall be entitled to exercise any rights provided for in this Section 1 after
the fifth (5th) anniversary of the closing of the Company's Initial Public
Offering or if such Holder's shares of Registrable Securities held or entitled
to be held upon conversion by such Holder may immediately be sold under Rule 144
during any 90-day period.
1.16 Limitations on Subsequent Registration Rights.
From and after the date of this Agreement, the Company shall not, without the
prior written consent of the Investors holding at least 75% of the outstanding
Registrable Securities held by the Investors, enter into any agreement with any
holder or prospective holder of any securities of the Company which would allow
such holder or prospective holder to include such securities in any registration
filed under Section 1.2 hereof, unless under the terms of such agreement, such
holder or prospective holder may include such securities in any such
registration only to the extent that the inclusion of his securities will not
reduce the amount of the Registrable Securities of the Holders which is
included.
2. Covenants of the Company.
2.1 Delivery of Financial Statements. The Company shall
furnish the following information to each Holder.
(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 and
statement of shareholder's equity as of the end of such year, and a statement of
cash flows for such year, such year-end financial reports to be in reasonable
detail, prepared in accordance with generally accepted accounting principles
("GAAP") and audited by nationally recognized independent accountants;
(b) within forty-five (45) days of the end of each
quarter, an unaudited income statement and statement of cash flows and balance
sheet for and as of the end of such quarter, in reasonable detail; and
The information provided pursuant to this subsection 2.1
shall be used by each Holder or any permitted assignee of each Holder solely in
furtherance of its interests as an investor in the Company, and such Holder and
any permitted assignee of such Holder shall
11
<PAGE> 14
maintain the confidentiality of all information of the Company obtained under
this subsection 2.1, unless such information (i) was known by such Holder or
permitted assignee prior to its disclosure to them by the Company, (ii) is
disclosed to such Holder or permitted assignee without restriction as a matter
of right by a third party not affiliated with or working for the Company, or
(iii) has become publicly available through no fault of such Investor or
permitted assignee. Notwithstanding the foregoing, a Holder may disclose, if
applicable, (i) to Holder's general and limited partners, or (ii) Holder's Board
of Directors or executive officers such information provided that such general
or limited partners, or such Board of Directors or executive officers agree to
be bound by the terms of this Section 2.1.
2.2 Termination of Covenants. The covenants set forth
in this Section 2 shall terminate and be of no further force or effect following
the Company's Initial Public Offering, when the Company first becomes subject to
the periodic reporting requirements of Sections 12(g) or 15(d) of the 1934 Act,
or upon any action which results in the sale conveyance or other disposition or
encumbrance of all or substantially all of the Company's property or business or
a merger transactions in which 50% or more of the voting power is disposed of
whichever event shall first occur.
2.3 Participation Right. Subject to the terms and
conditions specified in this Section 2.3, the Company hereby grants to each
Investor holding at least 200,000 shares of Registrable Securities (a "Major
Investor") a participation right with respect to future sales by the Company of
its Shares (as hereinafter defined). Each Major Investor shall be entitled to
the participation right based on its pro rata ownership of the Company's
securities determined by multiplying the number of shares of Common Stock issued
and issuable upon conversion of the Preferred Stock held by such Investor by a
fraction, the numerator of which is the number of shares of Common Stock issued
and issuable upon conversion of the Preferred Stock held by such Major Investor
and the denominator of which is the number of shares of Common Stock then
outstanding (including shares issuable upon conversion of the then issued and
outstanding shares of Preferred Stock). Each time the Company proposes to offer
any shares of, or securities convertible into or exercisable for any shares of,
any class of its capital stock ("Shares"), the Company shall first make an
offering of such Shares to each Major Investor in accordance with the following
provisions:
(a) The Company shall deliver a notice ("Notice")
to the Investor stating (i) its bona fide intention to offer such Shares, (ii)
the number of such Shares to be offered, and (iii) the price and terms, if any,
upon which it proposes to offer such Shares.
(b) Within 15 calendar days after receipt of the
Notice, each Major Investor may elect to purchase or obtain, at the price and on
the terms specified in the Notice, up to that portion of such Shares 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 Major
Investor bears to the total number of shares of Common Stock of the Company then
outstanding (assuming full conversion and exercise of all outstanding
convertible and exercisable securities).
12
<PAGE> 15
(c) If all Shares which a Major Investor is
entitled to obtain pursuant to subsection 2.3(b) hereof are not elected to be
obtained as provided in subsection 2.3(b) hereof, the Company may, during the
120-day period following the expiration of the period provided in subsection
2.3(b) hereof, offer the remaining unsubscribed portion of such Shares to any
person or persons at a price not less than, and upon terms no more favorable to
the offeree than those specified in the Notice. If the Company does not enter
into an agreement for the sale of the Shares within such period, or if such
agreement is not consummated within 30 days of the execution thereof, the right
provided hereunder shall be deemed to be revived and such Shares shall not be
offered unless first reoffered to the Major Investors in accordance herewith.
(d) The participation right in this paragraph 2.3
shall not be applicable (i) to the prior or future issuance or sale of shares of
Common Stock or options therefor at fair market value (not including shares of
Common Stock acquired by the Company pursuant to any forfeiture provision, right
of repurchase or right of first refusal) to Company employees, directors,
officers, agents or consultants for the primary purpose of soliciting or
retaining their employment or services, (ii) the issuance of up to 5,705,124
shares of Series E Preferred Stock pursuant to the Series E Agreement, (iii) the
issuance of securities in connection with or after consummation of the Company's
Initial Public Offering, (iv) the issuance of securities to investment bankers
or pursuant to corporate or strategic partnerships or alliances approved by a
two-thirds (2/3) vote of the Board of Directors, (v) the issuance of Common
Stock pursuant to the conversion of the Preferred Stock, (vi) the issuance of
securities in connection with a bona fide business acquisition of or by the
Company, whether by merger, consolidation, sale of assets, sale or exchange of
stock, or otherwise alliances approved by a two-thirds (2/3) vote of the Board
of Directors, (vii) the issuance of securities to lenders or lessors in
connection with a bona fide loan or lease financing approved by two-thirds (2/3)
of the Board of Directors, and (viii) the issuance of securities pursuant to the
conversion or exercise of convertible or exercisable securities the original
issuance of which was subject to or exempt from this Section 2.3.
2.4 Employee Agreements. Unless otherwise approved by
the Board of Directors of the Company, all future employees of the Company who
shall purchase (other than by exercise of stock options), or receive options to
purchase, shares of the Company's Common Stock following the date hereof shall
be required to execute stock purchase or option agreements providing for (i)
vesting of shares over a four-year period with the first 25% of such shares
vesting following twelve (12) months of continued employment or services, and
the remaining shares vesting thereafter at the rate of 1/36 at the end of each
month until all of the shares are vested, and (ii) a Company right of
repurchase, at cost, to any unvested shares.
2.5 Observer Rights. The Company grants to Chatterjee
Group and its affiliated entities ("Chatterjee") and to JK&B Capital III,
L.P.and its affiliated entities ("JK&B"), provided that JK&B owns between twenty
five percent (25%) and seventy five percent (75%) of the Series E Preferred
Stock purchased pursuant to the Series E Preferred Stock Purchase Agreement of
even date herewith, the right to each designate one designee (each an "Invited
Attendee") to attend regular meetings of the Company's Board of Directors. Such
Invited Attendees shall receive notice of meetings of the Board of Directors.
JK&B and Chatterjee shall
13
<PAGE> 16
inform the Company of the identity of their respective Invited Attendee no later
than three (3) days prior to a Board meeting, and each shall use its best
efforts not to substitute a different Invited Attendee. Any Invited Attendee,
JK&B and Chatterjee agree to hold in confidence and trust and to act in a
fiduciary manner with respect to all information received from the Company by
any Invited Attendee. Further, the Company reserves the right to withhold any
information and to exclude any such Invited Attendee from any meeting or portion
thereof if access to such information or attendance at such meeting could
adversely affect the attorney-client privilege between the Company and its
counsel or would result in disclosure of trade secrets to such Invited Attendee,
JK&B or Chatterjee is in direct competition with the Company.
2.6 Pro Rata Repurchase. In the event that the Company
desires to repurchase shares of Preferred Stock from a Major Investor, the
Company shall first notify each Major Investor of such intent to repurchase
Preferred Stock and offer each such Major Investor an opportunity to participate
in such repurchase and sell shares of Preferred Stock to the Company in an
amount equal to its pro rata ownership of the Company's securities determined by
multiplying the number of shares of Preferred Stock held by such Major Investor
by a fraction, the numerator of which is the number of shares of Preferred Stock
held by such Major Investor and the denominator of which is the number of shares
of Preferred Stock held by all Major Investors.
2.7 Most Favored Status. The Company shall not in the
future grant any rights that are, in the good faith judgment of the Company's
Board of Directors, more favorable than those granted to the Major Investors
under this Agreement, unless (i) the Company has obtained the prior written
consent of a majority in interest of the Investors, or (ii) such superior rights
are also granted to the each of the Major Investors.
3. Miscellaneous.
3.1 Successors and Assigns. Except as otherwise
provided herein, the terms and conditions of this Agreement shall inure to the
benefit of and be binding upon the respective successors and assigns of the
parties (including transferees of any shares of Registrable Securities). Nothing
in this Agreement, express or implied, is intended to confer upon any party
other than the parties hereto or their respective successors and assigns any
rights, remedies, obligations, or liabilities under or by reason of this
Agreement, except as expressly provided in this Agreement.
3.2 Governing Law. This Agreement shall be governed by
and construed under the laws of the State of California as applied to agreements
among California residents entered into and to be performed entirely within
California.
3.3 Counterparts. This Agreement may be executed in two
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
14
<PAGE> 17
3.4 Titles and Subtitles. The titles and subtitles used
in this Agreement are used for convenience
only and are not to be considered in construing or interpreting this Agreement.
3.5 Notices. Unless otherwise provided, any notice
required or permitted under this Agreement shall be given in writing and shall
be deemed effectively given upon (i) personal delivery to the party to be
notified, (ii) five (5) days following deposit with the United States Post
Office, by registered or certified mail, postage prepaid and addressed to the
party to be notified at the address indicated for such party on the signature
page hereof, or at such other address as such party may designate by ten (10)
days' advance written notice to the other parties, or (iii) facsimile with
confirmed receipt.
3.6 Expenses. If any action at law or in equity is
necessary to enforce or interpret the terms of this Agreement, the prevailing
party shall be entitled to reasonable attorneys' fees, costs, and necessary
disbursements in addition to any other relief to which such party may be
entitled.
3.7 Amendments and Waivers. Except as provided in
Section 2.7 of this Agreement, any term of this Agreement may be amended and the
observance of any term of this Agreement may be waived (either generally or in a
particular instance and either retroactively or prospectively), only with (i)
the written consent of the Company, (ii) the holders of a majority of the
Registrable Securities then outstanding and held by the Investors, and (iii)
each Investor (together with its affiliated Investors) holding either at least
900,000 shares of Preferred Stock or at least 400,000 shares of Series E
Preferred Stock. Each Investor acknowledges and agrees that any amendment or
waiver effected in accordance with this paragraph shall be binding upon all
holders of any Registrable Securities, each future holder of all such
Registrable Securities, and the Company, whether or not such holder in fact
consented to such amendment or waiver.
3.8 Severability. If one or more provisions of this
Agreement are held to be unenforceable under applicable law, such provision
shall be excluded from this Agreement and the balance of the Agreement shall be
interpreted as if such provision were so excluded and shall be enforceable in
accordance with its terms.
3.9 Aggregation of Stock. All shares of Registrable
Securities held or acquired by affiliated entities or persons shall be
aggregated together for the purpose of determining the availability of any
rights under this Agreement. The term Investor shall include any general
partners or affiliates of the Investor.
3.10 Entire Agreement. This Agreement constitutes the
full and entire understanding and agreement between the parties with regard to
the subjects hereof and thereof.
15
<PAGE> 18
IN WITNESS WHEREOF, the parties have executed this Investor
Rights Agreement as of the date first above written.
SELECTICA, INC.
By: /s/ RAJ JASWA
-------------------------------------
Raj Jaswa
President and Chief Executive Officer
Address: 2890 Zanker Road, Suite 101
San Jose, CA 95134
SERIES B HOLDERS:
RAJ JASWA
By: /s/ RAJ JASWA
--------------------------------------
Raj Jaswa
Address: 2890 Zanker Road, Suite 101
San Jose, CA 95134
SIGNATURE PAGE TO SELECTICA, INC.
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
<PAGE> 19
JK&B CAPITAL III, LP
By: JK&B Capital L.L.C.
Its: General Partner
By: /s/ THOMAS M. NEUSTAETTER
-------------------------------------
Member Thomas M. Neustaetter
Address: 205 North Michigan Avenue
Suite 808
Chicago, Illinois 60601
SIGNATURE PAGE TO SELECTICA, INC.
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
<PAGE> 20
INVESTORS
Name of Investor ___________________________
By: /s/ MICHAEL C. NEUS
-------------------------------------
MICHAEL C. NEUS
(signature)
Title: ATTORNEY-IN-FACT
----------------------------------
(if applicable)
Address: [ILLEGIBLE]
-----------------------------------------
-----------------------------------------
SIGNATURE PAGE TO SELECTICA, INC.
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
<PAGE> 21
SERIES C INVESTORS:
DRAPER FISHER ASSOCIATES FUND IV
By: /s/ JOHN FISHER
-------------------------------------
John Fisher
Managing Director
Address: 400 Seaport Court, Suite 250
Redwood City, CA 94063
DRAPER FISHER PARTNERS FUND IV
By: /s/ JOHN FISHER
------------------------------------
Name: John Fisher
----------------------------------
Title:
---------------------------------
Address: 400 Seaport Court, Suite 250
Redwood City, CA 94063
SIGNATURE PAGE TO SELECTICA, INC.
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
<PAGE> 22
INTERCONTINENTAL VENTURES LLC
By: /s/ STEPHEN ROY
------------------------------------
Stephen Roy
Address: 350 Lincoln Place, Suite 111
Hingham, MA 02043
SIGNATURE PAGE TO SELECTICA, INC.
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
<PAGE> 23
WINSTON PARTNERS II LLC
By: CHATTERJEE ADVISORS LLC
Its Manager
Address:
------------------------------------
------------------------------------
WINSTON PARTNERS L.P.
By: CHATTERJEE FUND MANAGEMENT, L.P.
Its General Partner
By: /s/ PETER HURWITZ, Manager
-----------------------------------
Peter Hurwitz
Attorney in Fact
Address: 888 Seventh Avenue, Suite 3000
New York, NY 10106
SIGNATURE PAGE TO SELECTICA, INC.
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
<PAGE> 24
DRAPER INTERNATIONAL INDIA, L.P.
By: DRAPER INTERNATIONAL MANAGEMENT L.P.,
as General Partner
By: DRAPER INTERNATIONAL MANAGEMENT L.P.,
as General Partner
By: /s/ WILLIAM H. DRAPER III
-----------------------------------
William H. Draper III
Manager
Address: 50 California Street, Suite 2925
San Francisco, CA 94111
SIGNATURE PAGE TO SELECTICA, INC.
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
<PAGE> 25
JOHN FISHER
By: /s/ JOHN FISHER
-----------------------------------
John Fisher
Address: Draper Fisher Jurvetson
400 Seaport Court, Suite 250
Redwood City, CA 94063
SIGNATURE PAGE TO SELECTICA, INC.
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
<PAGE> 26
TIMOTHY DRAPER LIVING TRUST
By: /s/ TIMOTHY DRAPER
-----------------------------------
Timothy Draper
Address: Draper Fisher Jurvetson
400 Seaport Court, Suite 250
Redwood City, CA 94063
HERBERT FISHER FAMILY TRUST
By:
-----------------------------------
Herbert Fisher
Address: Draper Fisher Jurvetson
400 Seaport Court, Suite 250
Redwood City, CA 94063
SIGNATURE PAGE TO SELECTICA, INC.
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
<PAGE> 27
TRICAP INTERNATIONAL, LLC.
By: /s/ BIDYUT SEN
-----------------------------------
Bidyut Sen
Address: Lexam Capital LLC.
888 7th Avenue, Suite 3000
New York, NY 10106
SIGNATURE PAGE TO SELECTICA, INC.
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
<PAGE> 28
5S VENTURES, LLC.
By: /s/ K.B. CHANDRASEKHAR
-----------------------------------
K.B. Chandrasekhar
Address: 21591 Regnart Road
Cupertino, CA 95014
SIGNATURE PAGE TO SELECTICA, INC.
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
<PAGE> 29
INVESTORS
Name of Investor MEDICAL-TECHNICAL GASSES
-------------------------
By: [ILLEGIBLE]
--------------------------------------
(signature)
Title: PRESIDENT
-----------------------------------
(if applicable)
Address: 20 HALL ST.
------------------------------------------
MEDFORD, MA 02155
------------------------------------------
SIGNATURE PAGE TO SELECTICA, INC.
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
<PAGE> 30
By: /s/ POLLY DRAPER
------------------------------------
Polly Draper
Address: Draper Fisher Jurvetson
400 Seaport Court, Suite 250
Redwood City, CA 94063
By: /s/ KAREN MOSTES-WITHROW
------------------------------------
Karen Mostes-Withrow
Address: Draper Fisher Jurvetson
400 Seaport Court, Suite 250
Redwood City, CA 94063
By: /s/ STEVEN JURVETSON
------------------------------------
Steven Jurvetson
Address: Draper Fisher Jurvetson
400 Seaport Court, Suite 250
Redwood City, CA 94063
By: /s/ ANDREAS STAUROPOULOS
-----------------------------------
Andreas Stauropoulos
Address: Draper Fisher Jurvetson
400 Seaport Court, Suite 250
Redwood City, CA 94063
SIGNATURE PAGE TO SELECTICA, INC.
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
<PAGE> 31
BETSY S. ATKINS
By: /s/ BETSY S. ATKINS
-----------------------------------
Betsy S. Atkins
Address: 6979 Sunrise Drive
Coral Gables, FL 33133
SIGNATURE PAGE TO SELECTICA, INC.
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
<PAGE> 32
By: /s/ RAJESH POPLI
-----------------------------------
Rajesh Popli
By: /s/ SUDHA POPLI
-----------------------------------
Sudha Popli
Address: 3032 Briggs Court
Pleasanton, CA 94588
SIGNATURE PAGE TO SELECTICA, INC.
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
<PAGE> 33
By: /s/ RAM PAUL GUPTA
----------------------------------
Ram Paul Gupta
Address: 15000 Blue Gun Court
Saratogo, CA 95070
SIGNATURE PAGE TO SELECTICA, INC.
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
<PAGE> 34
FRED FISHER
By: /s/ FRED FISHER
----------------------------------
Fred Fisher
Address: Draper Fisher Jurvetson
400 Seaport Court, Suite 250
Redwood City, CA 94063
SIGNATURE PAGE TO SELECTICA, INC.
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
<PAGE> 35
By: /s/ JAMES A. NICHOLS
----------------------------------
James A. Nichols
Address: 1099 North Cranbrook Road
Bloomfield Hills, MI 48301
SIGNATURE PAGE TO SELECTICA, INC.
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
<PAGE> 36
By: /s/ THOMAS M. NEUSTAETTER
---------------------------------
Thomas M. Neustaetter
Address: 17 Brookside Park
Greenwich, CT 06831
SIGNATURE PAGE TO SELECTICA, INC.
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
<PAGE> 37
INVESTORS
Name of Investor ROOP JAIN
------------------------
By: /s/ ROOP JAIN
-------------------------------------
(signature)
Title:
----------------------------------
(if applicable)
Address: 213 TRAMINER CT.
-----------------------------------------
FREMONT, CA 94539
-----------------------------------------
SIGNATURE PAGE TO SELECTICA, INC.
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
<PAGE> 38
By: /s/ KAILASH C. JOSHI
-------------------------------------
Kailash C. Joshi
Address: 1593 Pebble Beach Court
Milpitas, CA 95035
SIGNATURE PAGE TO SELECTICA, INC.
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
<PAGE> 39
By: /s/ RAJ SANDHU
-------------------------------------
Raj Sandhu
Address: 101 West 67th St. # 47D
New York, NY 10023
212-595-2632
By: /s/ ADAM GRAEV
-------------------------------------
Adam Graev
Address: 525 East 72nd St. Apt. 7B
New York, NY 10021
By: /s/ DILIP ADVANI
-------------------------------------
Dilip Advani
Address: 167 East 61th St. Apt. 17D
New York, NY 10021
By: /s/ PETER HURWITZ
-------------------------------------
Peter Hurwitz
Address: 40 Half Main Lane
-----------------------------------------
Irvington, NY 10533
-----------------------------------------
SIGNATURE PAGE TO SELECTICA, INC.
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
<PAGE> 40
By: /s/ PINAKIN R. PATEL
------------------------------------
Pinakin R. Patel
By: /s/ KALPNA P. PATEL
-----------------------------------
Kalpna P. Patel
Address: 1565-A Mabury Road
San Jose, CA 95133
SIGNATURE PAGE TO SELECTICA, INC.
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
<PAGE> 41
SERIES E INVESTORS:
By: /s/ RAJESH GUPTA
------------------------------------
Rajesh Gupta
By: /s/ RAJNI GUPTA
------------------------------------
Rajni Gupta
Address: 960 Joshua Place
Fremont, CA 94539
SIGNATURE PAGE TO SELECTICA, INC.
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
<PAGE> 42
By: /s/ SATISH K. GUPTA
------------------------------------
Satish K. Gupta
Address: 44864 Vista Del Sol
Fremont, CA 94539
By: /s/ KUMAR PATEL
------------------------------------
Kumar Patel
Address: 20976 Comer Dr.
Saratoga, CA 95070
SIGNATURE PAGE TO SELECTICA, INC.
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
<PAGE> 43
By: /s/ SATISH K. GUPTA
------------------------------------
Satish K. Gupta
Address: 44864 Vista Del Sol
Fremont, CA 94539
SIGNATURE PAGE TO SELECTICA, INC.
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
<PAGE> 44
By: /s/ NIMISH MEHTA
------------------------------------
Nimish Mehta
Address: 26677 Snell Lane
Los Altos Hills, CA 94022
SIGNATURE PAGE TO SELECTICA, INC.
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
<PAGE> 45
A.J. PATEL
By: /s/ A.J. PATEL
------------------------------------
(signature)
Title:
---------------------------------
(if applicable)
Address: 1180 Campbell Avenue
San Jose, CA 95126
SIGNATURE PAGE TO SELECTICA, INC.
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
<PAGE> 46
By: /s/ RAJ MUNI
------------------------------------
Raj Muni
Address: 48021 Warm Springs Blvd.
Fremont, CA 94539
SIGNATURE PAGE TO SELECTICA, INC.
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
<PAGE> 47
By: /s/ W. RUSSELL SCOTT, JR.
------------------------------------
W. Russell Scott, Jr.
Address: 154 Buckskin Drive
Weston, MA 02493
SIGNATURE PAGE TO SELECTICA, INC.
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
<PAGE> 48
INVESTORS
Name of Investor DUNN-CARR AK LLC
------------------------
By: [illegible]
-------------------------------------
(signature)
Title:
----------------------------------
(if applicable)
Address: P.O. BOX 242A
-----------------------------------------
6 FORTHILL LANE
-----------------------------------------
DUXBURY, MA 02331
SIGNATURE PAGE TO SELECTICA, INC.
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
<PAGE> 49
By: /s/ MURRALI RANGARAJAN
------------------------------------
Murrali Rangarajan
Address: 48021 Warm Springs Blvd.
Fremont, CA 94539
SIGNATURE PAGE TO SELECTICA, INC.
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
<PAGE> 50
THE FONSLAD LIVING TRUST
By: /s/ JENNIFER FONSLAD
-----------------------------------
Jennifer Fonslad
Address: Draper Fisher Jurvetson
400 Seaport Court, Suite 250
Redwood City, CA 94063
SIGNATURE PAGE TO SELECTICA, INC.
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
<PAGE> 51
By:
-----------------------------------
Fred Fisher
Address: Draper Fisher Jurvetson
400 Seaport Court, Suite 250
Redwood City, CA 94063
By:
-----------------------------------
John Fisher
Address: Draper Fisher Jurvetson
400 Seaport Court, Suite 250
Redwood City, CA 94063
By: /s/ WARREN PACKARD
-----------------------------------
Warren Packard
Address: Draper Fisher Jurvetson
400 Seaport Court, Suite 250
Redwood City, CA 94063
SIGNATURE PAGE TO SELECTICA, INC.
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
<PAGE> 52
SCHEDULE A
SCHEDULE OF INVESTORS
SERIES B HOLDERS
- ----------------
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
NAME SERIES B PREFERRED STOCK
- ---- ------------------------
<S> <C>
Draper International India, L.P. 2,812,500
Michael Price 375,000
Raj Jaswa 281,250
Betsy S. Atkins 93,750
Alexander Pasik 93,750
Asheem Chandna 56,250
Arun Kumar 18,750
Brad Smith 18,750
---------
TOTALS 3,750,000
=========
</TABLE>
SERIES C HOLDERS
- ----------------
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
NAME SERIES C PREFERRED STOCK
- ---- ------------------------
<S> <C>
Draper Fisher Associates IV 2,269,055
Draper Fisher Partners 170,789
Draper International 542,188
Betsy S. Atkins 81,328
Rajesh Gupta 10,844
Atri Chatterjee 10,844
Kailesh Joshi 10,844
R. David Spreng 13,544
Brad Smith 10,844
Neal Douglas 27,109
Dhunn-Carr LLC 27,109
Nagesh S. Mhatre, Trustee and Shirley Lee Mhatre, Trustee,
Mhatre Living Trust DTD (8/10/88) 10,844
Thomas Rosch 10,844
Ravi Mhatre 5,422
Audrey MacLean and Michael Clair, Trustees FBO Audrey MacLean
and Michael Clair Trust DTD 12/1/90 27,109
Vijay Jaswa 10,844
Jeffrey R. Tollefson 8,133
Anthony S. Daffer 5,422
---------
TOTALS 3,253,116
=========
</TABLE>
S-1
<PAGE> 53
SERIES D HOLDERS
- ----------------
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
NAME SERIES D PREFERRED STOCK
- ---- ------------------------
<S> <C>
Selectica, L.P. 2,448,979
Draper Fisher Associates Fund IV, L.P. 664,285
Draper Fisher Partners IV LLC 50,000
Draper International India, L.P. 510,204
Neal M. Douglas 17,006
Winston Partners II LLC 408,163
Winston Partners LP 612,244
Pinakin R. and Kalpna P. Patel Trust
Agreement dated Jan. 23, 1986 17,006
A. J. Patel 17,006
Arun Kumar 17,006
Sunil and Veen Suri 17,006
Chandna Family Rev. Trust 17,006
Satish Gupta 17,006
Naagesh S. Mhatre, Trustee & Shirley Lee Mhatre,
Trustee, Mhatre Living Trust DTD 8/10/88 17,006
Bruce D. Smith 17,006
---------
TOTALS 4,846,929
=========
</TABLE>
S-2
<PAGE> 54
SERIES E HOLDERS
FIRST CLOSING INVESTORS
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
INVESTOR SERIES E PREFERRED STOCK
- -------- ------------------------
<S> <C>
JK&B Capital II L.P. 1,141,030
Quantum Industrial Partners 684,618
Draper Fisher Associates Fund IV, L.P. 318,347
Intercontinental Venture LLC 228,206
Winston II LLC 216,796
Winston Partners L.P. 216,796
Draper International India L.P. 114,103
John H.N. Fisher 114,103
Timothy Draper Living Trust 114,103
TriCap International LLC 60,000
5S Ventures L.L.C. 57,051
Medical Technical Gasses 46,783
Polly Draper 45,641
Betsy S. Atkins 34,460
Rajesh Popli 34,230
Ram Paul Gupta 25,000
Draper Fisher Partners IV, LLC 23,961
Steven Jurvetson 22,821
Fred Fisher 22,820
James A. Nichols 22,820
Thomas M Neusteatter 22,820
Roop Jain 22,820
Kailash C. Joshi 20,000
Raj Sandhu 15,500
Pinakin R. and Kalpna P. Patel Trust Agreement 11,500
Rajesh and Ranji Gupta 11,410
Kumar Patel 11,410
Satish K. Gupta 11,410
Nimish Mehta 11,410
Ambrish J. Patel 10,000
Raj Muni 10,000
W. Russell Scott, Jr. 5,705
Dunn Carr A.K. 4,564
Murrali Rangarajan 3,500
Peter Hurwitz 3,000
Adam Graev 2,320
Dilip Advani 2,000
The Fonstad Living Trust dated 1,141
March 26, 1999
Andreas Stauropoulos 570
Karen Mostes-Withrow 570
Warren Packard 570
---------
TOTALS 3,725,730
=========
</TABLE>
S-3
<PAGE> 55
SECOND CLOSING INVESTORS
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
INVESTOR SERIES D PREFERRED STOCK
- -------- ------------------------
<S> <C>
Itochu Corporation 114,102
Itochu Technology 45,641
Narpat Bhandari 23,048
Rhubard Investment Club 22,820
Pyare Khanna 22,820
Mohan & Shikha Trikha 12,500
Dinesh Bajaj 12,000
Bhandari Foundation 11,410
Harinder Kohli 11,410
Robert Humes 3,423
Mark Smith 1,711
-------
TOTALS 280,885
=======
</TABLE>
THIRD CLOSING INVESTORS
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
INVESTOR SERIES D PREFERRED STOCK
- -------- ------------------------
<S> <C>
Zilka Venture Partners 228,206
Sunil Surry 22,820
-------
TOTAL 251,026
=======
</TABLE>
S-4
<PAGE> 56
FOURTH CLOSING INVESTORS
<TABLE>
<CAPTION>
SHARES OF SERIES E PREFERRED
INVESTOR STOCK PURCHASED
- -------- ----------------------------
<S> <C>
Galleon Group 285,257
Krishnan Shah Family Partners 45,641
Puna Pareek 12,000
David Kronfeld 11,410
Beth Kronfeld 6,846
Herbert Fisher 5,705
Constance Capone 4,564
Richard Finkelstein 4,564
Tasha Seitz 2,282
Nancy O'Leary 2,282
-------
TOTALS 380,551
=======
</TABLE>
FIFTH CLOSING INVESTORS
<TABLE>
<CAPTION>
SHARES OF SERIES E PREFERRED
INVESTOR STOCK PURCHASED
- -------- ----------------------------
<S> <C>
Intel 64 Fund Operations, LLC 1,141,030
Goel Family Partnership 228,206
Asheem Chandna and Aarti Chandna, as Trustees
of the Chandna Family Revocable Trust of April 13, 1998 22,820
Stephen Bennion 22,820
Shailendra Mathur 22,820
Betsy Atkins 5,705
---------
TOTALS 1,443,401
=========
</TABLE>
S-5
<PAGE> 1
EXHIBIT 4.4
THIS WARRANT AND THE SHARES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED OR
OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT
OR PURSUANT TO RULE 144 OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
CORPORATION AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED.
WARRANT TO PURCHASE STOCK
Corporation: SELECTICA, INC., a California Corporation
Number of Shares: 32,609 (SUBJECT TO SECTION 1.9)*
Class of Stock: SERIES C PREFERRED (SUBJECT TO SECTION 1.9)*
Initial Exercise Price: $0.92 PER SHARE (SUBJECT TO SECTION 1.9)*
Issue Date: APRIL 17, 1998
Expiration Date: APRIL 17, 2003 (Subject to Article 4.1)
THIS WARRANT CERTIFIES THAT, in consideration of the payment of $1.00 and
for other good and valuable consideration, IMPERIAL BANK or registered assignee
("Holder") is entitled to purchase the number of fully paid and nonassessable
shares of the class of securities (the "Shares") of the corporation (the
"Company") at the initial exercise price per Share (the "Warrant Price") all as
set forth above and as adjusted pursuant to Article 2 of this Warrant, subject
to the provisions and upon the terms and conditions set forth of this Warrant.
ARTICLE 1. EXERCISE
1.1 Method of Exercise. Holder may exercise this Warrant by delivering
this Warrant and a duly executed Notice of Exercise in substantially the form
attached as Appendix 1 to the principal office of the Company. Unless Holder is
exercising the conversion right set forth in Section 1.2, Holder shall also
deliver to the Company a check for the aggregate Warrant Price for the Shares
being purchased.
1.2 Conversion Right. In lieu of exercising this Warrant as specified in
Section 1.1, Holder may from time to time convert this Warrant, in whole or in
part, into a number of Shares determined by dividing (a) the aggregate fair
market value of the Shares or other securities otherwise issuable upon exercise
of this Warrant minus the aggregate Warrant Price of such Shares by (b) the
fair market value of one Share. The fair market value of the Shares shall be
determined pursuant to Section 1.5.
1.3 Omitted.
1.4 Omitted.
<PAGE> 2
1.5 Fair Market Value. If the Shares are traded regularly in a public
market, the fair market value of the Shares shall be the closing price of the
Shares (or the closing price of the Company's stock into which the Shares are
convertible) reported for the business day immediately before Holder delivers
its Notice of Exercise to the Company. If the Shares are not regularly traded in
a public market, the Board of Directors of the Company shall determine fair
market value in its reasonable good faith judgment. The foregoing
notwithstanding, if Holder advises the Board of Directors in writing that Holder
disagrees with such determination, then the Company and Holder shall promptly
agree upon a reputable investment banking firm to undertake such valuation. If
the valuation of such investment banking firm is greater than that determined by
the Board of Directors, then all fees and expenses of such investment banking
firm shall be paid by the Company. In all other circumstances, such fees and
expenses shall be paid by Holder.
1.6 Delivery of Certificate and New Warrant. Promptly after Holder
exercises or converts this Warrant, the Company shall deliver to Holder
certificates for the Shares acquired and, if this Warrant has not been fully
exercised or converted and has not expired, a new Warrant representing the
Shares not so acquired.
1.7 Replacement of Warrants. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of loss, theft or destruction, on delivery of an
indemnity agreement reasonably satisfactory in form and amount to the Company
or, in the case of mutilation, or surrender and cancellation of this Warrant,
the Company at its expense shall execute and deliver, in lieu of this Warrant, a
new warrant of like tenor.
1.8 Repurchase on Sale, Merger, or Consolidation of the Company.
1.8.1. "Acquisition". For the purpose of this Warrant, "Acquisition"
means any sale, license, or other disposition of all or substantially all of
the assets (including intellectual property) of the Company, or any
reorganization, consolidation, or merger of the Company where the holders of
the Company's securities before the transaction beneficially own less than 50%
of the outstanding voting securities of the surviving entity after the
transaction.
1.8.2. Assumption of Warrant. If upon the closing of any Acquisition
the successor entity assumes the obligations of this Warrant, then this Warrant
shall be exercisable for the same securities, cash, and property as would be
payable for the Shares issuable upon exercise of the unexercised portion of
this Warrant as if such Shares were outstanding on the record date for the
Acquisition and subsequent closing. The Warrant Price shall be adjusted
accordingly. The Company shall use reasonable efforts to cause the surviving
corporation to assume the obligations of this Warrant.
1.8.3. Nonassumption. If upon the closing of any Acquisition the
successor entity does not assume the obligations of this Warrant and Holder has
not otherwise exercised this Warrant in full, then the unexercised portion of
this Warrant shall be deemed to have been automatically converted pursuant to
Section 1.2 and thereafter Holder shall participate in the Acquisition on the
same terms as other holders of the same class of securities of the Company.
<PAGE> 3
1.8.4. Purchase Right. Notwithstanding the foregoing, at the
election of Holder, the Company shall purchase the unexercised portion of this
Warrant for cash upon the closing of any Acquisition for any amount equal to
(a) the fair market value of any consideration that would have been received by
Holder in consideration of the Shares had Holder exercised the unexercised
portion of this Warrant immediately before the record date for determining the
shareholders entitled to participate in the proceeds of the Acquisition, less
(b) the aggregate Warrant Price of the Shares, but in no event less than zero.
1.9 Adjustment in Underlying Preferred Stock Price and Exercise Price. If
on or before 9/30/98, the Company sells and issues to any investors, preferred
stock with aggregate gross proceeds to the Company of at least $4,000,000, this
Warrant shall concurrent with the issuance of such shares of preferred stock
automatically be adjusted to instead be exercisable for shares of the same
series and class and bearing the same rights, preferences, and privileges, of
such shares of stock, with the Warrant Price hereunder adjusted to equal the
per share purchase price of such stock and the number of such shares subject to
this Warrant adjusted to equal (i) Thirty Thousand Dollars ($30,000), divided
by (ii) such modified per share Warrant Price. If said round of equity does not
close prior to 9/30/98, this Warrant shall concurrent with the issuance of such
shares of preferred stock automatically be adjusted to instead be exercisable
for shares of the same series and class and bearing the same rights,
preferences, and privileges, of such shares of stock, with the Warrant Price
hereunder adjusted to equal the per share purchase price of such stock, and the
number of such shares subject to this Warrant adjusted to equal (i) Sixty
Thousand Dollars ($60,000), divided by (ii) such modified per share Warrant
Price.
ARTICLE 2. ADJUSTMENTS TO THE SHARES.
2.1 Stock Dividends, Splits, Etc. If the Company declares or pays a
dividend on its common stock payable in common stock, or other securities,
subdivides the outstanding common stock into a greater amount of common stock,
then upon exercise of this Warrant, for each Share acquired, Holder shall
receive, without cost to Holder, the total number and kind of securities to
which Holder would have been entitled had Holder owned the Shares of record as
of the date the dividend or subdivision occurred.
2.2 Reclassification, Exchange or Substitution. Upon any
reclassification, exchange, substitution, or other event that results in a
change of the number and/or class of the securities issuable upon exercise or
conversion of this Warrant, Holder shall be entitled to receive, upon exercise
or conversion of this Warrant, the number and kind of securities and property
that Holder would have received for the Shares if this Warrant had been
exercised immediately before such reclassification, exchange, substitution, or
other event. Such an event shall include any automatic conversion of the
outstanding or issuable securities of the Company of the same class or series
as the Shares to common stock pursuant to the terms of the Company's Articles
of Incorporation upon the closing of a registered public offering of the
Company's common stock. The Company or its successor shall promptly issue to
Holder a new Warrant for such new securities or other property. The new Warrant
shall provide for adjustments which shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Article 2 including,
without limitation, adjustments to the Warrant Price and to the number of
securities or property issuable upon exercise of the new Warrant. The
provisions of this Section 2.2 shall similarly apply to successive
reclassification, exchanges, substitutions, or other events.
<PAGE> 4
2.3 Adjustments for Combinations, Etc. If the outstanding Shares are
combined or consolidated, by reclassification or otherwise, into a lesser number
of shares, the Warrant Price shall be proportionately increased.
2.4 Adjustments for Diluting Issuances. The Warrant Price and the
number of Shares issuable upon exercise of this Warrant shall be subject to
adjustment, from time to time, in the manner set forth on Exhibit B, if
attached, in the event of Diluting Issuances (as defined on Exhibit B).
2.5 No Impairment. The Company shall not, by amendment of its
Articles of Incorporation or through a reorganization, transfer of assets,
consolidation, merger, dissolution, issue, or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed under this Warrant by the Company, but
shall at all times in good faith assist in carrying out all the provisions of
this Article 2 and in taking all such action as may be necessary or appropriate
to protect Holder's rights under this Article against impeachment. If the
Company takes any action affecting the Shares or its common stock other than as
described above that adversely affects Holder's rights under this Warrant, the
Warrant Price shall be adjusted downward and the number of Shares issuable upon
exercise of this Warrant shall be adjusted upward in such a manner that the
aggregate Warrant Price of this Warrant is unchanged.
