<PAGE>
Filed with the Securities and Exchange Commission on September 16, 1999
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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PREVIEW SYSTEMS, INC.
(Exact Name of Registrant as Specified in Its Charter)
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Delaware 7371 77-0485517
(State or Other (Primary Standard (I.R.S. Employer
Jurisdiction of Industrial Identification Number)
Incorporation or Classification Code
Organization) Number)
1601 South DeAnza Boulevard, Suite 100
Cupertino, California 95014
(408) 873-3450
(Address, Including Zip Code, and Telephone Number, Including Area
Code, of Registrant's Principal Executive Offices)
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VINCENT PLUVINAGE
Chief Executive Officer
Preview Systems, Inc.
1601 South DeAnza Boulevard, Suite 100
Cupertino, California 95014
(408) 873-3450
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent for Service)
-------------------
Copies to:
Elias Blawie Alan Austin
Tom Tobiason Steven Bernard
Stephen Venuto John Whittle
Mavis Yee Jon Layman
Venture Law Group, Wilson Sonsini Goodrich & Rosati
A Professional Corporation A Professional Corporation
2800 Sand Hill Road 650 Page Mill Road
Menlo Park, California 94025 Palo Alto, California 94304
(650) 854-4488 (650) 493-9300
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Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this Registration
Statement.
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If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
Proposed
Maximum
Aggregate Amount of
Title of Each Class of Offering Registration
Securities to be Registered Price(1) Fee
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<S> <C> <C>
Common Stock, par value $.0002 per share............... $46,000,000 $12,788
</TABLE>
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(1) Estimated solely for the purpose of computing the amount of the
registration fee pursuant to Rule 457(o) under the Securities Act.
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this
registration statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until this registration
statement shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities and we are not soliciting offers to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED SEPTEMBER 16, 1999
[LOGO] PREVIEW SYSTEMS, INC.
Shares
Common Stock
Preview Systems, Inc. is offering shares of its common stock.
This is our initial public offering, and no public market currently exists for
our shares. We have applied to have the shares we are offering approved for
quotation on the Nasdaq National Market under the symbol "PRVW." We anticipate
that the initial public offering price will be between $ and $ per
share.
--------------
INVESTING IN OUR COMMON STOCK INVOLVES RISKS.
SEE "RISK FACTORS" BEGINNING ON PAGE 7.
<TABLE>
<CAPTION>
Per Share Total
--------- -----
<S> <C> <C>
Public Offering Price........................................... $ $
Underwriting Discounts and Commissions.......................... $ $
Proceeds to Preview Systems..................................... $ $
</TABLE>
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The Securities and Exchange Commission and state securities regulators have
not approved or disapproved these securities or determined if this prospectus
is truthful or complete. Any representation to the contrary is a criminal
offense.
We have granted the underwriters a 30-day option to purchase up to an
additional shares of our common stock to cover over-allotments.
BancBoston Robertson Stephens Inc. expects to deliver the shares of common
stock to purchasers on , 1999.
--------------
BancBoston Robertson Stephens
Dain Rauscher Wessels
a division of Dain Rauscher Incorporated
SoundView Technology Group
E*OFFERING
The date of this prospectus is , 1999
<PAGE>
Narrative Description of Inside Front Cover
Headline Upper Left Justified: "e-Commerce of Digital Goods."
Below this headline, two diagrams descend down either side of the page,
separated by a series of centered arrows. The left diagram is labeled
"PHYSICAL" and the right is labeled "DIGITAL."
The "PHYSICAL" diagram begins with four box-shaped graphics that represent
warehouses. A horizontal text block extends across the warehouses containing
the text: "warehouse: inventory" and "office building: order-taking." Directly
below is a second graphic which represents the computer screen of an online
environment. A smaller window on the right side of this screen contains the
words "Add to shopping cart," which represents shopping basket technology used
by online stores. Spanning this graphic is a horizontal text block containing
the words: "online storefront: order placed." Directly below is a third
graphic, which represents a single warehouse containing boxes. A horizontal
text block spans this graphic: "physical inventory accessed." The next graphic
below represents a truck loaded with boxes. Spanning the top of the truck is a
text block: "physical inventory delivered." Below and to the right of the truck
is a graphic representation of a person, which is intersected by a final
horizontal text block: "physical goods received." To the right of the person
graphic, at the tip of the final centered arrow, is a graphic representation of
a calendar, which has approximately two and a half weeks shaded in.
The second diagram begins below the word "DIGITAL" with a graphic composed
of cylindrical figures resembling electric coils. A horizontal text block spans
this graphic, containing the text: "digital packaging: digital inventory" and
"license management." The background is a cloud-shaped graphic containing soft-
focus ones and zeros, a random representation of binary code. At the lower edge
of this cloud is a mirror image of the online environment and shopping basket
window graphic described in the "PHYSICAL" diagram. The text block near the
bottom of this graphic contains the same words: "online storefront: order
placed." A different pattern of ones and zeros leads us down to a smaller,
cloud-shaped binary code graphic, which is spanned by a horizontal text block
containing the text: "digital inventory accessed and delivered." Directly below
is a graphic representing a computer on a desk and person. A final text block
crosses this graphic containing the text: "digital goods received." Below and
to the right is a graphic representing a stopwatch, with a small shaded area
indicating that a short time has passed.
<PAGE>
Narrative Description of Left and Right Gate Folds
This two page spread contains a single diagram. The left side gate fold
contains the diagram's headline, upper left justified: "Preview Systems--
Enabling e-Commerce Networks for Digital Goods."
The diagram is divided into three areas of vertical logo columns, one on
the left gate fold, two on the right. Each logo column is divided horizontally
with half the logos in the upper part of the page and the other half in the
lower part. A respective text heading is located where each column is divided,
designating the logo category. The left column, which appears on the left gate
fold, is labeled "PUBLISHERS." Ascending in the column above are company logos
for "Xerox: The Document Company," "NETObjects," "Digital Square.com" and
"Broderbund." Descending from the label in this column are logos for "Mattel,"
"Intuit," "macromedia," "Symantec," and "The Learning Company: For Greater
Knowledge." The center column, which appears on the left side of the right gate
fold, is labeled "DISTRIBUTORS AND SERVICE PROVIDERS." Ascending in this column
are logos for "Ingram Micro," "ChargeNow.com," "TrustMarque," "NAVARRE.COM your
link to software, music and DVD sales," "Softway" and "EC Direct: Ecommerce
Your Way." Descending from the label in this center column are logos for
"NetSales," "releasenow.com: the power of internet sales" and "SONY." The right
column is labeled "OEMs and RESELLERS." Ascending from this label are
"Somm.com: Your driving force on the Net," "beyond.com: The Software
Superstore," "PRISMA" and "e-Academy." The descending logos are "Ingram Micro,"
"softline," "DUSTIN AB," "Packard Bell: the computer the world," and "Vector."
Spanning the background of this diagram, crossing the left and right folds,
is a graphic representation of the world. Beneath this is an additional diagram
containing three circles, arranged vertically and centered behind "DISTRIBUTORS
AND SERVICE PROVIDERS" utilizing, in equal portions, one half the vertical
height of the page. To the left of "PUBLISHERS," 30 small diamond shapes are
arranged vertically and centered on the circles utilizing three-fifths the
vertical height of the page. To the right of "OEMs and RESELLERS," 30 small
square shapes are arranged vertically and centered on the circles utilizing
three-fifths the vertical height of the page. From each of the top 10 diamonds
and boxes, a line of 1s and 0s, representing digital code, leads into the
center of the top circle. From each of the middle 10 diamonds and boxes, a line
of 1s and 0s, representing digital code, leads into the center of the center
circle. From each of the bottom 10 diamonds and boxes, a line of 1s and 0s,
representing digital code, leads into the center of the bottom circle. Beneath
this diagram lies a soft-focus, bow tie-shaped swath of color extending to the
left and right margins.
<PAGE>
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell, and seeking offers to
buy, shares of common stock only in jurisdictions where offers and sales are
permitted. The information contained in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of delivery of this
prospectus or of any sale of our common stock. In this prospectus, references
to "Preview," "we," "us," and "our" refer to Preview Systems, Inc. and its
subsidiaries.
Until , 1999 (25 days after the date of this prospectus), 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 dealers' obligation to deliver a prospectus when acting
as underwriters and with respect to their unsold allotments or subscriptions.
--------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 4
Risk Factors............................................................. 7
Risks related to our business........................................... 7
Risks related to our industry........................................... 15
Risks related to our offering........................................... 17
You Should Not Rely on Forward-Looking Statements Because They Are
Inherently Uncertain................................................... 19
How We Intend to Use the Proceeds From This Offering..................... 19
Dividend Policy.......................................................... 19
Other Information........................................................ 19
Capitalization........................................................... 20
Dilution................................................................. 21
Selected Consolidated Financial Data..................................... 22
Management's Discussion and Analysis of Financial Condition and Results
of Operations.......................................................... 23
Business................................................................. 30
Management............................................................... 42
Certain Transactions..................................................... 55
Principal Stockholders................................................... 57
Description of Capital Stock............................................. 59
Shares Eligible for Future Sale.......................................... 62
Underwriting............................................................. 64
Legal Matters............................................................ 66
Experts.................................................................. 66
Additional Information................................................... 66
Index to Financial Statements............................................ F-1
</TABLE>
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Our logo and certain titles and logos of our products mentioned in this
prospectus are our service marks or trademarks. Each trademark, trade name or
service mark of any other company appearing in this prospectus belongs to its
holder.
Except where we state otherwise, information in this prospectus is based
on the following assumptions:
. a one-for-two reverse split of all outstanding shares of our common
stock and preferred stock to be completed immediately prior to the
effectiveness of this offering;
. the conversion of all outstanding shares of preferred stock into shares
of common stock upon the effectiveness of this offering; and
. no exercise of the underwriters' overallotment option.
3
<PAGE>
PROSPECTUS SUMMARY
Because this is only a summary, it does not contain all the information
that may be important to you. You should read the entire prospectus, especially
"Risk Factors" and the consolidated financial statements and notes, before
deciding to invest in shares of our common stock.
Our Company
We develop and market an Internet-based infrastructure solution that
enables networks for the electronic distribution and licensing of digital
goods. Digital goods are products such as software, music, images, video and
documents that can be produced, delivered and licensed electronically. Our
solution is channel neutral, supports direct and indirect distribution and
enables publishers, distributors and resellers of digital goods to integrate
seamlessly within these networks. We earn transaction fees based on the value
of digital goods that are distributed and licensed using our solution.
International Data Corporation projects that the retail market for
electronic software distribution will increase to $14.9 billion by 2003 from an
estimated $351 million in 1998. Electronic distribution of digital goods and
licenses can reduce costs, increase selling opportunities, and facilitate real-
time exchange of information among distribution channel participants. However,
many existing electronic distribution systems compete with existing
distribution channels, fail to adequately enforce distribution and licensing
rights and do not integrate sales information from multiple distribution
channels.
Our solution provides publishers, distributors and resellers the ability to
implement networks for the electronic distribution and licensing of digital
goods. Our solution supports a variety of leading software and hardware
platforms, employs sophisticated encryption techniques to maximize security and
is scalable. In addition, it automates real-time exchange of information among
network participants.
We have developed relationships with software publishers such as Symantec
and Macromedia that allows them to use our solution to distribute their
products electronically through direct or indirect channels. We have developed
a relationship with Ingram Micro, the leading worldwide wholesale distributor
of computer-based technology products and services. Our agreement enables
Ingram Micro to use our solution to supply its resellers electronically and to
sublicense appropriate network components to its resellers. We also have
established relationships with service providers who offer our solution on an
outsourcing basis. Finally, we are working directly and through third parties
with original equipment manufacturers, such as Packard Bell NEC, to bundle
encrypted digital goods for online licensing with its computer products.
We seek to establish our solution as the de facto standard infrastructure
solution for participants in the electronic distribution and licensing of
digital goods. Key elements of our strategy are to target and secure the
support of leading software publishers and distributors, expand the number of
participants using digital goods networks, extend our solution into other
digital goods markets such as music, expand our solution to support volume
licensing to organizations and enhance our solution with value-added services.
We have an agreement with Intel Corporation to incorporate its content
protection agent system into our solution for secure electronic distribution of
digital music.
Our principal executive offices are located at 1601 South De Anza
Boulevard, Suite 100, Cupertino, California 95014, and our telephone number is
(408) 873-3450. The information contained on our web site is not part of this
prospectus.
4
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The Offering
<TABLE>
<C> <S>
Common stock offered by Preview Systems............ shares
Common stock to be outstanding after the offering.. shares
Use of proceeds.................................... Working capital and
general corporate purposes
Proposed Nasdaq National Market symbol............. PRVW
</TABLE>
The common stock to be outstanding after the offering is based on the
number of shares outstanding as of July 31, 1999. This excludes:
. 2,331,840 shares issuable upon exercise of outstanding options at a
weighted average exercise price of $3.44 per share as of July 31, 1999;
. 492,495 shares issuable upon exercise of outstanding warrants at a
weighted average exercise price of $7.45 per share as of July 31, 1999,
322,045 of which represent rights to acquire convertible preferred stock
which convert one for one to common stock;
. 460,097 shares available for future issuance under our stock option
plans as of July 31, 1999; and
. 300,000 shares available for issuance under our 1999 directors' stock
option plan and 500,000 shares available for future issuance under our
1999 employee stock purchase plan. See "Management--Stock Plans."
Summary Consolidated Financial Data
(in thousands, except per share data)
We were incorporated in Delaware in April 1998 to acquire all of the
outstanding equity interests of Preview Software and Portland Software. We
completed both of these mergers on August 5, 1998. We accounted for our merger
with Preview Software as a reorganization under common control and we recorded
the underlying net assets at historical cost. We accounted for our merger with
Portland Software using the purchase method. Therefore, the following summary
consolidated financial data for the years ended December 31, 1996, 1997 and
1998 and the six months ended June 30, 1998 and 1999 reflect our operations and
those of Preview Software, and reflect the operations of Portland Software from
August 5, 1998. The statements of operations data displayed in the "Pro Forma
1998" columns give effect to the Portland Software merger as if the transaction
had occurred at the beginning of the specified periods.
<TABLE>
<CAPTION>
Year Ended December 31, Six Months Ended June 30,
-------------------------------------- ----------------------------
Pro Forma Pro Forma
1996 1997 1998 1998 1998 1998 1999
------ ------- -------- ----------- ------- ----------- -------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated Statements
of Operations Data:
Revenues:
Network transaction
fees................ $ 148 $ 262 $ 435 $ 618 $ 111 $ 246 $ 742
Services.............. -- -- 175 191 -- 16 479
------ ------- -------- -------- ------- ------- -------
Total revenues..... 148 262 610 809 111 262 1,221
Operating expenses:
Research and
development......... 34 1,016 2,978 4,056 1,091 2,016 3,080
Sales and marketing... 172 822 2,915 4,202 980 2,103 2,494
General and
administrative...... 184 785 3,127 5,179 1,186 2,148 2,048
Amortization of
intangibles......... -- -- 866 2,084 -- 1,042 1,038
Acquired in-process
research and
development......... -- -- 2,091 -- -- -- --
------ ------- -------- -------- ------- ------- -------
Total operating
expenses......... 390 2,623 11,977 15,521 3,257 7,309 8,660
------ ------- -------- -------- ------- ------- -------
Loss from operations.... (242) (2,361) (11,367) (14,712) (3,146) (7,047) (7,439)
------ ------- -------- -------- ------- ------- -------
Net loss................ $ (242) $(2,380) $(11,276) $(14,550) $(3,111) $(6,947) $(7,436)
====== ======= ======== ======== ======= ======= =======
Basic and diluted net
loss per share........ $(0.69) $ (6.45) $ (7.55) $ (5.51) $ (4.60) $ (2.67) $ (2.75)
====== ======= ======== ======== ======= ======= =======
Shares used in computing
net loss per share.... 350 369 1,494 2,641 676 2,605 2,708
====== ======= ======== ======== ======= ======= =======
</TABLE>
5
<PAGE>
The As Adjusted consolidated balance sheets data summarized below reflects
the conversion of our preferred stock into 4,475,826 shares of common stock
upon the completion of this offering and the application of the net proceeds
from the sale of the shares of common stock offered by us at the
initial public offering price of $ per share after deducting the
underwriting discounts and commissions and our estimated offering expenses.
<TABLE>
<CAPTION>
June 30, 1999
(unaudited)
--------------------
Actual As Adjusted
------- -----------
<S> <C> <C>
Consolidated Balance Sheets Data:
Cash, cash equivalents and short-term investments......... $ 427 $
Working capital (deficit)................................. (3,525)
Total assets.............................................. 8,150
Long-term portion of debt and capital lease obligations... 443
Total stockholders' equity................................ 767
</TABLE>
6
<PAGE>
RISK FACTORS
You should carefully consider the risks described below before making an
investment in our company. In addition, you should keep in mind that the risks
described below are not the only risks that we face. The risks described below
are the risks that we currently believe are material risks of this offering.
However, additional risks not presently known to us, or risks that we currently
believe are not material, may also impair our business operations. Moreover,
you should refer to the other information contained in this prospectus for a
better understanding of our business.
Our business, financial condition, or results of operations could be
adversely affected by any of the following risks. If we are adversely affected
by these risks, then the trading price of our common stock could decline, and
you could lose all or part of your investment.
Risks related to our business
Our business model is new and unproven, and we may not succeed in generating
sufficient revenues to sustain or increase our business.
We generally provide rights to use our technology and ongoing support
through annual licensing agreements. These agreements typically require our
customers to pay us network transaction fees based on a percentage of the sales
fulfilled using our solution. Upon execution and renewal of the agreement, our
customers commit to annual minimum network transaction fees which entitle them
to fulfill an agreed amount of sales using our solution. When their sales using
our solution exceed this agreed amount, we earn incremental network transaction
fees. Some or all of the minimum network transaction fees are paid in advance
or are paid based on an agreed schedule. We defer the recognition of the
minimum network transaction fees and recognize them over the term of the
agreement which is typically one year. We recognize any incremental transaction
fees when these are known which is generally in the month following our
customers' transactions.
We expect to generate the majority of our revenues in the future from
network transaction fees. We currently derive all of our network transaction
fee revenues from annual minimum network transaction fees. After we recognize
the revenue attributable to these minimum network transaction fees, future
network transaction fees will depend entirely on sales using our solution,
which is predominantly outside of our control. At June 30, 1999, the aggregate
unrecognized minimum network transaction fees totaled $2.4 million. These
minimum network transaction fees are insufficient to support our business. As a
result, our customers must generate significant sales using our solution for us
to be successful.
Our customers have only recently begun to use our solution to distribute
their products and we have not received any significant network transaction
fees under this transaction fee model. Applications and services based on our
solution might not be commercially deployed by our customers or, if
commercially deployed, the sales using our solution may be too small to support
or grow our business. In addition, future customers or existing customers upon
renewal may wish to use different business models, such as the payment of a
one-time license fee instead of ongoing network transaction fees. Our existing
customers may not elect to renew our agreements or they, as well as future
customers, may seek more favorable terms.
We have a limited operating history, making it difficult for you to evaluate
our business and your investment.
We were formed in April 1998 to acquire all of the outstanding equity
interests of Preview Software and Portland Software. These acquisitions closed
in August 1998. Prior to August 1998, Portland Software and Preview Software
had achieved only limited distribution of their respective products. For
example, in 1996, 1997 and the six months ended June 30, 1998, total revenues
generated by both businesses were approximately $335,000,
7
<PAGE>
$763,000 and $262,000, respectively. In the 11 months since these acquisitions,
our total revenues were approximately $1.7 million. A majority of our
significant customers entered into their agreements with us since September
1998. Accordingly, we have a limited operating history and you have little
historical basis upon which to evaluate our business, products, markets and
general prospects of your investment.
Our success depends on our relationship with Ingram Micro.
In June 1999, we entered into a non-exclusive agreement with Ingram Micro,
the leading worldwide wholesale distributor of computer-based technology
products and services, to license our solution to distribute software to
participants in Ingram Micro's distribution channel. This relationship is key
to our strategy of building networks of participants using our solution and
requires a great deal of effort to manage successfully. As of August 31, 1999,
Ingram Micro had not yet commercially launched, and under our agreement is not
obligated to launch, an electronic software distribution program using our
solution. Our agreement does not restrict Ingram Micro from using competitive
technologies instead of or in addition to our solution. Any failure or delay in
the launch of Ingram Micro's program using our solution would have a material
adverse effect on us.
If Ingram Micro deploys a program using our solution, the success of this
program will depend on the participation rate of Ingram Micro's channel
partners. Getting these channel partners to participate is a complicated
process, involving many parties and requiring significant resources. Software
publishers must initially consent to allow Ingram Micro to distribute their
software titles electronically. We depend on Ingram Micro to obtain these
publisher consents. Obtaining publisher consents may prove difficult,
particularly if our digital goods solution is not perceived as secure or if the
participating reseller base is not significant. Because we depend on Ingram
Micro to obtain publisher consents, we do not know, and Ingram Micro is not
obligated to tell us, how many, if any, publishers have consented to distribute
their products electronically through Ingram Micro. In addition to software
publishers, resellers participating in Ingram Micro's distribution chain must
also be persuaded to adopt our system. Resellers may be reluctant to
participate in this electronic distribution network for a variety of reasons,
including the absence of a broad line of software titles and significant
publisher participation, the terms and conditions offered by Ingram Micro and
their perception as to whether our solution is becoming a de facto standard. As
of August 31, 1999, none of Ingram Micro's resellers has connected to this
electronic distribution network. We depend on Ingram Micro to facilitate
participation in this network by its resellers. Accordingly, the growth rate of
this network, to a large extent, is outside of our control. The failure of
Ingram Micro's channel partners to participate in this network on a timely
basis and generate significant sales using our solution would have a material
adverse effect on us.
Our relationship with Ingram Micro is significant to us financially. In
exchange for the right to use our technology, Ingram Micro agreed to pay us
network transaction fees based on sales fulfilled using our solution. Ingram
Micro has recently disclosed that its net sales of software products have
decreased as a percentage of its total net sales in recent years and that it
expects this trend to continue. Our agreement with Ingram Micro has an initial
one-year term. The agreement provides for a one-year automatic renewal unless
terminated by providing advance notice. The failure to renew or termination of
this agreement would have a material adverse impact on us. In addition, the
agreement obligates us to indemnify Ingram Micro against claims our solution
infringes third-party intellectual property or contractual rights.
As part of our strategy, we intend to pursue relationships with other
distributors of digital goods which could adversely affect our relationship
with Ingram Micro.
We expect operating expenses to increase significantly, we have incurred
significant net losses and we expect our losses will continue in the future.
As of June 30, 1999, we had an accumulated deficit of $21.3 million. We
experienced net losses of $11.3 million and $2.4 million in 1998 and 1997,
respectively, and $7.4 million for the six months ended June 30, 1999. We have
not achieved profitability and we expect significant operating losses and
negative cash
8
<PAGE>
flow to continue for at least the next two years, and possibly longer. Our
losses will continue to increase because we expect to incur additional costs
and expenses related to research and development as well as expanding our
organization, especially in general and administrative functions, sales,
marketing and consulting.
In addition, we are in the early stages of expanding our solution to
address electronic distribution of digital music. We anticipate that this
effort will entail additional significant increases in research and development
costs as well as in sales and marketing. We do not expect to recognize
meaningful revenues from the music business for at least the next 12 months, if
ever. Because we will spend these amounts before we receive any incremental
revenues from these efforts, our losses will be greater than the losses we
would incur if we developed our business more slowly. In addition, we may find
that these efforts are more expensive than we currently anticipate, which would
further increase our losses.
We rely on only a few customers for the majority of our revenues.
Sony Marketing of Japan accounted for approximately 45% of our revenues in
1998. Sony Marketing and Ingram Micro accounted for approximately 51% of our
revenues in the first six months of 1999. We expect that Ingram Micro will
account for a significant percentage of our future revenues although we can
give you no assurance in that regard. We expect that a small percentage of our
customers will continue to account for a substantial portion of our revenues
for the foreseeable future. Contracts with these customers are generally short
term in nature, varying in length from one to three years, and can be
terminated by the customer on short notice without significant penalties. If
any one of these contracts is not renewed or otherwise ends, our business could
be materially adversely affected.
A significant number of distribution channel participants must agree to sell
digital goods through our solution for us to be successful.
The distribution channel for digital goods is complex and multi-tiered,
consisting of publishers which sell to distributors, resellers and end
customers; distributors which sell to resellers; original equipment
manufacturers (OEMs) which sell to resellers and end customers; and resellers
which sell to end customers. Unless a significant number of these channel
participants adopts our solution in a timely manner, we will not achieve the
critical mass of participants we believe necessary for our success. Our success
depends on the adoption of our solution not only by our customers but by the
distribution channel partners of our customers as well. For example, in order
for a distributor to sell digital goods using our solution, the publisher of
the goods must consent to distribute its goods electronically and the reseller
of the goods must also agree to use our solution. We do not know whether our
customers' distribution channel partners will agree to use our solution. Unless
a significant number of our customers' distribution channel partners agrees to
sell digital goods through our solution, we may not be able to earn enough
revenues from our network transaction fees to become profitable or execute our
business model.
If Microsoft does not consent to the electronic distribution of its products
through distributors using our solution or adopt our solution for direct sales,
our business may be seriously harmed.
Sales of Microsoft products account for a large portion of worldwide
software sales. If Microsoft does not consent to the electronic distribution of
its products through distributors using our solution or adopt our solution for
direct sales, our business may be seriously harmed. Additionally, Microsoft may
initiate its own standard for the electronic distribution of its software over
the Internet. Microsoft has initiated programs for the secure electronic
distribution of music. If distribution channel participants favor Microsoft's
existing or future solution for electronic distribution of digital goods, our
business may be harmed.
Our sales cycle is lengthy and unpredictable which could cause us to fail to
achieve projected results.
We market our solution directly to software publishers, music labels that
offer prerecorded music, distributors, resellers, OEMs and service providers.
These critical relationships are usually complex and take
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time to finalize. We typically must provide a significant level of education
regarding the use and benefits of our solution. Our customers tend to engage in
extensive internal reviews before making a purchasing decision. Further, the
purchase and deployment of our solution within a customer's organization
involve a significant commitment of capital and other resources and, as a
result, are subject to delays beyond our control, such as customers' internal
procedures to approve large capital expenditures, budgetary constraints and the
testing and acceptance of new technologies that affect key operations. In
addition, our potential customers may delay or reduce spending for the
implementation of our solution as they attempt to stabilize their computer
systems before January 1, 2000 in order to reduce the risk of computer problems
associated with year 2000 issues. As a result, substantial time may pass
between selection of our solution by key decision makers and the signing of a
contract. Accordingly, the period between the initial sales call and the
signing of a contract with significant sales potential may typically range from
four to six months, and has been and can be significantly longer. Therefore,
the timing of sales to new customers is difficult to predict. Delays in
receiving signed contracts with major customers could cause us to fail to
achieve our projected results, as well as those of industry analysts, in a
given quarter, which would have a severe adverse effect on the price of our
stock.
Our solution has not yet been used under high-volume transaction conditions,
and we do not know if technical problems may significantly complicate the
operation of our solution on a large scale.
Our solution has not yet been subjected to the volume of business and the
complexity we anticipate will be required to fully support the future
transactions of our largest customers. If our solution is not capable of
processing the necessary volume of transactions, our business will be seriously
harmed. In addition, it is likely that production software tools, diagnostic
tools and maintenance upgrades, as well as significant financial and other
resources, will be required to achieve reliability and resolve technical issues
related to large-scale transactions.
Our solution will require periodic upgrades and maintenance which may cause
disruptions in our service and will require the cooperation of our customers
and their channel partners.
We will need to upgrade and improve our solution periodically. Upgrading or
deploying a new version of our solution requires the cooperation of our
existing customers and their network participants. These network participants
may be reluctant to upgrade our solution since this process can be complicated,
time-consuming and poses the risk of network failures. The existence of or
failure to resolve these technical issues on a timely basis would materially
adversely affect us.
Our solution must be integrated with our customers' and their channel partners'
existing systems and there will be significant delays between the licensing and
deployment of our solution.
Our customers must integrate our solution into their existing systems or a
new system. Our business model is based on receiving network transaction fees.
Thus, our success depends upon the timely and successful deployment of our
solution by customers for the distribution and licensing of digital goods.
The timing and success of commercial deployment depends upon the:
. complexity of our customers' systems and necessary development efforts;
. technical and engineering capabilities of our customers;
. budget for and relative importance of electronic distribution of
digital goods to our customers;
. ability of our customers to integrate and test the implementation of
our solution successfully; and
. efforts of our consulting, training and support services in providing
technical support to our customers.
We expect that the period between entering into a licensing arrangement and
the time a customer commercially deploys our solution will vary widely.
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Variations in the volume of sales of digital goods and services over the
Internet will cause fluctuations in our quarterly operating results, which
could cause our stock price to decline.
The amount of network transaction fees we receive in any given quarter will
depend on the sales of digital goods that occur using our solution. Because
sales of digital goods using our solution are outside of our control, it will
be difficult for us to make accurate quarterly revenue projections even if our
solution is deployed commercially by our licensees. In addition, our revenues
will depend on the number of new deployments of our solution that occur in a
particular quarter. However, in the short term our operating expenses are
relatively fixed and based in part on our revenue projections. As a result, if
our revenue projections are not accurate for a particular quarter, our actual
operating results for that quarter could fall below the expectations of
analysts and investors. Our failure to meet these expectations would likely
cause the market price of our common stock to decline significantly and
rapidly.
Security breaches to our encryption technology may harm our reputation and
business and may cause us to expend significant additional resources to protect
against future breaches.
Individuals, referred to as crackers, have in the past gained unlicensed
access to secured digital goods distributed through our solution. While we
expend significant efforts to make unauthorized access increasingly difficult,
we expect that determined crackers will continue their attempts to crack our
solution and may prove successful. We will have to expend significant capital
and other resources to alleviate problems caused by these attempts to crack our
solution.
Any breach of our security systems could harm our reputation, which could
materially harm our business. A party who is able to circumvent our security
measures could misappropriate digital goods without paying the required license
fees, gain unauthorized access to proprietary information, erase or modify
electronic audit trails, or disrupt our customers' operations. Security
breaches could also harm our reputation and expose us to litigation and
liability. We cannot assure you that our security measures will prevent
security breaches or that a failure to prevent such security breaches will not
seriously harm our business.
We do not expect to recognize any significant revenues from the use of our
solution by our customers to sell digital music for at least the next 12
months, and we may not ever recognize meaningful revenues from these sales.
We have only recently begun to explore and market our solution for
electronic distribution of music and no customer is currently using our
solution to distribute music. As a result, we do not believe that we will
recognize any significant revenue from the use of our solution to sell music or
any type of digital goods other than software for at least the next 12 months,
if at all. We expect to incur significant expenses to develop and promote the
use of our solution for the electronic distribution of music. If electronic
distribution of music fails to develop or we are unable to penetrate this
market, we will have expended a great deal of time, effort and financial
resources that could have been directed to more beneficial activities. In
addition, our business may be adversely impacted if our efforts are not
successful. Recently, many public companies engaged in music e-commerce have
experienced significant volatility in their stock prices. To the extent we are
perceived as participating in music e-commerce, we may also experience similar
volatility in our stock price.
We are relying on Intel to provide us with its content protection agent
system that we can integrate with our solution. If we are unable to
successfully integrate it into our solution, we may be unable to provide a
viable solution for electronic distribution of music. Even if we successfully
incorporate the content protection agent system into our solution, it may not
provide adequate security.
We also rely upon third parties to create digital music players that
support the content protection agent system technology developed by Intel. If
such third parties fail to support this technology or end customers do not
purchase devices to play music distributed through our solution, our solution
may not gain market acceptance.
Other companies, such as Microsoft and Liquid Audio, have already begun to
distribute digital music using their proprietary methods. If these methods are
successful before we are able to implement our solution, our plans to use our
solution for the distribution of digital music may be seriously harmed.
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We have been, are and likely will in the future be subject to litigation that
may adversely affect us.
From time to time we have been, currently are and expect to continue to be,
subject to legal proceedings and claims in the ordinary course of business,
including claims of alleged infringement of third-party intellectual property
rights by us and our licensees. We are also currently subject to litigation
initiated by 20/20 Software, Inc. in the United States Court for the District
of Northern California. The 20/20 complaint alleges that one of our employees,
a former 20/20 employee, misappropriated trade secrets and confidential
information of 20/20 and allegedly used them in a product of our predecessor
and subsidiary, Preview Software. Claims like these, whether or not
meritorious, could result in the expenditure of significant financial and
managerial resources and could materially and adversely affect our business.
Our intellectual property rights are difficult and costly to protect.
We regard our patents, copyrights, trademarks, trade dress, trade secrets,
and similar intellectual property as critical to our success. We rely upon
patent, trademark and copyright law, trade secret protection and
confidentiality or license agreements with our employees, customers, partners
and others to protect our proprietary rights. Our proprietary technologies will
be protected from unauthorized use by third parties only to the extent that
they are covered by valid and enforceable patents or copyrights or are
effectively maintained as trade secrets. Any failure to protect our
intellectual property in a meaningful manner could materially and adversely
affect our business. In addition, litigation may be necessary in the future to
enforce our intellectual property rights, to protect our trade secrets or to
determine the validity and scope of the proprietary rights of others.
Litigation could result in substantial costs and diversion of management and
technical resources, which could materially and adversely affect us. We cannot
guarantee the adequacy of our efforts to protect our proprietary rights.
Any acquisitions we make could result in dilution, unfavorable accounting
charges and difficulties in successfully managing our business.
As part of our business strategy, we review acquisition prospects that
would complement our existing business or enhance our technological
capabilities. Future acquisitions by us could result in potentially dilutive
issuances of equity securities, large and immediate write-offs, the incurrence
of debt and contingent liabilities or amortization expenses related to goodwill
and other intangible assets, any of which could materially and adversely affect
our results of operations. Furthermore, acquisitions entail numerous risks and
uncertainties, including:
. difficulties in the assimilation of operations, personnel,
technologies, products and the information systems of the acquired
companies;
. diversion of management's attention from other business concerns;
. risks of entering geographic and business markets in which we have no
or limited prior experience; and
. potential loss of key employees of acquired organizations.
We may be unsuccessful in integrating any businesses, products,
technologies or personnel that might be acquired in the future, and our failure
to do so could have a material adverse effect on our business. In addition,
public or analysts' perception of the value of a potential acquisition may be
negative and our stock price may fall as a result.
We face risks associated with international sales and operations.
Although we sell our solution to customers outside the United States, we
might not succeed in expanding our international presence. Conducting our
business outside of the United States is subject to additional risks,
including:
. the possibility that the scarcity of high speed Internet access, the
high cost of Internet access and the pace of future improvements in
access to the Internet in countries outside the United States will
limit the market for electronic distribution and licensing of digital
goods;
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. changes in regulatory requirements, taxes and tariffs;
. reduced protection of intellectual property rights;
. the burden of complying with a variety of international laws;
. potential tax withholding of our network transaction fees;
. longer collection periods;
. U.S. and international export and use restrictions on encryption
technology;
. currency rate fluctuations that can impact our network transaction fees
which are denominated in local currencies; and
. political or economic constraints on international trade or
instability.
One or more of these factors may materially and adversely affect our future
international operations, and consequently, our business.
As a result of our agreement with Sony Marketing of Japan, which provides
Sony Marketing the exclusive right to distribute our products in Japan, our
success in this market depends on their efforts and ability to sell our
solution. This grant of an exclusive right to Sony Marketing may prevent
widespread adoption of our solution by the Japanese market which may prevent us
from being able to become a widely- used system in Japan.
We depend on key personnel, who may not continue to work for us.
We are substantially dependent on the continued services of our officers
and key personnel who are all at-will employees. These individuals have
acquired specialized knowledge and skills with respect to our business. As a
result, if any of these individuals were to leave, we could face substantial
difficulty in hiring qualified successors and could experience a loss in
productivity while the new employee obtains the necessary training and
experience. We expect that we will need to hire additional personnel in all
areas. The competition for qualified personnel in our industry is intense,
particularly in the San Francisco Bay Area, where our corporate headquarters
are located. At times, we have experienced difficulties in hiring personnel
with the right training or experience, particularly in technical areas. If we
do not succeed in attracting new personnel or retaining and motivating existing
personnel, our business will be adversely affected.
The year 2000 bug could cause our solution and the software products of our
suppliers to malfunction.
Many currently installed computer systems and software products are coded
to accept only two digit entries in the date code field and cannot distinguish
21st century dates from 20th century dates. As a result, many companies'
software and computer systems may need to be upgraded or replaced in order to
comply with these "year 2000" requirements.
Internal Systems
We are currently assessing the ability of our internal systems to satisfy
year 2000 requirements and expect to complete the program before December 31,
1999. We have not incurred material costs to date in this process, and
currently do not believe that the cost of additional actions will have a
material effect on our results of operations or financial condition. Although
we currently believe that our systems satisfy year 2000 requirements in all
material respects, our current systems may contain undetected errors or defects
with year 2000 date functions that may result in material costs. We do not have
a specific contingency plan to handle year 2000 problems if they occur. Based
on our assessment to date, we currently believe that year 2000 costs to us will
not exceed $50,000. However, in a worst case scenario, year 2000 problems could
cause us to cease normal operations for an indefinite period until we are able
to repair our internal systems. Although we are not
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aware of any material operational issues or costs associated with preparing our
internal systems for the year 2000, we may experience serious unanticipated
negative consequences or material costs caused by undetected errors or defects
in the technology used in our internal systems.
Products
Our products are currently designed and tested to be year 2000 compliant.
By "year 2000 compliant," we mean that the products will operate according to
their published documentation and will record, store, process and present
calendar dates falling on or after January 1, 2000 in the same manner, and with
the same functionality, as they record, store, process and present calendar
dates falling on or before December 31, 1999. We believe that the current
version of our solution is year 2000 compliant.
Prior versions of our solution in current production use by some of our
customers are not year 2000 compliant and must be upgraded prior to December
31, 1999 in order to avoid problems at the rollover to January 1, 2000. We will
complete the upgrade for our customers in the normal course of our customer
support. As a result, we have not incurred and do not expect to incur any
material expenses related to these upgrades. Customers who fail to upgrade our
solution or any other third party software or hardware that is not year 2000
compliant that our solution relies on prior to that time may suffer severe
outages. This may harm our relationships with these customers and may damage
our reputation with other current or prospective customers. It is also possible
that customers with non-year 2000 compliant systems may decide to sue us
because our software was not year 2000 compliant. Although we expect to contest
these claims, the cost of litigation surrounding this issue may be significant
and, in a worst case scenario, year 2000 problems could prevent any
transactions using our solution from taking place until we are able to repair
our solution.
We have not independently verified whether any third-party software
encrypted with our solution is year 2000 compliant. We have encouraged users of
our solution to contact third-party vendors to determine the year 2000
compliant status of their products. We have not independently verified whether
the components from our third-party manufacturers are year 2000 compliant. We
have warranted in certain of our license agreements that our solution as
delivered by us and without customization, will be year 2000 compliant provided
that the entire system and supporting products with which our solution is used
are also year 2000 compliant. This includes hardware, system software such as
the operating system and database software, and application software, either
purchased, contracted, or created in-house. In addition, our customers may also
be concerned about year 2000 issues or distracted by their own year 2000
compliance programs, either of which could adversely affect our business.
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Risks related to our industry
The success of our business will largely depend on the widespread acceptance of
commerce in digital goods over the Internet.
The use of the Internet for distribution and licensing of digital goods may
not be commercially accepted for a number of reasons, including the:
. failure to adequately develop the necessary infrastructure for the
electronic distribution and licensing of digital goods, including data
compression or broadband communication technology;
. lack of adequate speed, access, or server reliability;
. public perception of the security and confidentiality of digital
information and the confidentiality of its providers and users;
. development of competing technologies;
. rate of adoption of electronic distribution and licensing of digital
goods by the existing retail and other channels;
. demand for digital goods that are available for purchase through
electronic distribution; and
. level of end customer comfort with the process of downloading software,
music and other digital goods over the Internet, including the ease of
use.
In addition, our business would be seriously harmed if publishers,
distributors or resellers of digital goods are unwilling to sell their digital
goods over the Internet. These factors are outside of our control. If commerce
in digital goods does not achieve widespread market acceptance or grow
significantly, our business will be seriously harmed.
Our market is subject to rapid technological changes; we may not be able to
introduce new products and enhancements on a timely basis.
The market for electronic distribution and licensing of digital goods is
fragmented and marked by rapid technological change, frequent new product
introductions and enhancements, uncertain product life cycles, and changes in
customer demands. There is currently no standard for electronic distribution
and licensing of digital goods. New products based on new technologies or new
industry standards can quickly render existing products obsolete and
unmarketable. In the past we have experienced delays in new product releases
and we may experience similar delays in the future. Any delays in our ability
to develop and release enhanced or new systems could seriously harm our
business.
The market for electronic distribution of music may not develop, which could
adversely affect our revenue opportunities and business.
The market for electronic distribution of music is new and rapidly
evolving. Electronic sales of music have been almost non-existent due to
uncertainty about whether, when and how a market for these sales will develop
as well as due to significant concerns regarding unauthorized use and
distribution of digitized music. As a result, a significant market for
electronically distributed music may not develop and our business may be
adversely affected.
We are in a highly competitive industry, and some of our competitors may be
more successful than we are in attracting and retaining customers.
The market for electronic distribution and licensing of digital goods is
new, rapidly evolving and intensely competitive. We expect competition to
intensify in the future. We currently compete directly with other providers of
electronic commerce solutions for digital goods such as Cybersource, Digital
River and InterTrust Technologies. More broadly, we compete with other
providers of technology to secure digital content
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such as AT&T, IBM, Liquid Audio, Microsoft, Real Networks, Reciprocal and
Xerox, as well as solutions developed in-house. In the future, operating system
manufacturers may include digital rights management solutions in their
operating systems.
We believe that the principal competitive factors in our markets include:
. software publisher, music label, distributor and reseller
relationships;
. system security, scalability and reliability;
. breadth of products and services;
. price; and
. speed of deployment.
Many of our current and potential competitors have longer operating
histories, larger customer bases, greater brand recognition and much greater
financial, marketing and other resources than we do. In addition, larger, well-
established and well-financed entities may acquire, invest in or form joint
ventures with competitors as the use of the Internet and other online services
increases. Increased competition may result in reduced prices, and loss of
market share and may negatively impact our ability to obtain network
transaction fees. In addition, adoption by publishers, distributors and
resellers of competing systems can significantly limit the size of the
potential market for our solution. We may not be able to compete successfully
against current and future competitors, and any inability to do so would
materially adversely affect our business.
We may be sued for violating the intellectual property rights of others.
The digital encryption and distribution industry is characterized by the
existence of a large number of patents and frequent litigation based on
allegations of patent infringement and the violation of other intellectual
property rights. We have not completed an in-depth and exhaustive analysis of
such patents or applications. Some of our competitors have extensive patent
portfolios with broad claims. As the number of competitors in the market grows
and the functionality of our solution increases, the possibility of an
intellectual property claim against us increases. In addition, because patent
applications can take many years to issue, there may be a patent application
now pending, of which we are unaware, which will cause us to be infringing when
it is issued in the future. To address these patent infringement or other
intellectual property claims, we may have to enter into royalty or licensing
agreements on disadvantageous commercial terms. Alternatively, we may be unable
to obtain a necessary license. A successful claim against us, and our failure
to license the infringed or similar technology, would harm our business. In
addition, any infringement or other intellectual property claims, with or
without merit, which are brought against us could be time consuming and
expensive to litigate or settle and could divert management's attention from
our business.
We may face increased governmental regulation and legal uncertainties that
could increase our costs and be a barrier to doing business.
To date, communications and commerce on the Internet have not been highly
regulated. State and federal governments may decide to enact new laws or
regulations at any time and it may take years to determine the extent to which
existing laws relating to issues including property ownership, defamation, and
personal privacy apply to the Internet. Any new laws or regulations or
implementations of existing laws and regulations relating to the Internet could
harm our business.
As of October 1998, the European Union has adopted a privacy directive that
regulates the collection and use of information that can be associated with
specific individuals. These regulations may inhibit or prohibit the collection
and sharing of personal information in ways that could harm our partners or us.
The globalization of Internet commerce may be harmed by these and similar
regulations since the European Union privacy directive prohibits transmission
of personal information outside the European Union unless the receiving country
has
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enacted individual privacy protection laws at least as strong as those enacted
by the European Union privacy directive. The United States and the European
Union have not yet resolved this matter and they may not ever do so, in a
manner favorable to our customers or us.
Imposition of sales and other taxes on electronic commerce transactions may
hinder electronic commerce.
The taxation of commerce activities in connection with the Internet has not
been established, may change in the future and may vary from jurisdiction to
jurisdiction. One or more states or other countries may seek to impose sales or
other taxes on companies that engage in or facilitate electronic commerce. A
number of proposals have been made at the local, state, and international level
that would impose additional taxes on the sale of products and services through
the Internet. These proposals, if adopted, could substantially impair the
growth of electronic commerce and could significantly harm our business.
Moreover, if any state or other country were to assert successfully that we
should collect sales or other taxes on the exchange of products and services
through the Internet, our business may be harmed.
Risks related to our offering
We may need to raise additional funds in the future, which could result in
dilution.
We require substantial working capital to fund our business. We expect the
net proceeds from this offering, together with our existing capital resources,
to be sufficient to meet our working capital and capital expenditure needs for
at least the next 12 months. After that, we may need to raise additional funds,
and additional financing may not be available on favorable terms, if at all.
This could seriously harm our business and operating results. Furthermore, if
we issue additional equity securities, stockholders may experience dilution,
and the new equity securities could have rights senior to those of existing
holders of our common stock. If we raise additional funds through the issuance
of debt securities, holders of these securities could have rights, preferences,
and privileges senior to holders of common stock, and the terms of this debt
could impose restrictions on our operations. If we need to raise funds and
cannot do so on acceptable terms, we may not be able to develop or enhance our
solution, take advantage of future opportunities, or respond to competitive
pressures or unanticipated requirements.
Our securities have no prior market and our stock price may decline after the
offering.
Before this offering, there has not been a public market for our common
stock and the trading market price of our common stock may decline below the
initial public offering price. The initial public offering price will be
determined by negotiations between us and the representatives of the
underwriters. In addition, an active public market for our common stock may not
develop or be sustained after this offering.
We are significantly influenced by existing stockholders.
On completion of this offering, executive officers, key employees and
directors, and their affiliates will beneficially own, in the aggregate,
approximately % of our outstanding common stock, assuming the underwriters
do not exercise their 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 control over us.
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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;
. prohibiting stockholder action by written consent; and
. limitations on stockholders' ability to call special stockholder
meetings.
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 July 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, 20,730 shares will be
eligible for sale in the public market immediately. Most of 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 7,022,608 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 is 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 substantial
dilution of $ per share. In addition, we have issued options to acquire
common stock at prices significantly below the initial public offering price.
To the extent outstanding options are ultimately exercised, there will be
further dilution to investors in this offering. We have in the past and may in
the future issue equity securities to our partners. Any issuances to these
partners may cause further dilution to investors in this offering.
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YOU SHOULD NOT RELY ON FORWARD-LOOKING STATEMENTS
BECAUSE THEY ARE INHERENTLY UNCERTAIN
This prospectus contains forward-looking statements that involve risks and
uncertainties. We use words like "anticipate," "believe," "plan," "expect,"
"future," "intend," and similar expressions to identify forward-looking
statements. This prospectus also contains forward-looking statements attributed
to third parties relating to their estimates regarding the growth of Internet
use and electronic distribution and licensing of digital goods. You should not
place undue reliance on these forward-looking statements, which apply only as
of the date of this prospectus. Our actual results could differ materially from
those anticipated in these forward-looking statements for many reasons,
including the risks faced by us and described in the preceding pages and
elsewhere in this prospectus. Moreover, neither we nor any other person assumes
responsibility for the accuracy and completeness of the forward-looking
statements. We are under no duty to update any of the forward-looking
statements after the date of this prospectus to conform these statements to
actual results or to changes in our expectations.
HOW WE INTEND TO USE THE PROCEEDS FROM THIS OFFERING
Our net proceeds from the sale of the shares of common
stock we are offering are estimated to be $ million, or
$ million if the underwriters' option to purchase additional shares
is exercised in full, based on an assumed initial public offering price of
$ per share and after deducting the underwriting discounts and commissions
and estimated offering expenses. We currently expect to use the net proceeds
primarily for working capital and general corporate purposes, including
approximately $ million for expanding our sales and marketing
organization. In addition, although we have no present commitments or
agreements with respect to any acquisitions, we may use a portion of the net
proceeds for further development of our product lines through acquisitions of
products, technologies and businesses. We will have significant discretion in
applying the net proceeds of this offering. Prior to these uses, we will invest
the net proceeds in short-term, investment grade, interest-bearing securities.
DIVIDEND POLICY
Our policy is to retain earnings to provide funds for the operation and
expansion of our business and, accordingly, we have never paid cash dividends
on our capital stock. Any payment of future cash dividends and the amounts
thereof will depend upon our earnings, financial requirements, and other
factors deemed relevant by our Board of Directors. In addition, our bank loan
arrangements restrict our ability to pay dividends. We have no plans to pay
dividends in the future. See "Description of Capital Stock--Dividends."
OTHER INFORMATION
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell, and seeking offers to
buy, shares of common stock only in jurisdictions where offers and sales are
permitted. The information contained in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of delivery of this
prospectus or of any sale of our common stock.
This prospectus includes estimates regarding the Internet industry. The
estimates that we used were taken or derived from information published by
sources including International Data Corporation, a firm that provides market
and strategic information to the information technology industry. Although we
believe that the estimates we used were generally indicative of the matters for
which we used them, this data is inherently imprecise, and you are cautioned
not to place undue reliance on those estimates.
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CAPITALIZATION
The following table sets forth the following information:
. our actual capitalization as of July 31, 1999;
. the filing of and amendment to our certificate of incorporation to
provide for authorized capital stock of 75,000,000 shares of common
stock and 5,000,000 shares of undesignated preferred stock;
. our pro forma capitalization, after giving effect to the automatic
conversion of all outstanding shares of preferred stock into 8,788,273
shares of common stock; and
. the pro forma as adjusted capitalization, after giving effect to the
sale of shares of common stock at the initial public offering price of
$ per share in this offering, after deducting the underwriting
discounts and commissions and estimated offering expenses that we
expect to pay in connection with this offering.
This table should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the consolidated
financial statements and notes to the consolidated financial statements
included elsewhere in this prospectus.
<TABLE>
<CAPTION>
July 31, 1999
--------------------------------
Pro Forma
Actual Pro Forma As Adjusted
-------- --------- -----------
(in thousands, except share
data)
<S> <C> <C> <C>
Long-term obligations, less current portion.... $ 1,639 $ 1,639 $
-------- -------- ------
Stockholders' equity:
Preferred stock, par value $0.0002 per share;
5,000,000 shares authorized, actual
8,788,273 shares issued and outstanding;
none issued or outstanding, pro forma; none
issued or outstanding, pro forma as
adjusted................................... -- -- --
Common stock, par value $0.0002 per share;
75,000,000 shares authorized, 3,058,160
shares issued and outstanding, actual;
11,846,433 issued and outstanding, pro
forma; shares issued and
outstanding, pro forma as adjusted ........ -- -- --
Additional paid-in capital..................... 51,213 51,213
Stockholder notes receivable .................. (1,912) (1,912)
Deferred compensation.......................... (128) (128)
Accumulated deficit............................ (22,819) (22,819)
-------- -------- ------
Total stockholders' equity................... 26,354 26,354
-------- -------- ------
Total capitalization........................ $ 27,993 $ 27,993 $
======== ======== ======
</TABLE>
- --------
The information in the table above excludes:
. options outstanding to purchase an aggregate of 2,258,500 shares of
common stock issued to our employees, directors and consultants under
our stock option plans and an additional 460,097 shares available for
future issuance under our 1998 Stock Option Plan;
. options outstanding to purchase an aggregate of 73,340 shares of common
stock issued outside of our stock option plans;
. warrants to purchase an aggregate of 170,450 shares of our common
stock;
. warrants to purchase an aggregate of 25,430 shares of our series C
preferred stock;
. warrants to purchase an aggregate of 217,233 shares of our series E
preferred stock;
. a warrant to purchase an aggregate of 2,700 shares of our series F
preferred stock; and
. a warrant to purchase an aggregate of 76,682 shares of series G
preferred stock.
20
<PAGE>
DILUTION
We calculate pro forma net tangible book value per share by dividing our
net tangible book value (total assets less intangible assets and total
liabilities) by our total number of shares of common stock outstanding. Our pro
forma net tangible book value as of July 31, 1999 was approximately $ or
$ per share of common stock. After giving effect to the sale of the
shares of common stock offered by us at an assumed initial public offering
price of $ per share (less underwriting discounts and commissions and
expenses we expect to pay in connection with this offering) our pro forma net
tangible book value as of July 31, 1999 would have been $ or $
per share of common stock. This represents an immediate increase in net
tangible book value of $ per share to existing stockholders and an immediate
dilution of $ per share to new investors. The following table illustrates
this per share dilution:
<TABLE>
<CAPTION>
<S> <C> <C>
Assumed initial public offering price per share....... $ $
Pro forma net tangible book value per share as of July
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 shows on a pro forma basis, as of July 31, 1999, with
respect to existing stockholders and new investors, the number of shares of
common stock purchased from us, the total consideration paid to us, and the
average price per share paid to us.
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
----------------- --------------------- Average Price
Number Percent Amount Percent Per Share
-------- -------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders.. % $ % $
New investors..........
-------- ------- ---------- --------- ------
Totals............... 100.0% $ 100.0% $
======== ======= ========== =========
</TABLE>
The information presented with respect to existing stockholders assumes no
exercise of warrants to purchase 492,495 shares that were outstanding on July
31, 1999 with a weighted average exercise price of $7.45 per share (of which we
expect that warrants to purchase shares will be exercised immediately
prior to completion of the offering) and no exercise of outstanding options. As
of July 31, 1999, options to purchase 2,331,840 shares were outstanding under
our option plans and outside our option plans with a weighted average price of
$3.44 per share, and 460,097 shares were reserved for issuance upon exercise of
options that may be granted subsequent to July 31, 1999. In August 1999, the
1998 Stock Option Plan was amended to increase the total number of shares
reserved for issuance by 1,000,000 shares. Additionally, in August 1999,
300,000 shares were reserved for issuance upon exercise of options that may be
granted under the 1999 Directors' Stock Option Plan, and 500,000 shares were
reserved for issuance under the 1999 Employee Stock Purchase Plan. The issuance
of common stock under these plans will result in further dilution to new
investors. These figures also include 8,788,273 shares of preferred stock
(which will be converted into 8,788,273 shares of common stock upon the closing
of this offering) and warrants to purchase 322,045 shares of preferred stock.
See "Management--Stock Option Plans," "Certain Relationships and Related
Transactions" and Notes 7 and 12 to the Consolidated Financial Statements.
21
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
(in thousands, except per share data)
We were formed in April 1998 to acquire all of the outstanding equity
interests of Preview Software and Portland Software. We completed both of these
mergers on August 5, 1998. In accordance with Accounting Principles Board
Opinion No. 16, we determined the stockholders of Preview Software to be our
controlling stockholders. As a result, we accounted for our merger with Preview
Software as a reorganization under common control with the underlying net
assets recorded by us at historical cost. We accounted for our merger with
Portland Software using the purchase method. Therefore, the following selected
consolidated financial data for the years ended December 31, 1996, 1997 and
1998 and the six months ended June 30, 1998 and 1999 reflect our operations and
those of Preview Software, and reflect the operations of Portland Software from
August 5, 1998. The financial statements for the years ended December 31, 1996,
1997 and 1998 are derived from our audited financial statements. See
"Management's Discussion and Analysis of Financial Condition." The financial
statements for the six-month periods ended June 30, 1998 and 1999 and the pro
forma financial statements are derived from unaudited consolidated financial
statements. In our opinion, the unaudited consolidated financial statements
have been prepared on substantially the same basis as the audited consolidated
financial statements and include all adjustments, consisting only of recurring
adjustments, necessary for a fair presentation of the results of operations for
these periods. The pro forma statements of operations data for the year ended
December 31, 1998 and the six months ended June 30, 1998 give effect to the
merger with Portland Software as if this transaction had occurred on January 1,
1998.
<TABLE>
<CAPTION>
Six Months Ended
Year Ended December 31, June 30,
-------------------------------------- ----------------------------
Pro Forma Pro Forma
1996 1997 1998 1998 1998 1998 1999
------ ------- -------- ----------- ------- ----------- -------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated Statements
of Operations Data:
Revenues:
Network transaction
fees................ $ 148 $ 262 $ 435 $ 618 $ 111 $ 246 $ 742
Services.............. -- -- 175 191 -- 16 479
------ ------- -------- -------- ------- ------- -------
Total revenues..... 148 262 610 809 111 262 1,221
Operating expenses:
Research and
development......... 34 1,016 2,978 4,056 1,091 2,016 3,080
Sales and marketing... 172 822 2,915 4,202 980 2,103 2,494
General and
administrative...... 184 785 3,127 5,179 1,186 2,148 2,048
Amortization of
intangibles......... -- -- 866 2,084 -- 1,042 1,038
Acquired in-process
research and
development......... -- -- 2,091 -- -- -- --
------ ------- -------- -------- ------- ------- -------
Total operating
expenses......... 390 2,623 11,977 15,521 3,257 7,309 8,660
------ ------- -------- -------- ------- ------- -------
Loss from operations.... (242) (2,361) (11,367) (14,712) (3,146) (7,047) (7,439)
Other income (expense),
net................... -- (19) 91 162 35 100 3
------ ------- -------- -------- ------- ------- -------
Net loss................ $ (242) $(2,380) $(11,276) $(14,550) $(3,111) $(6,947) $(7,436)
====== ======= ======== ======== ======= ======= =======
Basic and diluted net
loss per share........ $(0.69) $ (6.45) $ (7.55) $ (5.51) $ (4.60) $ (2.67) $ (2.75)
====== ======= ======== ======== ======= ======= =======
Shares used in computing
net loss per share.... 350 369 1,494 2,641 676 2,605 2,708
====== ======= ======== ======== ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
December 31, June 30,
--------------------- -----------
1996 1997 1998 1999
---- ------- ------- -----------
(unaudited)
<S> <C> <C> <C> <C>
Balance Sheets Data:
Cash and cash equivalents..................... $ 30 $ 2,489 $ 4,886 $ 427
Working capital (deficit)..................... (22) 2,291 3,021 (3,525)
Total assets.................................. 90 3,122 12,490 8,150
Notes payable................................. 20 -- 509 2,260
Stockholders' equity.......................... -- 2,713 8,006 767
</TABLE>
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
consolidated financial statements and notes appearing elsewhere in this
prospectus. The following discussion contains forward-looking statements. Our
actual results may differ significantly from those projected in the forward-
looking statements. Factors that might cause future results to differ
materially from those projected in the forward-looking statements include, but
are not limited to, those discussed below and elsewhere in this prospectus,
particularly in "Risk Factors."
Overview
We acquired all of the outstanding equity interests of Preview Software and
Portland Software on August 5, 1998. Prior to the acquisitions, Portland
Software developed and licensed infrastructure software applications designed
to enable electronic software distribution among multiple distribution channel
partners. Preview Software developed and licensed electronic software
distribution products that enabled management and enforcement of licensing
rights both prior to and after electronic delivery to end customers. During the
period immediately preceding merger discussions, several key customers
expressed to both companies the desire to license a system that would feature
Portland Software's server software with the capabilities provided by Preview
Software's client software. As a result, the two companies decided to merge and
combine their software and services into a single comprehensive solution. We
were formed in April 1998 to effect this business combination.
In accordance with Accounting Principles Board Opinion No. 16, we
determined that the stockholders of Preview Software were our controlling
stockholders. Accordingly, we accounted for our merger with Preview Software as
a reorganization under common control with the underlying net assets of Preview
Software recorded by us at historical cost. We accounted for our merger with
Portland Software using the purchase method. Therefore, the accompanying
consolidated financial statements reflect our operations and those of Preview
Software for all periods presented and reflect the operations of Portland
Software since August 5, 1998. Due to the impact of purchase accounting and our
short operating history, we believe that the results of operations for the
periods presented are not indicative of future results of operations.
On August 5, 1998, we capitalized $6.0 million in the form of acquired
technology, patents and other intangibles in connection with the Portland
merger. We are amortizing these intangible assets over two to three years, the
estimated useful lives of the related assets. Amortization of intangibles will
result in a charge of approximately $521,000 and $2.1 million on a quarterly
and annual basis, respectively, through August 2000 and approximately $486,000
and $1.9 million on a quarterly and annual basis, respectively, from September
2000 through August 2001.
We generally provide rights to use our solution and ongoing customer
support through annual licensing agreements. These agreements typically require
the payment of network transaction fees based on a percentage of the sales
fulfilled using our solution. Prior to the Portland merger, Preview Software's
revenues were typically based on one-time license fees which were recognized
over the term of the license. Currently, our network transaction fees are based
on a percentage of the sales fulfilled using our solution. Our customers
typically commit to minimum network transaction fees that entitle them to
fulfill an agreed amount of sales during the one-year term of the agreement.
Some or all of the minimum network transaction fees are prepaid upon signing
the agreement. We record deferred revenue related to these fees and recognize
them on a straight-line basis over the license period. To the extent sales
fulfilled using our solution exceed the agreed amount of sales, we recognize
incremental network transaction fees. We will recognize these incremental
network transaction fees when the amounts due are known, which will generally
be in the month subsequent to our customers' sales. Through June 30, 1999, we
have not earned any incremental network transaction fees.
We entered into a three-year agreement with Sony Marketing of Japan in
September 1998 that gives Sony Marketing the exclusive right to use and
sublicense our solution in Japan, including future upgrades,
23
<PAGE>
enhancements and new products. The agreement also provided for training and
support through June 1999. We received non-creditable, upfront payments for the
license, services and training to be performed by us. We recorded deferred
revenue on these upfront fees and recognize the license portion as network
transaction fees on a straight-line basis over the three-year term of the
agreement. We recognized the service revenue as work was performed. In
addition, beginning April 1999, Sony Marketing has agreed to pay us network
transaction fees based on a percentage of the revenue it receives from
distributing our solution and providing related services. Sony Marketing
committed to pay us annual minimum network transaction fees. If the network
transaction fees paid by Sony Marketing during the initial annual period are
less than the annual minimum network transactions fees, Sony Marketing must pay
us any shortfall. Beginning April 2000, if network transaction fees are less
than a specified target, Sony Marketing, at its option, may forego its
exclusivity rights rather than pay the shortfall. During the first year of the
agreement, we will recognize the annual minimum network transactions fees over
12 months until we have earned network transaction fees in excess of these
annual minimum network transaction fees. In subsequent years, we will recognize
the network transaction fees as they are earned.
Service revenues generally consist of consulting, training and integration
fees. We typically bill these services and recognize them as the related
services are performed or when contract milestones are achieved.
Results of Operations
References to pro forma financial information reflect our unaudited
combined results of operations after giving effect to the Portland merger as if
it had occurred on January 1, 1998. All period-to-period comparisons are made
on an historical basis unless otherwise specifically indicated.
Six Months Ended June 30, 1999 Compared to June 30, 1998
Revenues. Total revenues were $1.2 million for the six months ended June
30, 1999 compared to $111,000 for the six months ended June 30, 1998 and
$262,000 for the six months ended June 30, 1998 on a pro forma basis.
Network transaction fees were $742,000 for the six months ended June 30,
1999 compared to $111,000 for the six months ended June 30, 1998 and $246,000
for the six months ended June 30, 1998 on a pro forma basis. The increase in
network transaction fees was primarily the result of the recognition of network
transaction fees related to agreements with publishers and our distributor in
Japan. The increase also reflected additional network transaction fees
resulting from the licensing of products acquired in the Portland merger.
Service revenues were $479,000 for the six months ended June 30, 1999
compared to $0 for the six months ended June 30, 1998 and $16,000 for the six
months ended June 30, 1998 on a pro forma basis. The increase in service
revenues was primarily the result of training and consulting services performed
for Sony Marketing of Japan and Ingram Micro in connection with their
agreements.
Research and Development. Research and development expenses consist
principally of salaries and related personnel expenses, consultant fees and the
cost of software used in product development. Research and development expenses
were $3.1 million for the six months ended June 30, 1999 compared to $1.1
million for the six months ended June 30, 1998 and $2.0 million for the six
months ended June 30, 1998 on a pro forma basis. The increase in research and
development expenses partially resulted from increases in personnel, consultant
fees and the cost of software used in product development. These expenses also
increased due to a higher combined level of expenses following the Portland
merger. We believe that continued investment in research and development is
critical to attaining our strategic objectives and we expect these expenses to
increase in the future.
Sales and Marketing. Sales and marketing expenses consist of salaries and
related expenses for personnel engaged in direct sales, partner development,
marketing and field service support, consultant fees, advertising,
24
<PAGE>
promotional materials and trade show exhibit expenses. Sales and marketing
expenses were $2.5 million for the six months ended June 30, 1999 compared to
$1.0 million for the six months ended June 30, 1998 and $2.1 million for the
six months ended June 30, 1998 on a pro forma basis. The increase was
primarily related to increased head count following the acquisition of
Portland Software and, to a lesser extent, rebranding efforts to reflect the
newly-combined entity. We expect sales and marketing expenses to increase in
the future due to planned growth of our sales and partner development efforts.
General and Administrative. General and administrative expenses consist
primarily of salaries and related expenses for executive, legal, accounting
and administrative personnel, professional services and general corporate
expenses. General and administrative expenses were $2.0 million for the six
months ended June 30, 1999 compared to $1.2 million for the six months ended
June 30, 1998. This increase was primarily related to increased headcount
following the Portland Software merger, employee severance payments, and
increased legal costs. General and administrative expenses were $2.1 million
for the six months ended June 30, 1998 on a pro forma basis. We expect general
and administrative expenses to increase in the future as we add personnel,
incur additional costs to support continued growth and implement additional
internal systems necessary to support a public company.
Amortization of Intangibles. Amortization of intangibles consists of the
amortization of patent costs and intangibles acquired in connection with the
Portland merger. Amortization of intangibles was $1.0 million for the six
months ended June 30, 1999 compared to $0 for the six months ended June 30,
1998 and $1.0 million for the six months ended June 30, 1998 on a pro forma
basis. The increase in amortization of intangibles in the first half of 1999
resulted from the Portland merger which occurred on August 5, 1998.
Income Taxes. We have incurred net losses since inception for federal and
state tax purposes and have not recognized any tax benefit. We are in a net
deferred tax asset position, which has been fully reserved. We will continue
to provide a valuation allowance for our net deferred tax assets until it
becomes more likely than not, in our assessment, that our net deferred tax
assets will be realized.
Inflation did not have a material impact on the results of operations for
the six-month periods ended June 30, 1999 and 1998.
Year Ended December 31, 1998, 1997 and 1996
Revenues. Total revenues were $610,000 in 1998 compared to $262,000 in
1997 and $148,000 in 1996.
Network transaction fees were $435,000 in 1998 compared to $262,000 in 1997
and $148,000 in 1996. The increase in network transaction fees in 1998
compared to 1997 was primarily the result of the recognition of network
transaction fees related to an agreement with Sony Marketing of Japan. The
increase also reflected additional network transaction fees resulting from the
licensing of products acquired in the Portland merger. The increase in network
transaction fees in 1997 compared to 1996 was primarily the result of
increased sales and marketing activities.
Service revenues were $175,000 in 1998 and $0 for the years ended December
31, 1997 and 1996. The increase in service revenues was primarily a result of
training and custom consulting services performed for Sony Marketing of Japan
in 1998 in connection with their agreement.
Two customers accounted for 45% and 13%, respectively, of total revenues
in 1998. Two customers accounted for 21% and 12%, respectively, of total
revenues in 1997. Two customers accounted for 54% and 20%, respectively, of
total revenues in 1996.
Research and Development. Research and development expenses were $3.0
million, $1.0 million and $34,000 in 1998, 1997 and 1996, respectively.
Research and development expenses for 1998 compared to 1997 increased
primarily due to increases in personnel, increases in headcount following the
Portland merger, consultant fees and the cost of software used in product
development. The increase in research and development expenses for 1997
compared to 1996 was primarily a result of increased personnel, consultant
fees and the cost of software used in product development.
25
<PAGE>
Sales and Marketing. Sales and marketing expenses were $2.9 million,
$822,000 and $172,000 in 1998, 1997 and 1996, respectively. Sales and marketing
expenses for 1998 compared to 1997 increased primarily due to increases in
personnel, increases in headcount following the Portland merger and rebranding
efforts related to the newly-combined entity. The increases for 1997 compared
to 1996 primarily resulted from increased personnel and sales and marketing
efforts.
General and Administrative. General and administrative expenses were $3.1
million, $785,000 and $184,000 in 1998, 1997 and 1996, respectively. General
and administrative expenses for 1998 increased compared to 1997 primarily due
to increases in headcount following the Portland merger, employee severance
payments and reduction in force costs following the Portland merger. The
increases for 1997 compared to 1996 primarily resulted from increased personnel
and legal costs.
Amortization of Intangibles. Amortization of intangibles was $866,000 in
1998 compared to $0 in 1997 and 1996. The increase was related to the Portland
merger in August 1998.
Acquired In-Process Research and Development. In 1998, as a result of the
Portland merger, we recorded a one-time charge of $2.1 million related to the
purchase of in-process research and development. The value assigned to in-
process research and development represented research and development efforts
in process at the acquisition date for which technological feasibility had not
yet been established and which had no alternative future uses. Accounting
principles require that such costs be charged to expense as incurred. We
believe that these research and development efforts will result in commercially
viable products over the next one to two years.
Income Taxes. We have incurred net losses since inception for federal and
state tax purposes and have not recognized any tax provision or benefit. As of
December 31, 1998, we had approximately $15.7 million of federal and state net
operating loss carryforwards to offset against future taxable income. The
federal net operating loss and tax credit carryforwards expire on various dates
through 2018, if not used. The state net operating loss carryforwards expire on
various dates through 2013, if not used. Utilization of net operating losses
and credits is subject to a substantial annual limitation due to the change in
ownership provisions of the Internal Revenue Code of 1986 and similar state
provisions. The annual limitation may result in the expiration of net operating
losses and credits before utilization.