2.6 Certificate as to Adjustments. Upon each adjustment of the
Warrant Price, the Company at its expense shall promptly compute such
adjustment, and furnish Holder with a certificate of its Chief Financial Officer
setting forth such adjustment and the facts upon which such adjustment is based.
The Company shall, upon written request, furnish Holder a certificate setting
forth the Warrant Price in effect upon the date thereof and the series of
adjustments leading to such Warrant Price.
ARTICLE 3. REPRESENTATIONS AND COVENANTS OF THE COMPANY
3.1 Representations and Warranties. The Company hereby represents
and warrants to the Holder as follows:
(a) The initial Warrant Price on the first page of this
Warrant is not greater than the fair market value of the Shares as of the date
of this Warrant.
(b) All Shares which may be issued upon the exercise of the
purchase right represented by this Warrant, and all securities, if any,
issuable upon conversion of the Shares, shall, upon issuance, be duly
authorized, validly issued, fully paid and nonassessable, and free of any liens
and encumbrances except for restrictions on transfer provided for herein or
under applicable federal and state securities laws.
3.2 Notice of Certain Events. If the Company proposes at any time
(a) to declare any dividend or distribution upon its common stock, whether in
cash, property, stock, or other securities and whether or not a regular cash
dividend; (b) to offer for subscription pro rata to the holders of any class or
series of its stock any additional shares of stock of any class or series or
other rights; (c) to effect any reclassification or recapitalization of common
stock; (d) to merge or consolidate with or into any other corporation, or sell,
lease, license, or convey all or substantially all of its assets, or to
liquidate, dissolve or
<PAGE> 5
wind up; or (e) offers holders of registration rights the opportunity to
participate in an underwritten public offering of the company's securities for
cash, the, in connection with each such event, the Company shall give Holder 91)
at lease 20 days prior written notice of the date on which a record will be
taken for such dividend, distribution, or subscription rights (and specifying
the date on which the holders of common stock will be entitled thereto) or for
determining rights to vote, if any, in respect of the matters referred to in (c)
and (d) above; (2) in the case of the matters referred to in (c) and (d) above
at lease 20 days prior written notice of the date when the same will take place
(and specifying the date on which the holders of common stock will be entitled
to exchange their common stock for securities or other property deliverable upon
the occurrence of such event; and (3) in the case of the matter referred to in
(e) above, the same notice as is given to the holders of such registration
rights.
3.3 Information Rights. So long as the Holder holds this Warrant
and/or any of the Shares, the Company shall deliver to the Holder (a) promptly
after mailing, copies of all communiques to the shareholders of the Company,
(b) within ninety (90) days after the end of each fiscal year of the Company,
the annual audited financial statements of the Company certified by independent
public accountants of recognized standing and (c) within forty-five (45) days
after the end of each of the first three quarters of each fiscal year, the
Company's quarterly, unaudited financial statements.
3.4 Omitted.
ARTICLE 4. MISCELLANEOUS.
4.1 Term: Notice of Expiration. This Warrant is exercisable, in
whole or in part, at any time and from time to time on or before the Expiration
Date set forth above. The Company shall give Holder written notice of Holder's
right to exercise this Warrant in the form attached at Appendix 2 not more than
90 days and not less than 30 days before the Expiration Date. If the notice is
not so give, the Expiration Date shall automatically be extended until 30 days
after the date the Company delivers the notice to Holder.
4.2 Legends. This Warrant and the Shares (and the securities
issuable, directly or indirectly, upon conversion of the Shares, if any) shall
be imprinted with a legend in substantially the following form:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED
WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR PURSUANT TO
RULE 144 OR AN OPINION OF COUNSEL. REASONABLY SATISFACTORY TO THE
CORPORATION AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED.
4.3 Compliance with Securities Laws on Transfer. This Warrant and
the Shares issuable upon exercise this Warrant (and the securities issuable,
directly or indirectly, upon conversion of the Shares, if any) may not be
transferred or assigned in whole or in part without compliance with applicable
federal and state securities laws by the transferor and the transferee
(including, without limitation, the delivery of investment representation
letters and legal opinions reasonably satisfactory to the Company). The
<PAGE> 6
Company shall not require Holder to provide an opinion of counsel if the
transfer is to an affiliate of Holder or if there is no material question as to
the availability of current information as referenced in Rule 144(c), Holder
represents that it has complied with Rule 144(d) and (e) in reasonable detail,
the selling broker represents that it has complied with Rule 144(f), and the
Company is provided with a copy of Holder's notice of proposed sale.
4.4 Transfer Procedure. Subject to the provisions of Section 4.2. Holder
may transfer all or part of this Warrant or the Shares issuable upon exercise
of this Warrant (or the securities issuable, directly or indirectly, upon
conversion of the Shares, if any) by giving the Company notice of the portion
of the Warrant being transferred setting forth the name, address and taxpayer
identification number of the transferee and surrendering this Warrant to the
Company for reissuance to the transferee(s) (and Holder, if applicable). Unless
the Company is filing financial information with the SEC pursuant to the
Securities Exchange Act of 1934, the Company shall have the right to refuse to
transfer any portion of this Warrant to any person who directly competes with
the Company.
4.5 Notices. All notices and other communications from the Company to the
Holder, or vice versa, shall be deemed delivered and effective when given
personally or mailed by first-class registered or certified mail, postage
prepaid, at such address as may have been furnished to the Company or the
Holder, as the case may be, in writing by the Company or such Holder from time
to time.
4.6 Waiver. This Warrant and any term hereof may be changed, waived,
discharged or terminated only by an instrument in writing signed by the party
against which enforcement of such change, waiver, discharge or termination is
sought.
4.7 Attorneys' Fees. In the event of any dispute between the parties
concerning the terms and provisions of this Warrant, the party prevailing in
such dispute shall be entitled to collect from the other party all costs
incurred in such dispute, including reasonable attorneys' fees.
4.8 Governing Law. This Warrant shall be governed by and construed in
accordance with the laws of the State of California, without giving effect to
its principles regarding conflicts of law.
SELECTICA, INC.
By: /s/ RAJEN JASWA
----------------------------------
Name: Rajen Jaswa
Title: President
<PAGE> 7
APPENDIX 1
NOTICE OF EXERCISE
1. The undersigned hereby elects to purchase _____ shares of the Series
C Preferred Stock of SELECTICA, INC. pursuant to the terms of the attached
Warrant, and tenders herewith payment of the purchase price of such shares in
full.
1. The undersigned hereby elects to convert the attached Warrant into
Shares/cash [strike one] in the manner specified in the Warrant. This
conversion is exercised with respect to __________ of the Shares covered by the
Warrant.
[Strike paragraph that does not apply]
2. Please issue a certificate or certificates representing said shares
in the name of the undersigned or in such other name as is specified below:
Christine McCarthy
Chief Financial Officer
Controllers Department
Imperial Bank or registered assignee
P.O. Box 92991
Los Angeles, CA 90009
3. The undersigned represents it is acquiring the shares solely for its
own account and not as a nominee for any other party and not with a view toward
the resale or distribution thereof except in compliance with applicable
securities laws.
IMPERIAL BANK or registered assignee
- -------------------------------------------
(Signature)
- -------------------------
(Date)
<PAGE> 8
APPENDIX 2
NOTICE THAT WARRANT IS ABOUT TO EXPIRE
--------------
Christine McCarthy
Chief Financial Officer
Controllers Department
Imperial Bank or registered assignee
P.O. Box 92991
Los Angeles, CA 90009
Dear Gentleperson:
This is to advise you that the Warrant issued to you described below will
expire on April 17, 2003.
Issuer: Selectica, Inc.
Issue Date: April 17, 1998
Class of Security Issuable: Series C Preferred
Exercise Price Per Share: $0.92
Number of Shares Issuable: 32,609
Procedure for Exercise:
Please contact Raj Jaswa at (408) 570-9701 with any questions you may have
concerning exercise of the Warrant. This is your only notice of pending
expiration.
By:
---------------------------
Its:
--------------------------
<PAGE> 9
EXHIBIT A
Omitted
<PAGE> 10
EXHIBIT B
---------
ANTI-DILUTION PROVISIONS
(For Preferred Stock Warrants With Existing Anti-Dilution Protection)
---------------------------------------------------------------------
In the event of the issuance (a "Diluting Issuance") by the Company, after
the Issue Date of the Warrant, of securities at a price per share less than the
Warrant Price, then the number of shares of common stock issuable upon
conversion of the Shares shall be adjusted in accordance with those provisions
(the "Provisions") of the Company's Articles (Certificate) of Incorporation
which apply to Diluting Issuances.
The Company agrees that the Provisions, as in effect on the Issue Date,
shall be deemed to remain in full force and effect during the term of the
Warrant notwithstanding any subsequent amendment, waiver or termination thereof
by the Company's shareholders.
Under no circumstances shall the aggregate Warrant Price payable by the
Holder upon exercise of the Warrant increase as a result of any adjustment
arising from a Diluting Issuance.
<PAGE> 11
EXHIBIT C
---------
Omitted
-------
<PAGE> 12
FIRST AMENDMENT TO WARRANT
This First Amendment to Warrant is entered into as of July 1, 1998 between
Imperial Bank (which, together with any registered transferee, is referred to
herein as "Holder") and Selectica, Inc., a California corporation ("Company").
RECITALS
A. Company has executed that certain Warrant to Purchase Stock dated
April 17, 1998, in favor of Holder (the "Original Warrant").
B. Section 1.9 of the Original Warrant provides that in the event of
certain issuances of stock by the Company, the class, exercise price and number
of shares which may be purchased by Holder pursuant to this Warrant shall be
adjusted.
C. The Company has recently completed an issuance of stock that requires
such an adjustment and the Company and Holder desire to amend the Original
Warrant to reflect the adjustments made to the under Section 1.9 of the
Original Warrant as a result of the issuance of stock by the Company.
AGREEMENT
1. The Warrant is hereby amended as follows:
a. All references in the Warrant to the number of the Shares are
hereby revised from "32,609" to "20,408."
b. All references in the Warrant to the class of the Shares are hereby
revised from "Series C Preferred" to "Series D Preferred."
c. All references in the Warrant to the Initial Exercise Price are
hereby revised from "$0.92" to "$1.47" per share.
2. Except as provided herein, the Original Warrant shall remain
unchanged. All capitalized terms contained herein that are not defined shall
have the meaning ascribed to them in the Original Warrant.
3. This Amendment is effective as of July 1, 1998, and the parties hereby
confirm that the Original Warrant, as amended, is in full force and effect as
of said date.
SELECTICA, INC. "COMPANY"
By: /s/ RAJEN JASWA
--------------------------------
Its: President/CEO
-------------------------------
IMPERIAL BANK "HOLDER"
By:
--------------------------------
Its:
-------------------------------
<PAGE> 1
EXHIBIT 10.2
SELECTICA, INC.
1996 STOCK PLAN
(AMENDED AND RESTATED ON JUNE 16, 1999)
(ADOPTED ON AUGUST 26, 1996)
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
SECTION 1. ESTABLISHMENT AND PURPOSE.................................... 1
SECTION 2. ADMINISTRATION............................................... 1
(a) Committees of the Board of Directors............................ 1
(b) Authority of the Board of Directors............................. 1
(c) Financial Reports............................................... 1
SECTION 3. ELIGIBILITY.................................................. 1
(a) General Rule.................................................... 1
(b) Ten-Percent Shareholders........................................ 1
SECTION 4. STOCK SUBJECT TO PLAN........................................ 2
(a) Basic Limitation................................................ 2
(b) Additional Shares............................................... 2
SECTION 5. TERMS AND CONDITIONS OF AWARDS OR SALES...................... 2
(a) Stock Purchase Agreement........................................ 2
(b) Duration of Offers and Nontransferability of Rights............. 2
(c) Purchase Price.................................................. 3
(d) Withholding Taxes............................................... 3
(e) Restrictions on Transfer of Shares.............................. 3
SECTION 6. TERMS AND CONDITIONS OF OPTIONS.............................. 3
(a) Stock Option Agreement.......................................... 3
(b) Number of Shares................................................ 4
(c) Exercise Price.................................................. 4
(d) Withholding Taxes............................................... 4
(e) Exercisability.................................................. 4
(f) Basic Term...................................................... 4
(g) Nontransferability.............................................. 5
(h) Termination of Service (Except by Death)........................ 5
(i) Leaves of Absence............................................... 5
(j) Death of Optionee............................................... 5
(k) No Rights as a Shareholder...................................... 6
(l) Modification, Extension and Assumption of Options............... 6
(m) Restrictions on Transfer of Shares.............................. 6
SECTION 7. PAYMENT FOR SHARES........................................... 6
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
(a) General Rule.................................................... 6
(b) Surrender of Stock.............................................. 6
(c) Services Rendered............................................... 7
(d) Promissory Note................................................. 7
(e) Exercise/Sale................................................... 7
(f) Exercise/Pledge................................................. 7
SECTION 8. ADJUSTMENT OF SHARES......................................... 7
(a) General......................................................... 7
(b) Mergers and Consolidations...................................... 7
(c) Reservation of Rights........................................... 8
SECTION 9. SECURITIES LAWS.............................................. 8
SECTION 10. NO RETENTION RIGHTS......................................... 8
SECTION 11. DURATION AND AMENDMENTS..................................... 8
(a) Term of the Plan................................................ 8
(b) Right to Amend or Terminate the Plan............................ 9
(c) Effect of Amendment or Termination.............................. 9
SECTION 12. DEFINITIONS................................................. 9
SECTION 13. EXECUTION................................................... 11
</TABLE>
<PAGE> 4
SELECTICA, INC. 1996 STOCK PLAN
SECTION 1. ESTABLISHMENT AND PURPOSE.
The purpose of the Plan is to offer selected individuals an opportunity
to acquire a proprietary interest in the success of the Company, or to increase
such interest, by purchasing Shares of the Company's Stock. The Plan provides
both for the direct award or sale of Shares and for the grant of Options to
purchase Shares. Options granted under the Plan may include Nonstatutory Options
as well as ISOs intended to qualify under Section 422 of the Code.
SECTION 2. ADMINISTRATION.
(a) COMMITTEES OF THE BOARD OF DIRECTORS. The Plan may be administered
by one or more Committees. Each Committee shall consist of two or more members
of the Board of Directors who have been appointed by the Board of Directors.
Each Committee shall have such authority and be responsible for such functions
as the Board of Directors has assigned to it. If no Committee has been
appointed, the entire Board of Directors shall administer the Plan. Any
reference to the Board of Directors in the Plan shall be construed as a
reference to the Committee (if any) to whom the Board of Directors has assigned
a particular function.
(b) AUTHORITY OF THE BOARD OF DIRECTORS. Subject to the provisions of
the Plan, the Board of Directors shall have full authority and discretion to
take any actions it deems necessary or advisable for the administration of the
Plan. All decisions, interpretations and other actions of the Board of Directors
shall be final and binding on all Purchasers, all Optionees and all persons
deriving their rights from a Purchaser or Optionee.
(c) FINANCIAL REPORTS. The Company each year shall furnish to Optionees,
Purchasers and shareholders who have received Stock under the Plan its balance
sheet and income statement, unless such Optionees, Purchasers or shareholders
are key Employees whose duties with the Company assure them access to equivalent
information. Such balance sheet and income statement need not be audited.
SECTION 3. ELIGIBILITY.
(a) GENERAL RULE. Only Employees, Outside Directors and Consultants
shall be eligible for the grant of Options or the direct award or sale of
Shares. Only Employees shall be eligible for the grant of ISOs.
(b) TEN-PERCENT SHAREHOLDERS. An individual who owns more than 10% of
the total combined voting power of all classes of outstanding stock of the
Company, its Parent or any of its Subsidiaries shall not be eligible for
designation as an Optionee or Purchaser unless (i) the Exercise Price is at
least 110% of the Fair Market Value of a Share on the date of grant, (ii) the
Purchase Price (if any) is at least 100% of the Fair Market Value of a Share and
(iii) in the case
<PAGE> 5
of an ISO, such ISO by its terms is not exercisable after the expiration of five
years from the date of grant. For purposes of this Subsection (b), in
determining stock ownership, the attribution rules of Section 424(d) of the Code
shall be applied.
SECTION 4. STOCK SUBJECT TO PLAN.
(a) BASIC LIMITATION. The aggregate number of Shares which may be issued
under the Plan (upon exercise of Options or other rights to acquire Shares)
shall not exceed 5,398,590(1) Shares, subject to adjustment pursuant to Section
8. The number of Shares that are subject to Options or other rights outstanding
at any time under the Plan shall not exceed the number of Shares that then
remain available for issuance under the Plan. The Company, during the term of
the Plan, shall at all times reserve and keep available sufficient Shares to
satisfy the requirements of the Plan.
(b) ADDITIONAL SHARES. In the event that any outstanding Option or other
right for any reason expires or is canceled or otherwise terminated, the Shares
allocable to the unexercised portion of such Option or other right shall again
be available for the purposes of the Plan. In the event that Shares issued under
the Plan are reacquired by the Company pursuant to any forfeiture provision,
right of repurchase or right of first refusal, such Shares shall again be
available for the purposes of the Plan, except that the aggregate number of
Shares which may be issued upon the exercise of ISOs shall in no event exceed
5,398,590 Shares (subject to adjustment pursuant to Section 8).
SECTION 5. TERMS AND CONDITIONS OF AWARDS OR SALES.
(a) STOCK PURCHASE AGREEMENT. Each award or sale of Shares under the
Plan (other than upon exercise of an Option) shall be evidenced by a Stock
Purchase Agreement between the Purchaser and the Company. Such award or sale
shall be subject to all applicable terms and conditions of the Plan and may be
subject to any other terms and conditions which are not inconsistent with the
Plan and which the Board of Directors deems appropriate for inclusion in a Stock
Purchase Agreement. The provisions of the various Stock Purchase Agreements
entered into under the Plan need not be identical.
(b) DURATION OF OFFERS AND NONTRANSFERABILITY OF RIGHTS. Any right to
acquire Shares under the Plan (other than an Option) shall automatically expire
if not exercised by the Purchaser within 30 days after the grant of such right
was communicated to the Purchaser by the Company. Such right shall not be
transferable and shall be exercisable only by the Purchaser to whom such right
was granted.
- --------
(1) Reflects 1,200,000-share increase approved by the Board on April 30,
1997,139,500-share increase approved by the Board on July 23, 1997,
250,000-share increase approved by the Board on December 1, 1998,
500,000-share increase approved by the Board on March 10, 1999,
909,090-share increase approved by the Board on June 16, 1999.
2
<PAGE> 6
(c) PURCHASE PRICE. The Purchase Price of Shares to be offered under the
Plan shall not be less than 85% of the Fair Market Value of such Shares, except
as otherwise provided in Section 3(b). Subject to the preceding sentence, the
Purchase Price shall be determined by the Board of Directors at its sole
discretion. The Purchase Price shall be payable in a form described in Section
7.
(d) WITHHOLDING TAXES. As a condition to the purchase of Shares, the
Purchaser shall make such arrangements as the Board of Directors may require for
the satisfaction of any federal, state, local or foreign withholding tax
obligations that may arise in connection with such purchase.
(e) RESTRICTIONS ON TRANSFER OF SHARES. Any Shares awarded or sold under
the Plan shall be subject to such special forfeiture conditions, rights of
repurchase, rights of first refusal and other transfer restrictions as the Board
of Directors may determine. Such restrictions shall be set forth in the
applicable Stock Purchase Agreement and shall apply in addition to any
restrictions that may apply to holders of Shares generally. Any right to
repurchase Shares at the original Purchase Price (if any) upon termination of
Service shall not lapse less rapidly than the following schedule:
<TABLE>
<CAPTION>
Anniversary of Date Percentage of
of Sale or Award Shares Vested
------------------- -------------
<S> <C>
First 20%
Second 40%
Third 60%
Fourth 80%
Fifth 100%
</TABLE>
Any such repurchase right may be exercised only within 90 days after the
termination of Service for cash or for cancellation of indebtedness incurred in
purchasing the Shares. The repurchase right shall lapse and vesting of all
Shares shall automatically accelerate if (i) the Company is subject to a Change
in Control, (ii) the repurchase right is not assigned to a surviving entity that
employs the Purchaser immediately after the Change in Control and (iii) the
applicable Stock Purchase Agreement does not provide otherwise.
SECTION 6. TERMS AND CONDITIONS OF OPTIONS.
(a) STOCK OPTION AGREEMENT. Each grant of an Option under the Plan shall
be evidenced by a Stock Option Agreement between the Optionee and the Company.
Such Option shall be subject to all applicable terms and conditions of the Plan
and may be subject to any other terms and conditions which are not inconsistent
with the Plan and which the Board of Directors deems appropriate for inclusion
in a Stock Option Agreement. The provisions of the various Stock Option
Agreements entered into under the Plan need not be identical.
3
<PAGE> 7
(b) NUMBER OF SHARES. Each Stock Option Agreement shall specify the
number of Shares that are subject to the Option and shall provide for the
adjustment of such number in accordance with Section 8. The Stock Option
Agreement shall also specify whether the Option is an ISO or a Nonstatutory
Option.
(c) EXERCISE PRICE. Each Stock Option Agreement shall specify the
Exercise Price. The Exercise Price of an ISO shall not be less than 100% of the
Fair Market Value of a Share on the date of grant, and a higher percentage may
be required by Section 3(b). The Exercise Price of a Nonstatutory Option shall
not be less than 85% of the Fair Market Value of a Share on the date of grant,
and a higher percentage may be required by Section 3(b). Subject to the
preceding two sentences, the Exercise Price under any Option shall be determined
by the Board of Directors at its sole discretion. The Exercise Price shall be
payable in a form described in Section 7.
(d) WITHHOLDING TAXES. As a condition to the exercise of an Option, the
Optionee shall make such arrangements as the Board of Directors may require for
the satisfaction of any federal, state, local or foreign withholding tax
obligations that may arise in connection with such exercise. The Optionee shall
also make such arrangements as the Board of Directors may require for the
satisfaction of any federal, state, local or foreign withholding tax obligations
that may arise in connection with the disposition of Shares acquired by
exercising an Option.
(e) EXERCISABILITY. Each Stock Option Agreement shall specify the date
when all or any installment of the Option is to become exercisable. An Option
shall become exercisable at least as rapidly as set forth in the following
schedule:
<TABLE>
<CAPTION>
Anniversary of Percentage of Shares
Date of Option Grant Exercisable
-------------------- --------------------
<S> <C>
First 20%
Second 40%
Third 60%
Fourth 80%
Fifth 100%
</TABLE>
Subject to the preceding sentence, the vesting provisions of any Stock Option
Agreement shall be determined by the Board of Directors at its sole discretion.
All Options shall automatically become exercisable in full if (i) the Company is
subject to a Change in Control, (ii) the Option is not assumed by the surviving
corporation or its parent, (iii) the surviving corporation or its parent does
not substitute its own option for the Option and (iv) the applicable Stock
Option Agreement does not provide otherwise.
(f) BASIC TERM. The Stock Option Agreement shall specify the term of the
Option. The term shall not exceed 10 years from the date of grant, except as
otherwise provided in Section 3(b). Subject to the preceding sentence, the Board
of Directors at its sole discretion shall determine when an Option is to expire.
4
<PAGE> 8
(g) NONTRANSFERABILITY. No Option shall be transferable by the Optionee
other than by beneficiary designation, will or the laws of descent and
distribution. An Option may be exercised during the lifetime of the Optionee
only by the Optionee or by the Optionee's guardian or legal representative. No
Option or interest therein may be transferred, assigned, pledged or hypothecated
by the Optionee during the Optionee's lifetime, whether by operation of law or
otherwise, or be made subject to execution, attachment or similar process.
(h) TERMINATION OF SERVICE (EXCEPT BY DEATH). If an Optionee's Service
terminates for any reason other than the Optionee's death, then the Optionee's
Options shall expire on the earliest of the following occasions:
(i) The expiration date determined pursuant to Subsection (f)
above;
(ii) The date three months after the termination of the
Optionee's Service for any reason other than Disability; or
(iii) The date six months after the termination of the
Optionee's Service by reason of Disability.
The Optionee may exercise all or part of the Optionee's Options at any time
before the expiration of such Options under the preceding sentence, but only to
the extent that such Options had become exercisable before the Optionee's
Service terminated (or became exercisable as a result of the termination) and
the underlying Shares had vested before the Optionee's Service terminated (or
vested as a result of the termination). The balance of such Options shall lapse
when the Optionee's Service terminates. In the event that the Optionee dies
after the termination of the Optionee's Service but before the expiration of the
Optionee's Options, all or part of such Options may be exercised (prior to
expiration) by the executors or administrators of the Optionee's estate or by
any person who has acquired such Options directly from the Optionee by
beneficiary designation, bequest or inheritance, but only to the extent that
such Options had become exercisable before the Optionee's Service terminated (or
became exercisable as a result of the termination) and the underlying Shares had
vested before the Optionee's Service terminated (or vested as a result of the
termination).
(i) LEAVES OF ABSENCE. For purposes of Subsection (h) above, Service
shall be deemed to continue while the Optionee is on a bona fide leave of
absence, if such leave was approved by the Company in writing and if continued
crediting of Service for this purpose is required by the terms of such leave or
by applicable law (as determined by the Company).
(j) DEATH OF OPTIONEE. If an Optionee dies while the Optionee is in
Service, then the Optionee's Options shall expire on the earlier of the
following dates:
(i) The expiration date determined pursuant to Subsection (f)
above;
or
(ii) The date 12 months after the Optionee's death.
5
<PAGE> 9
All or part of the Optionee's Options may be exercised at any time before the
expiration of such Options under the preceding sentence by the executors or
administrators of the Optionee's estate or by any person who has acquired such
Options directly from the Optionee by beneficiary designation, bequest or
inheritance, but only to the extent that such Options had become exercisable
before the Optionee's death or became exercisable as a result of the death. The
balance of such Options shall lapse when the Optionee dies.
(k) NO RIGHTS AS A SHAREHOLDER. An Optionee, or a transferee of an
Optionee, shall have no rights as a shareholder with respect to any Shares
covered by the Optionee's Option until such person becomes entitled to receive
such Shares by filing a notice of exercise and paying the Exercise Price
pursuant to the terms of such Option.
(l) MODIFICATION, EXTENSION AND ASSUMPTION OF OPTIONS. Within the
limitations of the Plan, the Board of Directors may modify, extend or assume
outstanding Options or may accept the cancellation of outstanding Options
(whether granted by the Company or another issuer) in return for the grant of
new Options for the same or a different number of Shares and at the same or a
different Exercise Price. The foregoing notwithstanding, no modification of an
Option shall, without the consent of the Optionee, impair the Optionee's rights
or increase the Optionee's obligations under such Option.
(m) RESTRICTIONS ON TRANSFER OF SHARES. Any Shares issued upon exercise
of an Option shall be subject to such special forfeiture conditions, rights of
repurchase, rights of first refusal and other transfer restrictions as the Board
of Directors may determine. Such restrictions shall be set forth in the
applicable Stock Option Agreement and shall apply in addition to any
restrictions that may apply to holders of Shares generally. Any right to
repurchase Shares at the original Exercise Price upon termination of Service
shall not lapse less rapidly than the schedule set forth in Subsection (e)
above. Any such repurchase right may be exercised only within 90 days after the
termination of Service for cash or for cancellation of indebtedness incurred in
purchasing the Shares. The repurchase right shall lapse and vesting of all
Shares shall automatically accelerate if (i) the Company is subject to a Change
in Control, (ii) the repurchase right is not assigned to a surviving entity that
employs the Optionee immediately after the Change in Control and (iii) the
applicable Stock Option Agreement does not provide otherwise.
SECTION 7. PAYMENT FOR SHARES.
(a) GENERAL RULE. The entire Purchase Price or Exercise Price of Shares
issued under the Plan shall be payable in cash at the time when such Shares are
purchased, except as otherwise provided in this Section 7.
(b) SURRENDER OF STOCK. To the extent that a Stock Option Agreement so
provides, payment may be made all or in part with Shares owned by the Optionee
or the Optionee's representative. Such Shares shall be surrendered to the
Company in good form for transfer and shall be valued at their Fair Market Value
on the date when the Option is exercised. This Subsection (b) shall not apply to
the extent that acceptance of Shares in payment of the Exercise
6
<PAGE> 10
Price would cause the Company to recognize compensation expense with respect to
the Option for financial reporting purposes.
(c) SERVICES RENDERED. At the discretion of the Board of Directors,
Shares may be awarded under the Plan in consideration of services rendered to
the Company, a Parent or a Subsidiary prior to the award.
(d) PROMISSORY NOTE. To the extent that a Stock Option Agreement or
Stock Purchase Agreement so provides, all or a portion of the Exercise Price or
Purchase Price (as the case may be) of Shares issued under the Plan may be paid
with a full-recourse promissory note, provided that (i) the Shares are pledged
as security for payment of the principal amount of the promissory note and
interest thereon and (ii) the interest rate payable under the terms of the
promissory note shall not be less than the minimum rate (if any) required to
avoid the imputation of additional interest under the Code. Subject to the
foregoing, the Board of Directors (at its sole discretion) shall specify the
term, interest rate, amortization requirements (if any) and other provisions of
such note.
(e) EXERCISE/SALE. To the extent that a Stock Option Agreement so
provides, and if Stock is publicly traded, payment may be made all or in part by
the delivery (on a form prescribed by the Company) of an irrevocable direction
to a securities broker approved by the Company to sell Shares and to deliver all
or part of the sales proceeds to the Company in payment of all or part of the
Exercise Price and any withholding taxes.
(f) EXERCISE/PLEDGE. To the extent that a Stock Option Agreement so
provides, and if Stock is publicly traded, payment may be made all or in part by
the delivery (on a form prescribed by the Company) of an irrevocable direction
to pledge Shares to a securities broker or lender approved by the Company, as
security for a loan, and to deliver all or part of the loan proceeds to the
Company in payment of all or part of the Exercise Price and any withholding
taxes.
SECTION 8. ADJUSTMENT OF SHARES.
(a) GENERAL. In the event of a subdivision of the outstanding Stock, a
declaration of a dividend payable in Shares, a declaration of an extraordinary
dividend payable in a form other than Shares in an amount that has a material
effect on the Fair Market Value of the Stock, a combination or consolidation of
the outstanding Stock into a lesser number of Shares, a recapitalization, a
spin-off, a reclassification or a similar occurrence, the Board of Directors
shall make appropriate adjustments in one or more of (i) the number of Shares
available for future grants under Section 4, (ii) the number of Shares covered
by each outstanding Option or (iii) the Exercise Price under each outstanding
Option.
(b) MERGERS AND CONSOLIDATIONS. In the event that the Company is a party
to a merger or consolidation, outstanding Options shall be subject to the
agreement of merger or consolidation. Such agreement, without the Optionees'
consent, may provide for:
7
<PAGE> 11
(i) The continuation of such outstanding Options by the Company
(if the Company is the surviving corporation);
(ii) The assumption of the Plan and such outstanding Options by
the surviving corporation or its parent;
(iii) The substitution by the surviving corporation or its
parent of its own options for such outstanding Options; or
(iv) The payment of a cash settlement for exercisable Options
equal to the difference between the amount to be paid for one Share
under such agreement and the Exercise Price, and the cancellation of
Options not exercised or settled.
(c) RESERVATION OF RIGHTS. Except as provided in this Section 8, an
Optionee or Purchaser shall have no rights by reason of (i) any subdivision or
consolidation of shares of stock of any class, (ii) the payment of any dividend
or (iii) any other increase or decrease in the number of shares of stock of any
class. Any issuance by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall not affect, and
no adjustment by reason thereof shall be made with respect to, the number or
Exercise Price of Shares subject to an Option. The grant of an Option pursuant
to the Plan shall not affect in any way the right or power of the Company to
make adjustments, reclassifications, reorganizations or changes of its capital
or business structure, to merge or consolidate or to dissolve, liquidate, sell
or transfer all or any part of its business or assets.
SECTION 9. SECURITIES LAWS.
Shares shall not be issued under the Plan unless the issuance and
delivery of such Shares comply with (or are exempt from) all applicable
requirements of law, including (without limitation) the Securities Act of 1933,
as amended, the rules and regulations promulgated thereunder, state securities
laws and regulations, and the regulations of any stock exchange or other
securities market on which the Company's securities may then be traded.
SECTION 10. NO RETENTION RIGHTS.
Nothing in the Plan or in any right or Option granted under the Plan
shall confer upon the Purchaser or Optionee any right to continue in Service for
any period of specific duration or interfere with or otherwise restrict in any
way the rights of the Company (or any Parent or Subsidiary employing or
retaining the Purchaser or Optionee) or of the Purchaser or Optionee, which
rights are hereby expressly reserved by each, to terminate his or her Service at
any time and for any reason, with or without cause.
SECTION 11. DURATION AND AMENDMENTS.
(a) TERM OF THE PLAN. The Plan, as set forth herein, shall become
effective on the date of its adoption by the Board of Directors, subject to the
approval of the Company's
8
<PAGE> 12
shareholders. In the event that the shareholders fail to approve the Plan within
12 months after its adoption by the Board of Directors, any grants of Options or
sales or awards of Shares that have already occurred shall be rescinded, and no
additional grants, sales or awards shall be made thereafter under the Plan. The
Plan shall terminate automatically 10 years after its adoption by the Board of
Directors and may be terminated on any earlier date pursuant to Subsection (b)
below.
(b) RIGHT TO AMEND OR TERMINATE THE PLAN. The Board of Directors may
amend, suspend or terminate the Plan at any time and for any reason; provided,
however, that any amendment of the Plan which increases the number of Shares
available for issuance under the Plan (except as provided in Section 8), or
which materially changes the class of persons who are eligible for the grant of
ISOs, shall be subject to the approval of the Company's shareholders.
Shareholder approval shall not be required for any other amendment of the Plan.
(c) EFFECT OF AMENDMENT OR TERMINATION. No Shares shall be issued or
sold under the Plan after the termination thereof, except upon exercise of an
Option granted prior to such termination. The termination of the Plan, or any
amendment thereof, shall not affect any Share previously issued or any Option
previously granted under the Plan.
SECTION 12. DEFINITIONS.
(a) "BOARD OF DIRECTORS" shall mean the Board of Directors of the
Company, as constituted from time to time.
(b) "CHANGE IN CONTROL" shall mean:
(i) A merger or consolidation in which securities possessing
more than 50% of the total combined voting power of the Company's
outstanding securities are transferred to one or more persons who were
not shareholders of the Company immediately before such merger or
consolidation; or
(ii) The sale, transfer or other disposition of all or
substantially all of the Company's assets.
A transaction shall not constitute a Change in Control if its sole purpose is to
change the state of the Company's incorporation or to create a holding company
that will be owned in substantially the same proportions by the persons who held
the Company's securities immediately before such transaction.
(c) "CODE" shall mean the Internal Revenue Code of 1986, as amended.
(d) "COMMITTEE" shall mean a committee of the Board of Directors, as
described in Section 2(a).
(e) "COMPANY" shall mean Selectica, Inc., a California corporation.
9
<PAGE> 13
(f) "CONSULTANT" shall mean an individual who performs bona fide
services for the Company, a Parent or a Subsidiary as a consultant or advisor,
excluding Employees and Outside Directors.
(g) "DISABILITY" shall mean that the Optionee is unable to engage in any
substantial gainful activity by reason of any medically determinable physical or
mental impairment.
(h) "EMPLOYEE" shall mean any individual who is a common-law employee of
the Company, a Parent or a Subsidiary.
(i) "EXERCISE PRICE" shall mean the amount for which one Share may be
purchased upon exercise of an Option, as specified by the Board of Directors in
the applicable Stock Option Agreement.
(j) "FAIR MARKET VALUE" shall mean the fair market value of a Share, as
determined by the Board of Directors in good faith. Such determination shall be
conclusive and binding on all persons.
(k) "ISO" shall mean an employee incentive stock option described in
Section 422(b) of the Code.
(l) "NONSTATUTORY OPTION" shall mean a stock option not described in
Sections 422(b) or 423(b) of the Code.
(m) "OPTION" shall mean an ISO or Nonstatutory Option granted under the
Plan and entitling the holder to purchase Shares.
(n) "OPTIONEE" shall mean an individual who holds an Option.
(o) "OUTSIDE DIRECTOR" shall mean a member of the Board of Directors who
is not an Employee.
(p) "PARENT" shall mean any corporation (other than the Company) in an
unbroken chain of corporations ending with the Company, if each of the
corporations other than the Company owns stock possessing 50% or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain. A corporation that attains the status of a Parent on
a date after the adoption of the Plan shall be considered a Parent commencing as
of such date.
(q) "PLAN" shall mean this Selectica, Inc. 1996 Stock Plan.
(r) "PURCHASE PRICE" shall mean the consideration for which one Share
may be acquired under the Plan (other than upon exercise of an Option), as
specified by the Board of Directors.
(s) "PURCHASER" shall mean an individual to whom the Board of Directors
has offered the right to acquire Shares under the Plan (other than upon exercise
of an Option).
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<PAGE> 14
(t) "SERVICE" shall mean service as an Employee, Outside Director or
Consultant.
(u) "SHARE" shall mean one share of Stock, as adjusted in accordance
with Section 8 (if applicable).
(v) "STOCK" shall mean the Common Stock of the Company.
(w) "STOCK OPTION AGREEMENT" shall mean the agreement between the
Company and an Optionee which contains the terms, conditions and restrictions
pertaining to the Optionee's Option.
(x) "STOCK PURCHASE AGREEMENT" shall mean the agreement between the
Company and a Purchaser who acquires Shares under the Plan which contains the
terms, conditions and restrictions pertaining to the acquisition of such Shares.
(y) "SUBSIDIARY" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company, if each of the
corporations other than the last corporation in the unbroken chain owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain. A corporation that attains
the status of a Subsidiary on a date after the adoption of the Plan shall be
considered a Subsidiary commencing as of such date.
SECTION 13. EXECUTION.
To record the adoption of the Plan by the Board of Directors, the
Company has caused its authorized officer to execute the same.
SELECTICA, INC.