Inflation did not have a material impact on the results of operations for
1998, 1997 and 1996.
26
<PAGE>
Quarterly Results of Operations
The following table sets forth, for the periods presented, selected data
from our consolidated statements of operations. The historical data has been
derived from our unaudited consolidated financial statements, and, in our
opinion, include all adjustments, consisting only of normal recurring
adjustments, that are necessary for a fair presentation of the results of
operations for these periods. The unaudited pro forma financial information
reflects our combined results of operations after giving effect to the Portland
merger as if it had occurred on January 1, 1998.
This unaudited historical and pro forma quarterly 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 (unaudited)
----------------------------------------------------------------
March 31, June 30, Sept. 30,
1998 1998 1998 Dec. 31, March 31, June 30,
(Pro Forma) (Pro Forma) (Pro Forma) 1998 1999 1999
----------- ----------- ----------- -------- --------- --------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Network transaction
fees................. $ 88 $ 158 $ 167 $ 205 $ 295 $ 447
Services............... 14 2 23 152 168 311
------- ------- ------- ------- ------- -------
Total revenues........ 102 160 190 357 463 758
Operating expenses:
Research and
development.......... 1,083 933 919 1,121 1,468 1,612
Sales and marketing.... 1,110 993 1,210 889 1,039 1,455
General and
administrative....... 1,186 962 1,773 1,258 1,042 1,006
Amortization of
intangibles.......... 521 521 523 519 519 519
------- ------- ------- ------- ------- -------
Total operating
expenses............ 3,900 3,409 4,425 3,787 4,068 4,592
------- ------- ------- ------- ------- -------
Loss from operations.... (3,798) (3,249) (4,235) (3,430) (3,605) (3,834)
Other income (expense),
net................... 63 37 16 46 27 (24)
------- ------- ------- ------- ------- -------
Net loss................ $(3,735) $(3,212) $(4,219) $(3,384) $(3,578) $(3,858)
======= ======= ======= ======= ======= =======
</TABLE>
The increase in revenues for the periods presented primarily resulted from
the recognition of network transaction fees and service fees associated with
execution of agreements with publishers and with Sony Marketing of Japan in
September 1998 and Ingram Micro in June 1999.
Operating expenses have increased primarily as a result of increased
operating activities and personnel. The increase in research and development
expenses over the four quarters ended June 30, 1999 resulted from increases in
personnel, consultant fees and the cost of software used in product
development. The increase in sales and marketing expenses for the quarter ended
September 30, 1998 was due to increases in personnel, increases in headcount
following the Portland merger, the Portland merger and rebranding efforts
related to the newly-combined entity. The increase in sales and marketing
expenses during the quarter ended June 30, 1999 was a result of increases in
sales and marketing personnel and increased expenditures on marketing programs.
The increase in general and administrative expenses for the quarter ended
September 30, 1998 related principally to costs associated with the Portland
merger.
The pro forma results of operations reflect the elimination of the $2.1
million acquired in-process research and development charge, a material non-
recurring charge, incurred in the third quarter of 1998 in connection with the
Portland merger, and the addition of the quarterly amortization of capitalized
intangibles related to the Portland merger as if the merger had occurred on
January 1, 1998.
Due to our limited operating history, we are unsure what effect, if any,
the seasonal nature of our customers' business will have on our quarterly
results of operations.
27
<PAGE>
Liquidity and Capital Resources
Historically, we have funded our operations through the sale of preferred
stock and, to a much lesser degree, our bank credit facility. Through June 30,
1999, we raised $12.5 million through these privately placed preferred stock
financings and had outstanding borrowings at June 30, 1999, including capital
lease commitments, of $2.7 million. At June 30, 1999, our principal sources of
liquidity included $427,000 in cash and cash equivalents and available
borrowings under the line of credit facility discussed below. In July 1999, we
sold preferred stock for net proceeds of approximately $27.0 million. As a
result of this preferred stock offering, $1.2 million of the notes payable on
our balance sheet at June 30, 1999 were automatically converted into shares of
our preferred stock.
Through June 30, 1999, we have used the majority of our financing proceeds
to fund operating activities. To a much lesser extent, we have used the
financing proceeds to acquire computer hardware and software used to support
our product development and growing employee base. Expenditures for property
and equipment amounted to $561,000 in 1998 and $287,000 for the six months
ended June 30, 1999. In the future, we anticipate a substantial increase in
capital expenditures and lease commitments consistent with anticipated growth
in operations and personnel.
In November 1998, we entered into a loan agreement with a bank, which
provides for borrowings under a revolving line of credit of up to $1.0 million,
and borrowing under a term loan. Amounts borrowed under the line of credit and
the term loan bear interest at the bank's prime rate plus 1% (9.0% at June 30,
1999). Interest is payable monthly on borrowings under the revolving line of
credit and the term loan is payable in 36 equal installments of $13,000 of
principal, plus interest. Borrowings are collateralized by all of our tangible
and intangible assets. As of June 30, 1999, amounts outstanding under the line
of credit were $700,000, and amounts outstanding under the term loan were
$380,000. Under this agreement, we are required to maintain compliance with
certain financial and other covenants including minimum tangible net worth,
liquidity coverage and ratio of quick assets to current liabilities minus
deferred revenue. We paid off all amounts outstanding on this line of credit in
July 1999 with the proceeds from the preferred stock offering. The revolving
line of credit expires on November 1, 1999 and the term loan matures on
November 2, 2001.
Accounts receivable were $1.2 million at June 30, 1999 compared to $152,000
at December 31, 1998. The increase was primarily attributable to the execution
of new licensing agreements with publishers and Ingram Micro. Accounts payable
were $1.2 million at June 30, 1999 compared to $442,000 at December 31, 1998,
primarily as a result of increased business activity and costs incurred with
our preferred stock offering.
We believe that the net proceeds of this offering, together with cash on
hand and cash available under our credit facilities, will be sufficient to meet
our working capital needs through at least the next 12 months. Thereafter, we
may require additional funds to support our working capital requirements or for
other purposes and may seek to raise additional funds through public or private
equity financing or from other sources. Additional financing may not be
available at all or, if available, may not be obtainable on terms favorable to
us. In addition, any additional financing may be dilutive to our stockholders.
If we raise additional funds through the issuance of debt securities, holders
of these securities could have rights, preferences, and privileges senior to
holders of common stock, and the terms of this debt could impose restrictions
on our operations.
Year 2000 Compliance
Many currently installed computer systems and software products are coded
to accept only two digit entries in the date code field and cannot distinguish
21st century dates from 20th century dates. As a result, many companies'
software and computer systems may need to be upgraded or replaced in order to
comply with these "year 2000" requirements.
Internal Systems
We are currently assessing the ability of our internal systems to satisfy
the year 2000 requirements and expect to complete the program before December
31, 1999. We have not incurred material costs to date in this process, and
currently do not believe that the cost of additional actions will have a
material effect on our results
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of operations or financial condition. Although we currently believe that our
systems satisfy year 2000 requirements in all material respects, our current
systems may contain undetected errors or defects with year 2000 date functions
that may result in material costs. We do not have a specific contingency plan
to handle year 2000 problems if they occur. Based on our assessment to date, we
currently believe that year 2000 costs to us will not exceed $50,000. However,
in a worst case scenario, year 2000 problems could cause us to cease normal
operations for an indefinite period until we are able to repair our internal
systems. Although we are not aware of any material operational issues or costs
associated with preparing our internal systems for the year 2000, we may
experience serious unanticipated negative consequences or material costs caused
by undetected errors or defects in the technology used in our internal systems.
Products
Our products are currently designed and tested to be year 2000 compliant.
By "year 2000 compliant," we mean that the products will operate according to
their published documentation and will record, store, process and present
calendar dates falling on or after January 1, 2000 in the same manner, and with
the same functionality, as they record, store, process and present calendar
dates falling on or before December 31, 1999. We believe that the current
version of our solution is year 2000 compliant.
Prior versions of our solution in current production use by some of our
customers are not year 2000 compliant and must be upgraded prior to December
31, 1999 in order to avoid problems at the rollover to January 1, 2000. We will
complete the upgrade for our customers in the normal course of our customer
support. As a result, we have not incurred and do not expect to incur any
material expenses related to these upgrades. Customers who fail to upgrade our
solution or any other third party software or hardware that is not year 2000
compliant that our solution relies on prior to that time may suffer severe
outages. This may harm our relationships with these customers and may damage
our reputation with other current or prospective customers. It is also possible
that customers with non-year 2000 compliant systems may decide to sue us
because our software was not year 2000 compliant. Although we expect to contest
these claims, the costs of litigation surrounding this issue may be significant
and, in a worst case scenario, year 2000 problems could prevent any
transactions using our solution from taking place until we are able to repair
our solution.
We have not independently verified whether any third-party software
encrypted with our solution is year 2000 compliant. We have encouraged users of
our solution to contact third-party vendors to determine the year 2000
compliant status of their products. We have not independently verified whether
the components from our third-party manufacturers are year 2000 compliant. We
have warranted in certain of our license agreements that our solution as
delivered by us and without customization, will be year 2000 compliant provided
that the entire system and supporting products with which our solution is used
are also year 2000 compliant. This includes hardware, system software such as
the operating system and database software, and application software, either
purchased, contracted, or created in-house. In addition, our customers may also
be concerned about year 2000 issues or distracted by their own year 2000
compliance programs, either of which could adversely affect our business.
Qualitative and Quantitative Disclosures about Market Risks
We develop products in the United States and make agreements with customers
in North America, Europe, and Asia. As a result, our financial results could be
adversely affected by various factors, including foreign currency exchange
rates or weak economic conditions in foreign markets. Network transaction fees
from our European and Asian partners will be primarily denominated in foreign
currencies and generally translated on a monthly basis to U.S. dollars to
determine the amount of fees we are due. As a result, we could be affected
adversely by fluctuations in foreign currency exchange rates.
Our exposure to market risk for changes in interest rates is limited to the
exposure related to our debt instruments and credit facilities which are tied
to market rates. We do not plan to use derivative financial instruments in our
investment portfolio. We plan to ensure the safety and preservation of our
invested principal funds by limiting default risk market risk, and reinvestment
risk. We plan to mitigate default risk by investing in high credit quality
securities.
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BUSINESS
The discussion in this prospectus contains forward-looking statements that
involve risks and uncertainties. Our actual results could differ materially
from those discussed in the forward-looking statements as a result of a variety
of several factors, including those identified in "Risk Factors" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Overview
We develop and market an Internet-based infrastructure solution that
enables networks for the electronic distribution and licensing of digital
goods. Digital goods are products such as software, music, images, video and
documents that can be produced, delivered and licensed electronically. Our
solution is channel neutral, supports direct and indirect distribution and
enables publishers, distributors and resellers of digital goods to integrate
seamlessly within these networks. We earn transaction fees based on the value
of digital goods that are distributed and licensed using our solution.
Industry Overview
The rapid growth of Internet users, content and functionality is enabling
complex business-to-business and business-to-consumer communications and
commerce. According to IDC, total worldwide Internet commerce spending in 1998
was $50.4 billion and is estimated to grow to $1.3 trillion in 2003,
representing a compound annual growth rate of 92%. Much of this spending to
date has been for products that were sold over the Internet and delivered to
the end customer in a physical form. As a result, the Internet has been
primarily used as an efficient sales and marketing channel. However, for
digital goods, the Internet can also be an efficient means for electronic
production, distribution and fulfillment. In addition, licensing rights can be
separated from digital content, distributed and managed electronically and
tailored to meet each customer's needs.
The Sale and Distribution of Digital Goods
Digital goods are characterized by two elements: digital content and
associated licensing rights. Both digital content and licenses can be produced,
stored and distributed physically or electronically. Digital goods such as
software programs or music have traditionally been distributed through a
physical distribution chain. The software or music is copied onto physical
media (e.g. floppy disks, CDs, DVDs), inserted into physical packaging (e.g.
cardboard boxes, plastic jewel cases) and physically distributed through a
multi-party distribution chain that eventually delivers the goods to a retail
store or a corporate reseller where they are ultimately purchased by the
customer. We refer to retail stores and corporate resellers collectively as
resellers.
Although the multi-party distribution chain is complex, it delivers
critical value to each of its participants. Content publishers, at one end of
the distribution chain, desire to maximize the number of points of sale for
their products but generally cannot efficiently establish independent
relationships with tens of thousands of resellers. Similarly, resellers, at the
other end of the distribution chain, desire to maximize their product
selection, but generally cannot efficiently work with each publisher
independently and, therefore, value a few key sources for their product
inventory. Distributors link these two ends of the distribution chain by
offering broad product selection through their relationships with publishers
and extensive points of sale through their relationships with resellers.
Aggregating numerous publishers and resellers enables distributors to reduce
the administrative costs and logistical complexity entailed if every vendor had
to establish unique relationships with every existing or potential reseller of
its products.
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The distribution chain for digital goods has three common distribution
models: direct, 2-tier and 3-tier. The software industry provides a good
example of how these models work. Many publishers employ all three models
simultaneously to maximize their points of distribution.
Narrative Description of Graphic #1 in body of S-1--1/3 size of total page
This graphic represents the distribution model. This is centered in the middle
of the graphic area. There is a solid bar that represents the Customers.
Directly below this bar is another solid bar that is 75% of the size above.
This represents the Resellers/GEMs. Directly below this bar is another solid
bar that is 75% of the Resellers/GEMs bar. This represents the Distributors.
Directly below this bar is another solid bar the same length as the Customers
bar at the top of the graphic. This represents the Publishers.
There are one way arrows that connect to the various bars. Starting from the
bottom of the graphic-- a solid direct arrow that starts at the Publisher bar
and goes straight to the Customers bar. A solid direct arrow that is 2/3 the
length of the first arrow, that starts at the Publisher bar and goes straight
to the Resellers/GEMs bar. A solid direct arrow that is 1/3 the length of the
first arrow, that starts at the Resellers/GEMs bar and goes straight to the
Customers bar. A solid direct arrow that is 1/3 the length of the first bar
that goes from the Publishers bar to the Distributors bar. A solid direct arrow
of the same 1/3 length that goes straight from the Distributor bar to the
Resellers/GEMs bar. A solid direct arrow of the same 1/3 length that goes
straight from the Resellers/GEMs bar to the Customers bar.
Behind the solid bar and direct arrows are three shadowed shapes. The first is
flush left on the graphic and is the standard shape of an hourglass. It is
widest on the upper and lower surfaces, and comes in slightly at the solid
Distributor bar -- this represents 3-Tier. The second is thin inverted
hourglass shadow that is widest on the upper and lower -surfaces, and comes in
slightly at the solid Resellers/GEMs bar this represents 2-Tier. Lastly, flush
right on the graphic and downward point arrow shape that is wider at the solid
Customer bar and narrow to point at the solid Publisher bar- this represents
Direct. Below the solid Publishers Bar are the words 3-Tier, 2-Tier, and
Direct.
Direct--publishers use direct marketing and sales methods to generate
orders and ship products directly to the customer. The direct model gives
publishers valuable information about customer needs and allows them to control
pricing and quality of service.
2-Tier--publishers establish relationships with resellers who purchase
products directly from the publisher and, in turn, offer them to their
customers. This model is used by publishers to distribute into specific
markets, expanding their market reach.
3-Tier--publishers establish relationships with large distributors such as
Ingram Micro, Merisel and Tech Data who, in turn, establish relationships with
resellers, such as CompUSA and Software Spectrum, who, in turn, sell the
software to end customers. This model is an efficient means for publishers to
reach tens of thousands of large and small resellers through only a few
distributors.
OEMs--original equipment manufacturers (OEMs) represent a variant of the 2-
tier and 3-tier models. OEMs include prepackaged or bundled software with their
equipment to increase the perceived value of their product offering. Publishers
provide their software to OEMs such as Compaq, Dell, Gateway and Packard Bell
NEC who distribute their products, together with the software, directly to
their customers in a 2-tier model or through resellers in a 3-tier model. This
model provides publishers with an effective means to increase unit volume.
The distribution of music and other high volume digital goods is similar to
software distribution in many respects. For example, music labels acquire
rights to recorded works from artists. These labels distribute music in
physical media such as CDs through large retail chains as well as distribution
channels to other resellers. Music is also distributed through clubs, mail
order and other direct sales channels as well as over the Internet.
Limitations of Physical Distribution of Digital Goods and Licenses
In each distribution model, participants in the physical distribution of
digital goods must manage the costs of manufacturing, warehousing and shipping
physical inventory. In addition, the physical distribution process imposes
significant time delays and geographic constraints on the delivery of products
and licenses. These numerous and complex inter-relationships pose challenges to
the timely and accurate sharing of information
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about customers, products, configuration, pricing, inventory and order status.
Further, limitations on warehousing, transportation systems and retail shelf
space restrict the number of products that publishers can make available to
customers and discourage distributors from carrying low volume products.
Finally, paper-based licenses are difficult to manage and enforce.
Electronic Distribution of Digital Goods and Licenses
The Internet provides a foundation for electronic distribution of digital
goods and licenses. IDC projects that the retail market for electronic software
distribution will increase to $14.9 billion by 2003 from an estimated $351
million in 1998. Electronic distribution of digital goods and licenses can:
. Reduce costs. Electronic distribution can reduce manufacturing,
packaging, inventory and shipping costs associated with physical media
alternatives. For software distributed electronically, businesses can:
reduce costs incurred managing paper-based licenses; adjust the number
of authorized users easily from a software master license; and improve
asset management through the electronic use reporting. Secure
electronic management of distribution and licensing rights can also
reduce illegal distribution and piracy.
. Increase selling opportunities. Because electronic inventory requires
no physical shelf space, resellers are able to offer a virtually
unlimited number of products. Publishers can deliver new products and
upgrades to distributors and resellers across the globe immediately
upon their release. Resellers and OEMs can expand distribution by
providing customers with digital content stored on computer hard
drives, DVDs or CDs and by allowing customers to complete the sale
process through the subsequent purchase of a license over the Internet.
Publishers can more effectively tailor licensing fees and licensing
options to meet customer needs.
. Facilitate real-time information exchange. Electronic distribution can
provide publishers, distributors and resellers access to sales
information in real time. Our interactive communications agent can
enable the automatic flow of usage and marketing information with
customers, whether or not there is a continuous Internet connection.
Although electronic distribution of digital goods offers many advantages,
many existing systems for the electronic distribution of digital goods displace
and compete with existing distribution channels rather than support them. Some
systems offer insufficient security against improper distribution and piracy.
In addition, most systems provide insufficient real-time information on sales
transactions involving multiple distribution partners. Finally, we believe many
systems offer inadequate means for distributing licenses. For example, many
corporations that use some form of electronic software distribution still
employ manual processes for managing licenses.
We believe that a distributed, scalable and flexible network infrastructure
is required to realize the full potential of electronic distribution. This
electronic network should meet the needs of the direct, 2-tier and 3-tier
distribution models, allowing the participants in these models to maintain
their existing relationships as well as create new ones. In addition,
participants should be allowed to transmit information about customers,
products, configuration, pricing, inventory and order status on a timely and
accurate basis. Finally, this network should secure and control access to
digital products in order to preserve intellectual property rights, protect
against piracy and provide flexible licensing rights.
The Preview Systems Solution
We develop and market infrastructure software that allows our customers to
implement Internet-based networks for the electronic distribution and licensing
of digital goods. Our solution provides publishers, distributors, OEMs, and
resellers the ability to implement and maintain common networks that allows
them to conduct business with each other electronically and seamlessly. Our
solution is flexible and compatible with a
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diversity of business and technical requirements and provides a common
technical infrastructure that uses the Internet to link participants engaged in
the electronic distribution of digital goods and associated licensing.
Our solution has the following characteristics:
Channel neutral. Our solution is designed to support direct, 2-tier and 3-
tier models for the electronic distribution of digital goods. We do not compete
directly with channel participants but instead can electronically connect them
to one or more of their publisher, distributor or reseller channel partners.
Thus, our solution enables rather than limits our customers' business choices
and market reach. We have established relationships with Ingram Micro, the
leading worldwide wholesale distributor of computer-based technology products
and services, as well as several large software publishers such as Macromedia,
Mattel, through The Learning Company and other divisions, and Symantec. We are
pursuing similar relationships in the music industry.
Integrates with existing systems. Our solution supports a variety of
leading hardware and software platforms, including: Microsoft, Sun and Apple
operating systems; BroadVision, Microsoft and Open Market e-commerce systems;
and Microsoft, Oracle and Sybase database management systems. Our solution is
designed to be deployed across large and technically diverse distribution
channels. It provides a common network for electronic distribution and
licensing of digital goods and exchanging information. Our solution can be used
to allow existing e-commerce websites to sell and distribute digital goods
electronically. Finally, customers can implement our solution directly or
outsource operations to a service provider.
Enables many simultaneous distribution methods. Our solution enables
publishers to supply multiple distributors electronically, while simultaneously
selling directly to end customers. Similarly, resellers can connect
electronically to multiple distributors and sell digital goods from each
distributor's inventory of digital goods on a single integrated web site.
Supports multiple licensing models. Our solution separates the delivery of
digital goods from the associated licensing rights, ensuring that access and
use of the digital goods complies with the license terms. For example, digital
goods can be stored in an encrypted format on hard drives of newly purchased
personal computers but cannot be accessed by customers until the associated
license rights are purchased online. Thus, software, music or video content can
be sold without having to actually download the content. Our solution enables a
variety of licensing models, such as selling perpetual licenses prior to
download, granting of limited time trials prior to sale and other licensing
models that may be requested by our customers.
Enables international distribution. We designed our solution to support
global networks. We have localized our client software interfaces in the
following 14 languages: Chinese (simplified and traditional), Dutch, English,
Finnish, French, German, Italian, Japanese, Korean, Norwegian, Portuguese,
Spanish and Swedish. We have obtained export licenses for components of our
solution that use U.S. government regulated encryption technologies. When
required, we have obtained approval to use our encryption systems in other
countries.
Automates communication among network participants. Our solution automates
the flow of digital goods, license rights, distribution rights, inventory
tracking data, branding and other information. Information for each transaction
is automatically transmitted to network participants. This means that a
publisher that uses our solution can automatically receive information in real
time about the sale of its products. Our solution can collect data from
multiple distribution channels as transactions in a single database,
consolidating direct and indirect sales information. In addition, we have
developed an interactive communications agent that can facilitate the flow of
information to and from the end customer.
Secures digital goods and licenses. Our solution uses sophisticated
encryption techniques to maximize the security and integrity of digital goods
and licensing rights in a variety of secure licensing and distribution models.
Our solution provides secure communications between participants, produces
auditable transaction records, controls user access, and in general ensures
that agreed business rules are respected by all parties in the distribution
chain. Our solution can also provide persistent protection to enforce license
rights on an
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ongoing basis after delivery of software to the end customer. We use secure
protocols for communication among our servers, client and gateway software
modules. We also signed an agreement with Intel to license its content
protection agent system and to incorporate it into our solution for secure
distribution and licensing of digital music.
Scalable. Our solution employs a distributed network architecture. Our
solution is designed to allow customers to support modest transaction volumes
on a single inexpensive computer server and higher transaction volumes on
multiple load balanced servers. Customers that operate high volume e-commerce
web sites can deploy our solution on multiple servers to distribute the data
and processing more evenly, creating redundancy to protect against failures.
Strategy
We seek to establish our solution as the de facto standard infrastructure
software for electronic distribution and licensing of digital goods. Key
elements of our strategy are to:
Target and secure the support of leading software publishers and
distributors. We have established relationships with Ingram Micro, Macromedia,
Mattel, through The Learning Company and other divisions, and Symantec. We have
worked closely for over two years with large publishers and distributors to
understand and solve their business and technical requirements. We intend to
maintain and build relationships with the publishers and distributors that
control the majority of software industry revenues.
Expand the number of participants using digital goods networks. We believe
the benefits of digital goods networks increase as a network gains additional
participants. We intend to leverage our relationships with leading publishers
and distributors to add more resellers to distribute digital goods
electronically. We are working directly and through third parties with
manufacturers of personal computers, such as Packard Bell NEC, to bundle
encrypted digital goods for online licensing with its computer products. We
intend to expand our relationships with service providers such as NetSales and
ReleaseNow.com to enable publishers to outsource their direct sales and
accelerate their time to market. We also intend to expand into new geographical
markets. We have a marketing and distribution partnership with Sony Marketing
of Japan. Sony Marketing has licensed our solution to several Japanese
companies. In Europe, we have a number of customers, including Prisma,
Softline, Softway International, Somm.com and TrustMarque International.
Extend our solution into other digital goods markets. To date, we have
focused predominantly on the software market because we believe it is the
largest and most commercialized market for digital goods. As electronic
distribution of other digital goods such as music develops commercially, we
intend to build a presence in these markets. We believe the security,
distribution and piracy concerns of these markets are similar to those of the
software industry and we believe that our solution will allow us to address
these needs successfully. We have an agreement with Intel to incorporate its
content protection agent system into our solution for secure electronic
distribution of digital music. We are currently pursuing relationships with
leading companies in the music industry. In addition, we intend to leverage our
relationships with customers who have a presence in multiple markets by
offering a convenient means to distribute music and software through our future
integrated solution.
Expand our solution to support volume licensing for
organizations. Organizations frequently acquire software through volume
licenses and require licensing support to adjust the number of authorized
users. Currently, license distribution and management is often a burdensome
manual process for distribution channels. Our solution allows our customers to
automate aspects of the license distribution and management process. We intend
to work with our customers to enhance our volume licensing and software asset
management capabilities.
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Enhance our solution with value-added services. As digital goods networks
using our solution grow, we intend to develop and provide value-added services
that provide additional marketing and sales benefits to our customers. We have
also begun to offer a service based on our interactive communications agent
that enables software publishers to tailor product testing, marketing and
support to the needs of their individual customers.
Products
We offer a flexible, secure and scalable infrastructure solution for
electronic distribution of digital goods. Our solution is specifically designed
to meet the needs of each participant in the distribution chain. The table
below describes each component of the network and includes product names, and
key features of our solution as well as target users.
<TABLE>
<CAPTION>
Components Key Features Target Users
- -------------------------------------------------------------------------------
<S> <C> <C>
Digital .Publisher
Packaging Encrypts products for digital
(Vbox and distribution and offers several
ZipLock options to protect intellectual
Builder) property and licensing rights
- -------------------------------------------------------------------------------
Inventory and Manages the database .Publisher
License of digital goods, inventory and provides .Distributor
Management secure, automated and reliable
System fulfillment of licenses and products,
(ZipLock records transactions and exchanges
System) information with other servers
- -------------------------------------------------------------------------------
Merchandizing .Publisher
and License Adds digital goods shopping .Reseller
Selling System cart functionality to Internet
(ZipLock storefronts and enables electronic delivery
Gateway) of digital inventory and licenses
- -------------------------------------------------------------------------------
Off-Line Provides a software storefront .Publisher
Storefront using CD, DVD or hard disk .Reseller
(PortableStore) storage media that delivers .OEM
encrypted digital goods ready for online
licensing
- -------------------------------------------------------------------------------
Rights and Manages the secure download .End customer
Delivery Client and the usage rights of digital goods
(Vbox Client) on the user's computer
- -------------------------------------------------------------------------------
Interactive Monitors software use and hardware .Publisher
Communications configuration, displays targeted .Reseller
Agent messages within the publisher's .End customer
applications and collects customer's responses
</TABLE>
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These components are designed to integrate with the infrastructure of each
network participant and automate the electronic flow of digital goods, license
rights and related information among them. An example is shown in the following
diagram.
Narrative Description of Graphic # 2 in Body of S-1- 1/3 size of total page
Upper left corner are two icon-based visuals. One represents the software
element and the other representing the music element.
There is a Unique Product key reference that is followed by an arrow. This
arrow points to the right and is in the direction of a rectangle. This
rectangle represents the Publisher. In this area is shaded box which is the
graphic representation of the server. Next to this box is a cylinder that
represents the digital inventory. Outside this rectangle to the right is the
title "Digital Packaging Below this title are three sub headings that are
bulleted with small hollow squares: Creation of Digital Good, Secure Packaging,
and Track Sales Information.
There is a two-way arrow that points directly below the Publisher rectangle to
another rectangle that represents the Distributor. Inside this rectangle is a
shaded box as mentioned about that represents the server. Next to this box is a
cylinder that represents the digital inventory. Outside the rectangle to the
right is the title "Digital Inventory & License Management." Below this title
are three sub headings, which are bulleted with small hollow squares: Digital
Inventory Management, Product Delivery, and Audit Trail. In addition, there is
a narrow one way arrow that goes from the Distributor rectangle to the Customer
rectangle referred to below.
There is a two-way arrow that points to another rectangle box that is half the
size in width. It is right justified approximately 45% and under the
Distributor rectangle and represents the Resellers. In this rectangle is one
box which symbolizes the gateway. Outside this rectangle to the right is the
title "Digital Merchandising & Licensing System." Below this title are four sub
headings, which are bulleted with small hollow squares: Delivery of License,
Reseller Branding, Digital Packing Slip, and Shopping Basket. In addition,
there is a narrow one way arrow that goes from the Resellers rectangle to the
Offline Storefront referred to below.
There is a two way arrow chat points to another rectangle box that is the same
size as the Resellers rectangle and represents the Customer. Outside this
rectangle to the right is the title "Hard Disk Delivery." Below this title are
two four sub headings which are bulleted with small hollow squares: Digital
Rights Management and Communications Agent.
Directly below the text placed to the right of the Customer rectangle, reads
the title "Offline Storefront." Below this title are two sub headings which are
bulleted with hollow squares: CD and DVD.
The above diagram reflects only one possible network configuration. Our
solution enables other concurrent technical and business models.
Professional Services
We provide our customers with the support needed to implement and maintain
flexible, scalable and secure networks for the electronic distribution of
digital goods.
Our solution includes the following services:
. Consulting. We offer a range of consulting services, including
installation, customization and integration. We work closely with our
customers to define their unique business needs and provide services to
meet these needs through business analysis and design, project planning
and management, technology analysis, integration and configuration,
testing and change management.
. Customer support. Our technical support services include email and
phone support, remote diagnosis, online support and software updates.
We also offer a premium support program that allows our customers to
contact a support representative 24 hours a day, 7 days a week.
. Education and training. We offer technical training courses to help our
customers implement, customize, use and administer our solution.
We provide limited consulting, training and support as part of our
installation fee and maintenance agreements. We provide additional consulting,
training and premium support, generally on a time-and-materials basis.
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Customers and Strategic Relationships
We have developed relationships with software publishers, distributors,
OEMs and service providers. Some companies license our solutions directly from
us. Others use our technology through sublicenses or outsourced relationships
with our customers. The table below includes a partial list of companies with
whom we have direct or indirect relationships.
<TABLE>
<CAPTION>
Business Type Direct Relationships Indirect Relationships
- ------------------------------------------------------------------------------
<S> <C> <C>
Publishers .Macromedia .Intuit
.Mattel .INXight
(Broderbund and The Learning Company) .NetObjects
.Symantec
- ------------------------------------------------------------------------------
Service .Chargenow.com
providers .Digital Square
.ECdirec
.NetSales
.ReleaseNow.com
.Scot Crest Group
.Trustmarque
- ------------------------------------------------------------------------------
Distributors .Ingram Micro .Navarre
.Softway
- ------------------------------------------------------------------------------
Resellers and .Dustin .Beyond.com
OEMs .e-academy.com .Vector
.Packard Bell NEC
.Prisma
.Softline
.Somm.com
</TABLE>
Several leading software publishers have selected our solution to
distribute their products electronically through direct and indirect channels.
Macromedia and Mattel have opted for an in-house model that integrates our
solution with the rest of their e-commerce systems. Symantec and Intuit have
chosen an outsource model and operate our solution through Beyond.com and the
Scot Crest Group, respectively. NetObjects and INXight have chosen NetSales and
ReleaseNow.com as their respective service providers to maintain and operate
our solution to distribute their products. Service providers can also aggregate
inventory from publishers to support direct and indirect sales through large
distributors. NetSales has established an electronic connection to our solution
at Ingram Micro. We have agreed to provide versions of our PortableStore to
Packard Bell NEC for distribution of encrypted digital goods for online
licensing with selected personal computers.
We have the following strategic relationships:
Ingram Micro. We have been working with Ingram Micro on electronic software
distribution since August 1998. On June 30, 1999, we signed an agreement with
Ingram Micro to use our solution and to sublicense appropriate components to
Ingram Micro's resellers. The contract grants Ingram Micro a nonexclusive
license to use our solution in exchange for network transaction fees that are
based on a percentage of sales that Ingram Micro fulfills using our solution.
Upon signing the agreement, Ingram Micro committed to minimum network
transaction fees. We will recognize these minimum network transaction fees on a
straight line basis over the one-year term of the agreement. Under the
agreement, we are entitled to additional fees for
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training, technical support and maintenance related to Ingram Micro's use of
our solution. We anticipate that revenue from Ingram Micro may represent a
significant portion of our business although there can be no assurance in this
regard. As of August 31, 1999, Ingram Micro has not yet commercially deployed
our solution and is not obligated to do so under the agreement. Aside from the
minimum network transaction fees, we have not yet earned or received any
network transaction fees from this agreement. The contract automatically renews
for an additional year if neither party terminates the contract by providing a
45-day advance notice to the other party.
Sony Marketing of Japan. In September 1998, we signed a three-year
agreement with Sony Marketing of Japan, granting it the exclusive right to use
and sublicense our solution in Japan, including future upgrades, enhancements
and new products. We received a non-creditable, upfront payment for the
license, training and support. Beginning April 1999, Sony Marketing has agreed
to pay us network transaction fees based on a percentage of the revenue it
receives from distributing our solution and providing related services. Sony
Marketing committed to pay us annual minimum network transaction fees. If the
network transaction fees paid by Sony Marketing during the initial annual
period are less than the annual minimum network transaction fees, Sony
Marketing must pay us any shortfall. Beginning April 2000, if network
transaction fees are less than the specified target, Sony Marketing, at its
option, may give up its exclusivity rights rather than pay the shortfall.
During the first year of the agreement, we are recognizing the annual minimum
network transaction fees on a straight line basis over 12 months until we have
earned network transaction fees in excess of the annual minimum network
transaction fees. In subsequent years we will recognize the network transaction
fees as they are earned. The exclusivity under this agreement means that we
cannot compete with Sony Marketing by offering our solution in Japan. This
exclusivity terminates if Sony Marketing provides us with 180-day prior notice
that it desires to offer a competing product. The agreement may be renewed by
Sony Marketing for up to three additional three-year terms upon providing us
prior notice and upon mutual agreement on performance and payment criteria for
such renewal terms.
Sony Marketing of Japan and Ingram Micro each accounted for more than 10%
of our revenues in the six months ended June 30, 1999. Substantially all of the
revenues we have received from these two parties reflects minimum network
transaction fees and service fees associated with implementing our solution.
Intel Corporation. In September 1999, we signed an agreement with Intel
Corporation to license Intel's content protection agent system and to
incorporate this technology into our solution. The objective of this agreement
is the development, sales and marketing of our solution for the digital music
market.
Sales and Marketing
We promote and sell our solution to publishers, OEMs, distributors and
resellers through our direct sales force in North America and Europe. In Japan,
we promote and sell our solution through our exclusive relationship with Sony
Marketing of Japan. As of June 30, 1999, we had 21 employees in our sales and
marketing organization worldwide. We intend to increase the size of our direct
sales force and establish additional sales offices in the United States and
internationally.
We complement our direct sales efforts with our service provider partners
who provide an outsource solution to some publishers and resellers. As of June
30, 1999 we had relationships with 13 service providers located in seven
countries. We intend to establish additional relationships with service
providers and broaden our indirect sales force through relationships with
systems integrators.
Our marketing efforts are designed to create greater awareness of our
solution and the benefits it affords to publishers, distributors and resellers
of digital goods. We market our solution through targeted activities including
trade shows, conferences, direct mail, electronic marketing and marketing
materials. In addition, we engage in co-marketing activities with our
customers, including production and distribution of co-branded collateral,
joint sponsorship of conferences and public relations.
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Technology
We have developed a set of technologies for the establishment of channel
neutral, flexible, scalable and secure networks for the electronic distribution
of digital goods. These technologies include server components, components for
integration with shopping catalogs, databases and web browsers, management and
audit tools. They include tools for encryption of digital goods, and client
software for the reliable delivery of digital goods and management of digital
use rights. They also include agent software for monitoring usage and
personalized marketing.
Our solution employs a distributed server architecture. Our inventory
license and management system is typically operated by large publishers,
service providers and distributors. Servers can be operated by resellers who
can choose to run their own inventory and license management system or simply
integrate into their web site a gateway component connected to a distributor.
Distributors can add additional gateways to support increasing numbers of
connected electronic resellers. Publishers, distributors and resellers, have
real-time control over the management of distribution rights and the issuance
of licenses to end-users. Upon completion of a license transaction by a
reseller, an electronic transaction is automatically recorded in the databases
of the relevant distributor and publisher, creating an audit trail for each
participant in the sale. Thus, immediately following the completion of a
license transaction between a reseller and a customer, the distributor can
directly and electronically deliver the purchased digital goods to the
customer. This distributed architecture of our solution contributes to its
flexibility, security, reliability and scalability.
The architecture of our network separates the issuance of electronic
licenses from the delivery of digital goods. The distributor can provide
electronic delivery directly to all of the customers of its resellers. Our
solution integrates with standard web server technology for which highly
scalable solutions are readily available from third parties. Our solution is
capable of addressing high-bandwidth requirements associated with multiple
simultaneous downloads of large electronic files. Our solution can be deployed
on the Microsoft Windows NT and Sun Solaris operating systems. Customers can
support modest transaction volumes on a single inexpensive computer server
while higher transaction volumes can be supported by multiple load balanced
servers. Our solution can be integrated with industry standard web storefronts
such as Microsoft Site Server. Open Market and BroadVision and databases such
as Microsoft SQL Server, Oracle, and Sybase. Our solution allows our customers
to use their existing web storefronts and databases for processing and storage
of digital goods transactions, as well as to employ customary techniques for
data replication and load management.
Our solution encrypts digital goods using our builder tools and records the
encryption key, distribution rights and licensing options in the database of a
computer server. The server has network administration functions that enable
electronic distribution to other networked servers, and each server can support
multiple gateways. Each gateway controls the pricing, branding and purchase
processes and communicates securely with servers to initiate the electronic
transfer of digital goods and/or licenses to end customers. Our solution
automatically provides an electronic audit trail with each transaction recorded
on servers in the distributed network.
Our client software allows the end customer's personal computer to
communicate reliably and securely with the network to manage downloads of goods
and licenses. Our client software employs various encryption and tamper
resistant techniques to enforce rights even when the end customer's computer is
not connected to the Internet. In addition, our interactive communications
agent can enable the automatic flow of usage and marketing information with
customers, whether or not there is a continuous Internet connection.
Communications between servers, from gateways to servers, and from client
software to servers and gateways are secured using standard encryption
techniques. Security is achieved through 90+ bit symmetric session keys and
1024 bit RSA keys for authentication and session key exchange. Our builder
tools use 90+ bit symmetric keys for the protection of digital goods from the
point of introduction to the network until their delivery to the customer.
39
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By employing a distributed architecture and by interfacing with standard
technologies where appropriate, we have designed a highly scalable and robust
network solution to enable secure and automated digital goods commerce and
real-time information flow between multiple business entities. We have also
enabled seamless communication and rights management with customers both when
connected and when disconnected from the Internet.
Competition
The competition for digital goods solutions is strong and evolves quickly.
We expect that competition will intensify, both with respect to existing
competitors as well as with the entry of new competitors into our markets.
Several companies are currently offering, or are expected to offer in the near
future, products or services that compete with our solutions, including: AT&T,
CyberSource, Digital River, IBM, InterTrust, Liquid Audio, Microsoft,
Reciprocal and Xerox.
The primary bases for competition currently include:
. level of acceptance and deployment by publishers, distributors and
resellers;
. convenience and ease of use for customers;
. degree of security, scalability and reliability;
. compatibility with multiple distribution channels;
. price and pricing model;
. support of multiple operating systems;
. level of integration with existing e-commerce infrastructures;
. ability to support multiple licensing models;
. support for several types of digital goods;
. localization for foreign languages; and
. government approval for export of strong encryption techniques.
Intellectual Property
Our success depends in part on our ability to protect our proprietary
rights to the technologies used in our solution. If we do not adequately
protect our proprietary rights, our competitors can use the intellectual
property that we have developed to enhance their products and services, which
would harm our business. We rely on a combination of patents, copyright and
trademark laws, trade secrets, confidentiality provisions and other contractual
provisions to protect our proprietary rights, but these legal means afford only
limited protection.
We are actively seeking patent protection for our intellectual property. We
have filed 17 patent applications with the United States Patent and Trademark
Office.
As of August 31, 1999, one patent was issued and two patents were allowed
by the Patent and Trademark Office based upon our inventions.We pursue
international counterpart patents where appropriate. In addition, in May 1998,
we acquired a United States patent that was issued in 1987.
Despite any measures taken to protect our intellectual property,
unauthorized parties may attempt to copy aspects of our solution or to obtain
and use information that we regard as proprietary. In addition, the laws of
some countries may not protect our proprietary rights as fully as do the laws
of the United States. Thus, the measures we are taking to protect our
proprietary rights in the United States and internationally may not be
adequate. Finally, our competitors may independently develop similar
technologies.
40
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Employees
As of August 31, 1999, we had 96 employees, of which 49 were employed in
research and development, 34 were employed in sales and marketing, and 13 were
employed in administrative positions. In addition, we retain 14 full-time
contractors. Our employees are not represented by a collective bargaining unit.
We have never experienced a work stoppage and believe that our relations with
our employees are good.
Properties
Our principal executive and administrative offices are located in
Cupertino, California where we lease approximately 10,400 square feet. In
addition, we have executive and administrative offices located in Portland,
Oregon, where we lease approximately 17,800 square feet. We are currently
negotiating to sublease approximately 3,500 square feet of additional office
space in Cupertino, California. We also maintain a small sales office in the
London metropolitan area. We believe our existing facilities are adequate to
meet current requirements and that additional or substitute space will be
available as needed to accommodate any expansion of operations.
Legal Proceedings
In May 1999, 20/20 Software, Inc., filed a civil complaint against us in
the United States Court for the District of Northern California. The complaint
alleges that one of our employees, a former 20/20 employee, misappropriated
trade secrets and confidential information of 20/20 and allegedly used such
allegedly misappropriated information and trade secrets in a product of our
predecessor and subsidiary, Preview Software. The complaint alleges that based
on the foregoing allegations our predecessor infringed 20/20's copyrights,
tortiously interfered with 20/20's prospective advantage, engaged in unfair
competition and misappropriated 20/20's trade secrets and confidential
information. This complaint is a continuation of two earlier and similar
complaints by 20/20, one against us filed in, and dismissed for lack of
jurisdiction by, the United States Court for the Federal District of Oregon,
and one against an employee of ours filed in Oregon state court. Those two
complaints were both dismissed, the latter with prejudice. We believe that the
claims in the underlying litigation are without merit and intend to continue to
defend against them vigorously. However, litigation is subject to inherent
uncertainties and, therefore, there can be no assurance that this action will
not have a material adverse effect on our business results of operations or
financial condition.
41
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MANAGEMENT
Executive Officers and Directors
Our executive officers and directors and their ages as of July 31, 1999 are
as follows:
<TABLE>
<CAPTION>
Name Age Position
- --------------------------- --- -----------------------------------------------
<S> <C> <C>
Vincent Pluvinage.......... 41 President, Chief Executive Officer and Director
G. Bradford Solso.......... 43 Vice President, Chief Financial Officer
Jeffrey E. Brown........... 31 Vice President, Professional Services
Michael W. Davison......... 42 Vice President, Interactive Solutions
Christopher Dittmer........ 40 Vice President, Marketing
Michel A. Floyd............ 40 Vice President, Engineering
Cay S. Horstmann........... 40 Vice President, Chief Technology Officer
David Gregory Kott......... 39 Vice President, Sales
Frank A. Tycksen, Jr....... 36 Vice President and Co-Founder
Edward J. Wholihan......... 39 Vice President, Business Development
Gerard H. Langeler(2)...... 48 Chairman of the Board of Directors
Bruce R. Bourbon(2)........ 57 Director
Donald L. Lucas(1)......... 69 Director
Gary E. Rieschel(1)........ 43 Director
R. Douglas Rivers(1)....... 43 Director
Jo Ann Heidi Roizen(2)..... 41 Director
</TABLE>
- --------
(1)Member of the audit committee.
(2)Member of the compensation committee.
Vincent Pluvinage, President, Chief Executive Officer and Director, joined
Preview Software in June 1997 and has been with Preview Systems since the
mergers of Preview Software and Portland Software in August 1998. Prior to
joining Preview Software, Dr. Pluvinage led the research and development,
international operations, business development and strategic marketing efforts
for ReSound Corporation, a developer of advanced hearing technologies, where he
held a variety of senior management positions from March 1987 to May 1997. From
June 1985 to March 1987, Dr. Pluvinage was a member of the technical staff at
AT&T Bell Labs, a developer of advanced communication products, and
participated in the spin-off of technologies from AT&T Bell Labs to ReSound.
Dr. Pluvinage completed the Advanced Executive Management program at Stanford
University and holds a Ph.D. degree in Bioengineering from the University of
Michigan and an M.S. degree, summa cum laude, in Applied Physics Engineering
from the Universite Catholique de Louvain in Belgium.
G. Bradford Solso, Vice President, Chief Financial Officer, joined Preview
in July 1999. Prior to joining Preview, Mr. Solso was the acting Chief
Financial Officer of Convoy Corporation, a software company, from April 1999 to
July 1999. From November 1998 to January 1999, Mr. Solso was the Chief
Financial Officer of Aloha Networks, Inc., an Internet service provider. From
October 1997 to August 1998, Mr. Solso was Vice President and Chief Financial
Officer of iPass, Inc., an Internet service provider. From November 1995 to
August 1997, Mr. Solso was Chief Financial Officer of CATS Software, Inc., a
risk management software company. Prior to 1995, Mr. Solso served for 14 years
at Visa International, a financial services company, in a variety of management
positions, most recently as Senior Vice President, where he was responsible for
all treasury activities including settlement operations, capital markets
activities and risk management. Mr. Solso holds a B.A. degree in Business
Administration from California State University, San Francisco. He is a
certified public accountant.
Jeffrey E. Brown, Vice President, Professional Services, joined Preview in
July 1999. Prior to joining Preview, Mr. Brown was with Andersen Consulting, a
business consulting firm, from November 1991 to July 1999, most recently
serving as a senior manager. From 1996 through 1999, Mr. Brown managed an
Andersen
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Consulting Internet solution center, where he was responsible for delivering
large-scale e-commerce solutions for companies. Mr. Brown holds a B.S. degree
in Mathematics from the University of Washington.
Michael W. Davison, Vice President, Interactive Solutions, joined Preview
Software in March 1998 and has been with Preview Systems since the mergers of
Preview Software and Portland Software in August 1998. Prior to joining Preview
Software, Mr. Davison was the Director of Strategic Marketing at Claris
Corporation, a software company, from 1992 to 1998, where he was responsible
for development and implementation of Claris' online marketing and electronic
commerce strategies. From 1990 to 1992, he served as Imaging Market Manager for
Informix Software, a relational database supplier. Mr. Davison has also held
business development and marketing management positions at several start-up
companies in the technology industry. Mr. Davison was chairman of the Software
Publishers' Association, Electronic Software Distribution committee and a
member of the SPA Internet Section Board. Mr. Davison holds an M.B.A. degree
from Santa Clara University and a B.A. degree in History from the University of
California at Berkeley.
Christopher Dittmer, Vice President, Marketing, joined Preview in May 1999.
From May 1998 to February 1999, he served as Vice President, Worldwide
Marketing and Business Development at CyberStar, a network service provider.
From November 1995 to May 1998, he held a variety of positions at Oracle
Corporation, a software company, most recently as Vice President International
Marketing and Field Support. From June 1991 to February 1995, he served in a
variety of positions at Microsoft Corporation, a software company, most
recently as End User Business Unit Manager at Microsoft Far East Headquarters,
and, prior to that, as Network Business Unit Manager at Microsoft Europe. Mr.
Dittmer holds an M.S. degree in Material Science and Engineering from Stanford
University and a B.S. degree in Physics and a B.A. degree in French and German
from Humboldt State University.
Michel A. Floyd, Vice President, Engineering, joined Preview Software in
August 1997 and has been with Preview Systems since the mergers of Preview
Software and Portland Software in August 1998. Prior to joining Preview
Software, Dr. Floyd was Vice President of Engineering at Optimal Networks, a
developer of network monitoring and analysis tools, from March 1996 to June
1997. From January 1996 to March 1996, Dr. Floyd was Director of Engineering at
Cadence Design Systems, a developer of high-level network simulation tools.
From September 1995 to December 1995, Dr. Floyd was Vice President of
Engineering at Systems & Networks, a developer of network simulation and design
tools. From January 1995 to August 1995, he was Vice President of Engineering
at Covalent, a developer of commercial print management products. From 1994 to
1995, Dr. Floyd was a Manager at Xsoft, a division of Xerox, where he helped
develop an electronic commerce system for commercial printers. Dr. Floyd holds
B.S., M.S., and Sc.D. degrees in Aero-Astro Engineering from the Massachusetts
Institute of Technology.
Cay S. Horstmann, Vice President, Chief Technology Officer, joined Preview
Software in 1997 and has been with Preview Systems since the mergers of Preview
Software and Portland Software in August 1998. Dr. Horstmann is also currently
a Professor of Computer Science at San Jose State University. Prior to joining
Preview Software, Dr. Horstmann was the President of Horstmann Software, a
developer of technical word processing software, from 1986 to 1996. From 1990
to 1996, Dr. Horstmann was active as a consultant and as an instructor for
Technology Exchange/ACM professional training courses. Dr. Horstmann has
authored many books and magazine articles, including columns for C++ Report and
Java Report, as well as the Sun Microsystems Press book "Core Java." He holds a
Ph.D. degree in Mathematics from the University of Michigan, an M.S. degree in
Computer Science from Syracuse University, and a Diploma in Mathematics and
Computer Science from the Christian-Albrechts-University in Kiel, Germany.
David Gregory Kott, Vice President, Sales, joined Portland Software in 1997
and has been with Preview Systems since the mergers of Preview Software and
Portland Software in August 1998. Prior to joining Portland Software, Mr. Kott
served as Senior Vice President of Sales of Summit Design, a software company,
from 1994 to 1997. From 1987 to 1994, Mr. Kott served in several sales
management positions at Mentor Graphics, an electronic systems software and
hardware company. Mr. Kott holds a B.S. degree in Mechanical Engineering from
the University of Washington.
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Frank A. Tycksen, Jr., Vice President and Co-Founder, co-founded Portland
Software in 1994 and has been with Preview Systems since the mergers of Preview
Software and Portland Software in August 1998. Prior to joining Portland
Software, Mr. Tycksen was employed by Second Nature Software, a software
company, as Senior Software Engineer from 1992 to 1994. From 1987 to 1994, Mr.
Tycksen was employed by Central Point Software, a software company, as Manager
of Data Recovery Utilities, where he co-authored Central Point Software's PC
Tools utility. Mr. Tycksen holds A.S. and B.S. degrees in Computer Systems
Engineering from the Oregon Institute of Technology.
Edward J. Wholihan, Vice President, Business Development, joined Portland
Software in August 1996 and has been with Preview Systems since the mergers of
Preview Software and Portland Software in August 1998. Prior to joining
Portland Software, he was employed by McKinsey and Company, a management
consulting firm, from 1989 to 1996, where he most recently served as Senior
Engagement Manager, developing and implementing marketing, operational, and
financial strategies. Mr. Wholihan holds an M.B.A. degree from Stanford
University and a B.A. degree in Economics from Yale University.
Gerard H. Langeler has served as Chairman of the Board of Directors of
Preview Systems since the mergers of Preview Software and Portland Software in
August 1998 and, prior to that, served as a director of Portland Software
beginning in 1996. Since 1992, he has been a General Partner with Olympic
Venture Partners, a venture capital investment firm. Prior to joining Olympic
Venture Partners, he was a co-founder of Mentor Graphics Corporation, a
software company, where he served in a number of roles from 1981 to 1992,
including President and Chief Operating Officer. He currently serves as a
director for Vascular Solutions, 800.com, Captivate Networks, and Webridge, all
privately-held companies. Mr. Langeler holds an A.B. degree in Chemistry from
Cornell University and an M.B.A. degree from Harvard Business School.
Bruce R. Bourbon has served as a director of Preview Systems since the
mergers of Preview Software and Portland Software in August 1998 and, prior to
that, served as a director of Preview Software beginning in 1997. Mr. Bourbon
is currently a Managing General Partner of Telos Venture Partners, a venture
capital investment fund, where he has been a general partner since December
1995. From 1994 to 1995, Mr. Bourbon was an independent management consultant.
From 1990 to 1994, he was President and Chief Executive Officer of Vertex
Semiconductor, a high-end ASIC gate arrays company. From 1991 to 1994, Mr.
Bourbon was Vice President of Marketing for Toshiba America, an electronic
component provider. From 1987 to 1990, Mr. Bourbon served as Vice President of
Marketing at Cadence Design Systems, a software company. He holds a B.S. degree
in Electrical Engineering from California State Polytechnic University and an
M.S. degree in Electrical Engineering from University of California, Los
Angeles.
Donald L. Lucas has served as a director of Preview Systems since the
mergers of Preview Software and Portland Software in August 1998 and, prior to
that, served as a director of Preview Software beginning in 1997. Since 1967,
Mr. Lucas has been involved in venture capital activities as a private
individual. Mr. Lucas currently serves as a director for Cadence Design
Systems, Inc., Coulter Pharmaceutical, Inc., Macromedia, Inc., Oracle
Corporation, Transcend Services, Inc. and Tricord Systems, Inc. Mr. Lucas also
serves as a director for several privately held companies. He holds a B.A.
degree in Economics and an M.B.A. degree from Stanford University.
Gary E. Rieschel has served as a director of Preview since July 1999. Mr.
Rieschel is the Executive Managing Director of SOFTBANK Technology Ventures, a
venture fund focused on early stage Internet companies. Since joining SOFTBANK
in January 1996, he has led SOFTBANK's venture capital activities in the United
States. Mr. Rieschel has over fifteen years experience in the high technology
field, including holding executive positions at nCUBE, a provider of broadcast
video, as Vice President Marketing in 1995; Cisco Systems, a provider of a
computer networking products, as Director Worldwide Channels from 1993 to 1994;
Sequent Computer Systems, a computer software company, as Director and General
Manager from 1992 to 1993; and Intel Corporation, a semiconductor and computer
company, from 1979 to 1982. Mr. Rieschel spent over four years in Tokyo as
General Manager of Sequent Computer Systems' Asian operations. He serves as a
director for Message Media, Inc. and Net2Phone, Inc. and is a member of
SOFTBANK's Global Executive
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Board. Mr. Rieschel holds a B.A. degree in Biology from Reed College and an
M.B.A. degree from Harvard Business School.
R. Douglas Rivers has served as a director of Preview Systems since the
mergers of Preview Software and Portland Software in August 1998 and, prior to
that, served as Chairman of Preview Software beginning in 1996. Dr. Rivers is
Co-founder, President and Chief Executive Officer of InterSurvey, a provider of
Internet-based market research services. Dr. Rivers was a Co-founder and
Partner at Pacific Economics Group, an economic consulting firm, from 1997 to
1998, and a Senior Economist at Arthur Andersen L.L.P., an accounting firm,
from 1992 to 1997. Since 1989, Dr. Rivers has been a Professor of Political
Science at Stanford University and, since 1994, a Senior Fellow at the Hoover
Institution. From 1987 to 1989, Dr. Rivers was an Associate Professor of
Political Science at University of California, Los Angeles. From 1983 to 1987,
Dr. Rivers was an Assistant Professor of Political Science at the California
Institute of Technology. From 1980 to 1983, Dr. Rivers was an Assistant
Professor of Government at Harvard University. Dr. Rivers holds a Ph.D. degree
in Political Science and Economics from Harvard University and a B.A. degree in
Political Science from Columbia University.
Jo Ann Heidi Roizen has served as a director of Preview Systems since the
mergers of Preview Software and Portland Software in August 1998 and, prior to
that, served as a director of Preview Software beginning in 1997. Ms. Roizen is
a venture partner with SOFTBANK Technology Ventures, a venture fund focused on
early stage Internet companies. She also serves as a director for Great Plains
Software and Softbook Press, Inc., both privately held companies. She is also
an advisory board member of Time Domain Corporation, Garage.com and the
Microsoft Silicon Valley Developer Center. Ms. Roizen is also a member of the
Stanford Board of Trustees Nominating Committee. Prior to joining SOFTBANK in
April 1999, Ms. Roizen was Vice President of Worldwide Developer Relations for
Apple Computer, a computer manufacturer, from 1996 to 1997. From 1983 to 1996,
she was CEO of T/Maker Company, a software developer and publisher. Ms. Roizen
is a past president of the Software Publishers' Association and has served as a
Public Governor of the Pacific Exchange. Ms. Roizen holds an A.B. degree in
English and an M.B.A. degree from Stanford University.
There are no family relationships among any of our directors or executive
officers.
Board Composition
Our bylaws currently provide for a board of directors of seven directors.
In accordance with the terms of our amended and restated certificate of
incorporation, effective after the closing of this offering and upon our
qualification as a "listed corporation" pursuant to the California General
Corporation Code, the terms of office of the directors will be divided into
three classes:
. Class I, whose term will expire at the annual meeting of stockholders
to be held in the year 2000 or a special meeting held instead of the
annual meeting;
. Class II, whose term will expire at the annual meeting of stockholders
to be held in the year 2001 or a special meeting held instead of the
annual meeting; and
. Class III, whose term will expire at the annual meeting of stockholders
to be held in the year 2002 or a special meeting held instead of the
annual meeting.
The Class I directors will be: Vincent Pluvinage and Bruce R. Bourbon, the
Class II directors will be Gerard H. Langeler and Gary Rieschel, and the Class
III directors will be Donald L. Lucas, R. Douglas Rivers and Jo Ann Heidi
Roizen. At each annual meeting of stockholders after the initial classification
or special meeting held instead of an annual meeting, the successors to those
directors whose terms will then expire will be elected to serve from the time
of election and qualification until the third annual meeting following the
election or special meeting.
In addition, our amended and restated certificate of incorporation provides
that any additional directorships resulting from an increase in the number of
directors will be filled only by the affirmative vote of the directors then in
office, unless otherwise specified by resolution of the board of directors.
Additional
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directorships will be distributed among the three classes so that, as nearly as
possible, each class will consist of one-third of the directors. This
classification of the board of directors may have the effect of delaying or
preventing changes in control or management of Preview, although our directors
may be removed for cause by the affirmative vote of the holders of a majority
of our common stock.
Board Compensation
None of our directors is paid any fee or other compensation for acting as a
director, although directors are reimbursed for reasonable expenses incurred in
attending board or committee meetings. Directors who are also employees are
eligible to participate in our 1998 Stock Option Plan, and, as of this
offering, they will also be eligible to participate in our 1999 Employee Stock
Purchase Plan. Directors who are not employees are eligible to participate in
our 1998 Stock Option Plan and, as of this offering, will also be eligible for
automatic grants and to participate in our 1999 Directors' Stock Option Plan.
See "Stock Plans."
We have entered into indemnification agreements with each member of the
board of directors and certain of our officers providing for the
indemnification of these persons to the fullest extent permitted by law.
Board Committees
Our board of directors has an audit committee and a compensation committee.
The audit committee consists of Mr. Lucas, Mr. Rieschel and Dr. Rivers. The
audit committee reviews our financial statements and accounting practices and
makes recommendations to the board regarding the selection of independent
auditors. The compensation committee consists of Mr. Langeler, Mr. Bourbon and
Ms. Roizen. The compensation committee makes recommendations to the board
concerning salaries and incentive compensation for our officers and employees
and administers our employee benefit plans.
Compensation Committee Interlocks and Insider Participation
None of the members of the compensation committee of the board is an
officer or employee of Preview. None of our executive officers serves as a
member of a board of directors or compensation committee of any entity that has
one or more executive officers serving on our compensation committee.
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Executive Compensation
The following table sets forth all compensation awarded to, earned by, or
paid to our Chief Executive Officer and each of our other four most highly
compensated executive officers, each of whose total cash compensation exceeded
$100,000 during fiscal year 1998.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
-------------------- ------------
Securities
Underlying All Other
Name and Principal Position Salary Bonus Options (#) Compensation
--------------------------- ---------- --------- ------------ ------------
<S> <C> <C> <C> <C>
Vincent Pluvinage........................ $ 162,056 $ 0 150,000 $229
President and Chief Executive Officer
David Gregory Kott....................... 120,000 32,942 117,373 229
Vice President, Sales
Michel A. Floyd.......................... 130,091 0 35,000 201
Vice President, Engineering
Cay S. Horstmann......................... 129,167 0 35,000 201
Vice President, Chief Technology Officer
Frank A. Tycksen, Jr..................... 125,000 0 46,047 204
Vice President and Co-Founder
</TABLE>
The amounts listed under the column entitled "All Other Compensation"
represent term life insurance premiums we paid on behalf of these executive
officers. We also note that G. Bradford Solso, our Vice President, Chief
Financial Officer, who commenced employment with us in July 1999, earns an
annualized salary of $160,000, and Christopher Dittmer, our Vice President,
Marketing, who commenced employment with us in May 1999, earns an annualized
salary of $135,000.
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Option Grants
The following table shows certain information regarding stock options
granted to each of the executive officers listed in the Summary Compensation
Table during fiscal year 1998. We did not grant any stock appreciation rights
to these individuals during the year.
The percentage of total options granted is based on a total of 899,585
options to purchase our common stock granted under all option plans in fiscal
year 1998. Potential realizable values are net of exercise price, but before
taxes associated with exercise. The 5% and 10% assumed annual rates of
compounded stock price appreciation are mandated by the Securities and Exchange
Commission. There is no assurance provided to any executive officer or any
other holder of our securities that the actual stock price appreciation over
the 10-year option term will be at the assumed 5% and 10% levels or at any
other defined level. Unless the market price of our common stock appreciates
over the option term, no value will be realized from the option grants.
Option Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Potential Realizable
Individual Grants Value At Assumed
--------------------------------------------- Annual Rates of
Number Of Percent Of Stock
Securities Total Options Price Appreciation
Underlying Granted To Exercise For Option Term
Options Employees In Price Per Expiration ---------------------
Name Granted Fiscal Year Share Date 5% 10%
---- ---------- ------------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Vincent Pluvinage....... 150,000 16.7% $2.00 9/10/08 $ 188,668 $ 478,123
David Gregory Kott...... 50,000 5.6 2.00 9/10/08 62,889 159,374
Michel A. Floyd......... 35,000 3.9 2.00 9/10/08 44,023 111,562
Cay S. Horstmann........ 35,000 3.9 2.00 9/10/08 44,023 111,562
Frank A. Tycksen, Jr.... 30,000 3.3 2.00 9/10/08 37,734 95,625
500 0.1 2.00 12/21/08 629 1,594
</TABLE>
All of the stock options granted in fiscal year 1998 to Dr. Pluvinage, Dr.
Floyd, Dr. Horstmann, Mr. Kott and Mr. Tycksen's options for 30,000 shares vest
in monthly installments equal to 2.08% of the total number of shares per month
for 48 months, in any case as long as the respective individual remains an
employee with, consultant to, or director of Preview.
Mr. Tycksen's options for 500 shares vest 25% on December 3, 1999 and 2.08%
of the total each month thereafter as long as Mr. Tycksen remains an employee
with, consultant to, or director of Preview.
48
<PAGE>
Aggregate Option Exercises in Fiscal Year 1998 and Fiscal Year-End Option
Values
The following table sets forth the number of shares of common stock
acquired upon the exercise of stock options by each of the executive officers
listed in the Summary Compensation Table during fiscal year 1998, and the
number and value of securities underlying unexercised options held by each of
these individuals as of December 31, 1998. The value realized is based on the
fair market value of the shares on the date of exercise as determined by the
board of directors minus the exercise price. The value of unexercised in-the-
money options is based on a $2.00 per share value, the fair market value as of
December 31, 1998, as determined by the board of directors, minus the exercise
price, multiplied by the number of shares underlying the option.
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Shares Underlying Unexercised In-the-Money Options
Acquired Value Options at December 31, 1998 at December 31, 1998
Name on Exercise Realized (Exercisable/Unexercisable) (Exercisable/Unexercisable)
---- ----------- -------- ----------------------------- ---------------------------
<S> <C> <C> <C> <C>
Vincent Pluvinage....... 50,000 $25,000 25,000/125,000 $0/$0
David Gregory Kott...... -- -- 19,438/97,934 0/0
Michel A. Floyd......... -- -- 23,697/76,303 27,890/69,609
Cay S. Horstmann........ 15,625 7,813 12,395/69,480 10,937/59,375
Frank A. Tycksen, Jr.... -- -- 7,613/38,434 0/0
</TABLE>
Stock Plans
1998 Stock Option Plan. Our 1998 plan provides for the grant of incentive
stock options to employees, including employee directors, and of nonstatutory
stock options to employees, directors (including employee and non-employee
directors) and consultants. The purposes of the 1998 plan are to attract and
retain the best available personnel, to provide additional incentives to our
employees and consultants and to promote the success of our business. Our board
of directors and stockholders originally adopted and approved the 1998 plan in
July 1998. As of July 31, 1999, an aggregate of 1,850,000 shares were
authorized under the 1998 plan. In addition, the 1998 plan was amended in
August 1999 to increase the total number of shares authorized by 1,000,000
shares and to incorporate certain other changes. After this amendment, a total
of 2,850,000 shares of common stock were reserved for issuance under the 1998
plan. The 1998 plan was further amended to provide for an automatic annual
increase on the first day of each of our fiscal years beginning in 2000 and
ending in 2008 equal to the lesser of:
. 800,000 shares;
. 3% of our outstanding common stock on the last day of the immediately
preceding fiscal year; or
. such lesser number of shares as the board of directors determines.
This amendment to the 1998 plan will be submitted for approval by our
stockholders prior to the completion of this offering. The application of these
automatic annual increase provisions will result in a maximum total authorized
pool of 10,050,000 shares. Unless terminated earlier by the board of directors,
the 1998 plan will terminate in July 2008.
As of July 31, 1999, options to purchase 1,382,130 shares of common stock
were outstanding under the 1998 plan at a weighted average exercise price of
$4.42 per share, 7,773 shares had been issued upon exercise of outstanding
options, 460,097 shares remained available for future grant, and 1,842,227
shares were reserved for issuance.
The 1998 plan may be administered by the board of directors or a committee
of the board, each known as the administrator. The administrator determines the
terms of options granted under the 1998 plan, including the number of shares
subject to the option, the exercise price, and the vesting and exercisability
of the option and any other conditions to which the option is subject. In no
event, however, may an employee receive awards for more than 1,000,000 shares
under the 1998 plan in any fiscal year. Incentive stock options granted under
the 1998 plan must have an exercise price of at least 100% of the fair market
value of the common stock on the date of grant, and not less than 110% of the
fair market value in the case of incentive stock options granted to
49
<PAGE>
an employee who holds more than 10% of the total voting power of all classes of
our stock or parent or subsidiary's stock. Prior to this offering, nonstatutory
stock options granted under the 1998 plan were required to have an exercise
price of at least 85% of the fair market value of the common stock on the date
of grant. After the date of this offering, the exercise price of nonstatutory
stock options will no longer be subject to these restrictions, although
nonstatutory stock options granted to our Chief Executive Officer and our four
other most highly compensated officers will generally equal at least 100% of
the grant date fair market value if we intend that options to those individuals
will qualify as performance-based compensation under applicable tax law.
Payment of the exercise price may be made in cash or such other consideration
as determined by the administrator.
With respect to options granted under the 1998 plan, the administrator
determines the term of options, which may not exceed 10 years (or 5 years in
the case of an incentive stock option granted to an employee who holds more
than 10% of the total voting power of all classes of our stock or a parent or
subsidiary's stock). Generally, an option granted under the 1998 plan is
nontransferable other than by will or the laws of descent and distribution, and
may be exercised during the lifetime of the optionee only by such optionee.
However, the administrator may, in its discretion, provide for the limited
transferability of nonstatutory stock options granted under the 1998 plan under
certain circumstances. The administrator determines when options become
exercisable. Options granted under the 1998 plan generally become exercisable
at the rate of 25% of the total number of shares subject to the options on the
first anniversary of the vesting commencement date and 1/48 of the total number
of shares subject to the options each month thereafter.
If we sell all or substantially all of our assets or if we are acquired by
another corporation, each outstanding option may be assumed or an equivalent
award substituted by the successor corporation. However, if the successor
corporation does not agree to such assumption or substitution, the outstanding
options will terminate. The administrator has the authority to amend or
terminate the 1998 plan, but no action may be taken that impairs the rights of
any holder of an outstanding option without the holder's consent. In addition,
we must obtain stockholder approval of amendments to the plan as required by
applicable law.
1999 Employee Stock Purchase Plan. Our board of directors adopted the 1999
employee stock purchase plan in August 1999. We intend to submit this plan to
our stockholders for approval in September 1999. A total of 500,000 were
reserved for issuance under the 1999 purchase plan, none of which have been
issued as of the date of this offering. The number of shares authorized and
reserved for issuance under the 1999 purchase plan will be subject to an
automatic annual increase on the first day of each of our fiscal years over the
10-year term of the plan, equal to the lesser of:
. 400,000 shares;
. 2% of our outstanding common stock on the last day of the immediately
preceding fiscal year; or
. a lesser number of shares as the board of directors may determine.
The application of these provisions will result in a total pool of a maximum of
4,500,000 shares authorized and reserved. The 1999 purchase plan becomes
effective upon the date of this offering. Unless terminated earlier by the
board of directors, the 1999 purchase plan shall terminate in October 2009.