By:
---------------------------------
Title:
------------------------------
11
<PAGE> 1
EXHIBIT 10.3
SELECTICA, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
(AS ADOPTED NOVEMBER 18, 1999)
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 1. PURPOSE OF THE PLAN............................................1
SECTION 2. ADMINISTRATION OF THE PLAN.....................................1
(a) Committee Composition........................................1
(b) Committee Responsibilities...................................1
SECTION 3. ENROLLMENT AND PARTICIPATION...................................1
(a) Offering Periods.............................................1
(b) Accumulation Periods.........................................1
(c) Enrollment...................................................1
(d) Duration of Participation....................................1
(e) Applicable Offering Period...................................2
SECTION 4. EMPLOYEE CONTRIBUTIONS.........................................2
(a) Frequency of Payroll Deductions..............................2
(b) Amount of Payroll Deductions.................................2
(c) Changing Withholding Rate....................................2
(d) Discontinuing Payroll Deductions.............................3
(e) Limit on Number of Elections.................................3
SECTION 5. WITHDRAWAL FROM THE PLAN.......................................3
(a) Withdrawal...................................................3
(b) Re-Enrollment After Withdrawal...............................3
SECTION 6. CHANGE IN EMPLOYMENT STATUS....................................3
(a) Termination of Employment....................................3
(b) Leave of Absence.............................................3
(c) Death........................................................3
SECTION 7. PLAN ACCOUNTS AND PURCHASE OF SHARES...........................4
(a) Plan Accounts................................................4
(b) Purchase Price...............................................4
(c) Number of Shares Purchased...................................4
(d) Available Shares Insufficient................................4
(e) Issuance of Stock............................................4
(f) Unused Cash Balances.........................................5
(g) Stockholder Approval.........................................5
SECTION 8. LIMITATIONS ON STOCK OWNERSHIP.................................5
(a) Five Percent Limit...........................................5
(b) Dollar Limit.................................................5
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C>
SECTION 9. RIGHTS NOT TRANSFERABLE........................................6
SECTION 10. NO RIGHTS AS AN EMPLOYEE......................................6
SECTION 11. NO RIGHTS AS A STOCKHOLDER....................................6
SECTION 12. SECURITIES LAW REQUIREMENTS...................................6
SECTION 13. STOCK OFFERED UNDER THE PLAN..................................7
(a) Authorized Shares............................................7
(b) Anti-Dilution Adjustments....................................7
(c) Reorganizations..............................................7
SECTION 14. AMENDMENT OR DISCONTINUANCE...................................7
SECTION 15. DEFINITIONS...................................................7
(a) Accumulation Period..........................................7
(b) Board........................................................7
(c) Code.........................................................7
(d) Committee....................................................7
(e) Company......................................................8
(f) Compensation.................................................8
(g) Corporate Reorganization.....................................8
(h) Eligible Employee............................................8
(i) Exchange Act.................................................8
(j) Fair Market Value............................................8
(k) IPO..........................................................9
(l) Offering Period..............................................9
(m) Participant..................................................9
(n) Participating Company........................................9
(o) Plan.........................................................9
(p) Plan Account.................................................9
(q) Purchase Price...............................................9
(r) Stock........................................................9
(s) Subsidiary...................................................9
</TABLE>
ii
<PAGE> 4
SELECTICA, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
SECTION 1. PURPOSE OF THE PLAN.
The Plan was adopted by the Board effective as of the date of the IPO.
The purpose of the Plan is to provide Eligible Employees with an opportunity to
increase their proprietary interest in the success of the Company by purchasing
Stock from the Company on favorable terms and to pay for such purchases through
payroll deductions. The Plan is intended to qualify under section 423 of the
Code.
SECTION 2. ADMINISTRATION OF THE PLAN.
(a) COMMITTEE COMPOSITION. The Plan shall be administered by the
Committee. The Committee shall consist exclusively of one or more directors of
the Company, who shall be appointed by the Board.
(b) COMMITTEE RESPONSIBILITIES. The Committee shall interpret the Plan
and make all other policy decisions relating to the operation of the Plan. The
Committee may adopt such rules, guidelines and forms as it deems appropriate to
implement the Plan. The Committee's determinations under the Plan shall be final
and binding on all persons.
SECTION 3. ENROLLMENT AND PARTICIPATION.
(a) OFFERING PERIODS. While the Plan is in effect, two overlapping
Offering Periods shall commence in each calendar year. The Offering Periods
shall consist of the 24-month periods commencing on each February 15 and August
15, except that the first Offering Period shall commence on the date of the IPO
and end on February 14, 2002.
(b) ACCUMULATION PERIODS. While the Plan is in effect, two Accumulation
Periods shall commence in each calendar year. The Accumulation Periods shall
consist of the six-month periods commencing on each February 15 and August 15,
except that the first Accumulation Period shall commence on the date of the IPO
and end on August 14, 2000.
(c) ENROLLMENT. Any individual who, on the day preceding the first day
of an Offering Period, qualifies as an Eligible Employee may elect to become a
Participant in the Plan for such Offering Period by executing the enrollment
form prescribed for this purpose by the Committee. The enrollment form shall be
filed with the Company at the prescribed location not later than 15 days prior
to the commencement of such Offering Period.
(d) DURATION OF PARTICIPATION. Once enrolled in the Plan, a Participant
shall continue to participate in the Plan until he or she ceases to be an
Eligible Employee, withdraws from the Plan under Section 5(a) or reaches the end
of the Accumulation Period in which his or her employee contributions were
discontinued under Section 4(d) or 8(b). A Participant who
<PAGE> 5
discontinued employee contributions under Section 4(d) or withdrew from the Plan
under Section 5(a) may again become a Participant, if he or she then is an
Eligible Employee, by following the procedure described in Subsection (c) above.
A Participant whose employee contributions were discontinued automatically under
Section 8(b) shall automatically resume participation at the beginning of the
earliest Accumulation Period ending in the next calendar year, if he or she then
is an Eligible Employee.
(e) APPLICABLE OFFERING PERIOD. For purposes of calculating the Purchase
Price under Section 7(b), the applicable Offering Period shall be determined as
follows:
(i) Once a Participant is enrolled in the Plan for an Offering
Period, such Offering Period shall continue to apply to him or her until
the earliest of (A) the end of such Offering Period, (B) the end of his
or her participation under Subsection (d) above or (C) re-enrollment for
a subsequent Offering Period under Paragraph (ii) or (iii) below.
(ii) In the event that the Fair Market Value of Stock on the
last trading day before the commencement of the Offering Period for
which the Participant is enrolled is higher than on the last trading day
before the commencement of any subsequent Offering Period, the
Participant shall automatically be re-enrolled for such subsequent
Offering Period.
(iii) Any other provision of the Plan notwithstanding, the
Company (at its sole discretion) may determine prior to the commencement
of any new Offering Period that all Participants shall be re-enrolled
for such new Offering Period.
(iv) When a Participant reaches the end of an Offering Period
but his or her participation is to continue, then such Participant shall
automatically be re-enrolled for the Offering Period that commences
immediately after the end of the prior Offering Period.
SECTION 4. EMPLOYEE CONTRIBUTIONS.
(a) FREQUENCY OF PAYROLL DEDUCTIONS. A Participant may purchase shares
of Stock under the Plan solely by means of payroll deductions. Payroll
deductions, as designated by the Participant pursuant to Subsection (b) below,
shall occur on each payday during participation in the Plan.
(b) AMOUNT OF PAYROLL DEDUCTIONS. An Eligible Employee shall designate
on the enrollment form the portion of his or her Compensation that he or she
elects to have withheld for the purchase of Stock. Such portion shall be a whole
percentage of the Eligible Employee's Compensation, but not less than 1% nor
more than 15%.
(c) CHANGING WITHHOLDING RATE. If a Participant wishes to change the
rate of payroll withholding, he or she may do so by filing a new enrollment form
with the Company at the prescribed location at any time. The new withholding
rate shall be effective as soon as
2
<PAGE> 6
reasonably practicable after such form has been received by the Company. The new
withholding rate shall be a whole percentage of the Eligible Employee's
Compensation, but not less than 1% nor more than 15%.
(d) DISCONTINUING PAYROLL DEDUCTIONS. If a Participant wishes to
discontinue employee contributions entirely, he or she may do so by filing a new
enrollment form with the Company at the prescribed location at any time. Payroll
withholding shall cease as soon as reasonably practicable after such form has
been received by the Company. (In addition, employee contributions may be
discontinued automatically pursuant to Section 8(b).) A Participant who has
discontinued employee contributions may resume such contributions by filing a
new enrollment form with the Company at the prescribed location. Payroll
withholding shall resume as soon as reasonably practicable after such form has
been received by the Company.
(e) LIMIT ON NUMBER OF ELECTIONS. No Participant shall make more than
two elections under Subsection (c) or (d) above during any Accumulation Period.
SECTION 5. WITHDRAWAL FROM THE PLAN.
(a) WITHDRAWAL. A Participant may elect to withdraw from the Plan by
filing the prescribed form with the Company at the prescribed location at any
time before the last day of an Accumulation Period. As soon as reasonably
practicable thereafter, payroll deductions shall cease and the entire amount
credited to the Participant's Plan Account shall be refunded to him or her in
cash, without interest. No partial withdrawals shall be permitted.
(b) RE-ENROLLMENT AFTER WITHDRAWAL. A former Participant who has
withdrawn from the Plan shall not be a Participant until he or she re-enrolls in
the Plan under Section 3(c). Re-enrollment may be effective only at the
commencement of an Offering Period.
SECTION 6. CHANGE IN EMPLOYMENT STATUS.
(a) TERMINATION OF EMPLOYMENT. Termination of employment as an Eligible
Employee for any reason, including death, shall be treated as an automatic
withdrawal from the Plan under Section 5(a). (A transfer from one Participating
Company to another shall not be treated as a termination of employment.)
(b) LEAVE OF ABSENCE. For purposes of the Plan, employment shall not be
deemed to terminate when the Participant goes on a military leave, a sick leave
or another bona fide leave of absence, if the leave was approved by the Company
in writing. Employment, however, shall be deemed to terminate 90 days after the
Participant goes on a leave, unless a contract or statute guarantees his or her
right to return to work. Employment shall be deemed to terminate in any event
when the approved leave ends, unless the Participant immediately returns to
work.
(c) DEATH. In the event of the Participant's death, the amount credited
to his or her Plan Account shall be paid to a beneficiary designated by him or
her for this purpose on the prescribed form or, if none, to the Participant's
estate. Such form shall be valid only if it was filed with the Company at the
prescribed location before the Participant's death.
3
<PAGE> 7
SECTION 7. PLAN ACCOUNTS AND PURCHASE OF SHARES.
(a) PLAN ACCOUNTS. The Company shall maintain a Plan Account on its
books in the name of each Participant. Whenever an amount is deducted from the
Participant's Compensation under the Plan, such amount shall be credited to the
Participant's Plan Account. Amounts credited to Plan Accounts shall not be trust
funds and may be commingled with the Company's general assets and applied to
general corporate purposes. No interest shall be credited to Plan Accounts.
(b) PURCHASE PRICE. The Purchase Price for each share of Stock purchased
at the close of an Accumulation Period shall be the lower of:
(i) 85% of the Fair Market Value of such share on the last
trading day in such Accumulation Period; or
(ii) 85% of the Fair Market Value of such share on the last
trading day before the commencement of the applicable Offering Period
(as determined under Section 3(e)) or, in the case of the first Offering
Period under the Plan, 85% of the price at which one share of Stock is
offered to the public in the IPO.
(c) NUMBER OF SHARES PURCHASED. As of the last day of each Accumulation
Period, each Participant shall be deemed to have elected to purchase the number
of shares of Stock calculated in accordance with this Subsection (c), unless the
Participant has previously elected to withdraw from the Plan in accordance with
Section 5(a). The amount then in the Participant's Plan Account shall be divided
by the Purchase Price, and the number of shares that results shall be purchased
from the Company with the funds in the Participant's Plan Account. The foregoing
notwithstanding, no Participant shall purchase more than 750 shares of Stock
with respect to any Accumulation Period nor more than the amounts of Stock set
forth in Sections 8(b) and 13(a). The Committee may determine with respect to
all Participants that any fractional share, as calculated under this Subsection
(c), shall be (i) rounded down to the next lower whole share or (ii) credited as
a fractional share.
(d) AVAILABLE SHARES INSUFFICIENT. In the event that the aggregate
number of shares that all Participants elect to purchase during an Accumulation
Period exceeds the maximum number of shares remaining available for issuance
under Section 13(a), then the number of shares to which each Participant is
entitled shall be determined by multiplying the number of shares available for
issuance by a fraction, the numerator of which is the number of shares that such
Participant has elected to purchase and the denominator of which is the number
of shares that all Participants have elected to purchase.
(e) ISSUANCE OF STOCK. Certificates representing the shares of Stock
purchased by a Participant under the Plan shall be issued to him or her as soon
as reasonably practicable after the close of the applicable Accumulation Period,
except that the Committee may determine that such shares shall be held for each
Participant's benefit by a broker designated by the Committee (unless the
Participant has elected that certificates be issued to him or her). Shares may
be registered in the name of the Participant or jointly in the name of the
Participant and his or her spouse as joint tenants with right of survivorship or
as community property.
4
<PAGE> 8
(f) UNUSED CASH BALANCES. An amount remaining in the Participant's Plan
Account that represents the Purchase Price for any fractional share shall be
carried over in the Participant's Plan Account to the next Accumulation Period.
Any amount remaining in the Participant's Plan Account that represents the
Purchase Price for whole shares that could not be purchased by reason of
Subsection (c) above, Section 8(b) or Section 13(a) shall be refunded to the
Participant in cash, without interest.
(g) STOCKHOLDER APPROVAL. Any other provision of the Plan
notwithstanding, no shares of Stock shall be purchased under the Plan unless and
until the Company's stockholders have approved the adoption of the Plan.
SECTION 8. LIMITATIONS ON STOCK OWNERSHIP.
(a) FIVE PERCENT LIMIT. Any other provision of the Plan notwithstanding,
no Participant shall be granted a right to purchase Stock under the Plan if such
Participant, immediately after his or her election to purchase such Stock, would
own stock possessing more than 5% of the total combined voting power or value of
all classes of stock of the Company or any parent or Subsidiary of the Company.
For purposes of this Subsection (a), the following rules shall apply:
(i) Ownership of stock shall be determined after applying the
attribution rules of section 424(d) of the Code;
(ii) Each Participant shall be deemed to own any stock that he
or she has a right or option to purchase under this or any other plan;
and
(iii) Each Participant shall be deemed to have the right to
purchase 750 shares of Stock under this Plan with respect to each
Accumulation Period.
(b) DOLLAR LIMIT. Any other provision of the Plan notwithstanding, no
Participant shall purchase Stock with a Fair Market Value in excess of the
following limit:
(i) In the case of Stock purchased during an Offering Period
that commenced in the current calendar year, the limit shall be equal to
(A) $25,000 minus (B) the Fair Market Value of the Stock that the
Participant previously purchased in the current calendar year (under
this Plan and all other employee stock purchase plans of the Company or
any parent or Subsidiary of the Company).
(ii) In the case of Stock purchased during an Offering Period
that commenced in the immediately preceding calendar year, the limit
shall be equal to (A) $50,000 minus (B) the Fair Market Value of the
Stock that the Participant previously purchased (under this Plan and all
other employee stock purchase plans of the Company or any parent or
Subsidiary of the Company) in the current calendar year and in the
immediately preceding calendar year.
5
<PAGE> 9
(iii) In the case of Stock purchased during an Offering Period
that commenced in the second preceding calendar year, the limit shall be
equal to (A) $75,000 minus (B) the Fair Market Value of the Stock that
the Participant previously purchased (under this Plan and all other
employee stock purchase plans of the Company or any parent or Subsidiary
of the Company) in the current calendar year and in the two preceding
calendar years.
For purposes of this Subsection (b), the Fair Market Value of Stock shall be
determined in each case as of the beginning of the Offering Period in which such
Stock is purchased. Employee stock purchase plans not described in section 423
of the Code shall be disregarded. If a Participant is precluded by this
Subsection (b) from purchasing additional Stock under the Plan, then his or her
employee contributions shall automatically be discontinued and shall resume at
the beginning of the earliest Accumulation Period ending in the next calendar
year (if he or she then is an Eligible Employee).
SECTION 9. RIGHTS NOT TRANSFERABLE.
The rights of any Participant under the Plan, or any Participant's
interest in any Stock or moneys to which he or she may be entitled under the
Plan, shall not be transferable by voluntary or involuntary assignment or by
operation of law, or in any other manner other than by beneficiary designation
or the laws of descent and distribution. If a Participant in any manner attempts
to transfer, assign or otherwise encumber his or her rights or interest under
the Plan, other than by beneficiary designation or the laws of descent and
distribution, then such act shall be treated as an election by the Participant
to withdraw from the Plan under Section 5(a).
SECTION 10. NO RIGHTS AS AN EMPLOYEE.
Nothing in the Plan or in any right granted under the Plan shall confer
upon the Participant any right to continue in the employ of a Participating
Company for any period of specific duration or interfere with or otherwise
restrict in any way the rights of the Participating Companies or of the
Participant, which rights are hereby expressly reserved by each, to terminate
his or her employment at any time and for any reason, with or without cause.
SECTION 11. NO RIGHTS AS A STOCKHOLDER.
A Participant shall have no rights as a stockholder with respect to any
shares of Stock that he or she may have a right to purchase under the Plan until
such shares have been purchased on the last day of the applicable Accumulation
Period.
SECTION 12. SECURITIES LAW REQUIREMENTS.
Shares of Stock shall not be issued under the Plan unless the issuance
and delivery of such shares comply with (or are exempt from) all applicable
requirements of law, including (without limitation) the Securities Act of 1933,
as amended, the rules and regulations promulgated thereunder, state securities
laws and regulations, and the regulations of any stock exchange or other
securities market on which the Company's securities may then be traded.
6
<PAGE> 10
SECTION 13. STOCK OFFERED UNDER THE PLAN.
(a) AUTHORIZED SHARES. The number of shares of Stock available for
purchase under the Plan shall be 1,000,000 (subject to adjustment pursuant to
this Section 13). On February 15 of each year, commencing with February 15,
2001, the aggregate number of shares of Stock available for purchase during the
life of the Plan shall automatically be increased by a number equal to the
lesser of (a) 2% of the number of shares of Stock then outstanding or (b)
1,000,000 shares (subject to adjustment pursuant to this Section 13).
(b) ANTI-DILUTION ADJUSTMENTS. The aggregate number of shares of Stock
offered under the Plan, the 750-share limitation described in Section 7(c) and
the price of shares that any Participant has elected to purchase shall be
adjusted proportionately by the Committee for any increase or decrease in the
number of outstanding shares of Stock resulting from a subdivision or
consolidation of shares or the payment of a stock dividend, any other increase
or decrease in such shares effected without receipt or payment of consideration
by the Company, the distribution of the shares of a Subsidiary to the Company's
stockholders or a similar event.
(c) REORGANIZATIONS. Any other provision of the Plan notwithstanding,
immediately prior to the effective time of a Corporate Reorganization, the
Offering Period and Accumulation Period then in progress shall terminate and
shares shall be purchased pursuant to Section 7, unless the Plan is continued or
assumed by the surviving corporation or its parent corporation. The Plan shall
in no event be construed to restrict in any way the Company's right to undertake
a dissolution, liquidation, merger, consolidation or other reorganization.
SECTION 14. AMENDMENT OR DISCONTINUANCE.
The Board shall have the right to amend, suspend or terminate the Plan
at any time and without notice. Except as provided in Section 13, any increase
in the aggregate number of shares of Stock to be issued under the Plan shall be
subject to approval by a vote of the stockholders of the Company. In addition,
any other amendment of the Plan shall be subject to approval by a vote of the
stockholders of the Company to the extent required by an applicable law or
regulation. The Plan shall terminate automatically 20 years after its adoption
by the Board, unless (a) the Plan is extended by the Board and (b) the extension
is approved within 12 months by a vote of the stockholders of the Company.
SECTION 15. DEFINITIONS.
(a) "ACCUMULATION PERIOD" means a six-month period during which
contributions may be made toward the purchase of Stock under the Plan, as
determined pursuant to Section 3(b).
(b) "BOARD" means the Board of Directors of the Company, as constituted
from time to time.
(c) "CODE" means the Internal Revenue Code of 1986, as amended.
(d) "COMMITTEE" means a committee of the Board, as described in Section
2.
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<PAGE> 11
(e) "COMPANY" means Selectica, Inc., a Delaware corporation.
(f) "COMPENSATION" means (i) the total compensation paid in cash to a
Participant by a Participating Company, including salaries, wages, bonuses,
incentive compensation, commissions, overtime pay and shift premiums, plus (ii)
any pre-tax contributions made by the Participant under section 401(k) or 125 of
the Code. "Compensation" shall exclude all non-cash items, moving or relocation
allowances, cost-of-living equalization payments, car allowances, tuition
reimbursements, imputed income attributable to cars or life insurance, severance
pay, fringe benefits, contributions or benefits received under employee benefit
plans, income attributable to the exercise of stock options, and similar items.
The Committee shall determine whether a particular item is included in
Compensation.
(g) "CORPORATE REORGANIZATION" means:
(i) The consummation of a merger or consolidation of the Company
with or into another entity or any other corporate reorganization; or
(ii) The sale, transfer or other disposition of all or
substantially all of the Company's assets or the complete liquidation or
dissolution of the Company.
(h) "ELIGIBLE EMPLOYEE" means any employee of a Participating Company
whose customary employment is for more than five months per calendar year and
for more than 20 hours per week. The foregoing notwithstanding, an individual
shall not be considered an Eligible Employee if his or her participation in the
Plan is prohibited by the law of any country which has jurisdiction over him or
her or if he or she is subject to a collective bargaining agreement that does
not provide for participation in the Plan.
(i) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(j) "FAIR MARKET VALUE" means the market price of Stock, determined by
the Committee as follows:
(i) If the Stock was traded on The Nasdaq National Market on the
date in question, then the Fair Market Value shall be equal to the
last-transaction price quoted for such date by The Nasdaq National
Market;
(ii) If the Stock was traded on a stock exchange on the date in
question, then the Fair Market Value shall be equal to the closing price
reported by the applicable composite transactions report for such date;
or
(iii) If none of the foregoing provisions is applicable, then
the Fair Market Value shall be determined by the Committee in good faith
on such basis as it deems appropriate.
Whenever possible, the determination of Fair Market Value by the Committee shall
be based on the prices reported in The Wall Street Journal or as reported
directly to the Company by Nasdaq or a stock exchange. Such determination shall
be conclusive and binding on all persons.
8
<PAGE> 12
(k) "IPO" means the initial offering of Stock to the public pursuant to
a registration statement filed by the Company with the Securities and Exchange
Commission.
(l) "OFFERING PERIOD" means a 24-month period with respect to which the
right to purchase Stock may be granted under the Plan, as determined pursuant to
Section 3(a).
(m) "PARTICIPANT" means an Eligible Employee who elects to participate
in the Plan, as provided in Section 3(c).
(n) "PARTICIPATING COMPANY" means (i) the Company and (ii) each present
or future Subsidiary designated by the Committee as a Participating Company.
(o) "PLAN" means this Selectica, Inc. 1999 Employee Stock Purchase Plan,
as it may be amended from time to time.
(p) "PLAN ACCOUNT" means the account established for each Participant
pursuant to Section 7(a).
(q) "PURCHASE PRICE" means the price at which Participants may purchase
Stock under the Plan, as determined pursuant to Section 7(b).
(r) "STOCK" means the common stock of the Company.
(s) "SUBSIDIARY" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company, if each of the
corporations other than the last corporation in the unbroken chain owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain.
9
<PAGE> 1
EXHIBIT 10.4
SELECTICA, INC.
1999 EQUITY INCENTIVE PLAN
(AS ADOPTED NOVEMBER 18, 1999)
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
ARTICLE 1. INTRODUCTION........................................................1
ARTICLE 2. ADMINISTRATION......................................................1
2.1 Committee Composition.............................................1
2.2 Committee Responsibilities........................................1
2.3 Committee for Non-Officer Grants..................................1
ARTICLE 3. SHARES AVAILABLE FOR GRANTS.........................................2
3.1 Basic Limitation..................................................2
3.2 Annual Increase in Shares.........................................2
3.3 Additional Shares.................................................2
3.4 Dividend Equivalents..............................................2
ARTICLE 4. ELIGIBILITY.........................................................2
4.1 Incentive Stock Options...........................................2
4.2 Other Grants......................................................3
ARTICLE 5. OPTIONS.............................................................3
5.1 Stock Option Agreement............................................3
5.2 Number of Shares..................................................3
5.3 Exercise Price....................................................3
5.4 Exercisability and Term...........................................3
5.6 Modification or Assumption of Options.............................3
5.7 Buyout Provisions.................................................4
ARTICLE 6. PAYMENT FOR OPTION SHARES...........................................4
6.1 General Rule......................................................4
6.2 Surrender of Stock................................................4
6.3 Exercise/Sale.....................................................4
6.4 Exercise/Pledge...................................................4
6.5 Promissory Note...................................................4
6.6 Other Forms of Payment............................................5
ARTICLE 7. AUTOMATIC OPTION GRANTS TO OUTSIDE DIRECTORS........................5
7.1 Initial Grants....................................................5
7.2 Annual Grants.....................................................5
7.3 Accelerated Exercisability........................................5
7.4 Exercise Price....................................................5
7.5 Term..............................................................5
7.6 Affiliates of Outside Directors...................................6
</TABLE>
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<TABLE>
<CAPTION>
<S> <C>
ARTICLE 8. STOCK APPRECIATION RIGHTS...........................................6
8.1 SAR Agreement.....................................................6
8.2 Number of Shares..................................................6
8.3 Exercise Price....................................................6
8.4 Exercisability and Term...........................................6
8.6 Exercise of SARs..................................................6
8.7 Modification or Assumption of SARs................................7
ARTICLE 9. RESTRICTED SHARES...................................................7
9.1 Restricted Stock Agreement........................................7
9.2 Payment for Awards................................................7
9.3 Vesting Conditions................................................7
9.4 Voting and Dividend Rights........................................7
ARTICLE 10. STOCK UNITS........................................................7
10.1 Stock Unit Agreement.............................................7
10.2 Payment for Awards...............................................8
10.3 Vesting Conditions...............................................8
10.4 Voting and Dividend Rights.......................................8
10.5 Form and Time of Settlement of Stock Units.......................8
10.6 Death of Recipient...............................................8
10.7 Creditors' Rights................................................8
ARTICLE 11. PROTECTION AGAINST DILUTION........................................9
11.1 Adjustments......................................................9
11.2 Dissolution or Liquidation.......................................9
11.3 Reorganizations..................................................9
ARTICLE 12. CHANGE IN CONTROL.................................................10
ARTICLE 13. DEFERRAL OF AWARDS................................................10
ARTICLE 14. AWARDS UNDER OTHER PLANS..........................................11
ARTICLE 15. PAYMENT OF DIRECTOR'S FEES IN SECURITIES..........................11
15.1 Effective Date..................................................11
15.2 Elections to Receive NSOs, Restricted Shares or Stock Units.....11
15.3 Number and Terms of NSOs, Restricted Shares or Stock Units......11
ARTICLE 16. LIMITATION ON RIGHTS..............................................11
16.1 Retention Rights................................................11
16.2 Stockholders' Rights............................................12
16.3 Regulatory Requirements.........................................12
ARTICLE 17. WITHHOLDING TAXES.................................................12
17.1 General.........................................................12
17.2 Share Withholding...............................................12
</TABLE>
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<TABLE>
<CAPTION>
<S> <C>
ARTICLE 18. FUTURE OF THE PLAN................................................12
18.1 Term of the Plan................................................12
18.2 Amendment or Termination........................................12
ARTICLE 19. LIMITATION ON PAYMENTS............................................13
18.1 Scope of Limitation.............................................13
18.2 Basic Rule......................................................13
18.3 Reduction of Payments...........................................13
18.4 Overpayments and Underpayments..................................14
18.5 Related Corporations............................................14
ARTICLE 20. DEFINITIONS.......................................................14
</TABLE>
iii
<PAGE> 5
SELECTICA, INC.
1999 EQUITY INCENTIVE PLAN
ARTICLE 1. INTRODUCTION.
The Plan was adopted by the Board to be effective on the
effective date of the Company's initial public offering of its Common Shares.
The purpose of the Plan is to promote the long-term success of the Company and
the creation of stockholder value by (a) encouraging Employees, Outside
Directors and Consultants to focus on critical long-range objectives, (b)
encouraging the attraction and retention of Employees, Outside Directors and
Consultants with exceptional qualifications and (c) linking Employees, Outside
Directors and Consultants directly to stockholder interests through increased
stock ownership. The Plan seeks to achieve this purpose by providing for Awards
in the form of Restricted Shares, Stock Units, Options (which may constitute
incentive stock options or nonstatutory stock options) or stock appreciation
rights.
The Plan shall be governed by, and construed in accordance with,
the laws of the State of Delaware (except their choice-of-law provisions).
ARTICLE 2. ADMINISTRATION.
2.1 COMMITTEE COMPOSITION. The Plan shall be administered by the
Committee. The Committee shall consist exclusively of two or more directors of
the Company, who shall be appointed by the Board. In addition, the composition
of the Committee shall satisfy:
(a) Such requirements as the Securities and Exchange
Commission may establish for administrators acting under plans
intended to qualify for exemption under Rule 16b-3 (or its
successor) under the Exchange Act; and
(b) Such requirements as the Internal Revenue Service
may establish for outside directors acting under plans intended
to qualify for exemption under section 162(m)(4)(C) of the Code.
2.2 COMMITTEE RESPONSIBILITIES. The Committee shall (a) select
the Employees, Outside Directors and Consultants who are to receive Awards under
the Plan, (b) determine the type, number, vesting requirements and other
features and conditions of such Awards, (c) interpret the Plan and (d) make all
other decisions relating to the operation of the Plan. The Committee may adopt
such rules or guidelines as it deems appropriate to implement the Plan. The
Committee's determinations under the Plan shall be final and binding on all
persons.
2.3 COMMITTEE FOR NON-OFFICER GRANTS. The Board may also appoint
a secondary committee of the Board, which shall be composed of one or more
directors of the
<PAGE> 6
Company who need not satisfy the requirements of Section 2.1. Such secondary
committee may administer the Plan with respect to Employees and Consultants who
are not considered officers or directors of the Company under section 16 of the
Exchange Act, may grant Awards under the Plan to such Employees and Consultants
and may determine all features and conditions of such Awards. Within the
limitations of this Section 2.3, any reference in the Plan to the Committee
shall include such secondary committee.
ARTICLE 3. SHARES AVAILABLE FOR GRANTS.
3.1 BASIC LIMITATION. Common Shares issued pursuant to the Plan
may be authorized but unissued shares or treasury shares. The aggregate number
of Options, SARs, Stock Units and Restricted Shares awarded under the Plan shall
not exceed (a) 2,200,000 plus (b) the additional Common Shares described in
Sections 3.2 and 3.3. The limitations of this Section 3.1 and Section 3.2 shall
be subject to adjustment pursuant to Article 11.
3.2 ANNUAL INCREASE IN SHARES. As of January 1 of each year,
commencing with the year 2001, the aggregate number of Options, SARs, Stock
Units and Restricted Shares that may be awarded under the Plan shall
automatically increase by a number equal to the lesser of (a) 5% of the total
number of Common Shares then outstanding or (b) 1,800,000.
3.3 ADDITIONAL SHARES. If Restricted Shares or Common Shares
issued upon the exercise of Options are forfeited, then such Common Shares shall
again become available for Awards under the Plan. If Stock Units, Options or
SARs are forfeited or terminate for any other reason before being exercised,
then the corresponding Common Shares shall again become available for Awards
under the Plan. If Stock Units are settled, then only the number of Common
Shares (if any) actually issued in settlement of such Stock Units shall reduce
the number available under Section 3.1 and the balance shall again become
available for Awards under the Plan. If SARs are exercised, then only the number
of Common Shares (if any) actually issued in settlement of such SARs shall
reduce the number available under Section 3.1 and the balance shall again become
available for Awards under the Plan. The foregoing notwithstanding, the
aggregate number of Common Shares that may be issued under the Plan upon the
exercise of ISOs shall not be increased when Restricted Shares or other Common
Shares are forfeited.
3.4 DIVIDEND EQUIVALENTS. Any dividend equivalents paid or
credited under the Plan shall not be applied against the number of Restricted
Shares, Stock Units, Options or SARs available for Awards, whether or not such
dividend equivalents are converted into Stock Units.
ARTICLE 4. ELIGIBILITY.
4.1 INCENTIVE STOCK OPTIONS. Only Employees who are common-law
employees of the Company, a Parent or a Subsidiary shall be eligible for the
grant of ISOs. In addition, an Employee who owns more than 10% of the total
combined voting power of all classes of outstanding stock of the Company or any
of its Parents or Subsidiaries shall not be eligible for the grant of an ISO
unless the requirements set forth in section 422(c)(6) of the Code are
satisfied.
2
<PAGE> 7
4.2 OTHER GRANTS. Only Employees, Outside Directors and
Consultants shall be eligible for the grant of Restricted Shares, Stock Units,
NSOs or SARs.
ARTICLE 5. OPTIONS.
5.1 STOCK OPTION AGREEMENT. Each grant of an Option under the
Plan shall be evidenced by a Stock Option Agreement between the Optionee and the
Company. Such Option shall be subject to all applicable terms of the Plan and
may be subject to any other terms that are not inconsistent with the Plan. The
Stock Option Agreement shall specify whether the Option is an ISO or an NSO. The
provisions of the various Stock Option Agreements entered into under the Plan
need not be identical. Options may be granted in consideration of a reduction in
the Optionee's other compensation. A Stock Option Agreement may provide that a
new Option will be granted automatically to the Optionee when he or she
exercises a prior Option and pays the Exercise Price in the form described in
Section 6.2.
5.2 NUMBER OF SHARES. Each Stock Option Agreement shall specify
the number of Common Shares subject to the Option and shall provide for the
adjustment of such number in accordance with Article 11. Options granted to any
Optionee in a single fiscal year of the Company shall not cover more than
330,000 Common Shares, except that Options granted to a new Employee in the
fiscal year of the Company in which his or her service as an Employee first
commences shall not cover more than 660,000 Common Shares. The limitations set
forth in the preceding sentence shall be subject to adjustment in accordance
with Article 11.
5.3 EXERCISE PRICE. Each Stock Option Agreement shall specify
the Exercise Price; provided that the Exercise Price under an ISO shall in no
event be less than 100% of the Fair Market Value of a Common Share on the date
of grant and the Exercise Price under an NSO shall in no event be less than 85%
of the Fair Market Value of a Common Share on the date of grant. In the case of
an NSO, a Stock Option Agreement may specify an Exercise Price that varies in
accordance with a predetermined formula while the NSO is outstanding.
5.4 EXERCISABILITY AND TERM. Each Stock Option Agreement shall
specify the date or event when all or any installment of the Option is to become
exercisable. The Stock Option Agreement shall also specify the term of the
Option; provided that the term of an ISO shall in no event exceed 10 years from
the date of grant. A Stock Option Agreement may provide for accelerated
exercisability in the event of the Optionee's death, disability or retirement or
other events and may provide for expiration prior to the end of its term in the
event of the termination of the Optionee's service. Options may be awarded in
combination with SARs, and such an Award may provide that the Options will not
be exercisable unless the related SARs are forfeited.
5.5 MODIFICATION OR ASSUMPTION OF OPTIONS. Within the
limitations of the Plan, the Committee may modify, extend or assume outstanding
options or may accept the cancellation of outstanding options (whether granted
by the Company or by another issuer) in return for the grant of new options for
the same or a different number of shares and at the same or a different exercise
price. The foregoing notwithstanding, no modification of an Option shall,
without the consent of the Optionee, alter or impair his or her rights or
obligations under such Option.
3
<PAGE> 8
5.6 BUYOUT PROVISIONS. The Committee may at any time (a) offer
to buy out for a payment in cash or cash equivalents an Option previously
granted or (b) authorize an Optionee to elect to cash out an Option previously
granted, in either case at such time and based upon such terms and conditions as
the Committee shall establish.
ARTICLE 6. PAYMENT FOR OPTION SHARES.
6.1 GENERAL RULE. The entire Exercise Price of Common Shares
issued upon exercise of Options shall be payable in cash or cash equivalents at
the time when such Common Shares are purchased, except as follows:
(a) In the case of an ISO granted under the Plan,
payment shall be made only pursuant to the express provisions of
the applicable Stock Option Agreement. The Stock Option
Agreement may specify that payment may be made in any form(s)
described in this Article 6.
(b) In the case of an NSO, the Committee may at any time
accept payment in any form(s) described in this Article 6.
6.2 SURRENDER OF STOCK. To the extent that this Section 6.2 is
applicable, all or any part of the Exercise Price may be paid by surrendering,
or attesting to the ownership of, Common Shares that are already owned by the
Optionee. Such Common Shares shall be valued at their Fair Market Value on the
date when the new Common Shares are purchased under the Plan. The Optionee shall
not surrender, or attest to the ownership of, Common Shares in payment of the
Exercise Price if such action would cause the Company to recognize compensation
expense (or additional compensation expense) with respect to the Option for
financial reporting purposes.
6.3 EXERCISE/SALE. To the extent that this Section 6.3 is
applicable, all or any part of the Exercise Price and any withholding taxes may
be paid by delivering (on a form prescribed by the Company) an irrevocable
direction to a securities broker approved by the Company to sell all or part of
the Common Shares being purchased under the Plan and to deliver all or part of
the sales proceeds to the Company.
6.4 EXERCISE/PLEDGE. To the extent that this Section 6.4 is
applicable, all or any part of the Exercise Price and any withholding taxes may
be paid by delivering (on a form prescribed by the Company) an irrevocable
direction to pledge all or part of the Common Shares being purchased under the
Plan to a securities broker or lender approved by the Company, as security for a
loan, and to deliver all or part of the loan proceeds to the Company.
6.5 PROMISSORY NOTE. To the extent that this Section 6.5 is
applicable, all or any part of the Exercise Price and any withholding taxes may
be paid by delivering (on a form prescribed by the Company) a full-recourse
promissory note. However, the par value of the Common Shares being purchased
under the Plan, if newly issued, shall be paid in cash or cash equivalents.
4
<PAGE> 9
6.6 OTHER FORMS OF PAYMENT. To the extent that this Section 6.6
is applicable, all or any part of the Exercise Price and any withholding taxes
may be paid in any other form that is consistent with applicable laws,
regulations and rules.
ARTICLE 7. AUTOMATIC OPTION GRANTS TO OUTSIDE DIRECTORS.
7.1 INITIAL GRANTS. Each Outside Director who first becomes a
member of the Board after the date of the Company's initial public offering
shall receive a one-time grant of an NSO covering 30,000 Common Shares (subject
to adjustment under Article 11). Such NSO shall be granted on the date when such
Outside Director first joins the Board. 25% of such NSO shares shall become
exercisable upon the completion of 12 months of service from the date of grant
and 1/48 of such NSO shares shall become exercisable upon the completion of each
of the next 36 months of service. An Outside Director who previously was an
Employee shall not receive a grant under this Section 7.1.
7.2 ANNUAL GRANTS. Upon the conclusion of each regular annual
meeting of the Company's stockholders held in the year 2001 or thereafter, each
Outside Director who will continue serving as a member of the Board thereafter
shall receive an NSO covering 7,500 Common Shares (subject to adjustment under
Article 11), except that such NSO shall not be granted in the calendar year in
which the same Outside Director received the NSO described in Section 7.1. NSOs
granted under this Section 7.2 shall become exercisable in full on the first
anniversary of the date of grant. An Outside Director who previously was an
Employee shall be eligible to receive grants under this Section 7.2.
7.3 ACCELERATED EXERCISABILITY. All NSOs granted to an Outside
Director under this Article 7 shall also become exercisable in full in the event
of:
(a) The termination of such Outside Director's service
because of death, total and permanent disability or retirement
at or after age 65; or
(b) A Change in Control with respect to the Company,
except as provided in the next following sentence.
If the Company and the other party to the transaction constituting a Change in
Control agree that such transaction is to be treated as a "pooling of interests"
for financial reporting purposes, and if such transaction in fact is so treated,
then the acceleration of exercisability shall not occur to the extent that the
Company's independent accountants and such other party's independent accountants
separately determine in good faith that such acceleration would preclude the use
of "pooling of interests" accounting.
7.4 EXERCISE PRICE. The Exercise Price under all NSOs granted to
an Outside Director under this Article 7 shall be equal to 100% of the Fair
Market Value of a Common Share on the date of grant, payable in one of the forms
described in Sections 6.1, 6.2, 6.3 and 6.4.
7.5 TERM. All NSOs granted to an Outside Director under this
Article 7 shall terminate on the earliest of (a) the 10th anniversary of the
date of grant or (b) the date 12 months after the termination of such Outside
Director's service for any reason.
5
<PAGE> 10
7.6 AFFILIATES OF OUTSIDE DIRECTORS. The Committee may provide
that the NSOs that otherwise would be granted to an Outside Director under this
Article 7 shall instead be granted to an affiliate of such Outside Director.
Such affiliate shall then be deemed to be an Outside Director for purposes of
the Plan, provided that the service-related vesting and termination provisions
pertaining to the NSOs shall be applied with regard to the service of the
Outside Director.
ARTICLE 8. STOCK APPRECIATION RIGHTS.
8.1 SAR AGREEMENT. Each grant of an SAR under the Plan shall be
evidenced by an SAR Agreement between the Optionee and the Company. Such SAR
shall be subject to all applicable terms of the Plan and may be subject to any
other terms that are not inconsistent with the Plan. The provisions of the
various SAR Agreements entered into under the Plan need not be identical. SARs
may be granted in consideration of a reduction in the Optionee's other
compensation.
8.2 NUMBER OF SHARES. Each SAR Agreement shall specify the
number of Common Shares to which the SAR pertains and shall provide for the
adjustment of such number in accordance with Article 11. SARs granted to any
Optionee in a single fiscal year shall in no event pertain to more than 330,000
Common Shares, except that SARs granted to a new Employee in the fiscal year of
the Company in which his or her service as an Employee first commences shall not
pertain to more than 660,000 Common Shares. The limitations set forth in the
preceding sentence shall be subject to adjustment in accordance with Article 11.
8.3 EXERCISE PRICE. Each SAR Agreement shall specify the
Exercise Price. An SAR Agreement may specify an Exercise Price that varies in
accordance with a predetermined formula while the SAR is outstanding.
8.4 EXERCISABILITY AND TERM. Each SAR Agreement shall specify
the date when all or any installment of the SAR is to become exercisable. The
SAR Agreement shall also specify the term of the SAR. An SAR Agreement may
provide for accelerated exercisability in the event of the Optionee's death,
disability or retirement or other events and may provide for expiration prior to
the end of its term in the event of the termination of the Optionee's service.
SARs may be awarded in combination with Options, and such an Award may provide
that the SARs will not be exercisable unless the related Options are forfeited.
An SAR may be included in an ISO only at the time of grant but may be included
in an NSO at the time of grant or thereafter. An SAR granted under the Plan may
provide that it will be exercisable only in the event of a Change in Control.
8.5 EXERCISE OF SARS. Upon exercise of an SAR, the Optionee (or
any person having the right to exercise the SAR after his or her death) shall
receive from the Company (a) Common Shares, (b) cash or (c) a combination of
Common Shares and cash, as the Committee shall determine. The amount of cash
and/or the Fair Market Value of Common Shares received upon exercise of SARs
shall, in the aggregate, be equal to the amount by which the Fair Market Value
(on the date of surrender) of the Common Shares subject to the SARs exceeds the
Exercise Price. If, on the date when an SAR expires, the Exercise Price under
such SAR is less than the Fair Market Value on such date but any portion of such
SAR has not been
6
<PAGE> 11
exercised or surrendered, then such SAR shall automatically be deemed to be
exercised as of such date with respect to such portion.
8.6 MODIFICATION OR ASSUMPTION OF SARS. Within the limitations
of the Plan, the Committee may modify, extend or assume outstanding SARs or may
accept the cancellation of outstanding SARs (whether granted by the Company or
by another issuer) in return for the grant of new SARs for the same or a
different number of shares and at the same or a different exercise price. The
foregoing notwithstanding, no modification of an SAR shall, without the consent
of the Optionee, alter or impair his or her rights or obligations under such
SAR.
ARTICLE 9. RESTRICTED SHARES.
9.1 RESTRICTED STOCK AGREEMENT. Each grant of Restricted Shares
under the Plan shall be evidenced by a Restricted Stock Agreement between the
recipient and the Company. Such Restricted Shares shall be subject to all
applicable terms of the Plan and may be subject to any other terms that are not
inconsistent with the Plan. The provisions of the various Restricted Stock
Agreements entered into under the Plan need not be identical.
9.2 PAYMENT FOR AWARDS. Subject to the following sentence,
Restricted Shares may be sold or awarded under the Plan for such consideration
as the Committee may determine, including (without limitation) cash, cash
equivalents, full-recourse promissory notes, future services and past services.
To the extent that an Award consists of newly issued Restricted Shares, the
consideration shall consist exclusively of cash, cash equivalents or past
services rendered to the Company (or a Parent or Subsidiary) or, for the amount
in excess of the par value of such newly issued Restricted Shares, full-recourse
promissory notes, as the Committee may determine.
9.3 VESTING CONDITIONS. Each Award of Restricted Shares may or
may not be subject to vesting. Vesting shall occur, in full or in installments,
upon satisfaction of the conditions specified in the Restricted Stock Agreement.
A Restricted Stock Agreement may provide for accelerated vesting in the event of
the Participant's death, disability or retirement or other events.
9.4 VOTING AND DIVIDEND RIGHTS. The holders of Restricted Shares
awarded under the Plan shall have the same voting, dividend and other rights as
the Company's other stockholders. A Restricted Stock Agreement, however, may
require that the holders of Restricted Shares invest any cash dividends received
in additional Restricted Shares. Such additional Restricted Shares shall be
subject to the same conditions and restrictions as the Award with respect to
which the dividends were paid.
ARTICLE 10. STOCK UNITS.
10.1 STOCK UNIT AGREEMENT. Each grant of Stock Units under the
Plan shall be evidenced by a Stock Unit Agreement between the recipient and the
Company. Such Stock Units shall be subject to all applicable terms of the Plan
and may be subject to any other terms that are not inconsistent with the Plan.
The provisions of the various Stock Unit Agreements
7
<PAGE> 12
entered into under the Plan need not be identical. Stock Units may be granted in
consideration of a reduction in the recipient's other compensation.
10.2 PAYMENT FOR AWARDS. To the extent that an Award is granted
in the form of Stock Units, no cash consideration shall be required of the Award
recipients.
10.3 VESTING CONDITIONS. Each Award of Stock Units may or may
not be subject to vesting. Vesting shall occur, in full or in installments, upon
satisfaction of the conditions specified in the Stock Unit Agreement. A Stock
Unit Agreement may provide for accelerated vesting in the event of the
Participant's death, disability or retirement or other events.
10.4 VOTING AND DIVIDEND RIGHTS. The holders of Stock Units
shall have no voting rights. Prior to settlement or forfeiture, any Stock Unit
awarded under the Plan may, at the Committee's discretion, carry with it a right
to dividend equivalents. Such right entitles the holder to be credited with an
amount equal to all cash dividends paid on one Common Share while the Stock Unit
is outstanding. Dividend equivalents may be converted into additional Stock
Units. Settlement of dividend equivalents may be made in the form of cash, in
the form of Common Shares, or in a combination of both. Prior to distribution,
any dividend equivalents which are not paid shall be subject to the same
conditions and restrictions as the Stock Units to which they attach.
10.5 FORM AND TIME OF SETTLEMENT OF STOCK UNITS. Settlement of
vested Stock Units may be made in the form of (a) cash, (b) Common Shares or (c)
any combination of both, as determined by the Committee. The actual number of
Stock Units eligible for settlement may be larger or smaller than the number
included in the original Award, based on predetermined performance factors.
Methods of converting Stock Units into cash may include (without limitation) a
method based on the average Fair Market Value of Common Shares over a series of
trading days. Vested Stock Units may be settled in a lump sum or in
installments. The distribution may occur or commence when all vesting conditions
applicable to the Stock Units have been satisfied or have lapsed, or it may be
deferred to any later date. The amount of a deferred distribution may be
increased by an interest factor or by dividend equivalents. Until an Award of
Stock Units is settled, the number of such Stock Units shall be subject to
adjustment pursuant to Article 11.
10.6 DEATH OF RECIPIENT. Any Stock Units Award that becomes
payable after the recipient's death shall be distributed to the recipient's
beneficiary or beneficiaries. Each recipient of a Stock Units Award under the
Plan shall designate one or more beneficiaries for this purpose by filing the
prescribed form with the Company. A beneficiary designation may be changed by
filing the prescribed form with the Company at any time before the Award
recipient's death. If no beneficiary was designated or if no designated
beneficiary survives the Award recipient, then any Stock Units Award that
becomes payable after the recipient's death shall be distributed to the
recipient's estate.
10.7 CREDITORS' RIGHTS. A holder of Stock Units shall have no
rights other than those of a general creditor of the Company. Stock Units
represent an unfunded and unsecured obligation of the Company, subject to the
terms and conditions of the applicable Stock Unit Agreement.
8
<PAGE> 13
ARTICLE 11. PROTECTION AGAINST DILUTION.
11.1 ADJUSTMENTS. In the event of a subdivision of the
outstanding Common Shares, a declaration of a dividend payable in Common Shares,
a declaration of a dividend payable in a form other than Common Shares in an
amount that has a material effect on the price of Common Shares, a combination
or consolidation of the outstanding Common Shares (by reclassification or
otherwise) into a lesser number of Common Shares, a recapitalization, a spin-off
or a similar occurrence, the Committee shall make such adjustments as it, in its
sole discretion, deems appropriate in one or more of:
(a) The number of Options, SARs, Restricted Shares and
Stock Units available for future Awards under Article 3;
(b) The limitations set forth in Sections 5.2 and 8.2;
(c) The number of NSOs to be granted to Outside
Directors under Article 7;
(d) The number of Common Shares covered by each
outstanding Option and SAR;
(e) The Exercise Price under each outstanding Option and
SAR; or
(f) The number of Stock Units included in any prior
Award which has not yet been settled.
Except as provided in this Article 11, a Participant shall have no rights by
reason of any issue by the Company of stock of any class or securities
convertible into stock of any class, any subdivision or consolidation of shares
of stock of any class, the payment of any stock dividend or any other increase
or decrease in the number of shares of stock of any class.
11.2 DISSOLUTION OR LIQUIDATION. To the extent not previously exercised
or settled, Options, SARs and Stock Units shall terminate immediately prior to
the dissolution or liquidation of the Company.
11.3 REORGANIZATIONS. In the event that the Company is a party to a
merger or other reorganization, outstanding Awards shall be subject to the
agreement of merger or reorganization. Such agreement shall provide for (a) the
continuation of the outstanding Awards by the Company, if the Company is a
surviving corporation, (b) the assumption of the outstanding Awards by the
surviving corporation or its parent or subsidiary, (c) the substitution by the
surviving corporation or its parent or subsidiary of its own awards for the
outstanding Awards, (d) full exercisability and/or vesting and accelerated
expiration of the outstanding Awards or (e) settlement of the full value of the
outstanding Awards in cash or cash equivalents followed by cancellation of such
Awards.
9
<PAGE> 14
ARTICLE 12. CHANGE IN CONTROL.
Unless the applicable agreement evidencing the Award provides
otherwise, in the event of any Change in Control, the vesting and exercisability
of each outstanding Award shall automatically accelerate so that each such Award
shall, immediately prior to the effective date of the Change in Control, become
fully exercisable for all of the Common Shares at the time subject to such Award
and may be exercised for any or all of those shares as fully-vested Common
Shares. However, the vesting and exercisability of an outstanding Award shall
not so accelerate if and to the extent such Award, in connection with the Change
in Control, remains outstanding, or is assumed by the surviving corporation (or
parent or subsidiary thereof) or substituted with an award with substantially
the same terms by the surviving corporation (or parent or subsidiary thereof).
The determination of whether a substituted award has substantially the same
terms as an Award shall be made by the Committee, and its determination shall be
final, binding and conclusive.
Unless the applicable agreement evidencing the Award provides
otherwise, in the event of any Change in Control and in the event that a
recipient of an Award experiences an Involuntary Termination within twelve (12)
months following such Change in Control, the vesting and exercisability of each
outstanding Award held by such recipient shall automatically accelerate, as if
the recipient of the Award provided another twelve (12) months of service
following such Involuntary Termination.
If the Company and the other party to the transaction
constituting a Change in Control agree that such transaction is to be treated as
a "pooling of interests" for financial reporting purposes, and if such
transaction in fact is so treated, then the acceleration of vesting and
exercisability shall not occur to the extent that the Company's independent
accountants and such other party's independent accountants separately determine
in good faith that such acceleration would preclude the use of "pooling of
interests" accounting.
ARTICLE 13. DEFERRAL OF AWARDS.
The Committee (in its sole discretion) may permit or require a Participant to:
(a) Have cash that otherwise would be paid to such
Participant as a result of the exercise of an SAR or the
settlement of Stock Units credited to a deferred compensation
account established for such Participant by the Committee as an
entry on the Company's books;
(b) Have Common Shares that otherwise would be delivered
to such Participant as a result of the exercise of an Option or
SAR converted into an equal number of Stock Units; or
(c) Have Common Shares that otherwise would be delivered
to such Participant as a result of the exercise of an Option or
SAR or the settlement of Stock Units converted into amounts
credited to a deferred compensation account established for such
Participant by the Committee as an entry on the Company's books.
Such amounts shall be determined by reference to the Fair
10
<PAGE> 15
Market Value of such Common Shares as of the date when they
otherwise would have been delivered to such Participant.
A deferred compensation account established under this Article 13 may be
credited with interest or other forms of investment return, as determined by the
Committee. A Participant for whom such an account is established shall have no
rights other than those of a general creditor of the Company. Such an account
shall represent an unfunded and unsecured obligation of the Company and shall be
subject to the terms and conditions of the applicable agreement between such
Participant and the Company. If the deferral or conversion of Awards is
permitted or required, the Committee (in its sole discretion) may establish
rules, procedures and forms pertaining to such Awards, including (without
limitation) the settlement of deferred compensation accounts established under
this Article 13.
ARTICLE 14. AWARDS UNDER OTHER PLANS.
The Company may grant awards under other plans or programs. Such awards may be
settled in the form of Common Shares issued under this Plan. Such Common Shares
shall be treated for all purposes under the Plan like Common Shares issued in
settlement of Stock Units and shall, when issued, reduce the number of Common
Shares available under Article 3.
ARTICLE 15. PAYMENT OF DIRECTOR'S FEES IN SECURITIES.
15.1 EFFECTIVE DATE. No provision of this Article 15 shall be
effective unless and until the Board has determined to implement such provision.
15.2 ELECTIONS TO RECEIVE NSOS, RESTRICTED SHARES OR STOCK
UNITS. An Outside Director may elect to receive his or her annual retainer
payments and/or meeting fees from the Company in the form of cash, NSOs,
Restricted Shares or Stock Units, or a combination thereof, as determined by the
Board. Such NSOs, Restricted Shares and Stock Units shall be issued under the
Plan. An election under this Article 15 shall be filed with the Company on the
prescribed form.
15.3 NUMBER AND TERMS OF NSOS, RESTRICTED SHARES OR STOCK UNITS.
The number of NSOs, Restricted Shares or Stock Units to be granted to Outside
Directors in lieu of annual retainers and meeting fees that would otherwise be
paid in cash shall be calculated in a manner determined by the Board. The terms
of such NSOs, Restricted Shares or Stock Units shall also be determined by the
Board.
ARTICLE 16. LIMITATION ON RIGHTS.
16.1 RETENTION RIGHTS. Neither the Plan nor any Award granted
under the Plan shall be deemed to give any individual a right to remain an
Employee, Outside Director or Consultant. The Company and its Parents,
Subsidiaries and Affiliates reserve the right to terminate the service of any
Employee, Outside Director or Consultant at any time, with or without cause,
subject to applicable laws, the Company's certificate of incorporation and
by-laws and a written employment agreement (if any).
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<PAGE> 16
16.2 STOCKHOLDERS' RIGHTS. A Participant shall have no dividend
rights, voting rights or other rights as a stockholder with respect to any
Common Shares covered by his or her Award prior to the time when a stock
certificate for such Common Shares is issued or, if applicable, the time when he
or she becomes entitled to receive such Common Shares by filing any required
notice of exercise and paying any required Exercise Price. No adjustment shall
be made for cash dividends or other rights for which the record date is prior to
such time, except as expressly provided in the Plan.
16.3 REGULATORY REQUIREMENTS. Any other provision of the Plan
notwithstanding, the obligation of the Company to issue Common Shares under the
Plan shall be subject to all applicable laws, rules and regulations and such
approval by any regulatory body as may be required. The Company reserves the
right to restrict, in whole or in part, the delivery of Common Shares pursuant
to any Award prior to the satisfaction of all legal requirements relating to the
issuance of such Common Shares, to their registration, qualification or listing
or to an exemption from registration, qualification or listing.
ARTICLE 17. WITHHOLDING TAXES.
17.1 GENERAL. To the extent required by applicable federal,
state, local or foreign law, a Participant or his or her successor shall make
arrangements satisfactory to the Company for the satisfaction of any withholding
tax obligations that arise in connection with the Plan. The Company shall not be
required to issue any Common Shares or make any cash payment under the Plan
until such obligations are satisfied.
17.2 SHARE WITHHOLDING. The Committee may permit a Participant
to satisfy all or part of his or her withholding or income tax obligations by
having the Company withhold all or a portion of any Common Shares that otherwise
would be issued to him or her or by surrendering all or a portion of any Common
Shares that he or she previously acquired. Such Common Shares shall be valued at
their Fair Market Value on the date when they are withheld or surrendered.
ARTICLE 18. FUTURE OF THE PLAN.
18.1 TERM OF THE PLAN. The Plan, as set forth herein, shall
become effective on the effective date of the Company's initial public offering
of its Common Shares. The Plan shall remain in effect until it is terminated
under Section 17.2, except that no ISOs shall be granted on or after the 10th
anniversary of the later of (a) the date when the Board adopted the Plan or (b)
the date when the Board adopted the most recent increase in the number of Common
Shares available under Article 3 which was approved by the Company's
stockholders.
18.2 AMENDMENT OR TERMINATION. The Board may, at any time and
for any reason, amend or terminate the Plan. An amendment of the Plan shall be
subject to the approval of the Company's stockholders only to the extent
required by applicable laws, regulations or rules. No Awards shall be granted
under the Plan after the termination thereof. The termination of the Plan, or
any amendment thereof, shall not affect any Award previously granted under the
Plan.
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<PAGE> 17
ARTICLE 19. LIMITATION ON PAYMENTS.
19.1 SCOPE OF LIMITATION. This Article 19 shall apply to an
Award only if:
(a) The independent auditors most recently selected by
the Board (the "Auditors") determine that the after-tax value of
such Award to the Participant, taking into account the effect of
all federal, state and local income taxes, employment taxes and
excise taxes applicable to the Participant (including the excise
tax under section 4999 of the Code), will be greater after the
application of this Article 19 than it was before the
application of this Article 19; or
(b) The Committee, at the time of making an Award under
the Plan or at any time thereafter, specifies in writing that
such Award shall be subject to this Article 19 (regardless of
the after-tax value of such Award to the Participant).
19.2 If this Article 19 applies to an Award, it shall supersede
any contrary provision of the Plan or of any Award granted under the Plan.
19.3 BASIC RULE. In the event that the Auditors determine that
any payment or transfer by the Company under the Plan to or for the benefit of a
Participant (a "Payment") would be nondeductible by the Company for federal
income tax purposes because of the provisions concerning "excess parachute
payments" in section 280G of the Code, then the aggregate present value of all
Payments shall be reduced (but not below zero) to the Reduced Amount. For
purposes of this Article 19, the "Reduced Amount" shall be the amount, expressed
as a present value, which maximizes the aggregate present value of the Payments
without causing any Payment to be nondeductible by the Company because of
section 280G of the Code.
19.4 REDUCTION OF PAYMENTS. If the Auditors determine that any
Payment would be nondeductible by the Company because of section 280G of the
Code, then the Company shall promptly give the Participant notice to that effect
and a copy of the detailed calculation thereof and of the Reduced Amount, and
the Participant may then elect, in his or her sole discretion, which and how
much of the Payments shall be eliminated or reduced (as long as after such
election the aggregate present value of the Payments equals the Reduced Amount)
and shall advise the Company in writing of his or her election within 10 days of
receipt of notice. If no such election is made by the Participant within such
10-day period, then the Company may elect which and how much of the Payments
shall be eliminated or reduced (as long as after such election the aggregate
present value of the Payments equals the Reduced Amount) and shall notify the
Participant promptly of such election. For purposes of this Article 19, present
value shall be determined in accordance with section 280G(d)(4) of the Code. All
determinations made by the Auditors under this Article 19 shall be binding upon
the Company and the Participant and shall be made within 60 days of the date
when a Payment becomes payable or transferable. As promptly as practicable
following such determination and the elections hereunder, the Company shall pay
or transfer to or for the benefit of the Participant such amounts as are then
due to him or her under the Plan and shall promptly pay or transfer to or for
the benefit of the Participant in the future such amounts as become due to him
or her under the Plan.
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<PAGE> 18
19.5 OVERPAYMENTS AND UNDERPAYMENTS. As a result of uncertainty
in the application of section 280G of the Code at the time of an initial
determination by the Auditors hereunder, it is possible that Payments will have
been made by the Company which should not have been made (an "Overpayment") or
that additional Payments which will not have been made by the Company could have
been made (an "Underpayment"), consistent in each case with the calculation of
the Reduced Amount hereunder. In the event that the Auditors, based upon the
assertion of a deficiency by the Internal Revenue Service against the Company or
the Participant which the Auditors believe has a high probability of success,
determine that an Overpayment has been made, such Overpayment shall be treated
for all purposes as a loan to the Participant which he or she shall repay to the
Company, together with interest at the applicable federal rate provided in
section 7872(f)(2) of the Code; provided, however, that no amount shall be
payable by the Participant to the Company if and to the extent that such payment
would not reduce the amount which is subject to taxation under section 4999 of
the Code. In the event that the Auditors determine that an Underpayment has
occurred, such Underpayment shall promptly be paid or transferred by the Company
to or for the benefit of the Participant, together with interest at the
applicable federal rate provided in section 7872(f)(2) of the Code.
19.6 RELATED CORPORATIONS. For purposes of this Article 19, the
term "Company" shall include affiliated corporations to the extent determined by
the Auditors in accordance with section 280G(d)(5) of the Code.
ARTICLE 20. DEFINITIONS.
20.1 "AFFILIATE" means any entity other than a Subsidiary, if
the Company and/or one or more Subsidiaries own not less than 50% of such
entity.
20.2 "AWARD" means any award of an Option, an SAR, a Restricted
Share or a Stock Unit under the Plan.
20.3 "BOARD" means the Company's Board of Directors, as
constituted from time to time.
20.4 "CAUSE" means the commission of any act of fraud,
embezzlement or dishonesty by the recipient of the Award, any unauthorized use
or disclosure by such person of confidential information or trade secrets of the
Company (or any Parent or Subsidiary), or any other intentional misconduct by
such person adversely affecting the business or affairs of the Company (or any
Parent or Subsidiary) in a material manner.
20.5 "CHANGE IN CONTROL" means:
(a) The consummation of a merger or consolidation of the
Company with or into another entity or any other corporate
reorganization, if persons who were not stockholders of the
Company immediately prior to such merger, consolidation or other
reorganization own immediately after such merger, consolidation
or other reorganization 50% or more of the voting power of the
outstanding securities of each of (i) the continuing or
surviving entity and (ii) any direct or indirect parent
corporation of such continuing or surviving entity;
14
<PAGE> 19
(b) The sale, transfer or other disposition of all or
substantially all of the Company's assets;
(c) A change in the composition of the Board, as a
result of which fewer than 50% of the incumbent directors are
directors who either (i) had been directors of the Company on
the date 24 months prior to the date of the event that may
constitute a Change in Control (the "original directors") or
(ii) were elected, or nominated for election, to the Board with
the affirmative votes of at least a majority of the aggregate of
the original directors who were still in office at the time of
the election or nomination and the directors whose election or
nomination was previously so approved; or
(d) Any transaction as a result of which any person is
the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the
Company representing at least 50% of the total voting power
represented by the Company's then outstanding voting securities.
For purposes of this Paragraph (d), the term "person" shall have
the same meaning as when used in sections 13(d) and 14(d) of the
Exchange Act but shall exclude(i) a trustee or other fiduciary
holding securities under an employee benefit plan of the Company
or of a Parent or Subsidiary and (ii) a corporation owned
directly or indirectly by the stockholders of the Company in
substantially the same proportions as their ownership of the
common stock of the Company.
A transaction shall not constitute a Change in Control if its sole purpose is to
change the state of the Company's incorporation or to create a holding company
that will be owned in substantially the same proportions by the persons who held
the Company's securities immediately before such transaction.
20.6 "CODE" means the Internal Revenue Code of 1986, as amended.
20.7 "COMMITTEE" means a committee of the Board, as described in
Article 2.
20.8 "COMMON SHARE" means one share of the common stock of the
Company.
20.9 "COMPANY" means Selectica, Inc., a Delaware corporation.
20.10 "CONSULTANT" means a consultant or adviser who provides
bona fide services to the Company, a Parent, a Subsidiary or an Affiliate as an
independent contractor. Service as a Consultant shall be considered employment
for all purposes of the Plan, except as provided in Section 4.1.
20.11 "EMPLOYEE" means a common-law employee of the Company, a
Parent, a Subsidiary or an Affiliate.
20.12 "EXCHANGE ACT" means the Securities Exchange Act of 1934,
as amended.
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<PAGE> 20
20.13 "EXERCISE PRICE," in the case of an Option, means the
amount for which one Common Share may be purchased upon exercise of such Option,
as specified in the applicable Stock Option Agreement. "Exercise Price," in the
case of an SAR, means an amount, as specified in the applicable SAR Agreement,
which is subtracted from the Fair Market Value of one Common Share in
determining the amount payable upon exercise of such SAR.
20.14 "FAIR MARKET VALUE" means the market price of Common
Shares, determined by the Committee in good faith on such basis as it deems
appropriate. Whenever possible, the determination of Fair Market Value by the
Committee shall be based on the prices reported in The Wall Street Journal. Such
determination shall be conclusive and binding on all persons.
20.15 "INVOLUNTARY TERMINATION" means the termination of the
service of the recipient of the Award which occurs by reason of: (1) such
recipient's involuntary dismissal or discharge by the Company for reasons other
than Cause, or (2) such recipient's voluntary resignation following (A) a change
in his or her position with the Company which materially reduces his or her
level of responsibility, (B) a reduction in his or her level of base salary or
(C) a relocation of such recipient's place of employment by more than 35 miles,
provided and only if such change, reduction or relocation is effected by the
Company without the recipient's consent.
20.16 "ISO" means an incentive stock option described in section
422(b) of the Code.
20.17 "NSO" means a stock option not described in sections 422
or 423 of the Code.
20.18 "OPTION" means an ISO or NSO granted under the Plan and
entitling the holder to purchase Common Shares.
20.19 "OPTIONEE" means an individual or estate who holds an
Option or SAR.
20.20 "OUTSIDE DIRECTOR" shall mean a member of the Board who is
not an Employee. Service as an Outside Director shall be considered employment
for all purposes of the Plan, except as provided in Section 4.1.
20.21 "PARENT" means any corporation (other than the Company) in
an unbroken chain of corporations ending with the Company, if each of the
corporations other than the Company owns stock possessing 50% or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain. A corporation that attains the status of a Parent on
a date after the adoption of the Plan shall be considered a Parent commencing as
of such date.
20.22 "PARTICIPANT" means an individual or estate who holds an
Award.
20.23 "PLAN" means this Selectica, Inc. 1999 Equity Incentive
Plan, as amended from time to time.
20.24 "RESTRICTED SHARE" means a Common Share awarded under the
Plan.
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<PAGE> 21
20.25 "RESTRICTED STOCK AGREEMENT" means the agreement between
the Company and the recipient of a Restricted Share which contains the terms,
conditions and restrictions pertaining to such Restricted Share.
20.26 "SAR" means a stock appreciation right granted under the
Plan.
20.27 "SAR AGREEMENT" means the agreement between the Company
and an Optionee which contains the terms, conditions and restrictions pertaining
to his or her SAR.
20.28 "STOCK OPTION AGREEMENT" means the agreement between the
Company and an Optionee that contains the terms, conditions and restrictions
pertaining to his or her Option.
20.29 "STOCK UNIT" means a bookkeeping entry representing the
equivalent of one Common Share, as awarded under the Plan.
20.30 "STOCK UNIT AGREEMENT" means the agreement between the
Company and the recipient of a Stock Unit which contains the terms, conditions
and restrictions pertaining to such Stock Unit.
20.31 "SUBSIDIARY" means any corporation (other than the
Company) in an unbroken chain of corporations beginning with the Company, if
each of the corporations other than the last corporation in the unbroken chain
owns stock possessing 50% or more of the total combined voting power of all
classes of stock in one of the other corporations in such chain. A corporation
that attains the status of a Subsidiary on a date after the adoption of the Plan
shall be considered a Subsidiary commencing as of such date.
17
<PAGE> 1
EXHIBIT 10.5
BASIC LEASE INFORMATION
OFFICE NET
LEASE DATE: December 8, 1997
TENANT: Selectica, Inc., a California corporation
TENANT'S NOTICE ADDRESS: 2890 Zanker Road, Suite 101
San Jose, CA 95134
TENANT'S BILLING ADDRESS: 2890 Zanker Road, Suite 101
San Jose, CA 95134
TENANT CONTACT: Raj Jarwa PHONE NUMBER: (408) 450-8930
LANDLORD: Spieker Properties, L.P., a California
limited partnership
LANDLORD'S NOTICE ADDRESS: 2860 Zanker Road, Suite 102
San Jose, CA 95134
LANDLORD'S REMITTANCE ADDRESS: Spieker Properties, L.P.
P.O. Box 45587
Dept. #11311
San Francisco, CA 94145-0587
Project Description: Central Park Plaza, San Jose, California
Building Description: 2890 Zanker Road, San Jose, California 95134
Premises: Approximately 9,359 rentable square feet at
2890 Zanker Road, Suite 101, San Jose,
California
Permitted Use: General office and administrative use
Occupancy Density: 37 people
Parking Density: 37 non-exclusive spaces
Parking and Parking Charge: Not applicable
Scheduled Term Commencement Date: February 1, 1998
Length of Term: Five (5) years
Rent:
Base Rent: $16,846.20 per month during the first year
of the lease term (subject to adjustment as
provided in Paragraph 39 hereof)
Estimated First Year
Operating Expenses: $5,147.45 per month is estimated through
December, 1998.
Security Deposit: $51,287.00 cash security deposit payable
upon execution of Lease. $100,000.00 in the
form of an irrevocable Letter of Credit in
accordance with the provisions of Paragraph
39.C.
Tenant's Proportionate Share:
Of Building: 21.2% (44,088 total building square footage).
Of Project: 3.08% (303,866 total project square footage).
The foregoing Basic Lease Information is incorporated into and made a part of
this Lease. Each reference in this Lease to any of the Basic Lease Information
shall mean the respective information above and shall be construed to
incorporate all of the terms provided under the particular Lease paragraph
pertaining to such information. In the event of any conflict between the Basic
Lease Information and the Lease, the latter shall control.
Office Net Lease - Version 10.1
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Basic Lease Information............................................... 1
Table of Contents..................................................... 2
1. Premises.............................................................. 3
2. Possession and Lease Commencement..................................... 3
3. Term.................................................................. 3
4. Use................................................................... 3
5. Rules and Regulations................................................. 4
6. Rent.................................................................. 4
7. Operating Expenses.................................................... 4
8. Insurance and Indemnification......................................... 6
9. Waiver of Subrogation................................................. 7
10. Landlord's Repairs and Maintenance.................................... 7
11. Tenant's Repairs and Maintenance...................................... 7
12. Alterations........................................................... 7
13. Signs................................................................. 8
14. Inspection/Posting Notices............................................ 8
15. Services and Utilities................................................ 8
16. Subordination......................................................... 9
17. Financial Statements.................................................. 9
18. Estoppel Certificate.................................................. 9
19. Security Deposit...................................................... 9
20. Tenant's Remedies..................................................... 10
21. Assignment of Subletting.............................................. 10
22. Authority of Tenant................................................... 10
23. Condemnation.......................................................... 11
24. Casualty Damage....................................................... 11
25. Holding Over.......................................................... 12
26. Default............................................................... 12
27. Liens................................................................. 13
28. Substitution.......................................................... 13
29. Transfers by Landlord................................................. 13
30. Right of Landlord to Perform Tenant's Covenants....................... 13
31. Waiver................................................................ 14
32. Notices............................................................... 14
33. Attorney's Fees....................................................... 14
34. successors and Assigns................................................ 14
35. Force Majeure......................................................... 14
36. Surrender of Premises................................................. 14
37. Parking............................................................... 14
38. Miscellaneous......................................................... 14
39. Additional Provisions................................................. 16
Signature............................................................. 18
Exhibits:
Exhibit A.............................................Rules and Regulations
Exhibit B...................................Site Plan, Property Description
Exhibit C............................Tenant Improvements and Specifications
</TABLE>
2
<PAGE> 3
LEASE
THIS LEASE is made as of the eighth day of December, 1997, by and between
Spieker Properties, L.P., a California limited partnership (hereinafter called
"Landlord"), and Selectica, Inc., a California corporation (hereinafter called
"Tenant").
1. PREMISES
Landlord leases to Tenant and Tenant leases from Landlord, upon the terms
and conditions hereinafter set forth, those premises (the "Premises") outlined
in red on Exhibit B and described in the Basic Lease Information. The Premises
shall be all or part of a building (the "Building") and of a project (the
"Project") which may consist of more than one building, as described in the
Basic Lease Information. The Building and Project are outlined in blue and green
respectively on Exhibit B. Landlord and Tenant acknowledge that physical
changes may occur from time to time in the Premises, Building or Project, and
that the number of buildings which constitute the Project may change from time
to time, which may result in an adjustment in Tenant's Proportionate Share, as
defined in the Basic Lease Information, as provided in Paragraph 7.A.
2. POSSESSION AND LEASE COMMENCEMENT
A. EXISTING IMPROVEMENTS. If this Lease pertains to Premises in which the
interior improvements have already been constructed ("Existing Improvements"),
the provisions of this Paragraph 2.A. shall apply and the term commencement date
("Term Commencement Date") shall be the earlier of the date on which: (1) Tenant
takes possession of some or all of the Premises; or (2) Landlord notifies Tenant
that Tenant may occupy the Premises. If for any reason Landlord cannot deliver
possession of the Premises to Tenant on the scheduled Term Commencement Date,
Landlord shall not be subject to any liability therefor, nor shall Landlord be
in default hereunder nor shall such failure affect the validity of this Lease,
and Tenant agrees to accept possession of the Premises at such time as Landlord
is able to deliver the same, which date shall then be deemed the Term
Commencement Date. Tenant shall not be liable for any Rent (defined below) for
any period prior to the Term Commencement Date. Tenant acknowledges that Tenant
has inspected and accepts the Premises in their present condition, "as is," and
as suitable for, the Permitted Use (as defined below), and for Tenant's intended
operations in the Premises. Tenant agrees that the Premises and other
improvements are in good and satisfactory condition as of when possession was
taken. Tenant further acknowledges that no representations as to the condition
or repair of the Premises nor promises to alter, remodel or improve the Premises
have been made by Landlord or any agents of Landlord unless such are expressly
set forth in the Lease. Upon Landlord's request, Tenant shall execute and return
to Landlord a "Start-Up Letter" in which Tenant shall agree, among other things,
to acceptance of the Premises and to the determination of the Term Commencement
Date, in accordance with the terms of this Lease, but Tenant's failure or
refusal to do so shall not negate Tenant's acceptance of the Premises or affect
determination of the Term Commencement Date.
B. CONSTRUCTION OF IMPROVEMENTS. If this Lease pertains to a Building to be
constructed or improvements to be constructed within a Building, the
provisions of this Paragraph 2.B. shall apply in lieu of the provisions of
Paragraph 2.A. above and the term commencement date ("Term Commencement Date")
shall be the earlier of the date on which: (1) Tenant takes possession of some
or all of the Premises; or (2) the improvements to be constructed or performed
in the Premises by Landlord (if any) shall have been substantially completed in
accordance with the plans and specifications, if any, described on Exhibit C
and Tenant's taking of possession of the Premises or any part thereof shall
constitute Tenant's confirmation of substantial completion for all purposes
hereof, whether or not substantial completion of the Building or Project shall
have occurred. If for any reason Landlord cannot deliver possession of the
Premises to Tenant on the scheduled Term Commencement Date, Landlord shall not
be subject to any liability therefor, nor shall Landlord be in default
hereunder nor shall such failure affect the validity of this Lease, and Tenant
agrees to accept possession of the Premises at such time as such improvements
have been substantially completed, which date shall then be deemed the Term
Commencement Date. Tenant shall not be liable for any Rent for any period prior
to the Term Commencement Date (but without affecting any obligations of Tenant
under any improvement agreement appended to this Lease). In the event of any
dispute as to substantial completion of work performed or required to be
performed by Landlord, the certificate of Landlord's architect or general
contractor shall be conclusive. Substantial completion shall have occurred
notwithstanding Tenant's submission of a punchlist to Landlord, which Tenant
shall submit, if at all, within three (3) business days after the Term
Commencement Date or otherwise in accordance with any improvement agreement
appended to this Lease. Upon Landlord's request, Tenant shall promptly execute
and return to Landlord a Start-Up Letter in which Tenant shall agree, among
other things, to acceptance of the Premises and to the determination of the
Term Commencement Date, in accordance with the terms of this Lease, but
Tenant's failure or refusal to do so shall not negate Tenant's acceptance of
the Premises or affect determination of the Term Commencement Date.
3. TERM
The term of this Lease (the "Term") shall commence on the Term
Commencement Date and continue in full force and effect for the number of
months specified as the Length of Term in the Basic Lease Information or until
this Lease is terminated as otherwise provided herein. If the Term Commencement
Date is a date other than the first day of the calendar month, the Term shall
be the number of months of the Length of Term in addition to the remainder of
the calendar month following the Term Commencement Date.
4. USE
A. GENERAL. Tenant shall use the Premises for the permitted use specified in
the Basic Lease Information ("Permitted Use") and for no other use or purpose.
Tenant shall control Tenant's employees, agents, customers, visitors, invitees,
licensees, contractors, engineers and subtenants (collectively, "Tenant's
Parties") in such a manner that Tenant and Tenant's Parties cumulatively do not
exceed the occupancy density (the "Occupancy Density") or the parking density
(the "Parking Density") specified in the Basic Lease Information at any time.
Tenant shall pay the Parking Charge specified in the Basic Lease Information as
Additional Rent (as hereinafter defined) hereunder. So long as Tenant is
occupying the Premises, Tenant and Tenant's Parties shall have the nonexclusive
right to use, in common with other parties occupying the Building or Project,
the parking areas, driveways and other common areas of the Building and Project,
subject to the terms of this Lease and such rules and regulations as Landlord
may from time to time prescribe. Landlord reserves the right to alter or modify
the common area from time to time, including the configuration thereof and the
amenities and facilities which Landlord may determine to provide from time to
time.
B. LIMITATIONS. Tenant shall not permit any odor, smoke, dust, gas,
substances, noise or vibrations to emanate from the Premises or from any
portion of the common areas as a result of Tenant's or any Tenant's Party's use
thereof, nor take any action which would constitute a nuisance or would
disturb, obstruct or endanger any other tenants or occupants of the Building or
Project or elsewhere, or interfere with their use of their respective premises
or common areas. Storage outside the Premises of materials, vehicles or any
other items is prohibited. Tenant shall not use or allow the Premises to be
used for any immoral, improper or unlawful purpose, nor shall Tenant cause or
maintain or permit any nuisance in, on or about the Premises. Tenant shall not
commit or suffer the commission of any waste in,
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on or about the Premises. Tenant shall not allow any sale by auction upon the
Premises, or place any leads upon the floors, walls or ceilings which could
endanger the structure, or place any harmful substances in the drainage system
of the Building or Project. No waste, materials or refuse shall be dumped upon
or permitted to remain outside the Premises. Landlord shall not be responsible
to Tenant for the non-compliance by any other tenant or occupant of the
Building or Project with any of the above-referenced rules or any other terms
or provisions of such tenant's or occupant's lease or other contract.