The 1999 purchase plan, which is intended to qualify under Section 423 of
the Internal Revenue Code, will be implemented by a series of overlapping
offering periods of approximately 24 months' duration, with new offering
periods (other than the first offering period) commencing on May 1 and November
1 of each year. Each offering period will generally consist of four consecutive
purchase periods of six months' duration, at the end of which an automatic
purchase will be made for participants. The initial offering period is expected
to commence on the date of this offering and end on October 31, 2001; the
initial purchase period is expected to begin on the date of this offering and
end on April 30, 2000. The 1999 purchase plan will be administered by the board
of directors or by a committee appointed by the board. Our employees (including
officers and employee directors), and employees of any majority-owned
subsidiary designated by the board, are eligible to participate in the 1999
purchase plan if they are employed by us or any such subsidiary for at least 20
hours
50
<PAGE>
per week and more than five months per year. The 1999 purchase plan permits
eligible employees to purchase common stock through payroll deductions, which
in any event may not exceed 20% of an employee's eligible compensation. The
purchase price is equal to the lower of 85% of the fair market value of the
common stock at the beginning of each offering period or at the end of each
purchase period. Employees may end their participation in the 1999 purchase
plan at any time during an offering period, and participation ends
automatically on termination of employment.
An employee cannot be granted an option under the 1999 purchase plan if
immediately after the grant the employee would own stock and/or hold
outstanding options to purchase stock equaling 5% or more of the total voting
power or value of all classes of our stock or stock of our subsidiaries, or if
the option would permit an employee's rights to purchase stock under the 1999
purchase plan at a rate that exceeds $25,000 of fair market value of such stock
for each calendar year in which the option is outstanding. In addition, no
employee may purchase more than 2,000 shares of common stock under the 1999
purchase plan in any one purchase period. If the fair market value of the
common stock on a purchase date of an offering period (other than the final
purchase date) is less than the fair market value at the beginning of the
offering period, each participant in that offering period shall automatically
be withdrawn from the offering period as of the end of the purchase date and
re-enrolled in a new 24 month offering period beginning on the first business
day following the purchase date.
If we merge or consolidate with or into another corporation or sell all or
substantially all of our assets, each right to purchase stock under the 1999
purchase plan will be assumed or an equivalent right substituted by the
successor corporation. However, the board of directors will shorten any ongoing
offering period so that employees' rights to purchase stock under the 1999
purchase plan are exercised prior to the transaction in the event that the
successor corporation refuses to assume each purchase right or to substitute an
equivalent right. The board of directors has the power to amend or terminate
the 1999 purchase plan and to change or terminate offering periods as long as
such action does not adversely affect any outstanding rights to purchase stock
thereunder. However, the board of directors may amend or terminate the 1999
purchase plan or an offering period even if it would adversely affect
outstanding options in order to avoid our incurring adverse accounting charges.
1999 Directors' Stock Option Plan. Our board of directors adopted the 1999
directors' stock option plan in August 1999 and we intend to submit the plan to
our stockholders for approval in September 1999. It will become effective upon
the date of this offering. A total of 300,000 shares of common stock were
reserved for issuance under the 1999 directors' plan. The number of shares
authorized and reserved for issuance under the 1999 directors' plan will be
subject to an automatic annual increase on the first day of each of our fiscal
years over the 10-year term of the plan, equal to the lesser of:
. 150,000 shares;
. 1% of our outstanding common stock on the last day of the immediately
preceding fiscal year; or
. a lesser number of shares as the board of directors may determine.
The application of these provisions will result in a total pool of a maximum of
1,800,000 shares authorized and reserved for issuance. The directors' plan
provides for the grant of nonstatutory stock options to our non-employee
directors. The directors' plan is designed to work automatically without
administration; however, to the extent administration is necessary, it will be
performed by the board of directors. To the extent they arise, it is expected
that conflicts of interest will be addressed by abstention of any interested
director from both deliberations and voting regarding matters in which the
director has a personal interest. Unless terminated earlier, the directors'
plan will terminate in October 2009.
The 1999 directors' plan provides that each person who is a non-employee
director upon the completion of this offering will be granted a nonstatutory
stock option to purchase 10,000 shares of common stock and that each person who
becomes a non-employee director after the completion of this offering will be
granted a nonstatutory stock option to purchase 20,000 shares of common stock
on the date on which the individual first becomes a member of our board of
directors. Thereafter, on the date of each annual stockholders' meeting
51
<PAGE>
immediately after which the director is serving on the board, provided that he
or she has served on the board for at least six months prior to the meeting
date, each non-employee director will be granted an option to purchase 10,000
shares of common stock.
All options granted under the 1999 directors' plan will have a term of 10
years and an exercise price equal to the fair market value of the common stock
on the date of grant and will be nontransferable. All options granted under the
directors' plan shall be vested and exercisable in full immediately upon grant
of such option. If a non-employee director ceases to serve as a director for
any reason other than death or disability, he or she may, but only within 90
days after the date he or she ceases to be a director, exercise options granted
under the directors' plan. If he or she does not exercise the option within
such 90-day period, the option shall terminate. If a director's service
terminates as a result of his or her disability or death, or if a director dies
within three months following termination for any reason, the director or his
or her estate will have 12 months after the date of termination or death, as
applicable, to exercise options that were vested as of the date of termination.
If we merge or consolidate with or into another corporation or sell all or
substantially all of our assets, each option outstanding under the 1999
directors' plan will be assumed or equivalent options substituted by the
successor corporation, unless the successor corporation does not agree to such
assumption or substitution, in which case the options will terminate upon
consummation of the transaction to the extent not previously exercised. In
connection with any merger or asset sale, each director holding options under
the directors' plan will have the right to exercise his or her options
immediately before the consummation of the transaction as to all shares
underlying the options. Our board of directors may amend or terminate the 1999
directors' plan as long as the action does not adversely affect any outstanding
option and we obtain stockholder approval for any amendment to the extent
required by applicable law.
Portland Software Amended and Restated 1994 Stock Incentive Plan. In
connection with the merger in August 1998 with Portland Software, we assumed
the outstanding options issued under the Portland Software plan. As of July 31,
1999, options to purchase 526,924 shares of our common stock were outstanding
under the Portland Software plan at a weighted average exercise price of $1.60
per share, 27,318 shares had been issued upon exercise of outstanding options
and no shares remained available for future grant. The terms of the Portland
Software options are similar to the terms of options issuable under our 1998
plan except that in the event of a sale of all or substantially all of our
assets or our merger with or into another corporation, the vesting of certain
options granted under the Portland Software plan may be accelerated prior to
the effective date of the transaction at the discretion of our board of
directors. Options granted under the Portland Software plan remain outstanding
in accordance with their original terms after conversion of the number of
shares and the exercise price per share that resulted from the merger.
Preview Software 1997 Stock Option Plan. In connection with the merger in
August 1998 with Preview Software, we assumed the outstanding options issued
under the Preview Software 1997 plan. As of July 31, 1999, options to purchase
145,395 shares of our common stock were outstanding under the Preview Software
1997 plan at a weighted average exercise price of $.50 per share, 284,375
shares had been issued upon exercise of outstanding options and no shares
remained available for future grant. The terms of the Preview Software 1997
plan options are similar to the terms of options issuable under our 1998 plan
except that in the event of a sale of all or substantially all of our assets or
our merger with or into another corporation, if the successor corporation does
not agree to the assumption or substitution of outstanding options, the vesting
of all outstanding options shall be accelerated and the options shall become
fully exercisable prior to the effective date of the transaction. Options
granted under the Preview Software 1997 plan remain outstanding in accordance
with their original terms after conversion of the number of shares and the
exercise price per share that resulted from the merger.
Preview Software New 1997 Stock Option Plan. In connection with the merger
in August 1998 with Preview Software, we assumed outstanding options issued
under the Preview Software New 1997 plan. As of July 31, 1999, options to
purchase 204,051 shares of our common stock were outstanding under the Preview
Software New 1997 plan at a weighted average exercise price of $.62 per share,
58,611 shares had been issued
52
<PAGE>
upon exercise of outstanding options and no shares remained available for
future grant. The terms of the Preview Software New 1997 plan options are
similar to the terms of options issuable under our 1998 plan. Options granted
under the Preview Software New 1997 plan remain outstanding in accordance with
their original terms after conversion of the number of shares and the exercise
price per share that resulted from the merger.
Limitation of Liability and Indemnification Matters
Our amended and restated certificate of incorporation limits the liability
of directors to the maximum extent permitted by Delaware law. Delaware law
provides that a director of a corporation will not be personally liable for
monetary damages for breach of the individual's fiduciary duties as a director
except for liability for any breach of the director's duty of loyalty to the
company or to its stockholders, for acts or omissions not in good faith or that
involve intentional misconduct or a knowing violation of law, for unlawful
payments of dividends or unlawful stock repurchases or redemptions as provided
in Section 174 of the Delaware General Corporation Law or for any transaction
from which a director derives an improper personal benefit.
Our bylaws provide that we indemnify our directors and executive officers
and may indemnify our officers, employees and other agents to the full extent
permitted by law. We believe that indemnification under our bylaws covers at
least negligence on the part of an indemnified party. Our bylaws also permit us
to advance expenses incurred by an indemnified party in connection with the
defense of any action or proceeding arising out of his or her status or
services as a director, officer, employee or other agent for us upon an
undertaking by him or her to repay advances if it is ultimately determined that
he or she is not entitled to indemnification.
We have entered into separate indemnification agreements with each of our
directors and executive officers. These agreements require us to indemnify the
director or executive officer against expenses, including attorney's fees,
judgments, fines and settlement paid by the individual in connection with any
action, suit or proceeding arising out of the individual's status or service as
a Preview director or officer, if the officer or director acted in good faith
and in a manner he or she reasonably believed to be in or not opposed to
Preview's best interests and not unlawful, and to advance expenses incurred by
the director or executive officer in connection with any proceeding against the
officer or director with respect to which the officer or director is entitled
to indemnification by us. We believe that our amended and restated certificate
of incorporation and bylaw provisions and indemnification agreements are
necessary to attract and retain qualified persons as directors and executive
officers.
At present, we are not aware of any pending litigation or proceeding
involving in any of our directors, officers, employees or agents where
indemnification will be required or permitted. Furthermore, we are not aware of
any threatened litigation or proceeding that might result in a claim for
indemnification.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, executive officers or persons controlling
Preview, we have been informed that in the opinion of the Securities and
Exchange Commission the indemnification is against public policy as expressed
in the Securities Act and is therefore unenforceable.
Change of Control and Termination Arrangements
We have entered into an arrangement with Dr. Pluvinage, our President and
Chief Executive Officer, that provides him with benefits in the event of a
change of control of us or termination of his employment with us. In the event
of a change of control which is generally defined as the acquisition of a
majority of our stock or sale of all of our assets, 50% of the unvested options
granted to Dr. Pluvinage under the Preview Software 1997 Plan will immediately
vest at the time of the change of control. In addition, if the acquiring
company fails to assume or does not provide Dr. Pluvinage with options of
equivalent value, the remaining 50% of the unvested options will also
immediately vest. Moreover, in the event that Dr. Pluvinage is terminated for
any reason other than for cause or his own willful termination, 50% of any of
his unvested options under the Preview Software 1997 plan will immediately vest
and he will receive a cash amount equal to one year base salary.
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<PAGE>
We have also entered into an arrangement with Mr. Kott, our Vice President,
Sales, that provides him with certain benefits in the event of a change of
control, which is generally defined as a consolidation or merger of us or the
sale of all of our assets. As to options to purchase 16,195 shares, 100% of the
shares will immediately vested if Mr. Kott is terminated without cause,
required to relocate or experiences a material reduction in his
responsibilities or compensation within 90 days of a change in control. In
addition, these shares will immediately vest in the event of an initial public
offering. As to options to purchase 98,587 shares, 50% of these shares will
immediately vest if Mr. Kott is terminated without cause, required to relocate
or experiences a material reduction in his responsibilities or compensation
within 90 days of a change of control. In addition, even if no change of
control occurs, 33 1/3% of these shares will immediately vest if Mr. Kott is
terminated without cause, required to relocate or experiences a material
reduction in his responsibilities or compensation.
54
<PAGE>
CERTAIN TRANSACTIONS
Private Placements of Securities
Background. Through a series of mergers in August 1998, we became the owner
of all of the capital stock of Preview Software and Portland Software. As a
part of these transactions, all of the previously outstanding shares of common
and preferred stock and options and warrants to purchase capital stock of each
of Preview Software and Portland Software were converted into outstanding
shares of common and preferred stock and options and warrants to purchase
capital stock of Preview Systems. The equity securities of Preview Software and
Portland Software were converted into equity securities of Preview Systems
based on a ratio designed so that the former security holders of Preview
Software and Portland Software would each own approximately 50% of Preview
Systems on a fully-diluted basis.
In April 1998, Preview Software issued and sold an aggregate of 299,401
shares of its series D preferred stock at a price of $6.68 per share to several
investors, including the following persons or entities:
. 28,839 shares to the Donald L. Lucas Profit Sharing Trust, with whom
Mr. Lucas, one of our directors, is affiliated;
. 18,713 shares to Mr. Rivers, one of our directors and an owner of more
than 5% of our securities;
. 64,522 shares, to Telos Venture Partners, an entity which beneficially
holds more than 5% of our securities and with whom Mr. Bourbon, one of
our directors, is affiliated; and
. 42,879 shares to Teton Capital Company, with whom Mr. Lucas is
affiliated.
In September and October 1998, we issued and sold an aggregate of 1,162,518
shares of our series F preferred stock at a price of $5.00 to several
investors, including the following persons or entities:
. 14,089 shares to the Donald L. Lucas Profit Sharing Trust;
. 100,000 shares to Olympic Venture Partners, an entity which
beneficially holds more than 5% of our securities and with whom Mr.
Langeler, one of our directors, is affiliated;
. 26,511 shares to Sand Hill Financial Company, with whom Mr. Lucas is
affiliated;
. 144,000 shares to Telos Venture Partners; and
. 47,900 to Teton Capital Company.
In July 1999, we issued and sold an aggregate of 4,312,448 shares of our
series G preferred stock at a price of $6.72 to several investors, including
the following persons or entities:
. 14,881 shares to the Donald L. Lucas Profit Sharing Trust;
. 44,643 shares to Olympic Venture Partners;
. 1,190,476 shares to SOFTBANK Technology entities, entities which
beneficially hold more than 5% of our securities and with which Mr.
Rieschel and Ms. Roizen, two of our directors, are affiliated;
. 37,202 shares to Telos Venture Partners; and
. 892,857 shares to Whiting & Co. Guaranty Trust entities, entities which
beneficially hold more than 5% of our securities.
Since our inception, we have, from time to time, issued and sold shares of
our common stock and granted options to purchase common stock to our employees,
directors and consultants.
55
<PAGE>
Transactions with Directors and Officers
In September 1998, we provided a guarantee to a $300,000 loan from a
commercial bank to Dr. Pluvinage, our President and Chief Executive Officer. As
of July 31, 1999, this loan is currently outstanding. In connection with this
guarantee, Dr. Pluvinage has pledged to us all of his vested shares of our
capital stock.
In July 1999, we sold 125,000 and 150,000 shares of our common stock at a
price of $6.50 to Dr. Pluvinage, our President and Chief Executive Officer, and
Mr. Solso, our Vice President, Chief Financial Officer, respectively. Under the
terms of these sales, we can repurchase a certain number of their shares of
stock if their employment is terminated voluntarily or involuntarily, subject
to a monthly vesting schedule. In addition, we have a right of first refusal to
purchase any or all of their shares if they decide to sell or transfer their
shares. Further, these shares may be subject to a 180 day lock-up period in the
event of an initial public offering upon the request of the underwriters or us.
In connection with these sales, Dr. Pluvinage and Mr. Solso executed full-
recourse promissory notes in the respective amounts of $812,475 and $974,970 in
favor of Preview with annual interest rates of 5.32%. These notes become due
and payable upon the earlier of July 2002 or termination of their employment
with us. Dr. Pluvinage and Mr. Solso have also entered into pledge and security
agreements granting us a security interest in these shares.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information with respect to the beneficial
ownership of the shares of our common stock on a fully-diluted basis as of
July 31, 1999, and as adjusted to reflect the sale of common stock offered
hereby, as to:
. each person (or group of persons) who is known by us to own
beneficially more than 5% of our common stock on a fully-diluted basis;
. each director and each of the executive officers listed on the Summary
Compensation Table; and
. all directors and executive officers of Preview as a group.
<TABLE>
<CAPTION>
Shares Beneficially Shares Beneficially
Owned Owned
Prior to Offering(2) After Offering(2)(4)
-------------------- --------------------
Name and Address(1) Number Percent(3) Percent(3)
- ------------------- --------- ---------- --------------------
<S> <C> <C> <C>
5% Stockholders
SOFTBANK Technology Ventures (5)..... 1,190,476 10.05%
333 W. San Carlos St., Suite 1225
San Jose, CA 95110
Whiting & Co. Morgan Guaranty Trust
Co. (6)............................ 892,857 7.54
522 Fifth Avenue
New York, NY 10036
Telos Venture Partners, LP (7)....... 723,262 6.10
2350 Mission College Boulevard
Suite 1070
Santa Clara, CA 95054
Van Wagoner Capital Management....... 668,155 5.64
345 California Street, Suite 2450
San Francisco, CA 94104
Olympic Venture Partners and
Affiliates (8)..................... 604,886 5.07
340 Oswego Point Drive, Suite 200
Lake Oswego, OR 97503..............
Named Executive Officers and
Directors
Vincent Pluvinage (9)................ 450,000 3.78
Frank A. Tycksen, Jr. (10)........... 138,194 1.16
Cay S. Hortsmann (11)................ 61,754 *
David Gregory Kott (12).............. 50,007 *
Michel A. Floyd (13)................. 45,785 *
Jo Ann Heidi Roizen (5).............. 1,209,851 10.20
Gary Rieschel (5).................... 1,190,476 10.05
Bruce R. Bourbon (7)................. 723,262 6.10
R. Douglas Rivers (14)............... 632,419 5.34
Gerard H. Langeler (8)............... 604,886 5.07
Donald L. Lucas (15)................. 483,752 4.08
All executive officers and directors
as a group
(16 persons) (16).................... 4,602,133 38.07
</TABLE>
- --------
* Less than 1%.
(1) Except as otherwise noted, the address of each person listed in the table
is c/o Preview Systems, Inc., 1601 South DeAnza Boulevard, Suite 100,
Cupertino, CA 95014, and the persons named in the table have sole voting
and investment power with respect to all shares of common stock shown as
beneficially owned by them, subject to community property laws where
applicable.
(2) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. The number of shares beneficially
owned by a person includes shares of common stock subject to options
and/or warrants held by that person that are currently exercisable or
exercisable within 60 days of July 31, 1999. Shares issuable pursuant to
such options or warrants are deemed outstanding for
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<PAGE>
computing the percentage ownership of the person holding such options or
warrants but are not deemed outstanding for the purposes of computing the
percentage ownership of each other person.
(3) Percentage of shares beneficially owned is based on 11,846,433 shares of
common stock outstanding as of July 31, 1999, assuming conversion of all
shares of preferred stock into common stock, and shares of common
stock to be outstanding upon the consummation of this offering.
(4) Assumes underwriters do not exercise their over-allotment option.
(5) Mr. Rieschel and Ms. Roizen are general partners of SOFTBANK. Each of
them disclaims beneficial ownership of these shares except to the extent
of his or her pecuniary interest in them. Ms. Roizen also has 19,375
shares exercisable under outstanding stock options within 60 days of July
31, 1999, and this number is reflected opposite Ms. Roizen's name.
(6) Consists of:
. 625,000 shares held directly by Whiting & Co. Morgan Guaranty Trust Co.
of NY as Trustee of the Commingled Pension Trust Fund;
. 133,929 shares held directly by Bost & Co. Morgan Guaranty Trust Co. of
NY as Investment Manager and Agent for The Alfred P. Sloan Foundation;
and
. 133,928 shares held directly by Whiting & Co. Morgan Guaranty Trust Co.
of NY as Trustee of the Multi-Market Special Investment Trust Fund.
(7) Includes a warrant to purchase 8,789 shares of common stock. Mr. Bourbon
is a Managing Member of Telos Management LLC, the General Partner of
Telos Venture Partners, LP. He disclaims beneficial ownership of these
shares except to the extent of his pecuniary interest in the shares.
(8) Consists of:
. 510,123 shares held directly and warrants to purchase 72,583 shares of
common stock held by Olympic Venture Partners III, LP; and
. 18,464 shares held directly and warrants to purchase 3,716 shares of
common stock held by OVP III Entrepreneurs Fund.
Mr. Langeler is a General Partner of OVMC III, the General Partner of
Olympic Venture Partners III, LP and OVP III Entrepreneurs Fund. He
disclaims beneficial ownership of these shares except to the extent of his
pecuniary interest in them.
(9) Includes 50,000 shares exercisable under outstanding stock options within
60 days of July 31, 1999.
(10) Includes 18,995 shares exercisable under outstanding stock options within
60 days of July 31, 1999, and 7,773 shares held by members of Mr.
Tycksen's family.
(11) Includes 30,582 shares exercisable under outstanding stock options within
60 days of July 31, 1999.
(12) Includes 29,460 shares exercisable under outstanding stock options within
60 days of July 31, 1999.
(13) Includes 40,603 shares exercisable under outstanding stock options within
60 days of July 31, 1999.
(14) Includes a warrant to purchase 3,750 shares of common stock. Also
includes 8,375 shares over which Dr. Rivers has voting power because of
his capacity as co-trustee of three trusts containing shares of our
common stock, for which he disclaims beneficial ownership.
(15) Consists of:
. 57,601 shares held by the Donald L. Lucas Profit Sharing Trust dated
1/1/84;
. 62,500 shares held directly and a warrant to purchase 5,859 shares of
common stock held by the Donald L. Lucas & Lygia S. Lucas Trust dated
12/3/84;
. 102,792 shares held by Sand Hill Financial Corporation; and
. 255,000 shares held by Teton Capital Company.
Mr. Lucas is the trustee for the Donald L. Lucas Profit Sharing Trust
dated 1/1/84 and the Donald L. Lucas & Lygia S. Lucas Trust dated 12/3/84.
He also is a General Partner of Teton Capital Company and Sand Hill
Financial Corporation. He disclaims beneficial ownership of these shares
except to the extent of his pecuniary interest in them.
(16) Includes 241,238 shares exercisable under outstanding stock options
within 60 days of July 31, 1999 and warrants to purchase 94,697 shares of
common and preferred stock.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
Following the closing of the sale of the shares offered hereby, our
authorized capital stock will consist of 75,000,000 shares of common stock,
$0.0002 par value per share, and 5,000,000 shares of undesignated preferred
stock, $0.0002 par value per share. All currently designated shares of
preferred stock will be converted into common stock upon the closing of this
offering.
Common Stock
As of July 31, 1999, there were 11,846,433 shares of our common stock
outstanding that were held of record by approximately 190 stockholders after
giving effect to the conversion of our preferred stock into common stock at a
one-to-one ratio, and assuming no exercise or conversion of outstanding
convertible securities after July 31, 1999. There will be of common
stock outstanding (assuming no exercise of the underwriters' over-allotment
option and no exercise or conversion of outstanding convertible securities
after July 31, 1999) after giving effect to the sale of the shares of common
stock offered hereby.
The holders of common stock are entitled to one vote per share on all
matters to be voted upon by the stockholders. Subject to preferences that may
be applicable to any outstanding preferred stock, the holders of common stock
are entitled to receive ratably the dividends, if any, as may be declared from
time to time by the board of directors out of funds legally available therefor.
See "Dividend Policy." In the event of a liquidation, dissolution or winding up
of Preview, the holders of common stock are entitled to share ratably in all
assets remaining after payment of liabilities, subject to prior rights of
preferred stock, if any, then outstanding. The common stock has no preemptive
or conversion rights or other subscription rights. There are no redemption or
sinking fund provisions available to the common stock. All outstanding shares
of common stock are fully paid and non-assessable.
Preferred Stock
Upon the closing of the offering, we will be authorized to issue 5,000,000
shares of undesignated preferred stock. The board of directors will have the
authority to issue the undesignated preferred stock in one or more series and
to determine the powers, preferences and rights and the qualifications,
limitations or restrictions granted to or imposed upon any wholly unissued
series of undesignated preferred stock and to fix the number of shares
constituting any series and the designation of the series, without any further
vote or action by the stockholders. The issuance of preferred stock may have
the effect of delaying, deferring or preventing a change in control of the
company without further action by the stockholders and may adversely affect the
voting and other rights of the holders of common stock. At present, we have no
plans to issue any shares of preferred stock.
Warrants
At July 31, 1999, there were warrants outstanding to purchase an aggregate
of 170,450 shares of common stock at a weighted average exercise price of $1.53
per share, an aggregate of 25,430 shares of series C preferred stock at an
exercise price of $3.20 per share, an aggregate of 217,233 shares of series E
preferred stock at an exercise price of $12.88 per share, an aggregate of 2,700
shares of series F preferred stock at an exercise price of $5.00 per share, and
an aggregate of 76,682 shares of series G preferred stock at an exercise price
of $6.72 per share.
Of these warrants, the warrants to purchase 170,450 shares of common stock
and the warrants to purchase 76,682 shares of series G preferred stock will
expire upon the consummation of this offering if not exercised prior to that
time. The warrants to purchase shares of preferred stock that survive the
closing of this offering will convert into warrants to purchase shares of
common stock on the closing of this offering on a one-to-one basis. Generally,
the warrants contain provisions for the adjustment of the exercise price and
the aggregate number of shares issuable upon the exercise of the warrant under
certain circumstances, including stock dividends, stock splits,
reorganizations, reclassifications, consolidations and certain dilutive
issuances of securities at prices below the then existing warrant exercise
price.
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<PAGE>
Registration Rights
The holders of 8,788,273 shares of common stock (assuming the conversion of
all outstanding preferred stock upon completion of this offering) and the
holders of 492,495 shares issuable upon exercise of warrants, (referred to in
this prospectus as registrable securities), or their transferees are entitled
to certain rights with respect to the registration of the shares under the
Securities Act. These rights are provided under the terms of an agreement
between us and the holders of these securities dated July 2, 1999, as amended.
Subject to limitations in the agreement, the holders of at least 30% of the
registrable securities may require, on two occasions beginning six months after
the date of this prospectus, that we use our best efforts to register the
registrable securities for public resale if Form S-3 is not available, provided
that the aggregate offering price to the public is at least $10,000,000. If we
register any of our common stock either for our own account or for the account
of other security holders after the date of this prospectus, the holders of
registrable securities are entitled to include their shares of common stock in
that registration, subject to the ability of the underwriters to limit the
number of shares included in the offering. If the holders of registrable
securities are limited in the amount of shares they may sell in an offering
subsequent to this offering, no one is allowed to sell shares other than us or
the holders of registrable securities, if any, requesting registration. The
holders of registrable securities may also require us, not more than twice in
any twelve-month period, to register all or a portion of the registrable
securities on Form S-3 when the use of that form becomes available to us,
provided, among other limitations, that the proposed aggregate selling price,
net of any underwriters' discounts or commissions, is at least $1,000,000. We
will be responsible for paying all registration expenses, including the
reasonable expense of one special counsel of the selling stockholders, and the
holders selling their shares will be responsible for paying all selling
expenses. See "Shares Eligible for Future Sale."
Delaware Anti-Takeover Law and Charter and Bylaw Provisions
Provisions of Delaware law and our charter documents could make the
acquisition of Preview and the removal of incumbent officers and directors more
difficult. These provisions are expected to discourage certain types of
coercive takeover practices and inadequate takeover bids and to encourage
persons seeking to acquire control of Preview to negotiate with us first. 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 Preview outweigh the disadvantages of discouraging these
proposals because, among other things, negotiation of these proposals could
result in an improvement of their terms.
We are subject to the provisions of Section 203 of the Delaware law. In
general, the statute prohibits a publicly-held Delaware corporation from
engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date that the person became an interested
stockholder unless, subject to exceptions, the business combination or the
transaction in which the person became an interested stockholder is approved in
a prescribed manner. Generally, a "business combination" includes a merger,
asset or stock sale, or other transaction resulting in a financial benefit to
the stockholder. Generally, an "interested stockholder" is a person who,
together with affiliates and associates, owns, or within three years prior, did
own, 15% or more of the corporation's voting stock. These provisions may have
the effect of delaying, deferring or preventing a change in control of Preview
without further action by the stockholders.
Our amended and restated certificate of incorporation provides that
stockholder action can be taken only at an annual or special meeting of
stockholders and may not be taken by written consent. In addition, our amended
and restated certificate of incorporation provides that our board of directors
shall be classified, in which the directors are subject to re-election on a
rotating basis rather than every year. The bylaws provide that special meetings
of stockholders can be called only by the board of directors, the Chairman of
the Board or the President. Moreover, the bylaws set forth an advance notice
procedure with regard to the nomination, other than by or at the direction of
the board of directors, of candidates for election as directors and with regard
to business to be brought before a meeting of stockholders. The foregoing
provisions could have the effect of preventing a change in control of Preview
or making removal of management more difficult. These provisions could also
have the effect of decreasing the market price of the common stock, and
delaying, deferring or preventing a change in control of Preview without any
further action by our stockholders.
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<PAGE>
Our stock option and stock purchase plans generally provide for assumption
of the plans or substitution of an equivalent option of a successor corporation
or, alternatively, at the discretion of the board of directors, exercise of
some or all of the stock options, including non-vested options, or acceleration
of vesting of options issued pursuant to stock grants, upon a change of control
or similar event. The board of directors has authority to issue up to 5,000,000
shares of preferred stock and to fix the rights, preferences, privileges and
restrictions, including voting rights, of these shares without any further vote
or action by the stockholders. The rights of the holders of the common stock
will be subject to, and may be adversely affected by, the rights of the holders
of any preferred stock that may be issued in the future. The issuance of
preferred stock, while providing desirable flexibility in connection with
possible acquisitions and other corporate purposes, could have the effect of
making it more difficult for a third party to acquire a majority of our
outstanding voting stock, thereby delaying, deferring or preventing a change in
control of Preview. Furthermore, the preferred stock may have other rights,
including economic rights senior to the common stock, and as a result, the
issuance of the preferred stock could have a material adverse effect on the
market value of the common stock. We have no present plan to issue shares of
preferred stock.
Transfer Agent and Registrar
The transfer agent and registrar for the common stock is American Stock
Transfer & Trust Company. The transfer agent's address and telephone number is
40 Wall Street, New York, New York 10005, (212) 936-5100.
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for our common stock.
Future sales of substantial amounts of common stock in the public market could
adversely affect prevailing market prices. Furthermore, only a limited number
of shares will be available for sale shortly after this offering because of
contractual and legal restrictions on resale. After these restrictions lapse,
sales of substantial amounts of our common stock in the public market could
adversely affect the prevailing market price and our ability to raise equity
capital in the future.
Based on shares outstanding as of July 31, 1999, upon completion of this
offering, we will have outstanding shares of common stock. Of these
shares, the shares sold in the offering (plus any shares issued upon
exercise of the underwriters' overallotment option) and 20,730 shares not
subject to a lock-up agreement will be freely tradable without restriction
under the Securities Act, unless purchased by our "affiliates" as that term is
defined in Rule 144 under the Securities Act, which generally includes
officers, directors or 10% stockholders.
The remaining 11,825,703 shares outstanding are "restricted securities"
within the meaning of Rule 144 under the Securities Act. These shares may be
sold in the public market only if registered or if they qualify for an
exemption from registration under Rules 144, 144(k) or 701 promulgated under
the Securities Act, which are summarized below. Sales of these shares in the
public market, or the availability of such shares for sale, could adversely
affect the market price of our common stock.
Our stockholders have entered into lock-up agreements in which they have
agreed that they will not offer, sell, contract to sell or grant any option to
purchase or otherwise dispose of our common stock or any securities exercisable
for or convertible into our common stock owned by them for a period of 180 days
after the date of this prospectus without the prior written consent of
BancBoston Robertson Stephens. As a result of these contractual restrictions,
notwithstanding possible earlier eligibility for sale under the provisions of
Rules 144, 144(k) and 701, shares subject to lock-up agreements may not be sold
until such agreements expire or are waived by BancBoston Robertson Stephens.
Taking into account the lock-up agreements, and assuming BancBoston Robertson
Stephens does not release stockholders from these agreements, the following
shares will be eligible for sale in the public market at the following times:
. beginning on the effective date of this prospectus, only the shares
sold in the offering will be immediately available for sale in the
public market;
. beginning 181 days after the date of this prospectus, approximately
7,022,608 shares will be eligible for sale pursuant to Rules 144,
144(k) and 701; and
. the remaining shares will be eligible for sale pursuant to Rule 144 at
various times thereafter.
Under Rule 144, the number of shares that may be sold by affiliates are
subject to volume restrictions as described below. In general, under Rule 144,
and beginning after the expiration of the lock-up agreements, a person (or
persons whose shares are aggregated) who has beneficially owned restricted
shares for at least one year would be entitled to sell within any three-month
period a number of shares that does not exceed the greater of:
. one percent of the number of shares of common stock then outstanding
(which will equal approximately shares immediately after the
offering); or
. the average weekly trading volume of the common stock during the four
calendar weeks preceding the sale. Sales under Rule 144 are also
subject to manner of sale provisions and notice requirements and to the
availability of current public information about us.
Under Rule 144(k), a person who is not deemed to have been an affiliate of
us at any time during the three months preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least two
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<PAGE>
years, is entitled to sell such shares without complying with the manner of
sale, public information, volume limitation or notice provisions of Rule 144.
The holders of approximately 8,788,273 shares of common stock and warrants
to purchase 492,495 shares of common stock or their transferees are also
entitled to certain rights with respect to registration of their shares of
common stock for offer or sale to the public. If the holders, by exercising
their registration rights, cause a large number of shares to be registered and
sold in the public market, the sales could have a material adverse effect on
the market price for our common stock.
As a result of the lock-up agreements, all of our employees holding common
stock or stock options may not sell shares acquired upon exercise for 180 days
after the date of this prospectus. Beginning 181 days after the date of this
prospectus, any employee, officer or director of or consultant to us who
purchased shares pursuant to a written compensatory plan or contract may be
entitled to rely on the resale provisions of Rule 701. Rule 701 permits
affiliates to sell their Rule 701 shares under Rule 144 without complying with
the holding period requirements of Rule 144. Rule 701 further provides that
non-affiliates may sell shares in reliance on Rule 144 without having to comply
with the holding period, public information, volume limitation or notice
provisions of Rule 144.
We intend to file registration statements under the Securities Act as
promptly as possible after the effective date to register shares to be issued
pursuant to our employee benefit plans. As a result, any options exercised
under our stock plan after the effectiveness of the registration statement will
also be freely tradable in the public market, except that shares held by
affiliates will still be subject to the volume limitation, manner of sale,
notice and public information requirements of Rule 144 unless otherwise
resalable under Rule 701. As of July 31, 1999, there were outstanding options
for the purchase of 2,331,840 shares, of which options to purchase 700,934
shares were exercisable. No shares have been issued to date under our 1999
employee stock purchase plan or 1999 directors' plan.
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<PAGE>
UNDERWRITING
The underwriters named below, acting through their representatives,
BancBoston Robertson Stephens Inc., Dain Rauscher Wessels, a division of Dain
Rauscher Incorporated, SoundView Technology Group, Inc. and E*OFFERING Corp.,
have severally agreed with us, subject to the terms and conditions set forth in
the underwriting agreement, to purchase from us the number of shares of common
stock set forth opposite their respective names below. The underwriters are
committed to purchase and pay for all such shares if any are purchased.
<TABLE>
<CAPTION>
Underwriter Number of Shares
----------- ----------------
<S> <C>
BancBoston Robertson Stephens Inc. ........................
Dain Rauscher Wessels......................................
SoundView Technology Group, Inc. ..........................
E*OFFERING Corp............................................
-----
Total....................................................
=====
</TABLE>
The representatives have advised us that the underwriters propose to offer
the shares of common stock to the public at the public offering price set forth
on the cover page of this prospectus and to certain dealers at this price less
a concession not in excess of $ per share, of which $ may be reallowed to
other dealers. After the initial public offering, the public offering price,
concession and reallowance to dealers may be reduced by the representatives. No
such reduction shall change the amount of proceeds to be received by us as set
forth on the cover page of this prospectus. The common stock is offered by the
underwriters as stated herein, subject to receipt and acceptance by them and
subject to their right to reject any order in whole or in part.
The underwriters do not intend to confirm sales to any accounts over which
they exercise discretionary authority.
Over-Allotment Option. We have granted to the underwriters an option,
exercisable during the 30-day period after the date of this prospectus, to
purchase up to additional shares of common stock at the same price per
share as we will receive for the shares that the underwriters have
agreed to purchase. To the extent that the underwriters exercise this option,
each of the underwriters will have a firm commitment, subject to certain
conditions, to purchase approximately the same percentage of the additional
shares that the number of shares of common stock to be purchased by it shown in
the above table represents as a percentage of the shares offered hereby.
If purchased, the additional shares will be sold by the underwriters on the
same terms as those on which the shares are being sold. We will be
obligated, pursuant to the option, to sell shares to the extent the option is
exercised. The underwriters may exercise the option only to cover over-
allotments made in connection with the sale of the shares of common stock
offered hereby. If such option is exercised in full, the total public offering
price, underwriting discounts and commissions and proceeds to us will be $
million, $ million and $ million, respectively.
Indemnity. The underwriting agreement contains covenants of indemnity among
the underwriters and us against certain civil liabilities, including
liabilities under the Securities Act and liabilities arising from breaches of
representations and warranties contained in the underwriting agreement.
Lock-Up Agreements. Each of our officers and directors and certain of our
stockholders have agreed with the representative, for a period of 180 days
after the date of this prospectus, subject to certain exceptions,
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<PAGE>
not to offer to sell, contract to sell, or otherwise sell, dispose of, loan,
pledge or grant any rights with respect to, any shares of common stock, or any
securities convertible into or exchangeable for shares of common stock, now
owned directly by such holders or with respect to which they now have the power
of disposition, without the prior written consent of BancBoston Robertson
Stephens. However, BancBoston Robertson Stephens may, in its sole discretion
and at any time without notice, release all or any portion of the securities
subject to the lock-up agreement. There are no agreements between the
representatives and any of our stockholders providing consent to the sale of
shares prior to the expiration of the period ending 180 days after the date of
this prospectus.
Future Sales. In addition, we have agreed that during the 180 days after
the date of this prospectus, we will not, subject to certain exceptions,
without the prior written consent of BancBoston Robertson Stephens:
. Consent to the disposition of any shares held by stockholders subject
to lock-up agreements prior to the expiration of the period ending 180
days after the date of this prospectus; or
. Issue, sell, contract to sell or otherwise dispose of any shares of
common stock or any securities convertible into, exercisable for or
exchangeable for shares of common stock, other than the sale of shares
in this offering, the issuance of common stock upon the exercise of
outstanding options or the issuance of options under our existing stock
option and incentive plans.
Listing. We have applied to have our common stock approved for listing on
the Nasdaq National Market under the symbol "PRVW."
No Prior Public Market. Prior to this offering, there has been no public
market for our common stock. Consequently, the initial public offering price
for the common stock offered hereby will be determined through negotiations
between us and the representatives. Among the factors to be considered in such
negotiations are prevailing market conditions, certain of our financial
information, market valuations of other companies that we and the
representatives believe to be comparable to us, estimates of our business
potential, the present state of our development and other factors deemed
relevant.
Stabilization. The representatives have advised us that, pursuant to
Regulation M under the Securities Exchange Act, certain persons participating
in this offering may engage in transactions, including stabilizing bids,
syndicate covering transactions or the imposition of penalty bids, that may
have the effect of stabilizing or maintaining the market price of the common
stock at a level above that which might otherwise prevail in the open market. A
"stabilizing bid" is a bid for, or the purchase of, the common stock on behalf
of the underwriters for the purpose of fixing or maintaining the price of the
common stock. A "syndicate covering transaction" is the bid for, or the
purchase of, the common stock on behalf of the underwriters to reduce a short
position incurred by the underwriters in connection with this offering. A
"penalty bid" is an arrangement permitting the representatives to reclaim the
selling concession otherwise accruing to an underwriter or syndicate member in
connection with this offering if the common stock originally sold by such
underwriter or syndicate member is purchased by the representatives in a
syndicate covering transaction and has therefore not been effectively placed by
such underwriter or syndicate member. The representatives have advised us that
such transactions may be effected on the Nasdaq National Market or otherwise
and, if commenced, may be discontinued at any time.
Directed Share Program. At our request, the underwriters have reserved up
to shares of common stock to be issued by us and offered hereby for
sales, at the initial public offering price, to our directors, officers,
employees, business associates and other related persons. Directors and
officers who purchase the reserved shares are subject to resale restrictions
promulgated by the Securities and Exchange Commission. The number of shares of
common stock available for sale to the general public will be reduced to the
extent such individuals purchase such reserved shares. Any reserved shares
which are not so purchased will be offered by the underwriters to the general
public on the same basis as the other shares offered hereby.
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<PAGE>
LEGAL MATTERS
The validity of the common stock offered by this prospectus will be passed
on for us by Venture Law Group, A Professional Corporation, Menlo Park,
California. Certain legal matters in connection with this offering will be
passed on for the underwriters by Wilson Sonsini Goodrich & Rosati,
Professional Corporation, Palo Alto, California. Attorneys employed with
Venture Law Group and an entity affiliated with Venture Law Group hold an
aggregate of 24,382 shares of our common stock.
EXPERTS
The consolidated financial statements of Preview Systems, Inc. included in
this registration statement as of December 31, 1997 and 1998 and for the three-
year period ended December 31, 1998, have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their report with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in accounting and auditing in giving said reports.
The financial statements of Portland Software, Inc. as of December 31, 1996
and 1997 and for each of the years in the two-year period ended December 31,
1997 have been included in this registration statement in reliance upon the
report of KPMG LLP, independent certified public accountants, appearing
elsewhere herein and upon the authority of said firm as experts in accounting
and auditing.
ADDITIONAL 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
offered in this offering. This prospectus does not contain all of the
information set forth in the registration statement and the exhibits thereto.
For further information with respect to us and the common stock offered in this
offering, we refer you to the registration statement and to the attached
exhibits. Statements made in this prospectus concerning the contents of any
document referred to in this prospectus are not necessarily complete. With
respect to each document filed as an exhibit to the registration statement, we
refer you to the exhibit for a more complete description of the matter
involved. You may inspect our registration statement and the attached exhibits
without charge at the public reference facilities maintained by the Securities
and Exchange Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and
at the regional offices of the Commission located at Seven World Trade Center,
13th Floor, New York, NY 10048, and the Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. You may obtain copies of
all or any part of our registration statement from the Securities and Exchange
Commission upon payment of prescribed fees. You may also inspect reports, proxy
and information statements and other information regarding registrants that
file electronically with the Securities and Exchange Commission without charge
at a Web site maintained by the Securities and Exchange Commission at
http://www.sec.gov.
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Public Accountants--Preview Systems, Inc. and
Subsidiaries........................................................... F-2
Preview Systems, Inc. and Subsidiaries Consolidated Balance Sheets,
December 31, 1997 and 1998 and June 30, 1999 (unaudited)............... F-3
Preview Systems, Inc. and Subsidiaries Consolidated Statements of
Operations, Years Ended December 31, 1996, 1997 and 1998 and Six Months
Ended June 30, 1998 (unaudited) and 1999 (unaudited)................... F-4
Preview Systems, Inc. and Subsidiaries Consolidated Statements of
Stockholders' Equity, Years Ended December 31, 1996, 1997 and 1998 and
Six Months Ended June 30, 1999 (unaudited)............................. F-5
Preview Systems, Inc. and Subsidiaries Consolidated Statements of Cash
Flows, Years Ended December 31, 1996, 1997 and 1998 and Six Months
Ended June 30, 1998 (unaudited) and 1999 (unaudited)................... F-6
Preview Systems, Inc. and Subsidiaries, Notes to Financial Statements.... F-7
Independent Auditors' Report--Portland Software, Inc..................... F-25
Portland Software, Inc. Balance Sheets, December 31, 1996 and 1997....... F-26
Portland Software, Inc. Statements of Operations, Years Ended December
31, 1996 and 1997...................................................... F-27
Portland Software, Inc. Statements of Shareholders' Equity, Years Ended
December 31, 1996 and 1997............................................. F-28
Portland Software, Inc. Statements of Cash Flows, Years Ended December
31, 1996 and 1997...................................................... F-29
Portland Software, Inc. Notes to Financial Statements.................... F-30
Preview Systems, Inc. and Subsidiaries Pro Forma Consolidated Statement
of Operations, Year Ended December 31, 1998............................ F-40
Preview Systems, Inc. and Subsidiaries Notes to Pro Forma Consolidated
Statement of Operations................................................ F-41
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Preview Systems, Inc.:
We have audited the accompanying consolidated balance sheets of Preview
Systems, Inc. (a Delaware corporation) and subsidiaries as of December 31, 1997
and 1998, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended December
31, 1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Preview Systems, Inc. and
subsidiaries as of December 31, 1997 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998 in conformity with generally accepted accounting principles.
Portland, Oregon
April 2, 1999, except for Note 12 as to which the date is September 14, 1999
F-2
<PAGE>
PREVIEW SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
<TABLE>
<CAPTION>
December 31,
----------------- June 30,
1997 1998 1999
------- -------- -----------
(unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents..................... $ 2,489 $ 4,886 $ 427
Accounts receivable, net of allowance for
uncollectible accounts of $0, $0, and $75,
respectively................................ 70 152 1,156
Prepaid expenses.............................. 130 360 426
Other current assets.......................... -- 55 156
------- -------- --------
Total current assets....................... 2,689 5,453 2,165
Property and equipment, net..................... 352 820 883
Patents, net.................................... -- 922 794
Acquired technology, net........................ -- 3,881 3,119
Other intangible assets, net.................... -- 917 693
Other assets.................................... 81 497 496
------- -------- --------
Total assets............................... $ 3,122 $ 12,490 $ 8,150
======= ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Line of credit................................ $ -- $ -- $ 700
Notes payable................................. -- 50 1,180
Current portion of long-term debt............. -- 157 157
Current portion of capital lease
obligations................................. 5 134 194
Accounts payable.............................. 183 442 1,241
Accrued liabilities........................... 210 840 709
Deferred revenue.............................. -- 809 1,509
------- -------- --------
Total current liabilities.................. 398 2,432 5,690
Long-term debt, less current portion............ -- 302 223
Capital lease obligations, less current
portion....................................... 11 133 220
Deferred revenue, less current portion.......... -- 1,268 902
Other liabilities............................... -- 349 348
------- -------- --------
Total liabilities.......................... 409 4,484 7,383
Commitments and contingencies (note 6)
Stockholders' equity:
Preferred stock, $0.0002 per share par value:
Authorized--5,253; issued and outstanding--
2,176, 4,476 and 4,476 (unaudited) shares,
respectively; aggregate liquidation
preference of $5,279, $23,885 and $23,885
(unaudited)................................ -- -- --
Common stock, $0.0002 per share par value:
Authorized--10,506 shares; issued and
outstanding 582, 2,684 and 2,728
(unaudited)................................ -- -- --
Additional paid-in capital.................... 5,520 22,115 22,364
Stockholder notes receivable.................. (100) (125) (125)
Deferred compensation......................... (95) (96) (148)
Accumulated deficit........................... (2,612) (13,888) (21,324)
------- -------- --------
Total stockholders' equity................. 2,713 8,006 767
------- -------- --------
Total liabilities and stockholders'
equity................................... $ 3,122 $ 12,490 $ 8,150
======= ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
PREVIEW SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
Six Months
Year Ended December 31, Ended June 30,
------------------------- ----------------
1996 1997 1998 1998 1999
------ ------- -------- ------- -------
(unaudited)
<S> <C> <C> <C> <C> <C>
Revenues
Network transaction fees........ $ 148 $ 262 $ 435 $ 111 $ 742
Services........................ -- -- 175 -- 479
------ ------- -------- ------- -------
Total revenues............... 148 262 610 111 1,221
Operating expenses:
Research and development........ 34 1,016 2,978 1,091 3,080
Sales and marketing............. 172 822 2,915 980 2,494
General and administrative...... 184 785 3,127 1,186 2,048
Amortization of intangibles..... -- -- 866 -- 1,038
Acquired in-process research
and development............... -- -- 2,091 -- --
------ ------- -------- ------- -------
Total operating expenses..... 390 2,623 11,977 3,257 8,660
------ ------- -------- ------- -------
Loss from operations.............. (242) (2,361) (11,367) (3,146) (7,439)
Other income (expense):
Interest expense................ -- (40) (37) (8) (64)
Interest income................. -- 21 123 41 65
Other, net...................... -- -- 5 2 2
------ ------- -------- ------- -------
Total other income
(expense).................. -- (19) 91 35 3
------ ------- -------- ------- -------
Net loss.......................... $ (242) $(2,380) $(11,276) $(3,111) $(7,436)
====== ======= ======== ======= =======
Basic and diluted net loss per
share........................... $(0.69) $ (6.45) $ (7.55) $ (4.60) $ (2.75)
====== ======= ======== ======= =======
Shares used in per share
calculations.................... 350 369 1,494 676 2,708
====== ======= ======== ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
PREVIEW SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands, except per share data)
<TABLE>
<CAPTION>
Preferred
Stock Common Stock Additional Stockholder Total
------------- ------------- Paid-In Notes Deferred Accumulated Stockholders'
Shares Amount Shares Amount Capital Receivable Compensation Deficit Equity
------ ------ ------ ------ ---------- ----------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1995 (see Note 1)...... -- $-- -- $-- $ 6 $ -- $ -- $ 10 $ 16
Issuance of common
stock to predecessor
entity (Note 1)....... -- -- 350 -- 66 -- -- -- 66
Issuance of Series A
preferred stock at
$1.00 per share....... 160 -- -- -- 160 -- -- -- 160
Net loss............... -- -- -- -- -- -- -- (242) (242)
----- --- ----- --- ------- ----- ----- -------- --------
Balance at December 31,
1996................... 160 -- 350 -- 232 -- -- (232) --
Issuance of Series A
preferred stock at
$1.00 per share....... 414 -- -- -- 413 -- -- -- 413
Issuance of Series B
preferred stock at
$2.00 per share, net
of issuance costs..... 352 -- -- -- 693 -- -- -- 693
Issuance of Series C
preferred stock at
$3.20 per share, net
of issuance costs..... 1,250 -- -- -- 3,916 -- -- -- 3,916
Fair value of Series C
preferred stock
warrants issued....... -- -- -- -- 40 -- -- -- 40
Exercise of common
stock options for
cash.................. -- -- 32 -- 31 -- -- -- 31
Exercise of common
stock options for
notes receivable...... -- -- 200 -- 100 (100) -- -- --
Compensation related to
issuance of stock
options............... -- -- -- -- 95 -- (95) -- --
Net loss............... -- -- -- -- -- -- -- (2,380) (2,380)
----- --- ----- --- ------- ----- ----- -------- --------
Balance at December 31,
1997................... 2,176 -- 582 -- 5,520 (100) (95) (2,612) 2,713
Issuance of Series D
preferred stock at
$6.68 per share, net
of issuance costs..... 299 -- -- -- 1,965 -- -- -- 1,965
Acquisition of Portland
Software, Inc.:
Issuance of Series E
preferred stock...... 838 -- -- -- 4,190 -- -- -- 4,190
Issuance of common
stock................ -- -- 1,929 -- 3,857 -- -- -- 3,857
Issuance of stock
options and
warrants............. -- -- -- -- 732 -- -- -- 732
Issuance of Series F
preferred stock at
$5.00 per share, net
of issuance costs..... 1,163 -- -- -- 5,685 -- -- -- 5,685
Exercise of common
stock options for cash
and notes receivable.. -- -- 118 -- 61 (25) -- -- 36
Issuance of common
stock for patent
rights................ -- -- 55 -- 55 -- -- -- 55
Compensation related to
issuance of stock
options............... -- -- -- -- 50 -- (50) -- --
Amortization of
deferred
compensation.......... -- -- -- -- -- -- 49 -- 49
Net loss............... -- -- -- -- -- -- -- (11,276) (11,276)
----- --- ----- --- ------- ----- ----- -------- --------
Balance at December 31,
1998................... 4,476 -- 2,684 -- 22,115 (125) (96) (13,888) 8,006
Exercise of common
stock options and
warrants for cash..... -- -- 44 -- 52 -- -- -- 52
Compensation related to
issuance of stock
options............... -- -- -- -- 199 -- (199) -- --
Amortization of
deferred
compensation.......... -- -- -- -- (2) -- 147 -- 145
Net loss............... -- -- -- -- -- -- -- (7,436) (7,436)
----- --- ----- --- ------- ----- ----- -------- --------
Balance at June 30, 1999
(unaudited)............ 4,476 $-- 2,728 $-- $22,364 $(125) $(148) $(21,324) $ 767
===== === ===== === ======= ===== ===== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
PREVIEW SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Year Ended December Six Months
31, Ended June 30,
------------------------ ----------------
1996 1997 1998 1998 1999
----- ------- -------- ------- -------
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net loss.......................... $(242) $(2,380) $(11,276) $(3,111) $(7,436)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Depreciation and amortization.... 1 51 1,420 121 1,338
Other non-cash expenses.......... 64 40 135 105 145
Acquired in-process research and
development.................... -- -- 2,091 -- --
Changes in operating assets and
liabilities:
Related party receivable........ (25) 25 -- -- --
Accounts receivable............. (10) (61) 315 13 (1,004)
Prepaid expenses and other
current assets................ (4) (126) (77) (275) (167)
Other assets.................... -- (81) (313) (4) 1
Accounts payable................ 37 146 171 63 799
Accrued liabilities and other
liabilities................... 54 176 (120) 94 (132)
Deferred revenue................ -- -- 1,729 -- 334
----- ------- -------- ------- -------
Net cash used in operating
activities.................. (125) (2,210) (5,925) (2,994) (6,122)
Cash flows from investing
activities:
Acquisition of Portland Software,
Inc., net of cash acquired...... -- -- 978 -- --
Shareholder notes receivable...... -- -- (25) (25) --
Purchases of intangibles.......... -- -- (200) (200) --
Purchases of property and
equipment....................... (5) (363) (561) (245) (287)
----- ------- -------- ------- -------
Net cash (used in) provided by
investing activities........ (5) (363) 192 (470) (287)
Cash flows from financing
activities:
Borrowings under line of credit,
notes payable and long-term
debt............................ -- 271 459 446 1,880
Repayments under line of credit,
notes payable and long-term
debt............................ -- -- (50) -- (129)
Issuance of preferred stock, net.. 160 4,730 7,650 1,965 --
Issuance of common stock.......... -- 32 61 31 52
Proceeds from obligations under
capital leases.................. -- -- 108 38 235
Payment of obligations under
capital leases.................. -- (1) (98) (38) (88)
----- ------- -------- ------- -------
Net cash provided by financing
activities.................. 160 5,032 8,130 2,442 1,950
----- ------- -------- ------- -------
Net increase (decrease) in cash and
cash equivalents................. 30 2,459 2,397 (1,022) (4,459)
Cash and cash equivalents:
Beginning of period............... -- 30 2,489 2,489 4,886
----- ------- -------- ------- -------
End of period..................... $ 30 $ 2,489 $ 4,886 $ 1,467 $ 427
===== ======= ======== ======= =======
Supplemental Disclosure of Cash
Flow Information:
Cash paid for interest............ $ -- $ -- $ 53 $ 26 $ 60
Cash paid for income taxes........ -- 1 11 4 11
Supplemental Disclosure of
Significant Non-Cash
Transactions:
Conversion of promissory notes
into Series C preferred stock... $ -- $ 271 $ -- $ -- $ --
Issuance of common stock pursuant
to notes receivable............. -- 100 -- -- --
Assets acquired in exchange for
note payable and other
obligations..................... -- -- 509 509 --
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
PREVIEW SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(In thousands, except per share data)
1. Description of Business and Significant Accounting Policies:
The Company
On August 5, 1998, all of the outstanding equity interests of Preview
Software, Inc. ("Preview Software") and Portland Software, Inc. ("Portland
Software") were merged into Preview Systems, Inc. ("the Company" or "Preview").
In accordance with Accounting Principles Board Opinion No. 16, the stockholders
of Preview Software were determined to be the controlling stockholders of the
Company. Accordingly, the merger of Preview Software into the Company was
accounted for as a reorganization under common control with the underlying net
assets recorded by the Company at historical cost. The merger of Portland
Software into the Company was accounted for using the purchase method.
Therefore, the accompanying consolidated financial statements reflect the
operations of Preview Software for all periods presented and reflect the
operations of Portland Software since August 5, 1998.
Preview Software was incorporated on November 22, 1996, in the state of
California. Effective December 1, 1996, Preview Software acquired intellectual
property, engineering information and net assets from Dynasoft Publishing
Corporation, an S corporation with one stockholder ("Dynasoft"). Dynasoft was
incorporated in October 1995. The Company issued 350 shares of common stock to
Dynasoft in exchange for the net assets of Dynasoft which were recorded at the
predecessor's net book value. Preview Software was the successor entity to
Dynasoft and, accordingly, the 1996 financial statements include the activity
of Dynasoft from January 1, 1996 until the transfer date.
Preview Systems is a provider of an Internet-based infrastructure solution
that enables networks for distribution and licensing of digital goods. Through
their infrastructure solution and strategic relationships, the Company links
software publishers and music labels to their channel partners and end-users
worldwide, creating an end-to-end electronic distribution chain that manages
the e-commerce of digital goods and associated licensing rights.
Unaudited Interim Financial Information
All information subsequent to December 31, 1998, except as included in Note
12, is unaudited. In the opinion of management, the unaudited interim financial
statements as of June 30, 1998 and 1999 and for the six month periods then
ended have been prepared on the same basis as the annual financial statements
and reflect all adjustments that are necessary for the fair presentation of
results for the periods shown. The results of operations for such periods are
not necessarily indicative of the results expected for the full fiscal year or
for any interim period.
Consolidated Statements
The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries, Portland Software and Preview
Software. All significant intercompany transactions have been eliminated in
consolidation.
Cash and Cash Equivalents
For the purposes of the consolidated balance sheets and the consolidated
statements of cash flows, the Company considers all highly liquid investments
with an original maturity of three months or less to be cash equivalents. At
December 31, 1997 and 1998, the Company held its cash and cash equivalents in
checking, money market accounts and commercial paper.
F-7
<PAGE>
PREVIEW SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(Continued)
Restricted Cash
The Company's Chief Executive Officer has a note payable to a bank in the
amount of $300. The Chief Executive Officer has pledged all of his vested
shares of the Company's common stock to the Company in return for its guarantee
of his $300 note payable. The Company has a time deposit in the amount of $300,
as required security by the bank, which is included in other assets in the
accompanying consolidated balance sheets at December 31, 1998. A deposit of $53
related to the Company's facility lease is included in other assets in the
accompanying consolidated balance sheets. See Note 6.
Fair Value of Financial Instruments
The Company's financial instruments consist of accounts receivable,
accounts payable, capital leases, notes payable and long-term debt. For the
periods presented, the fair value of the Company's financial instruments
approximate their carrying value.
Advertising
The Company expenses the costs of advertising when such costs are incurred.
Advertising expense was $27, $152 and $111 for 1996, 1997 and 1998,
respectively.
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 reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the period.
Actual results could differ from those estimates.
Property and Equipment
Property and equipment are stated at cost. Capitalized leased property is
recorded at the lesser of the present value of minimum lease payments or the
fair value of the leased property.
Depreciation of property and equipment is computed using the straight-line
method over the estimated useful lives of the assets. Leasehold improvements
are amortized on the straight-line method over the shorter of the term of the
related lease or the estimated useful life of the asset. The estimated useful
lives of property and equipment are as follows:
<TABLE>
<CAPTION>
Years
-----
<S> <C>
Computer equipment and software..................................... three
Furniture and fixtures.............................................. five
Leasehold improvements.............................................. three
Communications hardware............................................. five
</TABLE>
Acquired Technology and Other Intangible Assets
Intangible assets associated with acquisitions are amortized using the
straight-line method over the estimated useful lives of the related assets,
from two to three years. See Note 2. Accumulated amortization related to
acquired technology and other intangible assets was $0 and $848 at December 31,
1997 and 1998, respectively.
F-8
<PAGE>
PREVIEW SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(Continued)
Patents
Patents are stated at acquisition cost and are amortized using the
straight-line method over three to six years. Accumulated amortization related
to patents was $0 and $130 at December 31, 1997 and 1998, respectively.
Impairment of Long-lived Assets
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to be Disposed Of," which establishes
criteria for measuring impairment losses of long-lived assets and determining
when such losses should be recognized. An impairment loss would be recognized
when estimated future cash flows expected to result from the use of the asset
and its eventual disposition are less than its carrying amount. The Company has
not identified any such impairment losses to date.
Revenue Recognition
The Company generally provides rights to use of their solution and ongoing
customer support (upgrades, enhancements, phone support, patches, etc) through
annual licensing agreements. These agreements typically require the payment of
a transaction fee based on a percentage of value of sales that are fulfilled
utilizing the Company's solution. Customers typically commit to annual minimum
network transaction fees that entitles them to fulfill an agreed amount of
sales during the one-year term of the agreement. Some or all of the minimum
network transaction fees are due upon execution of the agreement. The Company
records deferred revenue and is recognizing the minimum network transaction fee
on a straight-line basis over the license period. To the extent sales fulfilled
using our solution exceed the agreed minimum amount of sales, the Company
recognizes incremental network transaction fees. Through December 31, 1998, no
incremental transaction fees have been earned. In the future, the Company will
record the incremental network transaction fees, if any, when known, which may
be in the month subsequent to the transaction. Prior to the Portland merger,
Preview Software's revenues were typically based on one-time license fees which
were recognized over the term of the license.
Service revenues generally consist of consulting, training and integration
fees. Such services are typically billed separately from the network
transaction fees and are recognized as the related services are performed or
when contract milestones are achieved.
The Company entered into a three-year agreement with Sony Marketing of
Japan (SMOJ) in September 1998 that provided to SMOJ the exclusive right to use
and sublicense the Company's technology in Japan, including certain future
upgrades, enhancements and new products. The agreement also provided for
training and support through June 1999. The Company received upfront payments
for the license and services to be performed by the Company. The Company
recorded deferred revenue on the upfront fees and is recognizing the license
portion on a straight-line basis over the three-year term of the agreement and
the service revenue was recognized as work was performed through June 1999. In
addition, the Company will receive quarterly payments from SMOJ based on a
percentage of the dollar value of transactions and services performed by SMOJ
or its sublicenses utilizing the Company's technology. These payments are
subject to annual minimum network transaction fees beginning April 1, 1999.
Beginning April 1, 2000 SMOJ, at its option, may forgo its exclusive rights
rather than pay the annual minimums. During the first year of the agreement,
such minimums will be recognized over 12 months until such minimums are
exceeded; at which time incremental transaction fees will be recognized. In
subsequent years, network transaction fees will be recorded as earned.
Software Development Costs
Development costs related to software products are expensed as incurred
until technological feasibility of the product has been established. Based on
the Company's product development process, technological feasibility is
established upon completion of a working model. Costs incurred by the Company
between
F-9
<PAGE>
PREVIEW SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(Continued)
completion of the working model and the point at which the product is ready for
general release have not been significant, and, accordingly, no costs have been
capitalized.
Income Taxes
The Company is in a net deferred tax asset position and has generated net
operating losses to date. Accordingly, no provision for or benefit from income
taxes has been recorded in the accompanying consolidated statements of
operations. The Company will continue to provide a valuation allowance for its
net deferred tax assets until it becomes more likely than not, in management's
assessment, that the Company's net deferred tax assets will be realized.
Comprehensive Income (Loss)
The Company has adopted the accounting treatment prescribed by Financial
Accounting Standards Board SFAS No. 130, "Reporting Comprehensive Income"
("SFAS 130"). SFAS 130 establishes standards for reporting comprehensive income
(loss) and its components in financial statements. Comprehensive income (loss),
as defined, includes all changes in equity during a period from non-owner
sources. To date, the Company has not had any transactions that are required to
be reported in comprehensive income (loss).
Stock-Based Compensation
The Company accounts for stock-based employee compensation arrangements in
accordance with provisions of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees." ("APB No. 25") and complies with
the disclosure provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation." Under APB No. 25, compensation expense is based on the
difference, if any, on the date of grant between the exercise price of the
instrument granted and the fair value of the underlying stock.
Net Loss per Share
Basic and diluted loss per share are the same for all periods presented
since the Company was in a loss position in all periods.
Potentially dilutive securities that are not included in the diluted net
loss per share calculation because they would be antidilutive are as follows:
<TABLE>
<CAPTION>
December 31, June 30,
---------------- -----------
1996 1997 1998 1998 1999
---- ----- ----- ----- -----
(unaudited)
<S> <C> <C> <C> <C> <C>
Stock options and warrants..................... 38 468 2,131 524 2,490
Convertible preferred stock.................... 160 2,176 4,476 2,475 4,476
--- ----- ----- ----- -----
Total........................................ 198 2,644 6,607 2,999 6,966
=== ===== ===== ===== =====
</TABLE>
Segment Information
In 1998, the Company adopted SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information" ("SFAS 131"). SFAS 131 establishes
standards for reporting information about operating segments and related
disclosures about products and services, geographic areas and major customers.
The adoption of SFAS 131 did not affect results of operations or financial
position. The Company operates exclusively in one segment. Substantially all
revenues result from the sale of product licenses and related services. See
Note 9.
F-10
<PAGE>
PREVIEW SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(Continued)
Concentration of Credit Risk
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of accounts receivable. The
Company performs periodic credit evaluations of its customers' financial
condition and generally does not require collateral.
At December 31, 1997, one customer represented 45% of the total accounts
receivable balance. At December 31, 1998, four customers represented 30%, 26%,
16% and 16%, respectively, of the total accounts receivable balance. At June
30, 1999, four customers represented 26%, 16%, 12% and 11%, respectively, of
the total accounts receivable balance.
Recent Accounting Pronouncements
In March 1998, the AICPA issued Statement of Position 98-4, "Deferral of
the Effective Date of a Provision of SOP 97-2 ("SOP 98-4"). SOP 98-4 defers for
one year the application of certain provisions of Statement of Position 97-2
"Software Revenue Recognition" ("SOP 97-2"). Different informal and non-
authoritative interpretations of certain provisions of SOP 97-2 have arisen
and, as a result, the AICPA issued SOP 98-9 in December 1998 which is effective
for periods beginning after March 15, 1999. SOP 98-9 extends the effective date
of SOP 98-4 and provides additional interpretive guidance. The Company's
accounting policies comply with SOP 97-2 and the Company does not anticipate
the need for any adjustments once SOP 98-4 becomes effective.
In June 1999, the Financial Accounting Standards Board issued SFAS No. 137,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS 137").
SFAS 137 is an amendment to Statement of Financial Accounting Standards No.
133, "Accounting for Derivative Instruments and Hedging Activities". SFAS 137
establishes accounting and reporting standards for all derivative instruments.
SFAS 137 is effective for fiscal years beginning after June 15, 2000. The
Company does not currently have any derivative instruments and, accordingly,
does not expect the adoption of SFAS 137 to have an impact on its financial
position or results of operations.
Reclassifications
Certain amounts in the prior year financial statements have been
reclassified to conform to current year presentation.
2. Acquisition of Portland Software, Inc.:
The Company was formed in April 1998 to acquire all of the outstanding
equity interests of Preview Software and Portland Software. The Company
completed both of these mergers on August 5, 1998. In accordance with
Accounting Principles Board Opinion No. 16, the stockholders of Preview
Software were determined to be the controlling stockholders of the Company.
Accordingly, the merger with Preview Software was accounted for as a
reorganization under common control with the underlying net assets recorded by
the Company at historical cost. The merger with Portland Software was accounted
for using the purchase method. Therefore, the accompanying consolidated
financial statements reflect the operations of Preview Software for all periods
presented and reflect the operations of Portland Software since August 5, 1998.
The Company acquired all of the outstanding stock of Portland Software
through the issuance of 1,929 of its common shares and 838 of its Series E
preferred shares, at estimated fair values of $2.00 per common share and $5.00
per preferred share. Option and warrant holders of Portland Software exchanged
their rights in common and preferred stock of Portland Software for similar
rights in 998 common shares and 218 Series E
F-11
<PAGE>
PREVIEW SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(Continued)
preferred shares of the Company. The fair value of these options and warrants
was computed using the Black Scholes valuation model and was included in the
total consideration. Total consideration was approximately $9,217, allocated as
follows:
<TABLE>
<S> <C>
Acquired technology.................................................. $4,453
In-process research and development.................................. 2,091
Other intangible assets.............................................. 1,085
Patents.............................................................. 484
Net tangible assets.................................................. 1,104
------
Total purchase price............................................... $9,217
======
</TABLE>
Acquired technology and other intangible assets acquired are being
amortized over two to three years. In connection with the merger with Portland
Software, the Company acquired the ongoing research and development activities
of Portland Software resulting in a one-time pre-tax charge of $2,091 related
to the write off of certain in-process research and development costs. The
value assigned to in-process research and development represents research and
development efforts in process at the acquisition date for which technological
feasibility had not yet been established and which had no alternative future
uses. Accounting principles require that such costs be charged to expense as
incurred. The Company believes that these research and development efforts will
result in commercially viable products over the next one to two years.
The summary unaudited pro forma financial information giving effect to the
merger with Portland Software as if it had occurred at the beginning of 1997
and 1998 were as follows:
<TABLE>
<CAPTION>
Year Ended
December 31,
-----------------
1997 1998
------- --------
<S> <C> <C>
Revenues.................................................. $ 763 $ 809
Net loss.................................................. (7,370) (14,550)
Net loss per share........................................ (3.21) (5.51)
</TABLE>
The summary unaudited pro forma information does not purport to be
indicative of the results which would actually have been obtained had the
acquisition occurred at the beginning of the periods indicated or which may be
obtained in the future.
3. Property and Equipment:
Property and equipment consisted of the following as of December 31:
<TABLE>
<CAPTION>
1997 1998
---- ------
<S> <C> <C>
Computer equipment and software............................... $286 $1,107
Furniture and fixtures........................................ 74 195
Leasehold improvements........................................ 11 44
Communications hardware....................................... 33 115
---- ------
Total property and equipment................................ 404 1,461
Less: Accumulated depreciation................................ (52) (641)
---- ------
$352 $ 820
==== ======
</TABLE>
F-12
<PAGE>
PREVIEW SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(Continued)
4. Accrued Liabilities:
Accrued liabilities consisted of the following as of December 31:
<TABLE>
<CAPTION>
1997 1998
---- ----
<S> <C> <C>
Accrued commissions................................................ $ -- $280
Legal fees payable................................................. 42 20
Employee compensation.............................................. 20 242
Consulting fees.................................................... 57 --
Other.............................................................. 91 298
---- ----
$210 $840
==== ====
</TABLE>
5. Borrowings:
In November 1998, the Company entered into a loan agreement with a bank
which provides for borrowings under a revolving line of credit of up to $1,000,
and borrowing under a term loan. Amounts borrowed under the line of credit and
the term loan bear interest at the bank's prime rate plus 1% (8.75% at December
31, 1998). Interest is payable monthly on borrowings under the revolving line
of credit and the term loan is payable in 36 equal installments of $13 of
principal, plus interest. Borrowings are collateralized by all of the tangible
and intangible assets of the Company. At December 31, 1998, amounts outstanding
under the line of credit were $0, and amounts outstanding under the term loan
were $459. Under this agreement, the Company is required to maintain compliance
with certain financial and other covenants including minimum tangible net
worth, liquidity coverage and ratio of quick assets to current liabilities
minus deferred revenue. At December 31, 1998, the Company was in compliance
with all such covenants. The revolving line of credit expires on November 1,
1999 and the term loan matures on November 2, 2001.
Principal payment requirements on the term loan are as follows for the
years ending December 31:
<TABLE>
<S> <C>
1999................................................................ $157
2000................................................................ 157
2001................................................................ 145
----
Total............................................................. $459
====
</TABLE>
On May 28, 1999, the Company entered into various promissory notes with
certain persons for $1,180. Amounts borrowed under the promissory notes bear
interest at 4.9%. The promissory notes were automatically converted into shares
of the Company's Series G Convertible Preferred Stock ("Series G") upon closing
of the financing round in July 1999. See Note 12.
As of June 30, 1999, the Company's amounts outstanding under the line of
credit were $700, and amounts outstanding under the term loan were $380. At
June 30, 1999, the Company was out of compliance with the covenants. With the
proceeds from the Series G offering, the Company paid off the $700 that was
outstanding under its line of credit. As a result of this transaction, the
Company was in compliance with all of the covenants at July 31, 1999.
F-13
<PAGE>
PREVIEW SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(Continued)
6. Commitments and Contingencies:
The Company leases its facilities under noncancellable operating leases,
which expire through September 2003. The Company also leases equipment under
non-cancellable capital leases with terms expiring through the year 2002.
Future minimum lease payments relating to these agreements are as follows:
<TABLE>
<CAPTION>
Capital Operating
Year Ending December 31, Leases Leases
------------------------ ------- ---------
<S> <C> <C>
1999...................................................... $160 $ 735
2000...................................................... 101 763
2001...................................................... 38 641
2002...................................................... 6 390
2003...................................................... -- 99
---- ------
Total minimum lease payments............................ 305 $2,628
======
Less: Amount representing interest........................ (38)
----
Present value of minimum lease payments................... 267
Less: Current portion..................................... (134)
----
Long term portion......................................... $133
====
</TABLE>
Rent expense for the years ended December 31, 1996, 1997 and 1998 was
approximately $3, $111 and $432, respectively. The Company has a $53 deposit
with a bank. The amount is required to be deposited with the bank in accordance
with the terms of the Company's facility lease agreement and will be released
on a pro-rata basis over the term of the lease.
F-14
<PAGE>
PREVIEW SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(Continued)
7. Stockholders' Equity:
Preferred Stock
Series A Convertible Preferred Stock ("Series A"), Series B Convertible
Preferred Stock ("Series B"), Series C Convertible Preferred Stock ("Series
C"), Series D Convertible Preferred Stock ("Series D"), Series E Convertible
Preferred Stock ("Series E") and Series F Convertible Preferred Stock ("Series
F"), consisted of the following, net of issuance costs:
<TABLE>
<CAPTION>
December 31,
-------------
1997 1998
------ ------
<S> <C> <C>
Series A:
Authorized--574
Outstanding--574 shares; liquidation preference of $574... $ 574 $ 574
Series B:
Authorized--352 shares
Outstanding--352 shares; liquidation preference of $705... $ 693 $ 693
Series C:
Authorized--1,276 shares
Outstanding--1,250 shares; liquidation preference of
$4,000.................................................. $3,916 $3,916
Series D:
Authorized--302 shares
Outstanding--299 shares; liquidation preference of
$2,000.................................................. $ -- $1,965
Series E:
Authorized--1,150 shares
Outstanding--838 shares; liquidation preference of
$10,793................................................. $ -- $4,190
Series F:
Authorized--1,600 shares
Outstanding--1,163 shares; liquidation preference of
$5,813.................................................. $ -- $5,685
</TABLE>
The significant rights, restrictions and preferences of the preferred stock
were as follows:
. Each share of preferred stock is convertible, at the right and option
of the stockholder, into such number of fully paid and non-assessable
shares of common stock as is determined by dividing $1.00, $2.00,
$3.20, $6.68, $12.88 and $5.00 for each share of Series A, B, C, D, E,
and F, respectively, by the conversion price at the time in effect for
such shares. Based on this formula, the conversion ratio is currently
one-for-one for all series, subject to adjustment in the event of
stock splits, stock dividends, or the issuance of equity securities
with a per share price lower than that of the Series A, B, C, D, E,
and F.
. Each stockholder of Series A, B, C, D, E, and F is entitled to the
number of votes equal to the number of shares of common stock into
which the preferred stock can be converted. In addition, as long as at
least 312 shares of preferred stock remain outstanding, certain
contemplated actions of the Company must be approved by a majority of
outstanding preferred stock.
. Upon receiving written request from not less than 30% of the holders
of the Series A, B, C, D, E and F that the Company effect any
registration, qualification or compliance with respect to the common
stock which the preferred stock is convertible into with a value equal
to or greater than $10,000, the Company will promptly give written
notice to all other holders and, as soon as practicable, use its best
efforts to effect such registration, qualification or compliance.
F-15
<PAGE>
PREVIEW SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(Continued)
. Any entity holding at least 100 preferred shares has the right of
first refusal to purchase its pro rata portion of any new securities
which the Company may propose to sell and issue.
. Each share of Series A, B, C, D, E, and F will automatically convert
into common stock at the then-effective conversion rate in the event
of the closing of an underwritten public offering of the Company's
common stock from which the Company receives aggregate cash proceeds
in excess of $15,000 and prior to which the market capitalization
(assuming the conversion of all preferred stock, the exercise of all
outstanding warrants and options, and the issuance and exercise of all
remaining unissued options under the Company's stockholder-approved
stock option plans) of the Company at the proposed offering price is
at least $200,000, upon the vote of at least a majority of the
preferred stock or when a majority of the outstanding preferred stock
has converted to common stock.
. Each stockholder of Series A, B, C, D, E, and F is entitled to receive
annual dividends at the rates of $0.08, $0.16, $0.288, $0.60, $1.03
and $0.45 per share, respectively, when and if declared by the Board
of Directors, prior to payment of dividends on common stock. Dividends
are non-cumulative, and no dividends have been declared to date.
. In the event of any consolidation or merger of the Company or a sale
of substantially all of the assets of the Company for which the
aggregate proceeds are less than $200,000, holders of preferred stock
will be paid an amount equal to $1.00, $2.00, $3.20, $6.68, $12.88,
and $5.00 per share, plus an amount equal to all declared but unpaid
dividends for each share of Series A, B, C, D, E, and F, respectively.
If the full amount is not available for distribution, amounts shall be
paid out in proportion to the aggregate preferential amounts owed.
Amounts remaining after the full amount has been paid out will be
distributed to the holders of preferred stock and common stock on a
pro rata basis until stockholders of Series A, B, C, D, E and F shall
have received an amount equal to $2.00, $4.00, $6.40, $13.36, $25.76
and $10.00 per share, respectively. Thereafter, any remaining assets
shall be distributed to the holders of common stock on a pro rata
basis.
. In the event of any consolidation or merger of the Company or a sale
of substantially all of the assets of the Company for which the
aggregate proceeds are more than $200,000, holders of preferred stock
will be paid an amount equal to $1.00, $2.00, $3.20, $6.68, $12.88 and
$5.00 per share, plus an amount equal to all declared but unpaid
dividends for each share of Series A, B, C, D, E and F, respectively.
If the full amount is not available for distribution, amounts shall be
paid out in proportion to the aggregate preferential amounts owed.
Amounts remaining after the full amount has been paid out will be
distributed among the holders of common stock on a pro rata basis.
. In the event of any liquidation, dissolution, or winding up of the
Company, either voluntary or involuntary, in which the aggregate
proceeds to be distributed to all stockholders of the Company is equal
to or less than $200,000, each stockholder of Series A, B, C, D, E and
F shall be entitled to receive, prior and in preference to any
distribution of any assets or surplus funds to the holders of common
stock, an amount equal to $1.00, $2.00, $3.20, $6.68, $12.88 and $5.00
per share for each share of Series A, B, C, D, E, and F, respectively
and, in addition, an amount equal to all declared but unpaid dividends
on Series A, B, C, D, E, and F, respectively. If the full amount is
not available for distribution, amounts shall be paid out in
proportion to the aggregate preferential amounts owed. Amounts
remaining after the full amount has been paid out will be distributed
among the holders of Series A, B, C, D, E and F and common stock on a
pro rata basis, assuming conversion of all shares of Series A, B, C,
D, E and F.
. In the event of any liquidation, dissolution or winding up of the
Company, either voluntary or involuntary, in which the aggregate
proceeds to be distributed to all stockholders of the Company is
greater than $200,000, each
F-16
<PAGE>
PREVIEW SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(Continued)
stockholder of Series A, B, C, D, E and F shall be entitled to
receive, prior and in preference to any distribution of any assets or
surplus funds to the holders of common stock, an amount equal to
$1.00, $2.00, $3.20, $6.68, $12.88 and $5.00 per share for each share
of Series A, B, C, D, E and F, respectively and, in addition, an
amount equal to all declared but unpaid dividends on Series A, B, C,
D, E and F, respectively. If the full amount is not available for
distribution, amounts shall be paid out in proportion to the aggregate
preferential amounts owed. Amounts remaining after the full amount has
been paid out will be distributed among the holders of common stock on
a pro rata basis.
Common Stock
As of December 31, 1998, and June 30, 1999 the Company had reserved shares
of its common stock for future issuance as follows:
<TABLE>
<CAPTION>
December 31, June 30,
1998 1999
------------ -----------
(unaudited)
<S> <C> <C>
Conversion of Series A............................. 574 574
Conversion of Series B............................. 352 352
Conversion of Series C............................. 1,250 1,250
Conversion of Series D............................. 299 299
Conversion of Series E............................. 838 838
Conversion of Series F............................. 1,163 1,163
Exercise of outstanding common stock warrants...... 172 170
Exercise of outstanding preferred stock warrants... 246 246
Exercise of stock options.......................... 3,221 2,348
----- -----
Total shares reserved............................ 8,115 7,240
===== =====
</TABLE>
Warrants Outstanding
As of December 31, 1998, the following warrants were outstanding:
<TABLE>
<CAPTION>
Exercise
Number of Price Expiration
Underlying Security Shares Per Share Date
------------------- --------- --------- --------------
<S> <C> <C> <C>
Common Stock............................. 1 $13.02 December 2000
Common Stock............................. 44 3.86 October 2001
Common Stock............................. 13 3.86 June 2002
Common Stock............................. 8 3.86 July 2002
Common Stock............................. 106 0.04 July 2002
---
172
===
Preferred Stock:
Series C............................... 25 3.20 September 2002
Series E............................... 218 12.88 August 2004
Series F............................... 3 5.00 September 2005
---
246
===
</TABLE>
Common stock warrants exercisable for 2 shares of the Company's common
stock were exercised during the period January 1, 1999 through June 30, 1999.
F-17
<PAGE>
PREVIEW SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(Continued)
Stock Based Compensation
The Company has four stock option plans, the Old 1997 Stock Option Plan
("Old Plan"), the New 1997 Stock Option Plan ("New Plan"), the 1998 Stock
Option Plan ("98 Plan"), and the Amended and Restated 1994 Stock Option Plan
("94 Plan"), collectively "the Plans". As of December 31, 1998 and June 30,
1999, the Company had reserved an aggregate of 3,221 shares and 2,348 shares,
respectively, of common stock for issuance under the Plans and options issued
outside of the Plans combined. After December 31, 1998, the Company does not
intend to grant stock options from any of the above plans other than from the
98 Plan, under which as of that date there were approximately 634 shares
available for future grant. Subsequent to December 31, 1998, the Old Plan, the
New Plan and the 94 Plan were terminated and therefore, no shares are available
for future grant under these plans.
The Plans provide for the granting of stock options to employees and
consultants of the Company. Options granted under the Plans may be either
incentive stock options or nonqualified stock options. Incentive stock options
("ISO's") may be granted only to employees of the Company and nonqualified
stock options ("NSO's") may be granted to employees of the Company and to
consultants.
All options granted shall generally be exercisable over a period not to
exceed ten years from the date of grant; however in the case of an ISO granted
to a person owning more than 10% of the combined voting power of all classes of
stock of the Company, the term of the option will be five years from date of
grant. All options granted generally vest ratably over four years.
In accordance with the Plans, the stated exercise price of options shall
not be less than 85% of the estimated fair value of the shares at the date of
grant as determined by the Board of Directors, provided, however, that (a) the
exercise price of an ISO and NSO shall not be less than 100% and 85% of the
estimated fair value of the shares on the date of grant, respectively, and (b)
the exercise price of an ISO and NSO granted to a 10% stockholder shall not be
less than 110% of the estimated fair value of the shares on the date of grant,
respectively.
F-18
<PAGE>
PREVIEW SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(Continued)
The Company also has options outstanding outside of the Plans. A summary of
all stock option activity is as follows:
<TABLE>
<CAPTION>
Weighted
Shares Average
Available for Shares Subject Exercise Price
Grant to Options Per Share
------------- -------------- --------------
<S> <C> <C> <C>
Balances, December 31, 1995.... -- -- $ --
Shares reserved................ 70 -- --
Options granted................ (35) 35 0.62
------ ------ -----
Balances, December 31, 1996.... 35 35 0.62
Additional shares reserved..... 724 -- --
Options granted................ (687) 687 0.50
Options cancelled.............. 22 (22) 0.50
Options exercised.............. -- (232) 0.50
------ ------ -----
Balances, December 31, 1997.... 94 468 0.50
Additional shares reserved..... 2,785 -- --
Options granted................ (701) 701 1.67
Options assumed in Portland
Software acquisition......... (826) 826 1.72
Options cancelled.............. 156 (164) 1.24
Options exercised.............. -- (118) 0.61
------ ------ -----
Balances, December 31, 1998.... 1,508 1,713 1.84
Additional shares reserved..... 50 -- --
Terminated plans............... (880) -- --
Options granted................ (442) 442 5.15
Options cancelled.............. 38 (38) 2.06
Options exercised.............. -- (43) 1.12
------ ------ -----
Balances, June 30, 1999
(unaudited).................. 274 2,074 $2.68
====== ====== =====
</TABLE>
Options cancelled that were granted outside of the Plans are not added back
to the shares available for grant.
As of December 31, 1998, stock options outstanding, including options
granted outside of the stock option plans, were as follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------- --------------------------------
Weighted Weighted
Range of Number Average Number Average
Contractual Outstanding as of Exercise Price Exercisable as of Exercise Price
Prices December 31, 1998 Per Share December 31, 1998 Per Share
----------- ----------------- -------------- ----------------- --------------
<S> <C> <C> <C> <C>
$0.00--
0.20 119 $0.0094 119 $0.0094
0.40--
0.60 383 0.50 107 0.50
0.80--
1.00 65 1.00 -- --
1.80--
2.00 1,146 2.00 310 2.00
------- ----- ------- --- -------
$0.00--
2.00 1,713 $ 1.48 536 $ 1.26
======= ===== ======= === =======
</TABLE>
F-19
<PAGE>
PREVIEW SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(Continued)
In October 1995, the Financial Accounting Standards Board issued Statement
No. 123 ("SFAS 123") "Accounting for Stock-Based Compensation," which
establishes a fair value-based method of accounting for stock-based
compensation plans and requires additional disclosures for those companies who
elect not to adopt the new method of accounting. The Company has adopted SFAS
123 and in accordance with the provisions of SFAS 123, the Company has elected
to continue to apply APB Opinion No. 25 and related interpretations in
accounting for its stock option plans.
Had compensation cost for the Company's stock option plans been determined
consistent with SFAS 123, the Company's net loss would have been adjusted to
the following pro forma amounts:
<TABLE>
<CAPTION>
Year Ended December
31,
------------------------
1996 1997 1998
----- ------- --------
<S> <C> <C> <C>
Net loss:
As reported..................................... $(242) $(2,380) $(11,276)
Pro forma....................................... (242) (2,404) (11,360)
Net loss per share:
As reported..................................... (0.69) (6.45) (7.55)
Pro forma....................................... (0.69) (6.51) (7.60)
</TABLE>
Because the Black-Scholes option valuation model requires the input of
subjective assumptions, the resulting pro forma compensation cost may not be
representative of that to be expected in future periods.
The Company also issued options to non-employees. Compensation expense
related to these options was $0, $0 and $41 for 1996, 1997 and 1998,
respectively.
The weighted average fair value of options granted during 1997 and 1998 was
$0.14 and $0.42, respectively. The fair value of each option grant is estimated
on the date of grant using the Black-Scholes option pricing model and the
minimum value method which excludes volatility factors as the Company is
privately held. The following assumptions were used:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------
1996 1997 1998
------- -------- -------
<S> <C> <C> <C>
Risk-free interest rate......................... n/a 6.25% 5.5%
Expected dividend yield......................... n/a 0% 0%
Expected lives (years).......................... n/a 5 5
</TABLE>
In connection with the issuance of stock options, the Company has recorded
deferred compensation of $145 as of December 31, 1998, representing the
difference between the deemed fair value of the Company's common stock and the
exercise price of stock options at the date of grant. The Company amortizes the
deferred compensation over the applicable vesting period, typically four years.
F-20
<PAGE>
PREVIEW SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(Continued)
8. Income Taxes:
The Company accounts for income taxes in accordance with the provisions of
SFAS No. 109, "Accounting for Income Taxes," which requires recognition of
deferred income tax liabilities and assets for the expected future tax
consequences of events that have been included in the financial statements or
tax returns. Under this method, deferred income tax assets and liabilities are
determined using the current applicable enacted tax rates and provisions of the
enacted tax law. The Company had net deferred tax assets and liabilities as
follows:
<TABLE>
<CAPTION>
December 31,
----------------
1997 1998
------- -------
<S> <C> <C>
Net operating loss carryforwards......................... $ 979 $ 6,174
Accruals and reserves.................................... 56 112
Research and development costs capitalized for income tax
purposes............................................... -- 742
Deferred revenue......................................... -- 812
Basis difference in acquired net assets of Portland
Software............................................... -- (1,900)
------- -------
1,035 5,940
Valuation allowance...................................... (1,035) (5,940)
------- -------
Net deferred income taxes................................ $ -- $ --
======= =======
</TABLE>
At December 31, 1998, the Company had net operating loss carryforwards of
approximately $15,670 for both federal and state tax purposes. The federal net
operating loss carryforwards expire on various dates through 2018, while the
state net operating loss carryforwards expire on various dates through 2013.
The Company believes that, based on a number of factors, there is sufficient
uncertainty regarding the realizability of net deferred tax assets such that a
full valuation allowance should be recorded. These factors include a history of
operating losses, the competitive nature of the Company's market and the lack
of predictability of revenue. Management will continue to assess the
realizability of the tax benefits available to the Company based on actual and
forecasted operating results. Changes in ownership resulting from the merger
described in Note 2 and other ownership changes may significantly limit the
utilization of net operating loss carryforwards in the future.
9. Segment Information:
The Company operates in one industry segment: the design, development and
marketing of technology that enables the distribution and licensing of digital
goods over the Internet and via other digital media. All long-lived assets are
located in the United States. The Company's geographic information is
summarized as follows:
<TABLE>
<CAPTION>
Year Ended
December 31,
--------------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Sales to unaffiliated customers:
United States.............................................. $148 $262 $266
Europe..................................................... -- -- 24
Asia....................................................... -- -- 274
Other...................................................... -- -- 46
---- ---- ----
$148 $262 $610
==== ==== ====
</TABLE>
F-21
<PAGE>
PREVIEW SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(Continued)
Two customers accounted for 54% and 20%, respectively, of total revenues in
1996. Two customers accounted for 21% and 12%, respectively, of total revenues
in 1997. Two customers accounted for 45% and 13% respectively, of total
revenues in 1998. Two customers accounted for 38% and 13%, respectively, of
total revenues in the six months ended June 30, 1999.
10. Related Party Transactions:
In conjunction with the exercise of stock options for the issuance of 250
shares of common stock to the Chief Executive Officer, the Company issued three
notes receivable aggregating $125. The notes receivable are full recourse,
secured by shares of the Company's common stock and bear interest at 6% per
annum. The principal and unpaid interest are due in full on May 27, 2001 for
$25 of the notes and June 6, 2001 for the remaining $100 of notes. The shares
issued are subject to repurchase by the Company until the notes are paid. See
Note 1--Restricted Cash.
11. Employee Savings Plan:
The Company has a profit sharing plan and trust that qualifies as a
deferred salary arrangement under Section 401(k) of the Internal Revenue Code
("401(k) Plan"). Under the terms of the 401(k) Plan, the employees of the
Company may make voluntary contributions to the 401(k) Plan as a percentage of
compensation, but not in excess of the maximum allowed under the Internal
Revenue Code. Employees become eligible to participate in the 401(k) Plan on
the first day of the month following date of hire. The Company currently does
not match employee contributions.
12. Subsequent Events:
In May 1999, 20/20 Software, Inc., an Oregon corporation, filed a civil
complaint against the Company in the United States Court for the District of
Northern California. The complaint alleges that one of the Company's employees,
a former 20/20 employee, misappropriated trade secrets and confidential
information of 20/20 and allegedly used such allegedly misappropriated
information and trade secrets in a product of the Company's predecessor and
subsidiary, Preview Software. This complaint is a continuation of two earlier
and similar complaints by 20/20, one against the Company filed in, and
dismissed for lack of jurisdiction by, the United States Court for the Federal
District of Oregon, and one against an employee of the Company filed in Oregon
state court. Those two complaints were both dismissed, the latter with
prejudice. Management believes that the claims in the underlying litigation are
without merit and intend to continue to defend against them vigorously.
However, litigation is subject to inherent uncertainties and, therefore, there
can be no assurance that this action will not have a material adverse effect on
our business results of operations or financial condition.
In July 1999, the Company sold 125 and 150 shares of common stock at a
price of $6.50 to the President and Chief Executive Officer and Vice President,
Chief Financial Officer, respectively. Under the terms of these sales, the
Company can repurchase a certain number of their shares of stock if they quit
or are terminated, subject to a monthly vesting schedule. In addition, the
Company has a right of first refusal to purchase any or all of their shares if
they decide to sell or transfer their shares. In connection with these sales,
the officers executed full-recourse promissory notes in the respective amounts
of $812 and $975 in favor of the Company with annual interest rates of 5.32%.
These notes become due and payable upon the earlier of July 2002 or termination
of their employment with the Company. The officers have also entered into
pledge and security agreements granting the Company a security interest in
these shares.
In July 1999, the Company issued shares of Series G for purposes of
additional working capital and continued development of technology. A total of
4,312 shares of Series G were issued for net proceeds to the
F-22
<PAGE>
PREVIEW SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(Continued)
Company of $27,045. The Series G has substantially the same rights and
preferences as other preferred shares outstanding at December 31, 1998. The
Company had $1,180 of notes payable outstanding at June 30, 1999 which were
automatically converted into shares of the Company's Series G. In connection
with the Series G offering, the Company also issued a warrant to purchase 77
shares of Series G.
In July 1999, the Board of Directors of the Company authorized the
reservation of an additional 500 shares of the Company's common stock for
issuance under the 98 Plan. In addition, the 98 Plan was amended in August 1999
to increase the total number of shares authorized by 1,000 and to incorporate
certain other changes. The Board of Directors approved a further amendment to
the 98 Plan subject to stockholder approval, to provide for an automatic annual
increase on the first day of each of the Company's fiscal years beginning in
2000 and ending in 2008 equal to the lesser of (i) 800 shares, (ii) 3% of the
Company's outstanding common stock on the last day of the immediately preceding
fiscal year, or (iii) such lesser number of shares as the Board of Directors
determines.
During August 1999, the Board of Directors approved the 1999 Employee Stock
Purchase Plan ("1999 ESPP"), subject to stockholder approval, and reserved 500
shares of common stock for issuance thereunder. The 1999 ESPP will be subject
to an automatic annual increase on the first day of each of the Company's
fiscal years over the 10-year term of the plan, equal to the lesser of (i) 400
shares, (ii) 2% of the Company's outstanding common stock on the last day of
the immediately preceding fiscal year, or (iii) such lesser number of shares as
the Board of Directors determines.
During August 1999, the Board of Directors also approved the 1999 Directors
Stock Option Plan ("1999 Directors Plan"), subject to stockholder approval, and
reserved 300 shares of common stock for issuance thereunder. The 1999 Directors
Plan will be subject to an automatic annual increase to the number of shares
reserved under the plan on the first day of each of the Company's fiscal years
over the 10-year term of the plan, equal to the lesser of (i) 150 shares, (ii)
1% of the Company's outstanding common stock on the last day of the preceding
fiscal year, or (iii) a lesser number of shares as determined by the Board of
Directors.
On September 14, 1999, the Company authorized a 1 for 2 reverse stock split
of its common and preferred stock, effective immediately prior to the closing
of the initial public offering. All share and per share amounts have been
retroactively adjusted to reflect this stock split. The Board of Directors,
subject to stockholder approval, amended the number of authorized common stock
to 75,000 shares and the number of preferred stock to 5,000 shares, to be
effective upon the closing of the initial public offering.
F-23
<PAGE>
PORTLAND SOFTWARE, INC.
FINANCIAL STATEMENTS
December 31, 1996 and 1997
(With Independent Auditors' Report Thereon)
F-24
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Portland Software, Inc.:
We have audited the accompanying balance sheets of Portland Software, Inc.
as of December 31, 1996 and 1997 and the related statements of operations,
stockholders' equity, and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Portland Software, Inc. as
of December 31, 1996 and 1997, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
/s/ KPMG LLP
Portland, Oregon
February 20, 1998
F-25
<PAGE>
PORTLAND SOFTWARE, INC.
BALANCE SHEETS
December 31, 1996 and 1997
(In thousands, except per share data)
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................................. $ 1,990 $ 4,745
Accounts receivable, net................................... 8 268
Prepaid expenses........................................... 27 10
Other current assets, net.................................. 13 181
------- -------
Total current assets.................................... 2,038 5,204
Property and equipment, net.................................. 181 372
Note receivable from officer................................. -- 55
Other non-current assets..................................... 42 48
Prepaid license fee, net..................................... -- 289
------- -------
Total assets............................................ $ 2,261 $ 5,968
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable........................................... 272 169
Accrued expenses........................................... 25 255
Current installments of obligations under capital leases... 81 111
Deferred revenue........................................... -- 40
------- -------
Total current liabilities............................... 378 575
Obligations under capital leases, less current installments.. 59 134
Other non-current liabilities................................ 27 40
------- -------
Total liabilities....................................... 464 749
------- -------
Commitments and contingencies
Shareholders' equity:
Series B preferred stock, $.01 par value; 4,500 share
authorized; convertible; $.2672 cumulative dividends;
issued and outstanding -0- shares and 2,395 shares at
December 31, 1996 and 1997, respectively (liquidation
preference of $8,000).................................... -- 24
Series A preferred stock, $.01 par value; 838 shares
authorized; convertible; issued and outstanding 838
shares at December 31, 1996 and 1997 (liquidation
preference of $2,800).................................... 8 8
Common stock, $.01 par value; 20,000 shares authorized;
issued and outstanding 6,945 shares and 6,988 shares at
December 31, 1996 and 1997, respectively................. 69 70
Additional paid-in capital................................. 5,077 13,464
Accumulated deficit........................................ (3,357) (8,347)
------- -------
Total shareholders' equity.............................. 1,797 5,219
------- -------
Total liabilities and shareholders' equity.............. $ 2,261 $ 5,968
======= =======
</TABLE>
See accompanying notes to financial statements.
F-26
<PAGE>
PORTLAND SOFTWARE, INC.
STATEMENTS OF OPERATIONS
Years ended December 31, 1996 and 1997
(In thousands, except per share data)
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Net revenue.................................................. $ 187 $ 501
Cost of goods sold........................................... 64 156
------- -------
Gross profit............................................ 123 345
------- -------
Operating expenses:
Sales and marketing........................................ 749 1,901
Research and development................................... 1,044 1,640
General and administrative................................. 1,154 1,849
------- -------
Total operating expenses................................ 2,947 5,390
------- -------
Loss from operations....................................... (2,824) (5,045)
------- -------
Other income (expense):
Interest income............................................ 30 107
Interest expense........................................... (23) (52)
------- -------
Total other income (expense)............................ 7 55
------- -------
Loss before income taxes................................... (2,817) (4,990)
Income taxes................................................. -- --
------- -------
Net loss................................................ $(2,817) $(4,990)
======= =======
Earnings per share computation:
Net loss................................................... $(2,817) $(4,990)
Preferred stock dividends.................................. -- (234)
------- -------
Net loss available to common shareholders.................. $(2,817) $(5,224)
======= =======
Basic and diluted net loss per share:
Weighted average shares outstanding........................ 5,899 6,978
======= =======
Net loss................................................... $ (0.48) $ (0.75)
======= =======
</TABLE>
See accompanying notes to financial statements.
F-27
<PAGE>
PORTLAND SOFTWARE, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
Years ended December 31, 1996 and 1997
(In thousands)
<TABLE>
<CAPTION>
Series B Series A
preferred stock preferred stock Common stock Additional Total
----------------- ----------------- ------------- paid-in Accumulated shareholders'
Shares Amount Shares Amount Shares Amount capital deficit equity
-------- ------- ------- ------- ------ ------ ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1995.................. -- $ -- -- $ -- 4,417 $44 $ 523 $ (540) $ 27
Issuance of preferred
stock, net........... -- -- 838 8 -- -- 2,792 -- 2,800
Issuance of common
stock................ -- -- -- -- 1,577 16 1,248 -- 1,264
Exercise of common
stock options........ -- -- -- -- 175 2 (2) -- --
Common stock issued in
lieu of cash......... -- -- -- -- 621 6 417 -- 423
Conversion of
convertible debt to
common stock......... -- -- -- -- 155 1 99 -- 100
Net loss............... -- -- -- -- -- -- -- (2,817) (2,817)
-------- ------ ------- ------- ----- --- ------- ------- -------
Balance, December 31,
1996.................. -- -- 838 8 6,945 69 5,077 (3,357) 1,797
Issuance of preferred
stock, net........... 2,149 22 -- -- -- -- 7,109 -- 7,131
Conversion of
convertible debt to
preferred stock...... 246 2 -- -- -- -- 818 -- 820
Exercise of common
stock options........ -- -- -- -- 43 1 10 -- 11
Common stock options
issued in lieu of
cash................. -- -- -- -- -- -- 21 -- 21
Warrants issued in
payment of license
fee.................. -- -- -- -- -- -- 429 -- 429
Net loss............... -- -- -- -- -- -- -- (4,990) (4,990)
-------- ------ ------- ------- ----- --- ------- ------- -------
Balance, December 31,
1997.................. 2,395 $ 24 838 $ 8 6,988 $70 $13,464 $(8,347) $ 5,219
======== ====== ======= ======= ===== === ======= ======= =======
</TABLE>
See accompanying notes to financial statements.
F-28
<PAGE>
PORTLAND SOFTWARE, INC.
STATEMENTS OF CASH FLOWS
Years ended December 31, 1996 and 1997
(In thousands)
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................................... $(2,817) $(4,990)
Adjustments to reconcile net loss to net cash used by
operating activities:
Depreciation and amortization.............................. 61 173
Loss on sale of property and equipment..................... 29 --
Common stock and options issued in lieu of cash............ 423 21
Net changes in operating assets and liabilities:
Accounts receivable....................................... 15 (260)
Prepaid expenses.......................................... (27) 17
Other assets.............................................. (55) (116)
Accounts payable.......................................... 258 (103)
Accrued expenses.......................................... 27 230
Other liabilities......................................... -- 53
------- -------
Net cash used in operating activities................... (2,086) (4,975)
------- -------
Cash flows from investing activities:
Purchase of property and equipment.......................... (49) (111)
------- -------
Net cash used in investing activities................... (49) (111)
------- -------
Cash flows from financing activities:
Borrowings under line of credit agreement................... -- 250
Payments on line of credit.................................. -- (250)
Payments on obligations under capital lease................. (45) (121)
Proceeds from issuance of common stock...................... 1,264 11
Proceeds from issuance of preferred stock................... 2,800 7,131
Proceeds from issuance of convertible debt.................. -- 820
------- -------
Net cash from financing activities...................... 4,019 7,841
------- -------
Net increase in cash and cash equivalents............... 1,884 2,755
Cash and cash equivalents at beginning of year............... 106 1,990
------- -------
Cash and cash equivalents at end of year..................... $ 1,990 4,745
======= =======
Supplemental disclosure of cash flow information:
Cash paid for interest...................................... $ 15 60
Cash paid for income taxes.................................. -- --
Supplemental disclosure of non-cash investing and financing
activities:
Obligations under capital lease incurred for the purchase of
property and equipment.................................... $ 160 226
Preferred stock issued upon conversion of debt.............. -- 820
Common stock issued upon conversion of debt................. 100 --
Warrants issued in payment of license fee................... -- 429
</TABLE>
See accompanying notes to financial statements.
F-29
<PAGE>
PORTLAND SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1996 and 1997
(In thousands, except per share data)
(1) Summary of Significant Accounting Policies
(a) Description of Business
Portland Software, Inc. (the Company) was incorporated in October 1994. The
Company develops and markets systems and tools for the electronic distribution,
primarily through the internet, of software and other digital content.
(b) Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
(c) Cash and Cash Equivalents
Cash and cash equivalents consist of cash and short-term investments with
maturities of less than three months.
(d) Accounts Receivable
The allowance for doubtful accounts is as follows at December 31:
<TABLE>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
Balance--beginning of period...................................... $-- $--
Provision......................................................... -- 56
Charge offs....................................................... -- (6)
--- ---
Balance--end of period............................................ $-- $50
=== ===
</TABLE>
(e) License Fee
License fees are stated at cost. Amortization is provided for by the
straight-line method over four years. Amortization expense totaled $-0- and $27
for the years ended December 31, 1996 and 1997, respectively.
(f) Advertising
The Company expenses the costs of advertising when the costs are incurred.
Advertising expense was $105 and $66 for the years ended December 31, 1996 and
1997, respectively.
(g) Property and Equipment
Property and equipment are stated at cost. Property and equipment under
capital leases are stated at the present value of the minimum lease payments.
Equipment is depreciated using the straight-line method over the estimated
useful lives of the assets, generally three to five years. Property and
equipment under capital leases
F-30
<PAGE>
PORTLAND SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
and leasehold improvements are amortized straight-line over the shorter of the
lease term or estimated useful life of the asset.
(h) Income Taxes
Deferred tax assets and liabilities are recognized for future tax
consequences of differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and operating
losses and tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
Valuation allowances are established when necessary to reduce deferred tax
assets to the amounts expected to be realized.
(i) Net Loss Per Share
The Company follows the provisions of SFAS 128, "Earnings Per Share" which
requires presentation of both basic and diluted earnings per share (EPS) on the
face of the income statement. Basic EPS is computed using the weighted average
number of common shares outstanding during the period. Diluted EPS reflects the
potential dilution that could occur if convertible preferred shares outstanding
at the beginning of each year were converted at those dates with related
interest, preferred stock dividend requirements and outstanding common shares
adjusted accordingly. It also assumes that outstanding common shares were
increased by shares issuable upon exercise of those stock options or warrants
for which market price exceeds exercise price, less shares which could have
been purchased by the Company with related proceeds. Neither convertible
preferred stock, warrants, or stock options have been included in the
computation of diluted earnings per share for the years ended December 31, 1996
or 1997, since it would have resulted in an antidilutive effect.
(j) Revenue Recognition
Revenue results primarily from 1) product license and installation fees, 2)
fees charged for transactions processed using the Company's product, and 3)
license fees recognized upon shipment of the product and when no significant
contractual obligations remain outstanding. For those agreements which derive
revenue on a per-transaction basis in exchange for guaranteed amounts, revenue
is recognized at the time of product delivery. Per-transaction fees that exceed
the guarantee are recognized as earned.
A portion of product license revenue is allocated to customer support. This
amount is deferred and recognized ratably over the license period. The Company
generally does not provide for a right of return policy for its software sales.
(k) Royalties
Royalties are accrued based on certain revenues, pursuant to contractual
agreements with developers of software products published by the Company.
Royalty costs are included in the cost of goods sold.
(l) Software Development Costs
Under Statement of Financial Accounting Standards No. 86, software
development costs are to be capitalized beginning when a product's
technological feasibility has been established and ending when a product is
made available for general release to customers. To date, the establishment of
technological feasibility of the Company's products has occurred shortly before
general release and, accordingly, no costs have been capitalized.
F-31
<PAGE>
PORTLAND SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(m) Stock-Based Compensation
The Company accounts for stock-based compensation using the Financial
Accounting Standard Board's Statement of Financial Accounting Standards No. 123
(SFAS 123), Accounting for Stock-Based Compensation. This statement permits a
company to choose either a fair-value-based method of accounting for its stock-
based compensation arrangements or to comply with the current Accounting
Principles Board Opinion 25 (APB Opinion 25) intrinsic-value-based method
adding pro forma disclosures of net income (loss) computed as if the fair-
value-based method had been applied in the financial statements. The Company
applies SFAS No. 123 by retaining the APB Opinion 25 method of accounting for
stock-based compensation for employees with annual pro forma disclosures of net
income (loss). Stock-based compensation for non-employees is accounted for
using the fair-value-based method.
(2) Property and Equipment
Property and equipment, net consist of the following at December 31:
<TABLE>
<CAPTION>
1996 1997
---- -----
<S> <C> <C>
Software........................................................ $ 9 $ 85
Furniture and fixtures.......................................... 6 13
Equipment....................................................... 236 478
Leasehold improvements.......................................... -- 12
---- -----
251 588
Less accumulated depreciation and amortization.................. (70) (216)
---- -----
$181 $ 372
==== =====
</TABLE>
(3) Prepaid License Fee
On August 1, 1997, the Company entered into an agreement to license the
rights to certain software developed by another company. The Company issued 479
Series B preferred stock warrants in consideration for the license. The value
of warrants granted using the Black-Scholes method utilized the following
assumptions: risk free interest rate of 6.25%, no expected dividend yield or
volatility, and an expected life of two years. Using these assumptions these
warrants have a fair value of $429, a weighted average exercise price of $3.34,
a contractual life of seven years and will be fully vested in 1998. At December
31, 1997, 359 warrants were exercisable. The prepaid license fee is being
amortized over its estimated useful life of four years.
<TABLE>
<CAPTION>
1996 1997
---- -----
<S> <C> <C>
License fee...................................................... $-- $ 429
Less accumulated amortization.................................... -- (27)
--- -----
-- 402
Less current portion included in other current assets, net....... -- (113)
--- -----
$-- $ 289
=== =====
</TABLE>
(4) Line of Credit
In January 1997, the Company arranged a $250 credit facility (the line of
credit) with a bank. The line of credit is secured by the assets of the
Company. The interest rate is a floating rate based on prime (8.5% at
F-32
<PAGE>
PORTLAND SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1997) plus 2% with principal due upon demand. The agreement
contains no covenants. There was no amount outstanding on this line of credit
at December 31, 1997.
(5) Accrued Expenses
Accrued expenses consist of the following at December 31:
<TABLE>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
Accrued consulting................................................ $-- 89
Accrued vacation.................................................. 11 51
Accrued bonuses................................................... -- 33
Other accrued expenses............................................ 14 82
--- ---
$25 255
=== ===
</TABLE>
(6) Income Taxes
The actual income tax benefit differs from the "expected" benefit computed
by applying the U.S. federal corporate rate as follows:
<TABLE>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
Computed "expected" income tax rate benefit................... (34)% (34)%
Increases (decreases) resulting from:
State income taxes, net of federal tax benefit.............. (4) (4)
Exclusion of earnings for period that S Corporation was
valid..................................................... 1 --
Research and development credit............................. -- (2)
Increase in valuation allowance............................. 37 40
---- ----
Actual income tax rate benefit................................ --% --%
==== ====
</TABLE>
The tax effects of temporary differences and net operating loss
carryforwards which give rise to significant portions of deferred tax assets
and deferred tax liabilities at December 31 are as follows:
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Deferred tax assets:
Net operating losses and U.S. research and
experimentation credits............................... $ 904 2,506
Property and equipment, due to differences in
depreciation.......................................... 40 462
Accrual to cash basis adjustment........................ 109 65
------- -------
1,053 3,033
Less valuation allowance................................ (1,053) (3,033)
------- -------
Net deferred taxes................................... $ -- --
======= =======
</TABLE>
The net change in the total valuation allowance for the years ended
December 31, 1996 and 1997 was an increase of $1,053 and $1,980, respectively.
The Company has available federal and state net operating loss
carryforwards for tax purposes of approximately $6,351 and research and
experimentation credits of approximately $121, which expire in years 2011-2012.
F-33
<PAGE>
PORTLAND SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Approximately $4,682 of the net operating losses are subject to annual
utilization limitation due to ownership changes under Internal Revenue Code
Section 382 in 1996 and 1997.
(7) Shareholders' Equity
(a) Series B Preferred Stock
The Series B preferred stock has a stated value of $3.34 per share and a
liquidation preference over holders of common stock and Series A preferred
stock of an amount per share equal to $3.34 (the original issue price) plus all
declared but unpaid dividends. Series B preferred stock has a cumulative per
share dividend, on a non-compounded basis, of $.2672 per annum payable at the
Company's option in cash or additional shares of Series B preferred stock. The
dividends are to be declared by the Board of Directors and paid on June 30,
2001 and on a quarterly basis thereafter, unless a liquidating event occurs
before June 30, 2001, in which case the aggregate amount of arrearages in
cumulative Series B preferred stock dividends will be canceled and no further
dividends will accrue. No dividend declarations have been made, and the
aggregate amount of arrearages in cumulative Series B preferred stock dividends
is $234 at December 31, 1997.
Each share is convertible into common stock at any time at the option of
the holder. The initial conversion ratio is one-to-one, but this ratio is
subject to modification under the Company's Articles of Incorporation in the
event of certain dilutive issuance of securities, stock splits, stock
dividends, stock distributions or other common stock equivalent distributions.
Automatic conversion to common stock at the then effective conversion rate will
occur upon the 1) closing of the issuance of shares following an effective
registration statement under the Securities Act of 1933, in which the aggregate
price to the public exceeds $10,000 and in which the public offering price per
share of common stock equals or exceeds $10.00, or 2) the date on which a two-
thirds majority of the shares have been converted into shares of common stock
or are otherwise no longer outstanding. The holders of each share of Series B
preferred stock will have the right to the number of votes to which they would
be entitled if the shares were converted to common stock. The Company has
reserved 3,234 shares of the Company's common stock for the conversion of
Series B preferred stock.
Under the Series B preferred stock agreement, the Company is required to
comply with certain operating covenants, including requirements associated with
the issuance of stock options.
(b) Series A Preferred Stock
The Series A preferred stock has a stated value and liquidation preference
of $3.34 per share and carries a dividend of $.2672 per annum payable when and
if declared by the Board of Directors. No dividend declarations have been made.
Series A preferred shareholders have a liquidation preference over holders of
common stock of an amount per share equal to $3.34 (the original issue price)
plus all declared but unpaid dividends. Each share is convertible into common
stock on a one-to-one basis at any time at the option of the holder. The
conversion ratio is subject to modification under the Company's Articles of
Incorporation in the event of stock splits, stock dividends, stock
distributions or other common stock equivalent distributions. Automatic
conversion to common stock at the then effective conversion rate will occur
upon the 1) closing of the issuance of shares following an effective
registration statement under the Securities Act of 1933, in which the aggregate
price to the public equals or exceeds $7,500 and in which the public offering
price per share of common stock equals or exceeds $8.34, or 2) the date on
which a majority of the shares have been converted into shares of common stock
or are otherwise no longer outstanding. The holders of each share of Series A
preferred stock will have the right to the number of votes to which they would
be entitled if the shares were converted to common stock. The Company has
reserved 838 shares of the Company's common stock for the conversion of Series
A preferred stock.
F-34
<PAGE>
PORTLAND SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(c) Warrants
The Company has granted warrants for 266 shares of common stock at exercise
prices ranging from $.675 to $1.00 per share primarily to the holders of Series
A and Series B preferred stock. The warrants are exercisable at December 31,
1997 at a weighted average exercise price of $.983. Expiration of 14 warrants
will occur on December 21, 2000 or upon consummation of an initial public
offering or upon a change in control, whichever is earlier. 170 warrants expire
on October 18, 2001 or upon consummation of an initial public offering or upon
a change in control, whichever is earlier. The Company has reserved 266 shares
of common stock for the exercise of warrants. The value ascribed to the common
stock warrants using the Black-Scholes method was not significant. The Company
also granted 838 warrants for Series B preferred stock at an exercise price of
$3.34 with an expiration date of August 1, 2004. Both the number of shares of
warrant stock and the exercise price are subject to modification under the
terms of the Series B preferred stock purchase agreement in the event of
certain dilutive issuance of securities, stock splits, stock dividends, stock
distributions or other stock equivalent distributions. A value of $429 was
ascribed to 479 of these warrants using the Black-Scholes method, which were
issued in connection with a license fee. The Company has reserved 838 shares of
Series B preferred stock for the exercise of warrants.
(d) Shareholders' Agreement
The Company and its shareholders have entered into agreements that include
restrictions on the transfer of the Company's common stock. Except for
expressly provided exceptions, no shareholder is allowed to transfer ownership
of stock without the shares being first offered for sale to the Company.
(8) 1994 Stock Incentive Plan
In 1994, the Company adopted an incentive stock option plan (the Plan)
whereby a total of 5,000 shares of common stock have been reserved for the
grant of stock options to selected employees, officers, directors, consultants
and advisors. Options granted pursuant to the Plan may be either incentive
stock options as defined in Section 442A of the Internal Revenue Code of 1986,
as amended, or non-qualified stock options, at the discretion of the Board.
Under the Plan, options generally vest over four years. 25% become exercisable
one year after grant, 25% two years after grant and the remaining 50% vest
ratably over the following two years. Options granted under the Plan must be
exercised within three months of the optionee's termination of employment and
within ten years of the date of the grant. Option prices are generally not less
than the fair market value of the shares at the date of grant. At the time of
the exercise of the option, all optionees must grant the Company or its
designee a right of first refusal with respect to all transfers.
The Company has elected to account for its stock-based compensation plans
under APB Opinion 25; however, the Company has computed, for pro forma
disclosure purposes, the value of all options granted during 1996 and 1997
using the minimum value option-pricing model as prescribed by SFAS 123 using
the following assumptions used for grants in 1996 and 1997:
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Risk-free interest........................................... 6.0% 6.25%
Expected dividend yield...................................... None None
Expected lives............................................... 5 years 5 years
</TABLE>
The total value of options granted during 1996 and 1997 was computed as
approximately $260 and $304, respectively, which would be amortized on a pro
forma basis over the four-year vesting period of the options. The weighted
average fair market value of the option grants during 1996 and 1997 was $0.32
and $1.00 per share, respectively. If the Company had accounted for these
options in accordance with SFAS 123, the
F-35
<PAGE>
PORTLAND SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Company's net loss and net loss per share for the years ended December 31, 1996
and 1997 would have increased to the following pro forma amounts:
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Net loss:
As reported............................................. $(2,817) $(4,990)
Pro forma............................................... (2,886) (5,265)
Earnings per share--basic and diluted:
As reported............................................. $ (0.48) $ (0.75)
Pro forma............................................... (0.49) (0.79)
</TABLE>
A summary of the status of the Company's Plan at December 31, 1996 and 1997
and changes during the years then ended is presented in the following table:
<TABLE>
<CAPTION>
Weighted
average
exercise
Options price
------- --------
<S> <C> <C>
Outstanding at December 31, 1995............................ 1,058 $.0555
Granted..................................................... 1,012 .9511
Exercised................................................... (175) .0020
Forfeited................................................... (42) .6032
----- ------
Outstanding at December 31, 1996............................ 1,853 .5163
Granted..................................................... 922 .9774
Exercised................................................... (43) .2434
Forfeited................................................... (292) .5415
----- ------
Outstanding at December 31, 1997............................ 2,440 $.7191
===== ======
</TABLE>
A total of 632 and 1,083 incentive and non-qualified stock options were
exercisable at weighted average exercise prices of $.21 and $.36 at December
31, 1996 and 1997, respectively.
At December 31, 1997, the Company has committed to issue 29 non-qualified
stock options in fiscal year 1998 under the Plan to non-employee consultants
for consulting services performed in 1997. The Company accrued a liability of
$29 in 1997 related to this obligation.
During 1997, the Company issued 21 stock options to non-employee
consultants. These options have a weighted average exercise price of $0.01 and
a contractual life of ten years. The options were exercisable at the date of
grant. Included in general and administrative expense is $21 relating to the
value ascribed to these warrants.
The following table sets forth the exercise price range, number of shares
and weighted average remaining contractual lives for stock options at December
31, 1997:
<TABLE>
<CAPTION>
Currently exercisable
---------------------------------------
Weighted Weighted
Weighted average Weighted average
Exercise average remaining average remaining
price Number exercise contractual exercise contractual
range of shares price life in years Number of shares price life in years
-------- --------- -------- ------------- ---------------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
$.002
to
.0105 671 $.005 6.86 671 $.005 6.86
$.75 135 .750 8.24 115 .750 8.24
$.825
to
1.00 1,384 .990 9.17 234 .970 8.64
$1.10 250 1.100 8.63 63 1.100 8.63
----- ----- ---- ----- ----- ----
$.002
to
1.10 2,440 $.720 8.43 1,083 $.360 7.49
===== ===== ==== ===== ===== ====
</TABLE>
F-36
<PAGE>
PORTLAND SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(9) Commitments and Contingencies
(a) Leases
The Company leases equipment and office space under capital leases and
non-cancelable operating leases which expire at various dates through 2002.
Included in equipment in the accompanying balance sheets are the following
assets held under capital leases at December 31:
<TABLE>
<CAPTION>
1996 1997
---- -----
<S> <C> <C>
Equipment....................................................... $181 $ 408
Less accumulated amortization................................... (53) (113)
---- -----
$128 $ 295
==== =====
</TABLE>
Future minimum lease payments under capital and operating leases are as
follows:
<TABLE>
<CAPTION>
Capital Operating
leases leases
------- ---------
<S> <C> <C>
Year ending December 31:
1998.................................................... $137 $ 293
1999.................................................... 107 330
2000.................................................... 52 344
2001.................................................... 4 354
2002.................................................... -- 390
Thereafter.............................................. -- 100
---- ------
300 $1,811
======
Less amounts representing interest........................ 55
----
245
Less current installment.................................. 111
----
$134
====
</TABLE>
The Company incurred $87 and $210 in operating lease expense during 1996
and 1997, respectively.
(b) Benefit Plan
The Company has a defined contribution plan (the Plan). The Plan covers
primarily all officers and employees of the Company who meet prescribed age
and service requirements. Employees may contribute up to 15% of their
compensation. Matching contributions are determined at the discretion of the
Board of Directors. The Company did not make a matching contribution in 1996
or 1997.
(c) Legal Proceedings
The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse affect on the
Company's financial position.
F-37
<PAGE>
PORTLAND SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(10) Major Customers
Most of the Company's customers are located in the United States. Aggregate
revenues for three significant customers were 77% and 40% of total revenues for
the years ended December 31, 1996 and 1997, respectively. Related receivables
from such customers were 0% and 30% of trade accounts receivable at December
31, 1996 and 1997, respectively. The Company estimates an allowance for
doubtful accounts based on the credit worthiness of its customers as well as
general economic conditions. Consequently, an adverse change in those factors
could affect the Company's estimate of its bad debts.
(11) Unaudited Recent Developments
On August 5, 1998, the Company was acquired by Preview Systems, Inc.
through the exchange of all of its outstanding stock for 1,929 common shares
(post split) and 1,676 Series E Preferred Shares (post split) of Preview
Systems, Inc.
F-38
<PAGE>
PREVIEW SYSTEMS, INC.
PRO FORMA STATEMENT OF OPERATIONS
For the Year Ended December 31, 1998
F-39
<PAGE>
PREVIEW SYSTEMS, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
For the Year Ended December 31, 1998
(In thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Portland Preview
Preview Software, Systems, Inc.
Systems, Inc. Inc. Adjustments Pro Forma
------------- --------- ----------- -------------
<S> <C> <C> <C> <C>
Revenues.................... $ 610 $ 199 $ -- $ 809
Operating expenses:
Research and
development............. 2,978 1,078 -- 4,056
Sales and marketing....... 2,915 1,287 -- 4,202
General and
administrative.......... 3,127 2,052 -- 5,179
Amortization of
intangibles............. 866 -- 1,218 (a) 2,084
Acquired in-process
research and
development............. 2,091 -- (2,091)(b) --
-------- ------- ------ --------
Total operating
expenses............. 11,977 4,417 (873) 15,521
-------- ------- ------ --------
Operating loss.............. (11,367) (4,218) 873 (14,712)
Other income................ 91 71 -- 162
-------- ------- ------ --------
Net loss.................... $(11,276) $(4,147) $ 873 $(14,550)
======== ======= ====== ========
Net loss per basic and
diluted share............. $ (7.55) $ -- $ -- $ (5.51)
======== ======= ====== ========
Shares used in per share
calculations.............. 1,494 -- 1,147 2,641
======== ======= ====== ========
</TABLE>
F-40
<PAGE>
PREVIEW SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
1. General
The Company was formed in April 1998 to acquire all of the outstanding
equity interests of Preview Software, Inc. ("Preview Software") and Portland
Software, Inc. ("Portland Software"). The Company completed both of these
mergers on August 5, 1998. In accordance with Accounting Principles Board
Opinion No. 16, the stockholders of Preview Software were determined to be the
controlling shareholders of the Company. Accordingly, the merger of Preview
Software into the Company was accounted for as a reorganization under common
control with the underlying net assets recorded by the Company at historical
cost. The merger of Portland Software into the Company was accounted for using
the purchase method. Therefore, the amounts in the Preview Systems, Inc. column
reflect the consolidated results of operations of Preview Systems, Inc. for the
period January 1, 1998 through August 4, 1998, and the results of operations of
the combined entity from August 5, 1998 through December 31, 1998. The amounts
in the Preview Systems, Inc. Pro Forma column, which are unaudited, also
include the effect of Portland Software, Inc. from January 1, 1998 through
August 4, 1998 when it was acquired.
2. Pro Forma Adjustments
(a) To record additional amortization of acquired capitalized intangibles
as if the merger had occurred on January 1, 1998.
(b) To reverse acquired in-process research and development, a material
non-recurring charge.
F-41
<PAGE>
Edgar Text Description:
Narrative Description of Inside Back Cover
Headline Upper Left Justified: "Delivering Digital Goods to the Desktop."
Centered below the headline are two arrows that point to the first of three
computer screen samples, all of which are centered on the page. Each screen
represents a step in the selection process that a customer would take to order
and download a digital product, which in this example is Norton AntiVirus 5.0
for WinNT. This first screen is topped by a yellow window bar containing a
centered title: "Single Order." Below this bar is a gray box with a series of
text lines. Justified left on the first is: "Placed on: Aug 9 1999." Near the
center of this line is: "View Receipt." Justified right on this line is: "Order
#: 5712674." Justified with the left margin of the next line down is a heading
title: "Software Product Supplier Name & Version." Three column headings appear
on the right side of the same line: "Quantity," "Unit Price" and "Extended
Price." Justified with the left margin of the next line is: "SYMANTEC Norton
AntiVirus 5.0 for WinNT." Below the three column headers on the right of the
previous line are the following: "1," "$36.00" and "$36.00." Centered below
this line are a labeled icon and a line of text. The icon is yellow with a red
arrow pointing down, which is labeled, "Download." The underlined, blue text to
the right of the icon reads "Click here to download product." Centered below
this is the following text: "Status: Billed" and "As of: Aug 9 1999." On the
next line down is text in-line with the two furthest right columns from above:
"Subtotal Cost:" and "$36.00." The final line runs across the bottom of this
screen. Left justified text reads: "Payment Method: VISA." To the right, in-
line with the two furthest right columns from above, is: "Total:" and "$36.00."
An arrow points from the first screen down to the second, which contains a
blue window bar with a right justified title: "Downloading Norton AntiVirus for
WinNT." In the left quarter of the screen below is a rectangular yellow box
containing four lines of text. From top to bottom, they are: "Shop,"
"SYMANTEC," "Powered by" and "beyond.com."
The right three-quarters of this screen are made up of a gray section,
which is topped by a paragraph of text: "Now downloading and verifying your
product and license. A shortcut has been saved on your desktop should you need
to restart this download." Below this is a line of text: "Downloading Norton
AntiVirus for WinNT." Below this is a horizontal graphic bar, which is
approximately sixty percent blue. Below the bar, justified to the right, is a
line of text: "Received: 10584 KB of 12238 KB Completed." Below this, in the
right corner of the screen, is a button containing the text: "Finish Later."
An arrow points down to the final screen, which contains a blue window bar
with a right-justified title: "Thank You for Your Purchase of Norton AntiVirus
for WinNT." In the left quarter of the screen is the same rectangular yellow
box with text as in the previous screen, but in a more elongated shape. The
right, gray section of this screen is divided into five horizontal sections,
each separated by a thin blue line. The first section contains a paragraph of
text: "Your purchase and download has completed successfully. If you
established a connection to the Internet, you may now disconnect." The second
section has a left-justified green and white icon that looks like a pad of
paper. To the right of this is a paragraph: "A packing slip for this purchase
is located in the following directory. Select one of these choices if you would
like to view or print a copy." Below this is another line of text:
"C:\\WINNT\Vbox\PackingSlips." On the right margin of this section are two
buttons containing text. The top reads, "View Slip," and the bottom reads,
"Print Slip." The third section has a left-justified yellow and white icon that
looks like a piece of paper. To the right of this is a paragraph: "A license
for this product has been installed on this machine and is required should you
ever need to reinstall. Please select Backup to make a copy to guard against
loss." To the right of this paragraph is a button containing the word:
"Backup." The fourth section has a left-justified icon that looks like a
computer. To the right of this is a paragraph: "Your product has been saved in
the following directory. Thank you for shopping at Symantec.
C:\WINNT\Vbox\Installers." The fifth section has three buttons containing text.
The first is flush left and reads: "About Vbox." The other two are in the
bottom right corner of the screen: the left one reads, "Launch," and the right
one reads: "Exit."
Most of the background of the page is white, except for the lower right
quarter, which contains two layers of soft-focus ones and zeros, a continuation
of the random, graphic imitation of binary code.
<PAGE>
[PREVIEW SYSTEMS LOGO]
[OUTSIDE BACK COVER]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by Preview in connection with
the sale of common stock being registered. All amounts are estimates except the
Securities and Exchange Commission registration fee and the NASD filing fee and
the Nasdaq National Market listing fee.
<TABLE>
<CAPTION>
Amount
to be paid
----------
<S> <C>
Securities and Exchange Commission registration fee.............. $ 12,788
NASD filing fee.................................................. 5,100
Nasdaq National Market listing fee............................... 85,500
Printing and engraving expenses.................................. 225,000
Legal fees and expenses.......................................... 400,000
Accounting fees and expenses..................................... 200,000
Blue Sky qualification fees and expenses......................... 3,000
Transfer Agent and Registrar fees................................ 15,000
Miscellaneous fees and expenses.................................. 20,112
--------
Total ......................................................... 966,500
========
</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, indemnity to directors
and officers in terms sufficiently broad to permit such indemnification under
certain circumstances for liabilities (including reimbursement for expenses
incurred) arising under the Securities Act of 1933, as amended. Articles XII
and XIV of Preview's Sixth Amended and Restated Certificate of Incorporation
(Exhibit 3.3 hereto) and Article VI of Preview's Amended and Restated Bylaws
(Exhibit 3.5 hereto) provide for indemnification of Preview's directors,
officers, employees and other agents to the maximum extent permitted by
Delaware Law. In addition, Preview has entered into indemnification agreements
(Exhibit 10.1 hereto) with its officers and directors. The underwriting
agreement (Exhibit 1.1 hereto) also provides for cross-indemnification among
Preview and the underwriters with respect to certain matters, including matters
arising under the Securities Act.
Item 15. Recent Sales of Unregistered Securities
(a)Since July 1996, we and our predecessors, Preview Software and Portland
Software, have sold and issued the following unregistered securities (giving
effect to the conversion of the equity securities of Preview Software and
Portland Software after the mergers of these two companies in August 1998):
1. In October 1996, Portland Software issued and sold 217,236 shares of
its series A preferred stock to seven investors for aggregate
consideration of $2,800,000.
2. In December 1996 and September 1997, Preview Software issued and sold
573,500 shares of its series A preferred stock to 12 investors for
aggregate consideration of $573,000.
3. In August and September 1997, Portland Software issued and sold
620,675 shares of its series B preferred stock to 15 investors for
aggregate consideration of $8,000,000. In connection with this financing,
Portland Software also issued warrants to purchase an aggregate of 217,233
shares of series B preferred stock to these same 15 investors at an
exercise price of $6.68 per share.
II-1
<PAGE>
4. In September 1997, Preview Software issued and sold 352,500 shares of
series B preferred stock to 13 investors for aggregate consideration of
$705,000.
5. In October 1997, Preview Software issued and sold 1,250,000 shares of
its series C preferred stock to nine investors for aggregate consideration
of $4,000,000. In connection with this financing, Preview Software also
issued warrants to purchase 25,430 shares of series C preferred stock at
an exercise price of $3.20 per share to six of these same investors.
6. In April 1998, Preview Software issued and sold 299,401 shares of
series D preferred stock to 17 investors for aggregate consideration of
$2,000,000.
7. In August 1998, in connection with the mergers of Portland Software
and Preview Software, we issued 2,671,032 shares of common stock,
3,313,307 shares of preferred stock and assumed warrants to purchase
171,746 shares of our common stock and 242,663 shares of our preferred
stock. We also assumed outstanding options to purchase 1,060,443 shares of
common stock. The aggregate purchase price for all of these shares was
paid in shares of Portland Software and Preview Software in connection
with the merger. The exchange ratio for Preview Software capital stock was
1 for 1. The exchange ratio for Portland Software capital stock was
0.518263943 for 1.
8. In September and October 1998, we issued and sold 1,162,518 shares of
series F preferred stock to 37 investors for aggregate consideration of
$5,812,592.
9. In November 1998, we issued a warrant to purchase 2,700 shares of
series F preferred stock at an exercise price of $5.00 to FirstCorp.
10. In July 1999, we issued and sold 4,312,448 shares of series G
preferred stock to 39 investors for aggregate consideration of
$28,979,682. In connection with this financing, we also issued a warrant
to purchase 76,682 shares of series G preferred stock at an exercise price
of $6.72 per share to BancBoston Robertson Stephens, Inc.
11. From inception to July 31, 1999, we and our predecessors granted
options and stock purchase rights to purchase an aggregate of 3,274,147
shares of common stock to our employees, directors and consultants with
exercise prices ranging from $.50 to $8.40. As of July 31, 1999, we had
outstanding options for the purchase of 2,331,840 shares and no
outstanding stock purchase rights.
(b)There were no underwritten offerings employed in connection with any of
the transactions set forth in Item 15(a).
The issuances of the securities listed in Item 15(a)(7) above were deemed
to be exempt from registration under the Securities Act in reliance upon
Section 3(a)(10) of the Securities Act. In addition, the issuances described in
Item 15 (a)(11) were deemed exempt from registration under the Securities Act
in reliance upon Rule 701 promulgated under the Securities Act. The issuances
of the other above-referenced securities were deemed to be exempt from
registration under the Securities Act in reliance on Section 4(2) of such
Securities Act as transactions by an issuer not involving any public offering.
The recipients of securities in each such transaction represented their
intentions to acquire the securities for investment only and not with a view to
or for sale in connection with any distribution thereof and appropriate legends
were affixed to the share certificates and warrants issued in such
transactions. All recipients had adequate access, through their relationships
with Preview and its predecessors, to information about Preview and its
predecessors.
II-2
<PAGE>
Item 16. Exhibits and Financial Statement Schedules
(a)Exhibits
<TABLE>
<CAPTION>
Exhibit
No. Description
------------------
<C> <S>
1.1* Form of Underwriting Agreement.
3.1 Fourth Amended and Restated Certificate of Incorporation, as
currently in effect.
3.2 Form of Fifth Amended and Restated Certificate of Incorporation, to
be filed and become effective prior to the completion of this
offering.
3.3 Form of Sixth Amended and Restated Certificate of Incorporation, to
be filed and become effective upon the completion of this offering.
3.4 Bylaws, as currently in effect.
3.5 Form of Amended and Restated Bylaws, to become effective upon the
completion of this offering.
4.1* Form of Common Stock Certificate.
5.1* Opinion of Venture Law Group, A Professional Corporation.
10.1 Form of Indemnification Agreement.
10.2 Portland Software Amended and Restated 1994 Stock Option Plan,
including form of stock option agreement.
10.3 Preview Software 1997 Stock Option Plan, as amended, including form
of stock option agreement.
10.4 Preview Software New 1997 Stock Option Plan, as amended, including
form of stock option agreement.
10.5 Preview Systems 1998 Stock Option Plan as amended, including form of
stock option agreement.
10.6 Preview Systems 1999 Directors' Stock Option Plan, including form of
stock option agreement.
10.7 Preview Systems 1999 Employee Stock Purchase Plan, including form of
subscription agreement.
10.8* (a) Second Amended and Restated Rights Agreement between Preview
Systems and certain holders of our securities dated July 2, 1999.
(b) Amendment to Second Amended and Restated Rights Agreement between
Preview Systems and certain holders of our securities dated September
14, 1999.
10.9 Common Stock Purchase Agreement between Preview Systems and Vincent
Pluvinage dated July 5, 1999.
10.10 Common Stock Purchase Agreement between Preview Systems and Brad
Solso dated July 6, 1999.
10.11 (a) One Thousand Broadway Building Lease Agreement between Portland
Software and One Thousand Broadway Building Limited Partnership dated
July 3, 1996.
(b) 1000 Broadway Building First Lease Amendment between Portland
Software and 1000 Broadway Building LP dated August 14, 1996.
(c) First Amendment to One Thousand Broadway Building Lease Agreement
between Portland Software and One Thousand Broadway Building Limited
Partnership dated November 26, 1996.
(d) Second Amendment to One Thousand Broadway Building Lease
Agreement between Portland Software and One Thousand Broadway
Building Limited Partnership dated November 9, 1997.
10.12 (a) Standard Office Lease--Gross between Preview Software and South
Bay/Copley Venture, Inc. dated September 5, 1997.
(b) First Amendment to Lease between Preview Software and South
Bay/Copley Venture, Inc. dated November 25, 1997.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Description
------------------
<C> <S>
(c) Second Amendment to Lease Agreement between Preview Software and
Limar Realty Corp. #26 dated August 26, 1998.
10.13 (a) Loan and Security Agreement between Silicon Valley Bank and
Preview Systems dated
November 2, 1998.
(b) Loan Modification Agreement between Silicon Valley Bank and
Preview Systems dated July 1, 1999.
10.14+* ZipLock ESD System License Agreement between Preview Systems and
Ingram Micro Inc., dated June 30, 1999.
10.15+* License Agreement between Preview Systems and Sony Marketing of Japan,
dated as of September 29, 1998.
10.16 Agreement and Plan of Reorganization by and among Preview Systems,
Preview Software, Portland Software, Preview Acquisition Corp. and
Portland Acquisition Corp. dated as of May 28, 1998.
10.17 Series G Preferred Stock Purchase Agreement between Preview Systems
and certain investors dated as of July 2, 1999.
10.18 Series F Preferred Stock Purchase Agreement between Preview Systems
and certain investors dated as of September 15, 1998.
10.19 Series D Preferred Stock Purchase Agreement between Preview Software
and certain investors dated as of April 21, 1998.
10.20 Pledge Agreement between Preview Systems Inc. and Vincent Pluvinage
dated September 14, 1998.
21.1 Subsidiaries of Preview Systems.
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of KPMG LLP.
23.3* Consent of Counsel (See Exhibit 5.1).
24.1 Power of Attorney (See Page II-6).
27.1 Financial Data Schedule, December 31, 1998.
27.2 Financial Data Schedule, June 30, 1999.
</TABLE>
- --------
*To be filed by amendment.
+Confidential treatment requested as to certain portions of this exhibit.
(b)Financial Statement Schedules
All schedules have been omitted because the information required to be set
forth therein is not applicable or is shown in the financial statements or
notes thereto.
Item 17. Undertakings
The undersigned registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreements certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act, and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a
II-4
<PAGE>
director, officer, or controlling person of the registrant in the successful
defense of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the 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
of 1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-5
<PAGE>
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 Cupertino, State of
California on September 16, 1999.
PREVIEW SYSTEMS, INC.