C. COMPLIANCE WITH REGULATIONS. By entering the Premises, Tenant accepts the
Premises in the condition existing as of the date of such entry. Tenant shall at
its sole cost and expense strictly comply with all existing or future applicable
municipal, State and federal and other governmental statutes, rules,
requirements, regulations, laws and ordinances, including zoning ordinances and
regulations, and covenants, ?? and restrictions of record governing and relating
to the use, occupancy or possession of the Premises, to Tenant's use of the
common areas, or to the use, storage, generation or disposal of Hazardous
Materials (hereinafter defined) (collectively "Regulations"). Tenant shall at
its sole and expense obtain any and all licenses or permits necessary for
Tenant's use of the Premises. Tenant shall at its sole cost and expense promptly
comply with the requirements of any board of fire underwriters or other similar
body now or hereafter constituted. Tenant shall not do or permit anything to be
done in, or, under or about the Project or bring or keep anything which will in
any way increase the rate of any insurance upon the Premises, Building or
Project or upon any contents herein or cause a cancellation of said insurance or
otherwise affect said insurance in any manner. Tenant shall indemnify, defend,
protect and hold Landlord harmless from and against any loss, cost, expense,
damage, attorneys' fees or liability arising out of the failure of Tenant to
comply with any Regulation. Tenant's obligations pursuant to the foregoing
indemnity shall survive the expiration or earlier termination of this Lease.
D. HAZARDOUS MATERIALS. As used in this Lease, "Hazardous Materials" shall
include, but not be limited to, hazardous, toxic and radioactive materials and
those substances defined as "hazardous substances," "hazardous materials,"
"hazardous waste," "toxic substances," or other similar designations to any
Registration. Tenant shall not cause, or allow any of Tenant's Parties to cause,
any Hazardous Materials to be handled, used, generated, moved, released or
disposed of in, on, under or about the Premises, the Building or the Project or
surrounding land or environment in violation of any Regulations. Tenant must
obtain Landlord's written consent prior to the introduction of any Hazardous
Materials on to the Project. Notwithstanding the foregoing, Tenant may handle,
store, use and dispose of products containing small quantities of Hazardous
Materials for "general office purposes" (such as toner for copiers) to the
extent customary and necessary for the Permitted Use of the Premises, provided
that Tenant shall always handle, store, use and dispose of any such Hazardous
Materials in a safe and lawful manner and never allow such Hazardous Materials
to contaminate the Premises, Building, or Project or surrounding land or
environment. Tenant shall immediately notify Landlord in writing of any
Hazardous Materials' contamination of any portion of the Project of which Tenant
becomes aware, whether or not caused by Tenant. Landlord shall have the right at
all reasonable times to inspect the Premises and to conduct tests and
investigations to determine whether Tenant is in compliance with the foregoing
provisions, the costs of all such inspections, tests and investigations to be
borne by Tenant. Tenant shall indemnify, defend (by counsel reasonably
acceptable to Landlord), protect and hold Landlord harmless from and against any
and all claims, liabilities, losses, costs, loss of rents, liens, damages,
injuries or expenses (including attorneys' and consultants' fees and court
costs), demands, causes of action, or judgments directly or indirectly arising
out of or related to the use, generation, storage, release, or disposal of
Hazardous Materials by Tenant or any of Tenant's Parties in, on, under and about
the Premises, the Building or the Project or surrounding land or environment,
which indemnity shall include, without limitation, damages for personal or
bodily injury, property damages, damage to the environment or natural resources
occurring on or off the Premises, loans attributable to discrimination in value
or adverse affects on marketability, the cost of any investigation, monitoring,
government oversight, repair, removal, remediation, restoration, abandonment and
disposal, and the preparation of any closure or other required plans, whether
such action is required or necessary prior to or following the expiration or
earlier termination of this Lease. Neither the consent by Landlord to the use,
generation, storage, release or disposal of Hazardous Materials nor the strict
compliance by Tenant with all laws pertaining to Hazardous Materials shall
excuse Tenant from Tenant's obligation of indemnification pursuant to this
Paragraph 4.D. Tenant's obligations pursuant to the foregoing indemnity shall
survive the expiration or earlier termination of this Lease.
5. RULES AND REGULATIONS
Tenant shall faithfully observe and comply with the building rules and
regulations attached hereto as Exhibit A and any other rules and regulations and
any modifications or additions thereto which Landlord may from time to time
prescribe in writing for the purpose of maintaining the proper care,
cleanliness, safety, traffic flow and general order of the Premises or the
Building or Project. Tenant shall cause Tenant's Parties to comply with such
rules and regulations. Landlord shall not be responsible to Tenant for the
non-compliance by any other tenant or occupant of the Building or Project with
any of such rules and regulations, any other tenant's or occupant's lease or any
Regulations.
6. RENT
A. BASE RENT. Tenant shall pay to Landlord and Landlord shall receive, without
notice or demand throughout the Term, Base Rent as specified in the Basic Lease
Information, payable in monthly installments in advance on or before the first
day of each calendar month, in lawful money of the United States, without
deduction or offset whatsoever, at the Remittance Address specified in the Basic
Lease Information, or to such other place as Landlord may from time to time
designate in writing. Base Rent for the first full month of the Term shall be
paid by Tenant upon Tenant's execution of this Lease. If the obligation for
payment of Base Rent commences on a day other than the first day of a month,
then Base Rent shall be prorated and the prorated installment shall be paid on
the first day of the calendar month next succeeding the Term Commencement Date.
The Base Rent payable by Tenant hereunder is subject to adjustment as provided
elsewhere in this Lease, as applicable. As used herein, the term "Base Rent"
shall mean the Base Rent specified in the Basic Lease Information as it may be
so adjusted from time to time.
B. ADDITIONAL RENT. All monies other than Base Rent required to be paid by
Tenant hereunder, including, but not limited to, Tenant's Proportionate Share
of Operating Expenses, as specified in Paragraph 7 of this Lease, charges to be
paid by Tenant under Paragraph 15, the interest and late charge described in
Paragraphs 26.C and D., and any monies spent by Landlord pursuant to Paragraph
30, shall be considered additional rent ("Additional Rent") "Rent" shall mean
Base Rent and Additional Rent.
7. OPERATING EXPENSES
A. OPERATING EXPENSES. In addition to the Base Rent required to be paid
hereunder, Tenant shall pay as Additional Rent, Tenant's Proportionate Share, as
defined in the Basic Lease Information, of Operating Expenses (defined below) in
the manner set forth below. Tenant shall pay the applicable Tenant's
Proportionate Share of each such Operating Expenses. Landlord and Tenant
acknowledge that if the number of buildings which constitute the Project
increases or decreases, or if physical changes are made to the Premises,
Building or Project or the configuration of any thereof, Landlord may at its
discretion reasonably adjust Tenant's Proportionate Share of the Building or
Project to reflect the change. Landlord's determination of Tenant's
Proportionate Share of the Building and of the Project shall be conclusive so
long as it is reasonably and consistently applied. "Operating Expenses" shall
mean all expenses and costs of every kind and nature which Landlord shall pay or
become obligated to pay, because of or in connection with the ownership,
management, maintenance, repair, preservation, replacement and operation of the
Building or Project and its supporting facilities (as determined in a
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reasonable manner) other than those expenses and costs which are specifically
attributable to Tenant or which are expressly made the financial responsibility
of Landlord pursuant to this Lease. Operating Expenses shall include, but are
not limited to, the following:
(1) TAXES. All real property taxes and assessments, possessory interest
taxes, sales taxes, personal property taxes, business or license taxes or
fees, gross receipts taxes, service payments in lieu of such taxes or fees,
annual or periodic license or use fees, excises, transit charges, and
other impositions, general and special, ordinary and extraordinary,
unforeseen as well as foreseen, of any kind (including fees "in-lieu" of
any such tax or assessment) which are new or hereafter assessed, levied,
charged, confirmed, or imposed by any public authority upon the Building or
Project, its operations or the Rent (or any portion or component thereof),
or any tax, assessment or fee imposed in substitution, partially or
totally, of any of the above. Operating Expenses shall also include any
taxes, assessments, reassessments, or other fees or impositions with
respect to the development, leasing, management, maintenance, alteration,
repair, use or occupancy of the Premises, Building or Project or any
portion thereof, including, without limitation, by or for Tenant, and all
increases therein or reassessments thereof whether the increases or
reassessments result from increased rate and/or valuation (whether upon a
transfer of the Building or Project or any portion thereof or any interest
therein or for any other reason). If it shall not be lawful for Tenant to
reimburse Landlord for all or any part of such taxes, the monthly rental
payable to Landlord under this Lease shall be revised to net Landlord the
same net rental after imposition of any such taxes by Landlord as would
have been payable to Landlord prior to the payment of any such taxes.
(2) INSURANCE. All insurance premiums and costs, including, but not
limited to, any deductible amounts, premiums and other costs of insurance
incurred by Landlord, including for the insurance coverage set forth in
Paragraph 8.A. herein.
(3) COMMON AREA MAINTENANCE.
(a) Repairs, replacements, and general maintenance of and for the
Building and Project and public and common areas of the Building and
Project, including, but not limited to, the roof, windows, elevators,
restrooms, conference rooms, health club facilities, lobbies,
mezzanines, balconies, mechanical rooms, building exteriors, alarm
systems, pest extermination, handicapped areas, parking and service
areas, driveways, sidewalks, loading areas, fire sprinkler systems,
sanitary and storm sewer lines, utility services,
heating/ventilation/air conditioning systems, electrical, mechanical
or other systems, telephone equipment and wiring servicing, plumbing,
lighting, and any other items or areas which affect the operation or
appearance of the Building or Project, which determination shall be at
Landlord's discretion, except for: those items expressly made the
financial responsibility of Landlord pursuant to Paragraph 10 hereof;
those items to the extent paid for by the proceeds of insurance; and
those items attributable solely or jointly to specific tenants of the
Building or Project.
(b) Repairs, replacements, and general maintenance shall include the
cost of any capital improvements made to or capital assets acquired
for the Project or Building that in Landlord's discretion may reduce
any other Operating Expenses, including present or future repair work,
are reasonably necessary for the health and safety of the occupants of
the Building or Project, or are required under any Regulation, such
costs or allocable portions thereof to be amortized over such
reasonable period as Landlord shall determine, together with interest
on the unamortized balance at the publicly announced "prime rate"
charged by Wells Fargo Bank, N.A. (San Francisco) or its successor at
the time such improvements or capital assets are constructed or
acquired, plus two (2) percentage points, or in the absence of such
prime rate, then at the U.S. Treasury six-month market note (or bond,
if so designated) rate as published by any national financial
publication selected by Landlord, plus four (4) percentage points, but
in no event more than the maximum rate permitted by law.
(c) Payment under or for any easement, licence, permit, operating
agreement, declaration, restrictive covenant or instrument relating to
the Building or Project.
(d) All expenses related to services and costs of supplies and
equipment used in maintaining the Premises, Building and Project, the
equipment therein and the adjacent sidewalks, driveways, parking and
service areas, including, without limitation, expenses related to
service agreements regarding security, fire and other alarm systems,
janitorial services, window cleaning, elevator maintenance, Building
exterior maintenance, landscaping and expenses related to the
administration, management and operation of the Project, including
without limitation salaries, wages and benefits and management office
rent.
(e) The cost of supplying any services and utilities which benefit
all or a portion of the Premises, Building or Project, including
without limitation services and utilities provided pursuant to
Paragraph 15 hereof.
(f) A management and accounting cost recovery fee equal to five
percent (5%) of the sum of the Project's base rents and Operating
Expenses (other than such management and accounting fee).
If the rentable area of the Building and/or Project is not fully occupied
during any fiscal year of the Term as determined by Landlord, an adjustment may
be made in Landlord's discretion in computing the Operating Expenses for such
year so that Tenant pays an equitable portion of all variable items (e.g.,
utilities, janitorial services and other component expenses that are affected
by variations in occupancy levels) of Operating Expenses, as reasonably
determined by Landlord; provided, however, that in no event shall Landlord be
entitled to collect in excess of one hundred percent (100%) of the total
Operating Expenses from all of the tenants in the Building or Project, as the
case may be.
Operating Expenses shall not include specific costs incurred for the
account of, separately billed to and paid by specific tenants of the Building
or Project. Notwithstanding anything herein to the contrary, in any instance
wherein Landlord, in Landlord's sole discretion, deems Tenant to be responsible
for any amounts greater than Tenant's Proportionate Share, Landlord shall have
the right to allocate costs in any manner Landlord deems appropriate.
The above enumeration of services and facilities shall not be deemed to
impose an obligation on Landlord to make available or provide such services or
facilities except to the extent if any that Landlord has specifically agreed
elsewhere in this Lease to make the same available or provide the same. Without
limiting the generality of the foregoing, Tenant acknowledges and agrees that
it shall be responsible for providing adequate security for its use of the
Premises, the Building and the Project and that Landlord shall have no
obligation or liability with respect thereto, except to the extent if any that
Landlord has specifically agreed elsewhere in this Lease to provide the same.
B. PAYMENT OF ESTIMATED OPERATING EXPENSES. "Estimated Operating Expenses"
for any particular year shall mean Landlord's estimate of the Operating
Expenses for such fiscal year made with respect to such fiscal year as
hereinafter provided. Landlord shall have the right from time to time to revise
its fiscal year and interim accounting periods so long as the periods as so
revised are reconciled with prior periods in a reasonable manner. During the
last month of each fiscal year during the Term, or as soon thereafter as
practicable, Landlord shall give Tenant written notice of the Estimated
Operating Expenses for the ensuing fiscal year. Tenant shall pay Tenant's
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Proportionate Share of the Estimated Operating Expenses with installments of
Base Rent for the fiscal year to which the Estimated Operating expenses applies
in monthly installments on the first day of each calendar month during such
year, in advance. If at any time during the course of the fiscal year, Landlord
determines that Operating Expenses are projected to vary from the then
Estimated Operating Expenses by more than ten percent (10%), Landlord may, by
written notice to Tenant, revise the Estimated Operating Expenses for the
balance of such fiscal year, and Tenant's monthly installments for the
remainder of such year shall be adjusted so that by the end of such fiscal year
Tenant has paid to Landlord Tenant's Proportionate Share of the revised
Estimated Operating Expenses for such year.
C. COMPUTATION OF OPERATING EXPENSES ADJUSTMENT. "Operating Expense Adjustment"
shall mean the difference between Estimated Operating Expenses and actual
Operating Expenses for any fiscal year determined as hereinafter provided.
Within one hundred twenty (120) days after the end of each fiscal year, or as
soon thereafter as practicable, Landlord shall deliver to Tenant a statement of
actual Operating Expenses for the fiscal year just ended, accompanied by a
computation of Operating Expense Adjustment. If such statement shows that
Tenant's payment based upon Estimated Operating Expenses is less than Tenant's
Proportionate Share of Operating Expenses, then Tenant shall pay to Landlord the
difference within twenty (20) days after receipt of such statement. If such
statement shows that Tenant's payments of Estimated Operating Expenses exceed
Tenant's Proportionate Share of Operating expenses, then (provided that Tenant
is not in default under this Lease) Landlord shall pay to Tenant the difference
within twenty (20) days after delivery of such statement to Tenant. If this
Lease has been terminated or the Term hereof has expired prior to the date of
such statement, then the Operating Expense Adjustment shall be paid by the
appropriate party within twenty (20) days after the date of delivery of the
statement. Should this Lease commence or terminate at any time other than the
first day of the fiscal year, Tenant's Proportionate Share of the Operating
Expense Adjustment shall be prorated based on a month of 30 days and the number
of calendar months during such fiscal year that this Lease is in effect.
Notwithstanding anything to the contrary contained in Paragraph 7.A or 7.B,
Landlord's failure to provide any notices or statements within the time periods
specified in those paragraphs shall in no way excuse Tenant from its obligation
to pay Tenant's Proportionate Share of Operating Expenses.
D. NET LEASE. This shall be a triple net Lease and Base Rent shall be paid to
Landlord absolutely net of all costs and expenses, except as specifically
provided to the contrary in this Lease. The provisions for payment of Operating
Expenses and the Operating Expense Adjustment are intended to pass on to Tenant
and reimburse Landlord for all costs and expenses of the nature described in
Paragraph 7.A, incurred in connection with the ownership, management,
maintenance, repair, preservation, replacement and operation of the Building
and/or Project and such additional facilities now and in subsequent years as
may be determined by Landlord to be necessary to the Building and/or Project.
E. TENANT AUDIT. If Tenant shall dispute the amount set forth in any statement
provided by Landlord under Paragraph 7.B, or 7.C, above, Tenant shall have the
right, not later than twenty (20) days following receipt of such statement and
upon the condition that Tenant shall first deposit with Landlord the full
amount in dispute, to cause Landlord's books and records with respect to
Operating Expenses for such fiscal year to be audited by certified public
accountants selected by Tenant and subject to Landlord's reasonable right of
approval. The Operating Expense Adjustment shall be appropriately adjusted on
the basis of such audit. If such audit discloses a liability for a refund in
excess of ten percent (10%) of Tenant's Proportionate Share of the Operating
Expenses previously reported, the cost of such audit shall be borne by
Landlord; otherwise the cost of such audit shall be paid by Tenant. If Tenant
shall not request an audit in accordance with the provisions of this Paragraph
7.E. within twenty (20) days after receipt of Landlord's statement provided
pursuant to Paragraph 7.B. or 7.C., such statement shall be final and binding
for all purposes hereof.
8. INSURANCE AND INDEMNIFICATION
A. LANDLORD'S INSURANCE. All insurance maintained by Landlord shall be for the
sole benefit of Landlord and under Landlord's sole control.
(1) PROPERTY INSURANCE. Landlord agrees to maintain property insurance
insuring the Building against damage or destruction due to risk including
fire, vandalism, and malicious mischief in an amount not less than the
replacement cost thereof, in the form and with deductibles and endorsements
as selected by Landlord. At its election, Landlord may instead obtain "All
Risk" coverage, and may also obtain earthquake, pollution, and/or flood
insurance in amounts selected by Landlord.
(2) OPTIONAL INSURANCE. Landlord, at Landlord's option, may also carry
insurance against loss of rent, in an amount equal to the amount of Base
Rent and Additional Rent that Landlord could be required to abase to all
Building tenants in the event of condemnation or casualty damage for a
period of twelve (12) months. Landlord may also carry such other insurance
as Landlord may deem prudent or advisable, including, without limitation,
liability insurance in such amounts and on such terms as Landlord shall
determine. Landlord shall not be obligated to insure, and shall have no
responsibility whatsoever for any damage to, any furniture, machinery,
goods, inventory or supplies, or other personal property or fixtures which
Tenant may keep or maintain in the Premises, or any leasehold improvements,
additions or alterations within the Premises.
B. TENANT'S INSURANCE.
(1) PROPERTY INSURANCE. Tenant shall procure at Tenant's sole cost and
expense and keep in effect from the date of this Lease and at all times
until the end of the Term, insurance on all personal property and fixtures
of Tenant and all improvements, additions or alterations made by or for
Tenant to the Premises on an "All Risk" basis, insuring such property for
the full replacement value of such property.
(2) LIABILITY INSURANCE. Tenant shall procure at Tenant's sole cost and
expense and keep in effect from the date of this Lease and at all times
until the end of the Term Commercial General Liability insurance covering
bodily injury and property damage liability occurring in or about the
Premises or arising out of the use and occupancy of the Premises and the
Project, and any part of either, and any areas adjacent thereto, and the
business operated by Tenant or by any other occupant of the Premises. Such
insurance shall include Broad Form Contractual Liability insurance coverage
insuring all of Tenant's indemnity obligations under this Lease. Such
coverage shall have a minimum combined single limit of liability of at least
Two Million Dollars ($2,000,000.00), and a minimum general aggregate limit
of Three Million Dollars ($3,000,000.00), with an "Additional Insured -
Managers or Lessors of Premises Endorsement." All such policies shall be
written to apply to all bodily injury, property damage or loss, personal
injury and other covered loss, however occasioned, occurring during the
policy term, shall be endorsed to add Landlord and any party holding an
interest to which this Lease may be subordinated as an additional insured,
and shall provide that such coverage shall be "primary" and non-contributing
with any insurance maintained by Landlord, which shall be excess insurance
only. Such coverage shall also contain endorsements; (i) deleting any
employee exclusion on personal injury coverage; (ii) including employees as
additional insureds: and (iii) providing for coverage of employer's
automobile non-ownership liability. All such insurance shall provide for the
severability of interests of insureds; and shall be written on an
"occurrence" basis, which shall afford coverage for all claims based on
acts, omissions, injury ad damage, which occurred or arose (or the onset of
which occurred or arose) in whole or in part during the policy period.
(3) WORKERS' COMPENSATION AND EMPLOYERS' LIABILITY INSURANCE. Tenant shall
carry Workers' Compensation Insurance as required by any Regulation,
throughout the Term at Tenant's sole cost and expense. Tenant shall also
carry
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Employers' Liability insurance in amounts not less than One Million
Dollars ($1,000,000) each accident for bodily injury by accident; One
Million Dollars ($1,000,000) policy limit for bodily injury by disease;
and One Million Dollars ($1,000,000) each employee for bodily injury by
disease, throughout the Term at Tenant's sole cost and expense.
(4) GENERAL INSURANCE REQUIREMENTS. All coverages described in this
Paragraph 8.B. shall be endorsed to (i) provide Landlord with thirty (30)
days' notice of cancellation or change in terms; and (ii) waive all
rights of subrogation by the insurance carrier against Landlord. If at
any time during the Term the amount or coverage of insurance which Tenant
is required to carry under this Paragraph 8.B. is, in Landlord's
reasonable judgment, materially less than the amount or type of insurance
coverage typically carried by owners or tenants of properties located in
the general area in which the Premises are located which are similar to
and operated for similar purposes as the Premises or if Tenant's use of
the Premises should change with or without Landlord's consent, Landlord
shall have the right to require Tenant to increase the amount or change
the types of insurance coverage required under this Paragraph 8.B. All
insurance policies required to be carried under this Lease shall be
written by companies rated A VIII or better in "Best's Insurance Guide"
and authorized to do business in the State of California. In any event
deductible amounts shall not exceed Five Thousand Dollars ($5,000).
Tenant shall deliver to Landlord on or before the Term Commencement Date,
and thereafter at least thirty (30) days before the expiration dates of
the expired policies, certified copies of Tenant's insurance policies, or
a certificate evidencing the same issued by the insurer thereunder; and,
if Tenant shall fail to procure such insurance, or to deliver such
policies or certificates, Landlord may, at Landlord's option and in
addition to Landlord's other remedies in the event of a default by Tenant
hereunder, procure the same for the account of Tenant, and the cost
thereof shall be paid to Landlord as Additional Rent.
C. INDEMNIFICATION. Tenant shall indemnify, defend by counsel reasonably
acceptable to Landlord, protect and hold Landlord harmless from and against any
and all claims, liabilities, losses, costs, loss of rents, liens, damages,
injuries or expenses, including reasonable attorneys' and consultants' fees and
court costs, demands, causes of action, or judgments, directly or indirectly
arising out of or related to: (1) claims of injury to or death of persons or
damage to property occurring or resulting directly or indirectly from the use
or occupancy of the Premises by Tenant or Tenant's Parties, or from activities
or failures to act of Tenant or Tenant's Parties; (2) claims arising from work
or labor performed, or for materials or supplies furnished to or at the request
or for the account of Tenant in connection with performance of any work done
for the account of Tenant within the Premises or Project; (3) claims arising
from any breach or default on the part of Tenant in the performance of any
covenant contained in this Lease; and (4) claims arising from the negligence
or intentional acts or omissions of Tenant or Tenant's Parties. The foregoing
indemnity by Tenant shall not be applicable to claims to the extent arising
from the gross negligence or willful misconduct of Landlord. The provisions of
this Paragraph shall survive the expiration or earlier termination of this
Lease.
9. WAIVER OF SUBROGATION
To the extent permitted by law and without affecting the coverage
provided by insurance to be maintained hereunder or any other rights or
remedies, Landlord and Tenant each waive any right to recover against the other
for: (a) damages for injury to or death of persons; (b) damages to property,
including personal property; (c) damages to the Premises or any part thereof;
and (d) claims arising by reasons of the foregoing due to hazards covered by
insurance maintained or required to be maintained pursuant to this Lease to the
extent of proceeds recovered therefrom, or proceeds which would have been
recoverable therefrom in the case of the failure of any party to maintain any
insurance coverage required to be maintained by such party pursuant to this
Lease. This provision is intended to waive fully, any rights and/or claims
arising by reason of the foregoing, but only to the extent that any of the
foregoing damages and/or claims referred to above are covered, and only to the
extent of such coverage, by insurance actually carried or required to be
maintained pursuant to this Lease by either Landlord or Tenant. This provision
is also intended to waive fully, and for the benefit of each party, any rights
and/or claims which might give rise to a right of subrogation on any insurance
carrier. Subject to all qualifications of this Paragraph 9, Landlord waives its
rights as specified in this Paragraph 9 with respect to any subtenant that it
has approved pursuant to Paragraph 21 but only in exchange for the written
waiver of such rights to be given by such subtenant to Landlord upon such
subtenant taking possession of the Premises or a portion thereof. Each party
shall cause each insurance policy obtained by it to provide that the insurance
company waives all right of recovery by way of subrogation against either party
in connection with any damage covered by any policy.
10. LANDLORD'S REPAIRS AND MAINTENANCE
Landlord shall at Landlord's expense maintain in good repair, reasonable
wear and tear excepted, the structural soundness of the roof, foundations, and
exterior walls of the Building. The term "exterior walls" as used herein shall
not include windows, glass or plate glass, doors, special store fronts or office
entries. Any damage clause by or repairs necessitated by any negligence or act
of Tenant or Tenant's Parties may be repaired by Landlord at Landlord's option
and Tenant's expense. Tenant shall immediately given Landlord written notice of
any defect or need of repairs in such components of the Building for which
Landlord is responsible, after which Landlord shall have reasonable opportunity
and the right to enter the Premises at all reasonable times to repair same.
Landlord's liability with respect to any defects, repairs or maintenance for
which Landlord is responsible under any of the provisions of this Lease shall be
limited to the cost of such repairs or maintenance, and there shall be no
abatement of rent and no liability of Landlord by reason of any injury to or
interference with Tenant's business arising from the making of repairs,
alterations or improvements in or to any portion of the Premises, the Building
or the Project or to fixtures, appurtenances or equipment in the Building,
except as provided in Paragraph 24. By taking possession of the Premises, Tenant
accepts them "as is," as being in good order, condition and repair and the
condition in which Landlord is obligated to deliver them and suitable for the
Permitted Use and Tenant's intended operations in the Premises, whether or not
any notice of acceptance is given.
11. TENANT'S REPAIRS AND MAINTENANCE
Tenant shall at all times during the Term at Tenant's expense maintain
all parts of the Premises and such portions of the Building as are within the
exclusive control of Tenant in a first-class, good, clean and secure condition
and promptly make all necessary repairs and replacements, as determined by
Landlord, with materials and workmanship of the same character, kind and quality
as the original. Notwithstanding anything to the contrary contained herein,
Tenant shall, at its expense, promptly repair any damage to the Premises or the
Building or Project resulting from or caused by any negligence or act of Tenant
or Tenant's Parties.
12. ALTERATIONS
A. Tenant shall not make, or allow to be made, any alterations, physical
additions, improvements or partitions, including without limitation the
attachment of any fixtures or equipment, in, about or to the Premises
("ALTERATIONS") without obtaining the prior written consent of Landlord, which
consent shall not be unreasonably withheld with respect to proposed Alterations
which: (a) comply with all applicable Regulations; (b) are, in Landlord's
opinion, comparable with the Building or the Project and its mechanical,
plumbing, electrical, heating/ventilation/air conditioning systems; and (c)
will not interfere with the use and occupancy of any other portion of the
Building or Project by any other tenant or it invitees. Specifically, but
without limiting the generality of the foregoing, Landlord shall have the right
of written consent for all plans and specifications for the proposed
Alterations, construction means and methods, all appropriate permits and
licenses, any contractor or subcontractor to be employed on the work of
Alterations, and the time for performance of such work, and may impose rules
and regulations for contractors and subcontractors performing such work. Tenant
shall also supply to
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Landlord any documents and information reasonably requested by Landlord in
connection with Landlord's consideration of a request for approval hereunder.
Tenant shall cause all Alterations to be accomplished in a first-class, good and
workmanlike manner, and to comply with all applicable Regulations and Paragraph
27 hereof. Tenant shall at Tenant's sole expense, perform any additional work
required under applicable Regulations due to the Alternations hereunder. No
review or consent by Landlord of or to any proposed Alteration or additional
work shall constitute a waiver of Tenant's obligations under this Paragraph 12,
nor constitute any warranty or representation that the same complies with all
applicable Regulations, for which Tenant shall at all times be solely
responsible. Tenant shall reimburse Landlord for all costs which Landlord may
incur in connection with granting approval to Tenant for any such Alterations,
including any costs or expenses which Landlord may incur in electing to have
outside architects and engineers review said plans and specifications, and shall
pay Landlord an administration fee of fifteen percent (15%) of the cost of the
Alterations. All such Alterations shall remain the property of Tenant until the
expiration or earlier termination of this Lease, at which time they shall be and
become the property of Landlord; provided, however, that Landlord may, at
Landlord's option, require that Tenant, at Tenant's expense, remove any or all
Alterations made by Tenant and restore the Premises by the expiration or earlier
termination of this Lease, to their condition existing prior to the
construction of any such Alterations. All such removals and restoration shall
be accomplished in a first-class and good and workmanlike manner so as not to
cause any damage to the Premises or Project whatsoever. If Tenant fails to
remove such Alterations or Tenant's trade fixtures or furniture or other
personal property, Landlord may keep and use them or remove any of them and
cause them to be stored or sold in accordance with applicable law, at Tenant's
sole expense. In addition to and wholly apart from Tenant's obligation to pay
Tenant's Proportionate Share of Operating Expenses, Tenant shall be responsible
for and shall pay prior to delinquency any taxes or governmental service fees,
possessory interest taxes, fees or charges in lieu of any such taxes, capital
levies, or other charges imposed upon, levied with respect to or assessed
against its fixtures or personal property, on the value of Alterations within
the Premises, and on Tenant's interest pursuant to this Lease, or any increase
in any of the foregoing based on such Alterations. To the extent that any such
taxes are not separately assessed or billed to Tenant, Tenant shall pay the
amount thereof as invoiced to Tenant by Landlord.
B. In compliance with Paragraph 27 hereof, at least ten (10) business days
before beginning construction of any Alteration, Tenant shall give Landlord
written notice of the expected commencement date of that construction to permit
Landlord to post and record a notice of non-responsibility. Upon substantial
completion of construction, if the law so provides, Tenant shall cause a timely
notice of completion to be recorded in the office of the recorder of the county
in which the Building is located.
13. SIGNS
Tenant shall not place, install, affix, paint or maintain any signs,
notices, graphics or banners whatsoever or any window decor which is visible in
or from public view or corridors, the common areas or the exterior of the
Premises or the Building, in or on any exterior window or window fronting upon
any common areas or service area without Landlord's prior written approval
which Landlord shall have the right to withhold in its absolute and sole
discretion; provided that Tenant's name shall be included in any
Building-standard door and directory signage, if any, in accordance with
Landlord's Building signage program, including without limitation, payment by
Tenant of any fee charged by Landlord for maintaining such signage, which fee
shall constitute Additional Rent hereunder. Any installation of signs, notices,
graphics or banners on or about the Premises or Project approved by Landlord
shall be subject to any Regulations and to any other requirements imposed by
Landlord. Tenant shall remove all such signs or graphics by the expiration or
any earlier termination of this Lease. Such installations and removals shall be
made in such manner as to avoid injury to or defacement of the Premises,
Building or Project and any other improvements contained therein, and Tenant
shall repair any injury or defacement including without limitation
discoloration caused by such installation or removal.
14. INSPECTION/POSTING NOTICES
After reasonable notice, except in emergencies where no such notice shall
be required, Landlord and Landlord's agent and representatives, shall have the
right to enter the Premises to inspect the same, to clean, to perform such work
as may be permitted or required hereunder, to make repairs or alterations to
the Premises, Building or Project or to other tenant spaces therein, to deal
with emergencies, to post such notices as may be permitted or required by law
to prevent the perfection of liens against Landlord's interest in the Project
or to exhibit the Premises to prospective tenants, purchasers, encumbrancers or
to others, or for any other purpose as Landlord may deem necessary or
desirable; provided, however, that Landlord shall use reasonable efforts not to
unreasonably interfere with Tenant's business operations. Tenant shall not be
entitled to any abatements of Rent by reason of the exercise of any such right
of entry. At any time within six (6) months prior to the expiration of the Term
or following any earlier termination of this Lease or agreement to terminate
this Lease, Landlord shall have the right to erect on the Premises, Building
and/or Project a suitable sign indicating that the Premises are available for
lease.
15. SERVICES AND UTILITIES
A. Provided Tenant shall not be in default hereunder, and subject to the
provisions elsewhere herein contained and to the rules and regulations of the
Building, Landlord shall furnish to the Premises during ordinary business hours
of generally recognized business days, to be determined by Landlord (but
exclusive, in any event, of Saturdays, Sundays and legal holidays), water for
lavatory and drinking purposes and electricity, heat and air conditioning as
specified in the Basic Lease Information (as applicable) or as usually
furnished or supplied for use of the Premises for reasonable and normal office
use as of the date Tenant takes possession of the Premises as determined by
Landlord (but not including above-standard or continuous cooling for excessive
heat-generating machines, excess lighting or equipment), janitorial services
during the times and in the manner that such services are, in Landlord's
judgment, customarily furnished in comparable office buildings in the immediate
market area, and elevator service, which shall mean service either by
nonattended automatic elevators or elevators with attendants, or both, at the
option of Landlord. Tenant acknowledges that Tenant has inspected and accepts
the water, electricity, heat and air conditioning and other utilities and
services being supplied or furnished to the Premises as of the date Tenant
takes possession of the Premises, as being sufficient for use of the Premises
for reasonable and normal office use in their present condition, "as is," and
suitable for the Permitted Use, and for Tenant's intended operations in the
Premises. Landlord shall have no obligation to provide additional or
after-hours electricity, heating or air conditioning, but if Landlord elects to
provide such services at Tenant's request, Tenant shall pay to Landlord a
reasonable charge for such services as determined by Landlord. Tenant agrees to
keep and cause to be kept closed all window covering when necessary because of
the sun's position, and Tenant also agrees at all times to cooperate fully with
Landlord and to abide by all of the regulations and requirements which Landlord
may prescribe for the proper functioning and protection of electrical, heating,
ventilating and air conditioning systems. Wherever heat-generating machines,
excess lighting or equipment are used in the Premises which affect the
temperature otherwise maintained by the air conditioning system, Landlord
reserves the right to install supplementary air conditioning units in the
Premises and the cost thereof, including the cost of installation and the cost
of operation and maintenance thereof, shall be paid by Tenant to Landlord upon
demand by Landlord.
B. Tenant shall not without written consent of Landlord use any apparatus,
equipment or device in the Premises, including without limitation, computers,
electronic data processing machines, copying machines, and other machines,
using excess lighting or using electric current, water, or any other resource
in excess of or which will in any way increase the amount of electricity,
water, or any other resource being furnished or supplied for the use of the
Premises, in each case as of the date Tenant takes possession of the Premises
as determined by Landlord, or which will require additions or alterations to or
interfere with the Building power distribution systems; nor connect with
electric current, except through existing electrical outlets in the Premises or
water pipes, any apparatus, equipment or device for the
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purpose of using electrical current, water, or any other resources. If Tenant
shall require water or electric current or any other resource in excess of that
being furnished or supplied for the use of the Premises as of the date Tenant
taken possession of the Premises as determined by Landlord, Tenant shall first
procure the written consent of Landlord which Landlord may refuse, to the use
thereof, and Landlord may cause a special meter to be installed in the Premises
so as to measure the amount of water, electric current or other resource
converted any such other use. Tenant shall pay directly to Landlord as an
addition to and separate from payment of Operating Expenses the cost of all such
additional resources, energy, utility service and meters (and of installation,
maintenance and repair thereof and of any additional circuits or other equipment
necessary to furnish such additional resources, energy, utility or service).
Landlord may add to the separate or metered charge a recovery of additional
expense incurred in keeping account of the excess water, electric current or
other resource so consumed. Landlord shall not be liable for any damages
directly or indirectly resulting from nor shall the Rent or any monies owed
Landlord under this Lease herein reserved be abated by reason of: (a) the
installation, use or interruption of use of any equipment used in connection
with the furnishing of any such utilities or services, or any change in the
character or means of supplying or providing any such utilities or services or
any supplier thereof; (b) the failure to furnish or delay in furnishing any such
utilities or services when such failure or delay is caused by acts of God or the
elements, labor disturbances of any character, or any other accidents or other
conditions beyond the reasonable control of Landlord because of any interruption
of service due to Tenant's use of water, electric current or other resource in
excess of that being supplied or furnished for the use of the Premises as of the
date Tenant takes possession of the Premises; (c) the inadequacy, limitation,
curtailment, rationing or restriction on use of water, electricity, gas or any
other form of energy or any other service or utility whatsoever serving the
Premises or Project, whether the Regulation or otherwise; or (d) the partial or
total unavailability of any such utilities or services to the Premises or the
Building, whether by Regulation or otherwise; nor shall any such occurrence
constitute an actual or constructive eviction of Tenant. Landlord shall further
have no obligation to protect or preserve any apparatus, equipment or device
installed by Tenant on the Premises, including without limitation by providing
additional or after-hours heating or air conditioning. Landlord shall be
entitled to cooperate voluntarily and in a reasonable manner with the efforts of
national, state or local governmental agencies or utility suppliers in reducing
energy or other resource consumption. The obligation to make services available
hereunder shall be subject to the limitations of any such voluntary, reasonable
program. In addition, Landlord reserves the right to change the supplier or
provider of any such utility or service from time to time. Tenant shall have no
right to contract with or otherwise any electrical or other such services for or
with respect to the Premises or Tenant's operations therein from any supplier or
provider of any such service. Tenant shall cooperate with Landlord and any
supplier or provider of such services designated by Landlord from time to time
to facilitate the delivery of such services to Tenant at the Premises and to
the Building and Project, including without limitation allowing Landlord and
Landlord's suppliers or providers, and their respective agents and contractors,
reasonable access to the Premises for the purpose of installing, maintaining,
repairing, replacing or upgrading such service or any equipment or machinery
associated therewith.
C. Tenant shall pay, upon demand, for all utilities furnished to the Premises,
or if not separately billed to or metered to Tenant, Tenant's Proportionate
Share of all charges jointly serving the Project in accordance with Paragraph 7.
All sums payable under this Paragraph 15 shall constitute Additional Rent
hereunder.
16. SUBORDINATION
Without the necessity of any additional document being executed by Tenant
for the purpose of effecting a subordination, the Lease shall be and is hereby
declared to be subject and subordinate at all times to: (a) all ground leases or
underlying leases which may now exist or hereafter be executed affecting the
Premises and/or the land upon which the Premises and Project are situated, or
both; and (b) any mortgage or deed of trust which may now exist or be placed
upon the Building, the Project and/or the land upon which the Premises or the
Project are situated, or said ground leases or underlying leases, or Landlord's
interest or estate in any of said items which is specified as security.