/s/ Dr. Vincent Pluvinage
By:
----------------------------------
Dr. Vincent Pluvinage
President and Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below hereby constitutes and appoints, jointly and severally, Vincent
Pluvinage and G. Bradford Solso and each of them, as his or her attorney-in-
fact, with full power of substitution, for him or her in any and all
capacities, to sign any and all amendments to this Registration Statement
(including post-effective amendments), and any and all Registration Statements
filed pursuant to Rule 462 under the Securities Act of 1933, as amended, in
connection with or related to the offering contemplated by this Registration
Statement and its amendments, if any, and to file the same, with exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, hereby ratifying and confirming our signatures as they may
be signed by our said attorney to any and all amendments to said Registration
Statement.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Dr. Vincent Pluvinage President, Chief Executive September 16, 1999
____________________________________ Officer, Director
Dr. Vincent Pluvinage
/s/ Mr. G. Bradford Solso Vice President, Chief September 16, 1999
____________________________________ Financial Officer
Mr. G. Bradford Solso
/s/ Mr. Gerard H. Langeler Chairman of the Board of September 16, 1999
____________________________________ Directors
Mr. Gerard H. Langeler
/s/ Mr. Bruce R. Bourbon Director September 16, 1999
____________________________________
Mr. Bruce R. Bourbon
/s/ Mr. Donald L. Lucas Director September 16, 1999
____________________________________
Mr. Donald L. Lucas
/s/ Mr. Gary E. Rieschel Director September 16, 1999
____________________________________
Mr. Gary E. Rieschel
/s/ Dr. R. Douglas Rivers Director September 16, 1999
____________________________________
Dr. R. Douglas Rivers
/s/ Ms. Jo Ann Heidi Roizen Director September 16, 1999
____________________________________
Ms. Jo Ann Heidi Roizen
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description
------------------
<C> <S>
1.1* Form of Underwriting Agreement.
3.1 Fourth Amended and Restated Certificate of Incorporation, as
currently in effect.
3.2 Form of Fifth Amended and Restated Certificate of Incorporation, to
be filed and become effective prior to the completion of this
offering.
3.3 Form of Sixth Amended and Restated Certificate of Incorporation, to
be filed and become effective upon the completion of this offering.
3.4 Bylaws, as currently in effect.
3.5 Form of Amended and Restated Bylaws, to become effective upon the
completion of this offering.
4.1* Form of Common Stock Certificate.
5.1* Opinion of Venture Law Group, A Professional Corporation.
10.1 Form of Indemnification Agreement.
10.2 Portland Software Amended and Restated 1994 Stock Option Plan,
including form of stock option agreement.
10.3 Preview Software 1997 Stock Option Plan, as amended, including form
of stock option agreement.
10.4 Preview Software New 1997 Stock Option Plan, as amended, including
form of stock option agreement.
10.5 Preview Systems 1998 Stock Option Plan as amended, including form of
stock option agreement.
10.6 Preview Systems 1999 Directors' Stock Option Plan, including form of
stock option agreement.
10.7 Preview Systems 1999 Employee Stock Purchase Plan, including form of
subscription agreement.
10.8* (a) Second Amended and Restated Rights Agreement between Preview
Systems and certain holders of our securities dated July 2, 1999.
(b) Amendment to Second Amended and Restated Rights Agreement between
Preview Systems and certain holders of our securities dated September
14, 1999.
10.9 Common Stock Purchase Agreement between Preview Systems and Vincent
Pluvinage dated
July 5, 1999.
10.10 Common Stock Purchase Agreement between Preview Systems and Brad
Solso dated July 6, 1999.
10.11 (a) One Thousand Broadway Building Lease Agreement between Portland
Software and One Thousand Broadway Building Limited Partnership dated
July 3, 1996.
(b) 1000 Broadway Building First Lease Amendment between Portland
Software and 1000 Broadway Building LP dated August 14, 1996.
(c) First Amendment to One Thousand Broadway Building Lease Agreement
between Portland Software and One Thousand Broadway Building Limited
Partnership dated November 26, 1996.
(d) Second Amendment to One Thousand Broadway Building Lease
Agreement between Portland Software and One Thousand Broadway
Building Limited Partnership dated November 9, 1997.
10.12 (a) Standard Office Lease--Gross between Preview Software and South
Bay/Copley Venture, Inc. dated September 5, 1997.
(b) First Amendment to Lease between Preview Software and South
Bay/Copley Venture, Inc. dated November 25, 1997.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Description
------------------
<C> <S>
(c) Second Amendment to Lease Agreement between Preview Software and
Limar Realty Corp. #26 dated August 26, 1998.
10.13 (a) Loan and Security Agreement between Silicon Valley Bank and
Preview Systems dated
November 2, 1998.
(b) Loan Modification Agreement between Silicon Valley Bank and
Preview Systems dated July 1, 1999.
10.14+* ZipLock ESD System License Agreement between Preview Systems and
Ingram Micro Inc., dated June 30, 1999.
10.15+* License Agreement between Preview Systems and Sony Marketing of Japan,
dated as of September 29, 1998.
10.16 Agreement and Plan of Reorganization by and among Preview Systems,
Preview Software, Portland Software, Preview Acquisition Corp. and
Portland Acquisition Corp. dated as of May 28, 1998.
10.17 Series G Preferred Stock Purchase Agreement between Preview Systems
and certain investors dated as of July 2, 1999.
10.18 Series F Preferred Stock Purchase Agreement between Preview Systems
and certain investors dated as of September 15, 1998.
10.19 Series D Preferred Stock Purchase Agreement between Preview Software
and certain investors dated as of April 21, 1998.
10.20 Pledge Agreement between Preview Systems Inc. and Vincent Pluvinage
dated September 14, 1998.
21.1 Subsidiaries of Preview Systems.
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of KPMG LLP.
23.3* Consent of Counsel (See Exhibit 5.1).
24.1 Power of Attorney (See Page II-6).
27.1 Financial Data Schedule, December 31, 1998.
27.2 Financial Data Schedule, June 30, 1999.
</TABLE>
- --------
*To be filed by amendment.
+Confidential treatment requested as to certain portions of this exhibit.
<PAGE>
EXHIBIT 3.1
FOURTH AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
PREVIEW SYSTEMS, INC.
The undersigned, Vincent Pluvinage and Elias J. Blawie, hereby certify
that:
1. They are the duly elected, qualified and acting President and
Secretary, respectively, of Preview Systems, Inc., a Delaware corporation.
2. The Certificate of Incorporation of this corporation was originally
filed with the Secretary of State of Delaware on April 22, 1998 under the name
of P2 Software, Inc.
3. The Certificate of Incorporation of this corporation shall be amended
and restated to read in full as follows:
"ARTICLE I
The name of this corporation is Preview Systems, Inc. (the "Corporation").
-----------
ARTICLE II
The address of the Corporation's registered office in the State of
Delaware is 1209 Orange Street, Wilmington, County of New Castle. The name of
its registered agent at such address is The Corporation Trust Company.
ARTICLE III
The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under the Delaware General Corporation
Law.
ARTICLE IV
(A) Classes of Stock. The Corporation is authorized to issue two classes
----------------
of stock to be designated, respectively, "Common Stock" and "Preferred Stock."
------------ ---------------
The total number of shares which the Corporation is authorized to issue is
54,283,922 shares, each with a par value of $0.0001 per share. 35,000,000 shares
shall be Common Stock and 19,283,922 shares shall be Preferred Stock.
(B) Rights, Preferences and Restrictions of Preferred Stock. The Preferred
-------------------------------------------------------
Stock authorized by this Amended and Restated Certificate of Incorporation may
be issued from time to time in one or more series. The first series of
Preferred Stock shall be designated "Series A Preferred Stock" and shall consist
------------------------
of 1,147,000 shares. The second series of Preferred Stock
<PAGE>
shall be designated "Series B Preferred Stock" and shall consist of 705,000
------------------------
shares. The third series of Preferred Stock shall be designated "Series C
--------
Preferred Stock" and shall consist of 2,550,860 shares. The fourth series of
- ---------------
Preferred Stock shall be designated "Series D Preferred Stock" and shall consist
------------------------
of 602,802 shares. The fifth series of Preferred Stock shall be designated
"Series E Preferred Stock" and shall consist of 2,300,000 shares. The sixth
------------------------
series of Preferred Stock shall be designated "Series F Preferred Stock" and
------------------------
shall consist of 3,200,000 shares. The seventh series of Preferred Stock shall
be designated "Series G Preferred Stock" and shall consist of 8,778,260 shares.
------------------------
The rights, preferences, privileges and restrictions granted to and imposed on
the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock, Series D Preferred Stock, Series E Preferred Stock, Series F Preferred
Stock and Series G Preferred Stock are as set forth below in this Article IV(B).
The Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock, Series D Preferred Stock, Series E Preferred Stock, Series F Preferred
Stock and Series G Preferred Stock are sometimes collectively referred to herein
as "Preferred Stock."
---------------
1. Dividend Provisions. The holders of shares of Preferred Stock
-------------------
shall be entitled to receive dividends, out of any assets legally available
therefor, prior and in preference to any declaration or payment of any dividend
(payable other than in Common Stock or other securities and rights convertible
into or entitling the holder thereof to receive, directly or indirectly,
additional shares of Common Stock of the Corporation) on the Common Stock of the
Corporation, at the rate of: (a) $0.04 per share per annum on each outstanding
share of Series A Preferred Stock; (b) $0.08 per share per annum on each
outstanding share of Series B Preferred Stock; (c) $0.144 per share per annum on
each outstanding share of Series C Preferred Stock; (d) $0.30 per share per
annum on each outstanding share of Series D Preferred Stock; (e) $0.515 per
share per annum on each outstanding share of Series E Preferred Stock; (f)
$0.225 per share per annum on each outstanding share of Series F Preferred
Stock; and (g) $0.269 per share per annum on each outstanding share of Series G
Preferred Stock, payable quarterly when, as and if declared by the Board of
Directors. Dividends or distributions (other than dividends payable solely in
shares of Common Stock) may be declared and paid upon shares of Common Stock in
any fiscal year of the Corporation only if dividends in the total amount of:
(a) $0.04 per share on the Series A Preferred Stock; (b) $0.08 per share on the
Series B Preferred Stock; (c) $0.144 per share on each outstanding share of
Series C Preferred Stock; (d) $0.30 per share on the Series D Preferred Stock;
(e) $0.515 per share on the Series E Preferred Stock; (f) $0.225 per share on
the Series F Preferred Stock; and (g) $0.269 per share on the Series G Preferred
Stock shall have been paid or declared and set apart. After payment of such
dividends, any additional dividends declared shall be distributed among all
holders of all Preferred Stock and holders of Common Stock in proportion to the
number of shares of Common Stock which would be held by each such holder if all
shares of Preferred Stock were converted into Common Stock based on the
effective Conversion Price (as defined herein). The right to such dividends on
shares of Preferred Stock shall not be cumulative and no right shall accrue to
holders of shares of Preferred Stock by reason of the fact that dividends on
said shares are not declared in any prior year, nor shall any undeclared or
unpaid dividend bear or accrue interest.
-2-
<PAGE>
2. Liquidation Preference.
----------------------
(a) In the event of any liquidation, dissolution or winding up
of the Corporation, either voluntary or involuntary, in which the aggregate
proceeds to be distributed to all stockholders of the Corporation is equal to or
less than $200,000,000, then:
(i) the holders of the Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E
Preferred Stock, Series F Preferred Stock and Series G Preferred Stock shall be
entitled to receive, prior and in preference to any distribution of any of the
assets of the Corporation to the holders of Common Stock by reason of their
ownership thereof, an amount per share equal to: (i) $0.50 per share for each
share of Series A Preferred Stock then held by them, and, in addition, an amount
equal to all declared but unpaid dividends on the Series A Preferred Stock; (ii)
$1.00 per share for each share of Series B Preferred Stock then held by them,
and, in addition, an amount equal to all declared but unpaid dividends on the
Series B Preferred Stock; (iii) $1.60 per share for each share of Series C
Preferred Stock then held by them, and, in addition, an amount equal to all
declared but unpaid dividends on the Series C Preferred Stock; (iv) $3.34 per
share for each share of Series D Preferred Stock then held by them, and, in
addition, an amount equal to all declared but unpaid dividends on the Series D
Preferred Stock; (v) $6.44 per share for each share of Series E Preferred Stock
then held by them, and, in addition, an amount equal to all declared but unpaid
dividends on the Series E Preferred Stock; (vi) $2.50 per share for each share
of Series F Preferred Stock then held by them, and, in addition, an amount equal
to all declared but unpaid dividends on the Series F Preferred Stock; and (vii)
$3.36 per share for each share of Series G Preferred Stock then held by them,
and, in addition, an amount equal to all declared but unpaid dividends on the
Series G Preferred Stock. If, upon the occurrence of such event, the assets and
funds thus distributed among the holders of the Series A Preferred Stock, Series
B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E
Preferred Stock, Series F Preferred Stock and Series G Preferred Stock shall be
insufficient to permit the payment to such holders of the full preferential
amounts for the Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock, Series E Preferred Stock, Series F
Preferred Stock and Series G Preferred Stock, then the entire assets and funds
of the Corporation legally available for distribution shall be distributed
ratably and pari passu among the holders of the Series A Preferred Stock, Series
B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E
Preferred Stock, Series F Preferred Stock and Series G Preferred Stock in
proportion to the preferential amount each such holder would otherwise be
entitled to receive pursuant to this Section 2(a) if such amount were satisfied
in full.
(ii) After payment has been made to the holders of the
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock, Series E Preferred Stock, Series F Preferred Stock and
Series G Preferred Stock of the full preferential amounts to which they shall be
entitled as aforesaid, any remaining assets of this Corporation available for
distribution shall be distributed among the holders of the Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock, Series E Preferred Stock, Series F Preferred Stock, Series G Preferred
Stock and Common Stock
-3-
<PAGE>
pro rata based on the number of shares of Common Stock held by each (assuming
conversion of all Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock, Series E Preferred Stock, Series F
Preferred Stock and Series G Preferred Stock) until: (i) with respect to the
holders of Series A Preferred Stock, such holders shall have received an
aggregate of $1.00 per share (including amounts paid pursuant to Section 2(a)(i)
above); (ii) with respect to the holders of Series B Preferred Stock, such
holders shall have received an aggregate of $2.00 per share (including amounts
paid pursuant to Section 2(a)(i) above); (iii) with respect to the holders of
Series C Preferred Stock, such holders shall have received an aggregate of $3.20
per share (including amounts paid pursuant to Section 2(a)(i) above); (iv) with
respect to the holders of Series D Preferred Stock, such holders shall have
received an aggregate of $6.68 per share (including amounts paid pursuant to
Section 2(a)(i) above); (v) with respect to the holders of Series E Preferred
Stock, such holders shall have received an aggregate of $12.88 per share
(including amounts paid pursuant to Section 2(a)(i) above); (vi) with respect to
the holders of Series F Preferred Stock, such holders shall have received an
aggregate of $5.00 per share (including amounts paid pursuant to Section 2(a)(i)
above); and (vii) with respect to the holders of Series G Preferred Stock, such
holders shall have received an aggregate of $6.72 per share (including amounts
paid pursuant to Section 2(a)(i) above). Thereafter, subject to the rights of
series of Preferred Stock that may from time to time come into existence, if
assets remain in the Corporation, the holders of the Common Stock of the
Corporation shall receive all of the remaining assets of the Corporation pro
rata based on the number of shares of Common Stock held by each.
(b) In the event of any liquidation, dissolution or winding up of the
Corporation, in which the aggregate proceeds to be distributed to all
stockholders of the Corporation is greater than $200,000,000, then:
(i) the holders of the Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E
Preferred Stock, Series F Preferred Stock and Series G Preferred Stock shall be
entitled to receive, prior and in preference to any distribution of any of the
assets of the Corporation to the holders of Common Stock by reason of their
ownership thereof, an amount per share equal to: (i) $0.50 per share for each
share of Series A Preferred Stock then held by them, and, in addition, an amount
equal to all declared but unpaid dividends on the Series A Preferred Stock; (ii)
$1.00 per share for each share of Series B Preferred Stock then held by them,
and, in addition, an amount equal to all declared but unpaid dividends on the
Series B Preferred Stock; (iii) $1.60 per share for each share of Series C
Preferred Stock then held by them, and, in addition, an amount equal to all
declared but unpaid dividends on the Series C Preferred Stock; (iv) $3.34 per
share for each share of Series D Preferred Stock then held by them, and, in
addition, an amount equal to all declared but unpaid dividends on the Series D
Preferred Stock; (v) $6.44 per share for each share of Series E Preferred Stock
then held by them, and, in addition, an amount equal to all declared but unpaid
dividends on the Series E Preferred Stock; (vi) $2.50 per share for each share
of Series F Preferred Stock then held by them, and, in addition, an amount equal
to all declared but unpaid dividends on the Series F Preferred Stock; and (vii)
$3.36 per share for each share of Series G
-4-
<PAGE>
Preferred Stock then held by them, and, in addition, an amount equal to all
declared but unpaid dividends on the Series G Preferred Stock. If, upon the
occurrence of such event, the assets and funds thus distributed among the
holders of the Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock, Series E Preferred Stock, Series F
Preferred Stock and Series G Preferred Stock shall be insufficient to permit the
payment to such holders of the full preferential amounts for the Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock, Series E Preferred Stock, Series F Preferred Stock and Series G
Preferred Stock, then the entire assets and funds of the Corporation legally
available for distribution shall be distributed ratably and pari passu among the
holders of the Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock, Series E Preferred Stock, Series F
Preferred Stock and Series G Preferred Stock in proportion to the preferential
amount each such holder would otherwise be entitled to receive pursuant to this
Section 2(b) if such amount were satisfied in full.
(ii) After payment has been made to the holders of the
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock, Series E Preferred Stock, Series F Preferred Stock and
Series G Preferred Stock of the full preferential amounts to which they shall be
entitled as aforesaid, subject to the rights of series of Preferred Stock that
may from time to time come into existence, if assets remain in the Corporation,
the holders of the Common Stock of the Corporation shall receive all of the
remaining assets of the Corporation pro rata based on the number of shares of
Common Stock held by each.
(c) A merger of the Corporation with or into any other
Corporation or Corporations or a sale of all or substantially all of the assets
of the Corporation, shall not be treated as a liquidation, dissolution or
winding up for purposes of this Section 2, but shall instead be treated pursuant
to Section 3 hereof.
3. Merger.
------
(a) At any time, in the event of:
(i) any consolidation or merger of the Corporation with or
into another corporation or other entity or person (excluding any merger
effected exclusively for the purpose of changing the corporate domicile of the
Corporation), or any other corporate reorganization or other transaction or
series of related transactions by the Corporation, in any such case, in which
the stockholders of the Corporation immediately prior to such transaction or
series of related transactions shall own less than 50% of the voting securities
of the surviving corporation immediately after such transaction or series of
related transactions, or
(ii) a sale, conveyance or disposition of all or
substantially all of the assets of the Corporation (including for purpose of
this section, intellectual property rights which, in the aggregate, constitute
substantially all of the Corporation's material assets), then,
-5-
<PAGE>
(A) if the aggregate proceeds to be distributed to all
stockholders of the Corporation in such transaction is equal to or less than
$200,000,000:
(1) the holders of Preferred Stock shall be paid
for each share of Preferred Stock then held by them, in cash or in securities
received from the acquiring corporation, or in a combination thereof, at the
closing of any such transaction, an amount equal to: (i) $0.50 per share for
each share of Series A Preferred Stock, plus an amount equal to all declared but
unpaid dividends per share of Series A Preferred Stock as of the date of closing
of such transaction; (ii) $1.00 per share for each share of Series B Preferred
Stock, plus an amount equal to all declared but unpaid dividends per share of
Series B Preferred Stock as of the date of closing of such transaction; (iii)
$1.60 per share for each share of Series C Preferred Stock, plus an amount equal
to all declared but unpaid dividends per share of Series C Preferred Stock as of
the date of closing of such transaction; (iv) $3.34 per share for each share of
Series D Preferred Stock, plus an amount equal to all declared but unpaid
dividends per share of Series D Preferred Stock as of the date of closing of
such transaction; (v) $6.44 per share for each share of Series E Preferred
Stock, plus an amount equal to all declared but unpaid dividends per share of
Series E Preferred Stock; (vi) $2.50 per share for each share of Series F
Preferred Stock, plus an amount equal to all declared but unpaid dividends per
share of Series F Preferred Stock; and (vii) $3.36 per share for each share of
Series G Preferred Stock, plus an amount equal to all declared but unpaid
dividends per share of Series G Preferred Stock. Such payments shall be made by
purchase of such shares of Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock,
Series F Preferred Stock and Series G Preferred Stock by the surviving
corporation or entity pursuant to an agreement which provides that such
purchased shares of Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock, Series E Preferred Stock, Series F
Preferred Stock and Series G Preferred Stock shall be canceled by such surviving
corporation or entity effective upon the closing of such purchase. If, upon the
occurrence of such event, the cash and securities thus distributed among the
holders of the Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock, Series E Preferred Stock, Series F
Preferred Stock and Series G Preferred Stock shall be insufficient to permit the
payment to such holders of such full preferential amounts, then the entire
assets and funds of the Corporation legally available for distribution shall be
distributed ratably and pari passu among the holders of the Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock, Series E Preferred Stock, Series F Preferred Stock and Series G Preferred
Stock in proportion to the preferential amount each such holder would otherwise
be entitled to receive pursuant to this Section 3(a)(ii) if such amount were
satisfied in full.
(2) After payment has been made to the holders of
the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock, Series D Preferred Stock, Series E Preferred Stock, Series F Preferred
Stock and Series G Preferred Stock of the full preferential amounts to which
they shall be entitled as aforesaid, any remaining assets of this corporation
available for distribution shall be distributed among the holders of the Series
A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock,
-6-
<PAGE>
Series E Preferred Stock, Series F Preferred Stock, and Series G Preferred Stock
and Common Stock pro rata based on the number of shares of Common Stock held by
each (assuming conversion of all Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock, Series D Preferred Stock, Series E Preferred
Stock, Series F Preferred Stock and Series G Preferred Stock) until: (i) with
respect to the holders of Series A Preferred Stock, such holders shall have
received an aggregate of $1.00 per share (including amounts paid pursuant to
Section 3(a)(ii)(A)(1) above); (ii) with respect to the holders of Series B
Preferred Stock, such holders shall have received an aggregate of $2.00 per
share (including amounts paid pursuant to Section 3(a)(ii)(A)(1) above); (iii)
with respect to the holders of Series C Preferred Stock, such holders shall have
received an aggregate of $3.20 per share (including amounts paid pursuant to
Section 3(a)(ii)(A)(1) above); (iv) with respect to the holders of Series D
Preferred Stock, such holders shall have received an aggregate of $6.68 per
share (including amounts paid pursuant to Section 3(a)(ii)(A)(1) above); (v)
with respect to the holders of Series E Preferred Stock, such holders shall have
received an aggregate of $12.88 per share (including amounts paid pursuant to
Section 3(a)(ii)(A)(1) above); (vi) with respect to the holders of Series F
Preferred Stock, such holders shall have received an aggregate of $5.00 per
share (including amounts paid pursuant to Section 3(a)(ii)(A)(1) above); and
(vii) with respect to the holders of Series G Preferred Stock, such holders
shall have received an aggregate of $6.72 per share (including amounts paid
pursuant to Section 3(a)(ii)(A)(1) above). Thereafter, subject to the rights of
series of Preferred Stock that may from time to time come into existence, if
assets remain in the Corporation, the holders of the Common Stock of the
Corporation shall receive all of the remaining assets of the Corporation pro
rata based on the number of shares of Common Stock held by each.
(B) if the aggregate proceeds to be distributed to all
stockholders of the Corporation in such transaction is greater than
$200,000,000:
(1) the holders of Preferred Stock shall be paid
for each share of Preferred Stock then held by them, in cash or in securities
received from the acquiring corporation, or in a combination thereof, at the
closing of any such transaction, an amount equal to: (i) $0.50 per share for
each share of Series A Preferred Stock, plus an amount equal to all declared but
unpaid dividends per share of Series A Preferred Stock as of the date of closing
of such transaction; (ii) $1.00 per share for each share of Series B Preferred
Stock, plus an amount equal to all declared but unpaid dividends per share of
Series B Preferred Stock as of the date of closing of such transaction; (iii)
$1.60 per share for each share of Series C Preferred Stock, plus an amount equal
to all declared but unpaid dividends per share of Series C Preferred Stock as of
the date of closing of such transaction; (iv) $3.34 per share for each share of
Series D Preferred Stock, plus an amount equal to all declared but unpaid
dividends per share of Series D Preferred Stock as of the date of closing of
such transaction; (v) $6.44 per share for each share of Series E Preferred
Stock, plus an amount equal to all declared but unpaid dividends per share of
Series E Preferred Stock; (vi) $2.50 per share for each share of Series F
Preferred Stock, plus an amount equal to all declared but unpaid dividends per
share of Series F Preferred Stock; and (vii) $3.36 per share for each share of
Series G Preferred Stock, plus an amount equal to all declared but unpaid
dividends per share of Series G Preferred Stock. Such payments shall be made by
-7-
<PAGE>
purchase of such shares of Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock,
Series F Preferred Stock and Series G Preferred Stock by the surviving
corporation or entity pursuant to an agreement which provides that such
purchased shares of Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock, Series E Preferred Stock, Series F
Preferred Stock and Series G Preferred Stock shall be canceled by such surviving
corporation or entity effective upon the closing of such purchase. If, upon the
occurrence of such event, the cash and securities thus distributed among the
holders of the Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock, Series E Preferred Stock, Series F
Preferred Stock and Series G Preferred Stock shall be insufficient to permit the
payment to such holders of such full preferential amounts, then the entire
assets and funds of the Corporation legally available for distribution shall be
distributed ratably and pari passu among the holders of the Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock, Series E Preferred Stock, Series F Preferred Stock and Series G Preferred
Stock in proportion to the preferential amount each such holder would otherwise
be entitled to receive pursuant to this Section 3(a)(ii) if such amount were
satisfied in full.
(2) After payment has been made to the holders of
the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock, Series D Preferred Stock, Series E Preferred Stock, Series F Preferred
Stock and Series G Preferred Stock of the full preferential amounts to which
they shall be entitled as aforesaid, subject to the rights of series of
Preferred Stock that may from time to time come into existence, if assets remain
in the Corporation, the holders of the Common Stock of the Corporation shall
receive all of the remaining assets of the Corporation pro rata based on the
number of shares of Common Stock held by each.
(b) Any securities to be delivered to the holders of Preferred
Stock pursuant to Section 2 or Section 3 above shall be valued as follows:
(i) Securities not subject to investment letter or other
similar restrictions on free marketability:
(A) If traded on a securities exchange, the value
shall be deemed to be the average of the closing prices of the securities on
such exchange over the 30 calendar-day period ending three business days prior
to the closing;
(B) If actively traded over-the-counter, the value
shall be deemed to be the average of the closing bid prices over the 30
calendar-day period ending three business days prior to the closing; and
(C) If there is no active public market, the value
shall be the fair market value thereof, as mutually determined in good faith by
the Board of Directors and the holders of at least a majority of the voting
power of all the outstanding shares of Preferred Stock of the Corporation.
-8-
<PAGE>
(ii) The method of valuation of securities subject to
investment letter or other restrictions on free marketability shall be to make
an appropriate discount from the fair market value determined as above in
(i)(A), (B) or (C) to reflect the approximate fair market value thereof, as
determined in good faith by the Board of Directors of the Corporation.
(c) In the event the requirements of Section 3(b) are not
complied with, the Corporation shall forthwith either:
(i) cause such closing to be postponed until such time as
the requirements of such paragraph have been complied with, or
(ii) cancel such transaction, in which event the rights,
preferences and privileges of the holders of Preferred Stock shall revert to and
be the same as such rights, preferences and privileges existing immediately
prior to the date of the first notice referred to in Section 3(d) hereof.
(d) This Corporation shall give each holder of record of
Preferred Stock written notice of such impending transaction, which notice shall
be mailed, postage prepaid, to the post office address of such holder last shown
on the records of the Corporation, not later than 20 days prior to the
stockholders' meeting called to approve such transaction, or 20 days prior to
the closing of such transaction, whichever is earlier, and shall also notify
such holders in writing of the final approval of such transaction. The first of
such notices shall describe the material terms and conditions of the impending
transaction and the provisions of this Section 3 and shall specify the date of
closing of such transaction. This Corporation shall thereafter give such holders
prompt notice of any material changes in the terms and conditions of the
transaction. The transaction shall in no event take place sooner than 20 days
after the Corporation has given the first notice provided for herein or sooner
than 10 days after the Corporation has given notice of any material changes
provided for herein; provided, however, that such notice periods may be
shortened upon the written consent of the holders of a majority of the shares of
Preferred Stock then outstanding.
(f) In the event of any stock dividend, split, combination or
similar recapitalization of a series of Preferred Stock, the per share amounts
listed in Sections 1, 2(a), 2(b), and 3(a) above shall be appropriately
adjusted.
4. Conversion. The holders of Preferred Stock shall have conversion
----------
rights as follows (the "Conversion Rights"):
-----------------
(a) Right to Convert. Subject to Section 4(c), each share of
----------------
Preferred Stock shall be convertible, at the option of the holder thereof, at
any time after the date of issuance of such share, at the office of the
Corporation or any transfer agent for such stock, into such number of fully paid
and nonassessable shares of Common Stock as is determined by multiplying the
Conversion Rate for such series of Preferred Stock (as determined under this
subsection 4(a)) by the number of shares of Preferred Stock being converted.
The Conversion
-9-
<PAGE>
Rate shall equal the quotient obtained by dividing (i) $0.50 in the case of the
Series A Preferred Stock; (ii) $1.00 in the case of the Series B Preferred
Stock; (iii) $1.60 in the case of the Series C Preferred Stock; (iv) $3.34 in
the case of the Series D Preferred Stock; (v) $6.44 in the case of the Series E
Preferred Stock, (vi) $2.50 in the case of the Series F Preferred Stock and
(vii) $3.36 in the case of the Series G Preferred Stock by the Conversion Price
applicable to such share, determined as hereafter provided, in effect on the
date the certificate is surrendered for conversion. The initial Conversion Price
per share shall be: (i) $0.50 in the case of the Series A Preferred Stock; (ii)
$1.00 in the case of the Series B Preferred Stock; (iii) $1.60 in the case of
the Series C Preferred Stock; (iv) $3.34 in the case of the Series D Preferred
Stock; (v) $6.44 in the case of the Series E Preferred Stock; (vi) $2.50 in the
case of the Series F Preferred Stock; and (vii) $3.36 in the case of the Series
G Preferred Stock. Such initial Conversion Price shall be subject to adjustment
as set forth in Section 4(d) below.
(b) Automatic Conversion. Each share of Preferred Stock shall
--------------------
automatically be converted into shares of Common Stock at the Conversion Rate at
the time in effect for such share immediately upon the earlier of: (i) except
as provided below in Section 4(c), the Corporation's sale of its Common Stock in
a firm commitment underwritten public offering pursuant to a registration
statement under the Securities Act of 1933, as amended (the "Securities Act"),
--------------
the public offering price of which results in aggregate cash proceeds to the
Corporation of $15,000,000 (net of underwriting discounts and commissions) and
prior to which the market capitalization (assuming the conversion of all
Preferred Stock, the exercise of all outstanding warrants and options, and the
issuance and exercise of all remaining unissued options under the Company's
stockholder-approved stock option plans) of the Corporation at the proposed
offering price is at least $200,000,000; (ii) the date specified by written
consent or agreement of the holders of a majority of the then-outstanding shares
of Preferred Stock, voting together as a single class; or (iii) at such time as
a majority of the then-outstanding shares of Preferred Stock has converted into
Common Stock.
(c) Mechanics of Conversion. Before any holder of Series A
-----------------------
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock, Series E Preferred Stock, Series F Preferred Stock or Series G
Preferred Stock shall be entitled to convert the same into shares of Common
Stock, he, she or it shall surrender the certificate or certificates therefor,
duly endorsed, at the office of the Corporation or of any transfer agent for
such series of Preferred Stock, and shall give written notice to the Corporation
at its principal corporate office, of the election to convert the same and shall
state therein the name or names in which the certificate or certificates for
shares of Common Stock are to be issued. The Corporation shall, as soon as
practicable thereafter, issue and deliver at such office to such holder of
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock, Series E Preferred Stock, Series F Preferred Stock or
Series G Preferred Stock, or to the nominee or nominees of such holder, a
certificate or certificates for the number of shares of Common Stock to which
such holder shall be entitled as aforesaid. Such conversion shall be deemed to
have been made immediately prior to the close of business on the date of such
surrender of the shares of such series of Preferred Stock to be converted, and
the person or
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<PAGE>
persons entitled to receive the shares of Common Stock issuable upon such
conversion shall be treated for all purposes as the record holder or holders of
such shares of Common Stock as of such date. If the conversion is in connection
with an underwritten offering of securities registered pursuant to the
Securities Act, the conversion may, at the option of any holder tendering such
Preferred Stock for conversion, be conditioned upon the closing with the
underwriters of the sale of securities pursuant to such offering, in which event
the person(s) entitled to receive Common Stock upon conversion of such Preferred
Stock shall not be deemed to have converted such Preferred Stock until
immediately prior to the closing of such sale of securities.
(d) Conversion Price Adjustments of Preferred Stock for Certain
-----------------------------------------------------------
Dilutive Issuances, Splits and Combinations. The Conversion Price of the Series
- -------------------------------------------
A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock, Series E Preferred Stock, Series F Preferred Stock and Series G
Preferred Stock shall be subject to adjustment from time to time as follows:
(i) Issuance of Additional Stock below Purchase Price. If
-------------------------------------------------
the Corporation shall issue, after the date upon which any shares of Preferred
Stock were first issued (the "Purchase Date" with respect to such series), any
-------------
Additional Stock (as defined below) without consideration or for a consideration
per share less than the Conversion Price for such series in effect immediately
prior to the issuance of such Additional Stock, the Conversion Price for such
series in effect immediately prior to each such issuance shall automatically be
adjusted as set forth in this Section 4(d)(i), unless otherwise provided in this
Section 4(d)(i).
(A) Adjustment Formula. Whenever the Conversion Price
------------------
is adjusted pursuant to this Section (4)(d)(i), the new Conversion Price shall
be determined by multiplying the Conversion Price then in effect by a fraction,
(x) the numerator of which shall be the number of shares of Common Stock
outstanding immediately prior to such issuance (the "Outstanding Common") plus
------------------
the number of shares of Common Stock that the aggregate consideration received
by the Corporation for such issuance would purchase at such Conversion Price;
and (y) the denominator of which shall be the number of shares of Outstanding
Common plus the number of shares of such Additional Stock. For purposes of the
foregoing calculation, the term "Outstanding Common" shall include shares of
Common Stock deemed issued pursuant to Section 4(d)(i)(E) below, including all
shares of Common Stock issuable upon conversion of the outstanding Preferred
Stock and all shares of Common Stock issuable upon conversion or exercise of
options, warrants, or other outstanding securities of the Corporation.
(B) Definition of "Additional Stock". For purposes of
--------------------------------
this Section 4(d)(i), "Additional Stock" shall mean any shares of Common Stock
----------------
issued (or deemed to have been issued pursuant to Section 4(d)(i)(E)) by the
Corporation after the Purchase Date other than:
(1) Common Stock issued pursuant to a transaction
described in Section 4(d)(ii) hereof,
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<PAGE>
(2) Shares of Common Stock issuable or issued to
employees, consultants or directors of the Corporation directly or pursuant to a
stock option plan or restricted stock plan approved by the Board of Directors of
the Corporation,
(3) Capital stock, or options or warrants to
purchase capital stock, issued to financial institutions or lessors in
connection with commercial credit arrangements, equipment financings or similar
transactions,
(4) Shares of Common Stock or Preferred Stock
issuable upon exercise of warrants issued by (a) Portland Software, Inc. and
Preview Software, Inc. and outstanding as of the date of this Fourth Amended and
Restated Certificate of Incorporation and (b) the Corporation to the placement
agent in connection with financial services related to the Corporation's Series
G Preferred Stock financing transaction,
(5) Capital stock or warrants or options to
purchase capital stock issued in connection with bona fide acquisitions, mergers
or similar transactions, the terms of which are approved by the Board of
Directors of the Corporation,
(6) Shares of Common Stock issued or issuable
upon conversion of Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock, Series E Preferred Stock, Series F
Preferred Stock or Series G Preferred Stock, and
(7) Shares of Common Stock issued or issuable in
a public offering prior to or in connection with which all outstanding shares of
Preferred Stock will be converted to Common Stock.
(8) Common Stock issued (or deemed to have been
issued pursuant to Section 4(d)(i)(E)) upon the approval of a majority of the
outstanding shares of Preferred Stock, who shall agree that such shares shall
not constitute Additional Stock.
(C) No Fractional Adjustments. No adjustment of the
-------------------------
Conversion Price for Series A Preferred Stock, Series B Preferred Stock, Series
C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock, Series F
Preferred Stock or Series G Preferred Stock shall be made in an amount less than
one cent per share, provided that any adjustments which are not required to be
made by reason of this sentence shall be carried forward and shall be either
taken into account in any subsequent adjustment made prior to three years from
the date of the event giving rise to the adjustment being carried forward, or
shall be made at the end of three years from the date of the event giving rise
to the adjustment being carried forward.
(D) Determination of Consideration. In the case of the
------------------------------
issuance of Common Stock for cash, the consideration shall be deemed to be the
amount of cash paid therefor before deducting any reasonable discounts,
commissions or other expenses allowed,
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<PAGE>
paid or incurred by the Corporation for any underwriting or otherwise in
connection with the issuance and sale thereof. In the case of the issuance of
the Common Stock for a consideration in whole or in part other than cash, the
consideration other than cash shall be deemed to be the fair market value
thereof as determined by the Board of Directors irrespective of any accounting
treatment.
(E) Deemed Issuances of Common Stock. In the case of the
--------------------------------
issuance (whether before, on or after the applicable Purchase Date) of options
to purchase or rights to subscribe for Common Stock, securities by their terms
convertible into or exchangeable for Common Stock or options to purchase or
rights to subscribe for such convertible or exchangeable securities, the
following provisions shall apply for all purposes of this Section 4(d)(i):
(1) The aggregate maximum number of shares of
Common Stock deliverable upon exercise (assuming the satisfaction of any
conditions to exercisability, including without limitation, the passage of time,
but without taking into account potential antidilution adjustments) of such
options to purchase or rights to subscribe for Common Stock shall be deemed to
have been issued at the time such options or rights were issued and for a
consideration equal to the consideration (determined in the manner provided in
Section 4(d)(i)(D)), if any, received by the Corporation upon the issuance of
such options or rights plus the minimum exercise price provided in such options
or rights (without taking into account potential antidilution adjustments) for
the Common Stock covered thereby.
(2) The aggregate maximum number of shares of
Common Stock deliverable upon conversion of or in exchange (assuming the
satisfaction of any conditions to convertibility or exchangeability, including,
without limitation, the passage of time, but without taking into account
potential antidilution adjustments) for any such convertible or exchangeable
securities or upon the exercise of options to purchase or rights to subscribe
for such convertible or exchangeable securities and subsequent conversion or
exchange thereof shall be deemed to have been issued at the time such securities
were issued or such options or rights were issued and for a consideration equal
to the consideration, if any, received by the Corporation for any such
securities and related options or rights (excluding any cash received on account
of accrued interest or accrued dividends), plus the minimum additional
consideration, if any, to be received by the Corporation (without taking into
account potential antidilution adjustments) upon the conversion or exchange of
such securities or the exercise of any related options or rights (the
consideration in each case to be determined in the manner provided in Section
4(d)(i)(D).
(3) In the event of any change in the number of
shares of Common Stock deliverable or in the consideration payable to the
Corporation upon exercise of such options or rights or upon conversion of or in
exchange for such convertible or exchangeable securities, including, but not
limited to, a change resulting from the antidilution provisions thereof, the
Conversion Price of each of the Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock, Series D Preferred Stock, Series E Preferred
Stock, Series F Preferred Stock and Series G Preferred Stock, to the extent in
any way affected by or
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<PAGE>
computed using such options, rights or securities, shall be recomputed to
reflect such change, but no further adjustment shall be made for the actual
issuance of Common Stock or any payment of such consideration upon the exercise
of any such options or rights or the conversion or exchange of such securities.
(4) Upon the expiration of any such options or
rights, the termination of any such rights to convert or exchange or the
expiration of any options or rights related to such convertible or exchangeable
securities, the Conversion Price of each of the Series A Preferred Stock, Series
B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E
Preferred Stock, Series F Preferred Stock and Series G Preferred Stock, to the
extent in any way affected by or computed using such options, rights or
securities or options or rights related to such securities, shall be recomputed
to reflect the issuance of only the number of shares of Common Stock (and
convertible or exchangeable securities which remain in effect) actually issued
upon the exercise of such options or rights, upon the conversion or exchange of
such securities or upon the exercise of the options or rights related to such
securities.
(5) The number of shares of Common Stock deemed
issued and the consideration deemed paid therefor pursuant to Sections
4(d)(i)(E)(1) and 4(d)(i)(E)(2) shall be appropriately adjusted to reflect any
change, termination or expiration of the type described in either Section
4(d)(i)(E)(3) or 4(d)(i)(E)(4).
(F) No Increased Conversion Price. Notwithstanding any
-----------------------------
other provisions of this Section (4)(d)(i), except to the limited extent
provided for in Sections 4(d)(i)(E)(3) and 4(d)(i)(E)(4), no adjustment of the
Conversion Price pursuant to this Section 4(d)(i) shall have the effect of
increasing the Conversion Price above the Conversion Price in effect immediately
prior to such adjustment.
(ii) Stock Splits and Dividends. In the event the
--------------------------
Corporation should at any time or from time to time after the Purchase Date fix
a record date for the effectuation of a split or subdivision of the outstanding
shares of Common Stock or the determination of holders of Common Stock entitled
to receive a dividend or other distribution payable in additional shares of
Common Stock or other securities or rights convertible into, or entitling the
holder thereof to receive directly or indirectly, additional shares of Common
Stock (hereinafter referred to as "Common Stock Equivalents") without payment of
------------------------
any consideration by such holder for the additional shares of Common Stock or
the Common Stock Equivalents (including the additional shares of Common Stock
issuable upon conversion or exercise thereof), then, as of such record date (or
the date of such dividend distribution, split or subdivision if no record date
is fixed), the Conversion Price of each series of Preferred Stock shall be
appropriately decreased so that the number of shares of Common Stock issuable on
conversion of each share of such series shall be increased in proportion to such
increase of the aggregate of shares of Common Stock outstanding and those
issuable with respect to such Common Stock Equivalents with the number of shares
issuable with respect to Common Stock Equivalents determined from time to time
in the manner provided for deemed issuances in Section 4(d)(i)(E).
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<PAGE>
(iii) Reverse Stock Splits. If the number of shares of
--------------------
Common Stock outstanding at any time after the Purchase Date is decreased by a
combination of the outstanding shares of Common Stock, then, following the
record date of such combination, the Conversion Price for each of series of
Preferred Stock shall be appropriately increased so that the number of shares of
Common Stock issuable on conversion of each share of such series shall be
decreased in proportion to such decrease in outstanding shares.
(e) Other Distributions. In the event the Corporation shall
-------------------
declare a distribution payable in securities of other persons, evidences of
indebtedness issued by the Corporation or other persons, assets (excluding cash
dividends) or options or rights not referred to in Section 4(d)(ii), then, in
each such case for the purpose of this Section 4(e), the holders of Preferred
Stock shall be entitled to a proportionate share of any such distribution as
though they were the holders of the number of shares of Common Stock of the
Corporation into which their shares of Preferred Stock are convertible as of the
record date fixed for the determination of the holders of Common Stock of the
Corporation entitled to receive such distribution.
(f) Recapitalizations. If at any time or from time to time there
-----------------
shall be a recapitalization of the Common Stock (other than a subdivision,
combination or merger or sale of assets transaction provided for elsewhere in
Section 3 or this Section 4) provision shall be made so that the holders of the
Preferred Stock shall thereafter be entitled to receive upon conversion of such
Preferred Stock the number of shares of stock or other securities or property of
the Corporation or otherwise, to which a holder of Common Stock deliverable upon
conversion would have been entitled on such recapitalization. In any such case,
appropriate adjustment shall be made in the application of the provisions of
this Section 4 with respect to the rights of the holders of such Preferred Stock
after the recapitalization to the end that the provisions of this Section 4
(including adjustment of the Conversion Price then in effect and the number of
shares purchasable upon conversion of such Preferred Stock) shall be applicable
after that event and be as nearly equivalent as practicable.
(g) No Impairment. The Corporation will not, by amendment of its
-------------
Certificate of Incorporation or through any reorganization, recapitalization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed hereunder by the
Corporation, but will at all times in good faith assist in the carrying out of
all the provisions of this Section 4 and in the taking of all such action as may
be necessary or appropriate in order to protect the Conversion Rights of the
holders of Preferred Stock against impairment.
(h) No Fractional Shares and Certificate as to Adjustments.
------------------------------------------------------
(i) No fractional shares shall be issued upon the
conversion of any share or shares of the Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E
Preferred Stock, Series F Preferred Stock or Series G Preferred Stock, and the
number of shares of Common Stock to be issued shall be rounded to the
-15-
<PAGE>
nearest whole share. The number of shares issuable upon such conversion shall be
determined on the basis of the total number of shares of Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock, Series E Preferred Stock, Series F Preferred Stock or Series G Preferred
Stock, the holder is at the time converting into Common Stock and the number of
shares of Common Stock issuable upon such aggregate conversion.
(ii) Upon the occurrence of each adjustment or readjustment
of the Conversion Price of Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock,
Series F Preferred Stock or Series G Preferred Stock, pursuant to this Section
4, the Corporation, at its expense, shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and prepare and furnish to each
holder of such Preferred Stock a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The Corporation shall, upon the written request at any
time of any holder of Series A Preferred Stock, Series B Preferred Stock, Series
C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock, Series F
Preferred Stock or Series G Preferred Stock, furnish or cause to be furnished to
such holder a like certificate setting forth (A) such adjustment and
readjustment, (B) the Conversion Price for such series of Preferred Stock at the
time in effect, and (C) the number of shares of Common Stock and the amount, if
any, of other property which at the time would be received upon the conversion
of a share of such series of Preferred Stock.
(i) Notices of Record Date. In the event of any taking by the
----------------------
Corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right, the Corporation
shall mail to each holder of Preferred Stock, at least ten (10) days prior to
the date specified therein, a notice specifying the date on which any such
record is to be taken for the purpose of such dividend, distribution or right,
and the amount and character of such dividend, distribution or right.
(j) Reservation of Stock Issuable Upon Conversion. The
---------------------------------------------
Corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the shares of Preferred Stock, such number of its shares of Common
Stock as shall from time to time be sufficient to effect the conversion of all
outstanding shares of such series of Preferred Stock; and if at any time the
number of authorized but unissued shares of Common Stock shall not be sufficient
to effect the conversion of all then-outstanding shares of such series of
Preferred Stock, in addition to such other remedies as shall be available to the
holder of such Preferred Stock, the Corporation will take such corporate action
as may, in the opinion of its counsel, be necessary to increase its authorized
but unissued shares of Common Stock to such number of shares as shall be
sufficient for such purposes, including, without limitation, engaging in best
efforts to obtain the requisite stockholder approval of any necessary amendment
to this Certificate of Incorporation.
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<PAGE>
(k) Notices. Any notice required by the provisions of this
-------
Section 4 to be given to the holders of shares of Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock,
Series E Preferred Stock, Series F Preferred Stock or Series G Preferred Stock
shall be deemed given if deposited in the United States mail, postage prepaid,
and addressed to each holder of record at his address appearing on the books of
the Corporation.
5. Voting Rights.
-------------
(a) Generally. The holder of each share of Preferred Stock shall
---------
have the right to one vote for each share of Common Stock into which such
Preferred Stock could then be converted, and with respect to such vote, such
holder shall have full voting rights and powers equal to the voting rights and
powers of the holders of Common Stock, and shall be entitled, notwithstanding
any provision hereof, to notice of any stockholders' meeting in accordance with
the Bylaws of the Corporation, and shall be entitled to vote, together with
holders of Common Stock, with respect to any question upon which holders of
Common Stock have the right to vote. Fractional votes shall not, however, be
permitted and any fractional voting rights available on an as-converted basis
(after aggregating all shares into which shares of Preferred Stock held by each
holder could be converted) shall be rounded to the nearest whole number (with
one-half being rounded upward).
(b) Board of Directors. The Board of Directors of the
------------------
Corporation shall consist of seven directors. The holders of shares of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D
Preferred Stock, voting together as a single class, shall elect two members of
the Board of Directors of the Corporation. The holders of shares of Series E
Preferred Stock, voting separately as a class, shall elect one member of the
Board of Directors of the Corporation. The holders of shares of Series G
Preferred Stock, voting separately as a class, shall elect two members of the
Board of Directors of the Corporation. The holders of Common Stock, voting
separately as a class, shall elect one member of the Board of Directors of the
Corporation. The remaining members of the Board of Directors shall be elected by
the Common Stock and Preferred Stock, voting together as a single class. If a
vacancy on the Board of Directors is to be filled by the Board of Directors,
only a director or directors elected by the same class of stockholders as those
who would be entitled to vote to fill such vacancy, if any, shall vote to fill
such vacancy, except that all directors acting unanimously may fill a vacancy in
the seat to be elected by the holders of Common and Preferred Stock voting
together as a class. A director may be removed from the Board of Directors with
or without cause by the vote or consent of the holders of the outstanding class
or series with voting power to elect him or her in accordance with the Delaware
General Corporation Law. With respect to all board seats to be elected by a
given class as specified above, cumulative voting shall apply for the seats to
be elected by that class.
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<PAGE>
6. Protective Provisions.
---------------------
(a) So long as at least 625,000 shares of Preferred Stock are
outstanding (as adjusted for stock splits, stock dividends or
recapitalizations), the Corporation shall not without first obtaining the
approval (by vote or written consent, as provided by law) of the holders of at
least a majority of the then-outstanding shares of Preferred Stock, voting
together as a class:
(i) effect a merger, consolidation, sale or disposition
of all or substantially all of the properties or assets of the Corporation
unless the Corporation is the surviving or acquiring corporation and
stockholders immediately prior to such transaction constitute a majority of
stockholders in interest of the surviving corporation after giving effect to
such transaction;
(ii) alter or change the rights, preferences or privileges
of the shares of Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock, Series E Preferred Stock, Series F
Preferred Stock or Series G Preferred Stock so as to affect adversely the shares
of such series;
(iii) increase or decrease (other than by redemption or
conversion) the total number of authorized shares of Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock,
Series E Preferred Stock, Series F Preferred Stock or Series G Preferred Stock;
(iv) authorize or issue, or obligate itself to issue, any
other equity security, including any other security convertible into or
exercisable for any equity security, having a preference over, or being on a
parity with, the Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock, Series E Preferred Stock, Series F
Preferred Stock or Series G Preferred Stock with respect to voting, dividends,
conversion or upon liquidation;
(v) redeem, repurchase or otherwise acquire (or pay into
or set aside for a sinking fund for such purpose) any share or shares of
Preferred Stock or Common Stock; provided, however, that this restriction shall
-------- -------
not apply to the repurchase of shares of Common Stock from employees, officers,
directors, consultants or other persons performing services for the Corporation
or any subsidiary pursuant to agreements under which the Corporation has the
option to repurchase such shares at cost upon the occurrence of certain events,
such as the termination of employment, or through the exercise of any right of
first refusal;
(vi) amend any provision of the Certificate of
Incorporation of the Corporation; or
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<PAGE>
(vii) take any corporate action which results in any series
of Preferred Stock not qualifying as Section 1202 "small business stock."
(b) In addition to the approvals required in Section 6(a) above,
the Corporation shall not without first obtaining the approval (by vote or
written consent, as provided by law) of the holders of at least a majority of
the then-outstanding shares of Series D Preferred Stock, Series E Preferred
Stock and Series G Preferred Stock, voting together as a class:
(i) authorize or issue, or obligate itself to issue, any
other equity security, including any other security convertible into or
exercisable for any equity security, having a preference over, or being on a
parity with, the Series D Preferred Stock, Series E Preferred Stock or Series G
Preferred Stock with respect to voting, dividends, conversion or upon
liquidation;
(ii) alter or change the rights, preferences or privileges
of the shares of Series D Preferred Stock, Series E Preferred Stock or Series G
Preferred Stock; or
(iii) effect a merger, consolidation, sale or disposition
of all or substantially all of the properties or assets of the Corporation
unless the Corporation is the surviving or acquiring corporation and
stockholders immediately prior to such transaction constitute a majority of
stockholders in interest of the surviving corporation after giving effect to
such transaction.
7. Status of Converted Stock. In the event any shares of Preferred
-------------------------
Stock shall be converted pursuant to Section 4 hereof, the shares so converted
shall be canceled and shall not be issuable by the Corporation. The Certificate
of Incorporation of the Corporation shall be appropriately amended to effect the
corresponding reduction in the Corporation's authorized capital stock.
8. Redemption. The Preferred Stock is not redeemable.
----------
(C) Common Stock.
------------
1. Dividend Rights. Subject to the prior rights of holders of all
---------------
classes of stock at the time outstanding having prior rights as to dividends,
the holders of the Common Stock shall be entitled to receive, when, as and if
declared by the Board of Directors, out of any assets of the Corporation legally
available therefor, such dividends as may be declared from time to time by the
Board of Directors.
2. Liquidation Rights. Upon the liquidation, dissolution or winding
------------------
up of the Corporation, the assets of the Corporation shall be distributed as
provided in Section 2 of Article IV(B).
3. Redemption. The Common Stock is not redeemable.
----------
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<PAGE>
4. Voting Rights. The holder of each share of Common Stock shall
-------------
have the right to one vote, and shall be entitled to notice of any stockholders'
meeting in accordance with the bylaws of the Corporation, and shall be entitled
to vote upon such matters and in such manner as may be provided by law.
ARTICLE V
The Board of Directors of the Corporation is expressly authorized to make,
alter or repeal Bylaws of the Corporation.
ARTICLE VI
Elections of directors need not be by written ballot unless otherwise
provided in the Bylaws of the Corporation.
ARTICLE VII
The Corporation is to have perpetual existence.
ARTICLE VIII
(A) To the fullest extent permitted by the Delaware General Corporation
Law, as the same exists or as may hereafter be amended, a director of the
Corporation shall not be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director.
(B) The Corporation shall indemnify to the fullest extent permitted by law
any person made or threatened to be made a party to an action or proceeding,
whether criminal, civil, administrative or investigative, by reason of the fact
that he, his testator or intestate is or was a director or officer of the
Corporation or any predecessor of the Corporation, or serves or served at any
other enterprise as a director or officer at the request of the Corporation or
any predecessor to the Corporation.
(C) Neither any amendment nor repeal of this Article VIII, nor the
adoption of any provision of the Corporation's Certificate of Incorporation
inconsistent with this Article VIII, shall eliminate or reduce the effect of
this Article VIII in respect of any matter occurring, or any action or
proceeding accruing or arising or that, but for this Article VIII, would accrue
or arise, prior to such amendment, repeal or adoption of an inconsistent
provision.
ARTICLE IX
Meetings of stockholders may be held within or without the State of
Delaware, as the Bylaws may provide. The books of the Corporation may be kept
(subject to any statutory provision) outside the State of Delaware at such place
or places as may be designated from time to time by the Board of Directors in
the Bylaws of the Corporation."
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* * *
(Signature Page Follows)
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The foregoing Fourth Amended and Restated Certificate of Incorporation has
been duly adopted by the corporation's Board of Directors and stockholders in
accordance with the applicable provisions of Section 228, 242 and 245 of the
General Corporation Law of the State of Delaware.
Executed at Cupertino, California this 8th day of September, 1999.
/s/ Vincent Pluvinage
-----------------------------------
Vincent Pluvinage, President
/s/ Elias J. Blawie
-----------------------------------
Elias J. Blawie, Secretary
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EXHIBIT 3.2
FORM OF
FIFTH AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
PREVIEW SYSTEMS, INC.
The undersigned, Vincent Pluvinage and Elias J. Blawie, hereby certify
that:
1. They are the duly elected, qualified and acting President and
Secretary, respectively, of Preview Systems, Inc., a Delaware corporation.
2. The Certificate of Incorporation of this corporation was originally
filed with the Secretary of State of Delaware on April 22, 1998 under the name
of P2 Software, Inc.
3. The Certificate of Incorporation of this corporation shall be amended
and restated to read in full as follows:
ARTICLE I
The name of this corporation is Preview Systems, Inc. (the "Corporation").
-----------
ARTICLE II
The address of the Corporation's registered office in the State of Delaware
is 1209 Orange Street, Wilmington, County of New Castle. The name of its
registered agent at such address is The Corporation Trust Company.
ARTICLE III
The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under the Delaware General Corporation
Law.
ARTICLE IV
Upon the effective date of the filing of this Certificate of Incorporation,
every two shares of the corporation's outstanding capital stock shall be
converted and reconstituted into one share of capital stock (the "Stock Split").
No further adjustment of any preference or price set forth in this Article IV
shall be made as a result of the Stock Split, as all share amounts, amounts per
share and per share numbers set forth in this Certificate of Incorporation have
been adjusted to reflect the Stock Split.
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(A) Classes of Stock. The Corporation is authorized to issue two classes
----------------
of stock to be designated, respectively, "Common Stock" and "Preferred Stock."
------------ ---------------
The total number of shares which the Corporation is authorized to issue is
27,141,961 shares, each with a par value of $0.0002 per share. 17,500,000
shares shall be Common Stock and 9,641,961 shares shall be Preferred Stock.
(B) Rights, Preferences and Restrictions of Preferred Stock. The Preferred
-------------------------------------------------------
Stock authorized by this Amended and Restated Certificate of Incorporation may
be issued from time to time in one or more series. The first series of
Preferred Stock shall be designated "Series A Preferred Stock" and shall consist
------------------------
of 573,500 shares. The second series of Preferred Stock shall be designated
"Series B Preferred Stock" and shall consist of 352,500 shares. The third
- -------------------------
series of Preferred Stock shall be designated "Series C Preferred Stock" and
------------------------
shall consist of 1,275,430 shares. The fourth series of Preferred Stock shall
be designated "Series D Preferred Stock" and shall consist of 301,401 shares.
------------------------
The fifth series of Preferred Stock shall be designated "Series E Preferred
------------------
Stock" and shall consist of 1,150,000 shares. The sixth series of Preferred
- -----
Stock shall be designated "Series F Preferred Stock" and shall consist of
------------------------
1,600,000 shares. The seventh series of Preferred Stock shall be designated
"Series G Preferred Stock" and shall consist of 4,389,130 shares. The rights,
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preferences, privileges and restrictions granted to and imposed on the Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock, Series E Preferred Stock, Series F Preferred Stock and Series G
Preferred Stock are as set forth below in this Article IV(B). The Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock, Series E Preferred Stock, Series F Preferred Stock and Series G
Preferred Stock are sometimes collectively referred to herein as "Preferred
---------
Stock."
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1. Dividend Provisions. The holders of shares of Preferred Stock
-------------------
shall be entitled to receive dividends, out of any assets legally available
therefor, prior and in preference to any declaration or payment of any dividend
(payable other than in Common Stock or other securities and rights convertible
into or entitling the holder thereof to receive, directly or indirectly,
additional shares of Common Stock of the Corporation) on the Common Stock of the
Corporation, at the rate of: (a) $0.08 per share per annum on each outstanding
share of Series A Preferred Stock; (b) $0.16 per share per annum on each
outstanding share of Series B Preferred Stock; (c) $0.288 per share per annum on
each outstanding share of Series C Preferred Stock; (d) $0.60 per share per
annum on each outstanding share of Series D Preferred Stock; (e) $1.03 per
share per annum on each outstanding share of Series E Preferred Stock; (f) $0.45
per share per annum on each outstanding share of Series F Preferred Stock; and
(g) $0.538 per share per annum on each outstanding share of Series G Preferred
Stock, payable quarterly when, as and if declared by the Board of Directors.
Dividends or distributions (other than dividends payable solely in shares of
Common Stock) may be declared and paid upon shares of Common Stock in any fiscal
year of the Corporation only if dividends in the total amount of: (a) $0.08 per
share on the Series A Preferred Stock; (b) $0.16 per share on the Series B
Preferred Stock; (c) $0.288 per share on each outstanding share of Series C
Preferred Stock; (d) $0.60 per share on the Series D Preferred Stock; (e) $1.03
per share on the Series E Preferred Stock; (f) $0.45 per share on the
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Series F Preferred Stock; and (g) $0.538 per share on the Series G Preferred
Stock shall have been paid or declared and set apart. After payment of such
dividends, any additional dividends declared shall be distributed among all
holders of all Preferred Stock and holders of Common Stock in proportion to the
number of shares of Common Stock which would be held by each such holder if all
shares of Preferred Stock were converted into Common Stock based on the
effective Conversion Price (as defined herein). The right to such dividends on
shares of Preferred Stock shall not be cumulative and no right shall accrue to
holders of shares of Preferred Stock by reason of the fact that dividends on
said shares are not declared in any prior year, nor shall any undeclared or
unpaid dividend bear or accrue interest.
2. Liquidation Preference.
----------------------
(a) In the event of any liquidation, dissolution or winding up of
the Corporation, either voluntary or involuntary, in which the aggregate
proceeds to be distributed to all stockholders of the Corporation is equal to or
less than $200,000,000, then:
(i) the holders of the Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E
Preferred Stock, Series F Preferred Stock and Series G Preferred Stock shall be
entitled to receive, prior and in preference to any distribution of any of the
assets of the Corporation to the holders of Common Stock by reason of their
ownership thereof, an amount per share equal to: (i) $1.00 per share for each
share of Series A Preferred Stock then held by them, and, in addition, an amount
equal to all declared but unpaid dividends on the Series A Preferred Stock; (ii)
$2.00 per share for each share of Series B Preferred Stock then held by them,
and, in addition, an amount equal to all declared but unpaid dividends on the
Series B Preferred Stock; (iii) $3.20 per share for each share of Series C
Preferred Stock then held by them, and, in addition, an amount equal to all
declared but unpaid dividends on the Series C Preferred Stock; (iv) $6.68 per
share for each share of Series D Preferred Stock then held by them, and, in
addition, an amount equal to all declared but unpaid dividends on the Series D
Preferred Stock; (v) $12.88 per share for each share of Series E Preferred Stock
then held by them, and, in addition, an amount equal to all declared but unpaid
dividends on the Series E Preferred Stock; (vi) $5.00 per share for each share
of Series F Preferred Stock then held by them, and, in addition, an amount equal
to all declared but unpaid dividends on the Series F Preferred Stock; and (vii)
$6.72 per share for each share of Series G Preferred Stock then held by them,
and, in addition, an amount equal to all declared but unpaid dividends on the
Series G Preferred Stock. If, upon the occurrence of such event, the assets and
funds thus distributed among the holders of the Series A Preferred Stock, Series
B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E
Preferred Stock, Series F Preferred Stock and Series G Preferred Stock shall be
insufficient to permit the payment to such holders of the full preferential
amounts for the Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock, Series E Preferred Stock, Series F
Preferred Stock and Series G Preferred Stock, then the entire assets and funds
of the Corporation legally available for distribution shall be distributed
ratably and pari passu among the holders of the Series A Preferred Stock, Series
B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E
Preferred Stock, Series F Preferred Stock and Series G Preferred Stock
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in proportion to the preferential amount each such holder would otherwise be
entitled to receive pursuant to this Section 2(a) if such amount were satisfied
in full.
(ii) After payment has been made to the holders of the
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock, Series E Preferred Stock, Series F Preferred Stock and
Series G Preferred Stock of the full preferential amounts to which they shall be
entitled as aforesaid, any remaining assets of this Corporation available for
distribution shall be distributed among the holders of the Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock, Series E Preferred Stock, Series F Preferred Stock, Series G Preferred
Stock and Common Stock pro rata based on the number of shares of Common Stock
held by each (assuming conversion of all Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E
Preferred Stock, Series F Preferred Stock and Series G Preferred Stock) until:
(i) with respect to the holders of Series A Preferred Stock, such holders shall
have received an aggregate of $2.00 per share (including amounts paid pursuant
to Section 2(a)(i) above); (ii) with respect to the holders of Series B
Preferred Stock, such holders shall have received an aggregate of $4.00 per
share (including amounts paid pursuant to Section 2(a)(i) above); (iii) with
respect to the holders of Series C Preferred Stock, such holders shall have
received an aggregate of $6.40 per share (including amounts paid pursuant to
Section 2(a)(i) above); (iv) with respect to the holders of Series D Preferred
Stock, such holders shall have received an aggregate of $13.36 per share
(including amounts paid pursuant to Section 2(a)(i) above); (v) with respect to
the holders of Series E Preferred Stock, such holders shall have received an
aggregate of $25.76 per share (including amounts paid pursuant to Section
2(a)(i) above); (vi) with respect to the holders of Series F Preferred Stock,
such holders shall have received an aggregate of $10.00 per share (including
amounts paid pursuant to Section 2(a)(i) above); and (vii) with respect to the
holders of Series G Preferred Stock, such holders shall have received an
aggregate of $13.44 per share (including amounts paid pursuant to Section
2(a)(i) above). Thereafter, subject to the rights of series of Preferred Stock
that may from time to time come into existence, if assets remain in the
Corporation, the holders of the Common Stock of the Corporation shall receive
all of the remaining assets of the Corporation pro rata based on the number of
shares of Common Stock held by each.
(b) In the event of any liquidation, dissolution or winding up
of the Corporation, in which the aggregate proceeds to be distributed to all
stockholders of the Corporation is greater than $200,000,000, then:
(i) the holders of the Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E
Preferred Stock, Series F Preferred Stock and Series G Preferred Stock shall be
entitled to receive, prior and in preference to any distribution of any of the
assets of the Corporation to the holders of Common Stock by reason of their
ownership thereof, an amount per share equal to: (i) $1.00 per share for each
share of Series A Preferred Stock then held by them, and, in addition, an amount
equal to all declared but unpaid dividends on the Series A Preferred Stock; (ii)
$2.00 per share for each share of Series B Preferred Stock then held by them,
and, in addition, an amount equal to all declared
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but unpaid dividends on the Series B Preferred Stock; (iii) $3.20 per share for
each share of Series C Preferred Stock then held by them, and, in addition, an
amount equal to all declared but unpaid dividends on the Series C Preferred
Stock; (iv) $6.68 per share for each share of Series D Preferred Stock then held
by them, and, in addition, an amount equal to all declared but unpaid dividends
on the Series D Preferred Stock; (v) $12.88 per share for each share of Series E
Preferred Stock then held by them, and, in addition, an amount equal to all
declared but unpaid dividends on the Series E Preferred Stock; (vi) $5.00 per
share for each share of Series F Preferred Stock then held by them, and, in
addition, an amount equal to all declared but unpaid dividends on the Series F
Preferred Stock; and (vii) $6.72 per share for each share of Series G Preferred
Stock then held by them, and, in addition, an amount equal to all declared but
unpaid dividends on the Series G Preferred Stock. If, upon the occurrence of
such event, the assets and funds thus distributed among the holders of the
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock, Series E Preferred Stock, Series F Preferred Stock and
Series G Preferred Stock shall be insufficient to permit the payment to such
holders of the full preferential amounts for the Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock,
Series E Preferred Stock, Series F Preferred Stock and Series G Preferred Stock,
then the entire assets and funds of the Corporation legally available for
distribution shall be distributed ratably and pari passu among the holders of
the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock, Series D Preferred Stock, Series E Preferred Stock, Series F Preferred
Stock and Series G Preferred Stock in proportion to the preferential amount each
such holder would otherwise be entitled to receive pursuant to this Section 2(b)
if such amount were satisfied in full.
(ii) After payment has been made to the holders of the
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock, Series E Preferred Stock, Series F Preferred Stock and
Series G Preferred Stock of the full preferential amounts to which they shall be
entitled as aforesaid, subject to the rights of series of Preferred Stock that
may from time to time come into existence, if assets remain in the Corporation,
the holders of the Common Stock of the Corporation shall receive all of the
remaining assets of the Corporation pro rata based on the number of shares of
Common Stock held by each.
(c) A merger of the Corporation with or into any other
Corporation or Corporations or a sale of all or substantially all of the assets
of the Corporation, shall not be treated as a liquidation, dissolution or
winding up for purposes of this Section 2, but shall instead be treated pursuant
to Section 3 hereof.
3. Merger.
------
(a) At any time, in the event of:
(i) any consolidation or merger of the Corporation with or
into another corporation or other entity or person (excluding any merger
effected exclusively for the purpose of changing the corporate domicile of the
Corporation), or any other corporate
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reorganization or other transaction or series of related transactions by the
Corporation, in any such case, in which the stockholders of the Corporation
immediately prior to such transaction or series of related transactions shall
own less than 50% of the voting securities of the surviving corporation
immediately after such transaction or series of related transactions, or
(ii) a sale, conveyance or disposition of all or
substantially all of the assets of the Corporation (including for purpose of
this section, intellectual property rights which, in the aggregate, constitute
substantially all of the Corporation's material assets), then,
(A) if the aggregate proceeds to be distributed to
all stockholders of the Corporation in such transaction is equal to or less than
$200,000,000:
(1) the holders of Preferred Stock shall be
paid for each share of Preferred Stock then held by them, in cash or in
securities received from the acquiring corporation, or in a combination thereof,
at the closing of any such transaction, an amount equal to: (i) $1.00 per share
for each share of Series A Preferred Stock, plus an amount equal to all declared
but unpaid dividends per share of Series A Preferred Stock as of the date of
closing of such transaction; (ii) $2.00 per share for each share of Series B
Preferred Stock, plus an amount equal to all declared but unpaid dividends per
share of Series B Preferred Stock as of the date of closing of such transaction;
(iii) $3.20 per share for each share of Series C Preferred Stock, plus an amount
equal to all declared but unpaid dividends per share of Series C Preferred Stock
as of the date of closing of such transaction; (iv) $6.68 per share for each
share of Series D Preferred Stock, plus an amount equal to all declared but
unpaid dividends per share of Series D Preferred Stock as of the date of closing
of such transaction; (v) $12.88 per share for each share of Series E Preferred
Stock, plus an amount equal to all declared but unpaid dividends per share of
Series E Preferred Stock; (vi) $5.00 per share for each share of Series F
Preferred Stock, plus an amount equal to all declared but unpaid dividends per
share of Series F Preferred Stock; and (vii) $6.72 per share for each share of
Series G Preferred Stock, plus an amount equal to all declared but unpaid
dividends per share of Series G Preferred Stock. Such payments shall be made by
purchase of such shares of Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock,
Series F Preferred Stock and Series G Preferred Stock by the surviving
corporation or entity pursuant to an agreement which provides that such
purchased shares of Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock, Series E Preferred Stock, Series F
Preferred Stock and Series G Preferred Stock shall be canceled by such surviving
corporation or entity effective upon the closing of such purchase. If, upon the
occurrence of such event, the cash and securities thus distributed among the
holders of the Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock, Series E Preferred Stock, Series F
Preferred Stock and Series G Preferred Stock shall be insufficient to permit the
payment to such holders of such full preferential amounts, then the entire
assets and funds of the Corporation legally available for distribution shall be
distributed ratably and pari passu among the holders of the Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock, Series E Preferred Stock, Series F Preferred Stock and Series G Preferred
Stock
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in proportion to the preferential amount each such holder would otherwise be
entitled to receive pursuant to this Section 3(a)(ii) if such amount were
satisfied in full.