Notwithstanding the foregoing, Landlord shall have the right to subordinate or
cause to be subordinated any such ground leases or underlying leases or any such
liens to this Lease. If any ground lease or underlying lease terminates for any
reason or any mortgage or deed of trust is foreclosed or a conveyance in lieu of
foreclosure is made for any reason, Tenant shall, notwithstanding any
subordination, attorn to and become the Tenant of the successor in interest to
Landlord provided that Tenant shall not be disturbed in its possession under
this Lease by such successor in interest so long as Tenant is not in default
under this Lease. Within ten (10) days after request by Landlord, Tenant shall
execute and deliver any additional documents evidencing Tenant's attornment or
the subordination of this Lease with respect to any such ground leases or
underlying leases or any such mortgage or deed of trust, in the form requested
by Landlord or by any ground landlord, mortgagee, or beneficiary under a deed of
trust, subject to such nondisturbance requirement. If requested in writing by
Tenant, Landlord shall use commercially reasonable efforts to obtain a
subordination, nondisturbance and attornment agreement for the benefit of Tenant
reflecting the foregoing from any ground landlord, mortgagee or beneficiary, at
Tenant's expense, subject to such other terms and conditions as the ground
landlord, mortgagee or beneficiary may require.
17. FINANCIAL STATEMENTS
At the request of Landlord from time to time, Tenant shall provide to
Landlord Tenant's and any guarantor's current financial statements or other
information discussing financial worth of Tenant and any guarantor, which
Landlord shall use solely for purposes of this Lease and in connection with the
ownership, management, financing and disposition of the Project.
18. ESTOPPEL CERTIFICATE
Tenant agrees from time to time, within ten (10) days after request of
Landlord, to deliver to Landlord, or Landlord's designee, an estoppel
certificate stating that this Lease is in full force and effect, that this Lease
has not been modified (or stating all modifications, written or oral, to this
Lease), the date to which Rent has been paid, the unexpired portion of this
Lease, that there are no current defaults by Landlord or Tenant under this Lease
(or specifying any such defaults); that the leasehold estate granted by this
Lease is the sole interest of Tenant in the Premises and/or the land at which
the Premises are situated, and such other matters pertaining to this Lease as
may be reasonably requested by Landlord. Failure by Tenant to execute and
deliver such certificate shall constitute an acceptance of the Premises and
acknowledgment by Tenant that the statements included are true and correct
without exception. Tenant agrees that if Tenant fails to execute and deliver
such certificate within such ten (10) day period, Landlord may execute and
deliver such certificate on Tenant's behalf and that such certificate shall be
binding on Tenant. Landlord and Tenant intend that any statement delivered
pursuant to this Paragraph may be relied upon any mortgagee, beneficiary,
purchaser or prospective purchaser of the Project or any interest therein. The
parties agree that Tenant's obligation to furnish such estoppel certificates in
a timely fashion is a material inducement for Landlord's execution of the Lease,
and shall be an event of default if Tenant fails to fully comply or makes any
material misstatement in any such certificate.
19. SECURITY DEPOSIT
Tenant agrees to deposit with Landlord upon execution of this Lease, a
security deposit as stated in the Basic Lease Information (the "Security
Deposit"), which sum shall be held and owned by Landlord, without obligation to
pay interest, as security for the performance of Tenant's covenants and
obligations under this Lease. The Security Deposit is not an advance rental
deposit or a measure of damages incurred by Landlord in case of Tenant's
default. Upon the occurrence of any event of default by Tenant, Landlord may
from time to time, without prejudice to any other remedy provided herein or by
law, use such fund as a credit to the extent necessary to credit against any
arrears of Rent or other payments due to Landlord hereunder, and any other
damage, injury, expenses or liability caused by such event of default, and
Tenant shall pay to Landlord, on demand, the amount so applied in order to
restore the Security Deposit to its original amount. Although the Security
Deposit shall be deemed the property of Landlord, any remaining balance of such
deposit shall be returned by
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Landlord to Tenant at such time after termination of this Lease that all of
Tenant's obligations under this Lease have been fulfilled. Landlord may use and
commingle the Security Deposit with other funds of Landlord.
20. TENANT'S REMEDIES
The obligations and liability of Landlord to Tenant for any default by
Landlord under the terms of this Lease are not personal obligations of Landlord
or of the individual or other partners of Landlord or its or their partners,
directors, officers, or shareholders, and Tenant agrees to look solely to
Landlord's interest in the Project for the recovery of any amount from Landlord,
and shall not look to other assets of Landlord nor seek recourse against the
assets of the individual or other partners of Landlord or its or their partners,
directors, officers or shareholders. Any lien obtained to enforce any such
judgment and any levy of execution thereon shall be subject and subordinate to
any lien, mortgage or deed of trust on the Project. Under no circumstances shall
Tenant have the right to offset against or recoup Rent or other payments due and
to become due to Landlord hereunder except as expressly provided in Paragraph
23.8 below, which Rent and other payments shall be absolutely due and payable
hereunder in accordance with the terms hereof.
21. ASSIGNMENT AND SUBLETTING
A. (1) GENERAL. This Lease has been negotiated to be and is granted as an
accommodation to Tenant. Accordingly, this Lease is personal to Tenant,
and Tenant's rights granted hereunder do not include the right to assign
this Lease or sublease the Premises, or to receive any excess, either in
installments or lump sum, over the Rent which is expressly reserved by
Landlord as hereinafter provided, except as other wise expressly
hereinafter provided. Tenant shall not assign or pledge this Lease or
sublet the Premises or any part thereof, whether voluntarily or by
operation of law, or permit the use or occupancy of the Premises or any
part thereof by anyone other than Tenant, or suffer or permit any such
assignment, pledge, subletting or occupancy, without Landlord's prior
written consent except as provided herein. If Tenant desires to assign
this Lease or sublet any or all of the Premises, Tenant shall give
Landlord written notice (the "Transfer Notes") at least sixty (60) days
prior to the anticipated effective date of the proposed assignment or
sublease, which shall contain all of the information reasonably requested
by Landlord to address Landlord's decision criteria specified
hereinafter. Landlord shall then have a period of thirty (30) days
following receipt of the Transfer Notice to notify Tenant in writing that
Landlord elects either: (1) to terminate this Lease as to the space
so affected as of the date so requested by Tenant; or (2) to consent to
the proposed assignment or sublease, subject, however, to Landlord's
prior written consent of the proposed assignee or subtenant and of any
related documents or agreements associated with the assignment or
sublease. If Landlord should fail to notify Tenant in writing of such
election within said period, Landlord shall be deemed to have waived
option (1) above, but written consent by Landlord of the proposed
assignee or subtenant shall be required. If Landlord does not exercise
option (1) above, Landlord's consent to a proposed assignment or sublet
shall not be unreasonably withheld.
(2) CONDITIONS OF LANDLORD'S CONSENT. Without limiting the other
instances in which it may be reasonable for Landlord to withhold
Landlord's consent to an assignment or subletting, Landlord and Tenant
acknowledge that it shall be responsible for Landlord to withhold
Landlord's consent in the following instances: the use of the Premises by
such proposed assignee or subtenant would not be a Permitted Use or would
violate any exclusivity arrangement which Landlord has with any other
tenant or occupant or would increase the Occupancy Density or Parking
Density of the Building or Project; the proposed assignee or subtenant is
not of sound financial condition as determined by Landlord in Landlord's
sole discretion; the proposed assignee or subtenant is a governmental
agency, the proposed assignee or subtenant does not have a good reputation
as a tenant of property, the proposed assignee or subtenant is a person
with whom Landlord is negotiating to lease space in the Project or is a
present tenant of the Project; the assignment or subletting would entail
any Alterations which would lessen the value of the leasehold improvements
in the Premises, or Tenant is in default of any obligation of Tenant under
this Lease, or Tenant has defaulted under this Lease on three (3) or more
occasions during any twelve (12) months preceding the date that Tenant
shall request consent. Failure by Landlord to consent to a proposed
assignee or subtenant shall not cause a termination of this Lease. Upon a
termination under Paragraph 21.A.(1), Landlord may lease the Premises to
any party, including parties with whom Tenant has negotiated an assignment
or sublease, without incurring any liability to Tenant. At the option of
Landlord, a surrender and termination of this lease shall operate as an
assignment to Landlord of some or all subleases or subtenancies. Landlord
shall exercise this option by giving notice of that assignment to such
subtenants on or before the effective date of the surrender and
termination.
B. BONUS RENT. Any Rent or other consideration realized by Tenant under any
such sublease or assignment in excess of the Rent payable hereunder, after
amortization of a reasonable brokerage commission incurred by Tenant, shall be
divided and paid, ten percent (10%) to Tenant, ninety percent (90%) to Landlord.
In any subletting or assignment undertaken by Tenant, Tenant shall diligently
seek to obtain the maximum rental amount available in the marketplace for
comparable space available for primary leasing.
C. CORPORATION. If Tenant is a corporation, a transfer of corporate shares
by sale, assignment, bequest, inheritance, operation of law or other disposition
(including such a transfer to or by a receiver or trustee in federal or state
bankruptcy, insolvency or other proceedings) resulting in a change in the
present control of such corporation or any of its parent corporations by the
person or persons owning a majority of said corporate shares, shall constitute
an assignment for purposes of this Lease.
D. UNINCORPORATED ENTITY. If Tenant is a partnership, joint venture,
unincorporated limited liability company or other unincorporated business form,
a transfer of the interest of persons, firms or entities responsible for
managerial control of Tenant by sale, assignment, bequest, inheritance,
operation of law or other disposition, so as to result in a change in the
present control of said entity and/or a change in the identity of the persons
responsible for the general credit obligations of said entity shall constitute
an assignment for all purposes of this Lease.
E. LIABILITY. No assignment or subletting by Tenant, permitted or otherwise,
shall relieve Tenant of any obligation under this Lease or alter the primary
liability of the Tenant named herein for the payment of Tent or for the
performance of any other obligations to be performed by Tenant, including
obligations contained in Paragraph 25 with respect to any assignee or
subtenant. Landlord may collect rent or other amounts or any portion thereof
from any assignee, subtenant, or other occupant of the Premises, permitted or
otherwise, and apply the net rent collected to the Rent payable hereunder, but
no such collection shall be deemed to be a waiver of this Paragraph 21, or the
acceptance of the assignee, subtenant or occupant as tenant, or a release of
Tenant from the further performance by Tenant of the obligations of Tenant
under this Lease. Any assignment or subletting which conflicts with the
provisions hereof shall be void.
22. AUTHORITY
Landlord represents and warrants that is has full right and authority to
enter into this Lease and to perform all of Landlord's obligations hereunder
and that all persons signing this Lease on its behalf are authorized to do.
Tenant and the person or persons, if any, to preform all of Tenant's
obligations hereunder, and that all persons signing this Lease on its behalf
are authorized to do so.
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23. CONDEMNATION
A. CONDEMNATION RESULTING IN TERMINATION. If the whole or any substantial part
of the Project of which the Premises are a part should be taken or condemned for
any public use under governmental law, ordinance or regulation, or by right of
eminent domain, or by private purchase in lieu thereof, and the taking would
prevent or materially interfere with the Permitted Use of the Premises, this
Lease shall terminate and the Rent shall be abated during the unexpired portion
of this Lease, effective when the physical taking of said Premises shall have
occurred.
B. CONDEMNATION NOT RESULTING IN TERMINATION. If a portion of the Project of
which the Premises are a part should be taken or condemned for any public use
under governmental law, ordinance or regulation, or by right of eminent domain,
or by private purchase in lieu thereof, and the taking prevents or materially
interferes with the Permitted Use of the Premises, and this Lease is not
terminated as provided in Paragraph 23.A, above, the Rent payable hereunder
during the unexpired portion of the Lease shall be reduced, beginning on the
date when the physical taking shall have occurred, to such amount as may be fair
and reasonable under all of the circumstances, but only after giving Landlord
credit for all sums received or to be received by Tenant by the condemning
authority.
C. AWARD. 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 portion of this Lease.
Notwithstanding the foregoing, any compensation specifically and separately
awarded Tenant for Tenant's personal property and moving costs, shall be and
remain the property of Tenant.
D. WAIVER OF CCP SECTION 1265.130. Each party waives the provisions of
California Civil Code Procedure Section 1265.130 allowing either party to
petition the superior court to terminate this Lease as a result of a partial
taking.
24. CASUALTY DAMAGE
A. GENERAL. If the Premises or Building should be damaged or destroyed by
fire, tornado, or other casualty (collectively, "Casualty"), Tenant shall give
immediate written notice thereof to Landlord. Within thirty (30) days after
Landlord's receipt of such notice, Landlord shall notify Tenant whether in
Landlord's estimation material restoration of the Premises can reasonably be
made either: (1) within ninety (90) days; (2) in more than ninety (90) days but
within one hundred eighty (180) days; or (3) in more than one hundred eighty
(180) days, in each case from the date of such notice and receipt of required
permits for such restoration. Landlord's determination shall be binding on
Tenant.
B. WITHIN 90 DAYS. If the Premises or Building should be damaged by Casualty
to such extent that material restoration can in Landlord's estimation be
reasonably completed within ninety (90) days after the date of such damage and
receipt of required permits for such restoration, this Lease shall not
terminate. Provided that insurance proceeds are received by Landlord to fully
repair the damage, Landlord shall proceed to rebuild and repair the Premises in
the manner determined by Landlord, except that Landlord shall not be required to
rebuild, repair or replace any part of the Alterations which may have been
placed on or about the Premises by Tenant. If the Premises are untenantable in
whole or in part following such damage, the Rent payable hereunder during the
period in which they are untenantable shall be abated proportionately, but only
to the extent of rental abatement insurance proceeds received by Landlord during
the time and to the extent the Premises are unfit for occupancy.
C. GREATER THAN 90 DAYS. If the Premises or Building should be damaged by
Casualty to such extent that rebuilding or repairs can in Landlord's estimation
be reasonably completed in more than ninety (90) days but within one hundred
eighty (180) days after the date of such damage and receipt of required permits
for such rebuilding or repair, then Landlord shall have the option of either:
(1) terminating of this Lease effective upon the date of the occurrence of such
damage, in which event the Rent shall be abated during the unexpired portion of
this Lease; or (2) electing to rebuild or repair the Premises in the manner
determined by Landlord. Notwithstanding the above, Landlord shall not be
required to rebuild, repair or replace any part of any Alterations which may
have been placed on or about the Premises by Tenant. If the Premises are
untenantable in whole or in part following such damage, the Rent payable
hereunder during the period in which they are untenantable shall be abated
proportionately, but only to the extent of rental abatement insurance proceeds
received by Landlord during the time and to the extent the Premises are unfit
for occupancy. If Landlord should fail to complete such repairs and rebuilding
within one hundred eighty (180) days after the date upon which Landlord is
notified by Tenant of such damage and receipt of required permits, such period
of time to be extended for delays caused by the fault or neglect of Tenant or
otherwise by 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, or delays of the contractors or
subcontractors or any other causes or contingencies beyond the reasonable
control of Landlord, Tenant may at Tenant's option within ten (10) days after
the expiration of such one hundred eighty (180) day period (as such may be
extended), terminate this Lease by delivering written notice of termination to
Landlord as Tenant's exclusive remedy, whereupon this Lease shall terminate
thirty (30) days after Landlord's receipt of such termination notice.
D. GREATER THAN 180 DAYS. If the Premises or Building should be so damaged by
Casualty that rebuilding or repairs cannot in Landlord's estimation be completed
one hundred eighty (180) days after such damage and receipt of required permits
for such rebuilding or repair, this Lease shall terminate and the Rent shall be
abated during the unexpired portion of this Lease, effective upon the date of
the occurrences of such damage.
E. TENANT'S FAULT. Notwithstanding anything herein to the contrary, if the
Premises or any other portion of the Building are damaged by Casualty resulting
from the fault, negligence, or breach of this Lease by Tenant or any of Tenant's
Parties, Base Rent and Additional Rent shall not be diminished during the repair
of such damage and Tenant shall be liable to Landlord for the cost and expense
of the repair and restoration of the Building caused thereby to the extent such
cost and expense is not covered by insurance proceeds.
F. INSURANCE PROCEEDS. Notwithstanding anything herein to the contrary, if the
Premises or Building are damaged or destroyed and are not fully covered by the
insurance proceeds received by Landlord or if the holder of any indebtedness
secured by a mortgage or deed of trust covering the Premises requires that the
insurance proceeds be applied to such indebtedness, then in either case Landlord
shall have the right to terminate this Lease by delivering written notice of
termination to Tenant within thirty (30) days after the date of notice to
Landlord that said damage or destruction is not fully covered by insurance or
such requirement is made by any such holder, as the case may be, whereupon this
Lease shall terminate.
G. WAIVER. This Paragraph 24 shall be Tenant's sole and exclusive remedy in
the event of damage or destruction to the Premises or the Building. As a
material inducement to Landlord entering into this Lease, Tenant hereby waives
any rights it may have under Sections 1932, 1933(4), 1941 or 1942 of the Civil
Code of California with respect to any destruction of the Premises, Landlord's
obligation for tenantability of the Premises and Tenant's right to make repairs
and deduct the expenses of such repairs, or under any similar law, statute or
ordinance now or hereafter in effect.
H. TENANT'S PERSONAL PROPERTY. In the event of any damage or destruction of
the Premises or the Building, under no circumstances shall Landlord be required
to repair any injury or damage to, or make any repairs to or replacements of,
Tenant's personal property.
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25. HOLDING OVER
Unless Landlord expressly consents in writing to Tenant's holding over,
Tenant shall be unlawfully and illegally in possession of the Premises, whether
or not Landlord accepts any rent from Tenant or any other person while Tenant
remains in possession of the Premises without Landlord's written consent. If
Tenant shall retain possession of the Premises or any portion thereof without
Landlord's consent following the expiration of this Lease or sooner termination
for any reason, then Tenant shall pay to Landlord for each day of such
retention triple the amount of daily rental as of the last month prior to the
date of expiration or earlier termination. Tenant shall also indemnify, defend,
protect and hold Landlord harmless from any loss, liability or cost, including
consequential and incidental damages and reasonable attorneys' fees, incurred
by Landlord resulting from delay by Tenant in surrendering the Premises,
including, without limitation, any claims made by the succeeding tenant founded
on such delay. Acceptance of Rent by Landlord following expiration or earlier
termination of this Lease, or following demand by Landlord for possession of
the Premises, shall not constitute a renewal of this Lease, and nothing
contained in this Paragraph 25 shall waive Landlord's right of reentry or any
other right. Additionally, if upon expiration or earlier termination of this
Lease, or following demand by Landlord for possession of the Premises, Tenant
has not fulfilled its obligation with respect to repairs and cleanup of the
Premises or any other Tenant obligations as set forth in this Lease, then
Landlord shall have the right to perform any such obligations as it deems
necessary at Tenant's sole cost and expense, and any time required by Landlord
to complete such obligations shall be considered a period of holding over and
the terms of this Paragraph 25 shall apply. The provisions of this Paragraph 25
shall survive any expiration or earlier termination of this Lease.
26. DEFAULT
A. EVENTS OF DEFAULT. The occurrence of any of the following shall constitute
an event of default on the part of Tenant:
(1) ABANDONMENT. Abandonment or vacation of the Premises for a continuous
period in excess of five (5) days. Tenant waives any right to notice
Tenant may have under Section 1951.3 of the Civil Code of the State of
California, the terms of this Paragraph 26.A. being deemed such notice to
Tenant as required by said Section 1951.3.
(2) NONPAYMENT OF RENT. Failure to pay any installment of Rent or any
other due and payable hereunder upon the date when said payment is due, as
to which time is of the essence.
(3) OTHER OBLIGATIONS. Failure to perform any obligation, agreement or
covenant under this Lease other than those matters specified in
subparagraphs (1) and (2) of this Paragraph 26.A., such failure continuing
for fifteen (15) days after written notice of such failure, as to which
time is of the essence.
(4) GENERAL ASSIGNMENT. A general assignment by Tenant for the benefit of
creditors.
(5) BANKRUPTCY. The filing of any voluntary petition in bankruptcy by
Tenant, or the filing of an involuntary petition by Tenant's creditors,
which involuntary petition remains undischarged for a period of thirty
(30) days. If under applicable law, the trustee in bankruptcy or Tenant
has the right to affirm this Lease and continue to perform the obligations
of Tenant hereunder, such trustee or Tenant shall, in such time period as
may be permitted by the bankruptcy court having jurisdiction, cure all
defaults of Tenant hereunder outstanding as of the date of the affirmance
of this Lease and provide to Landlord such adequate assurances as may be
necessary to ensure Landlord of the continued performance of Tenant's
obligations under this Lease.
(6) RECEIVERSHIP. The employment of a receiver to take possession of
substantially all of Tenant's assets or Tenant's leasehold of the
Premises, if such appointment remains undismissed or undischarged for a
period of fifteen (15) days after the order therefor.
(7) ATTACHMENT. The attachment, execution or other judicial seizure of
all or substantially all of Tenant's assets or Tenant's leasehold of the
Premises, if such attachment or other seizure remains undismissed or
undischarged for a period of fifteen (15) days after the levy thereof.
B. REMEDIES UPON DEFAULT.
(1) TERMINATION. In the event of the occurrence of any event of default,
Landlord shall have the right to give a written termination notice to
Tenant, and on the date specified in such notice, Tenant's right to
possession shall [???], and this Lease shall terminate unless on or
before such date all Rent in arrears and all costs and expenses incurred
by or on behalf of Landlord hereunder shall have been paid by Tenant and
all other events of default of this Lease by Tenant at the time existing
shall have been fully remedied to the satisfaction of Landlord. At any
time after such termination, Landlord may recover possession of the
Premises or any part thereof and expel and remove therefrom Tenant and any
other person occupying the same, including any subtenant or subtenants
notwithstanding Landlord's consent to any sublease, by any lawful means,
and again repossess and enjoy the Premises without prejudice to any of the
remedies that Landlord may have under this Lease, or at law or equity by
any reason of Tenant's default or of such termination. Landlord hereby
reserves the right, but shall not have the obligation, to recognize the
continued possession of any subtenant. Landlord hereby reserves the
right, but shall not have the obligation, to recognize the continued
possession of any subtenant. The delivery or surrender to Landlord by or
on behalf of Tenant of keys, entry codes, or other means to bypass
security at the Premises shall not terminate this Lease.
(2) CONTINUATION AFTER DEFAULT. Even though an event of default may have
occurred, this Lease shall continue in effect for so long as Landlord does
not terminate Tenant's right to possession under Paragraph 26.B.(1)
hereof, and Landlord may enforce all of Landlord's rights and remedies
under this Lease and at law or in equity, including without limitation,
the right to recover Rent as it becomes due, and Landlord, without
terminating this Lease, may exercise all of the rights and remedies of a
Landlord under Section 1951.4 of the Civil Code of the State of California
or any successor code section. Acts of maintenance, preservation or
efforts to lease the Premises or the appointment of a receiver under
application of Landlord to protect Landlord's interest under this Lease or
other entry by Landlord under the Premises shall not constitute an
election to terminate Tenant's right to possession.
(3) INCREASED SECURITY DEPOSIT. If Tenant is in default under Paragraph
26.A.(2) hereof and such default remains uncured for ten (10) days after
such occurrence or such default occurs more than three times in any twelve
(12) month period, Landlord may require that Tenant increase the Security
Deposit to the amount of three times the current month's Rent at the time
of the most recent default.
C. DAMAGES AFTER DEFAULT. Should Landlord terminate this Lease pursuant to the
provisions of Paragraph 26.B.(1) hereof, Landlord shall have the rights and
remedies of a Landlord provided by Section 1951.2 of the Civil Code of the State
of California, or any successor code sections. Upon such termination, in
addition to any other rights and remedies to which Landlord may be entitled
under applicable law or at equity, Landlord shall be entitled to recover from
Tenant: (1) the worth at the time of award of the unpaid Rent and other amounts
which had been earned at the time of termination, (2) the worth at the time of
award of the amounts by which the unpaid Rent that would have been earned after
the date of termination until the time of award exceeds the amount of such Rent
loss that Tenant
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proves could have been reasonably avoided; (3) 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 the award exceeds the amount of such Rent loss that the Tenant proves
be reasonably avoided; and (4) any other amount and court costs necessary to
compensate Landlord for all detriment proximately caused by Tenant's failure to
perform Tenant's obligations under this Lease or which, in the ordinary course
of things, would be likely to result therefrom. The "worth at the time of award"
as used in (1) and (2) above shall be computed at the lesser of the "prime
rate," as announced from time to time by Wells Fargo Bank, N.A. (San Francisco)
or its successor, plus five (5) percentage points, or the maximum interest rate
allowed by law ("APPLICABLE INTEREST RATE"). The "worth at the time of award"
as used in (3) above shall be computed by discounting such amount at the Federal
Discount Rate of the Federal Reserve Bank of San Francisco at the time of the
award plus one percent (1%). If this Lease provides for any periods during the
Term during which Tenant is not required to pay Base Rent or if Tenant
otherwise receives a Rent concession, then upon the occurrence of an event of
default, Tenant shall owe to Landlord the full amount of such Base Rent or value
of such Rent concession, plus interest at the Applicable Interest Rate,
calculated from the date that such Base Rent or Rent concession would have been
payable.
D. LATE CHARGE. In addition to its other remedies, Landlord shall have the
right without notice or demand to add to the amount of any payment required to
be made by Tenant hereunder, and which is not paid and received by Landlord on
or before the first day of each calendar month, an amount equal to ten percent
(10%) of the delinquency for each month or portion thereof that the delinquency
remains outstanding to compensate Landlord for the loss of the use of the amount
not paid and the administrative costs caused by the delinquency, the parties
agreeing that Landlord's damage by virtue of such delinquencies would be
extremely difficult and impracticable to compute and the amount stated herein
represents a reasonable estimate thereof. Any waiver by Landlord of any late
charges or failure to claim the same shall not constitute a waiver of other late
charges or any other remedies available to Landlord.
E. INTEREST. Interest shall accrue on all sums not paid when due hereunder at
eighteen percent (18%) per annum from the due date until paid.
F. REMEDIES CUMULATIVE. All rights, privileges and elections or remedies of
the parties are cumulative and not alternative, to the extent permitted by law
and except as otherwise provided herein.
27. LIENS
Tenant shall at all times keep the Premises and the Project free from
liens arising out of or related to work or services performed, materials or
supplies furnished or obligations incurred by or on behalf of Tenant or in
connection with work made, suffered or done by or on behalf of Tenant in or on
the Premises or Project. If Tenant shall not, within ten (10) days following
the imposition of any such lien, cause the same to be released of record by
payment or posting of a proper bond, Landlord shall have, in addition to all
other remedies provided herein and by law, the right, but not the obligation,
to cause the same to be released by such means as Landlord shall deem proper,
including payment of the claim giving rise to such lien. All sums paid by
Landlord on behalf of Tenant and all expenses incurred by Landlord in
connection therefor shall be payable to Landlord by Tenant on demand with
interest at the Applicable Interest Rate. Landlord shall have the right at all
times to post and keep posted on the Premises any notices permitted or required
by law, or which Landlord shall deem proper, for the protection of Landlord, the
Premises, the Project and any other party having an interest therein, from
mechanics' and materialmen's liens, and Tenant shall give Landlord not less
than ten (10) business days prior written notice of the commencement of any
work in the Premises or Project which could lawfully give rise to a claim for
mechanics' or materialmen's liens to permit Landlord to post and record a
timely notice of non-responsibility, as Landlord may elect to proceed or as the
law may from time to time provide, for which purpose, if Landlord shall so
determine, Landlord may enter the Premises. Tenant shall not remove any such
notice posted by Landlord without Landlord's consent, and in any event not
before completion of the work which could lawfully give rise to a claim for
mechanics' or materialmen's liens.
28. SUBSTITUTION
A. At any time after the execution of this Lease, Landlord may substitute for
the Premises other premises in the Project or owned by Landlord in the vicinity
of the Project (the "NEW PREMISES") upon not less than sixty (60) days prior
written notice, in which event the New Premises shall be deemed to be the
Premises for all purposes hereunder and this Lease shall be deemed modified
accordingly to reflect the new location and shall remain in full force and
effect as so modified, provided that:
(1) The New Premises shall be similar in area and in function for
Tenant's purposes; and
(2) If Tenant is occupying the Premises at the time of such substitution,
Landlord shall pay the expense of physically moving tenant, Tenant's
property and equipment to the New Premises and shall, at Landlord's sole
cost, improve the New Premises with improvements substantially similar to
those the Landlord has committed to provide or has provided in the
Premises.
29. TRANSFERS BY LANDLORD
In the event of a sale or conveyance by Landlord of the Building or a
foreclosure by any creditor of Landlord, the same shall operate to release
Landlord from any liability upon any of the covenants or conditions, express or
implied, herein contained in favor of Tenant, to the extent required to be
performed after the passing of title to Landlord's successor-in-interest. In
such event, Tenant agrees to look solely to the responsibility of the
successor-in-interest of Landlord under this Lease with respect to the
performance of the covenants and duties of "Landlord" to be performed after the
passing of title to Landlord's successor-in-interest. This Lease shall not be
affected by any such sale and Tenant agrees to attorn to the purchaser or
assignee. Landlord's successor(s)-in-interest shall not have liability to
Tenant with respect to the failure to perform any of the obligations of
"Landlord," to the extent required to be performed prior to the date such
successor(s)-in-interest became the owner of the Building.
30. RIGHT OF LANDLORD TO PERFORM TENANT'S COVENANTS
All covenants and agreements to be performed by Tenant under any of the
terms of this Lease shall be performed by Tenant at Tenant's sole cost and
expense and without any abatement of Rent. If Tenant shall fail to pay any sum
of money, other than Base Rent, required to be paid by Tenant hereunder or
shall fail to perform any other act on Tenant's part to be performed hereunder,
including Tenant's obligations under Paragraph 11 hereof, and such failure shall
continue for fifteen (15) days after notice thereof by Landlord, in addition to
the other rights and remedies of Landlord, Landlord may make any such payment
and perform any such act on Tenant's part. In the case of an emergency, no
prior notification by Landlord shall be required. Landlord may take such
actions without any obligation and without releasing Tenant from any of
Tenant's obligations. All sums so paid by Landlord and all incidental costs
incurred by Landlord and interest thereon at the Applicable Interest Rate, from
the date of payment by Landlord, shall be paid to Landlord on demand as
Additional Rent.
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31. WAIVER
If either Landlord or Tenant waives the performance of any term, covenant
or condition contained in this Lease, such waiver shall not be deemed to be a
waiver of any subsequent breach of the same or any other term, covenant or
condition contained herein, or constitute a course of dealing contrary to the
expressed terms of this Lease. The acceptance of Rent by Landlord shall not
constitute a waiver of any preceding breach by Tenant of any term, covenant or
condition of this Lease, regardless of Landlord's knowledge of such preceding
breach at the time Landlord accepted such Rent. Failure by Landlord to enforce
any of the terms, covenants or condition of this Lease for any length of time
shall not be deemed to waive or decrease the rights of Landlord to insist
thereafter upon strict performance by Tenant. Waiver by Landlord of any term,
covenant or condition contained in this Lease may only be made by a written
document signed by Landlord, based upon full knowledge of the circumstances.
32. NOTICES
Each provision of this Lease or of any applicable governmental laws,
ordinances, regulations and other requirements with reference to sending,
mailing, or delivery of any notice or the making of any payment by Landlord or
Tenant to the other shall be deemed to be complied with when and if the
following steps are taken:
A. RENT. All Rent and other payments required to be made by Tenant to
Landlord hereunder shall be payable to Landlord at Landlord's Remittance
Address set forth in the Basic Lease information, or at such other address
as Landlord may specify from time to time by written notice delivered in
accordance herewith. Tenant's obligation to pay Rent and any other amounts to
Landlord under the terms of this Lease shall not be deemed satisfied until such
Rent and other amounts have been actually received by Landlord.
B. OTHER. All notices, demands, consents and approvals which may or are
required to be given by either party to the other hereunder shall be in writing
and either personally delivered, sent by commercial overnight courier, or
mailed, certified or registered, postage prepaid, and addressed to the party to
be notified at the Notice Address for such party as specified in the Basic
Lease information or to such other place as the party to be notified may from
time to time designate by at least fifteen (15) days notice to the notifying
party. Notices shall be deemed served upon receipt or refusal to accept
delivery. Tenant appoints as its agent to receive the service of all default
notices and notice of commencement of unlawful detainer proceedings the person
in charge of or apparently in charge of occupying the Premises at the time,
and, if there is not such person, then such service may be made by attaching
the name on the main entrance of the Premises.
C. REQUIRED NOTICES. Tenant shall immediately notify Landlord in writing of
any notice of violation or a potential or alleged violation of any Regulation
that relates to the Premises or the Project, or of any inquiry, investigation,
enforcement or other action that is instituted or threatened by any
governmental or regulatory agency against Tenant or any other occupant of the
Premises, or any claim that is instituted or threatened by any third party that
relates to the Premises or the Project.
33. ATTORNEYS' FEES
If Landlord places the enforcement of this Lease, or any part thereof, or
the collection of any Rent due, or to become due hereunder, or recovery of
possession of the Premises in the hands of an attorney, Tenant shall pay to
Landlord, upon demand, Landlord's reasonable attorneys' fees and court costs,
whether incurred without trial, at trial, appeal or review. In any action which
Landlord or Landlord brings to enforce its respective rights hereunder, the
unsuccessful party shall pay all costs incurred by the prevailing party
including reasonable attorneys' fees, to be fixed by the court, and said costs
and attorneys' fees shall be a part of the judgment in said action.
34. SUCCESSORS AND ASSIGNS
This Lease shall be binding upon and inure to the benefit of Landlord, its
successors and assigns, and shall be binding upon and insure to the benefit of
Tenant, its successors, and to the extent assignment is approved by Landlord as
provided hereunder, Tenant's assigns.
35. FORCE MAJEURE
If performance by a party of any portion of this Lease is made impossible
by any prevention, delay, or stoppage caused by strikes, lockouts, labor
disputes, acts of God, inability to obtain services, labor, or materials or
reasonable substitutions for those items, government actions, civil commotions,
fire or other casualty, or other causes beyond the reasonable control of the
party obligated to perform, performance by that party for a period equal to the
period of that prevention, delay, or stoppage is excused. Tenant's obligation to
pay Rent, however, is not excused by this Paragraph 35.
36. SURRENDER OF PREMISES
Tenant shall, upon expiration or sooner termination of this Lease,
surrender the Premises to Landlord in the same condition as existed on the date
Tenant originally took possession thereof, including, but not limited to, all
interior walls cleaned, all interior painted surfaces repainted in the original
color, all holes in walls repaired, all carpets shampooed and cleaned, and all
floors cleaned, waxed, and free of any Tenant-introduced marking or painting,
all to the reasonable satisfaction of Landlord. Tenant shall remove all of its
debris from the Project. At or before the time of surrender, Tenant shall comply
with the terms of Paragraph 12.A. hereof with respect to Alterations to the
Premises and all other matters addressed in such Paragraph. If the Premises are
not so surrendered at the expiration or sooner termination of this Lease, the
provisions of Paragraph 25 hereof shall apply. All keys to the Premises or any
part thereof shall be surrendered to Landlord upon expiration or sooner
termination of the Term. Tenant shall give written notice to Landlord at least
thirty (30) days prior to vacating the Premises and shall meet with Landlord for
a joint inspection of the Premises at the time of vacating. In the event of
Tenant's failure to give such notice or participate in such joint inspection,
Landlord's inspection at or after Tenant's vacating the Premises shall
conclusively be deemed correct for purposes of determining Tenant's
responsibility for repairs and restoration. Any delay caused by Tenant's failure
to carry out its obligations under this Paragraph 36 beyond the term hereof,
shall constitute unlawful and illegal possession of Premises under Paragraph 25
hereof.
37. PARKING
So long as Tenant is occupying the Premises, Tenant and Tenant's Parties
shall have the right to use up the number of parking spaces specified in the
Basic Lease information on an unreserved, nonexclusive basis, for
passenger-size automobiles, in the parking areas in the Project designated from
time to time by Landlord for use in common by tenants of the Building.
Tenant may request additional parking spaces from time to time and if
Landlord in its sole discretion agrees to make such additional spaces available
for use by Tenant, such spaces shall be provided on a month-to-month unreserved
and nonexclusive basis (unless otherwise agreed in writing by Landlord), and
subject to such parking charges as Landlord shall determine, and shall
otherwise be subject to such terms and conditions as Landlord may require.
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Tenant shall at all times comply and shall cause all Tenant's Parties and
visitors to comply with all Regulations and any rules and regulations
established from time to time by Landlord relating to parking at the Project,
including any keycard, sticker or other identification or entrance system, and
hours of operation, as applicable.
Landlord shall have no liability for any damage to property or other items
located in the parking areas of the Project, nor for any personal injuries or
death arising out of the use of parking areas in the Project by Tenant or any
Tenant's Parties. Without limiting the foregoing, if Landlord arranges for the
parking areas to be operated by an independent contractor not affiliated with
Landlord, Tenant acknowledges the Landlord shall have no liability for claims
arising through acts or omissions of such independent contractor. In all events,
Tenant agrees to look first to its insurance carrier and to require that
Tenant's Parties look first to their respective insurance carriers for payment
of any losses sustained in connection with any use of the parking areas.
Landlord reserves the right to assign specific spaces, and to reserve
spaces for visitors, small cars, disabled persons or for other tenants or
guests, and Tenant shall not park and shall not allow Tenant's Parties to park
in any such assigned or reserved spaces. Tenant may validate visitor parking by
such method as Landlord may approve, at the validation rate from time to time
generally applicable to visitor parking. Landlord also reserves the right to
alter, modify, relocate or close all or any portion of the parking areas in
order to make repairs or perform maintenance service, or to restripe or renovate
the parking areas, or if required by casualty, condemnation, act of God,
Regulations or for any other reason deemed reasonable by Landlord.
Tenant shall pay to Landlord (or Landlord's parking contractor, if so
directed in writing by Landlord), as Additional Rent hereunder, the monthly
charges established from time to time by Landlord for parking in such parking
areas (which shall initially be the charge specified in the Basic Lease
Information, as applicable). Such parking charges shall be payable in advance
with Tenant's payment of Basic Rent. No deductions from the monthly parking
charge shall be made for days on which the Tenant does not use any of the
parking spaces entitled to be used by Tenant.
38. MISCELLANEOUS
A. GENERAL. The term "Tenant" or any pronoun used in place thereof shall
indicate and include the masculine or feminine, the singular or plural number,
individuals, firms or corporations, and their respective successors, executors,
administrators and permitted assigns, according to the context hereof.
B. TIME. Time is of the essence regarding this Lease and all of its
provisions.
C. CHOICE OF LAW. This Lease shall in all respects be governed by the laws of
the State of California.
D. ENTIRE AGREEMENT. This Lease, together with its Exhibits, addenda and
attachments and the Basic Lease Information, contains all the agreements of the
parties hereto and supersedes any previous negotiations. There have been no
representations made by the Landlord or understandings made between the parties
other than those set forth in this Lease and its Exhibits, addenda and
attachments and the Basic Lease Information.
E. MODIFICATION. This Lease may not be modified except by a written instrument
signed by the parties hereto. Tenant accepts the area of the Premises as
specified in the Basic Lease Information as the approximate area of the Premises
for all purposes under this Lease, and acknowledges and agrees that no other
definition of the area (rentable, usable or otherwise) of the Premises shall
apply. Tenant shall in no event be entitled to a recalculation of the square
footage of the Premises, rentable, usable or otherwise, and no recalculation, if
made, irrespective of its purpose, shall reduce Tenant's obligations under this
Lease in any manner, including without limitation the amount of Base Rent
payable by Tenant or Tenant's Proportionate Share of the Building and of the
Project.