(2) After payment has been made to the holders
of the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock, Series D Preferred Stock, Series E Preferred Stock, Series F Preferred
Stock and Series G Preferred Stock of the full preferential amounts to which
they shall be entitled as aforesaid, any remaining assets of this corporation
available for distribution shall be distributed among the holders of the Series
A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock, Series E Preferred Stock, Series F Preferred Stock, and Series
G Preferred Stock and Common Stock pro rata based on the number of shares of
Common Stock held by each (assuming conversion of all Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock,
Series E Preferred Stock, Series F Preferred Stock and Series G Preferred Stock)
until: (i) with respect to the holders of Series A Preferred Stock, such holders
shall have received an aggregate of $2.00 per share (including amounts paid
pursuant to Section 3(a)(ii)(A)(1) above); (ii) with respect to the holders of
Series B Preferred Stock, such holders shall have received an aggregate of $4.00
per share (including amounts paid pursuant to Section 3(a)(ii)(A)(1) above);
(iii) with respect to the holders of Series C Preferred Stock, such holders
shall have received an aggregate of $6.40 per share (including amounts paid
pursuant to Section 3(a)(ii)(A)(1) above); (iv) with respect to the holders of
Series D Preferred Stock, such holders shall have received an aggregate of
$13.36 per share (including amounts paid pursuant to Section 3(a)(ii)(A)(1)
above); (v) with respect to the holders of Series E Preferred Stock, such
holders shall have received an aggregate of $25.76 per share (including amounts
paid pursuant to Section 3(a)(ii)(A)(1) above); (vi) with respect to the holders
of Series F Preferred Stock, such holders shall have received an aggregate of
$10.00 per share (including amounts paid pursuant to Section 3(a)(ii)(A)(1)
above); and (vii) with respect to the holders of Series G Preferred Stock, such
holders shall have received an aggregate of $13.44 per share (including amounts
paid pursuant to Section 3(a)(ii)(A)(1) above). Thereafter, subject to the
rights of series of Preferred Stock that may from time to time come into
existence, if assets remain in the Corporation, the holders of the Common Stock
of the Corporation shall receive all of the remaining assets of the Corporation
pro rata based on the number of shares of Common Stock held by each.
(B) if the aggregate proceeds to be distributed to all
stockholders of the Corporation in such transaction is greater than
$200,000,000:
(1) the holders of Preferred Stock shall be paid
for each share of Preferred Stock then held by them, in cash or in securities
received from the acquiring corporation, or in a combination thereof, at the
closing of any such transaction, an amount equal to: (i) $1.00 per share for
each share of Series A Preferred Stock, plus an amount equal to all declared but
unpaid dividends per share of Series A Preferred Stock as of the date of closing
of such transaction; (ii) $2.00 per share for each share of Series B Preferred
Stock, plus an amount equal to all declared but unpaid dividends per share of
Series B Preferred Stock as of the date of closing of such transaction; (iii)
$3.20 per share for each share of Series C Preferred Stock, plus an amount equal
to all declared but unpaid dividends per share of Series C Preferred Stock as of
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the date of closing of such transaction; (iv) $6.68 per share for each share of
Series D Preferred Stock, plus an amount equal to all declared but unpaid
dividends per share of Series D Preferred Stock as of the date of closing of
such transaction; (v) $12.88 per share for each share of Series E Preferred
Stock, plus an amount equal to all declared but unpaid dividends per share of
Series E Preferred Stock; (vi) $5.00 per share for each share of Series F
Preferred Stock, plus an amount equal to all declared but unpaid dividends per
share of Series F Preferred Stock; and (vii) $6.72 per share for each share of
Series G Preferred Stock, plus an amount equal to all declared but unpaid
dividends per share of Series G Preferred Stock. Such payments shall be made by
purchase of such shares of Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock,
Series F Preferred Stock and Series G Preferred Stock by the surviving
corporation or entity pursuant to an agreement which provides that such
purchased shares of Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock, Series E Preferred Stock, Series F
Preferred Stock and Series G Preferred Stock shall be canceled by such surviving
corporation or entity effective upon the closing of such purchase. If, upon the
occurrence of such event, the cash and securities thus distributed among the
holders of the Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock, Series E Preferred Stock, Series F
Preferred Stock and Series G Preferred Stock shall be insufficient to permit the
payment to such holders of such full preferential amounts, then the entire
assets and funds of the Corporation legally available for distribution shall be
distributed ratably and pari passu among the holders of the Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock, Series E Preferred Stock, Series F Preferred Stock and Series G Preferred
Stock in proportion to the preferential amount each such holder would otherwise
be entitled to receive pursuant to this Section 3(a)(ii) if such amount were
satisfied in full.
(2) After payment has been made to the holders
of the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock, Series D Preferred Stock, Series E Preferred Stock, Series F Preferred
Stock and Series G Preferred Stock of the full preferential amounts to which
they shall be entitled as aforesaid, subject to the rights of series of
Preferred Stock that may from time to time come into existence, if assets remain
in the Corporation, the holders of the Common Stock of the Corporation shall
receive all of the remaining assets of the Corporation pro rata based on the
number of shares of Common Stock held by each.
(b) Any securities to be delivered to the holders of Preferred
Stock pursuant to Section 2 or Section 3 above shall be valued as follows:
(i) Securities not subject to investment letter or other
similar restrictions on free marketability:
(A) If traded on a securities exchange, the value
shall be deemed to be the average of the closing prices of the securities on
such exchange over the 30 calendar-day period ending three business days prior
to the closing;
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(B) If actively traded over-the-counter, the
value shall be deemed to be the average of the closing bid prices over the 30
calendar-day period ending three business days prior to the closing; and
(C) If there is no active public market, the
value shall be the fair market value thereof, as mutually determined in good
faith by the Board of Directors and the holders of at least a majority of the
voting power of all the outstanding shares of Preferred Stock of the
Corporation.
(ii) The method of valuation of securities subject to
investment letter or other restrictions on free marketability shall be to make
an appropriate discount from the fair market value determined as above in
(i)(A), (B) or (C) to reflect the approximate fair market value thereof, as
determined in good faith by the Board of Directors of the Corporation.
(c) In the event the requirements of Section 3(b) are not
complied with, the Corporation shall forthwith either:
(i) cause such closing to be postponed until such time
as the requirements of such paragraph have been complied with, or
(ii) cancel such transaction, in which event the
rights, preferences and privileges of the holders of Preferred Stock shall
revert to and be the same as such rights, preferences and privileges existing
immediately prior to the date of the first notice referred to in Section 3(d)
hereof.
(d) This Corporation shall give each holder of record of
Preferred Stock written notice of such impending transaction, which notice shall
be mailed, postage prepaid, to the post office address of such holder last shown
on the records of the Corporation, not later than 20 days prior to the
stockholders' meeting called to approve such transaction, or 20 days prior to
the closing of such transaction, whichever is earlier, and shall also notify
such holders in writing of the final approval of such transaction. The first of
such notices shall describe the material terms and conditions of the impending
transaction and the provisions of this Section 3 and shall specify the date of
closing of such transaction. This Corporation shall thereafter give such holders
prompt notice of any material changes in the terms and conditions of the
transaction. The transaction shall in no event take place sooner than 20 days
after the Corporation has given the first notice provided for herein or sooner
than 10 days after the Corporation has given notice of any material changes
provided for herein; provided, however, that such notice periods may be
shortened upon the written consent of the holders of a majority of the shares of
Preferred Stock then outstanding.
(f) In the event of any stock dividend, split, combination or
similar recapitalization of a series of Preferred Stock, the per share amounts
listed in Sections 1, 2(a), 2(b), and 3(a) above shall be appropriately
adjusted.
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4. Conversion. The holders of Preferred Stock shall have conversion
----------
rights as follows (the "Conversion Rights"):
-----------------
(a) Right to Convert. Subject to Section 4(c), each share of
----------------
Preferred Stock shall be convertible, at the option of the holder thereof, at
any time after the date of issuance of such share, at the office of the
Corporation or any transfer agent for such stock, into such number of fully paid
and nonassessable shares of Common Stock as is determined by multiplying the
Conversion Rate for such series of Preferred Stock (as determined under this
subsection 4(a)) by the number of shares of Preferred Stock being converted.
The Conversion Rate shall equal the quotient obtained by dividing (i) $1.00 in
the case of the Series A Preferred Stock; (ii) $2.00 in the case of the Series B
Preferred Stock; (iii) $3.20 in the case of the Series C Preferred Stock; (iv)
$6.68 in the case of the Series D Preferred Stock; (v) $12.88 in the case of the
Series E Preferred Stock, (vi) $5.00 in the case of the Series F Preferred Stock
and (vii) $6.72 in the case of the Series G Preferred Stock by the Conversion
Price applicable to such share, determined as hereafter provided, in effect on
the date the certificate is surrendered for conversion. The initial Conversion
Price per share shall be: (i) $1.00 in the case of the Series A Preferred
Stock; (ii) $2.00 in the case of the Series B Preferred Stock; (iii) $3.20 in
the case of the Series C Preferred Stock; (iv) $6.68 in the case of the Series D
Preferred Stock; (v) $12.88 in the case of the Series E Preferred Stock; (vi)
$5.00 in the case of the Series F Preferred Stock; and (vii) $6.72 in the case
of the Series G Preferred Stock. Such initial Conversion Price shall be subject
to adjustment as set forth in Section 4(d) below.
(b) Automatic Conversion. Each share of Preferred Stock shall
--------------------
automatically be converted into shares of Common Stock at the Conversion Rate at
the time in effect for such share immediately upon the earlier of: (i) except
as provided below in Section 4(c), the Corporation's sale of its Common Stock in
a firm commitment underwritten public offering pursuant to a registration
statement under the Securities Act of 1933, as amended (the "Securities Act"),
--------------
the public offering price of which results in aggregate cash proceeds to the
Corporation of $15,000,000 (net of underwriting discounts and commissions) and
prior to which the market capitalization (assuming the conversion of all
Preferred Stock, the exercise of all outstanding warrants and options, and the
issuance and exercise of all remaining unissued options under the Company's
stockholder-approved stock option plans) of the Corporation at the proposed
offering price is at least $200,000,000; (ii) the date specified by written
consent or agreement of the holders of a majority of the then-outstanding shares
of Preferred Stock, voting together as a single class; or (iii) at such time as
a majority of the then-outstanding shares of Preferred Stock has converted into
Common Stock.
(c) Mechanics of Conversion. Before any holder of Series A
-----------------------
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock, Series E Preferred Stock, Series F Preferred Stock or Series G
Preferred Stock shall be entitled to convert the same into shares of Common
Stock, he, she or it shall surrender the certificate or certificates therefor,
duly endorsed, at the office of the Corporation or of any transfer agent for
such series of Preferred Stock, and shall give written notice to the Corporation
at its principal corporate office, of the election to convert the same and shall
state therein the name or names in
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<PAGE>
which the certificate or certificates for shares of Common Stock are to be
issued. The Corporation shall, as soon as practicable thereafter, issue and
deliver at such office to such holder of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E
Preferred Stock, Series F Preferred Stock or Series G Preferred Stock, or to the
nominee or nominees of such holder, a certificate or certificates for the number
of shares of Common Stock to which such holder shall be entitled as aforesaid.
Such conversion shall be deemed to have been made immediately prior to the close
of business on the date of such surrender of the shares of such series of
Preferred Stock to be converted, and the person or persons entitled to receive
the shares of Common Stock issuable upon such conversion shall be treated for
all purposes as the record holder or holders of such shares of Common Stock as
of such date. If the conversion is in connection with an underwritten offering
of securities registered pursuant to the Securities Act, the conversion may, at
the option of any holder tendering such Preferred Stock for conversion, be
conditioned upon the closing with the underwriters of the sale of securities
pursuant to such offering, in which event the person(s) entitled to receive
Common Stock upon conversion of such Preferred Stock shall not be deemed to have
converted such Preferred Stock until immediately prior to the closing of such
sale of securities.
(d) Conversion Price Adjustments of Preferred Stock for Certain
-----------------------------------------------------------
Dilutive Issuances, Splits and Combinations. The Conversion Price of the Series
- -------------------------------------------
A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock, Series E Preferred Stock, Series F Preferred Stock and Series G
Preferred Stock shall be subject to adjustment from time to time as follows:
(i) Issuance of Additional Stock below Purchase Price. If
-------------------------------------------------
the Corporation shall issue, after the date upon which any shares of Preferred
Stock were first issued (the "Purchase Date" with respect to such series), any
-------------
Additional Stock (as defined below) without consideration or for a consideration
per share less than the Conversion Price for such series in effect immediately
prior to the issuance of such Additional Stock, the Conversion Price for such
series in effect immediately prior to each such issuance shall automatically be
adjusted as set forth in this Section 4(d)(i), unless otherwise provided in this
Section 4(d)(i).
(A) Adjustment Formula. Whenever the Conversion
------------------
Price is adjusted pursuant to this Section (4)(d)(i), the new Conversion Price
shall be determined by multiplying the Conversion Price then in effect by a
fraction, (x) the numerator of which shall be the number of shares of Common
Stock outstanding immediately prior to such issuance (the "Outstanding Common")
plus the number of shares of Common Stock that the aggregate consideration
received by the Corporation for such issuance would purchase at such Conversion
Price; and (y) the denominator of which shall be the number of shares of
Outstanding Common plus the number of shares of such Additional Stock. For
purposes of the foregoing calculation, the term "Outstanding Common" shall
include shares of Common Stock deemed issued pursuant to Section 4(d)(i)(E)
below, including all shares of Common Stock issuable upon conversion of the
outstanding Preferred Stock and all shares of Common Stock issuable upon
conversion or exercise of options, warrants, or other outstanding securities of
the Corporation.
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<PAGE>
(B) Definition of "Additional Stock". For purposes of
-------------------------------
this Section 4(d)(i), "Additional Stock" shall mean any shares of Common Stock
----------------
issued (or deemed to have been issued pursuant to Section 4(d)(i)(E)) by the
Corporation after the Purchase Date other than:
(1) Common Stock issued pursuant to a transaction
described in Section 4(d)(ii) hereof,
(2) Shares of Common Stock issuable or issued to
employees, consultants or directors of the Corporation directly or pursuant to a
stock option plan or restricted stock plan approved by the Board of Directors of
the Corporation,
(3) Capital stock, or options or warrants to
purchase capital stock, issued to financial institutions or lessors in
connection with commercial credit arrangements, equipment financings or similar
transactions,
(4) Shares of Common Stock or Preferred Stock
issuable upon exercise of warrants issued by (a) Portland Software, Inc. and
Preview Software, Inc. and outstanding as of the date of this Fourth Amended and
Restated Certificate of Incorporation and (b) the Corporation to the placement
agent in connection with financial services related to the Corporation's Series
G Preferred Stock financing transaction,
(5) Capital stock or warrants or options to
purchase capital stock issued in connection with bona fide acquisitions, mergers
or similar transactions, the terms of which are approved by the Board of
Directors of the Corporation,
(6) Shares of Common Stock issued or issuable
upon conversion of Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock, Series E Preferred Stock, Series F
Preferred Stock or Series G Preferred Stock, and
(7) Shares of Common Stock issued or issuable in
a public offering prior to or in connection with which all outstanding shares of
Preferred Stock will be converted to Common Stock.
(8) Common Stock issued (or deemed to have been
issued pursuant to Section 4(d)(i)(E)) upon the approval of a majority of the
outstanding shares of Preferred Stock, who shall agree that such shares shall
not constitute Additional Stock.
(C) No Fractional Adjustments. No adjustment of the
-------------------------
Conversion Price for Series A Preferred Stock, Series B Preferred Stock, Series
C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock, Series F
Preferred Stock or Series G Preferred Stock shall be made in an amount less than
one cent per share, provided that any adjustments which are not required to be
made by reason of this sentence shall be carried forward and shall be either
taken into account in any subsequent adjustment made prior to three years
-12-
<PAGE>
from the date of the event giving rise to the adjustment being carried forward,
or shall be made at the end of three years from the date of the event giving
rise to the adjustment being carried forward.
(D) Determination of Consideration. In the case of the issuance
------------------------------
of Common Stock for cash, the consideration shall be deemed to be the amount of
cash paid therefor before deducting any reasonable discounts, commissions or
other expenses allowed, paid or incurred by the Corporation for any underwriting
or otherwise in connection with the issuance and sale thereof. In the case of
the issuance of the Common Stock for a consideration in whole or in part other
than cash, the consideration other than cash shall be deemed to be the fair
market value thereof as determined by the Board of Directors irrespective of any
accounting treatment.
(E) Deemed Issuances of Common Stock. In the case of the
--------------------------------
issuance (whether before, on or after the applicable Purchase Date) of options
to purchase or rights to subscribe for Common Stock, securities by their terms
convertible into or exchangeable for Common Stock or options to purchase or
rights to subscribe for such convertible or exchangeable securities, the
following provisions shall apply for all purposes of this Section 4(d)(i):
(1) The aggregate maximum number of shares of Common
Stock deliverable upon exercise (assuming the satisfaction of any conditions to
exercisability, including without limitation, the passage of time, but without
taking into account potential antidilution adjustments) of such options to
purchase or rights to subscribe for Common Stock shall be deemed to have been
issued at the time such options or rights were issued and for a consideration
equal to the consideration (determined in the manner provided in Section
4(d)(i)(D)), if any, received by the Corporation upon the issuance of such
options or rights plus the minimum exercise price provided in such options or
rights (without taking into account potential antidilution adjustments) for the
Common Stock covered thereby.
(2) The aggregate maximum number of shares of Common
Stock deliverable upon conversion of or in exchange (assuming the satisfaction
of any conditions to convertibility or exchangeability, including, without
limitation, the passage of time, but without taking into account potential
antidilution adjustments) for any such convertible or exchangeable securities or
upon the exercise of options to purchase or rights to subscribe for such
convertible or exchangeable securities and subsequent conversion or exchange
thereof shall be deemed to have been issued at the time such securities were
issued or such options or rights were issued and for a consideration equal to
the consideration, if any, received by the Corporation for any such securities
and related options or rights (excluding any cash received on account of accrued
interest or accrued dividends), plus the minimum additional consideration, if
any, to be received by the Corporation (without taking into account potential
antidilution adjustments) upon the conversion or exchange of such securities or
the exercise of any related options or rights (the consideration in each case to
be determined in the manner provided in Section 4(d)(i)(D).
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<PAGE>
(3) In the event of any change in the number
of shares of Common Stock deliverable or in the consideration payable to the
Corporation upon exercise of such options or rights or upon conversion of or in
exchange for such convertible or exchangeable securities, including, but not
limited to, a change resulting from the antidilution provisions thereof, the
Conversion Price of each of the Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock, Series D Preferred Stock, Series E Preferred
Stock, Series F Preferred Stock and Series G Preferred Stock, to the extent in
any way affected by or computed using such options, rights or securities, shall
be recomputed to reflect such change, but no further adjustment shall be made
for the actual issuance of Common Stock or any payment of such consideration
upon the exercise of any such options or rights or the conversion or exchange of
such securities.
(4) Upon the expiration of any such options
or rights, the termination of any such rights to convert or exchange or the
expiration of any options or rights related to such convertible or exchangeable
securities, the Conversion Price of each of the Series A Preferred Stock, Series
B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E
Preferred Stock, Series F Preferred Stock and Series G Preferred Stock, to the
extent in any way affected by or computed using such options, rights or
securities or options or rights related to such securities, shall be recomputed
to reflect the issuance of only the number of shares of Common Stock (and
convertible or exchangeable securities which remain in effect) actually issued
upon the exercise of such options or rights, upon the conversion or exchange of
such securities or upon the exercise of the options or rights related to such
securities.
(5) The number of shares of Common Stock
deemed issued and the consideration deemed paid therefor pursuant to Sections
4(d)(i)(E)(1) and 4(d)(i)(E)(2) shall be appropriately adjusted to reflect any
change, termination or expiration of the type described in either Section
4(d)(i)(E)(3) or 4(d)(i)(E)(4).
(F) No Increased Conversion Price.
-----------------------------
Notwithstanding any other provisions of this Section (4)(d)(i), except to the
limited extent provided for in Sections 4(d)(i)(E)(3) and 4(d)(i)(E)(4), no
adjustment of the Conversion Price pursuant to this Section 4(d)(i) shall have
the effect of increasing the Conversion Price above the Conversion Price in
effect immediately prior to such adjustment.
(ii) Stock Splits and Dividends. In the event the
--------------------------
Corporation should at any time or from time to time after the Purchase Date fix
a record date for the effectuation of a split or subdivision of the outstanding
shares of Common Stock or the determination of holders of Common Stock entitled
to receive a dividend or other distribution payable in additional shares of
Common Stock or other securities or rights convertible into, or entitling the
holder thereof to receive directly or indirectly, additional shares of Common
Stock (hereinafter referred to as "Common Stock Equivalents") without payment of
------------------------
any consideration by such holder for the additional shares of Common Stock or
the Common Stock Equivalents (including the additional shares of Common Stock
issuable upon conversion or exercise thereof), then, as of such record date (or
the date of such dividend distribution, split or subdivision if no
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<PAGE>
record date is fixed), the Conversion Price of each series of Preferred Stock
shall be appropriately decreased so that the number of shares of Common Stock
issuable on conversion of each share of such series shall be increased in
proportion to such increase of the aggregate of shares of Common Stock
outstanding and those issuable with respect to such Common Stock Equivalents
with the number of shares issuable with respect to Common Stock Equivalents
determined from time to time in the manner provided for deemed issuances in
Section 4(d)(i)(E).
(iii) Reverse Stock Splits. If the number of shares of Common
--------------------
Stock outstanding at any time after the Purchase Date is decreased by a
combination of the outstanding shares of Common Stock (other than as a result of
the Stock Split effected by this Fifth Amended and Restated Certificate of
Incorporation), then, following the record date of such combination, the
Conversion Price for each of series of Preferred Stock shall be appropriately
increased so that the number of shares of Common Stock issuable on conversion of
each share of such series shall be decreased in proportion to such decrease in
outstanding shares.
(e) Other Distributions. In the event the Corporation shall declare
-------------------
a distribution payable in securities of other persons, evidences of indebtedness
issued by the Corporation or other persons, assets (excluding cash dividends) or
options or rights not referred to in Section 4(d)(ii), then, in each such case
for the purpose of this Section 4(e), the holders of Preferred Stock shall be
entitled to a proportionate share of any such distribution as though they were
the holders of the number of shares of Common Stock of the Corporation into
which their shares of Preferred Stock are convertible as of the record date
fixed for the determination of the holders of Common Stock of the Corporation
entitled to receive such distribution.
(f) Recapitalizations. If at any time or from time to time there
-----------------
shall be a recapitalization of the Common Stock (other than a subdivision,
combination or merger or sale of assets transaction provided for elsewhere in
Section 3 or this Section 4) provision shall be made so that the holders of the
Preferred Stock shall thereafter be entitled to receive upon conversion of such
Preferred Stock the number of shares of stock or other securities or property of
the Corporation or otherwise, to which a holder of Common Stock deliverable upon
conversion would have been entitled on such recapitalization. In any such case,
appropriate adjustment shall be made in the application of the provisions of
this Section 4 with respect to the rights of the holders of such Preferred Stock
after the recapitalization to the end that the provisions of this Section 4
(including adjustment of the Conversion Price then in effect and the number of
shares purchasable upon conversion of such Preferred Stock) shall be applicable
after that event and be as nearly equivalent as practicable.
(g) No Impairment. The Corporation will not, by amendment of its
-------------
Certificate of Incorporation or through any reorganization, recapitalization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed hereunder by the
Corporation, but will at all times in good faith assist in the carrying out of
all the provisions of this Section 4 and in the taking of all such action as may
be necessary or
-15-
<PAGE>
appropriate in order to protect the Conversion Rights of the holders of
Preferred Stock against impairment.
(h) No Fractional Shares and Certificate as to Adjustments.
------------------------------------------------------
(i) No fractional shares shall be issued upon the
conversion of any share or shares of the Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E
Preferred Stock, Series F Preferred Stock or Series G Preferred Stock, and the
number of shares of Common Stock to be issued shall be rounded to the nearest
whole share. The number of shares issuable upon such conversion shall be
determined on the basis of the total number of shares of Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock, Series E Preferred Stock, Series F Preferred Stock or Series G Preferred
Stock, the holder is at the time converting into Common Stock and the number of
shares of Common Stock issuable upon such aggregate conversion.
(ii) Upon the occurrence of each adjustment or readjustment
of the Conversion Price of Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock,
Series F Preferred Stock or Series G Preferred Stock, pursuant to this Section
4, the Corporation, at its expense, shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and prepare and furnish to each
holder of such Preferred Stock a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The Corporation shall, upon the written request at any
time of any holder of Series A Preferred Stock, Series B Preferred Stock, Series
C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock, Series F
Preferred Stock or Series G Preferred Stock, furnish or cause to be furnished to
such holder a like certificate setting forth (A) such adjustment and
readjustment, (B) the Conversion Price for such series of Preferred Stock at the
time in effect, and (C) the number of shares of Common Stock and the amount, if
any, of other property which at the time would be received upon the conversion
of a share of such series of Preferred Stock.
(i) Notices of Record Date. In the event of any taking by the
----------------------
Corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right, the Corporation
shall mail to each holder of Preferred Stock, at least ten (10) days prior to
the date specified therein, a notice specifying the date on which any such
record is to be taken for the purpose of such dividend, distribution or right,
and the amount and character of such dividend, distribution or right.
(j) Reservation of Stock Issuable Upon Conversion. The
---------------------------------------------
Corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the shares of Preferred Stock, such number of its shares of Common
Stock as shall from time to time be sufficient to
-16-
<PAGE>
effect the conversion of all outstanding shares of such series of Preferred
Stock; and if at any time the number of authorized but unissued shares of Common
Stock shall not be sufficient to effect the conversion of all then-outstanding
shares of such series of Preferred Stock, in addition to such other remedies as
shall be available to the holder of such Preferred Stock, the Corporation will
take such corporate action as may, in the opinion of its counsel, be necessary
to increase its authorized but unissued shares of Common Stock to such number of
shares as shall be sufficient for such purposes, including, without limitation,
engaging in best efforts to obtain the requisite stockholder approval of any
necessary amendment to this Certificate of Incorporation.
(k) Notices. Any notice required by the provisions of this
-------
Section 4 to be given to the holders of shares of Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock,
Series E Preferred Stock, Series F Preferred Stock or Series G Preferred Stock
shall be deemed given if deposited in the United States mail, postage prepaid,
and addressed to each holder of record at his address appearing on the books of
the Corporation.
5. Voting Rights.
-------------
(a) Generally. The holder of each share of Preferred Stock
---------
shall have the right to one vote for each share of Common Stock into which such
Preferred Stock could then be converted, and with respect to such vote, such
holder shall have full voting rights and powers equal to the voting rights and
powers of the holders of Common Stock, and shall be entitled, notwithstanding
any provision hereof, to notice of any stockholders' meeting in accordance with
the Bylaws of the Corporation, and shall be entitled to vote, together with
holders of Common Stock, with respect to any question upon which holders of
Common Stock have the right to vote. Fractional votes shall not, however, be
permitted and any fractional voting rights available on an as-converted basis
(after aggregating all shares into which shares of Preferred Stock held by each
holder could be converted) shall be rounded to the nearest whole number (with
one-half being rounded upward).
(b) Board of Directors. The Board of Directors of the
------------------
Corporation shall consist of seven directors. The holders of shares of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D
Preferred Stock, voting together as a single class, shall elect two members of
the Board of Directors of the Corporation. The holders of shares of Series E
Preferred Stock, voting separately as a class, shall elect one member of the
Board of Directors of the Corporation. The holders of shares of Series G
Preferred Stock, voting separately as a class, shall elect two members of the
Board of Directors of the Corporation. The holders of Common Stock, voting
separately as a class, shall elect one member of the Board of Directors of the
Corporation. The remaining members of the Board of Directors shall be elected by
the Common Stock and Preferred Stock, voting together as a single class. If a
vacancy on the Board of Directors is to be filled by the Board of Directors,
only a director or directors elected by the same class of stockholders as those
who would be entitled to vote to fill such vacancy, if any, shall vote to fill
such vacancy, except that all directors acting unanimously may fill a vacancy in
-17-
<PAGE>
the seat to be elected by the holders of Common and Preferred Stock voting
together as a class. A director may be removed from the Board of Directors with
or without cause by the vote or consent of the holders of the outstanding class
or series with voting power to elect him or her in accordance with the Delaware
General Corporation Law. With respect to all board seats to be elected by a
given class as specified above, cumulative voting shall apply for the seats to
be elected by that class.
6. Protective Provisions.
---------------------
(a) So long as at least 312,500 shares of Preferred Stock are
outstanding (as adjusted for stock splits, stock dividends or
recapitalizations), the Corporation shall not without first obtaining the
approval (by vote or written consent, as provided by law) of the holders of at
least a majority of the then-outstanding shares of Preferred Stock, voting
together as a class:
(i) effect a merger, consolidation, sale or disposition of
all or substantially all of the properties or assets of the Corporation unless
the Corporation is the surviving or acquiring corporation and stockholders
immediately prior to such transaction constitute a majority of stockholders in
interest of the surviving corporation after giving effect to such transaction;
(ii) alter or change the rights, preferences or privileges
of the shares of Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock, Series E Preferred Stock, Series F
Preferred Stock or Series G Preferred Stock so as to affect adversely the shares
of such series;
(iii) increase or decrease (other than by redemption or
conversion) the total number of authorized shares of Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock,
Series E Preferred Stock, Series F Preferred Stock or Series G Preferred Stock;
(iv) authorize or issue, or obligate itself to issue, any
other equity security, including any other security convertible into or
exercisable for any equity security, having a preference over, or being on a
parity with, the Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock, Series E Preferred Stock, Series F
Preferred Stock or Series G Preferred Stock with respect to voting, dividends,
conversion or upon liquidation;
(v) redeem, repurchase or otherwise acquire (or pay into
or set aside for a sinking fund for such purpose) any share or shares of
Preferred Stock or Common Stock; provided, however, that this restriction shall
-------- -------
not apply to the repurchase of shares of Common Stock from employees, officers,
directors, consultants or other persons performing services for the Corporation
or any subsidiary pursuant to agreements under which the Corporation has the
option to repurchase such shares at cost upon the occurrence of certain
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<PAGE>
events, such as the termination of employment, or through the exercise of any
right of first refusal;
(vi) amend any provision of the Certificate of
Incorporation of the Corporation; or
(vii) take any corporate action which results in any series
of Preferred Stock not qualifying as Section 1202 "small business stock."
(b) In addition to the approvals required in Section 6(a) above,
the Corporation shall not without first obtaining the approval (by vote or
written consent, as provided by law) of the holders of at least a majority of
the then-outstanding shares of Series D Preferred Stock, Series E Preferred
Stock and Series G Preferred Stock, voting together as a class:
(i) authorize or issue, or obligate itself to issue, any
other equity security, including any other security convertible into or
exercisable for any equity security, having a preference over, or being on a
parity with, the Series D Preferred Stock, Series E Preferred Stock or Series G
Preferred Stock with respect to voting, dividends, conversion or upon
liquidation;
(ii) alter or change the rights, preferences or privileges
of the shares of Series D Preferred Stock, Series E Preferred Stock or Series G
Preferred Stock; or
(iii) effect a merger, consolidation, sale or disposition of
all or substantially all of the properties or assets of the Corporation unless
the Corporation is the surviving or acquiring corporation and stockholders
immediately prior to such transaction constitute a majority of stockholders in
interest of the surviving corporation after giving effect to such transaction.
7. Status of Converted Stock. In the event any shares of Preferred
-------------------------
Stock shall be converted pursuant to Section 4 hereof, the shares so converted
shall be canceled and shall not be issuable by the Corporation. The Certificate
of Incorporation of the Corporation shall be appropriately amended to effect the
corresponding reduction in the Corporation's authorized capital stock.
8. Redemption. The Preferred Stock is not redeemable.
----------
(C) Common Stock.
------------
1. Dividend Rights. Subject to the prior rights of holders of all
---------------
classes of stock at the time outstanding having prior rights as to dividends,
the holders of the Common Stock shall be entitled to receive, when, as and if
declared by the Board of Directors, out of any assets of the Corporation legally
available therefor, such dividends as may be declared from time to time by the
Board of Directors.
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<PAGE>
2. Liquidation Rights. Upon the liquidation, dissolution or winding
------------------
up of the Corporation, the assets of the Corporation shall be distributed as
provided in Section 2 of Article IV(B).
3. Redemption. The Common Stock is not redeemable.
----------
4. Voting Rights. The holder of each share of Common Stock shall
-------------
have the right to one vote, and shall be entitled to notice of any stockholders'
meeting in accordance with the bylaws of the Corporation, and shall be entitled
to vote upon such matters and in such manner as may be provided by law.
ARTICLE V
The Board of Directors of the Corporation is expressly authorized to make,
alter or repeal Bylaws of the Corporation.
ARTICLE VI
Elections of directors need not be by written ballot unless otherwise
provided in the Bylaws of the Corporation.
ARTICLE VII
The Corporation is to have perpetual existence.
ARTICLE VIII
(A) To the fullest extent permitted by the Delaware General Corporation
Law, as the same exists or as may hereafter be amended, a director of the
Corporation shall not be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director.
(B) The Corporation shall indemnify to the fullest extent permitted by law
any person made or threatened to be made a party to an action or proceeding,
whether criminal, civil, administrative or investigative, by reason of the fact
that he, his testator or intestate is or was a director or officer of the
Corporation or any predecessor of the Corporation, or serves or served at any
other enterprise as a director or officer at the request of the Corporation or
any predecessor to the Corporation.
(C) Neither any amendment nor repeal of this Article VIII, nor the
adoption of any provision of the Corporation's Certificate of Incorporation
inconsistent with this Article VIII, shall eliminate or reduce the effect of
this Article VIII in respect of any matter occurring, or any action or
proceeding accruing or arising or that, but for this Article VIII, would accrue
or arise, prior to such amendment, repeal or adoption of an inconsistent
provision.
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<PAGE>
ARTICLE IX
Meetings of stockholders may be held within or without the State of
Delaware, as the Bylaws may provide. The books of the Corporation may be kept
(subject to any statutory provision) outside the State of Delaware at such place
or places as may be designated from time to time by the Board of Directors in
the Bylaws of the Corporation."
* * *
(Signature Page Follows)
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<PAGE>
The foregoing Fourth Amended and Restated Certificate of Incorporation has
been duly adopted by the corporation's Board of Directors and stockholders in
accordance with the applicable provisions of Section 228, 242 and 245 of the
General Corporation Law of the State of Delaware.
Executed at Cupertino, California this ___ day of _________, 1999.
__________________________________
Vincent Pluvinage, President
__________________________________
Elias J. Blawie, Secretary
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<PAGE>
EXHIBIT 3.3
FORM OF
SIXTH AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
PREVIEW SYSTEMS, INC.
The undersigned, Vincent Pluvinage and Elias J. Blawie, hereby certify
that:
1. They are the duly elected and acting President and Secretary,
respectively, of Preview Systems, Inc., a Delaware corporation.
2. The Certificate of Incorporation of this corporation was originally
filed with the Secretary of State of Delaware on April 22, 1998 under the name
of P2 Software, Inc.
3. The Certificate of Incorporation of this corporation shall be amended
and restated to read in full as follows:
"ARTICLE I
The name of this corporation is Preview Systems, Inc. (the "Corporation").
ARTICLE II
The address of the Corporation's registered office in the State of Delaware
is 1209 Orange Street, Wilmington, County of New Castle. The name of its
registered agent at such address is The Corporation Trust Company.
ARTICLE III
The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of
Delaware.
ARTICLE IV
(A) The Corporation is authorized to issue two classes of stock to be
designated, respectively, "Common Stock" and "Preferred Stock." The total number
of shares which the Corporation is authorized to issue is eighty million
(80,000,000) shares, each with a par value of $0.0002 per share. Seventy-five
million (75,000,000) shares shall be Common Stock and five million (5,000,000)
shares shall be Preferred Stock.
(B) The Preferred Stock may be issued from time to time in one or more
series. The Board of Directors is hereby authorized, by filing a certificate
pursuant to the applicable law of the state of Delaware and within the
limitations and restrictions stated in this Certificate of Incorporation, to
determine or alter the rights, preferences, privileges and restrictions granted
to or imposed upon any wholly unissued series of Preferred Stock and the number
of shares constituting any such series and the designation thereof, or any of
them; and to increase or decrease the number of shares of any series subsequent
to the issuance of shares of that series, but not below the number of shares of
such series then outstanding. In case the number of shares
<PAGE>
of any series shall be so decreased, the shares constituting such decrease shall
resume the status which they had prior to the adoption of the resolution
originally fixing the number of shares of such series.
ARTICLE V
The number of directors of the Corporation shall be fixed from time to time
by a bylaw or amendment thereof duly adopted by the Board of Directors.
ARTICLE VI
This Article VI shall become effective only when the Corporation qualifies
for an exemption from Section 2115 of the California Corporations Code (the
"Effective Time").
On or prior to the date on which the Corporation first provides notice of
an annual meeting of the stockholders following the Effective Time, the Board of
Directors of the Corporation shall divide the directors into three classes, as
nearly equal in number as reasonably possible, designated Class I, Class II and
Class III, respectively. Directors shall be assigned to each class in
accordance with a resolution or resolutions adopted by the Board of Directors.
At the first annual meeting of stockholders or any special meeting in lieu
thereof following the Effective Time, the terms of the Class I directors shall
expire and Class I directors shall be elected for a full term of three years.
At the second annual meeting of stockholders or any special meeting in lieu
thereof following the Effective Time, the terms of the Class II directors shall
expire and Class II directors shall be elected for a full term of three years.
At the third annual meeting of stockholders or any special meeting in lieu
thereof following the Effective Time, the terms of the Class III directors shall
expire and Class III directors shall be elected for a full term of three years.
At each succeeding annual meeting of stockholders or special meeting in lieu
thereof, directors elected to succeed the directors of the class whose terms
expire at such annual meeting shall be elected for a full term of three years.
Prior to the Effective Time, the provisions of the preceding paragraph
shall not apply, and all directors shall be elected at each annual meeting of
stockholders to hold office until the next annual meeting.
Notwithstanding the foregoing provisions of this Article VI, each director
shall serve until his or her successor is duly elected and qualified or until
his or her death, resignation, or removal. No decrease in the number of
directors constituting the Board of Directors shall shorten the term of any
incumbent director.
Any vacancies on the Board of Directors resulting from death, resignation,
disqualification, removal, or other causes shall be filled by either (i) the
affirmative vote of the holders of a majority of the voting power of the then-
outstanding shares of voting stock of the corporation entitled to vote generally
in the election of directors (the "Voting Stock") voting together as a single
class; or (ii) by the affirmative vote of a majority of the remaining directors
then in office, even though less than a quorum of the Board of Directors.
Subject to the rights of any series of Preferred Stock then outstanding, newly
created directorships resulting from any
-2-
<PAGE>
increase in the number of directors shall, unless the Board of Directors
determines by resolution that any such newly created directorship shall be
filled by the stockholders, be filled only by the affirmative vote of the
directors then in office, even though less than a quorum of the Board of
Directors, or by a sole remaining director. Any director elected in accordance
with the preceding sentence shall hold office for the remainder of the full term
of the class of directors in which the new directorship was created or the
vacancy occurred and until such director's successor shall have been elected and
qualified. Any director, or the entire Board of Directors, may be removed from
office, with or without cause, by the holders of a majority of the Voting Stock.
ARTICLE VII
In the election of directors, each holder of shares of any class or series
of capital stock of the Corporation shall be entitled to one vote for each share
held. No stockholder will be permitted to cumulate votes at any election of
directors.
ARTICLE VIII
No action shall be taken by the stockholders of the Corporation other than
at an annual or special meeting of the stockholders, upon due notice and in
accordance with the provisions of the Bylaws of the Corporation (the "Bylaws"),
and no action shall be taken by the stockholders by written consent.
ARTICLE IX
The Corporation reserves the right to amend, alter, change or repeal any
provision contained in this Certificate of Incorporation, in the manner now or
hereafter prescribed by statute, and all rights conferred upon stockholders
herein are granted subject to this reservation.
ARTICLE X
(A) Except as otherwise provided in the Bylaws, the Bylaws may be altered
or amended or new Bylaws adopted by the affirmative vote of at least sixty-six
and two-thirds percent (66 2/3%) of the voting power of all of the then-
outstanding shares of the voting stock of the Corporation entitled to vote. The
Board of Directors of the Corporation is expressly authorized to adopt, amend or
repeal Bylaws.
(B) The directors of the Corporation need not be elected by written ballot
unless the Bylaws so provide.
(C) Advance notice of stockholder nominations for the election of directors
or of business to be brought by the stockholders before any meeting of the
stockholders of the corporation shall be given in the manner provided in the
Bylaws.
ARTICLE XI
Meetings of stockholders may be held within or without the State of
Delaware, as the Bylaws may provide. The books of the Corporation may be kept
(subject to any provision
-3-
<PAGE>
contained in the statutes) outside the State of Delaware at such place or places
as may be designated from time to time by the Board of Directors or in the
bylaws of the Corporation.
ARTICLE XII
The Corporation shall have perpetual existence.
ARTICLE XIII
(A) To the fullest extent permitted by the General Corporation Law of
Delaware, as the same may be amended from time to time, a director of the
Corporation shall not be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director.
If the General Corporation Law of Delaware is hereafter amended to authorize,
with the approval of a corporation's stockholders, further reductions in the
liability of a corporation's directors for breach of fiduciary duty, then a
director of the Corporation shall not be liable for any such breach to the
fullest extent permitted by the General Corporation Law of Delaware, as so
amended.
(B) Any repeal or modification of the foregoing provisions of this Article
XIII shall not adversely affect any right or protection of a director of the
Corporation with respect to any acts or omissions of such director occurring
prior to such repeal or modification.
ARTICLE XIV
(A) To the fullest extent permitted by applicable law, the Corporation is
also authorized to provide indemnification of (and advancement of expenses to)
such agents (and any other persons to which Delaware law permits the Corporation
to provide indemnification) through Bylaw provisions, agreements with such
agents or other persons, vote of stockholders or disinterested directors or
otherwise, in excess of the indemnification and advancement otherwise permitted
by Section 145 of the General Corporation Law of Delaware, subject only to
limits created by applicable Delaware law (statutory or non-statutory), with
respect to actions for breach of duty to a corporation, its stockholders, and
others.
(B) Any repeal or modification of any of the foregoing provisions of this
Article XIV shall not adversely affect any right or protection of a director,
officer, agent or other person existing at the time of, or increase the
liability of any director of the Corporation with respect to any acts or
omissions of such director, officer or agent occurring prior to such repeal or
modification."
* * *
-4-
<PAGE>
The foregoing Amended and Restated Certificate of Incorporation has been
duly adopted by this Corporation's Board of Directors and stockholders in
accordance with the applicable provisions of Section 228, 242 and 245 of the
General Corporation Law of the State of Delaware.
Executed at Cupertino, California, on the ____ day of ___________, 1999.
______________________________________
Vincent Pluvinage, President
______________________________________
Elias J. Blawie, Secretary
-5-
<PAGE>
EXHIBIT 3.4
BYLAWS
OF
PREVIEW SYSTEMS, INC.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I - CORPORATE OFFICES............................................ 1
1.1 Registered Office.............................................. 1
1.2 Other Offices.................................................. 1
ARTICLE II - MEETINGS OF STOCKHOLDERS.................................... 1
2.1 Place Of Meetings.............................................. 1
2.2 Annual Meeting................................................. 1
2.3 Special Meeting................................................ 1
2.4 Notice Of Stockholders'Meetings................................ 2
2.5 Manner Of Giving Notice; Affidavit Of Notice................... 2
2.6 Quorum......................................................... 2
2.7 Adjourned Meeting; Notice...................................... 3
2.8 Conduct Of Business............................................ 3
2.9 Voting......................................................... 3
2.10 Waiver Of Notice............................................... 3
2.11 Stockholder Action By Written Consent Without A Meeting........ 3
2.12 Record Date For Stockholder Notice; Voting; Giving Consents.... 4
2.13 Proxies........................................................ 5
ARTICLE III - DIRECTORS.................................................. 5
3.1 Powers......................................................... 5
3.2 Number Of Directors............................................ 5
3.3 Election, Qualification And Term Of Office Of Directors........ 5
3.4 Resignation And Vacancies...................................... 6
3.5 Place Of Meetings; Meetings By Telephone....................... 6
3.6 Regular Meetings............................................... 7
3.7 Special Meetings; Notice....................................... 7
3.8 Quorum......................................................... 7
3.9 Waiver Of Notice............................................... 8
3.10 Board Action By Written Consent Without A Meeting.............. 8
3.11 Fees And Compensation Of Directors............................. 8
3.12 Approval Of Loans To Officers.................................. 8
3.13 Removal Of Directors........................................... 9
3.14 Chairman Of The Board Of Directors............................. 9
ARTICLE IV - COMMITTEES.................................................. 9
4.1 Committees Of Directors........................................ 9
4.2 Committee Minutes.............................................. 9
4.3 Meetings And Action Of Committees.............................. 10
</TABLE>
<PAGE>
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE V - OFFICERS..................................................... 10
5.1 Officers....................................................... 10
5.2 Appointment Of Officers........................................ 10
5.3 Subordinate Officers........................................... 10
5.4 Removal And Resignation Of Officers............................ 11
5.5 Vacancies In Offices........................................... 11
5.6 Chief Executive Officer........................................ 11
5.7 President...................................................... 11
5.8 Vice Presidents................................................ 11
5.9 Secretary...................................................... 12
5.10 Chief Financial Officer........................................ 12
5.11 Representation Of Shares Of Other Corporations................. 13
5.12 Authority And Duties Of Officers............................... 13
ARTICLE VI - INDEMNIFICATION OF DIRECTORS, OFFICERS,
EMPLOYEES, AND OTHER AGENTS............................... 13
6.1 Indemnification Of Directors And Officers...................... 13
6.2 Indemnification Of Others...................................... 13
6.3 Payment Of Expenses In Advance................................. 14
6.4 Indemnity Not Exclusive........................................ 14
6.5 Insurance...................................................... 14
6.6 Conflicts...................................................... 14
ARTICLE VII - RECORDS AND REPORTS....................................... 15
7.1 Maintenance And Inspection Of Records.......................... 15
7.2 Inspection By Directors........................................ 15
7.3 Annual Statement To Stockholders............................... 15
ARTICLE VIII - GENERAL MATTERS........................................... 16
8.1 Checks......................................................... 16
8.2 Execution Of Corporate Contracts And Instruments............... 16
8.3 Stock Certificates; Partly Paid Shares......................... 16
8.4 Special Designation On Certificates............................ 17
8.5 Lost Certificates.............................................. 17
8.6 Construction; Definitions...................................... 17
8.7 Dividends...................................................... 17
8.8 Fiscal Year.................................................... 18
8.9 Seal........................................................... 18
8.10 Transfer Of Stock.............................................. 18
</TABLE>
-iii-
<PAGE>
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
Page
----
<S> <C>
8.11 Stock Transfer Agreements...................................... 18
8.12 Registered Stockholders........................................ 18
ARTICLE IX - AMENDMENTS.................................................. 19
</TABLE>
-iv-
<PAGE>
BYLAWS
OF
PREVIEW SYSTEMS, INC.
ARTICLE I
CORPORATE OFFICES
-----------------
1.1 Registered Office.
-----------------
The registered office of the corporation shall be in the City of
Wilmington, County of New Castle, State of Delaware. The name of the registered
agent of the corporation at such location is The Corporation Trust Company.
1.2 Other Offices.
-------------
The Board of Directors may at any time establish other offices at any
place or places where the corporation is qualified to do business.
ARTICLE II
MEETINGS OF STOCKHOLDERS
------------------------
2.1 Place Of Meetings.
-----------------
Meetings of stockholders shall be held at any place, within or outside
the State of Delaware, designated by the Board of Directors. In the absence of
any such designation, stockholders' meetings shall be held at the registered
office of the corporation.
2.2 Annual Meeting.
--------------
The annual meeting of stockholders shall be held on such date, time
and place, either within or without the State of Delaware, as may be designated
by resolution of the Board of Directors each year. At the meeting, directors
shall be elected and any other proper business may be transacted.
2.3 Special Meeting.
---------------
A special meeting of the stockholders may be called at any time by the
Board of Directors, the chairman of the board, the president or by one or more
stockholders holding shares in the aggregate entitled to cast not less than ten
percent of the votes at that meeting.
If a special meeting is called by any person or persons other than the
Board of Directors, the president or the chairman of the board, the request
shall be in writing, specifying the time of such meeting and the general nature
of the business proposed to be transacted, and
-1-
<PAGE>
shall be delivered personally or sent by registered mail or by telegraphic or
other facsimile transmission to the chairman of the board, the president, any
vice president, or the secretary of the corporation. No business may be
transacted at such special meeting otherwise than specified in such notice. The
officer receiving the request shall cause notice to be promptly given to the
stockholders entitled to vote, in accordance with the provisions of Sections 2.4
and 2.5 of this Article II, that a meeting will be held at the time requested by
the person or persons calling the meeting, not less than thirty-five (35) nor
more than sixty (60) days after the receipt of the request. If the notice is not
given within twenty (20) days after the receipt of the request, the person or
persons requesting the meeting may give the notice. Nothing contained in this
paragraph of this Section 2.3 shall be construed as limiting, fixing, or
affecting the time when a meeting of stockholders called by action of the Board
of Directors may be held.
2.4 Notice Of Stockholders' Meetings.
--------------------------------
All notices of meetings with stockholders shall be in writing and
shall be sent or otherwise given in accordance with Section 2.5 of these Bylaws
not less than ten (10) nor more than sixty (60) days before the date of the
meeting to each stockholder entitled to vote at such meeting. The notice shall
specify the place, date, and hour of the meeting, and, in the case of a special
meeting, the purpose or purposes for which the meeting is called.
2.5 Manner Of Giving Notice; Affidavit Of Notice.
--------------------------------------------
Written notice of any meeting of stockholders, if mailed, is given
when deposited in the United States mail, postage prepaid, directed to the
stockholder at his address as it appears on the records of the corporation. An
affidavit of the secretary or an assistant secretary or of the transfer agent of
the corporation that the notice has been given shall, in the absence of fraud,
be prima facie evidence of the facts stated therein.
2.6 Quorum.
------
The holders of a majority of the stock issued and outstanding and
entitled to vote thereat, present in person or represented by proxy, shall
constitute a quorum at all meetings of the stockholders for the transaction of
business except as otherwise provided by statute or by the certificate of
incorporation. If, however, such quorum is not present or represented at any
meeting of the stockholders, then either (a) the chairman of the meeting or (b)
the stockholders entitled to vote thereat, present in person or represented by
proxy, shall have power to adjourn the meeting from time to time, without notice
other than announcement at the meeting, until a quorum is present or
represented. At such adjourned meeting at which a quorum is present or
represented, any business may be transacted that might have been transacted at
the meeting as originally noticed.
-2-
<PAGE>
2.7 Adjourned Meeting; Notice.
-------------------------
When a meeting is adjourned to another time or place, unless these
Bylaws otherwise require, notice need not be given of the adjourned meeting if
the time and place thereof are announced at the meeting at which the adjournment
is taken. At the adjourned meeting the corporation may transact any business
that might have been transacted at the original meeting. If the adjournment is
for more than thirty (30) days, or if after the adjournment a new record date is
fixed for the adjourned meeting, a notice of the adjourned meeting shall be
given to each stockholder of record entitled to vote at the meeting.
2.8 Conduct Of Business.
-------------------
The chairman of any meeting of stockholders shall determine the order
of business and the procedure at the meeting, including the manner of voting and
the conduct of business.
2.9 Voting.
------
The stockholders entitled to vote at any meeting of stockholders shall
be determined in accordance with the provisions of Section 2.12 of these Bylaws,
subject to the provisions of Sections 217 and 218 of the General Corporation Law
of Delaware (relating to voting rights of fiduciaries, pledgors and joint owners
of stock and to voting trusts and other voting agreements).
Except as may be otherwise provided in the certificate of
incorporation, each stockholder shall be entitled to one vote for each share of
capital stock held by such stockholder.
2.10 Waiver Of Notice.
----------------
Whenever notice is required to be given under any provision of the
General Corporation Law of Delaware or of the certificate of incorporation or
these Bylaws, a written waiver thereof, signed by the person entitled to notice,
whether before or after the time stated therein, shall be deemed equivalent to
notice. Attendance of a person at a meeting shall constitute a waiver of notice
of such meeting, except when the person attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the stockholders need be specified in any written waiver of notice unless so
required by the certificate of incorporation or these Bylaws.
2.11 Stockholder Action By Written Consent Without A Meeting.
-------------------------------------------------------
Unless otherwise provided in the certificate of incorporation, any
action required to be taken at any annual or special meeting of stockholders of
the corporation, or any action that may be taken at any annual or special
meeting of such stockholders, may be taken without a meeting, without prior
notice, and without a vote if a consent in writing, setting forth the action
-3-
<PAGE>
so taken, is signed by the holders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote thereon were present and
voted.
Prompt notice of the taking of the corporate action without a meeting
by less than unanimous written consent shall be given to those stockholders who
have not consented in writing. If the action which is consented to is such as
would have required the filing of a certificate under any section of the General
Corporation Law of Delaware if such action had been voted on by stockholders at
a meeting thereof, then the certificate filed under such section shall state, in
lieu of any statement required by such section concerning any vote of
stockholders, that written notice and written consent have been given as
provided in Section 228 of the General Corporation Law of Delaware.
2.12 Record Date For Stockholder Notice; Voting; Giving Consents.
-----------------------------------------------------------
In order that the corporation may determine the stockholders entitled
to notice of or to vote at any meeting of stockholders or any adjournment
thereof, or entitled to express consent to corporate action in writing without a
meeting, or entitled to receive payment of any dividend or other distribution or
allotment of any rights, or entitled to exercise any rights in respect of any
change, conversion or exchange of stock or for the purpose of any other lawful
action, the Board of Directors may fix, in advance, a record date, which shall
not be more than sixty (60) nor less than ten (10) days before the date of such
meeting, nor more than sixty (60) days prior to any other action.
If the Board of Directors does not so fix a record date:
(a) The record date for determining stockholders entitled to notice
of or to vote at a meeting of stockholders shall be at the close of business on
the day next preceding the day on which notice is given, or, if notice is
waived, at the close of business on the day next preceding the day on which the
meeting is held.
(b) The record date for determining stockholders entitled to consent
to corporate action in writing without a meeting, when no prior action by the
Board of Directors is necessary, shall be the day on which the first written
consent is delivered to the corporation.
(c) The record date for determining stockholders for any other
purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating thereto.
A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
-4-
<PAGE>
2.13 Proxies.
-------
Each stockholder entitled to vote at a meeting of stockholders or to
express consent or dissent to corporate action in writing without a meeting may
authorize another person or persons to act for such stockholder by a written
proxy, signed by the stockholder and filed with the secretary of the
corporation, but no such proxy shall be voted or acted upon after three (3)
years from its date, unless the proxy provides for a longer period. A proxy
shall be deemed signed if the stockholder's name is placed on the proxy (whether
by manual signature, typewriting, telegraphic transmission or otherwise) by the
stockholder or the stockholder's attorney-in-fact. The revocability of a proxy
that states on its face that it is irrevocable shall be governed by the
provisions of Section 212(e) of the General Corporation Law of Delaware.
ARTICLE III
DIRECTORS
---------
3.1 Powers.
------
Subject to the provisions of the General Corporation Law of Delaware
and any limitations in the certificate of incorporation or these Bylaws relating
to action required to be approved by the stockholders or by the outstanding
shares, the business and affairs of the corporation shall be managed and all
corporate powers shall be exercised by or under the direction of the Board of
Directors.
3.2 Number Of Directors.
-------------------
The number of directors constituting the entire Board of Directors
shall be seven (7). This number may be changed by a resolution of the Board of
Directors or of the stockholders, subject to Section 3.4 of these Bylaws. No
reduction of the authorized number of directors shall have the effect of
removing any director before such director's term of office expires.
3.3 Election, Qualification And Term Of Office Of Directors.
-------------------------------------------------------
Except as provided in Section 3.4 of these Bylaws, directors shall be
elected at each annual meeting of stockholders to hold office until the next
annual meeting. Directors need not be stockholders unless so required by the
certificate of incorporation or these Bylaws, wherein other qualifications for
directors may be prescribed. Each director, including a director elected to
fill a vacancy, shall hold office until his or her successor is elected and
qualified or until his or her earlier resignation or removal.
Elections of directors need not be by written ballot.
-5-
<PAGE>
3.4 Resignation And Vacancies.
-------------------------
Any director may resign at any time upon written notice to the
attention of the Secretary of the corporation. When one or more directors so
resigns and the resignation is effective at a future date, a majority of the
directors then in office, including those who have so resigned, shall have power
to fill such vacancy or vacancies, the vote thereon to take effect when such
resignation or resignations shall become effective, and each director so chosen
shall hold office as provided in this section in the filling of other vacancies.
Unless otherwise provided in the certificate of incorporation or these
Bylaws:
(a) Vacancies and newly created directorships resulting from any
increase in the authorized number of directors elected by all of the
stockholders having the right to vote as a single class may be filled by a
majority of the directors then in office, although less than a quorum, or by a
sole remaining director.
(b) Whenever the holders of any class or classes of stock or series
thereof are entitled to elect one or more directors by the provisions of the
certificate of incorporation, vacancies and newly created directorships of such
class or classes or series may be filled by a majority of the directors elected
by such class or classes or series thereof then in office, or by a sole
remaining director so elected.
If at any time, by reason of death or resignation or other cause, the
corporation should have no directors in office, then any officer or any
stockholder or an executor, administrator, trustee or guardian of a stockholder,
or other fiduciary entrusted with like responsibility for the person or estate
of a stockholder, may call a special meeting of stockholders in accordance with
the provisions of the certificate of incorporation or these Bylaws, or may apply
to the Court of Chancery for a decree summarily ordering an election as provided
in Section 211 of the General Corporation Law of Delaware.
If, at the time of filling any vacancy or any newly created
directorship, the directors then in office constitute less than a majority of
the whole board (as constituted immediately prior to any such increase), then
the Court of Chancery may, upon application of any stockholder or stockholders
holding at least ten (10) percent of the total number of the shares at the time
outstanding having the right to vote for such directors, summarily order an
election to be held to fill any such vacancies or newly created directorships,
or to replace the directors chosen by the directors then in office as aforesaid,
which election shall be governed by the provisions of Section 211 of the General
Corporation Law of Delaware as far as applicable.
3.5 Place Of Meetings; Meetings By Telephone.
----------------------------------------
The Board of Directors of the corporation may hold meetings, both
regular and special, either within or outside the State of Delaware.
-6-
<PAGE>
Unless otherwise restricted by the certificate of incorporation or
these Bylaws, members of the Board of Directors, or any committee designated by
the Board of Directors, may participate in a meeting of the Board of Directors,
or any committee, by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and such participation in a meeting shall constitute presence in
person at the meeting.
3.6 Regular Meetings.
----------------
Regular meetings of the Board of Directors may be held without notice
at such time and at such place as shall from time to time be determined by the
board.
3.7 Special Meetings; Notice.
------------------------
Special meetings of the Board of Directors for any purpose or purposes
may be called at any time by the chairman of the board, the president, any vice
president, the secretary or any two directors.
Notice of the time and place of special meetings shall be delivered
personally or by telephone to each director or sent by first-class mail or
telegram, charges prepaid, addressed to each director at that director's address
as it is shown on the records of the corporation. If the notice is mailed, it
shall be deposited in the United States mail at least four (4) days before the
time of the holding of the meeting. If the notice is delivered personally or by
telephone or by telegram, it shall be delivered personally or by telephone or to
the telegraph company at least forty-eight (48) hours before the time of the
holding of the meeting. Any oral notice given personally or by telephone may be
communicated either to the director or to a person at the office of the director
who the person giving the notice has reason to believe will promptly communicate
it to the director. The notice need not specify the purpose or the place of the
meeting, if the meeting is to be held at the principal executive office of the
corporation.
3.8 Quorum.
------
At all meetings of the Board of Directors, a majority of the
authorized number of directors shall constitute a quorum for the transaction of
business and the act of a majority of the directors present at any meeting at
which there is a quorum shall be the act of the Board of Directors, except as
may be otherwise specifically provided by statute or by the certificate of
incorporation. If a quorum is not present at any meeting of the Board of
Directors, then the directors present thereat may adjourn the meeting from time
to time, without notice other than announcement at the meeting, until a quorum
is present.
A meeting at which a quorum is initially present may continue to
transact business notwithstanding the withdrawal of directors, if any action
taken is approved by at least a majority of the required quorum for that
meeting.
-7-
<PAGE>
3.9 Waiver Of Notice.
----------------
Whenever notice is required to be given under any provision of the
General Corporation Law of Delaware or of the certificate of incorporation or
these Bylaws, a written waiver thereof, signed by the person entitled to notice,
whether before or after the time stated therein, shall be deemed equivalent to
notice. Attendance of a person at a meeting shall constitute a waiver of notice
of such meeting, except when the person attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the directors, or members of a committee of directors, need be specified in
any written waiver of notice unless so required by the certificate of
incorporation or these Bylaws.
3.10 Board Action By Written Consent Without A Meeting.
-------------------------------------------------
Unless otherwise restricted by the certificate of incorporation or
these Bylaws, any action required or permitted to be taken at any meeting of the
Board of Directors, or of any committee thereof, may be taken without a meeting
if all members of the board or committee, as the case may be, consent thereto in
writing and the writing or writings are filed with the minutes of proceedings of
the board or committee. Written consents representing actions taken by the
board or committee may be executed by telex, telecopy or other facsimile
transmission, and such facsimile shall be valid and binding to the same extent
as if it were an original.
3.11 Fees And Compensation Of Directors.
----------------------------------
Unless otherwise restricted by the certificate of incorporation or
these Bylaws, the Board of Directors shall have the authority to fix the
compensation of directors. No such compensation shall preclude any director
from serving the corporation in any other capacity and receiving compensation
therefor.
3.12 Approval Of Loans To Officers.
-----------------------------
The corporation may lend money to, or guarantee any obligation of, or
otherwise assist any officer or other employee of the corporation or of its
subsidiary, including any officer or employee who is a director of the
corporation or its subsidiary, whenever, in the judgment of the directors, such
loan, guaranty or assistance may reasonably be expected to benefit the
corporation. The loan, guaranty or other assistance may be with or without
interest and may be unsecured, or secured in such manner as the Board of
Directors shall approve, including, without limitation, a pledge of shares of
stock of the corporation. Nothing in this section contained shall be deemed to
deny, limit or restrict the powers of guaranty or warranty of the corporation at
common law or under any statute.
-8-
<PAGE>
3.13 Removal Of Directors.
--------------------
Unless otherwise restricted by statute, by the certificate of
incorporation or by these Bylaws, any director or the entire Board of Directors
may be removed, with or without cause, by the holders of a majority of the
shares then entitled to vote at an election of directors; provided, however,
that if the stockholders of the corporation are entitled to cumulative voting,
if less than the entire Board of Directors is to be removed, no director may be
removed without cause if the votes cast against his removal would be sufficient
to elect him if then cumulatively voted at an election of the entire Board of
Directors.
No reduction of the authorized number of directors shall have the
effect of removing any director prior to the expiration of such director's term
of office.
3.14 Chairman Of The Board Of Directors.
----------------------------------
The corporation may also have, at the discretion of the Board of
Directors, a chairman of the Board of Directors who shall not be considered an
officer of the corporation.
ARTICLE IV
COMMITTEES
----------
4.1 Committees Of Directors.
-----------------------
The Board of Directors may designate one or more committees, each
committee to consist of one or more of the directors of the corporation. The
Board may designate 1 or more directors as alternate members of any committee,
who may replace any absent or disqualified member at any meeting of the
committee. In the absence or disqualification of a member of a committee, the
member or members present at any meeting and not disqualified from voting,
whether or not such member or members constitute a quorum, may unanimously
appoint another member of the Board of Directors to act at the meeting in the
place of any such absent or disqualified member. Any such committee, to the
extent provided in the resolution of the Board of Directors, or in these Bylaws,
shall have and may exercise all the powers and authority of the Board of
Directors in the management of the business and affairs of the corporation, and
may authorize the seal of the corporation to be affixed to all papers which may
require it; but no such committee shall have the power or authority in reference
to the following matters: (i) approving or adopting, or recommending to the
stockholders, any action or matter expressly required by this chapter to be
submitted to stockholders for approval or (ii) adopting, amending or repealing
any Bylaw of the corporation.
4.2 Committee Minutes.
-----------------
Each committee shall keep regular minutes of its meetings and report
the same to the Board of Directors when required.
-9-
<PAGE>
4.3 Meetings And Action Of Committees.
---------------------------------
Meetings and actions of committees shall be governed by, and held and
taken in accordance with, the provisions of Section 3.5 (place of meetings and
meetings by telephone), Section 3.6 (regular meetings), Section 3.7 (special
meetings and notice), Section 3.8 (quorum), Section 3.9 (waiver of notice), and
Section 3.10 (action without a meeting) of these Bylaws, with such changes in
the context of such provisions as are necessary to substitute the committee and
its members for the Board of Directors and its members; provided, however, that
the time of regular meetings of committees may be determined either by
resolution of the Board of Directors or by resolution of the committee, that
special meetings of committees may also be called by resolution of the Board of
Directors and that notice of special meetings of committees shall also be given
to all alternate members, who shall have the right to attend all meetings of the
committee. The Board of Directors may adopt rules for the government of any
committee not inconsistent with the provisions of these Bylaws.
ARTICLE V
OFFICERS
--------
5.1 Officers.
--------
The officers of the corporation shall be a chief executive officer, a
president, a secretary, and a chief financial officer. The corporation may also
have, at the discretion of the Board of Directors, one or more vice presidents,
one or more assistant secretaries, one or more assistant treasurers, and any
such other officers as may be appointed in accordance with the provisions of
Section 5.3 of these Bylaws. Any number of offices may be held by the same
person.
5.2 Appointment Of Officers.
-----------------------
The officers of the corporation, except such officers as may be
appointed in accordance with the provisions of Sections 5.3 or 5.5 of these
Bylaws, shall be appointed by the Board of Directors, subject to the rights, if
any, of an officer under any contract of employment.
5.3 Subordinate Officers.
--------------------
The Board of Directors may appoint, or empower the chief executive
officer or the president to appoint, such other officers and agents as the
business of the corporation may require, each of whom shall hold office for such
period, have such authority, and perform such duties as are provided in these
Bylaws or as the Board of Directors may from time to time determine.
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<PAGE>
5.4 Removal And Resignation Of Officers.
-----------------------------------
Subject to the rights, if any, of an officer under any contract of
employment, any officer may be removed, either with or without cause, by an
affirmative vote of the majority of the Board of Directors at any regular or
special meeting of the board or, except in the case of an officer chosen by the
Board of Directors, by any officer upon whom such power of removal may be
conferred by the Board of Directors.
Any officer may resign at any time by giving written notice to the
attention of the Secretary of the corporation. Any resignation shall take
effect at the date of the receipt of that notice or at any later time specified
in that notice; and, unless otherwise specified in that notice, the acceptance
of the resignation shall not be necessary to make it effective. Any resignation
is without prejudice to the rights, if any, of the corporation under any
contract to which the officer is a party.
5.5 Vacancies In Offices.
--------------------
Any vacancy occurring in any office of the corporation shall be filled
by the Board of Directors.
5.6 Chief Executive Officer.
-----------------------
Subject to such supervisory powers, if any, as may be given by the
Board of Directors to the chairman of the board, if any, the chief executive
officer of the corporation shall, subject to the control of the Board of
Directors, have general supervision, direction, and control of the business and
the officers of the corporation. He or she shall preside at all meetings of the
stockholders and, in the absence or nonexistence of a chairman of the board, at
all meetings of the Board of Directors and shall have the general powers and
duties of management usually vested in the office of chief executive officer of
a corporation and shall have such other powers and duties as may be prescribed
by the Board of Directors or these bylaws.
5.7 President.
---------
Subject to such supervisory powers, if any, as may be given by the
Board of Directors to the chairman of the board (if any) or the chief executive
officer, the president shall have general supervision, direction, and control of
the business and other officers of the corporation. He or she shall have the
general powers and duties of management usually vested in the office of
president of a corporation and such other powers and duties as may be prescribed
by the Board of Directors or these Bylaws.
5.8 Vice Presidents.
---------------
In the absence or disability of the chief executive officer and
president, the vice presidents, if any, in order of their rank as fixed by the
Board of Directors or, if not ranked, a vice president designated by the Board
of Directors, shall perform all the duties of the president
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<PAGE>
and when so acting shall have all the powers of, and be subject to all the
restrictions upon, the president. The vice presidents shall have such other
powers and perform such other duties as from time to time may be prescribed for
them respectively by the Board of Directors, these Bylaws, the president or the
chairman of the board.
5.9 Secretary.
---------
The secretary shall keep or cause to be kept, at the principal
executive office of the corporation or such other place as the Board of
Directors may direct, a book of minutes of all meetings and actions of
directors, committees of directors, and stockholders. The minutes shall show
the time and place of each meeting, the names of those present at directors'
meetings or committee meetings, the number of shares present or represented at
stockholders' meetings, and the proceedings thereof.
The secretary shall keep, or cause to be kept, at the principal
executive office of the corporation or at the office of the corporation's
transfer agent or registrar, as determined by resolution of the Board of
Directors, a share register, or a duplicate share register, showing the names of
all stockholders and their addresses, the number and classes of shares held by
each, the number and date of certificates evidencing such shares, and the number
and date of cancellation of every certificate surrendered for cancellation.
The secretary shall give, or cause to be given, notice of all
meetings of the stockholders and of the Board of Directors required to be given
by law or by these Bylaws. He or she shall keep the seal of the corporation, if
one be adopted, in safe custody and shall have such other powers and perform
such other duties as may be prescribed by the Board of Directors or by these
Bylaws.
5.10 Chief Financial Officer.
-----------------------
The chief financial officer shall keep and maintain, or cause to be
kept and maintained, adequate and correct books and records of accounts of the
properties and business transactions of the corporation, including accounts of
its assets, liabilities, receipts, disbursements, gains, losses, capital
retained earnings, and shares. The books of account shall at all reasonable
times be open to inspection by any director.
The chief financial officer shall deposit all moneys and other
valuables in the name and to the credit of the corporation with such
depositories as may be designated by the Board of Directors. He or she shall
disburse the funds of the corporation as may be ordered by the Board of
Directors, shall render to the president, the chief executive officer, or the
directors, upon request, an account of all his or her transactions as chief
financial officer and of the financial condition of the corporation, and shall
have other powers and perform such other duties as may be prescribed by the
Board of Directors or the bylaws.
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<PAGE>
5.11 Representation Of Shares Of Other Corporations.
----------------------------------------------
The chairman of the board, the chief executive officer, the
president, any vice president, the chief financial officer, the secretary or
assistant secretary of this corporation, or any other person authorized by the
Board of Directors or the chief executive officer or the president or a vice
president, is authorized to vote, represent, and exercise on behalf of this
corporation all rights incident to any and all shares of any other corporation
or corporations standing in the name of this corporation. The authority granted
herein may be exercised either by such person directly or by any other person
authorized to do so by proxy or power of attorney duly executed by the person
having such authority.
5.12 Authority And Duties Of Officers.
--------------------------------
In addition to the foregoing authority and duties, all officers of
the corporation shall respectively have such authority and perform such duties
in the management of the business of the corporation as may be designated from
time to time by the Board of Directors or the stockholders.
ARTICLE VI
INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES, AND OTHER AGENTS
-------------------------------------------------------------------
6.1 Indemnification Of Directors And Officers.
-----------------------------------------
The corporation shall, to the maximum extent and in the manner
permitted by the General Corporation Law of Delaware, indemnify each of its
directors and officers against expenses (including attorneys' fees), judgments,
fines, settlements and other amounts actually and reasonably incurred in
connection with any proceeding, arising by reason of the fact that such person
is or was an agent of the corporation. For purposes of this Section 6.1, a
"director" or "officer" of the corporation includes any person (a) who is or was
a director or officer of the corporation, (b) who is or was serving at the
request of the corporation as a director or officer of another corporation,
partnership, joint venture, trust or other enterprise, or (c) who was a director
or officer of a corporation which was a predecessor corporation of the
corporation or of another enterprise at the request of such predecessor
corporation.
6.2 Indemnification Of Others.
-------------------------
The corporation shall have the power, to the maximum extent and in
the manner permitted by the General Corporation Law of Delaware, to indemnify
each of its employees and agents (other than directors and officers) against
expenses (including attorneys' fees), judgments, fines, settlements and other
amounts actually and reasonably incurred in connection with any proceeding,
arising by reason of the fact that such person is or was an agent of the
corporation. For purposes of this Section 6.2, an "employee" or "agent" of the
corporation (other than a director or officer) includes any person (a) who is or
was an employee or agent of the corpora-
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<PAGE>
tion, (b) who is or was serving at the request of the corporation as an employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise, or (c) who was an employee or agent of a corporation which was a
predecessor corporation of the corporation or of another enterprise at the
request of such predecessor corporation.
6.3 Payment Of Expenses In Advance.
------------------------------
Expenses incurred in defending any action or proceeding for which
indemnification is required pursuant to Section 6.1 or for which indemnification
is permitted pursuant to Section 6.2 following authorization thereof by the
Board of Directors shall be paid by the corporation in advance of the final
disposition of such action or proceeding upon receipt of an undertaking by or on
behalf of the indemnified party to repay such amount if it shall ultimately be
determined that the indemnified party is not entitled to be indemnified as
authorized in this Article VI.
6.4 Indemnity Not Exclusive.
-----------------------
The indemnification provided by this Article VI shall not be deemed
exclusive of any other rights to which those seeking indemnification may be
entitled under any bylaw, agreement, vote of shareholders or disinterested
directors or otherwise, both as to action in an official capacity and as to
action in another capacity while holding such office, to the extent that such
additional rights to indemnification are authorized in the certificate of
incorporation
6.5 Insurance.
---------
The corporation may purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee or agent of the corporation,
or is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against any liability asserted against him or her and incurred
by him or her in any such capacity, or arising out of his or her status as such,
whether or not the corporation would have the power to indemnify him or her
against such liability under the provisions of the General Corporation Law of
Delaware.
6.6 Conflicts.
---------
No indemnification or advance shall be made under this Article VI,
except where such indemnification or advance is mandated by law or the order,
judgment or decree of any court of competent jurisdiction, in any circumstance
where it appears:
(a) That it would be inconsistent with a provision of the certificate
of incorporation, these Bylaws, a resolution of the stockholders or an agreement
in effect at the time of the accrual of the alleged cause of the action asserted
in the proceeding in which the expenses were incurred or other amounts were
paid, which prohibits or otherwise limits indemnification; or
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<PAGE>
(b) That it would be inconsistent with any condition expressly imposed
by a court in approving a settlement.
ARTICLE VII
RECORDS AND REPORTS
-------------------
7.1 Maintenance And Inspection Of Records.
-------------------------------------
The corporation shall, either at its principal executive offices or at
such place or places as designated by the Board of Directors, keep a record of
its stockholders listing their names and addresses and the number and class of
shares held by each stockholder, a copy of these Bylaws as amended to date,
accounting books, and other records.
Any stockholder of record, in person or by attorney or other agent,
shall, upon written demand under oath stating the purpose thereof, have the
right during the usual hours for business to inspect for any proper purpose the
corporation's stock ledger, a list of its stockholders, and its other books and
records and to make copies or extracts therefrom. A proper purpose shall mean a
purpose reasonably related to such person's interest as a stockholder. In every
instance where an attorney or other agent is the person who seeks the right to
inspection, the demand under oath shall be accompanied by a power of attorney or
such other writing that authorizes the attorney or other agent to so act on
behalf of the stockholder. The demand under oath shall be directed to the
corporation at its registered office in Delaware or at its principal place of
business.
7.2 Inspection By Directors.
-----------------------
Any director shall have the right to examine the corporation's stock
ledger, a list of its stockholders, and its other books and records for a
purpose reasonably related to his or her position as a director. The Court of
Chancery is hereby vested with the exclusive jurisdiction to determine whether a
director is entitled to the inspection sought. The Court may summarily order
the corporation to permit the director to inspect any and all books and records,
the stock ledger, and the stock list and to make copies or extracts therefrom.
The Court may, in its discretion, prescribe any limitations or conditions with
reference to the inspection, or award such other and further relief as the Court
may deem just and proper.
7.3 Annual Statement To Stockholders.
--------------------------------
The Board of Directors shall present at each annual meeting, and at
any special meeting of the stockholders when called for by vote of the
stockholders, a full and clear statement of the business and condition of the
corporation.
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<PAGE>
ARTICLE VIII
GENERAL MATTERS
---------------
8.1 Checks.
------
From time to time, the Board of Directors shall determine by
resolution which person or persons may sign or endorse all checks, drafts, other
orders for payment of money, notes or other evidences of indebtedness that are
issued in the name of or payable to the corporation, and only the persons so
authorized shall sign or endorse those instruments.
8.2 Execution Of Corporate Contracts And Instruments.
------------------------------------------------
The Board of Directors, except as otherwise provided in these Bylaws,
may authorize any officer or officers, or agent or agents, to enter into any
contract or execute any instrument in the name of and on behalf of the
corporation; such authority may be general or confined to specific instances.
Unless so authorized or ratified by the Board of Directors or within the agency
power of an officer, no officer, agent or employee shall have any power or
authority to bind the corporation by any contract or engagement or to pledge its
credit or to render it liable for any purpose or for any amount.
8.3 Stock Certificates; Partly Paid Shares.
--------------------------------------
The shares of a corporation shall be represented by certificates,
provided that the Board of Directors of the corporation may provide by
resolution or resolutions that some or all of any or all classes or series of
its stock shall be uncertificated shares. Any such resolution shall not apply
to shares represented by a certificate until such certificate is surrendered to
the corporation. Notwithstanding the adoption of such a resolution by the Board
of Directors, every holder of stock represented by certificates and upon request
every holder of uncertificated shares shall be entitled to have a certificate
signed by, or in the name of the corporation by the chairman or vice-chairman of
the Board of Directors, or the president or vice-president, and by the chief
financial officer or an assistant treasurer, or the secretary or an assistant
secretary of such corporation representing the number of shares registered in
certificate form. Any or all of the signatures on the certificate may be a
facsimile. In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed upon a certificate has ceased to be
such officer, transfer agent or registrar before such certificate is issued, it
may be issued by the corporation with the same effect as if he or she were such
officer, transfer agent or registrar at the date of issue.
The corporation may issue the whole or any part of its shares as
partly paid and subject to call for the remainder of the consideration to be
paid therefor. Upon the face or back of each stock certificate issued to
represent any such partly paid shares, upon the books and records of the
corporation in the case of uncertificated partly paid shares, the total amount
of the consideration to be paid therefor and the amount paid thereon shall be
stated. Upon the
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<PAGE>
declaration of any dividend on fully paid shares, the corporation shall declare
a dividend upon partly paid shares of the same class, but only upon the basis of
the percentage of the consideration actually paid thereon.
8.4 Special Designation On Certificates.
-----------------------------------
If the corporation is authorized to issue more than one class of stock
or more than one series of any class, then the powers, the designations, the
preferences, and the relative, participating, optional or other special rights
of each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate that the corporation shall
issue to represent such class or series of stock; provided, however, that,
except as otherwise provided in Section 202 of the General Corporation Law of
Delaware, in lieu of the foregoing requirements there may be set forth on the
face or back of the certificate that the corporation shall issue to represent
such class or series of stock a statement that the corporation will furnish
without charge to each stockholder who so requests the powers, the designations,
the preferences, and the relative, participating, optional or other special
rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights.
8.5 Lost Certificates.
-----------------
Except as provided in this Section 8.5, no new certificates for shares
shall be issued to replace a previously issued certificate unless the latter is
surrendered to the corporation and cancelled at the same time. The corporation
may issue a new certificate of stock or uncertificated shares in the place of
any certificate previously issued by it, alleged to have been lost, stolen or
destroyed, and the corporation may require the owner of the lost, stolen or
destroyed certificate, or the owner's legal representative, to give the
corporation a bond sufficient to indemnify it against any claim that may be made
against it on account of the alleged loss, theft or destruction of any such
certificate or the issuance of such new certificate or uncertificated shares.
8.6 Construction; Definitions.
-------------------------
Unless the context requires otherwise, the general provisions, rules
of construction, and definitions in the Delaware General Corporation Law shall
govern the construction of these Bylaws. Without limiting the generality of
this provision, the singular number includes the plural, the plural number
includes the singular, and the term "person" includes both a corporation and a
natural person.
8.7 Dividends.
---------
The directors of the corporation, subject to any restrictions
contained in (a) the General Corporation Law of Delaware or (b) the certificate
of incorporation, may declare and
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<PAGE>
pay dividends upon the shares of its capital stock. Dividends may be paid in
cash, in property, or in shares of the corporation's capital stock.
The directors of the corporation may set apart out of any of the
funds of the corporation available for dividends a reserve or reserves for any
proper purpose and may abolish any such reserve. Such purposes shall include but
not be limited to equalizing dividends, repairing or maintaining any property of
the corporation, and meeting contingencies.
8.8 Fiscal Year.
-----------
The fiscal year of the corporation shall be fixed by resolution of
the Board of Directors and may be changed by the Board of Directors.
8.9 Seal.
----
The corporation may adopt a corporate seal, which may be altered at
pleasure, and may use the same by causing it or a facsimile thereof, to be
impressed or affixed or in any other manner reproduced.
8.10 Transfer Of Stock.
-----------------
Upon surrender to the corporation or the transfer agent of the
corporation of a certificate for shares duly endorsed or accompanied by proper
evidence of succession, assignation or authority to transfer, it shall be the
duty of the corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate, and record the transaction in its books.
8.11 Stock Transfer Agreements.
-------------------------
The corporation shall have power to enter into and perform any
agreement with any number of stockholders of any one or more classes of stock of
the corporation to restrict the transfer of shares of stock of the corporation
of any one or more classes owned by such stockholders in any manner not
prohibited by the General Corporation Law of Delaware.
8.12 Registered Stockholders.
-----------------------
The corporation shall be entitled to recognize the exclusive right of
a person registered on its books as the owner of shares to receive dividends and
to vote as such owner, shall be entitled to hold liable for calls and
assessments the person registered on its books as the owner of shares, and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of another person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware.
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<PAGE>
ARTICLE IX
AMENDMENTS
----------
The Bylaws of the corporation may be adopted, amended or repealed by
the stockholders entitled to vote; provided, however, that the corporation may,
in its certificate of incorporation, confer the power to adopt, amend or repeal
Bylaws upon the directors. The fact that such power has been so conferred upon
the directors shall not divest the stockholders of the power, nor limit their
power to adopt, amend or repeal Bylaws.
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<PAGE>
EXHIBIT 3.5
FORM OF
BYLAWS
OF
PREVIEW SYSTEMS, INC.
(AS AMENDED AND RESTATED EFFECTIVE __________ __, 1999)
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I - CORPORATE OFFICES................................................... 1
1.1 REGISTERED OFFICE..................................................... 1
1.2 OTHER OFFICES......................................................... 1
ARTICLE II - MEETINGS OF STOCKHOLDERS........................................... 1
2.1 PLACE OF MEETINGS..................................................... 1
2.2 ANNUAL MEETING........................................................ 1
2.3 SPECIAL MEETING....................................................... 2
2.4 NOTICE OF STOCKHOLDER'S MEETINGS; AFFIDAVIT OF NOTICE................. 2
2.5 ADVANCE NOTICE OF STOCKHOLDER NOMINEES AND
OTHER STOCKHOLDER PROPOSALS........................................... 3
2.6 QUORUM................................................................ 3
2.7 ADJOURNED MEETING; NOTICE............................................. 4
2.8 CONDUCT OF BUSINESS................................................... 4
2.9 VOTING................................................................ 4
2.10 WAIVER OF NOTICE...................................................... 4
2.11 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING............................ 5
2.12 PROXIES............................................................... 5
ARTICLE III - DIRECTORS......................................................... 6
3.1 POWERS................................................................ 6
3.2 NUMBER OF DIRECTORS................................................... 6
3.3 ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS............... 6
3.4 RESIGNATION AND VACANCIES............................................. 6
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE.............................. 7
3.6 REGULAR MEETINGS...................................................... 7
3.7 SPECIAL MEETINGS; NOTICE.............................................. 8
3.8 QUORUM................................................................ 8
3.9 WAIVER OF NOTICE...................................................... 8
3.10 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING..................... 9
3.11 FEES AND COMPENSATION OF DIRECTORS.................................... 9
3.12 APPROVAL OF LOANS TO OFFICERS......................................... 9
3.13 REMOVAL OF DIRECTORS.................................................. 9
3.14 CHAIRMAN OF THE BOARD OF DIRECTORS.................................... 10
ARTICLE IV - COMMITTEES......................................................... 10
4.1 COMMITTEES OF DIRECTORS............................................... 10
4.2 COMMITTEE MINUTES..................................................... 10
4.3 MEETINGS AND ACTION OF COMMITTEES..................................... 11
ARTICLE V - OFFICERS............................................................ 11
</TABLE>
-i-
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<TABLE>
<S> <C>
5.1 OFFICERS.............................................................. 11
5.2 APPOINTMENT OF OFFICERS............................................... 11
5.3 SUBORDINATE OFFICERS.................................................. 11
5.4 REMOVAL AND RESIGNATION OF OFFICERS................................... 11
5.5 VACANCIES IN OFFICES.................................................. 12
5.6 CHIEF EXECUTIVE OFFICER............................................... 12
5.7 PRESIDENT............................................................. 12
5.8 VICE PRESIDENTS....................................................... 12
5.9 SECRETARY............................................................. 13
5.10 CHIEF FINANCIAL OFFICER............................................... 13
5.11 REPRESENTATION OF SHARES OF OTHER CORPORATIONS........................ 13
5.12 AUTHORITY AND DUTIES OF OFFICERS...................................... 14
ARTICLE VI - INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES,
AND OTHER AGENTS................................................................ 14
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS............................. 14
6.2 INDEMNIFICATION OF OTHERS............................................. 14
6.3 PAYMENT OF EXPENSES IN ADVANCE........................................ 14
6.4 INDEMNITY NOT EXCLUSIVE............................................... 15
6.5 INSURANCE............................................................. 15
6.6 CONFLICTS............................................................. 15
ARTICLE VII - RECORDS AND REPORTS............................................... 15
7.1 MAINTENANCE AND INSPECTION OF RECORDS................................. 15
7.2 INSPECTION BY DIRECTORS............................................... 16
7.3 ANNUAL STATEMENT TO STOCKHOLDERS...................................... 16
ARTICLE VIII - GENERAL MATTERS.................................................. 16
8.1 CHECKS................................................................ 16
8.2 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS...................... 16
8.3 STOCK CERTIFICATES; PARTLY PAID SHARES................................ 17
8.4 SPECIAL DESIGNATION ON CERTIFICATES................................... 17
8.5 LOST CERTIFICATES..................................................... 18
8.6 CONSTRUCTION; DEFINITIONS............................................. 18
8.7 DIVIDENDS............................................................. 18
8.8 FISCAL YEAR........................................................... 18
8.9 SEAL.................................................................. 18
8.10 TRANSFER OF STOCK..................................................... 19
8.11 STOCK TRANSFER AGREEMENTS............................................. 19
8.12 REGISTERED STOCKHOLDERS............................................... 19
ARTICLE IX...................................................................... 19
</TABLE>
-ii-
<PAGE>
BYLAWS
OF
PREVIEW SYSTEMS, INC.
ARTICLE I
CORPORATE OFFICES
-----------------
1.1 REGISTERED OFFICE.
-----------------
The address of the Corporation's registered office in the State of
Delaware is 1209 Orange Street, Wilmington, County of New Castle. The name of
its registered agent at such address is The Corporation Trust Company.
1.2 OTHER OFFICES.
-------------
The Board of Directors may at any time establish other offices at any
place or places where the Corporation is qualified to do business.
ARTICLE II
MEETINGS OF STOCKHOLDERS
------------------------
2.1 PLACE OF MEETINGS.
-----------------
Meetings of stockholders shall be held at any place, within or outside
the State of Delaware, designated by the Board of Directors. In the absence of
any such designation, stockholders' meetings shall be held at the registered
office of the Corporation.
2.2 ANNUAL MEETING.
--------------
(a) The annual meeting of stockholders shall be held each year on a
date and at a time designated by resolution of the Board of Directors. At the
meeting, directors shall be elected and any other proper business may be
transacted.
(b) Nominations of persons for election to the Board of Directors of
the Corporation and the proposal of business to be transacted by the
stockholders may be made at an annual meeting of stockholders (i) pursuant to
the Corporation's notice with respect to such meeting, (ii) by or at the
direction of the Board of Directors or (iii) by any stockholder of the
Corporation who was a stockholder of record at the time of giving of the notice
provided for in this Section 2.2, who is entitled to vote at the meeting and who
has complied with the notice procedures set forth in this Section 2.2.
(c) For nominations or other business to be properly brought before an
annual meeting by a stockholder pursuant to clause (iii) of paragraph (b) of
this Section 2.2, the
<PAGE>
stockholder must have given timely notice thereof in writing to the secretary of
the Corporation, as provided in Section 2.5, and such business must be a proper
matter for stockholder action under the General Corporation Law of Delaware.
(d) Only such business shall be conducted at an annual meeting of
stockholders as shall have been brought before the meeting in accordance with
the procedures set forth in these Bylaws. The chairman of the meeting shall
determine whether a nomination or any business proposed to be transacted by the
stockholders has been properly brought before the meeting and, if any proposed
nomination or business has not been properly brought before the meeting, the
chairman shall declare that such proposed business or nomination shall not be
presented for stockholder action at the meeting.
(e) For purposes of this Section 2.2, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service, Associated
Press or a comparable national news service.
(f) Nothing in this Section 2.2 shall be deemed to affect any rights
of stockholders to request inclusion of proposals in the Corporation's proxy
statement pursuant to Rule 14a-8 under the Exchange Act.
2.3 SPECIAL MEETING.
---------------
(a) A special meeting of the stockholders may be called at any time by
the Board of Directors, or by the chairman of the board, or by the president.
(b) Nominations of persons for election to the Board of Directors may
be made at a special meeting of stockholders at which directors are to be
elected pursuant to such notice of meeting (i) by or at the direction of the
Board of Directors or (ii) by any stockholder of the Corporation who is a
stockholder of record at the time of giving of notice provided for in Section
2.5, who shall be entitled to vote at the meeting and who complies with the
notice procedures set forth in Section 2.5.
2.4 NOTICE OF STOCKHOLDER'S MEETINGS; AFFIDAVIT OF NOTICE.
------------------------------------------------------
All notices of meetings of stockholders shall be in writing and shall
be sent or otherwise given in accordance with this Section 2.4 of these Bylaws
not less than 10 nor more than 60 days before the date of the meeting to each
stockholder entitled to vote at such meeting (or such longer or shorter time as
is required by Section 2.5 of these Bylaws, if applicable). The notice shall
specify the place, date, and hour of the meeting, and, in the case of a special
meeting, the purpose or purposes for which the meeting is called. Written
notice of any meeting of stockholders, if mailed, is given when deposited in the
United States mail, postage prepaid, directed to the stockholder at his address
as it appears on the records of the Corporation. An affidavit of the secretary
or an assistant secretary or of the transfer agent of the Corporation that the
notice has been given shall, in the absence of fraud, be prima facie evidence of
the facts stated therein.
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<PAGE>
2.5 ADVANCE NOTICE OF STOCKHOLDER NOMINEES AND OTHER STOCKHOLDER
------------------------------------------------------------
PROPOSALS.
- ---------
Only persons who are nominated in accordance with the procedures set forth
in this Section 2.5 shall be eligible for election as directors. Nominations of
persons for election to the Board of Directors of the Corporation may be made at
a meeting of stockholders by or at the direction of the Board of Directors or by
any stockholder of the Corporation entitled to vote for the election of
directors at the meeting who complies with the notice procedures set forth in
this Section 2.5. Such nominations, other than those made by or at the
direction of the Board of Directors, shall be made pursuant to timely notice in
writing to the secretary of the Corporation. Stockholders may bring other
business before the annual meeting, provided that timely notice is provided to
the secretary of the Corporation in accordance with this section, and provided
further that such business is a proper matter for stockholder action under the
General Corporation Law of Delaware. To be timely, a stockholder's notice shall
be delivered to or mailed and received at the principal executive offices of the
Corporation not less than 60 days nor more than 90 days prior to the meeting;
provided, however, that in the event that less than 60 days' notice or prior
public disclosure of the date of the meeting is given or made to stockholders,
notice by the stockholder to be timely must be so received not later than the
close of business on the 10/th/ day following the day on which such notice of
the date of the meeting was mailed or such public disclosure was made. Such
stockholder's notice shall set forth (a) as to each person whom the stockholder
proposes to nominate for election or re-election as a directors, (i) the name,
age, business address and residence address of such person, (ii) the principal
occuption or employment of such person, (iii) the class and number of shares of
the Corporation which are beneficially owned by such person and (iv) any other
information relating to such person that is required to be disclosed in
solicitations of proxies for election of directors, or is otherwise required, in
each case pursuant to Regulation 14A under the Securities Exchange Act of 1934
(including, without limitation, such person's written consent to being name in
the proxy statement as a nominee and to serving as a director if elected); (b)
as to any other business that the stockholder proposes to bring before the
meeting, a brief description of such business, the reasons for conducting such
business at the meeting and any material interest in such business of such
stockholder and the beneficial owner, if any, on whose behalf the proposal is
made; and (c) as to the stockholder giving the notice and the beneficial owner,
if any, on whose behalf the proposal is made (i) the name and address of the
stockholder, as they appear on the Corporation's books, and of such beneficial
owner and (ii) the class and number of shares of the Corporation which are owned
of record by such stockholder and beneficially by such beneficial owner. At the
request of the Board of Directors any person nominated by the Board of Directors
for election as a director shall furnish to the secretary of the Corporation
that information required to be set forth in a stockholder's notice of
nomination which pertains to the nominee. No person shall be eligible for
election as a director of the Corporation unless nominated in accordance with
the procedures set forth in this Section 2.5. The chairman of the meeting shall,
if the facts warrant, determine and declare to the meeting that a nomination was
not made in accordance with the procedures prescribed by the Bylaws, and if he
or she should so determine, he or she shall so declare to the meeting and the
defective nomination shall be disregarded.
2.6 QUORUM.
------
-3-
<PAGE>
The holders of a majority of the stock issued and outstanding and
entitled to vote thereat, present in person or represented by proxy, shall
constitute a quorum at all meetings of the stockholders for the transaction of
business except as otherwise provided by statute or by the Certificate of
Incorporation. If, however, such quorum is not present or represented at any
meeting of the stockholders, then either (a) the chairman of the meeting or (b)
the stockholders entitled to vote thereat, present in person or represented by
proxy, shall have power to adjourn the meeting from time to time, without notice
other than announcement at the meeting, until a quorum is present or
represented. At such adjourned meeting at which a quorum is present or
represented, any business may be transacted that might have been transacted at
the meeting as originally noticed.
2.7 ADJOURNED MEETING; NOTICE.
-------------------------
When a meeting is adjourned to another time or place, unless these
Bylaws otherwise require, notice need not be given of the adjourned meeting if
the time and place thereof are announced at the meeting at which the adjournment
is taken. At the adjourned meeting the Corporation may transact any business
that might have been transacted at the original meeting. If the adjournment is
for more than 30 days, or if after the adjournment a new record date is fixed
for the adjourned meeting, a notice of the adjourned meeting shall be given to
each stockholder of record entitled to vote at the meeting.
2.8 CONDUCT OF BUSINESS.
-------------------
The chairman of any meeting of stockholders shall determine the order
of business and the procedure at the meeting, including the manner of voting and
the conduct of business.
2.9 VOTING.
------
(a) The stockholders entitled to vote at any meeting of stockholders
shall be determined in accordance with the provisions of Section 2.11 of these
Bylaws, subject to the provisions of Sections 217 and 218 of the General
Corporation Law of Delaware (relating to voting rights of fiduciaries, pledgors
and joint owners of stock and to voting trusts and other voting agreements).
(b) Except as may be otherwise provided in the Certificate of
Incorporation, each stockholder shall be entitled to one vote for each share of
capital stock held by such stockholder.
2.10 WAIVER OF NOTICE.
----------------
Whenever notice is required to be given under any provision of the
General Corporation Law of Delaware or of the Certificate of Incorporation or
these Bylaws, a written waiver thereof, signed by the person entitled to notice,
whether before or after the time stated therein, shall be deemed equivalent to
notice. Attendance of a person at a meeting shall constitute a waiver of notice
of such meeting, except when the person attends a meeting for the
-4-
<PAGE>
express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the stockholders need be specified in any written
waiver of notice unless so required by the Certificate of Incorporation or these
Bylaws.
2.11 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING.
------------------------------------------
In order that the Corporation may determine the stockholders entitled
to notice of or to vote at any meeting of stockholders or any adjournment
thereof or entitled to receive payment of any dividend or other distribution or
allotment of any rights, or entitled to exercise any rights in respect of any
change, conversion or exchange of stock or for the purpose of any other lawful
action, the Board of Directors may fix, in advance, a record date, which shall
not be more than 60 nor less than 10 days before the date of such meeting, nor
more than 60 days prior to any other action. If the Board of Directors does not
so fix a record date:
(a) The record date for determining stockholders entitled to notice of
or to vote at a meeting of stockholders shall be at the close of business on the
day next preceding the day on which notice is given, or, if notice is waived, at
the close of business on the day next preceding the day on which the meeting is
held.
(b) The record date for determining stockholders for any other purpose
shall be at the close of business on the day on which the Board of Directors
adopts the resolution relating thereto.
A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
2.12 PROXIES.
-------
Each stockholder entitled to vote at a meeting of stockholders may
authorize another person or persons to act for such stockholder by a written
proxy, signed by the stockholder and filed with the secretary of the
Corporation, but no such proxy shall be voted or acted upon after three years
from its date, unless the proxy provides for a longer period. A proxy shall be
deemed signed if the stockholder's name is placed on the proxy (whether by
manual signature, typewriting, telegraphic transmission or otherwise) by the
stockholder or the stockholder's attorney-in-fact. The revocability of a proxy
that states on its face that it is irrevocable shall be governed by the
provisions of Section 212(e) of the General Corporation Law of Delaware.
-5-
<PAGE>
ARTICLE III
DIRECTORS
---------
3.1 POWERS.
------
Subject to the provisions of the General Corporation Law of Delaware
and any limitations in the Certificate of Incorporation or these Bylaws relating
to action required to be approved by the stockholders or by the outstanding
shares, the business and affairs of the Corporation shall be managed and all
corporate powers shall be exercised by or under the direction of the Board of
Directors.
3.2 NUMBER OF DIRECTORS.
-------------------
The number of directors constituting the entire Board of Directors
shall be seven.
Thereafter, this number may be changed by a resolution of the Board of
Directors or of the stockholders, subject to Section 3.4 of these Bylaws. No
reduction of the authorized number of directors shall have the effect of
removing any director before such director's term of office expires.
3.3 ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS.
-------------------------------------------------------
Except as provided in Section 3.4 of these Bylaws, directors shall be
elected at each annual meeting of stockholders to hold office until the next
annual meeting. Directors need not be stockholders unless so required by the
Certificate of Incorporation or these Bylaws, wherein other qualifications for
directors may be prescribed. Each director, including a director elected to
fill a vacancy, shall hold office until his or her successor is elected and
qualified or until his or her earlier resignation or removal.
3.4 RESIGNATION AND VACANCIES.
-------------------------
Any director may resign at any time upon written notice to the
attention of the secretary of the Corporation. When one or more directors so
resigns and the resignation is effective at a future date, a majority of the
directors then in office, including those who have so resigned, shall have power
to fill such vacancy or vacancies, the vote thereon to take effect when such
resignation or resignations shall become effective, and each director so chosen
shall hold office as provided in this section in the filling of other vacancies.
A vacancy created by the removal of a director by the vote of the stockholders
or by court order may be filled only by the affirmative vote of a majority of
the shares represented and voting at a duly held meeting at which a quorum is
present (which shares voting affirmatively also constitute a majority of the
quorum. Each director so elected shall hold office until the next annual
meeting of the stockholders and until a successor has been elected and
qualified.
-6-
<PAGE>
Unless otherwise provided in the Certificate of Incorporation or these
Bylaws:
(a) Vacancies and newly created directorships resulting from any
increase in the authorized number of directors elected by all of the
stockholders having the right to vote as a single class may be filled by a
majority of the directors then in office, although less than a quorum, or by a
sole remaining director.
(b) Whenever the holders of any class or classes of stock or series
thereof are entitled to elect one or more directors by the provisions of the
Certificate of Incorporation, vacancies and newly created directorships of such
class or classes or series may be filled by a majority of the directors elected
by such class or classes or series thereof then in office, or by a sole
remaining director so elected.
If at any time, by reason of death or resignation or other cause, the
Corporation should have no directors in office, then any officer or any
stockholder or an executor, administrator, trustee or guardian of a stockholder,
or other fiduciary entrusted with like responsibility for the person or estate
of a stockholder, may call a special meeting of stockholders in accordance with
the provisions of the Certificate of Incorporation or these Bylaws, or may apply
to the Court of Chancery for a decree summarily ordering an election as provided
in Section 211 of the General Corporation Law of Delaware.
If, at the time of filling any vacancy or any newly created
directorship, the directors then in office constitute less than a majority of
the whole Board of Directors (as constituted immediately prior to any such
increase), then the Court of Chancery may, upon application of any stockholder
or stockholders holding at least 10% of the total number of the shares at the
time outstanding having the right to vote for such directors, summarily order an
election to be held to fill any such vacancies or newly created directorships,
or to replace the directors chosen by the directors then in office as aforesaid,
which election shall be governed by the provisions of Section 211 of the General
Corporation Law of Delaware as far as applicable.
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE.
----------------------------------------
The Board of Directors of the Corporation may hold meetings, both
regular and special, either within or outside the State of Delaware. Unless
otherwise restricted by the Certificate of Incorporation or these Bylaws,
members of the Board of Directors, or any committee designated by the Board of
Directors, may participate in a meeting of the Board of Directors, or any
committee, by means of conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each other,
and such participation in a meeting shall constitute presence in person at the
meeting.
3.6 REGULAR MEETINGS.
----------------
Regular meetings of the Board of Directors may be held without notice
at such time and at such place as shall from time to time be determined by the
Board of Directors.
-7-
<PAGE>
3.7 SPECIAL MEETINGS; NOTICE.
------------------------
Special meetings of the board of directors for any purpose or purposes
may be called at any time by the chairman of the board, the president, any vice
president, the secretary or any two (2) directors.
Notice of the time and place of special meetings shall be delivered
personally or by telephone to each director or sent by first-class mail or
telegram, charges prepaid, addressed to each director at that director's address
as it is shown on the records of the Corporation. If the notice is mailed, it
shall be deposited in the United States mail at least four (4) days before the
time of the holding of the meeting. If the notice is delivered personally or by
telephone, telecopy, telegram, telex or other similar means of communication, it
shall be delivered at least twenty-four (24) hours before the time of the
holding of the meeting, or on such shorter notice as the person or persons
calling such meeting may deem necessary and appropriate in the circumstances.
Any oral notice given personally or by telephone may be communicated either to
the director or to a person at the office of the director who the person giving
the notice has reason to believe will promptly communicate it to the director.
The notice need not specify the purpose of the place of the meeting, if the
meeting is to be held at the principal executive office of the Corporation.
3.8 QUORUM.
------
At all meetings of the Board of Directors, a majority of the
authorized number of directors shall constitute a quorum for the transaction of
business and the act of a majority of the directors present at any meeting at
which there is a quorum shall be the act of the Board of Directors, except as
may be otherwise specifically provided by statute or by the Certificate of
Incorporation. If a quorum is not present at any meeting of the Board of
Directors, then the directors present thereat may adjourn the meeting from time
to time, without notice other than announcement at the meeting, until a quorum
is present.
A meeting at which a quorum is initially present may continue to
transact business notwithstanding the withdrawal of directors, if any action
taken is approved by at least a majority of the required quorum for that
meeting.
3.9 WAIVER OF NOTICE.
----------------
Whenever notice is required to be given under any provision of the
General Corporation Law of Delaware or of the Certificate of Incorporation or
these Bylaws, a written waiver thereof, signed by the person entitled to notice,
whether before or after the time stated therein, shall be deemed equivalent to
notice. Attendance of a person at a meeting shall constitute a waiver of notice
of such meeting, except when the person attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the directors, or members of a committee of directors, need be specified in
any written waiver of notice unless so required by the Certificate of
Incorporation or these Bylaws.
-8-
<PAGE>
3.10 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING.
-------------------------------------------------
Unless otherwise restricted by the Certificate of Incorporation or
these Bylaws, any action required or permitted to be taken at any meeting of the
Board of Directors, or of any committee thereof, may be taken without a meeting
if all members of the Board of Directors or committee, as the case may be,
consent thereto in writing and the writing or writings are filed with the
minutes of proceedings of the Board of Directors or committee. Written consents
representing actions taken by the board or committee may be executed by telex,
telecopy or other facsimile transmission, and such facsimile shall be valid and
binding to the same extent as if it were an original.
3.11 FEES AND COMPENSATION OF DIRECTORS.
----------------------------------
Unless otherwise restricted by the Certificate of Incorporation or
these Bylaws, the Board of Directors shall have the authority to fix the
compensation of directors. No such compensation shall preclude any director
from serving the Corporation in any other capacity and receiving compensation
therefor.
3.12 APPROVAL OF LOANS TO OFFICERS.
-----------------------------
The Corporation may lend money to, or guarantee any obligation of, or
otherwise assist any officer or other employee of the Corporation or of its
subsidiary, including any officer or employee who is a director of the
Corporation or its subsidiary, whenever, in the judgment of the directors, such
loan, guaranty or assistance may reasonably be expected to benefit the
Corporation. The loan, guaranty or other assistance may be with or without
interest and may be unsecured, or secured in such manner as the Board of
Directors shall approve, including, without limitation, a pledge of shares of
stock of the Corporation. Nothing in this Section 3.2 contained shall be deemed
to deny, limit or restrict the powers of guaranty or warranty of the Corporation
at common law or under any statute.
3.13 REMOVAL OF DIRECTORS.
--------------------
Unless otherwise restricted by statute, by the Certificate of
Incorporation or by these Bylaws, any director or the entire Board of Directors
may be removed, with or without cause, by the holders of a majority of the
shares then entitled to vote at an election of directors; provided, however,
that if the stockholders of the Corporation are entitled to cumulative voting,
if less than the entire Board of Directors is to be removed, no director may be
removed without cause if the votes cast against his removal would be sufficient
to elect him if then cumulatively voted at an election of the entire Board of
Directors.
No reduction of the authorized number of directors shall have the
effect of removing any director prior to the expiration of such director's term
of office.
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<PAGE>
3.14 CHAIRMAN OF THE BOARD OF DIRECTORS.
----------------------------------
The Corporation may also have, at the discretion of the Board of
Directors, a Chairman of the Board of Directors who shall not be considered an
officer of the Corporation.
ARTICLE IV
COMMITTEES
----------
4.1 COMMITTEES OF DIRECTORS.
-----------------------
The Board of Directors may, by resolution passed by a majority of the
whole Board of Directors, designate one or more committees, with each committee
to consist of one or more of the directors of the Corporation. The Board of
Directors may designate one or more directors as alternate members of any
committee, who may replace any absent or disqualified member at any meeting of
the committee. In the absence or disqualification of a member of a committee,
the member or members thereof present at any meeting and not disqualified from
voting, whether or not such member or members constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member. Any such
committee, to the extent provided in the resolution of the Board of Directors or
in the Bylaws of the Corporation, shall have and may exercise all the powers and
authority of the Board of Directors in the management of the business and
affairs of the Corporation, and may authorize the seal of the Corporation to be
affixed to all papers that may require it; but no such committee shall have the
power or authority to (a) amend the Certificate of Incorporation (except that a
committee may, to the extent authorized in the resolution or resolutions
providing for the issuance of shares of stock adopted by the Board of Directors
as provided in Section 151(a) of the General Corporation Law of Delaware, fix
the designations and any of the preferences or rights of such shares relating to
dividends, redemption, dissolution, any distribution of assets of the
Corporation or the conversion into, or the exchange of such shares for, shares
of any other class or classes or any other series of the same or any other class
or classes of stock of the Corporation or fix the number of shares of any series
of stock or authorize the increase or decrease of the shares of any series),(b)
adopt an agreement of merger or consolidation under Sections 251 or 252 of the
General Corporation Law of Delaware, (c) recommend to the stockholders the sale,
lease or exchange of all or substantially all of the Corporation's property and
assets, (d) recommend to the stockholders a dissolution of the Corporation or a
revocation of a dissolution, or (e) amend the Bylaws of the Corporation; and,
unless the board resolution establishing the committee, the Bylaws or the
Certificate of Incorporation expressly so provide, no such committee shall have
the power or authority to declare a dividend, to authorize the issuance of
stock, or to adopt a certificate of ownership and merger pursuant to Section 253
of the General Corporation Law of Delaware.
4.2 COMMITTEE MINUTES.
-----------------
Each committee shall keep regular minutes of its meetings and report
the same to the Board of Directors when required.
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<PAGE>
4.3 MEETINGS AND ACTION OF COMMITTEES.
---------------------------------
Meetings and actions of committees shall be governed by, and held and
taken in accordance with, the provisions of Section 3.5 (place of meetings and
meetings by telephone), Section 3.6 (regular meetings), Section 3.7 (special
meetings and notice), Section 3.8 (quorum), Section 3.9 (waiver of notice), and
Section 3.10 (action without a meeting) of these Bylaws, with such changes in
the context of such provisions as are necessary to substitute the committee and
its members for the Board of Directors and its members; provided, however, that
the time of regular meetings of committees may be determined either by
resolution of the Board of Directors or by resolution of the committee, that
special meetings of committees may also be called by resolution of the Board of
Directors and that notice of special meetings of committees shall also be given
to all alternate members, who shall have the right to attend all meetings of the
committee. The Board of Directors may adopt rules for the government of any
committee not inconsistent with the provisions of these Bylaws.
ARTICLE V
OFFICERS
--------
5.1 OFFICERS.
--------
The officers of the Corporation shall be a chief executive officer, a
president, a secretary, and a chief financial officer. The Corporation may also
have, at the discretion of the Board of Directors, one or more vice presidents,
one or more assistant secretaries, one or more assistant treasurers, and any
such other officers as may be appointed in accordance with the provisions of
Section 5.3 of these Bylaws. Any number of offices may be held by the same
person.
5.2 APPOINTMENT OF OFFICERS.
-----------------------
The officers of the Corporation, except such officers as may be
appointed in accordance with the provisions of Sections 5.3 or 5.5 of these
Bylaws, shall be appointed by the Board of Directors, subject to the rights, if
any, of an officer under any contract of employment.
5.3 SUBORDINATE OFFICERS.
--------------------
The Board of Directors may appoint, or empower the chief executive
officer or the president to appoint, such other officers and agents as the
business of the Corporation may require, each of whom shall hold office for such
period, have such authority, and perform such duties as are provided in these
Bylaws or as the Board of Directors may from time to time determine.
5.4 REMOVAL AND RESIGNATION OF OFFICERS.
-----------------------------------
Subject to the rights, if any, of an officer under any contract of
employment, any officer may be removed, either with or without cause, by an
affirmative vote of the majority of
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<PAGE>
the Board of Directors at any regular or special meeting of the Board of
Directors or, except in the case of an officer chosen by the Board of Directors,
by any officer upon whom such power of removal may be conferred by the Board of
Directors.
Any officer may resign at any time by giving written notice to the
attention of the secretary of the Corporation. Any resignation shall take effect
at the date of the receipt of that notice or at any later time specified in that
notice; and, unless otherwise specified in that notice, the acceptance of the
resignation shall not be necessary to make it effective. Any resignation is
without prejudice to the rights, if any, of the Corporation under any contract
to which the officer is a party.
5.5 VACANCIES IN OFFICES.
--------------------
Any vacancy occurring in any office of the Corporation shall be filled
by the Board of Directors.
5.6 CHIEF EXECUTIVE OFFICER.
-----------------------
Subject to such supervisory powers, if any, as may be given by the
Board of Directors to the chairman of the board, if any, the chief executive
officer of the Corporation shall, subject to the control of the Board of
Directors, have general supervision, direction, and control of the business and
the officers of the Corporation. He or she shall preside at all meetings of the
stockholders and, in the absence or nonexistence of a chairman of the board, at
all meetings of the Board of Directors and shall have the general powers and
duties of management usually vested in the office of chief executive officer of
a corporation and shall have such other powers and duties as may be prescribed
by the Board of Directors or these Bylaws.
5.7 PRESIDENT.
---------
Subject to such supervisory powers, if any, as may be given by the
Board of Directors to the chairman of the board (if any) or the chief executive
officer, the president shall have general supervision, direction, and control of
the business and other officers of the Corporation. He or she shall have the
general powers and duties of management usually vested in the office of
president of a corporation and such other powers and duties as may be prescribed
by the Board of Directors or these Bylaws.
5.8 VICE PRESIDENTS.
---------------
In the absence or disability of the chief executive officer and
president, the vice presidents, if any, in order of their rank as fixed by the
Board of Directors or, if not ranked, a vice president designated by the Board
of Directors, shall perform all the duties of the president and when so acting
shall have all the powers of, and be subject to all the restrictions upon, the
president. The vice presidents shall have such other powers and perform such
other duties as from time to time may be prescribed for them respectively by the
Board of Directors, these Bylaws, the president or the chairman of the board.
-12-
<PAGE>
5.9 SECRETARY.
---------
The secretary shall keep or cause to be kept, at the principal
executive office of the Corporation or such other place as the Board of
Directors may direct, a book of minutes of all meetings and actions of
directors, committees of directors, and stockholders. The minutes shall show the
time and place of each meeting, the names of those present at directors'
meetings or committee meetings, the number of shares present or represented at
stockholders' meetings, and the proceedings thereof.
The secretary shall keep, or cause to be kept, at the principal
executive office of the Corporation or at the office of the Corporation's
transfer agent or registrar, as determined by resolution of the Board Of
Directors, a share register, or a duplicate share register, showing the names of
all stockholders and their addresses, the number and classes of shares held by
each, the number and date of certificates evidencing such shares, and the number
and date of cancellation of every certificate surrendered for cancellation.
The secretary shall give, or cause to be given, notice of all
meetings of the stockholders and of the Board of Directors required to be given
by law or by these Bylaws. He or she shall keep the seal of the Corporation, if
one be adopted, in safe custody and shall have such other powers and perform
such other duties as may be prescribed by the Board of Directors or by these
Bylaws.
5.10 CHIEF FINANCIAL OFFICER.
-----------------------
The chief financial officer shall keep and maintain, or cause to be
kept and maintained, adequate and correct books and records of accounts of the
properties and business transactions of the Corporation, including accounts of
its assets, liabilities, receipts, disbursements, gains, losses, capital
retained earnings, and shares. The books of account shall at all reasonable
times be open to inspection by any director.
The chief financial officer shall deposit all moneys and other
valuables in the name and to the credit of the Corporation with such
depositories as may be designated by the Board of Directors. He or she shall
disburse the funds of the Corporation as may be ordered by the Board of
Directors, shall render to the president, the chief executive officer, or the
directors, upon request, an account of all his or her transactions as chief
financial officer and of the financial condition of the Corporation, and shall
have other powers and perform such other duties as may be prescribed by the
Board of Directors or the Bylaws.
5.11 REPRESENTATION OF SHARES OF OTHER CORPORATIONS.
----------------------------------------------
The chairman of the board, the chief executive officer, the
president, any vice president, the chief financial officer, the secretary or
assistant secretary of this Corporation, or any other person authorized by the
Board of Directors or the chief executive officer or the president or a vice
president, is authorized to vote, represent, and exercise on behalf of this
Corporation all rights incident to any and all shares of any other corporation
or corporations standing in the name of this Corporation. The authority granted
herein may be exercised either
-13-
<PAGE>
by such person directly or by any other person authorized to do so by proxy or
power of attorney duly executed by the person having such authority.
5.12 AUTHORITY AND DUTIES OF OFFICERS.
--------------------------------
In addition to the foregoing authority and duties, all officers of
the Corporation shall respectively have such authority and perform such duties
in the management of the business of the Corporation as may be designated from
time to time by the Board of Directors or the stockholders.
ARTICLE VI
INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES, AND OTHER AGENTS
-------------------------------------------------------------------
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS.
-----------------------------------------
The Corporation shall, to the maximum extent and in the manner
permitted by the General Corporation Law of Delaware, indemnify each of its
directors and officers against expenses (including attorneys' fees), judgments,
fines, settlements and other amounts actually and reasonably incurred in
connection with any proceeding, arising by reason of the fact that such person
is or was an agent of the Corporation. For purposes of this Section 6.1, a
"director" or "officer" of the Corporation includes any person (a) who is or was
a director or officer of the Corporation, (b) who is or was serving at the
request of the Corporation as a director or officer of another corporation,
partnership, joint venture, trust or other enterprise, or (c) who was a director
or officer of a Corporation which was a predecessor corporation of the
Corporation or of another enterprise at the request of such predecessor
corporation.
6.2 INDEMNIFICATION OF OTHERS.
-------------------------
The Corporation shall have the power, to the maximum extent and in
the manner permitted by the General Corporation Law of Delaware, to indemnify
each of its employees and agents (other than directors and officers) against
expenses (including attorneys' fees), judgments, fines, settlements and other
amounts actually and reasonably incurred in connection with any proceeding,
arising by reason of the fact that such person is or was an agent of the
Corporation. For purposes of this Section 6.2, an "employee" or "agent" of the
Corporation (other than a director or officer) includes any person (a) who is or
was an employee or agent of the Corporation, (b) who is or was serving at the
request of the Corporation as an employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, or (c) who was an
employee or agent of a corporation which was a predecessor corporation of the
Corporation or of another enterprise at the request of such predecessor
corporation.
6.3 PAYMENT OF EXPENSES IN ADVANCE.
------------------------------
Expenses incurred in defending any action or proceeding for which
indemnification is required pursuant to Section 6.1 or for which indemnification
is permitted pursuant to Section 6.2 following authorization thereof by the
Board of Directors shall be paid by
-14-
<PAGE>
the Corporation in advance of the final disposition of such action or proceeding
upon receipt of an undertaking by or on behalf of the indemnified party to repay
such amount if it shall ultimately be determined that the indemnified party is
not entitled to be indemnified as authorized in this Article VI.
6.4 INDEMNITY NOT EXCLUSIVE.
-----------------------
The indemnification provided by this Article VI shall not be deemed
exclusive of any other rights to which those seeking indemnification may been
titled under any Bylaw, agreement, vote of shareholders or disinterested
directors or otherwise, both as to action in an official capacity and as to
action in another capacity while holding such office, to the extent that such
additional rights to indemnification are authorized in the Certificate of
Incorporation.
6.5 INSURANCE.
---------
The Corporation may purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee or agent of the Corporation,
or is or was serving at the request of the Corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against any liability asserted against him or her and incurred
by him or her in any such capacity, or arising out of his or her status as such,
whether or not the Corporation would have the power to indemnify him or her
against such liability under the provisions of the General Corporation Law of
Delaware.
6.6 CONFLICTS.
---------
No indemnification or advance shall be made under this Article VI,
except where such indemnification or advance is mandated by law or the order,
judgment or decree of any court of competent jurisdiction, in any circumstance
where it appears:
(a) That it would be inconsistent with a provision of the Certificate
of Incorporation, these Bylaws, a resolution of the stockholders or an agreement
in effect at the time of the accrual of the alleged cause of the action asserted
in the proceeding in which the expenses were incurred or other amounts were
paid, which prohibits or otherwise limits indemnification; or
(b) That it would be inconsistent with any condition expressly
imposed by a court in approving a settlement.
ARTICLE VII
RECORDS AND REPORTS
-------------------
7.1 MAINTENANCE AND INSPECTION OF RECORDS.
-------------------------------------
The Corporation shall, either at its principal executive offices or
at such place or places as designated by the Board of Directors, keep a record
of its stockholders listing their
-15-
<PAGE>
names and addresses and the number and class of shares held by each stockholder,
a copy of these Bylaws as amended to date, accounting books, and other records.
Any stockholder of record, in person or by attorney or other agent,
shall, upon written demand under oath stating the purpose thereof, have the
right during the usual hours for business to inspect for any proper purpose the
Corporation's stock ledger, a list of its stockholders, and its other books and
records and to make copies or extracts therefrom. A proper purpose shall mean a
purpose reasonably related to such person's interest as a stockholder. In every
instance where an attorney or other agent is the person who seeks the right to
inspection, the demand under oath shall be accompanied by a power of attorney or
such other writing that authorizes the attorney or other agent to so act on
behalf of the stockholder. The demand under oath shall be directed to the
Corporation at its registered office in Delaware or at its principal place of
business.
7.2 INSPECTION BY DIRECTORS.
-----------------------
Any director shall have the right to examine the Corporation's
stockledger, a list of its stockholders, and its other books and records for a
purpose reasonably related to his or her position as a director. The Court of
Chancery is hereby vested with the exclusive jurisdiction to determine whether a
director is entitled to the inspection sought. The Court may summarily order the
Corporation to permit the director to inspect any and all books and records, the
stock ledger, and the stock list and to make copies or extracts therefrom. The
Court may, in its discretion, prescribe any limitations or conditions with
reference to the inspection, or award such other and further relief as the Court
may deem just and proper.
7.3 ANNUAL STATEMENT TO STOCKHOLDERS.
--------------------------------
The Board of Directors shall present at each annual meeting, and at
any special meeting of the stockholders when called for by vote of the
stockholders, a full and clear statement of the business and condition of the
Corporation.
ARTICLE VIII
GENERAL MATTERS
---------------
8.1 CHECKS.
------
From time to time, the Board of Directors shall determine by
resolution which person or persons may sign or endorse all checks, drafts, other
orders for payment of money, notes or other evidences of indebtedness that are
issued in the name of or payable to the Corporation, and only the persons so
authorized shall sign or endorse those instruments.
8.2 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS.
------------------------------------------------
The Board of Directors, except as otherwise provided in these Bylaws,
may authorize any officer or officers, or agent or agents, to enter into any
contract or execute any
-16-
<PAGE>
instrument in the name of and on behalf of the Corporation; such authority may
be general or confined to specific instances. Unless so authorized or ratified
by the Board of Directors or within the agency power of an officer, no officer,
agent or employee shall have any power or authority to bind the Corporation by
any contract or engagement or to pledge its credit or to render it liable for
any purpose or for any amount.
8.3 STOCK CERTIFICATES; PARTLY PAID SHARES.
--------------------------------------
The shares of the Corporation shall be represented by certificates,
provided that the Board of Directors of the Corporation may provide by
resolution or resolutions that some or all of any or all classes or series of
its stock shall be uncertificated shares. Any such resolution shall not apply to
shares represented by a certificate until such certificate is surrendered to the
Corporation. Notwithstanding the adoption of such a resolution by the Board of
Directors, every holder of stock represented by certificates and upon request
every holder of uncertificated shares shall be entitled to have a certificate
signed by, or in the name of the Corporation by the chairman or vice-chairman of
the Board of Directors, or the chief executive officer or the president or vice-
president, and by the chief financial officer or an assistant treasurer, or the
secretary or an assistant secretary of the Corporation representing the number
of shares registered in certificate form. Any or all of the signatures on the
certificate may be a facsimile. In case any officer, transfer agent or registrar
who has signed or whose facsimile signature has been placed upon a certificate
has ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the Corporation with the same effect
as if he or she were such officer, transfer agent or registrar at the date of
issue.
The Corporation may issue the whole or any part of its shares as
partly paid and subject to call for the remainder of the consideration to be
paid therefor. Upon the face or back of each stock certificate issued to
represent any such partly paid shares, upon the books and records of the
Corporation in the case of uncertificated partly paid shares, the total amount
of the consideration to be paid therefor and the amount paid thereon shall be
stated. Upon the declaration of any dividend on fully paid shares, the
Corporation shall declare a dividend upon partly paid shares of the same class,
but only upon the basis of the percentage of the consideration actually paid
thereon.
8.4 SPECIAL DESIGNATION ON CERTIFICATES.
-----------------------------------
If the Corporation is authorized to issue more than one class of stock
or more than one series of any class, then the powers, the designations, the
preferences, and the relative, participating, optional or other special rights
of each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate that the Corporation shall
issue to represent such class or series of stock; provided, however, that,
except as otherwise provided in Section 202 of the General Corporation Law of
Delaware, in lieu of the foregoing requirements there may be set forth on the
face or back of the certificate that the Corporation shall issue to represent
such class or series of stock a statement that the Corporation will furnish
without charge to each stockholder who so requests the powers, the designations,
the preferences, and the relative,
-17-
<PAGE>
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and/or rights.
8.5 LOST CERTIFICATES.
-----------------
Except as provided in this Section 8.5, no new certificates for shares
shall be issued to replace a previously issued certificate unless the latter is
surrendered to the Corporation and canceled at the same time. The Corporation
may issue a new certificate of stock or uncertificated shares in the place of
any certificate previously issued by it, alleged to have been lost, stolen or
destroyed, and the Corporation may require the owner of the lost, stolen or
destroyed certificate, or the owner's legal representative, to give the
Corporation a bond sufficient to indemnify it against any claim that may be made
against it on account of the alleged loss, theft or destruction of any such
certificate or the issuance of such new certificate or uncertificated shares.
8.6 CONSTRUCTION; DEFINITIONS.
-------------------------
Unless the context requires otherwise, the general provisions, rules
of construction, and definitions in the Delaware General Corporation Law shall
govern the construction of these Bylaws. Without limiting the generality of
this provision, the singular number includes the plural, the plural number
includes the singular, and the term "person" includes both a corporation and a
natural person.
8.7 DIVIDENDS.
---------
The directors of the Corporation, subject to any restrictions
contained in (a) the General Corporation Law of Delaware or (b) the Certificate
of Incorporation, may declare and pay dividends upon the shares of its capital
stock. Dividends may be paid in cash, in property, or in shares of the
Corporation's capital stock.
The directors of the Corporation may set apart out of any of the funds
of the Corporation available for dividends a reserve or reserves for any proper
purpose and may abolish any such reserve. Such purposes shall include but not
be limited to equalizing dividends, repairing or maintaining any property of the
Corporation, and meeting contingencies.
8.8 FISCAL YEAR.
-----------
The fiscal year of the Corporation shall be fixed by resolution of the
Board of Directors and may be changed by the Board of Directors.
8.9 SEAL.
----
The Corporation may adopt a corporate seal, which may be altered at
pleasure, and may use the same by causing it or a facsimile thereof, to be
impressed or affixed or in any other manner reproduced.
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<PAGE>
8.10 TRANSFER OF STOCK.
-----------------
Upon surrender to the Corporation or the transfer agent of the
Corporation of a certificate for shares duly endorsed or accompanied by proper
evidence of succession, assignation or authority to transfer, it shall be the
duty of the Corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate, and record the transaction in its books.
8.11 STOCK TRANSFER AGREEMENTS.
-------------------------
The Corporation shall have power to enter into and perform any
agreement with any number of stockholders of any one or more classes of stock of
the Corporation to restrict the transfer of shares of stock of the Corporation
of any one or more classes owned by such stockholders in any manner not
prohibited by the General Corporation Law of Delaware.
8.12 REGISTERED STOCKHOLDERS.
-----------------------
The Corporation shall be entitled to recognize the exclusive right of
a person registered on its books as the owner of shares to receive dividends and
to vote as such owner, shall be entitled to hold liable for calls and
assessments the person registered on its books as the owner of shares, and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of another person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware.
ARTICLE IX
AMENDMENTS
----------
The Bylaws of the Corporation may be adopted, amended or repealed by
the stockholders entitled to vote; provided, however, that the Corporation may,
in its Certificate of Incorporation, confer the power to adopt, amend or repeal
Bylaws upon the directors. The fact that such power has been so conferred upon
the directors shall not divest the stockholders of the power, nor limit their
power to adopt, amend or repeal Bylaws.
-19-
<PAGE>
EXHIBIT 10.1
FORM OF
INDEMNIFICATION AGREEMENT
-------------------------
This Indemnification Agreement (the "Agreement") is made as of
---------
_______________, by and between Preview Systems, Inc., a Delaware corporation
(the "Company"), and IndemniteeName~ (the "Indemnitee").
------- ----------
RECITALS
--------
The Company and Indemnitee recognize the increasing difficulty in obtaining
liability insurance for directors, officers and key employees, the significant
increases in the cost of such insurance and the general reductions in the
coverage of such insurance. The Company and Indemnitee further recognize the
substantial increase in corporate litigation in general, subjecting directors,
officers and key employees to expensive litigation risks at the same time as the
availability and coverage of liability insurance has been severely limited.
Indemnitee does not regard the current protection available as adequate under
the present circumstances, and Indemnitee and agents of the Company may not be
willing to continue to serve as agents of the Company without additional
protection. The Company desires to attract and retain the services of highly
qualified individuals, such as Indemnitee, and to indemnify its directors,
officers and key employees so as to provide them with the maximum protection
permitted by law.
AGREEMENT
---------
In consideration of the mutual promises made in this Agreement, and for
other good and valuable consideration, receipt of which is hereby acknowledged,
the Company and Indemnitee hereby agree as follows:
1. Indemnification.
---------------
(a) Third Party Proceedings. The Company shall indemnify Indemnitee
-----------------------
if Indemnitee is or was a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the Company) by reason of the fact that Indemnitee is or was a
director, officer, employee or agent of the Company, or any subsidiary of the
Company, by reason of any action or inaction on the part of Indemnitee while an
officer or director or by reason of the fact that Indemnitee is or was serving
at the request of the Company as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement (if such settlement is approved in advance by the Company, which
approval shall not be unreasonably withheld) actually and reasonably incurred by
Indemnitee in connection with such action, suit or proceeding if Indemnitee
acted in good faith and in a manner Indemnitee reasonably believed to be in or
not opposed to the best interests of the Company, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe Indemnitee's
conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo contendere or
its equivalent, shall not, of itself, create a presumption that Indemnitee did
not act in good faith and in a manner which Indemnitee
<PAGE>
reasonably believed to be in or not opposed to the best interests of the
Company, or, with respect to any criminal action or proceeding, that Indemnitee
had reasonable cause to believe that Indemnitee's conduct was unlawful.
(b) Proceedings By or in the Right of the Company. The Company shall
---------------------------------------------
indemnify Indemnitee if Indemnitee was or is a party or is threatened to be made
a party to any threatened, pending or completed action or proceeding by or in
the right of the Company or any subsidiary of the Company to procure a judgment
in its favor by reason of the fact that Indemnitee is or was a director,
officer, employee or agent of the Company, or any subsidiary of the Company, by
reason of any action or inaction on the part of Indemnitee while an officer or
director or by reason of the fact that Indemnitee is or was serving at the
request of the Company as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees) and, to the fullest extent permitted by
law, amounts paid in settlement (if such settlement is approved in advance by
the Company, which approval shall not be unreasonably withheld), in each case to
the extent actually and reasonably incurred by Indemnitee in connection with the
defense or settlement of such action or suit if Indemnitee acted in good faith
and in a manner Indemnitee reasonably believed to be in or not opposed to the
best interests of the Company and its stockholders, except that no
indemnification shall be made in respect of any claim, issue or matter as to
which Indemnitee shall have been finally adjudicated by court order or judgment
to be liable to the Company in the performance of Indemnitee's duty to the
Company and its stockholders unless and only to the extent that the court in
which such action or proceeding is or was pending shall determine upon
application that, in view of all the circumstances of the case, Indemnitee is
fairly and reasonably entitled to indemnity for such expenses which such court
shall deem proper.
(c) Mandatory Payment of Expenses. To the extent that Indemnitee has
-----------------------------
been successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in Section 1(a) or Section 1(b) or the defense of any
claim, issue or matter therein, Indemnitee shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by Indemnitee in
connection therewith.
2. No Employment Rights. Nothing contained in this Agreement is intended
--------------------
to create in Indemnitee any right to continued employment.
3. Expenses; Indemnification Procedure.
-----------------------------------
(a) Advancement of Expenses. The Company shall advance all expenses
-----------------------
incurred by Indemnitee in connection with the investigation, defense, settlement
or appeal of any civil or criminal action, suit or proceeding referred to in
Section l(a) or Section 1(b) hereof (including amounts actually paid in
settlement of any such action, suit or proceeding). Indemnitee hereby
undertakes to repay such amounts advanced only if, and to the extent that, it
shall ultimately be determined that Indemnitee is not entitled to be indemnified
by the Company as authorized hereby.
(b) Notice/Cooperation by Indemnitee. Indemnitee shall, as a
--------------------------------
condition precedent to his or her right to be indemnified under this Agreement,
give the Company notice in
-2-
<PAGE>
writing as soon as practicable of any claim made against Indemnitee for which
indemnification will or could be sought under this Agreement. Notice to the
Company shall be directed to the Chief Executive Officer of the Company and
shall be given in accordance with the provisions of Section 12(d) below. In
addition, Indemnitee shall give the Company such information and cooperation as
it may reasonably require and as shall be within Indemnitee's power.
(c) Procedure. Any indemnification and advances provided for in
---------
Section 1 and this Section 3 shall be made no later than twenty (20) days after
receipt of the written request of Indemnitee. If a claim under this Agreement,
under any statute, or under any provision of the Company's Certificate of
Incorporation or Bylaws providing for indemnification, is not paid in full by
the Company within twenty (20) days after a written request for payment thereof
has first been received by the Company, Indemnitee may, but need not, at any
time thereafter bring an action against the Company to recover the unpaid amount
of the claim and, subject to Section 11 of this Agreement, Indemnitee shall also
be entitled to be paid for the expenses (including attorneys' fees) of bringing
such action. It shall be a defense to any such action (other than an action
brought to enforce a claim for expenses incurred in connection with any action,
suit or proceeding in advance of its final disposition) that Indemnitee has not
met the standards of conduct which make it permissible under applicable law for
the Company to indemnify Indemnitee for the amount claimed, but the burden of
proving such defense shall be on the Company and Indemnitee shall be entitled to
receive interim payments of expenses pursuant to Section 3(a) unless and until
such defense may be finally adjudicated by court order or judgment from which no
further right of appeal exists. It is the parties' intention that if the
Company contests Indemnitee's right to indemnification, the question of
Indemnitee's right to indemnification shall be for the court to decide, and
neither the failure of the Company (including its Board of Directors, any
committee or subgroup of the Board of Directors, independent legal counsel, or
its stockholders) to have made a determination that indemnification of
Indemnitee is proper in the circumstances because Indemnitee has met the
applicable standard of conduct required by applicable law, nor an actual
determination by the Company (including its Board of Directors, any committee or
subgroup of the Board of Directors, independent legal counsel, or its
stockholders) that Indemnitee has not met such applicable standard of conduct,
shall create a presumption that Indemnitee has or has not met the applicable
standard of conduct.
(d) Notice to Insurers. If, at the time of the receipt of a notice of
------------------
a claim pursuant to Section 3(b) hereof, the Company has director and officer
liability insurance in effect, the Company shall give prompt notice of the
commencement of such proceeding to the insurers in accordance with the
procedures set forth in the respective policies. The Company shall thereafter
take all necessary or desirable action to cause such insurers to pay, on behalf
of the Indemnitee, all amounts payable as a result of such proceeding in
accordance with the terms of such policies.
(e) Selection of Counsel. In the event the Company shall be obligated
--------------------
under Section 3(a) hereof to pay the expenses of any proceeding against
Indemnitee, the Company, if appropriate, shall be entitled to assume the defense
of such proceeding, with counsel approved by Indemnitee, upon the delivery to
Indemnitee of written notice of its election so to do. After delivery of such
notice, approval of such counsel by Indemnitee and the retention of such counsel
-3-
<PAGE>
by the Company, the Company will not be liable to Indemnitee under this
Agreement for any fees of counsel subsequently incurred by Indemnitee with
respect to the same proceeding, provided that (i) Indemnitee shall have the
right to employ counsel in any such proceeding at Indemnitee's expense; and (ii)
if (A) the employment of counsel by Indemnitee has been previously authorized by
the Company, (B) Indemnitee shall have reasonably concluded that there may be a
conflict of interest between the Company and Indemnitee in the conduct of any
such defense or (C) the Company shall not, in fact, have employed counsel to
assume the defense of such proceeding, then the fees and expenses of
Indemnitee's counsel shall be at the expense of the Company.
4. Additional Indemnification Rights; Nonexclusivity.
-------------------------------------------------
(a) Scope. Notwithstanding any other provision of this Agreement, the
-----
Company hereby agrees to indemnify the Indemnitee to the fullest extent
permitted by law, notwithstanding that such indemnification is not specifically
authorized by the other provisions of this Agreement, the Company's Certificate
of Incorporation, the Company's Bylaws or by statute. In the event of any
change, after the date of this Agreement, in any applicable law, statute, or
rule which expands the right of a Delaware corporation to indemnify a member of
its board of directors or an officer, such changes shall be deemed to be within
the purview of Indemnitee's rights and the Company's obligations under this
Agreement. In the event of any change in any applicable law, statute or rule
which narrows the right of a Delaware corporation to indemnify a member of its
board of directors or an officer, such changes, to the extent not otherwise
required by such law, statute or rule to be applied to this Agreement shall have
no effect on this Agreement or the parties' rights and obligations hereunder.
(b) Nonexclusivity. The indemnification provided by this Agreement
--------------
shall not be deemed exclusive of any rights to which Indemnitee may be entitled
under the Company's Certificate of Incorporation, its Bylaws, any agreement, any
vote of stockholders or disinterested members of the Company's Board of
Directors, the General Corporation Law of the State of Delaware, or otherwise,
both as to action in Indemnitee's official capacity and as to action in another
capacity while holding such office. The indemnification provided under this
Agreement shall continue as to Indemnitee for any action taken or not taken
while serving in an indemnified capacity even though he or she may have ceased
to serve in any such capacity at the time of any action, suit or other covered
proceeding.
5. Partial Indemnification. If Indemnitee is entitled under any
-----------------------
provision of this Agreement to indemnification by the Company for some or a
portion of the expenses, judgments, fines or penalties actually or reasonably
incurred in the investigation, defense, appeal or settlement of any civil or
criminal action, suit or proceeding, but not, however, for the total amount
thereof, the Company shall nevertheless indemnify Indemnitee for the portion of
such expenses, judgments, fines or penalties to which Indemnitee is entitled.
6. Mutual Acknowledgment. Both the Company and Indemnitee acknowledge
---------------------
that in certain instances, Federal law or public policy may override applicable
state law and prohibit the Company from indemnifying its directors and officers
under this Agreement or otherwise.
-4-
<PAGE>
For example, the Company and Indemnitee acknowledge that the Securities and
Exchange Commission (the "SEC") has taken the position that indemnification is
---
not permissible for liabilities arising under certain federal securities laws,
and federal legislation prohibits indemnification for certain ERISA violations.
Indemnitee understands and acknowledges that the Company has undertaken or may
be required in the future to undertake with the SEC to submit the question of
indemnification to a court in certain circumstances for a determination of the
Company's right under public policy to indemnify Indemnitee.