F. SEVERABILITY. If, for any reason whatsoever, any of the provisions hereof
shall be unenforceable or ineffective, all of the other provisions shall be and
remain in full force and effect.
G. RECORDATION. Tenant shall not record this Lease or a short form memorandum
hereof.
H. EXAMINATION OF LEASE. Submission of this Lease to Tenant does not
constitute an option or offer to lease and this Lease is not effective otherwise
until execution and delivery by both Landlord and Tenant.
I. ACCORD AND SATISFACTION. No payment by Tenant of a lesser amount than the
total Rent due nor any endorsement on any check or letter accompanying any check
or payment of Rent shall be deemed an accord and satisfaction of full payment of
Rent, and Landlord may accept such payment without prejudice to Landlord's right
to recover the balance of such Rent or to pursue other remedies. All offers by
or on behalf of Tenant of accord and satisfaction are hereby rejected in
advance.
J. EASEMENTS. Landlord may grant easements on the Project and dedicate for
public use portions of the Project without Tenant's consent; provided that no
such grant or dedication shall materially interfere with Tenant's Permitted Use
of the Premises. Upon Landlord's request, Tenant shall execute, acknowledge and
deliver to Landlord documents, instruments, maps and plots necessary to
effectuate Tenant's covenants hereunder.
K. DRAFTING AND DETERMINATION PRESUMPTION. The parties acknowledge that this
Lease has been agreed to by both the parties, that both Landlord and Tenant have
consulted with attorneys with respect to the terms of this Lease and that no
presumption shall be created against Landlord because Landlord drafted this
Lease. Except as otherwise specifically set forth in this Lease, with respect to
any consent, determination or estimation of Landlord required or allowed in this
Lease or requested of Landlord, Landlord's consent, determination or estimation
shall be given or made solely by Landlord in Landlord's good faith opinion,
whether or not objectively reasonable. If Landlord fails to respond to any
requests for its consent within the time period, if any, specified in this
Lease, Landlord shall be deemed to have disapproved such request.
L. EXHIBITS. The Basic Lease Information, and the Exhibits, addenda and
attachments attached hereto are hereby incorporated herein by this reference and
made a part of this Lease as though fully set forth herein.
M. NO LIGHT, AIR OR VIEW EASEMENT. Any diminution or shutting off of light,
air or view by any structure which may be erected on lands adjacent to or in the
vicinity of the Building shall in no way affect this Lease or impose any
liability on Landlord.
N. NO THIRD PARTY BENEFIT. This Lease is a contract between Landlord and
Tenant and nothing herein is intended to create any third party benefit.
Q. QUIET ENJOYMENT. Upon payment by Tenant of the Rent, and upon the
observance and performance of all of the other covenants, terms and conditions
on Tenant's part to be observed and performed, Tenant shall peaceably and
quietly hold and enjoy the Premises for the term hereby described without
hindrance or interruption by Landlord or any other person or persons lawfully or
equitably
Version 10.1 15
<PAGE> 16
claiming by, through or under Landlord, subject, nevertheless, to all of the
other terms and conditions of this Lease. Landlord shall not be liable for any
hindrance, interruption, interference or disturbance by other tenants or third
persons, nor shall Tenant be released from any obligations under this Lease
because of such hindrance, interruption, interference or disturbance.
P. COUNTERPARTS. This Lease may be executed in any number of counterparts,
each of which shall be deemed an original.
Q. MULTIPLE PARTIES. If more than one person or entity is named herein as
Tenant, such multiple parties shall have joint and several responsibility to
comply with the terms of this Lease.
R. PRORATIONS. Any Rent or other amounts payable to Landlord by Tenant
hereunder for any fractional month shall be prorated based on a month of 30
days. As used herein, the term "fiscal year" shall mean the calendar year or
such other fiscal year as Landlord may deem appropriate.
39. ADDITIONAL PROVISIONS
A. RENT, RENT FOR THE PREMISES.
YEAR 1: $16,846.70 per month, plus operating expenses per paragraph 7.B. of
this Lease Agreement. Operating expenses through December, 1998 are
estimated to be $5,147,45 per month. Direct operating expenses are
estimated one year in advance and collected on a monthly basis. Any
adjustments necessary (up or down) will be made at the end of the
operating year.
YEAR 2: $17,688.51 per month, plus operating expenses per Paragraph 7.B. of
this Lease Agreement.
YEAR 3: $18,530.82 per month, plus operating expenses per Paragraph 7.B. of
this Lease Agreement.
YEAR 4: $19,466.72 per month, plus operating expenses per Paragraph 7.B. of
this Lease Agreement.
YEAR 5: $20,496.21 per month, plus operating expenses per Paragraph 7.B. of
this Lease Agreement.
B. EARLY OCCUPANCY. Upon full execution of this Lease Agreement, Tenant
shall commit to occupy the Premises on January 14, 1998 or upon substantial
completion of Tenant Improvements, whichever occurs first, with all terms and
conditions of this Lease in full force and effect, including the payment of
rent and operating expenses, which shall be prorated from the date of occupancy.
C. LETTER OF CREDIT. Tenant shall pay to Landlord Tenant's security deposit
for the faithful performance of all terms, covenants and conditions of this
Lease. The amount of security deposit required is specified on the Basic Lease
Information sheet of the Lease and this Paragraph 39.C.
Tenant shall provide Landlord with an irrevocable standby letter of credit from
Silicon Valley Bank each in the amount of One Hundred Thousand and no/100ths
U.S. Dollars ($100,000.00). Tenant shall deliver to Landlord the first one-year
letter of credit upon execution of Lease. Said letter of credit shall be
renewed annually for five (5) consecutive years to expire on January 31, 2003.
The term "security deposit" as used herein shall mean, as applicable, such
letter of credit or cash deposit.
Tenant agrees that Landlord may, without waiving any of Landlord's other rights
and remedies under this Lease upon the occurrence of any of the events of
default described in this Lease (and following the expiration or any applicable
notice and cure periods), apply or draw down the security in whole or in part
to remedy any failure to pay any amounts owing to Landlord herein, to repair or
maintain the premises or to perform any other terms, covenants or conditions
contained herein. Additionally, in the event that Tenant fails to replace any
letter of credit delivered pursuant to this Addendum at least sixty (60) days
prior to the expiration of such letter of credit with a new letter of credit
acceptable to Landlord, Landlord shall have the right to draw down the letter
of credit in whole or in part, in which event all amounts so drawn, to the
extent not applied to cure an event of default as provided in the Lease, shall
be held by Landlord as if Tenant had deposited a cash security deposit.
Without limiting the generality of the foregoing, in the event that this Lease
is terminated and such termination does not coincide with the expiration of a
Basic Operating Cost fiscal year, as applicable, Landlord may retain the
security deposit for a reasonable period of time after the expiration of the
Basic Operating Cost fiscal year, in order to allow Landlord the opportunity to
determine the actual amount of Tenant's Proportionate Share of actual Basic
Operating Cost and to deduct any amount due from Tenant relating thereon as
applicable. Should Landlord use or draw down any portion of the security
deposit to cure any default by Tenant herein. Tenant shall forthwith replenish
the security deposit to the original amounts. Landlord shall not be required to
keep any security deposit in the form of cash separate from its general funds
and Tenant shall not be entitled to interest on any such cash deposit.
Landlord agrees to deduct the amount of the letter of credit to zero on
February 1, 1999, provided the following conditions are met for the reduction:
- Tenant is not or has not been in default of any of the terms and
conditions of this Lease.
- Landlord is provided with a copy of Tenant's financial statement showing
that Tenant's business is profitable.
Should the preceding conditions not be met, the letter of credit shall be
renewed in the amount of One Hundred Thousand and no/100ths U.S. Dollars
($100,000.00) for one (1) year on such anniversary of the Lease Commencement
date and shall not be reduced until the conditions hereunder have been met
completely.
All other terms and conditions of the Lease Agreement shall remain in full
force and effect.
16
<PAGE> 17
IN WITNESS WHEREOF, the parties hereto have executed this Lease as of the
day and the year first above written.
LANDLORD
Spieker Properties, L.P.
a California limited partnership
By: Spieker Properties, Inc.,
a Maryland corporation,
its general partner
By: ____________________________________
Its: _______________________________
Date: ______________________________________
TENANT:
Selectica, Inc.
a California corporation
By: ________________________________________
Its: ___________________________________
Date: ______________________________________
<PAGE> 18
EXHIBIT A
RULES AND REGULATIONS
1. Sidewalks, halls, passages, exits, entrances, elevators, escalators and
stairways shall not be obstructed by tenants or used by tenants for any
purpose other than for ingress to and egress from their respective premises.
The halls, passages, exists, entrances, elevators and stairways are not for
the use of the general public and Landlord shall in all cases retain the
right to control and prevent access thereto by all persons whose presence,
in the judgment of Landlord, shall be prejudicial to the safety, character,
reputation and interests of the Building, the Project and its tenants,
provided that nothing herein contained shall be construed to prevent such
access to persons with whom any tenant normally deals in the ordinary course
of such tenant's business unless such persons are engaged in illegal
activities. No tenant and no employees or invitees of any tenant, shall go
upon the roof of any Building, except as authorized by Landlord. No tenant,
and no employees or invitees of any tenant shall move any common area
furniture without Landlord's consent.
2. No sign, placard, banner, picture, name, advertisement or notice, visible
from the exterior of the Premises or the Building or the common areas of the
Building shall be inscribed, painted, affixed, installed or otherwise
displayed by Tenant either on its Premises or any part of the Building or
Project without the prior written consent of Landlord in Landlord's sole and
absolute discretion. Landlord shall have the right to remove any such sign,
placard, banner, picture, name, advertisement, or notice without notice to
and at the expense of the Tenant, which were installed or displayed in
violation of this rule. If Landlord shall have given such consent to Tenant
at anytime, whether before or after the execution of Tenant's Lease, such
consent shall in no way operate as a waiver or release of any of the
provisions hereof or of the Lease, and shall be deemed to relate only to the
particular sign, placard, banner, picture, name, advertisement or notice so
consented to by Landlord and shall not be construed as dispensing with the
necessity of obtaining the specific written consent of Landlord with respect
to any other such sign, placard, banner, picture, name, advertisement or
notice.
All approved signs or lettering on doors and walls shall be printed,
painted, affixed or inscribed at the expense of Tenant by a person or vendor
approved by Landlord and shall be removed by Tenant at the time of vacancy
at Tenant's expense.
3. The directory of the Building will be provided exclusively for the display
of the name and location of tenants only and Landlord reserves the right to
charge for the use thereof and to exclusive any other names therefrom.
4. No curtains, draperies, blinds, shutters, shades, screens or other
coverings, awnings, hangings or decorations shall be attached to, hung or
placed in, or used in connection with, any window or door on the Premises
without the prior written consent of Landlord. In any event with the prior
written consent of Landlord, all such items shall be installed inboard of
Landlord's standard window covering and shall in no way be visible from the
exterior of the Building. All electrical ceiling fixtures hung in offices or
spaces along the perimeter of the Building must be fluorescent or of a
quality, type, design, and bulb color approved by Landlord. No articles
shall be placed or kept on the window sills so as to be visible from the
exterior of the Building. No articles shall be placed against glass
partitions or doors which Landlord considers unsightly from outside Tenant's
Premises.
5. Landlord reserves the right to exclude from the Building and the Project,
between the hours of 6 p.m. and 8 a.m. and as all hours on Saturdays,
Sundays and legal holidays, all persons who are not tenants or their
accompanied guests in the Building. Each tenant shall be responsible for all
persons for whom it allows to enter the Building or the Project and shall be
liable to Landlord for all acts of such persons.
Landlord and its agents shall not be liable for damages for any error
concerning the admission to, or exclusion from, the Building or the Project
of any person.
During the continuance of any invasion, mob, riot, public excitement or
other circumstance rendering such action advisable in Landlord's opinion,
Landlord reserves the right (but shall not be obligated) to prevent access
to the Building and the Project during the continuance of the event by any
means it considers appropriate for the safety of tenants and protection of
the Building, property in the Building and the Project.
6. All cleaning and janitorial services for the Building and the Premises shall
be provided exclusively through Landlord. Except with the written consent of
Landlord, no person or persons other than those approved by Landlord shall
be permitted to enter the Building for the purpose of cleaning the same.
Tenant shall not cause any unnecessary labor by reason of Tenant's [???] or
indifference in the preservation of good order and cleanliness of its
Premises. Landlord shall in no way be responsible to Tenant for any loss of
property on the Premises, however occurring, or for any damage done to
Tenant's property by the janitor or any other employee or any other person.
7. Tenant shall see that all doors of its Premises are closed and securely
locked and must observe strict care and caution that all water faucets or
water apparatus, coffee pots or other heat-generating devices are entirely
shut off before Tenant or its employees leave the Premises, and that all
utilities shall likewise be carefully shut off, so as to prevent waste or
damage. Tenant shall be responsible for any damage or injuries sustained by
other tenants or occupants of the Building or Project or by Landlord for
noncompliance with this rule. On multiple-tenancy floors, all tenants shall
keep the door or doors to the Building corridors closed at all times except
for ingress and egress.
8. Tenant shall not use any method of heating or air-conditioning other than
that supplied by Landlord. As more specifically provided in the Tenant's
lease of the Premises, Tenant shall not waste electricity, water or
air-conditioning and agrees to cooperate fully with Landlord to assure the
most effective operation of the Building's heating and air-conditioning, and
shall refrain from attempting to adjust any controls other than room
thermostats installed for Tenant's use.
9. Landlord will furnish Tenant free of charge with two keys to each door in
the Premises. Landlord may make a reasonable charge for any additional keys,
and Tenant shall not make or have made additional keys. Tenant shall not
alter any lock or access device or install a new or additional lock or
access device or bolt on any door of its Premises, without the prior written
consent of Landlord. If Landlord shall give its consent, Tenant shall in
each case furnish Landlord with a key for any such lock. Tenant, upon the
termination of its tenancy, shall deliver to Landlord the keys for all doors
which have been furnished to Tenant, and in the event of loss of any keys so
furnished, shall pay Landlord therefor.
Exhibit A - Page 1
<PAGE> 19
10. The restrooms, toilets, urinals, wash bowls and other apparatus shall not
be used for any purpose other than that for which they were constructed and
no foreign substance of any kind whatsoever shall be thrown into them. The
expense of any breakage, stoppage, or damage resulting from violation of
this rule shall be borne by the tenant who, or whom employees or invitees,
shall have cause the breakage, stoppage, or damage.
11. Tenant shall not use or keep in or on the Premises, the Building or the
Project any kerosene, gasoline, or inflammable or combustible fluid or
material.
12. Tenant shall not use, keep or permit to be used or kept in its Premises
any foul or noxious gas or substance. Tenant shall not allow the Premises
to be occupied or used in a manner offensive or objectionable to Landlord
or other occupants of the Building by reason of noise, odors and/or
vibrations or interfere in any way with other tenants or those having
business therein, nor shall any animals or birds be brought or kept in or
about the Premises, the Building, or the Project.
13. No cooking shall be done or permitted by any tenant on the Premises, except
that use by the tenant of Underwriters' Laboratory (UL) approved equipment,
refrigerators and microwave ovens may be used in the Premises for the
preparation of coffee, tea, hot chocolate and similar beverages, storing
and heating food for tenants and their employees shall be permitted. All
uses must be in accordance with all applicable federal, state and city
laws, codes, ordinances, rules and regulations and the Lease.
14. Except with the prior written consent of Landlord, Tenant shall not sell,
or permit the sale, at retail, of newspapers, magazines, periodicals,
theater tickets or any other goods or merchandise in or on the Premises,
nor shall Tenant carry on, or permit or allow any employee or other person
to carry on, the business of stenography, typewriting or any similar
business in or from the Premises for the service or accommodation of
occupants of any other portion of the Building, nor shall the Premises be
used for the storage of merchandise or for manufacturing of any kind, on
the business of a public barber shop, beauty parlor, nor shall the Premises
be used for any illegal, improper, immoral or objectionable purpose, or any
business or activity other than that specifically provided for in such
Tenant's Lease. Tenant shall not accept hairstyling, barbering, shoeshine,
mail, massage or similar services in the Premises or common areas except as
authorized by Landlord.
15. If Tenant requires telegraphic, telephonic, telecommunications, data
processing, burglar alarm or similar services, it shall first obtain, and
comply with, Landlord's instructions in their installed location.
16. Landlord will direct electricians as to where and how telephone, telegraph
and electrical wires are to be introduced or installed. No boring or
cutting for wires will be allowed without the prior consent of Landlord.
The location of burglar alarms, telephones, call boxes and other office
equipment affixed to the Premises shall be subject to the written approval
of Landlord.
17. Tenant shall not install any radio or television antennas, satellite dish,
loudspeaker or any other device on the exterior walls or the roof of the
Building, without Landlord's consent. Tenants shall not interfere with
radio or television broadcasting or reception from or in the Building, the
Project or elsewhere.
18. Tenant shall not mark, or drive nails, screws or drill into the
partitions, woodwork or drywall or in any way deface the Premises or any
part thereof without Landlord's consent. Tenant may install nails and
screws in areas of the Premises that have been identified for those
purposes to Landlord by Tenant at the time those walls or partitions were
installed in the Premises. Tenant shall not lay linoleum, tile, carpet or
any other floor covering so that the same shall be affixed to the floor of
its Premises in any manner except as approved in writing by Landlord. The
expense of repairing any damage resulting from a violation of this rule or
the removal of any floor covering shall be borne by the tenant by whom, or
by whose contractors, employees or invitees, the damage shall have been
caused.
19. No furniture, freight, equipment, materials, supplies, packages,
merchandise or other property will be received in the Building or carried
up or down the elevators except between such hours and in such elevators
as shall be designated by Landlord.
Tenant shall not place a load upon any floor of its Premises which
exceeds the load per square foot which such floor was designed to carry or
which is allowed by law. Landlord shall have the right to prescribe the
weight, size and position of all safes, furniture or other heavy equipment
brought into the building. Safes or other heavy objects shall, if
considered necessary by Landlord, stand on wood strips of such thickness as
determined by Landlord to be necessary to properly distribute the weight
thereof. Landlord will not be responsible for loss of or damage to any
such safe, equipment or property from any cause, and all damage done to
the Building by moving or maintaining any such safe, equipment or other
property shall be repaired at the expense of Tenant.
Business machines and mechanical equipment belonging to Tenant which cause
noise or vibration that may be transmitted to the structure of the
Building or to any space thereto to such a degree as to be objectionable
to Landlord or to any tenants in the Building shall be placed and
maintained by Tenant, at Tenant's expense, on vibration eliminators or
other devices sufficient to eliminate noise or vibration. The persons
employed to move such equipment in or out of the Building must be
acceptable to Landlord.
20. Tenant shall not install, maintain or operate upon its Premises any
vending machine without the written consent of Landlord.
21. There shall not be used in any space, or in the public areas of the Project
either by Tenant or others, any hand trucks except those equipped with
rubber tires and side guards or such other material handling equipment as
Landlord may approve. Tenants using had trucks shall be required to use the
freight elevator, or such elevator as Landlord shall designate. No other
vehicles of any kind shall be brought by Tenant into or kept in or about
its Premises.
22. Each tenant shall store all its trash and garbage within the interior of
the Premises. Tenant shall not place in the trash boxes or receptacles any
personal trash or any material that may not or cannot be disposed of in
the ordinary and customary manner of removing and disposing of trash and
garbage in the city, without violation of any law or ordinance governing
such disposal. All trash, garbage and refuse disposal shall be made only
through entry-ways and elevators provided for such purposes and at such
times as Landlord shall designate. If the Building has implemented a
building-wide recycling program for tenants, Tenant shall use good faith
efforts to participate in said program.
23. Canvassing, soliciting, distribution of handbills or any other written
material and peddling in the Building and the Project are prohibited and
each tenant shall cooperate to prevent the same. No tenant shall make
room-to-room solicitation of business from other tenants in the Building or
the Project, without the written consent of Landlord.
Exhibit A - Page 2
<PAGE> 20
24. Landlord shall have the right, exercisable without notice and without
liability to any tenant, to change the name and address of the Building
and the Project.
25. Landlord reserves the right to exclude or expel from the Project any
person who, in Landlord's judgment, is under the influence of alcohol or
drugs or who commits any act in violation of any of these Rules and
Regulations.
26. Without the prior written consent of Landlord, Tenant shall not use the
name of the Building or the Project or any photograph or other likeness of
the Building or the Project in connection with, or in promoting or
advertising, Tenant's business except the Tenant may include the
Building's or Project's name in Tenant's address.
27. Tenant shall comply with all safety, fire protection and evacuation
procedures and regulations established by Landlord or any governmental
agency.
28. Tenant assumes any and all responsibility for protecting its Premises from
theft, robbery and pilferage, which includes keeping doors locked and
other means of entry to the Premises closed.
29. The requirements of Tenant will be attended to only upon appropriate
application at the office of the Building by an authorized individual.
Employees of Landlord shall not perform any work or do anything outside
of their regular duties unless under special instructions from Landlord,
and no employees of Landlord will admit any person (tenant or otherwise)
to any office without specific instructions from Landlord.
30. Landlord reserves the right to designate the use of the parking spaces on
the Project. Tenant or Tenant's guests shall park between designated
parking lines only, and shall not occupy two parking spaces with one car.
Parking spaces shall be for passenger vehicles only; no buses, trucks,
trailers, recreational vehicles or other types of vehicles may be parked
in the parking area (except that trucks may be loaded and unloaded in
designated loading areas). Vehicles in violation of the above shall be
subject to tow-away, at vehicle owner's expense. Vehicles parked on the
Project overnight without prior written consent of the Landlord shall be
deemed abandoned and shall be subject to tow-away at vehicle owner's
expense. No tenant of the Building shall park in visitor or reserved
parking areas. Any tenant found parking in such designated visitor or
reserved parking areas shall be subject to tow-away at vehicles owner's
expense. The parking areas shall not be used to provide car wash, oil
changes, detailing, automotive repair or other services unless otherwise
approved or furnished by Landlord.
31. No smoking of any kind shall be permitted anywhere within the Building,
including, without limitation, the Premises and those areas immediately
adjacent to the entrances and exits to the Building, or any other area as
Landlord elects. Smoking in the Project is only permitted in smoking
areas identified by Landlord, which may relocated from time to time.
32. If the Building furnishes common area conference rooms for tenant usage,
Landlord shall have the right to control each tenant's usage of the
conference rooms, including limiting tenant usage so that the rooms are
equally available to all tenants in the Building. Any common area
amenities or facilities shall be provided from time to time at Landlord's
discretion.
33. Tenant shall not swap or exchange building keys or cardkeys with other
employees or tenants in the Building or Project.
34. Tenant shall be responsible for the observance of all of the foregoing
Rules and Regulations by Tenant's employees, agents, clients, customers,
invitees and guests.
35. These Rules and Regulations are in addition to, and shall not be
construed to in any way modify, alter or amend, in whole or in part, the
terms, covenants, agreements and conditions of any lease of any premises
in the Project.
36. Landlord may waive any one or more of these Rules and Regulations for the
benefit of any particular tenant or tenants, but no such waiver by
Landlord shall be construed as a waiver of such Rules and Regulations in
favor of any other tenant or tenants, nor prevent Landlord from
thereafter enforcing any such Rules and Regulations against any or all
tenants of the Building.
37. Landlord reserves the right to make such other and reasonable rules and
regulations as in its judgment may from time to time be needed for safety
and security, for care and cleanliness of the Building and the Project
and for the preservation of good order therein. Tenant agrees to abide by
all such Rules and Regulations herein stated and any additional rules and
regulations which are adopted.
Exhibit A - Page 3
<PAGE> 21
EXHIBIT B
PROPERTY DESCRIPTION
All that certain real property situated in the city of
San Jose, County of Santa Clara State of California,
described as follows:
Assessor's Parcel Numbers 097-14-058, 097-14-059, 097-14-062,
097-14-063, 097-14-064, and 097-14-065.
<PAGE> 22
EXHIBIT B-1
SITE PLAN
Suite 101, 2890 Zanker Road, San Jose, California outline of premises.
[FLOOR PLAN]
2880 ZANKER ROAD
FIRST FLOOR
<PAGE> 23
EXHIBIT C
OFFICE LEASE IMPROVEMENT AGREEMENT
This Office Lease Improvement Agreement ("IMPROVEMENT AGREEMENT") sets
forth the terms and conditions relating to construction of the initial tenant
improvements described in the Plans to be prepared and approved as provided
below (the "TENANT IMPROVEMENTS") in the Premises. Capitalized terms used but
not otherwise defined herein shall have the meanings set forth in the Lease
(the "LEASE") to which this Improvement Agreement is attached and forms a part.
1. BASE BUILDING WORK. The "Base Building Work" described on Schedule 1 to
this Exhibit C, if any, has been or will be performed by Landlord at Landlord's
sole cost and expense.
2. PLANS AND SPECIFICATIONS.
2.1. Landlord shall retain the services of the space planner/architect
designated by Landlord (the "SPACE PLANNER") to prepare a detailed space plan
(the "SPACE PLAN") mutually satisfactory to Landlord and Tenant for the
construction of the Tenant Improvements in the Premises. Tenant shall approve
or disapprove the Space Plan and any proposed revisions thereon in writing
within three (3) business days after receipt thereof, which approval shall not
be unreasonably withheld.
2.2. Based on the approved Space Plan, Landlord shall cause the Space
Planner to prepare detailed plans, specifications and working drawings for the
construction of the Tenant Improvements (the "PLANS"). Landlord and Tenant
shall diligently pursue the preparation of the Plans. Tenant shall approve or
disapprove the Plans and any proposed revisions thereto, including the
estimated cost of the Tenant Improvements, in writing within three (3) business
days after receipt thereof. If Tenant fails to approve or disapprove the Space
Plan or Plans or any revisions thereto within the time limits specified herein,
Tenant shall be deemed to have approved the same. Landlord and Tenant shall use
diligent efforts to cause the final Plans and the cost estimate to be prepared
and approved no later than thirty (30) days after the execution of the Lease.
2.3. Notwithstanding Landlord's preparation, review and approval of the
Space Plan and the Plans and any revisions thereto, Landlord shall have no
responsibility or liability whatsoever for any errors or omissions contained in
the Space Plan or Plans, or to verify dimensions or conditions, or for the
quality, design or compliance with applicable Regulations of any improvements
described therein or constructed in accordance therewith. Landlord hereby
assigns to Tenant all warranties and guaranties by the Space Planner or the
contractor who constructs the Tenant Improvements relating to the Tenant
Improvements, and Tenant hereby waives all claims against Landlord relating to,
or arising out of the design or construction of, the Tenant Improvements.
3. SPECIFICATIONS FOR STANDARD TENANT IMPROVEMENTS.
3.1. Specifications and quantities of standard building components which
will comprise and be used in the construction of the Tenant Improvements
("STANDARDS") are set forth in Schedule 2 to this Exhibit C. As ?? herein,
"STANDARDS" or "BUILDING STANDARDS" shall mean the standards for a particular
item selected from time to time by Landlord for the Building, including those
set forth on Schedule 2 of this Exhibit C, or such other standards of equal or
better quality as may be mutually agreed between Landlord and Tenant in writing.
3.2. No deviations from the Standard are permitted.
4. TENANT IMPROVEMENT COST.
4.1. The cost of the Tenant Improvements shall be paid for by Tenant,
including, without limitation, the cost of Standards; space plans and studies;
architectural and engineering fees; permits, approvals and other governmental
fees; labor, material, equipment and supplies; construction fees and other
amounts payable to contractors or subcontractors; taxes; off-site
improvements; remediation and preparation of the Premises for construction of
the Tenant Improvements; taxes; filing and recording fees; premiums for
insurance and bonds; attorneys' fees; financing costs; and all other costs
expanded or to be expanded in the construction of the Tenant Improvements,
including those costs incurred for construction of elements of the Tenant
Improvements in the Premises, which construction was performed by Landlord
prior to the execution of the Lease or for materials comprising the Tenant
Improvements which were purchased by Landlord prior to the execution of the
Lease; and an administration fee of fifteen percent (15%) of the total cost of
the Tenant Improvements.
4.2. Provided Tenant is not in default under the Lease, including this
Improvement Agreement, Landlord shall constitute a one-time tenant improvement
allowance not to exceed [?] 50 per foot) ("TENANT IMPROVEMENT ALLOWANCE") to be
credited by Landlord toward the cost of the initial Tenant Improvements. If the
cost of the Tenant Improvements exceeds the Tenant Improvement Allowance,
Tenant shall pay Landlord such excess cost within three (3) business days after
Landlord's notice to Tenant of such excess cost. No credit shall be given to
Tenant if the cost of the Tenant Improvements is less than the Tenant
Improvement Allowance.
4.3. If the cost of the Tenant Improvements increases after the Tenant's
approval of the Plan due to the requirements of any governmental agency or
applicable Regulation or any other reason, Tenant shall pay Landlord the amount
of such increase within three (3) business days after notice from Landlord of
such increase.
4.4. If Tenant requests any change(s) in the Plans after approval of the
estimate of the cost of the Tenant Improvements and any such requested changes
are approved by Landlord in writing in Landlord's sole discretion, Landlord
shall advise Tenant promptly of any cost increases and/or delays such approved
change(s) will cause in the construction of the Tenant Improvements.
Tenant shall approve or disapprove any or all such change(s) within three (3)
business days after notice from Landlord of such cost increases and/or delays.
To the extent Tenant disapproves any such cost increase and/or delay
attributable thereto, Landlord shall have the right, in its sole discretion, to
disapprove Tenant's request for any changes to the approved Plans. If the cost
of the Tenant Improvements increases due to any changes in the Plan(s)
requested by Tenant, Tenant shall pay Landlord the amount of such increase
within three (3) business days after notice from Landlord of such increase and
Tenant's approval thereof in accordance with this Paragraph 4.4.
5. CONSTRUCTION OF TENANT IMPROVEMENTS.
5.1. Upon Tenant's approval of the Plans including the estimate of the
cost of the Tenant Improvements and Landlord's receipts of payment of any such
estimated cost exceeding the amount of the Tenant Improvement Allowance,
Landlord shall cause its contractor to proceed to secure a building permit and
commence construction of the Tenant Improvements provided that Tenant shall
cooperate with Landlord in executing permit applications and performing other
actions reasonably necessary to enable Landlord to obtain any required permits
or certificates of occupancy; and provided further that the Building has in
Landlord's discretion reached the stage of construction where it is appropriate
to commence construction of the Tenant Improvements in the Premises.
C-1
<PAGE> 24
SCHEDULE 1
TO EXHIBIT C
BASE BUILDING WORK
NONE
C-3
<PAGE> 25
SCHEDULE 2
TO EXHIBIT C
BUILDING STANDARDS
The following constitutes the Building Standard tenant improvements
("Standards") in the quantities specified:
PARTITIONS: Building Standard Interior:
3 5/8" 25 gauge studs 24" on center with 5/8" gypsum
wallboard both sides to under side of ceiling grid. Smooth
finish ready for paint.
Building Standard Demising:
3 5/8" 25 gauge studs 24" on center with 5/8" gypsum
wallboard both sides to slab above or roof structure above.
R-11 heat insulation within partition cavity.
Building Standard Corridor:
3 5/8" 25 gauge studs 24" on center with 5/8" gypsum
wallboard both sides to slab above or roof structure above.
Partitions to form one (1) hour envelope.
CEILINGS: Building Standard Tenant Ceiling:
2" X 2" white, square grid system
Armstrong 770 2" X 2" tile.
DOORS, FRAMES &
HARDWARE: Building Standard Interior Doors:
Full height 3090 Rustic quartered oak
Hardware - Schlage S-10 "Bright Chrome" locksets and Hager
"Bright Chrome" hinges.
Building Standard Corridor Doors:
Full height 3090 White oak clear coated.
Hardware - Schlage L 9050 "Bright Chrome" locksets.
ELECTRICAL: Building Standard 2' X 4' Light Fixture: Lithonin 2 tube
fluorescent with acrylic prismatic lens.
Building Standard 120V Duplex Wall Outlet: Duplex
receptacle with ivory cover-plate mounted 16" to center line
above finished floor.
Building Standard Telephone Wall Outlet: Plaster ring with
pull wire (no conduit) mounted 16" to center line finished
floor with ivory cover-plate.
Switches - ivory handle and cover-plate mounted 48" above
finished floor.
HVAC: Building Standard Thermostats: Robert Shaw mounted 48" to
center line. Thermostatically controlled comfort zone to
range from 68 degrees to 72 degrees.
SPRINKLERS: Semi-recessed, chrome heads and white escutcheon-plated to
center line of tile.
FINISHES: Building Standard Carpet: Designweave, Sabre Classic,
38 ounce over pad.
Building Standard Base: Rubber base by Burke, 4" flat type,
color black.
Building Standard Vinyl Composition Tile: Armstrong Standard
Excelon.
Building Standard Paint: Two (2) coats flat latex paint by
Sinclair, color Snowdrift.
Building Standard Window Covering: All exterior glass,
mini-blinds by Levelor, color bronze interior. No option.
C-4
<PAGE> 1
EXHIBIT 10.6
LEASE AGREEMENT
BLDG: Orchard 4
OWNER: 1
PROP: 0029
UNIT: 1
TENANT: SELE01
LEASE: 0029-sele01-01
THIS LEASE, made this 1st day of October, 1999 between JOHN ARRILLAGA,
Trustee, or his Successor Trustee, UTA dated 7/20/77 (JOHN ARRILLAGA SURVIVOR'S
TRUST) as amended, and RICHARD T. PERRY, Trustee, or his Successor Trustee, UTA
dated 7/20/77 (RICHARD T. PERRY SEPARATE PROPERTY TRUST) as amended, hereinafter
called Landlord, and SELECTICA, INC., 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 the certain 79,803 [plus or minus] square foot, two-story building
located at 3 W. Plumeria Drive, San Jose, California 95134. Said Premises is
more particularly shown within the are outlined in Red on Exhibit A attached
hereto. The entire parcel, of which the Premises is a part, is shown within the
area outlined in Green on Exhibit A attached. The Premises shall be improved by
Landlord as shown on Exhibit B to be attached hereto, and is leased on an
"as-is" basis, in its present condition, and in the configuration as shown in
Red on Exhibit B to be attached hereto.
As used herein in 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, 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 improper, immoral,
unlawful or objectionable 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 of Tenant to comply with any applicable law. Tenant shall comply with
any covenant, condition, or restriction ("CC&R's") affecting the Premises. 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*
A. The term of this Lese shall be for a period of TEN (10) years SIXTEEN
(16) days (unless sooner terminated as hereinafter provided) and, subject to
Paragraphs 2(B) and 3, shall commence on the 15th day of November, 1999 and end
on the 30th day November, of 2009.
B. Possession of the Premises shall be deemed tendered and the term of
this Lease shall commence when the first of the following occurs:
(a) One day after a Certificate of Occupancy is granted by the proper
governmental agency, or, if the governmental agency having jurisdiction over
the area in which the Premises are situated does not issue certificates of
occupancy, then the same number of days after certification by Landlord's
architect or contractor that Landlord's construction work has been completed; or
(b) Upon the occupancy of the Premises by any of Tenant's operating
personnel; or
(c) When the Tenant Improvements have been substantially completed for
Tenant's use and occupancy, in accordance and compliance with Exhibit B of this
Lease Agreement; 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 45 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.
Page 1 of 8
<PAGE> 2
A. 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 TWENTY
ONE MILLION SIX HUNDRED SIXTY FOUR THOUSAND SEVEN HUNDRED FORTY AND 36/100
($21,664,740.36) 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 and deductibles
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 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 pro rata
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 within 120 days of 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
crediting 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 or
termination bears to 365.
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 of FOUR HUNDRED THIRTY EIGHT THOUSAND
NINE HUNDRED SIXTEEN AND 50/100 ($438,916.50) 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 provision
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 keep this
Security Deposit separate from its general funds, and Tenant shall not be
entitled to interest on such Deposit. If Tenant fully and faithfully performs
every provision of this Lease to be performed by it, the Security Deposit or any
balance thereof shall be returned to Tenant (or at Landlord's option, to the
last assignee of Tenant's interest hereunder) at the expiration of the 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 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 binding 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 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.
page 2 of 8
<PAGE> 3
6. PARKING Tenant shall have the right to use with other tenants or occupants
of the Complex 220 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 220 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 to be parked, any trucks or 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 4 D 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 and
replacement of landscaped areas, lakes, parking lots, and paved areas (including
repairs, replacement, resealing and restriping) 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 cost of
capital expenditures which have the effect of reducing operating expenses,
provided, however, that in the event Landlord makes such capital improvements,
Landlord may amortize its investment in said improvements (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
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 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 to 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 airconditioning and
heating equipment serviced by a reputable and licensed service firm and in good
operating condition (provided the maintenance of such equipment has been
Tenant's responsibility during the term of this 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 or 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 or 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 moveable 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 founded
on such delay. Nothing contained herein shall be construed as an extension of
the term hereof 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 all or 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 and 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
Landlord. Landlord reserves the right to 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 in the Premises. All
heating, lighting, electrical, airconditioning, 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 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 Tenant's own cost and expense, a
completion and lien indemnity bond, satisfactory to Landlord, for such work.
Tenant further covenants and agrees that any mechanic's 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 its 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. Tenant's
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, boilers, 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
Tenant's sole expense upon Lease termination. Tenant hereby waives all rights
under, and benefits of, subsection 1 of Section 1932 and Section 1941 and 1942
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 to 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 entitled 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 Tenant's proportionate share of all Real
Property Taxes, which pro rata 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 kind or 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 reassessment caused by
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<PAGE> 4
any change in ownership of the Complex) now or hereafter imposed by any
governmental or quasi-governmental authority or special district having the
direct or 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 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 additional 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 included estate, inheritance, gift or
franchise taxes of Landlord or the federal or state net income tax imposed on
Landlord's income from all sources. The term "Real Estate Taxes" shall also
include supplemental taxes related to the period of Tenant's Lease Term whenever
levied, including any such taxes that may be levied after the Lease Term has
expired.
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 property 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; provided 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 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
assessed 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 a 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 this Lease a policy of commercial general liability
insurance with a combined single limit coverage of not less than Two Million
Dollars ($2,000,000) per occurrence 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, except upon thirty (30) days' prior written notice to Landlord. If,
during the term of this Lease, in the considered opinion of Landlord's Lender,
insurance advisor, or counsel, the amount of insurance described in this
paragraph 13 is not adequate, Tenant agrees to increase said coverage to such
reasonable amount as Landlord's Lender, insurance advisor, or counsel shall
deem adequate.
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 employee 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 this 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 or
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 due to
Tenant's use of the Premises or the Complex, Tenant agrees to pay to Landlord
the full cost of such increase. Tenant shall have no interest in nor any right
to the proceeds of any insurance procured by Landlord for the Complex.
Landlord and Tenant do each hereby respectively release the other, to the
extent of insurance coverage of the releasing party, from any liability for loss
or 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 attorneys' 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 now or hereafter in effect; with the requirements of any board of
fire underwriters or other similar body now or hereafter constituted; and with
any 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
governmental rule, 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
Tenant's 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.
18. LIENS Tenant shall keep the Premises and the Complex free from any liens
arising out of any work performed, materials furnished or obligation incurred by
Tenant. In the event that Tenant shall not, within 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 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 will not be unreasonably withheld. As a
condition of granting this consent to any assignment, transfer, or subletting,
Landlord shall require Tenant to pay to Landlord, as Additional Rent, all rent
and/or additional consideration due Tenant from its assignees, transferees, or
subtenants in excess of the Rent payable by Tenant to Landlord hereunder for
the assigned, transferred and/or subleased space. 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 thirty (30) days after receipt of said
written notice, Landlord may, in 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. If no such notice to terminate is given to Tenant within said thirty
(30) day 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 19. If Tenant intends 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, no assignee, transferee or 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. A consent of Landlord in one assignment, transfer, hypothecation,
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, occupation or use by any other person. Any such assignment,
transfer, hypothecation, 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. As a condition to its consent, Landlord shall require
Tenant to pay all expenses in connection with the assignment, and Landlord
shall 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. Notwithstanding the
above, in no event will Landlord consent to a sub-lease.
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.
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 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 circumstances be construed or deemed
to be a forcible or unlawful entry into or a detainer of the Premises or an
eviction, actual or constructive, of Tenant from the Premises or any 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.
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)
any 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 of 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 from Landlord
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
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 (30
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). To the extent permitted by law The right and power to enter the
Premises and remove therefrom 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 than rent due hereunder, the
cost of such subletting, including, but not limited to, reasonable attorneys'
fees, and any real estate commissions actually paid, and the cost 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 option 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 subletting and 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 with any rent to be received by such subletting under option
(i) and such rent shall not be promptly paid to Landlord by the subtenant(s), or
if such rentals received from such subletting under option (ii) during any month
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
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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 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, 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 Premies. If
Landlord initially estimates that the rebuilding or restoration will exceed 180
days or if Landlord does not complete the rebuilding or restoration within one
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 of 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 33 1/3% of the replacement cost
thereof, Landlord may elect to terminate this Lease, whether the Premises be
injured or not. Notwithstanding anything to the contrary herein, Landlord may
terminate this Lease in the event of an uninsured event or if insurance proceeds
are insufficient to cover one hundred percent of the rebuilding costs net of the
deductible.
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 goodwill, 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 or 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.
27. ATTORNMENT TO LENDER OF 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 Base 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 Tenant shall at any time upon not less than ten
(10) days' prior written notice to Landlord execute, acknowledge and deliver to
Landlord 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 Tenant's
knowledge, any uncured defaults on the part of Landlord 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. Tenant's failure to deliver such statement within such time shall be
conclusive upon Tenant 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 Landlord'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 and such failure shall continue for five (5) days after written
notice thereof by Landlord, or shall fail to perform any other term or covenant
hereunder on its part to be performed, and such failure shall continue for
thirty (30) days after written notice thereof by Landlord, Landlord, without
waiving or releasing Tenant from any obligation of Tenant hereunder, may, but
shall not be obligated to, make any such payment or perform
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<PAGE> 7
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 as in the case of failure by Tenant in the
payment of rent hereunder.
32. ATTORNEYS' 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
judgment.
(B) Should Landlord be named as a defendant in any suit brought against
Tenant in connection with or arising out of Tenant's occupancy, 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 United States certified or registered mail, postage
prepaid, addressed to Landlord at its offices at Peery/Arrillaga, 2560 Mission
College Blvd., #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 mailing thereof in the manner herein
provided, 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 thirty (30) days after execution of this 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.
38. 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's interest in
the Premises leased herein;
(ii) no partner of Landlord shall be sued or named as a 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 judgment will be taken against any partner of Landlord;
(vi) any judgment 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 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.
The term "person" includes the plural as well as the singular and
individuals, firms, associations, partnerships and corporations. Words used
in any gender include other genders. If there be more than one Tenant the
obligations of Tenant hereunder are joint and several. The paragraph
headings of this Lease are for convenience of reference only and shall have
no effect upon the construction or interpretation of any provision hereof.
d. Time is of the essence of this Lease and of each and all of its
provisions.
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<PAGE> 8
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 by any reputable title company, licensed to operated 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 52 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 to
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 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.
IN WITNESS WHEREOF, Landlord and Tenant have executed and delivered this
Lease as of the day and year last written below.
LANDLORD: TENANT:
JOHN ARRILLAGA SURVIVOR'S TRUST SELECTICA, INC.
a California corporation
By /s/ JOHN ARRILLAGA By /s/ [ILLEGIBLE]
---------------------------- -----------------------------------
John Arrillaga, Trustee
Date: 10/6/99 Title Vice President, Finance & CFO
------------------------- -------------------------------
RICHARD T. PEERY SEPARATE PROPERTY Print or Type Name [ILLEGIBLE]
TRUST ------------------
Date: 10-6-99
By /s/ RICHARD T. PEERY --------------------------------
-----------------------------
Richard T. Peery, Trustee
Date: 10/6/99
--------------------------
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<PAGE> 9
Paragraphs 43 through 52 to Lease Agreement dated October 1, 1999, By and
Between the John Arrillaga Survivor's Trust and the Richard T. Peery Separate
Property Trust, as Landlord, and Selectica, Inc., a California corporation, as
Tenant for 79,803+ Square Feet of Space Located at 3 W. Plumeria Drive, San
Jose, California.
43. BASIC RENT: In accordance with Paragraph 4A herein, the total aggregate
sum of TWENTY ONE MILLION SIX HUNDRED SIXTY FOUR THOUSAND SEVEN HUNDRED FORTY
AND 36/100 DOLLARS ($21,664,740.36), shall be payable as follows:
On November 15, 1999, the sum of FIFTY NINE THOUSAND TWO HUNDRED AND
NO/100 DOLLARS ($59,200.00) shall be due, representing the prorated Basic Rent
for the period of November 15, 1999 through November 30, 1999.
On December 1, 1999, the sum of ONE HUNDRED ELEVEN THOUSAND AND NO/100
DOLLARS ($111,000.00) shall be due, and a like sum due on the first day of each
month thereafter, through and including October 1, 2000.
On November 1, 2000, the sum of ONE HUNDRED THIRTY THOUSAND FIVE
HUNDRED THIRTY EIGHT AND 96/100 DOLLARS ($130,538.96) shall be due,
representing the prorated Basic Rent due for the month of November 2000.
On December 1, 2000 the sum of ONE HUNDRED FIFTY FIVE THOUSAND SIX
HUNDRED FIFTEEN AND 85/100 DOLLARS ($155,615.85) shall be due, and a like sum
due on the first day of each month thereafter, through and including November
1, 2000.
On December 1, 2001, the sum of ONE HUNDRED SIXTY THREE THOUSAND FIVE
HUNDRED NINETY SIX AND 15/100 DOLLARS ($163,596.15) shall be due, and a like
sum due on the first day of each month thereafter, through and including
November 1, 2002.
On December 1, 2002, the sum of ONE HUNDRED SEVENTY TWO THOUSAND FIVE
HUNDRED SEVENTY SIX AND 45/100 DOLLARS ($171,576.45) shall be due, and a like
sum due on the first day of each month thereafter, through and including
November 1, 2003.
On December 1, 2003, the sum of ONE HUNDRED SEVENTY NINE THOUSAND FIVE
HUNDRED FIFTY SIX AND 75/100 DOLLARS ($179,556.75) shall be due, and a like sum
due on the first day of each month thereafter, through and including November
1, 2004.
On December 1, 2004, the sum of ONE HUNDRED EIGHTY SEVEN THOUSAND FIVE
HUNDRED THIRTY SEVEN AND 05/100 DOLLARS ($187,537.35) shall be due, and a like
sum due on the first day of each month thereafter, through and including
November 1, 2005.
On December 1, 2005, the sum of ONE HUNDRED NINETY FIVE THOUSAND FIVE
HUNDRED SEVENTEEN AND 35/100 DOLLARS ($195,517.35) shall be due, and a like sum
due on the first day of each month thereafter, through and including November
1, 2006.
On December 1, 2006, the sum of TWO HUNDRED THREE THOUSAND FOUR HUNDRED
NINETY SEVEN AND 65/100 DOLLARS ($203,497.65) shall be due, and a like sum due
on the first day of each month thereafter, through and including November 1,
2007.
On December 1, 2007, the sum of TWO HUNDRED ELEVEN THOUSAND FOUR HUNDRED
SEVENTY SEVEN AND 95/100 DOLLARS ($211,477.95) shall be due, and a like sum due
on the first day of each month thereafter, through and including November 1,
2008.
On December 1, 2008, the sum of TWO HUNDRED NINETEEN THOUSAND FOUR
HUNDRED FIFTY EIGHT AND 25/100 DOLLARS ($219,458.25) shall be due, and a like
sum due on the first day of each month thereafter, through and including
November 1, 2009; or until the entire aggregate sum or TWENTY ONE MILLION SIX
HUNDRED SIXTY FOUR THOUSAND SEVEN HUNDRED FORTY AND 36/100 DOLLARS
($21,664,740.36) has been paid.
44. "AS-IS" BASIS; Subject only to Landlord making the improvements shown on
Exhibit B to be attached hereto, it is hereby agreed that the Premises leased
hereunder is leased strictly on an
Page 9 Initial: [ILLEGIBLE]
------------
<PAGE> 10
"as-is" basis and in its present condition, and in the configuration as shown
on EXHIBIT B to be attached hereto, and by reference made a part hereof. It is
specifically agreed between the parties that after Landlord makes the interior
improvements as shown on EXHIBIT B, 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. Notwithstanding anything to the contrary
within 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.
48. ASSESSMENT CREDITS: The demised property herein may be subject to a
special assessment levied by the City of San Jose 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 (CONTINUED):
A. Notwithstanding the foregoing, Landlord and Tenant agree that it
shall not be unreasonable for Landlord to refuse to consent to a proposed
assignment, sublease or other transfer ("Proposed Transfer") if the Premises or
any other portion of the Property would become subject to additional or
different Government Requirements as a direct or indirect consequence of the
Proposed Transfer and/or the Proposed Transferee's use and occupancy of the
Premises and the Property. However, Landlord may, in its sole discretion,
consent to such a Proposed Transfer where Landlord is indemnified by Tenant and
(i) Subtenant or (ii) Assignee, in form and substance satisfactory to
Landlord's counsel, by Tenant and/or the Proposed Transferee from and against
any and all costs, expenses, obligations and liability arising out of the
Proposed Transfer and/or the Proposed Transferee's use and occupancy of the
Premises and the Property.
B. 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
Initial: /s/ [ILLEGIBLE]
---------------
Page 10
<PAGE> 11
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 initial here below evidence (a) Subtenant's consideration of
and agreement to this early termination provision, (b) Subtenant's
acknowledgement 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. BANKRUPTCY AND DEFAULT: Paragraph 22 is modified to provide that with
respect to non-monetary defaults not involving Tenant's failure to pay Basic
Rent or Additional Rent, Tenant shall not be in default of any non-monetary
obligation if (i) more than thirty (30) days is required to cure such
non-monetary default, and (ii) Tenant commences cure of such default as soon as
reasonably practicable after receiving written notice of such default from
Landlord and thereafter continuously and with due diligence prosecutes such
cure to completion.
51. ABANDONMENT: Paragraph 23 is modified to provide that Tenant shall not be
in default under the Lease if it leaves all or any part of Premises vacant so
long as (i) Tenant is performing all of its other obligations under the Lease
including the obligation to pay Basic Rent and Additional Rent (ii) Tenant
provides on-site security during normal business hours for those parts of the
Premises left vacant, (iii) such vacancy does not materially and adversely
affect the validity or coverage of any policy of insurance carried by Landlord
with respect to the Premises, and (iv) the utilities and heating and ventilation
system are operated and maintained to the extent necessary to prevent damage to
the Premises or its systems.
52. 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 and the
common areas of the Complex (hereinafter collectively referred to as the
"Property"):
A. As used herein, the term "Hazardous Materials" shall mean any
material, waste, chemical, mixture or byproduct which is or hereafter is
defined, listed or designated under Environmental Laws (defined below) as a
pollutant, or as a contaminant, or as a toxic or hazardous substance, waste or
material, or any other unwholesome, hazardous, toxic, biohazardous, or
radioactive material, waste, chemical, mixture or byproduct, or which is
listed, regulated or restricted by any Environmental Law (including, without
limitation, petroleum hydrocarbons or any distillates or derivatives or
fractions thereof, polychlorinated biphenyls, or asbestos). As used herein, the
term "Environmental Laws" shall mean any applicable Federal, State of
California or local government law (including common law), statute, regulation,
rule, ordinance, permit, license, order, requirement, agreement, or approval,
or any determination, judgment, directive, or order of any executive or
judicial authority at any level of Federal, State of California or local
government (whether now existing or subsequently adopted or promulgated)
relating to pollution or the protection of the environment, ecology, natural
resources, or public health and safety.
B. Tenant shall obtain Landlord's written consent, which may be withheld
in
Initial: /s/ [ILLEGIBLE]
---------------
Page 11
<PAGE> 12
Landlord's discretion, prior to the occurrence of any Tenant's Hazardous
Materials Activities (defined below); provided, however, that Landlord's consent
shall not be required for normal use in compliance with applicable Environmental
Laws of customary household and office supplies (Tenant shall first provide
Landlord with a list of said materials use), such as mild cleaners, lubricants
and copier toner. As used herein, the term "Tenant's Hazardous Materials
Activities" shall mean any and all use, handling, generation, storage, disposal,
treatment, transportation, release, discharge, or emission of any Hazardous
Materials on, in, beneath, to, from, at or about the Property, in connection
with Tenant's use of the Property, or by Tenant or by any of Tenant's agents,
employees, contractors, vendors, invitees, visitors or its future subtenants or
assignees. Tenant agrees that any and all Tenant's Hazardous Materials
Activities shall be conducted in strict, full compliance with applicable
Environmental Laws at Tenant's expense, and shall not result in any
contamination of the Property or the environment. Tenant agrees to provide
Landlord with prompt written notice of any spill or release of Hazardous
Materials at the Property during the term of the Lease in which Tenant becomes
aware, and further agrees to provide Landlord with prompt written notice of any
violation of Environmental Laws in connection with Tenant's Hazardous Materials
Activities of which Tenant becomes aware. If Tenant's Hazardous Materials
Activities involve Hazardous Materials other than normal use of customary
household and office supplies, Tenant also agrees at Tenant's expense: (i) to
install such Hazardous Materials monitoring, storage and containment devices as
Landlord reasonably deems necessary (Landlord shall have no obligation to
evaluate the need for any such installation or to require any such
installation); (ii) provide Landlord with a written inventory of such Hazardous
Materials, including an update of same each year upon the anniversary date of
the Commencement Date of the Lease ("Anniversary Date"); and (iii) on each
Anniversary Date, to retain a qualified environmental consultant, acceptable to
Landlord, to evaluate whether Tenant is in compliance with all applicable
Environmental Laws with respect to Tenant's Hazardous Materials Activities.
Tenant, at its expense, 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, at its expense, shall
promptly undertake and complete any and all steps necessary, and in full
compliance with applicable Environmental Laws, to fully correct any and all
problems or deficiencies identified by the environmental consultant, and
promptly provide Landlord with documentation of all such corrections.
C. Prior to termination or expiration of the Lease, Tenant at its
expense, shall (i) properly remove from the Property all Hazardous Materials
which come to be located at the Property in connection with Tenant's Hazardous
Materials Activities, and (ii) fully comply with and complete all facility
closure requirements of applicable Environmental Laws regarding Tenant's
Hazardous Materials Activities, including but not limited to (x) properly
restoring and repairing the Property to the extent damaged by such closure
activities, and (y) obtaining from the local Fire Department or other
appropriate governmental authority with jurisdiction a written concurrence that
closure has been completed in compliance with applicable Environmental Laws.
Tenant shall promptly provide Landlord with copies of any claims, notices, work
plans, data and reports prepared, received or submitted in connection with any
such closure activities.
D. If Landlord, in its sole discretion, believes that the Property has
become contaminated as a result of Tenant's Hazardous Materials Activities,
Landlord in addition to any other rights it may have under this Lease or under
Environmental Laws or other laws, may enter upon the Property and conduct
inspection, sampling and analysis, including but not limited to obtaining and
analyzing samples of soil and groundwater, for the purpose of determining the
nature and extent of such contamination. Tenant shall promptly reimburse
Landlord for the costs of such an investigation, including but not limited to
reasonable attorneys' fees Landlord incurs with respect to such investigation,
that discloses Hazardous Materials contamination for which Tenant is liable
under this Lease. Notwithstanding the above, Landlord may, at its option and in
its sole and absolute discretion, choose to perform remediation and obtain
reimbursement for cleanup costs as set forth herein from Tenant. Any cleanup
costs incurred by Landlord as the result of Tenant's Hazardous Materials
Activities shall be reimbursed by Tenant within thirty (30) days of
presentation of written documentation of the expense to Tenant by Landlord.
Such reimbursement costs shall include, but not be limited to, any reasonable
consultant and attorney fees incurred by Landlord. Tenant shall take all
actions necessary to preserve any claims it has against third parties,
including, but not limited to, its insurers, for claims related to its
operation, management of Hazardous Materials or contamination of the Property.
Except as may be required of Tenant by applicable Environmental Laws, Tenant
shall not perform any sampling, testing, or drilling to identify the presence
of any Hazardous Materials at the Property, without Landlord's prior written
consent which may be withheld in Landlord's discretion. Tenant shall promptly
provide Landlord with copies of any claims, notices, work plans, data and
reports prepared, received or submitted in connection with any sampling,
testing or drilling performed pursuant to the preceding sentence.
E. Tenant shall indemnify, defend (with legal counsel acceptable to
Landlord, whose
Page 12
<PAGE> 13
consent shall not unreasonably be withheld) and hold harmless Landlord, its
employees, assigns, successors, successors-in-interest, agents and
representatives from and against any and all claims (including but not limited
to third party claims from a private party or a government authority),
liabilities, obligations, losses, causes of action, demands, governmental
proceedings or directives, fines, penalties, expenses, costs (including but not
limited to reasonable attorneys', consultants' and other experts' fees and
costs), and damages, which arise from or relate to: (i) Tenant's Hazardous
Materials Activities; (ii) any Hazardous Materials contamination caused by
Tenant prior to the Commencement Date of the Lease; or (iii) the breach of any
obligation of Tenant under this Paragraph 52 (collectively, "Tenant's
Environmental Indemnification"). Tenant's Environmental Indemnification shall
include but is not limited to the obligation to promptly and fully reimburse
Landlord for losses in or reductions to rental income, and diminution in fair
market value of the Property. Tenant's Environmental Indemnification shall
further include but is not limited to the obligation to diligently and properly
implement to completion, at Tenant's expense, any and all environmental
investigation, removal, remediation, monitoring, reporting, closure activities,
or other environmental response action (collectively, "Response Actions").
Tenant shall promptly provide Landlord with copies of any claims, notices, work
plans, data and reports prepared, received or submitted in connection with any
Response Actions.
It is agreed that the Tenant's responsibilities related to Hazardous Materials
will survive the expiration or termination of this Lease and that Landlord may
obtain specific performance of Tenant's responsibilities under this Paragraph
52.
Page 13
<PAGE> 14
[MAP OF NORTH 1ST ST.]
EXHIBIT A TO LEASE AGREEMENT DATED OCTOBER 1, 1999 BY AND BETWEEN THE JOHN
ARRILLAGA SURVIVOR'S TRUST AND THE RICHARD T. PEERY SEPARATE PROPERTY TRUST, AS
LANDLORD, AND SELECTICA, INC., AS TENANT.
ORCHARD 4
<PAGE> 1
EXHIBIT 10.14
SELECTICA, INC.
4699 Old Ironsides Drive, Suite 280
Santa Clara, California 95054
____________, 1996
Raj Jaswa
20972 Hidden View Lane
Saratoga, California 95070
Dear Raj:
This is to confirm the terms of your employment for Selectica, Inc. (the
"Company").
1. Position. You will serve in a full-time capacity as President and
Chief Executive Officer of the Company.
2. Base Salary. Effective July 1, 1997 you will be paid a monthly salary
of $8,333 ("Base Salary"), payable in accordance with the Company's standard
payroll practice for salaried employees. This Base Salary will be subject to
annual adjustments as determined by the Board, or a committee thereof.
3. Proprietary Information and Inventions Agreement. As with all Company
employees, you will be required, as a condition of your employment with the
Company, to sign the Company's standard Proprietary Information and Inventions
Agreement, a copy of which is attached hereto as EXHIBIT A.
4. Benefits. You will be entitled to receive employee benefits,
including bonuses and vacations, under the Company's standard employee benefits
program.
5. Period of Employment. Your employment with the Company will be "at
will," meaning that either you or the Company will be entitled to terminate
your employment at any time for any reason, with or without cause. Any contrary
representations which may have been made to you are superseded by this offer.
6. Termination. Notwithstanding paragraph 5 above, in the event the
Company terminates your employment other than for cause (as defined below), you
will be paid your then existing Base Salary for twelve (12) months after the
date of termination and all accrued bonuses, and the repurchase right of the
Company with respect to your Common Stock of the Company will lapse in full.
"Cause" means (i) your unauthorized use or disclosure of the confidential
information or trade secrets of the Company, (ii) your conviction of a felony
under the laws of the United States or any state thereof, (iii)or your gross
negligence which has a material adverse effect on the Company.
<PAGE> 2
7. Outside Activities. During the period that you render services
to the Company, you will not engage in any employment, business or activity
that is in any way competitive with the business or proposed business of the
Company, or any other gainful employment, business or activity, without the
written consent of the Company. You also will not assist any other person or
organization in competing with the Company or in preparing to engage in
competition with the business or proposed business of the Company.
8. Entire Agreement. This letter and all of the exhibits attached
hereto contain all of the terms of your employment with the Company and
supersede any other understandings, oral or written, between you and the
Company.
9. Modifications. Any additions or modifications of these terms
would have to be in writing and signed by yourself and an officer of the
Company (other than yourself).
If the foregoing terms are acceptable, please indicate your agreement
by signing and dating this letter.
Very truly yours,
SELECTICA, INC.
By:
--------------------------------------
Sanjay Mittal, Chief Technical Officer
AGREED AND ACCEPTED
On , 1996:
------------------
- ---------------------------------------
(Signature)
- ---------------------------------------
(Print Name)
<PAGE> 3
EXHIBIT A
PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT
<PAGE> 1
EXHIBIT 10.15
SELECTICA, INC.
4699 Old Ironsides Drive, Suite 280
Santa Clara, California 95054
_______________, 1996
Sanjay Mittal, Ph.D.
1009 Oregon Way
Milpitas, California 95035
Dear Sanjay:
This is to confirm the terms of your employment for Selectica, Inc. (the
"Company").
1. Position. You will serve in a full-time capacity as Chief Technical
Officer and Secretary of the Company.
2. Base Salary. Effective January 1, 1997 you will be paid a monthly
salary, of $8,333.33 ("Base Salary"), payable in accordance with the Company's
standard payroll practices for salaried employees. This Base Salary will be
subject to annual adjustment as determined by the Board, or a committee thereof.
3. Bonus. If and when the Company generates revenue of $100,000 from
the commercial sale of its services and product or receives funding for greater
than $1,000,000, you will receive a one time lump sum bonus of $50,000.
4. Proprietary Information and Inventions Agreement. As with all
Company employees, you will be required, as a condition to your employment with
the Company, to sign the Company's standard Proprietary Information and
Inventions Agreement, a copy of which is attached hereto as EXHIBIT A.
5. Benefits. You will be entitled to receive employee benefits,
including vacations, under the Company's standard employee benefits program.
6. Period of Employment. Your employment with the Company will be "at
will," meaning that either you or the Company will be entitled to terminate your
employment at any time for any reason, with or without cause. Any contrary
representations which may have been made to you are superseded by this offer.
7. Termination. Notwithstanding paragraph 6 above, in the event the
Company terminates your employment other than for cause (as defined below), you
will be paid your then existing Base Salary for twelve (12) months after the
date of termination and all accrued bonuses, and the repurchase right of the
Company with respect to your Common Stock of the Company will lapse in full.
"Cause" means (i) your unauthorized use or disclosure of the
<PAGE> 2
confidential information or trade secrets of the Company, (ii) your conviction
of a felony under the laws of the United States or any state thereof, or (iii)
your gross negligence which has a material adverse effect on the Company.
8. Outside Activities. During the period that you render services
to the Company, you will not engage in any employment, business or activity that
is in any way competitive with the business or proposed business of the
Company, or any other gainful employment, business or activity, without the
written consent of the Company. You also will not assist any other person or
organization in competing with the Company or in preparing to engage in
competition with the business or proposed business of the Company.
9. Entire Agreement. This letter and all of the exhibits attached
hereto contain all of the terms of your employment with the Company and
supersede any other understandings, oral or written, between you and the
Company.
10. Modifications. Any additions or modifications of these terms
would have to be in writing and signed by yourself and an officer of the
Company (other than yourself).
If the foregoing terms are acceptable, please indicate your agreement
by signing and dating this letter.
Very truly yours,
SELECTICA, INC.
By:
-------------------------------------
Raj Jaswa, President
AGREED AND ACCEPTED
On ______________, 1996:
- ----------------------------------
(Signature)
- ----------------------------------
(Print Name)
<PAGE> 3
EXHIBIT A
PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT
<PAGE> 1
EXHIBIT 10.16
[SELECTICA LETTERHEAD]
September 16, 1999
Stephen Bennion
702 Woburn Court
Mountain View, CA 94040
Dear Steve:
Selectica, Inc. (the "Company") is pleased to offer you the position of Vice
President and Chief Financial Officer, as a regular, full time employee
reporting to Raj Jaswa. The terms and conditions of your employment would be as
follows:
1. Salary: You will be a salaried exempt employee who is paid on a semi-monthly
basis and will be eligible for an annual review. Your starting salary will
be $14,583.00 per month or ($175,000.00 per annum), and you will be paid on
the 15th and last day of each month. We will conduct your first formal
performance and salary review on or about September, 2000. You will also be
eligible to participate in the Executive Bonus Program.
2. Stock Options: Subject to Board approval, you will receive an option to
purchase 300,000 shares of the Company's Common Stock at an exercise price
per share equal to the fair market value of the Company's Common Stock per
share, as set by the Company's Board of Directors at their meeting after
your start date when your option is granted. Your option will be subject to
the terms and conditions applicable to options granted under the Company's
1996 Stock Plan, as described in that Plan and the applicable stock option
agreement. The option will be immediately exercisable, but the purchased
shares will be subject to repurchase by the Company at the exercise price if
your service terminates before you vest in the shares. You will vest in 25%
of the option shares after 12 months of continuous service, and the
remaining balance will vest in monthly installments over the next 36 months
of continuous service, as described in the applicable stock option
agreement.
The Company will allow you to pay the exercise price of the option with a
full-recourse promissory note. The interest rate of the note will be the
minimum interest rate necessary to avoid imputed interest income. The principal
balance and accrued interest on the note will become due and payable upon the
earlier of the date that is (a) four years following the date of the note or
(b) 30 days following the termination of your employment for any reason. The
promissory note will be secured by the shares subject to the option. The
Company will determine the remaining terms of the promissory note and stock
pledge agreement evidencing the security of the note.
<PAGE> 2
You will be able to participate in the Executive Bonus Program. The total amount
for this programs is $20,000 per quarter.
Your Bonus plan will be divided into three sections:
1. 25% hitting our Corporate bookings, paid quarterly.
2. 25% for achieving revenue target, paid annually based on fiscal year
2000.
3. 50% for accomplishing your personal MBO's, paid quarterly.
You will be eligible to participate in the Executive Bonus Program effective
October 1st.
You will be eligible to accrue vacation pay at two weeks per year, beginning
on your date of hire.
If you experience an Involuntary Termination within 12 months following a
Change in Control (as defined in the Company's 1996 Stock Plan), then the
vesting of your option will be accelerated, such that you become vested in an
additional number of option shares, as if you completed another 12 months of
service with the Company following this termination; If the Company and the
other party to the transaction constituting a Change in Control agree that the
transaction is to be treated as a "pooling of interests" for financial reporting
purposes, and if the transaction in fact is so treated, then the acceleration
of exercisability will not occur to the extent that the Company's independent
accountants and the other party's independent accountants each determine in
good faith that the acceleration would preclude the use of "pooling of
interests."
An Involuntary Termination means the termination of your service which occurs
by reason of: your involuntary dismissal or discharge by the Company for
reasons other than Cause, or your voluntary resignation following (A) a change
in your position with the Company which materially reduces your level of
responsibility, (B) a reduction in your level of base salary or (C) a
relocation of your place of employment by more than fifty (50) miles, provided
and only if such change, reduction or relocation is effected by the Company
without your consent.
Cause means the commission of any act of fraud, embezzlement or dishonesty,
conviction of a felony under the laws of the United States or any state
thereof, gross misconduct, continued failure to perform assigned duties for 30
days after receiving written notification from your manager, any unauthorized
use or disclosure of confidential information or trade secrets of the Company,
or any other intentional misconduct that adversely affects the business or
affairs of the Company in a material manner. The foregoing definition shall not
be deemed to be inclusive of all the acts or omissions which the Company may
consider as grounds for the dismissal or discharge of you or any other person
in the service of the Company.
<PAGE> 3
3. Proprietary Information and Inventions Agreement. As with all Company
employees, you will be required, as a condition to your employment with the
Company, to sign the Company's standard Proprietary Information and Inventions
Agreement, a copy of which is attached hereto as EXHIBIT A.
4. Benefits. You will be entitled to receive employee benefits, including
vacations and holidays, under the Company's standard employee benefits program.
5. Period of Employment. Your employment with the Company will be "at will"
meaning that either you or the Company will be entitled to terminate your
employment at any time for any reason, with or without cause. Any contrary
representations that may have been made to you are superseded by this offer.
6. Outside Activities. During the period that you render services to the
Company, you will not engage in any employment, business or activity that is in
any way competitive with the business or proposed business of the Company, or
any other gainful employment, business or activity, without the written consent
of the Company. You also will not assist any other person or organization in
competition with the Company or in preparing to engage in competition with the
business or proposed business of the Company.
7. Entire Agreement. Other than your stock incentives, the terms of which
shall be determined by the Company's Board of Directors in its sole discretion,
this letter and all of the exhibits attached hereto contain all of the terms of
your employment with the Company and supersede any other understandings, oral
or written, between you and the Company.
8. Modifications. Any additions or modifications of these terms would have to
be in writing and signed by you and an officer of the Company.
On your first day of work, please bring with you evidence of your U.S.
citizenship or proof of your legal right to live and work in this country. We
are required by federal law to examine documentation of your employment
eligibility within three business days after you begin work.
We believe there is a tremendous opportunity in joining Selectica at this time.
We hope that you find the foregoing terms acceptable, and look forward to the
start of your new career with the Company.
<PAGE> 4
This offer is effective as of September 16, 1999. You may indicate your
agreement with these terms and accept this offer by signing and dating both the
enclosed duplicate original of this letter and the enclosed Proprietary
Information and Inventions Agreement and returning them to me. This offer of
employment will expire at the close of business on Friday, September 17, 1999.
Sincerely,
SELECTICA, INC.
/s/ Rajen Jaswa
Rajen Jaswa
President and CEO
AGREED AND ACCEPTED ON, Sept. 16, 1999
/s/ Stephen D. Bennion Stephen D. Bennion
- ------------------------ ------------------------
Signature Print Name
<PAGE> 1
EXHIBIT 10.17
[SELECTICA, INC. LETTERHEAD]
July 23, 1999
Daniel Carmel
16 Windsor Drive
San Carlos, CA 94070
Dear Dan:
Selectica, Inc. (the "Company") is pleased to offer you the position of Vice
President of Marketing and Business Development as a regular, full-time
employee reporting to Raj Jaswa. The terms and conditions of your employment
would be as follows:
1. Salary: You will be a salaried exempt employee who is paid on a
semi-monthly basis and will be eligible for an annual review. Your starting
salary will be $14,583.00 per month (or $175,000.00 per annum), and you
will be paid on the 15th and last day of each month. We will conduct your
first formal performance and salary review on or about Aug., 2000. You will
also be eligible to participate in the Executive Bonus Program.
2. Stock Options: Subject to Board approval, you will receive an option to
purchase 400,000 shares of the Company's Common Stock at an exercise price
per share equal to the fair market value of the Company's Common Stock per
share, as set by the Company's Board of Directors at their meeting after
your start date when your option is granted. Your option will be subject to
the terms and conditions applicable to options granted under the Company's
1996 Stock Plan, as described in that Plan and the applicable stock option
agreement. The option will be immediately exercisable, but the purchased
shares will be subject to repurchase by the Company at the exercise price
if your service terminates before you vest in the shares. You will vest in
25% of the option shares after 12 months of continuous service, and the
remaining balance will vest in monthly installments over the next 36 months
of continuous service, as described in the applicable stock option
agreement.
The Company will allow you to pay the exercise price of the option with a full
recourse promissory note. The interest rate of the note will be the minimum
interest rate necessary to avoid imputed interest income. The principal balance
and accrued interest on the note will become due and payable upon the earlier
of the date that is (a) four years following the date of the note or (b) 30
days following the termination of your employment for any reason. The promissory
note will be secured by the shares subject to the option. The Company will
determine the remaining terms of the promissory note and stock pledge agreement
evidencing the security of the note.
<PAGE> 2
You will be able to participate in the Executive Bonus Program. The total amount
for this programs is $20,000 per quarter.
Your Bonus plan will be divided into three sections:
1. 25% hitting our Corporate bookings, paid quarterly.
2. 25% for achieving revenue target, paid annually based on fiscal year
2000.
3. 50% for accomplishing your personal MBO's, paid quarterly.
For the second fiscal quarter (July, August, and September) you will receive a
one time draw of $20,000 paid on October 1, 1999 if you begin employment with
Selectica on 7/26/99, otherwise your draw will be on a pro rated basis.
You will be eligible to accrue vacation pay at three weeks per year, beginning
on your date of hire.
If you experience an Involuntary Termination within 12 months following a
Change in Control (as defined in the Company's 1996 Stock Plan), then the
vesting of your option will be accelerated, such that you become vested in an
additional number of option shares, as if you completed another 12 months of
service with the Company following this termination; If the Company and the
other party to the transaction constituting a Change in Control agree that the
transaction is to be treated as a "pooling of interests" for financial reporting
purposes, and if the transaction in fact is so treated, then the acceleration
of exercisability will not occur to the extent that the Company's independent
accountants and the other party's independent accountants each determine in
good faith that the acceleration would preclude the use of "pooling of
interests."
An Involuntary Termination means the termination of your service which occurs
by reason of: your involuntary dismissal or discharge by the Company for
reasons other than Cause, or your voluntary resignation following (A) a change
in your position with the Company which materially reduces your level of
responsibility, (B) a reduction in your level of base salary or (C) a
relocation of your place of employment by more than fifty (50) miles, provided
and only if such change, reduction or relocation is effected by the Company
without your consent.
Cause means the commission of any act of fraud, embezzlement or dishonesty,
conviction of a felony under the laws of the United States or any state
thereof, gross misconduct, continued failure to perform assigned duties for 30
days after receiving written notification from your manager, any unauthorized
use or disclosure of confidential information or trade secrets of the Company,
or any other intentional misconduct that adversely affects the business or
affairs of the Company in a material manner. The foregoing definition shall not
be deemed to be inclusive of all the acts or omissions which the Company may
consider as grounds for the dismissal or discharge of you or any other person
in the service of the Company.
<PAGE> 3
3. Proprietary Information and Inventions Agreement. As with all Company
employees, you will be required, as a condition to your employment with the
Company, to sign the Company's standard Proprietary Information and Inventions
Agreement, a copy of which is attached hereto as EXHIBIT A.
4. Benefits. You will be entitled to receive employee benefits, including
vacations and holidays, under the Company's standard employee benefit program.
5. Period of Employment. Your employment with the Company will be "at will"
meaning that either you or the Company will be entitled to terminate your
employment at any time for any reason, with or without cause. Any contrary
representations that may have been made to you are superseded by this offer.
6. Outside Activities. During the period that you render services to the
Company, you will not engage in any employment, business or activity that is in
any way competitive with the business or proposed business of the Company. You
also will not assist any other person or organization in competition with the
Company or in preparing to engage in competition with the business or proposed
business of the Company.
7. Entire Agreement. Other than your stock incentives, the terms of which
shall be determined by the Company's Board of Directors in its sole discretion,
this letter and all of the exhibits attached hereto contain all of the terms of
your employment with the Company and supersede any other understandings, oral
or written, between you and the Company.
8. Modifications. Any additions or modifications of these terms would have to
be in writing and signed by you and an officer of the Company.
On your first day of work, please bring with you evidence of your U.S.
citizenship or proof of your legal right to live and work in this country. We
are required by federal law to examine documentation of your employment within
three business days after you begin work.
We believe there is a tremendous opportunity in joining Selectica at this time.
We hope that you find the foregoing terms acceptable, and look forward to the
start of your new career with the Company.
<PAGE> 4
This offer is effective as of July 23, 1999. You may indicate your agreement
with these terms and accept this offer by signing and dating both the enclosed
duplicate original of this letter and the enclosed Proprietary Information and
Inventions Agreement and returning them to me. This offer of employment will
expire at the close of business on Wednesday, July 23, 1999.
Sincerely,
SELECTICA, INC.
/s/ RAJEN JASWA
- ----------------------
Rajen Jaswa
President and CEO
AGREED AND ACCEPTED ON JULY 23, 1999
/s/ RAJEN JASWA [Name illegible]
- --------------------------- ---------------------------
Signature Print Name
<PAGE> 1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated December 3, 1999 (except Note 13, as to which the date
is December __, 1999) in the Registration Statement (Form S-1) and related
Prospectus of Selectica, Inc. for the registration of shares of its common
stock.
Our audits also included the financial statement schedule listed in Item 16(b)
of this Registration Statement. Our responsibility is to express an opinion
based on our audits. In our opinion, the financial statement schedule referred
to above, when considered in relation to the basic financial statements taken as
a whole, presents fairly in all material respects the information set forth
therein.
San Jose, California
December __, 1999
-----------------------------
The foregoing consent is in the form that will be signed upon the completion of
the reincorporation in Delaware described in Note 13 to the financial
statements.
/s/ ERNST & YOUNG LLP
San Jose, California
December 10, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C> <C>
<PERIOD-TYPE> YEAR 6-MOS
<FISCAL-YEAR-END> MAR-31-1999 MAR-31-2000
<PERIOD-START> APR-01-1998 APR-01-1999
<PERIOD-END> MAR-31-1999 SEP-30-1999
<CASH> 0 12,832,672
<SECURITIES> 0 0
<RECEIVABLES> 1,756,307 3,155,962
<ALLOWANCES> 104,000 254,000
<INVENTORY> 0 0
<CURRENT-ASSETS> 1,818,761 16,152,499
<PP&E> 1,289,338 2,792,847
<DEPRECIATION> 276,869 753,163
<TOTAL-ASSETS> 3,193,326 18,404,471
<CURRENT-LIABILITIES> 2,457,800 5,962,799
<BONDS> 0 41,738
0 0
1,356 1,820
<COMMON> 623 619
<OTHER-SE> 733,547 12,397,495
<TOTAL-LIABILITY-AND-EQUITY> 3,193,326 18,404,471
<SALES> 1,656,015 2,832,500
<TOTAL-REVENUES> 3,444,482 4,634,149
<CGS> 183,715 142,082
<TOTAL-COSTS> 1,362,243 3,410,516
<OTHER-EXPENSES> 9,717,672 8,848,371
<LOSS-PROVISION> 74,250 150,000
<INTEREST-EXPENSE> 28,856 60,257
<INCOME-PRETAX> (7,536,901) (7,575,673)
<INCOME-TAX> 0 50,000
<INCOME-CONTINUING> (7,536,901) (7,575,673)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (7,536,901) (7,575,673)
<EPS-BASIC> (1.58) (1.44)
<EPS-DILUTED> (1.58) (1.44)
</TABLE>