7. Officer and Director Liability Insurance. The Company shall, from
----------------------------------------
time to time, make the good faith determination whether or not it is practicable
for the Company to obtain and maintain a policy or policies of insurance with
reputable insurance companies providing the officers and directors of the
Company with coverage for losses from wrongful acts, or to ensure the Company's
performance of its indemnification obligations under this Agreement. Among other
considerations, the Company will weigh the costs of obtaining such insurance
coverage against the protection afforded by such coverage. In all policies of
director and officer liability insurance, Indemnitee shall be named as an
insured in such a manner as to provide Indemnitee the same rights and benefits
as are accorded to the most favorably insured of the Company's directors, if
Indemnitee is a director; or of the Company's officers, if Indemnitee is not a
director of the Company but is an officer; or of the Company's key employees, if
Indemnitee is not an officer or director but is a key employee. Notwithstanding
the foregoing, the Company shall have no obligation to obtain or maintain such
insurance if the Company determines in good faith that such insurance is not
reasonably available, if the premium costs for such insurance are
disproportionate to the amount of coverage provided, if the coverage provided by
such insurance is limited by exclusions so as to provide an insufficient
benefit, or if Indemnitee is covered by similar insurance maintained by a parent
or subsidiary of the Company.
8. Severability. Nothing in this Agreement is intended to require or
------------
shall be construed as requiring the Company to do or fail to do any act in
violation of applicable law. The Company's inability, pursuant to court order,
to perform its obligations under this Agreement shall not constitute a breach of
this Agreement. The provisions of this Agreement shall be severable as provided
in this Section 8. If this Agreement or any portion hereof shall be invalidated
on any ground by any court of competent jurisdiction, then the Company shall
nevertheless indemnify Indemnitee to the full extent permitted by any applicable
portion of this Agreement that shall not have been invalidated, and the balance
of this Agreement not so invalidated shall be enforceable in accordance with its
terms.
9. Exceptions. Any other provision herein to the contrary
----------
notwithstanding, the Company shall not be obligated pursuant to the terms of
this Agreement:
(a) Claims Initiated by Indemnitee. To indemnify or advance expenses
------------------------------
to Indemnitee with respect to proceedings or claims initiated or brought
voluntarily by Indemnitee and not by way of defense, except with respect to
proceedings brought to establish or enforce a right to indemnification under
this Agreement or any other statute or law or otherwise as required under
Section 145 of the Delaware General Corporation Law, but such indemnification or
-5-
<PAGE>
advancement of expenses may be provided by the Company in specific cases if the
Board of Directors finds it to be appropriate;
(b) Lack of Good Faith. To indemnify Indemnitee for any expenses
------------------
incurred by Indemnitee with respect to any proceeding instituted by Indemnitee
to enforce or interpret this Agreement, if a court of competent jurisdiction
determines that each of the material assertions made by Indemnitee in such
proceeding was not made in good faith or was frivolous;
(c) Insured Claims. To indemnify Indemnitee for expenses or
--------------
liabilities of any type whatsoever (including, but not limited to, judgments,
fines, ERISA excise taxes or penalties, and amounts paid in settlement) to the
extent such expenses or liabilities have been paid directly to Indemnitee by an
insurance carrier under a policy of officers' and directors' liability insurance
maintained by the Company; or
(d) Claims under Section 16(b). To indemnify Indemnitee for expenses
--------------------------
or the payment of profits arising from the purchase and sale by Indemnitee of
securities in violation of Section 16(b) of the Securities Exchange Act of 1934,
as amended, or any similar successor statute.
10. Construction of Certain Phrases.
-------------------------------
(a) For purposes of this Agreement, references to the "Company" shall
-------
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, and employees or agents, so that
if Indemnitee is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such constituent
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, Indemnitee shall stand in
the same position under the provisions of this Agreement with respect to the
resulting or surviving corporation as Indemnitee would have with respect to such
constituent corporation if its separate existence had continued.
(b) For purposes of this Agreement, references to "other enterprises"
-----------------
shall include employee benefit plans; references to "fines" shall include any
-----
excise taxes assessed on Indemnitee with respect to an employee benefit plan;
and references to "serving at the request of the Company" shall include any
-------------------------------------
service as a director, officer, employee or agent of the Company which imposes
duties on, or involves services by, such director, officer, employee or agent
with respect to an employee benefit plan, its participants, or beneficiaries;
and if Indemnitee acted in good faith and in a manner Indemnitee reasonably
believed to be in the interest of the participants and beneficiaries of an
employee benefit plan, Indemnitee shall be deemed to have acted in a manner "not
---
opposed to the best interests of the Company" as referred to in this Agreement.
- --------------------------------------------
11. Attorneys' Fees. In the event that any action is instituted by
---------------
Indemnitee under this Agreement to enforce or interpret any of the terms hereof,
Indemnitee shall be entitled to be paid all court costs and expenses, including
reasonable attorneys' fees, incurred by Indemnitee
-6-
<PAGE>
with respect to such action, unless as a part of such action, the court of
competent jurisdiction determines that each of the material assertions made by
Indemnitee as a basis for such action were not made in good faith or were
frivolous. In the event of an action instituted by or in the name of the Company
under this Agreement or to enforce or interpret any of the terms of this
Agreement, Indemnitee shall be entitled to be paid all court costs and expenses,
including attorneys' fees, incurred by Indemnitee in defense of such action
(including with respect to Indemnitee's counterclaims and cross-claims made in
such action), unless as a part of such action the court determines that each of
Indemnitee's material defenses to such action were made in bad faith or were
frivolous.
12. Miscellaneous.
-------------
(a) Governing Law. This Agreement and all acts and transactions
-------------
pursuant hereto and the rights and obligations of the parties hereto shall be
governed, construed and interpreted in accordance with the laws of the State of
Delaware, without giving effect to principles of conflict of law.
(b) Entire Agreement; Enforcement of Rights. This Agreement sets
---------------------------------------
forth the entire agreement and understanding of the parties relating to the
subject matter herein and merges all prior discussions between them. No
modification of or amendment to this Agreement, nor any waiver of any rights
under this Agreement, shall be effective unless in writing signed by the parties
to this Agreement. The failure by either party to enforce any rights under this
Agreement shall not be construed as a waiver of any rights of such party.
(c) Construction. This Agreement is the result of negotiations
------------
between and has been reviewed by each of the parties hereto and their respective
counsel, if any; accordingly, this Agreement shall be deemed to be the product
of all of the parties hereto, and no ambiguity shall be construed in favor of or
against any one of the parties hereto.
(d) Notices. Any notice, demand or request required or permitted to
-------
be given under this Agreement shall be in writing and shall be deemed sufficient
when delivered personally or sent by telegram or facsimile or forty-eight (48)
hours after being deposited in the U.S. mail, as certified or registered mail,
with postage prepaid, and addressed to the party to be notified at such party's
address as set forth below or as subsequently modified by written notice.
(e) Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
(f) Successors and Assigns. This Agreement shall be binding upon the
----------------------
Company and its successors and assigns, and inure to the benefit of Indemnitee
and Indemnitee's heirs, legal representatives and assigns.
(g) Subrogation. In the event of payment under this Agreement, the
-----------
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of
-7-
<PAGE>
Indemnitee, who shall execute all documents required and shall do all acts that
may be necessary to secure such rights and to enable the Company to effectively
bring suit to enforce such rights.
[Signature Page Follows]
-8-
<PAGE>
The parties hereto have executed this Agreement as of the day and year
set forth on the first page of this Agreement.
Preview Systems, Inc.
____________________________________
Vincent Pluvinage,
Chief Executive Officer
Address: 1601 S. De Anza Blvd., Ste. 100
Cupertino, CA 95014
AGREED TO AND ACCEPTED:
((IndemniteeName))
____________________________
(Signature)
Address: ((IndemniteeAddress1))
((IndemniteeAddress2))
-9-
<PAGE>
EXHIBIT 10.2
PORTLAND SOFTWARE, INC.
AMENDED AND RESTATED
1994 STOCK INCENTIVE PLAN
1. Purposes of the Plan. The purposes of this Amended and Restated 1994
--------------------
Stock Incentive Plan are to attract and retain the best available personnel for
positions of substantial responsibility, to provide additional incentive to
Employees and Consultants of the Company and its Subsidiaries and to promote the
success of the Company's business. Options granted under the Plan may be
incentive stock options (as defined under Section 422 of the Code) or
nonstatutory stock options, as determined by the Administrator at the time of
grant of an option and subject to the applicable provisions of Section 422 of
the Code, as amended, and the regulations promulgated thereunder.
2. Definitions. As used herein, the following definitions shall apply:
-----------
(a) "Administrator" means the Board or any of its Committees appointed
-------------
pursuant to Section 4 of the Plan.
(b) "Board" means the Board of Directors of the Company.
-----
(c) "Code" means the Internal Revenue Code of 1986, as amended.
----
(d) "Committee" means the Committee appointed by the Board of
---------
Directors in accordance with Section 4(a) of the Plan.
(e) "Common Stock" means the Common Stock of the Company.
------------
(f) "Company" means Portland Software, Inc., an Oregon corporation.
-------
(g) "Consultant" means any person, including an advisor, who is
----------
engaged by the Company or any Parent or Subsidiary to render services and is
compensated for such services, and any director of the Company whether
compensated for such services or not.
(h) "Continuous Status as an Employee or Consultant" means the absence
----------------------------------------------
of any interruption or termination of service as an Employee or Consultant.
Continuous Status as an Employee or Consultant shall not be considered
interrupted in the case of: (i) sick leave; (ii) military leave; (iii) any
other leave of absence approved by the Administrator, provided that such leave
is for a period of not more than ninety (90) days, unless reemployment upon the
expiration of such leave is guaranteed by contract or statute, or unless
provided otherwise pursuant to Company policy adopted from time to time; or (iv)
in the case of transfers between locations of the Company or between the
Company, its Subsidiaries or their respective successors. For purposes of this
Plan, a change in status from an Employee to a Consultant or from a Consultant
to an Employee will not constitute an interruption of Continuous Status as an
Employee or Consultant.
<PAGE>
(i) "Employee" means any person, including officers and directors,
--------
employed by the Company or any Parent or Subsidiary of the Company, with the
status of employment determined based upon such minimum number of hours or
periods worked as shall be determined by the Administrator in its discretion,
subject to any requirements of the Code. The payment of a director's fee to a
Director shall not be sufficient to constitute "employment" of such Director by
the Company.
(j) "Exchange Act" means the Securities Exchange Act of 1934, as
------------
amended.
(k) "Fair Market Value" means, as of any date, the fair market value
-----------------
of Common Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system including without limitation the National
Market of the National Association of Securities Dealers, Inc. Automated
Quotation ("NASDAQ") System, its Fair Market Value shall be the closing sales
price for such stock (or the closing bid, if no sales were reported), as quoted
on such system or exchange, or the exchange with the greatest volume of trading
in Common Stock for the last market trading day prior to the time of
determination, as reported in The Wall Street Journal or such other source as
the Administrator deems reliable;
(ii) If the Common Stock is quoted on the NASDAQ System (but not
on the National Market thereof) or regularly quoted by a recognized securities
dealer but selling prices are not reported, its Fair Market Value shall be the
mean between the high bid and low asked prices for the Common Stock for the last
market trading day prior to the time of determination, as reported in The Wall
Street Journal or such other source as the Administrator deems reliable; or
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Administrator.
(1) "Incentive Stock Option" means an Option intended to qualify as
----------------------
an incentive stock option within the meaning of Section 422 of the Code, as
designated in the applicable written option agreement.
(m) "Nonstatutory Stock Option" means an Option not intended to
-------------------------
qualify as an Incentive Stock Option, as designated in the applicable written
option agreement.
(n) "Option" means a stock option granted pursuant to the Plan.
------
(o) "Optioned Stock" means the Common Stock subject to an Option.
--------------
(p) "Optionee" means an Employee or Consultant who receives an
--------
Option.
(q) "Parent" means a "parent corporation," whether now or hereafter
------ ------------------
existing, as defined in Section 424(e) of the Code, or any successor provision.
(r) "Plan" means this Amended and Restated 1994 Stock Incentive Plan.
----
-2-
<PAGE>
(s) "Reporting Person" means an officer, director, or greater than ten
----------------
percent shareholder of the Company within the meaning of Rule 16a-2 under the
Exchange Act, who is required to file reports pursuant to Rule 16a-3 under the
Exchange Act.
(t) "Rule 16b-3" means Rule 16b-3 promulgated under the Exchange Act,
----------
as the same may be amended from time to time, or any successor provision.
(u) "Share" means a share of the Common Stock, as adjusted in
-----
accordance with Section 11 of the Plan.
(v) "Stock Exchange" means any stock exchange or consolidated stock
--------------
price reporting system on which prices for the Common Stock are quoted at any
given time.
(w) "Subsidiary" means a "subsidiary corporation," whether now or
---------- ----------------------
hereafter existing, as defined in Section 424(f) of the Code, or any successor
provision.
3. Stock Subject to the Plan. Subject to the provisions of Section 11 of
-------------------------
the Plan, the maximum aggregate number of shares that may be optioned and sold
under the Plan is 5,000,000 shares of Common Stock. The shares may be
authorized, but unissued, or reacquired Common Stock. If an Option should
expire or become unexercisable for any reason without having been exercised in
full, the unpurchased Shares that were subject thereto shall, unless the Plan
shall have been terminated, become available for future grant under the Plan.
In addition, any shares of Common Stock which are retained by the Company upon
exercise of an Option in order to satisfy the exercise or purchase price for
such Option or any withholding taxes due with respect to such exercise shall be
treated as not issued and shall continue to be available under the Plan. Shares
repurchased by the Company pursuant to any repurchase right which the Company
may have shall not be available for future grant under the Plan.
4. Administration of the Plan.
--------------------------
(a) Initial Plan Procedure. Prior to the date, if any, upon which the
----------------------
Company becomes subject to the Exchange Act, the Plan shall be administered by
the Board or a committee appointed by the Board.
(b) Plan Procedure After the Date, if any, Upon Which the Company
-------------------------------------------------------------
Becomes Subject to the Exchange Act.
- -----------------------------------
(i) Multiple Administrative Bodies. If permitted by Rule 16b-3,
------------------------------
grants under the Plan may be made by different bodies with respect to directors,
non-director officers and Employees or Consultants who are not Reporting
Persons.
(ii) Administration With Respect to Reporting Persons. With
------------------------------------------------
respect to grants of Options to Employees who are Reporting Persons, such grants
shall be made by (A) the Board if the Board may make grants to Reporting Persons
under the Plan in compliance with Rule 16b-3, or (B) a committee designated by
the Board to make grants to Reporting Persons under the Plan, which committee
shall be constituted in such a manner as to
-3-
<PAGE>
permit grants under the Plan to comply with Rule 16b-3. Once appointed, such
committee shall continue to serve in its designated capacity until otherwise
directed by the Board. From time to time the Board may increase the size of the
committee and appoint additional members thereof, remove members (with or
without cause) and appoint new members in substitution therefor, fill vacancies,
however caused, and remove all members of the committee and thereafter directly
make grants to Reporting Persons under the Plan, all to the extent permitted by
Rule 16b-3.
(iii) Administration With Respect to Consultants and Other
----------------------------------------------------
Employees. With respect to grants of Options to Employees or Consultants who are
not Reporting Persons, the Plan shall be administered by (A) the Board or (B) a
committee designated by the Board, which committee shall be constituted in such
a manner as to satisfy the legal requirements relating to the administration of
incentive stock option plans, if any, of Oregon corporate and securities laws,
of the Code and of any applicable Stock Exchange (the "Applicable Laws"). Once
---------------
appointed, such Committee shall continue to serve in its designated capacity
until otherwise directed by the Board. From time to time the Board may increase
the size of the Committee and appoint additional members thereof, remove members
(with or without cause) and appoint new members in substitution therefor, fill
vacancies, however caused, and remove all members of the Committee and
thereafter directly administer the Plan, all to the extent permitted by the
Applicable Laws.
(c) Powers of the Administrator. Subject to the provisions of the
---------------------------
Plan and in the case of a Committee, the specific duties delegated by the Board
to such Committee, and subject to the approval of any relevant authorities,
including the approval, if required, of any Stock Exchange, the Administrator
shall have the authority, in its discretion:
(i) to determine the Fair Market Value of the Common Stock, in
accordance with Section 2(k) of the Plan;
(ii) to select the Consultants and Employees to whom Options may
from time to time be granted hereunder;
(iii) to determine whether and to what extent Options or any
combination thereof are granted hereunder;
(iv) to determine the number of shares of Common Stock to be
covered by each such option granted hereunder;
(v) to approve forms of agreement for use under the Plan;
(vi) to determine the terms and conditions, not inconsistent
with the terms of the Plan, of any option granted hereunder;
(vii) to determine whether and under what circumstances an Option
may be settled in cash under Section 9(f) instead of Common Stock;
-4-
<PAGE>
(viii) to reduce the exercise price of any Option to the then
current Fair Market Value if the Fair Market Value of the Common Stock covered
by such Option shall have declined since the date the Option was granted;
(ix) to construe and interpret the terms of the Plan and
Options granted under the Plan; and
(x) in order to fulfill the purposes of the Plan and without
amending the Plan, to modify grants of Options to participants who are foreign
nationals or employed outside of the United States in order to recognize
differences in local law, tax policies or customs
(d) Effect of Administrator's Decision. All decisions, determinations
----------------------------------
and interpretations of the Administrator shall be final and binding on all
holders of Options.
5. Eligibility.
-----------
(a) Recipients of Grants. Nonstatutory Stock Options may be granted
--------------------
to Employees and Consultants. Incentive Stock Options may be granted only to
Employees. An Employee or Consultant who has been granted an Option may, if he
or she is otherwise eligible, be granted additional Options.
(b) Type of Option. Each Option shall be designated in the written
--------------
option agreement as either an Incentive Stock Option or a Nonstatutory Stock
Option. However, notwithstanding such designations, to the extent that the
aggregate Fair Market Value of the Shares with respect to which Options
designated as Incentive Stock Options are exercisable for the first time by any
Optionee during any calendar year (under all plans of the Company or any Parent
or Subsidiary) exceeds $100,000, such excess Options shall be treated as
Nonstatutory Stock Options. For purposes of this Section 5(b), Incentive Stock
Options shall be taken into account in the order in which they were granted, and
the Fair Market Value of the Shares subject to an Incentive Stock Option shall
be determined as of the date of the grant of such Option.
(c) Employment Relationship. The Plan shall not confer upon any
-----------------------
Optionee any right with respect to continuation of employment or consulting
relationship with the Company, nor shall it interfere in any way with such
Optionee's right or the Company's right to terminate his or her employment or
consulting relationship at any time, with or without cause.
6. Term of Plan. The Plan shall become effective upon the earlier to
------------
occur of its adoption by the Board of Directors or its approval by the
shareholders of the Company as described in Section 18 of the Plan. It shall
continue in effect for a term of ten (10) years unless sooner terminated under
Section 14 of the Plan.
7. Term of Option. The term of each Option shall be the term stated in
--------------
the Option Agreement; provided, however, that the term shall be no more than ten
(10) years from the date of grant thereof or such shorter term as may be
provided in the Option Agreement. However, in the case of an Incentive Stock
Option granted to an Optionee who, at the time the Option is granted, owns stock
representing more than ten percent (10%) of the total combined voting
-5-
<PAGE>
power of all classes of stock of the Company or any Parent or Subsidiary, the
term of the Option shall be five (5) years from the date of grant thereof or
such shorter term as may be provided in the Option Agreement.
8. Option Exercise Price and Consideration.
---------------------------------------
(a) The per share exercise price for the Shares to be issued pursuant
to exercise of an Option shall be such price as is determined by the Board, but
shall be subject to the following:
(i) In the case of an Incentive Stock Option that is:
(A) granted to an Employee who, at the time of the grant of
such Incentive Stock Option, owns stock representing more than ten percent (10%)
of the total combined voting power of all classes of stock of the Company or any
Parent or Subsidiary, the per Share exercise price shall be no less than 110% of
the Fair Market Value per Share on the date of grant.
(B) granted to any Employee, the per Share exercise price
shall be no less than 100% of the Fair Market Value per Share on the date of
grant.
(ii) In the case of a Nonstatutory Stock Option that is:
(A) granted to a person who, at the time of the grant of
such Option, owns stock representing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Company or any Parent or
Subsidiary, the per Share exercise price shall be no less than 110% of the Fair
Market Value per Share on the date of the grant.
(B) granted to any person, the per Share exercise price
shall be no less than 85 % of the Fair Market Value per Share on the date of
grant.
(b) The consideration to be paid for the Shares to be issued upon
exercise of an Option, including the method of payment, shall be determined by
the Administrator (and, in the case of an Incentive Stock Option, shall be
determined at the time of grant) and may consist entirely of (1) cash, (2)
check, (3) promissory note, (4) other Shares that (x) in the case of Shares
acquired upon exercise of an Option, have been owned by the Optionee for more
than six months on the date of surrender or such other period as may be required
to avoid a charge to the Company's earnings, and (y) have a Fair Market Value on
the date of surrender equal to the aggregate exercise price of the Shares as to
which such Option shall be exercised, (5) authorization for the Company to
retain from the total number of Shares as to which the Option is exercised that
number of Shares having a Fair Market Value on the date of exercise equal to the
exercise price for the total number of Shares as to which the Option is
exercised, (6) delivery of a properly executed exercise notice together with
such other documentation as the Administrator and the broker, if applicable,
shall require to effect an exercise of the Option and delivery to the Company of
the sale or loan proceeds required to pay the exercise price and any applicable
income or employment taxes, (7) delivery of an irrevocable subscription
agreement
-6-
<PAGE>
for the Shares that irrevocably obligates the option holder to take and pay for
the Shares not more than twelve months after the date of delivery of the
subscription agreement, (8) any combination of the foregoing methods of payment,
or (9) such other consideration and method of payment for the issuance of Shares
to the extent permitted under Applicable Laws. In making its determination as to
the type of consideration to accept, the Administrator shall consider if
acceptance of such consideration may be reasonably expected to benefit the
Company.
9. Exercise of Option.
------------------
(a) Procedure for Exercise; Rights as a Shareholder. Any Option
-----------------------------------------------
granted hereunder shall be exercisable at such times and under such conditions
as determined by the Administrator, including performance criteria with respect
to the Company and/or the Optionee, and as shall be permissible under the terms
of the Plan; provided that such Option shall become exercisable at the rate of
at least twenty percent (20%) per year over five (5) years from the date the
Option is granted. In the event that any of the Share issued upon exercise of
an Option should be subject to a right of repurchase in the Company's favor,
such repurchase right shall lapse at the rate of at least twenty percent (20%)
per year over five (5) years from the date the Option is granted.
Notwithstanding the above, in the case of an option granted to an officer,
director or Consultant of the Company or any Parent or Subsidiary of the
Company, the option may become fully exercisable, or a repurchase right, if any,
in favor of the Company shall lapse, at any time or during any period
established by the Administrator.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of such
exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and the Company has
received full payment for the Shares with respect to which the Option is
exercised. Full payment may, as authorized by the Board, consist of any
consideration and method of payment allowable under Section 8(b) of the Plan.
Until the issuance (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company) of the stock
certificate evidencing such Shares, no right to vote or receive dividends or any
other rights as a shareholder shall exist with respect to the Optioned Stock,
not withstanding the exercise of the Option. The Company shall issue (or cause
to be issued) such stock certificate promptly upon exercise of the Option. No
adjustment will be made for a dividend or other right for which the record date
is prior to the date the stock certificate is issued, except as provided in
Section 11 of the Plan.
Exercise of an Option in any manner shall result in a decrease in the
number of Shares that thereafter may be available, both for purposes of the Plan
and for sale under the Option, by the number of Shares as to which the Option is
exercised.
(b) Termination of Employment or Consulting Relationship. Subject to
----------------------------------------------------
Section 9(c), in the event of termination of an Optionee's Continuous Status as
an Employee or Consultant with the Company, such Optionee may, but only within
three (3) months (or such other period of time not less than thirty (30) days as
is determined by the Administrator, with such determination in the case of an
Incentive Stock Option being made at the time of grant of
-7-
<PAGE>
the Option and not exceeding three (3) months) after the date of such
termination (but in no event later than the expiration date of the term of such
Option as set forth in the Option Agreement), exercise his or her Option to the
extent that the Optionee was entitled to exercise it at the date of such
termination. To the extent that Optionee was not entitled to exercise the Option
at the date of such termination, or if Optionee does not exercise such Option to
the extent so entitled within the time specified herein, the Option shall
terminate. No termination shall be deemed to occur and this Section 9(b) shall
not apply if (i) the Optionee is a Consultant who becomes an Employee; or (ii)
the Optionee is an Employee who becomes a Consultant.
(c) Disability of Optionee.
----------------------
(i) Notwithstanding Section 9(b) above, in the event of
termination of an Optionee's Continuous Status as an Employee or Consultant as a
result of his or her total and permanent disability (within the meaning of
Section 22(e)(3) of the Code), Optionee may, but only within twelve (12) months
from the date of such termination (but in no event later than the expiration
date of the term of such Option as set forth in the Option Agreement), exercise
the Option to the extent otherwise entitled to exercise it at the date of such
termination. To the extent that Optionee was not entitled to exercise the Option
at the date of termination, or if Optionee does not exercise such Option to the
extent so entitled within the time specified herein, the Option shall terminate.
(ii) In the event of termination of an Optionee's Continuous
Status as an Employee or Consultant as a result of a disability which does not
fall within the meaning of total and permanent disability (as set forth in
Section 22(e)(3) of the Code), Optionee may, but only within six (6) months from
the date of such termination but in no event later than the expiration date of
the term of such Option as set forth in the Option Agreement), exercise the
Option to the extent otherwise entitled to exercise it at the date of such
termination. However, to the extent that such Optionee fails to exercise an
Option which is an Incentive Stock Option ("ISO") (within the meaning of Section
---
422 of the Code) within three (3) months of the date of such termination, the
Option will not qualify for ISO treatment under the Code. To the extent that
Optionee was not entitled to exercise the Option at the date of termination, or
if Optionee does not exercise such Option to the extent so entitled within six
months (6) from the date of termination, the Option shall terminate.
(d) Death of Optionee. In the event of the death of an Optionee
-----------------
during the period of Continuous Status as an Employee or Consultant since the
date of grant of the Option, or within thirty (30) days following termination of
Optionee's Continuous Status as an Employee or Consultant, the Option may be
exercised, at any time within six (6) months following the date of death (but in
no event later than the expiration date of the term of such Option as set forth
in the Option Agreement), by Optionee's estate or by a person who acquired the
right to exercise the Option by bequest or inheritance, but only to the extent
of the right to exercise that had accrued at the date of death or, if earlier,
the date of termination of Optionee's Continuous Status as an Employee or
Consultant. To the extent that Optionee was not entitled to exercise the Option
at the date of death or termination, as the case may be, or if Optionee does not
exercise such Option to the extent so entitled within the time specified herein,
the Option shall terminate.
-8-
<PAGE>
(e) Rule 16b-3. Options granted to Reporting Persons shall comply
----------
with Rule 16b-3 and shall contain such additional conditions or restrictions as
may be required thereunder to qualify for the maximum exemption for Plan
transactions.
(f) Buyout Provisions. The Administrator may at any time offer to buy
-----------------
out for a payment in cash or Shares, an Option previously granted, based on such
terms and conditions as the Administrator shall establish and communicate to the
Optionee at the time that such offer is made.
10. Stock Withholding to Satisfy Withholding Tax Obligations. At the
--------------------------------------------------------
discretion of the Administrator, Optionees may satisfy withholding obligations
as provided in this paragraph. When an Optionee incurs tax liability in
connection with an Option, which tax liability is subject to tax withholding
under applicable tax laws, and the Optionee is obligated to pay the Company an
amount required to be withheld under applicable tax laws, the Optionee may
satisfy the withholding tax obligation by one or some combination of the
following methods: (a) by cash payment, or (b) out of Optionee's current
compensation, (c) if permitted by the Administrator, in its discretion, by
surrendering to the Company Shares that (i) in the case of Shares previously
acquired from the Company, have been owned by the Optionee for more than six
months on the date of surrender, and (ii) have a fair market value on the date
of surrender equal to or less than Optionee's marginal tax rate times the
ordinary income recognized, or (d) by electing to have the Company withhold from
the Shares to be issued upon exercise of the Option, if any, that number of
Shares having a fair market value equal to the amount required to be withheld.
For this purpose, the fair market value of the Shares to be withheld shall be
determined on the date that the amount of tax to be withheld is to be determined
(the "Tax Date").
--------
Any surrender by a Reporting Person of previously owned Shares to satisfy
tax withholding obligations arising upon exercise of this Option must comply
with the applicable provisions of Rule 16b-3.
All elections by an Optionee to have Shares withheld to satisfy tax
withholding obligations shall be made in writing in a form acceptable to the
Administrator and shall be subject to the following restrictions:
(a) the election must be made on or prior to the applicable Tax Date;
(b) once made, the election shall be irrevocable as to the particular
Shares of the Option as to which the election is made; and
(c) all elections shall be subject to the consent or disapproval of
the Administrator.
In the event the election to have Shares withheld is made by an Optionee
and the Tax Date is deferred under Section 83 of the Code because no election is
flied under Section 83(b) of the Code, the Optionee shall receive the full
number of Shares with respect to which the Option
-9-
<PAGE>
is exercised but such Optionee shall be unconditionally obligated to tender back
to the Company the proper number of Shares on the Tax Date.
11. Adjustments Upon Changes in Capitalization, Merger or Certain Other
-------------------------------------------------------------------
Transactions.
- ------------
(a) Changes in Capitalization. Subject to any required action by the
-------------------------
shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Option, and the number of shares of Common Stock that have been
authorized for issuance under the Plan but as to which no Options have yet been
granted or that have been returned to the Plan upon cancellation or expiration
of an Option, as well as the price per share of Common Stock covered by each
such outstanding Option, shall be proportionately adjusted for any increase or
decrease in the number of issued shares of Common Stock resulting from a stock
split, reverse stock split, stock dividend, combination, recapitalization or
reclassification of the Common Stock, or any other increase or decrease in the
number of issued shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason, thereof shall be made with respect
to, the number or price of shares of Common Stock subject to an Option.
(b) Dissolution or Liquidation. In the event of the proposed
--------------------------
dissolution or liquidation of the Company, the Board shall notify the Optionee
at least fifteen (15) days prior to such proposed action. To the extent it has
not been previously exercised, the Option will terminate immediately prior to
the consummation of such proposed action.
(c) Merger or Sale of Assets. In the event of a proposed sale of all
------------------------
or substantially all of the Company's assets or a merger of the Company with or
into another corporation where the successor corporation issues its securities
to the Company's shareholders, each outstanding Option shall be assumed or an
equivalent option or right shall be substituted by such successor corporation or
a parent or subsidiary of such successor corporation, unless the successor
corporation does not agree to assume the Option or to substitute an equivalent
option, in which case such Option shall terminate upon the consummation of the
merger or sale of assets.
(d) Certain Distributions. In the event of any distribution to the
---------------------
Company's shareholders of securities of any other entity or other assets (other
than dividends payable in cash or stock of the Company) without receipt of
consideration by the Company, the Administrator may, in its discretion,
appropriately adjust the price per share of Common Stock covered by each
outstanding Option to reflect the effect of such distribution.
12. Non-Transferability of Options. Options may not be sold, pledged,
------------------------------
assigned, hypothecated, transferred, or disposed of in any manner other than by
will or by the laws of descent or distribution and may be exercised or purchased
during the lifetime of the Optionee, only by the Optionee.
-10-
<PAGE>
13. Time of Granting Options. The date of grant of an Option shall, for
------------------------
all purposes, be the date on which the Administrator makes the determination
granting such Option, or such other date as is determined by the Board; provided
however that in the case of any Incentive Stock Option, the grant date shall be
the later of the date on which the Administrator makes the determination
granting such Incentive Stock Option or the date of commencement of the
Optionee's employment relationship with the Company. Notice of the
determination shall be given to each Employee or Consultant to whom an Option is
so granted within a reasonable time after the date of such grant.
14. Amendment and Termination of the Plan.
-------------------------------------
(a) Authority to Amend or Terminate. The Board may at any time amend,
-------------------------------
alter, suspend or discontinue the Plan, but no amendment, alteration, suspension
or discontinuation shall be made that would impair the rights of any Optionee
under any grant theretofore made, without his or her consent. In addition, to
the extent necessary and desirable to comply with Rule 16b-3 or with Section 422
of the Code (or any other applicable law or regulation, including the
requirements of any Stock Exchange), the Company shall obtain shareholder
approval of any Plan amendment in such a manner and to such a degree as
required.
(b) Effect of Amendment or Termination. No amendment or termination
----------------------------------
of the Plan shall adversely affect Options already granted, unless mutually
agreed otherwise between the Optionee and the Board, which agreement must be in
writing and signed by the Optionee and the Company.
15. Conditions Upon Issuance of Shares. Shares shall not be issued
----------------------------------
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act of
1933, as amended, the Exchange Act, the rules and regulations promulgated
thereunder, and the requirements of any Stock Exchange.
As a condition to the exercise of an Option, the Company may require the
person exercising such Option to represent and warrant at the time of any such
exercise that the Shares are being purchased only for investment and without any
present intention to sell or distribute such Shares if, in the opinion of
counsel for the Company, such a representation is required by law.
16. Reservation of Shares. The Company, during the term of this Plan,
---------------------
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan. The inability of the
Company to obtain authority from any regulatory body having jurisdiction, which
authority is deemed by the Company's counsel to be necessary to the lawful
issuance and sale of any Shares hereunder, shall relieve the Company of any
liability in respect of the failure to issue or sell such Shares as to which
such requisite authority shall not have been obtained.
17. Agreements. Options shall be evidenced by written agreements in such
----------
form as the Administrator shall approve from time to time.
-11-
<PAGE>
18. Shareholder Approval. Continuance of the Plan shall be subject to
--------------------
approval by the shareholders of the Company within twelve (12) months before or
after the date the Plan is adopted. Such shareholder approval shall be obtained
in the degree and manner required under applicable state and federal law and the
rules of any Stock Exchange upon which the Common Stock is listed. All Options
issued under the Plan shall become void in the event such approval is not
obtained.
19. Information and Documents to Optionees. The Company shall provide
--------------------------------------
financial statements at least annually to each Optionee during the period such
Optionee has one or more Options outstanding, and in the case of an individual
who acquired Shares pursuant to the Plan, during the period such individual owns
such Shares. The Company shall not be required to provide such information if
the issuance of Options under the Plan is limited to key employees whose duties
in connection with the Company assure their access to equivalent information.
In addition, at the time of issuance of any securities under the Plan, the
Company shall provide to the Optionee a copy of the Plan and a copy of any
agreement(s) pursuant to which securities under the Plan are issued.
-12-
<PAGE>
PORTLAND SOFTWARE, INC.
AMENDED AND RESTATED 1994 STOCK INCENTIVE PLAN
NOTICE OF STOCK OPTION GRANT
----------------------------
You have been granted an option to purchase Common Stock "Common Stock" of
------------
Portland Software, Inc. (the "Company") as follows:
-------
Board Approval Date:
Date of Grant (Later of Board Approval
Date or Commencement of
Employment/Consulting):
Vesting Commencement Date:
Exercise Price per Share:
Total Number of Shares Granted:
Total Exercise Price:
Type of Option: Incentive Stock Option
Nonstatutory Stock Option
Term/Expiration Date:
Vesting Schedule: This Option may be exercised, in whole
or in part, in accordance with the
following schedule: 1/2 of the Shares
subject to the Option shall vest on
the 12 month anniversary of the
Vesting Commencement Date and 1/2 of
the Shares subject to the Option shall
vest on the 24 month anniversary of
the Vesting Commencement Date.
Termination Period: Option may be exercised for 90 days
after termination of employment or
consulting relationship except as set
out in Sections 6 and 7 of the Stock
Option Agreement (but in no event
later than the Expiration Date).
The undersigned parties hereby agree to cancel all outstanding options
granted to Optionee Under Incentive Stock Option Agreement No. 941-89 (the
"Prior Agreement") and the
<PAGE>
4,000 shares of the Company's Common Stock granted under the Prior Agreement
shall be returned to the stock subject to the Plan for future distribution under
the Plan.
By your signature and the signature of the Company's representative below,
you and the Company agree that this option is granted under and governed by the
terms and conditions of the Amended and Restated 1994 Stock Incentive Plan and
the Stock Option Agreement, both of which are attached and made a part of this
document.
Portland Software, Inc.
By:______________________________________
____________, Chief Financial Officer
-2-
<PAGE>
PORTLAND SOFTWARE, INC.
AMENDED AND RESTATED 1994 STOCK INCENTIVE PLAN
STOCK OPTION AGREEMENT
----------------------
1. Grant of Option. Portland Software, Inc., an Oregon corporation (the
---------------
"Company"), hereby grants to Andy Neville ("Optionee"), an option (the "Option")
------- -------- ------
to purchase a total number of shares of Common Stock (the "Shares") set forth in
------
the Notice of Stock Option Grant, at the exercise price per share set forth in
the Notice of Stock Option Grant (the "Exercise Price") subject to the terms,
--------------
definitions and provisions of the Portland Software, Inc. Amended and Restated
1994 Stock Incentive Plan (the "Plan") adopted by the Company, which is
----
incorporated herein by reference. Unless otherwise defined herein, the terms
defined in the Plan shall have the same defined meanings in this Option.
If designated an Incentive Stock Option, this Option is intended to
qualify as an Incentive Stock Option as defined in Section 422 of the Code.
2. Exercise of Option. This Option shall be exercisable during its Term
------------------
in accordance with the Vesting Schedule set out in the Notice of Stock Option
Grant and with the provisions of Section 9 of the Plan as follows:
(a) Right to Exercise.
-----------------
(i) This Option may not be exercised for a fraction of a share.
(ii) In the event of Optionee's death, disability or other
termination of employment, the exercisability of the Option is governed by
Sections 5, 6 and 7 below, subject to the limitation contained in Section
2(a)(i).
(iii) In no event may this Option be exercised after the date of
expiration of the Term of this Option as set forth in the Notice of Stock Option
Grant.
(b) Method of Exercise. This Option shall be exercisable by
------------------
execution and delivery of the Exercise Notice and Restricted Stock Purchase
Agreement attached hereto as Exhibit A (the "Exercise Agreement") or of any
--------- ------------------
other form of written notice approved for such purpose by the Company which
shall state the election to exercise the Option, the number of Shares in respect
of which the Option is being exercised, and such other representations and
agreements as to the holder's investment intent with respect to such shares of
Common Stock as may be required by the Company pursuant to the provisions of the
Plan. Such written notice shall be signed by Optionee and shall be delivered in
person or by certified mail to the Secretary of the Company. The written notice
shall be accompanied by payment of the Exercise Price. This Option shall be
deemed to be exercised upon receipt by the Company of such written notice
accompanied by the Exercise Price.
<PAGE>
No Shares will be issued pursuant to the exercise of an Option unless
such issuance and such exercise shall comply with all relevant provisions of
applicable law and the requirements of any stock exchange upon which the Shares
may then be listed. Assuming such compliance, for income tax purposes the
Shares shall be considered transferred to Optionee on the date on which the
Option is exercised with respect to such Shares.
3. Method of Payment. Payment of the Exercise Price shall be by any of
-----------------
the following, or a combination thereof, at the election of Optionee:
(a) cash;
(b) check;
(c) surrender of other shares of Common Stock of the Company which
(i) in the case of Shares acquired pursuant to the exercise of a Company option,
have been owned by Optionee for more than six (6) months on the date of
surrender, and (ii) have a fair market value on the date of surrender equal to
the Exercise Price of the Shares as to which the Option is being exercised; or
(d) if there is a public market for the Shares and they are
registered under the Securities Act of 1933, as amended, delivery of a properly
executed exercise notice together with irrevocable instructions to a broker to
deliver promptly to the Company the amount of sale or loan proceeds required to
pay the exercise price.
4. Restrictions on Exercise. This Option may not be exercised until such
------------------------
time as the Plan has been approved by the shareholders of the Company, or if the
issuance of such Shares upon such exercise or the method of payment of
consideration for such shares would constitute a violation of any applicable
federal or state securities or other law or regulation, including any rule under
Part 207 of Title 12 of the Code of Federal Regulations as promulgated by the
Federal Reserve Board. As a condition to the exercise of this Option, the
Company may require Optionee to make any representation and warranty to the
Company as may be required by any applicable law or regulation.
5. Termination of Relationship. In the event of termination of Optionee's
---------------------------
Continuous Status as an Employee or Consultant, Optionee may, to the extent
otherwise so entitled at the date of such termination (the "Termination Date"),
----------------
exercise this Option during the Termination Period set forth in the Notice of
Stock Option Grant. To the extent that Optionee was not entitled to exercise
this Option at such Termination Date, or if Optionee does not exercise this
Option within the Termination Period, the Option shall terminate.
6. Disability of Optionee.
----------------------
(a) Notwithstanding the provisions of Section 5 above, in the event
of termination of Continuous Status as an Employee or Consultant as a result of
Optionee's total and permanent disability (as defined in Section 22(e)(3) of the
Code), Optionee may, but only within twelve (12) months from the Termination
Date (but in no event later than the Expiration
-2-
<PAGE>
Date set forth in the Notice of Stock Option Grant), exercise this Option to the
extent Optionee was entitled to exercise it as of such Termination Date. To the
extent that Optionee was not entitled to exercise the Option as of the
Termination Date, or if Optionee does not exercise such Option (to the extent so
entitled) within the time specified in this Section 6(a), the Option shall
terminate.
(b) Notwithstanding the provisions of Section 5 above, in the event of
termination of Optionee's consulting relationship or Continuous Status as an
Employee as a result of disability not constituting a total and permanent
disability (as set forth in Section 22(e)(3) of the Code), Optionee may, but
only within six (6) months from the Termination Date (but in no event later than
the Expiration Date set forth in the Notice of Stock Option Grant), exercise the
Option to the extent Optionee was entitled to exercise it as of such Termination
Date; provided, however, that if this is an Incentive Stock Option and Optionee
fails to exercise this Incentive Stock Option within three (3) months from the
Termination Date, this Option will cease to qualify as an Incentive Stock Option
(as defined in Section 422 of the Code) and Optionee will be treated for federal
income tax purposes as having received ordinary income at the time of such
exercise in an amount generally measured by the difference between the Exercise
Price for the Shares and the fair market value of the Shares on the date of
exercise. To the extent that Optionee was not entitled to exercise the Option
at the Termination Date, or if Optionee does not exercise such Option to the
extent so entitled within the time specified in this Section 6(b), the Option
shall terminate.
7. Death of Optionee. In the event of the death of Optionee (a) during
-----------------
the Term of this Option and while an Employee or Consultant of the Company and
having been in Continuous Status as an Employee or Consultant since the date of
grant of the Option, or (b) within thirty (30) days after Optionee's Termination
Date, the Option may be exercised at any time within six (6) months following
the date of death (but in no event later than the Expiration Date set forth in
the Notice of Stock Option Grant), by Optionee's estate or by a person who
acquired the right to exercise the Option by bequest or inheritance, but only to
the extent of the right to exercise that had accrued at the Termination Date.
8. Non-Transferability of Option. This Option may not be transferred in
-----------------------------
any manner otherwise than by will or by the laws of descent or distribution and
may be exercised during the lifetime of Optionee only by him or her. The terms
of this Option shall be binding upon the executors, administrators, heirs,
successors and assigns of Optionee.
9. Term of Option. This Option may be exercised only within the Term set
--------------
forth in the Notice of Stock Option Grant, subject to the limitations set forth
in Section 7 of the Plan.
10. Tax Consequences. Set forth below is a brief summary as of the date
----------------
of this Option of certain of the federal and Oregon tax consequences of exercise
of this Option and disposition of the Shares under the laws in effect as of the
Date of Grant. THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX LAWS AND
REGULATIONS ARE SUBJECT TO CHANGE. OPTIONEE SHOULD CONSULT A TAX ADVISER BEFORE
EXERCISING THIS OPTION OR DISPOSING OF THE SHARES.
-3-
<PAGE>
(a) Exercise of Incentive Stock Option. If this Option qualifies as
----------------------------------
an Incentive Stock Option, there will be no regular federal or Oregon income tax
liability upon the exercise of the Option, although the excess, if any, of the
fair market value of the Shares on the date of exercise over the Exercise Price
will be treated as an adjustment to the alternative minimum tax for federal tax
purposes and may subject Optionee to the alternative minimum tax in the year of
exercise.
(b) Exercise of Nonstatutory Stock Option. If this Option does not
-------------------------------------
qualify as an Incentive Stock Option, there may be a regular federal income tax
liability and a Oregon income tax liability upon the exercise of the Option.
Optionee will be treated as having received compensation income (taxable at
ordinary income tax rates) equal to the excess, if any, of the fair market value
of the Shares on the date of exercise over the Exercise Price. If Optionee is
an employee, the Company will be required to withhold from Optionee's
compensation or collect from Optionee and pay to the applicable taxing
authorities an amount equal to a percentage of this compensation income at the
time of exercise.
(c) Disposition of Shares. In the case of a Nonstatutory Stock
---------------------
Option, if Shares are held for at least one year, any gain realized on
disposition of the Shares will be treated as long-term capital gain for federal
and Oregon income tax purposes. In the case of an Incentive Stock Option, if
Shares transferred pursuant to the Option are held for at least one year after
exercise and are disposed of at least two years after the Date of Grant, any
gain realized on disposition of the Shares will also be treated as long-term
capital gain for federal and Oregon income tax purposes. If Shares purchased
under an Incentive Stock Option are disposed of within such one-year period or
within two years after the Date of Grant, any gain realized on such disposition
will be treated as compensation income (taxable at ordinary income rates) to the
extent of the difference between the Exercise Price and the lesser of (i) the
fair market value of the Shares on the date of exercise, or (ii) the sale price
of the Shares.
(d) Notice of Disqualifying Disposition of Incentive Stock Option
-------------------------------------------------------------
Shares. If the Option granted to Optionee herein is an Incentive Stock Option,
- ------
and if Optionee sells or otherwise disposes of any of the Shares acquired
pursuant to the Incentive Stock Option on or before the later of (i) the date
two years after the Date of Grant, or (ii) the date one year after the date of
exercise, Optionee shall immediately notify the Company in writing of such
disposition. Optionee acknowledges and agrees that he or she may be subject to
income tax withholding by the Company on the compensation income recognized by
Optionee from the early disposition by payment in cash or out of the current
earnings paid to Optionee.
11. Withholding Tax Obligations. Optionee understands that, upon
---------------------------
exercising a Nonstatutory Stock Option, he or she will recognize income for tax
purposes in an amount equal to the excess of the then fair market value of the
Shares over the Exercise Price. However, the timing of this income recognition
may be deferred for up to six months if Optionee is subject to Section 16 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). If Optionee
------------
is an employee, the Company will be required to withhold from Optionee's
compensation, or collect from Optionee and pay to the applicable taxing
authorities an amount equal to a percentage of this compensation income.
Additionally, Optionee may at some point be
-4-
<PAGE>
required to satisfy tax withholding obligations with respect to the
disqualifying disposition of an Incentive Stock Option. Optionee shall satisfy
his or her tax withholding obligation arising upon the exercise of this Option
by one or some combination of the following methods: (a) by cash payment, (b)
out of Optionee's current compensation, (c) if permitted by the Administrator,
in its discretion, by surrendering to the Company Shares which (i) in the case
of Shares previously acquired from the Company, have been owned by Optionee for
more than six months on the date of surrender, and (ii) have a fair market value
on the date of surrender equal to or greater than Optionee's marginal tax rate
times the ordinary income recognized, or (d) by electing to have the Company
withhold from the Shares to be issued upon exercise of the Option that number of
Shares having a fair market value equal to the amount required to be withheld.
For this purpose, the fair market value of the Shares to be withheld shall be
determined on the date that the amount of tax to be withheld is to be determined
(the "Tax Date").
--------
If Optionee is subject to Section 16 of the Exchange Act (an "Insider"),
-------
any surrender of previously owned Shares to satisfy tax withholding obligations
arising upon exercise of this Option must comply with the applicable provisions
of Rule 16b-3 promulgated under the Exchange Act ("Rule 16b-3").
----------
All elections by Optionee to have Shares withheld to satisfy tax
withholding obligations shall be made in writing in a form acceptable to the
Administrator and shall be subject to the following restrictions:
(a) the election must be made on or prior to the applicable Tax Date;
(b) once made, the election shall be irrevocable as to the particular
Shares of the Optionee as to which the election is made; and
(c) all elections shall be subject to the consent or disapproval of
the Administrator.
12. Market Standoff Agreement. In connection with the initial public
-------------------------
offering of the Company's securities and upon request of the Company or the
underwriters managing any underwritten offering of the Company's securities,
Optionee hereby agrees not to sell, make any short sale of, loan, grant any
option for the purchase of, or otherwise dispose of any Shares (other than those
included in the registration) without the prior written consent of the Company
or such underwriters, as the case may be, for such period of time (not to exceed
180 days) from the effective date of such registration as may be requested by
the Company or such managing underwriters and to execute an agreement reflecting
the foregoing as may be requested by the underwriters at the time of the public
offering.
[Signature Page Follows]
-5-
<PAGE>
This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original and all of which together shall constitute one
document.
Portland Software, Inc.
By:______________________________________
____________, Chief Financial Officer
OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO THE
OPTION HEREOF IS EARNED ONLY BY CONTINUING EMPLOYMENT OR CONSULTANCY AT THE WILL
OF THE COMPANY (NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED THIS OPTION OR
ACQUIRING SHARES HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT
NOTHING IN THIS AGREEMENT, NOR IN THE COMPANY'S AMENDED AND RESTATED 1994 STOCK
INCENTIVE PLAN WHICH IS INCORPORATED HEREIN BY REFERENCE, SHALL CONFER UPON
OPTIONEE ANY RIGHT WITH RESPECT TO CONTINUATION OF EMPLOYMENT OR CONSULTANCY BY
THE COMPANY, NOR SHALL IT INTERFERE IN ANY WAY WITH OPTIONEE'S RIGHT OR THE
COMPANY'S RIGHT TO TERMINATE OPTIONEE'S EMPLOYMENT OR CONSULTANCY AT ANY TIME,
WITH OR WITHOUT CAUSE.
Optionee acknowledges receipt of a copy of the Plan and represents that he
or she is familiar with the terms and provisions thereof, and hereby accepts
this Option subject to all of the terms and provisions thereof. Optionee has
reviewed the Plan and this Option in their entirety, has had an opportunity to
obtain the advice of counsel prior to executing this Option and fully
understands all provisions of the Option. Optionee hereby agrees to accept as
binding, conclusive and final all decisions or interpretations of the
Administrator upon any questions arising under the Plan or this Option.
Dated:_____________________ ________________________________________
-6-
<PAGE>
EXHIBIT A
---------
PORTLAND SOFTWARE, INC.
AMENDED AND RESTATED 1994 STOCK INCENTIVE PLAN
EXERCISE NOTICE AND RESTRICTED STOCK PURCHASE AGREEMENT
-------------------------------------------------------
This Agreement ("Agreement") is made as of _______________ by and between
---------
Portland Software, Inc., an Oregon corporation (the "Company"), and Andy Neville
-------
("Purchaser"). To the extent any capitalized terms used in this Agreement are
---------
not defined, they shall have the meaning ascribed to them in the Amended and
Restated 1994 Stock Incentive Plan.
1. Exercise of Option. Subject to the terms and conditions hereof,
------------------
Purchaser hereby elects to exercise his or her option to purchase __________
shares of the Common Stock (the "Shares") of the Company under and pursuant to
------
the Company's Amended and Restated 1994 Stock Incentive Plan (the "Plan") and
----
the Stock Option Agreement dated _________, (the "Option Agreement"). The
----------------
purchase price for the Shares shall be $0.52 per Share for a total purchase
price of $_________________. The term "Shares" refers to the purchased Shares
------
and all securities received in replacement of the Shares or as stock dividends
or splits, all securities received in replacement of the Shares in a
recapitalization, merger, reorganization, exchange or the like, and all new,
substituted or additional securities or other properties to which Purchaser is
entitled by reason of Purchaser's ownership of the Shares.
2. Time and Place of Exercise. The purchase and sale of the Shares under
--------------------------
this Agreement shall occur at the principal office of the Company simultaneously
with the execution and delivery of this Agreement in accordance with the
provisions of Section 2(b) of the Option Agreement. On such date, the Company
will deliver to Purchaser a certificate representing the Shares to be purchased
by Purchaser (which shall be issued in Purchaser's name) against payment of the
exercise price therefor by Purchaser by (a) check made payable to the Company,
(b) cancellation of indebtedness of the Company to Purchaser, (c) delivery of
shares of the Common Stock of the Company in accordance with Section 3 of the
Option Agreement, or (d) by a combination of the foregoing.
3. Limitations on Transfer. In addition to any other limitation on
-----------------------
transfer created by applicable securities laws, Purchaser shall not assign,
encumber or dispose of any interest in the Shares except in compliance with the
provisions below and applicable securities laws.
(a) Right of First Refusal. Before any Shares held by Purchaser or
----------------------
any transferee of Purchaser (either being sometimes referred to herein as the
"Holder") may be sold or otherwise transferred (including transfer by gift or
------
operation of law), the Company or its assignee(s) shall have a right of first
refusal to purchase the Shares on the terms and conditions set forth in this
Section 3(a) (the "Right of First Refusal").
----------------------
<PAGE>
(i) Notice of Proposed Transfer. The Holder of the Shares shall
---------------------------
deliver to the Company a written notice (the "Notice") stating: (i) the
------
Holder's bona fide intention to sell or otherwise transfer such Shares; (ii) the
name of each proposed purchaser or other transferee ("Proposed Transferee");
-------------------
(iii) the number of Shares to be transferred to each Proposed Transferee; and
(iv) the terms and conditions of each proposed sale or transfer. The Holder
shall offer the Shares at the same price (the "Offered Price") and upon the same
-------------
terms (or terms as similar as reasonably possible) to the Company or its
assignee(s).
(ii) Exercise of Right of First Refusal. At any time within thirty
----------------------------------
(30) days after receipt of the Notice, the Company and/or its assignee(s) may,
by giving written notice to the Holder, elect to purchase all, but not less than
all, of the Shares proposed to be transferred to any one or more of the Proposed
Transferees, at the purchase price determined in accordance with subsection
(iii) below.
(iii) Purchase Price. The purchase price ("Purchase Price") for the
-------------- --------------
Shares purchased by the Company or its assignee(s) under this Section 3(a) shall
be the Offered Price. If the Offered Price includes consideration other than
cash, the cash equivalent value of the non-cash consideration shall be
determined by the Board of Directors of the Company in good faith.
(iv) Payment. Payment of the Purchase Price shall be made, at the
-------
option of the Company or its assignee(s), in cash (by check), by cancellation of
all or a portion of any outstanding indebtedness of the Holder to the Company
(or, in the case of repurchase by an assignee, to the assignee), or by any
combination thereof within 30 days after receipt of the Notice or in the manner
and at the times set forth in the Notice.
(v) Holder's Right to Transfer. If all of the Shares proposed in
--------------------------
the Notice to be transferred to a given Proposed Transferee are not purchased by
the Company and/or its assignee(s) as provided in this Section 3(a), then the
Holder may sell or otherwise transfer such Shares to that Proposed Transferee at
the Offered Price or at a higher price, provided that such sale or other
transfer is consummated within 60 days after the date of the Notice and provided
further that any such sale or other transfer is effected in accordance with any
applicable securities laws and the Proposed Transferee agrees in writing that
the provisions of this Section 3 shall continue to apply to the Shares in the
hands of such Proposed Transferee. If the Shares described in the Notice are not
transferred to the Proposed Transferee within such period, or if the Holder
proposes to change the price or other terms to make them more favorable to the
Proposed Transferee, a new Notice shall be given to the Company, and the Company
and/or its assignees shall again be offered the Right of First Refusal before
any Shares held by the Holder may be sold or otherwise transferred.
(vi) Exception for Certain Family Transfers. Anything to the
--------------------------------------
contrary contained in this Section 3(a) notwithstanding, the transfer of any or
all of the Shares during Purchaser's lifetime or on Purchaser's death by will or
intestacy to Purchaser's Immediate Family or a trust for the benefit of
Purchaser's Immediate Family shall be exempt from the provisions of this Section
3(a). "Immediate Family" as used herein shall mean spouse, lineal descendant or
----------------
antecedent, father, mother, brother or sister. In such case, the transferee or
other
-2-
<PAGE>
recipient shall receive and hold the Shares so transferred subject to the
provisions of this Section, and there shall be no further transfer of such
Shares except in accordance with the terms of this Section 3.
(b) Involuntary Transfer.
--------------------
(i) Company's Right to Purchase upon Involuntary Transfer. In the
-----------------------------------------------------
event, at any time after the date of this Agreement, of any transfer by
operation of law or other involuntary transfer (including death or divorce, but
excluding a transfer to Immediate Family as set forth in Section 3(a)(vi) above)
of all or a portion of the Shares by the record holder thereof; the Company
shall have an option to purchase all of the Shares transferred at the greater of
the purchase price paid by Purchaser pursuant to this Agreement or the fair
market value of the Shares on the date of transfer. Upon such a transfer, the
person acquiring the Shares shall promptly notify the Secretary of the Company
of such transfer. The right to purchase such Shares shall be provided to the
Company for a period of thirty (30) days following receipt by the Company of
written notice by the person acquiring the Shares.
(ii) Price for Involuntary Transfer. With respect to any stock to be
------------------------------
transferred pursuant to Section 3(b)(i), the price per Share shall be a price
set by the Board of Directors of the Company that will reflect the current value
of the stock in terms of present earnings and future prospects of the Company.
The Company shall notify Purchaser or his or her executor of the price so
determined within thirty (30) days after receipt by it of written notice of the
transfer or proposed transfer of Shares. However, if the Purchaser does not
agree with the valuation as determined by the Board of Directors of the Company,
the Purchaser shall be entitled to have the valuation determined by an
independent appraiser to be mutually agreed upon by the Company and the
Purchaser and whose fees shall be borne equally by the Company and the
Purchaser.
(c) Assignment. The right of the Company to purchase any part of the
----------
Shares may be assigned in whole or in part to any shareholder or shareholders of
the Company or other persons or organizations; provided, however, that an
-------- -------
assignee, other than a corporation that is the parent or a 100% owned subsidiary
of the Company, must pay the Company, upon assignment of such right, cash equal
to the difference between the original purchase price and fair market value, if
the original purchase price is less than the fair market value of the Shares
subject to the assignment.
(d) Restrictions Binding on Transferees. All transferees of Shares or
-----------------------------------
any interest therein will receive and hold such Shares or interest subject to
the provisions of this Agreement. Any sale or transfer of the Company's Shares
shall be void unless the provisions of this Agreement are satisfied.
(e) Termination of Rights. The right of first refusal granted the
---------------------
Company by Section 3(a) above and the option to repurchase the Shares in the
event of an involuntary transfer granted the Company by Section 3(b) above shall
terminate upon the first sale of Common Stock of the Company to the general
public pursuant to a registration statement filed with and declared effective by
the Securities and Exchange Commission under the Securities Act of 1933, as
-3-
<PAGE>
amended (the "Securities Act"). Upon termination of the right of first refusal
--------------
described in Section 3(a) above, a new certificate or certificates representing
the Shares not repurchased shall be issued, on request, without the legend
referred to in Section 6(a)(ii) herein and delivered to Purchaser.
4. Investment and Taxation Representations. In connection with the
---------------------------------------
purchase of the Shares, Purchaser represents to the Company the following:
(a) Purchaser is aware of the Company's business affairs and financial
condition and has acquired sufficient information about the Company to reach an
informed and knowledgeable decision to acquire the securities. Purchaser is
purchasing these securities for investment for his or her own account only and
not with a view to, or for resale in connection with, any "distribution" thereof
within the meaning of the Securities Act.
(b) Purchaser understands that the securities have not been registered
under the Securities Act by reason of a specific exemption therefrom, which
exemption depends upon, among other things, the bona fide nature of Purchaser's
investment intent as expressed herein.
(c) Purchaser understands that the Shares are "restricted securities"
under applicable U.S. federal and state securities laws and that, pursuant to
these laws, Purchaser must hold the Shares indefinitely unless they are
registered with the Securities and Exchange Commission and qualified by state
authorities, or an exemption from such registration and qualification
requirements is available. Purchaser acknowledges that the Company has no
obligation to register or qualify the Shares for resale. Purchaser further
acknowledges that if an exemption from registration or qualification is
available, it may be conditioned on various requirements including, but not
limited to, the time and manner of sale, the holding period for the Shares, and
requirements relating to the Company which are outside of the Purchaser's
control, and which the Company is under no obligation and may not be able to
satisfy.
(d) Purchaser understands that Purchaser may suffer adverse tax
consequences as a result of Purchaser's purchase or disposition of the Shares.
Purchaser represents that Purchaser has consulted any tax consultants Purchaser
deems advisable in connection with the purchase or disposition of the Shares and
that Purchaser is not relying on the Company for any tax advice.
5. Restrictive Legends and Stop-Transfer Orders.
--------------------------------------------
(a) Legends. The certificate or certificates representing the Shares
-------
shall bear the following legends (as well as any legends required by applicable
state and federal corporate and securities laws):
(i) THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AND HAVE BEEN
ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN
CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH
SALE
-4-
<PAGE>
OR DISPOSITION MAY BE EFFECTED WITHOUT AN EFFECTIVE
REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF
COUNSEL IN A FORM SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF
1933.
(ii) THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE
TRANSFERRED ONLY IN ACCORDANCE WITH THE TERMS OF AN
AGREEMENT BETWEEN THE COMPANY AND THE SHAREHOLDER, A COPY OF
WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY.
(b) Stop-Transfer Notices. Purchaser agrees that, in order to ensure
---------------------
compliance with the restrictions referred to herein, the Company may issue
appropriate "stop transfer" instructions to its transfer agent, if any, and
that, if the Company transfers its own securities, it may make appropriate
notations to the same effect in its own records.
(c) Refusal to Transfer. The Company shall not be required (i) to
-------------------
transfer on its books any Shares that have been sold or otherwise transferred in
violation of any of the provisions of this Agreement or (ii) to treat as owner
of such Shares or to accord the right to vote or pay dividends to any purchaser
or other transferee to whom such Shares shall have been so transferred.
6. No Employment Rights. Nothing in this Agreement shall affect in any
--------------------
manner whatsoever the right or power of the Company, or a parent or subsidiary
of the Company, to terminate Purchaser's employment, for any reason, with or
without cause.
7. Market Stand-off Agreement. In connection with the initial public
--------------------------
offering of the Company's securities and upon request of the Company or the
underwriters managing any underwritten offering of the Company's securities,
Purchaser agrees not to sell, make any short sale of, loan, grant any option for
the purchase of, or otherwise dispose of any Shares (other than those included
in the registration) without the prior written consent of the Company or such
underwriters, as the case may be, for such period of time (not to exceed 180
days) from the effective date of such registration as may be requested by the
Company or such managing underwriters and to execute an agreement reflecting the
foregoing as may be requested by the underwriters at the time of the public
offering.
8. Miscellaneous.
-------------
(a) Governing Law. This Agreement and all acts and transactions
-------------
pursuant hereto and the rights and obligations of the parties hereto shall be
governed, construed and interpreted in accordance with the laws of the State of
Oregon, without giving effect to principles of conflicts of law.
-5-
<PAGE>
(b) Entire Agreement; Enforcement of Rights. This Agreement sets
---------------------------------------
forth the entire agreement and understanding of the parties relating to the
subject matter herein and merges all prior discussions between them. No
modification of or amendment to this Agreement, nor any waiver of any rights
under this Agreement, shall be effective unless in writing signed by the parties
to this Agreement. The failure by either party to enforce any rights under this
Agreement shall not be construed as a waiver of any rights of such party.
(c) Severability. If one or more provisions of this Agreement are
------------
held to be unenforceable under applicable law, the parties agree to renegotiate
such provision in good faith. In the event that the parties cannot reach a
mutually agreeable and enforceable replacement for such provision, then (i) such
provision shall be excluded from this Agreement, (ii) the balance of the
Agreement shall be interpreted as if such provision were so excluded and (iii)
the balance of the Agreement shall be enforceable in accordance with its terms.
(d) Construction. This Agreement is the result of negotiations
------------
between and has been reviewed by each of the parties hereto and their respective
counsel, if any, accordingly, this Agreement shall be deemed to be the product
of all of the parties hereto, and no ambiguity shall be construed in favor of or
against any one of the parties hereto.
(e) Notices. Any notice required or permitted by this Agreement shall
-------
be in writing and shall be deemed sufficient when delivered personally or sent
by telegram or fax or forty-eight (48) hours after being deposited in the U.S.
mail, as certified or registered mail, with postage prepaid, and addressed to
the party to be notified at such party's address as set forth below or as
subsequently modified by written notice.
(f) Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
(g) Successors and Assigns. The rights and benefits of this Agreement
----------------------
shall inure to the benefit of, and be enforceable by the Company's successors
and assigns. The rights and obligations of Purchaser under this Agreement may
only be assigned with the prior written consent of the Company.
[Signature Page Follows]
-6-
<PAGE>
The parties have executed this Exercise Notice and Restricted Stock
Purchase Agreement as of the date first set forth above.
COMPANY:
PORTLAND SOFTWARE, INC.
By:_________________________________
Name:_______________________________
(print)
Title:______________________________
PURCHASER:
____________________________________
(Signature)
____________________________________
(Print Name)
Address:
____________________________________
____________________________________
I, __________________________, spouse of Andy Neville, have read and hereby
approve the foregoing Agreement. In consideration of the Company's granting my
spouse the right to purchase the Shares as set forth in the Agreement, I hereby
agree to be irrevocably bound by the Agreement and further agree that any
community property or other such interest shall hereby by similarly bound by the
Agreement. I hereby appoint my spouse as my attorney-in-fact with respect to any
amendment or exercise of any rights under the Agreement.
____________________________________
Spouse
-7-
<PAGE>
EXHIBIT 10.3
PREVIEW SOFTWARE, INC.
1997 STOCK OPTION PLAN
ADOPTED MAY 22, 1997
APPROVED BY SHAREHOLDER CONSENT MAY 22, 1997
1. Purposes.
(a) The purpose of the Plan is to provide a means by which selected
Employees and Directors of and Consultants to the Company, and its Affiliates,
may be given an opportunity to purchase stock of the Company.
(b) The Company, by means of the Plan, seeks to retain the services of
persons who are now Employees or Directors of or Consultants to the Company or
its Affiliates, to secure and retain the services of new Employees, Directors
and Consultants, and to provide incentives for such persons to exert maximum
efforts for the success of the Company and its Affiliates.
(c) The Company intends that the Options issued under the Plan shall, in
the discretion of the Board or any Committee to which responsibility for
administration of the Plan has been delegated pursuant to subsection 3(c), be
either Incentive Stock Options or Nonstatutory Stock Options. All Options shall
be separately designated Incentive Stock Options or Nonstatutory Stock Options
at the time of grant, and in such form as issued pursuant to Section 6, and a
separate certificate or certificates will be issued for shares purchased on
exercise of each type of Option.
2. Definitions.
(a) "Affiliate" means any parent corporation or subsidiary corporation,
whether now or hereafter existing, as those terms are defined in Sections 424(e)
and (f) respectively, of the Code.
(b) "Board" means the Board of Directors of the Company.
(c) "Code" means the Internal Revenue Code of 1986, as amended.
(d) "Committee" means a Committee appointed by the Board in accordance
with subsection 3(c) of the Plan.
(e) "Company" means Preview Software, Inc., a California corporation.
(f) "Consultant" means any person, including an advisor, engaged by the
Company or an Affiliate to render consulting services and who is compensated for
such
<PAGE>
services, provided that the term "Consultant" shall not include Directors who
are paid only a director's fee by the Company or who are not compensated by the
Company for their services as Directors.
(g) "Continuous Status as an Employee, Director or Consultant" means that
the service of an individual to the Company, whether as an Employee, Director or
Consultant, is not interrupted or terminated. The Board or the chief executive
officer of the Company may determine, in that party's sole discretion, whether
Continuous Status as an Employee, Director or Consultant shall be considered
interrupted in the case of: (i) any leave of absence approved by the Board or
the chief executive officer of the Company, including sick leave, military
leave, or any other personal leave; or (ii) transfers between the Company,
Affiliates or their successors.
(h) "Covered Employee" means the chief executive officer and the four (4)
other highest compensated officers of the Company for whom total compensation is
required to be reported to shareholders under the Exchange Act, as determined
for purposes of Section 162(m) of the Code.
(i) "Director" means a member of the Board.
(j) "Employee" means any person, including Officers and Directors,
employed by the Company or any Affiliate of the Company. Neither service as a
Director nor payment of a director's fee by the Company shall be sufficient to
constitute "employment" by the Company.
(k) "Exchange Act" means the Securities Exchange Act of 1934, as amended.
(l) "Fair Market Value" means the value of the common stock as determined
in good faith by the Board and in a manner consistent with Section 260.140.50 of
Title 10 of the California Code of Regulations.
(m) "Incentive Stock Option" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
(n) "Listing Date" means the first date upon which any security of the
Company is listed (or approved for listing) upon notice of issuance on any
securities exchange, or designated (or approved for designation) upon notice of
issuance as a national market security on an interdealer quotation system if
such securities exchange or interdealer quotation system has been certified in
accordance with the provisions of Section 25100(o) of the California Corporate
Securities Law of 1968.
(o) "Non-Employee Director" means a Director who either (i) is not a
current Employee or Officer of the Company or its parent or subsidiary, does not
receive compensation (directly or indirectly) from the Company or its parent or
subsidiary for services rendered as a consultant or in any capacity other than
as a Director (except for an amount as to
<PAGE>
which disclosure would not be required under Item 404(a) of Regulation S-K
promulgated pursuant to the Securities Act ("Regulation S-K")), does not possess
an interest in any other transaction as to which disclosure would be required
under Item 404(a) of Regulation S-K, and is not engaged in a business
relationship as to which disclosure would be required under Item 404(b) of
Regulation S-K; or (ii) is otherwise considered a "non-employee director" for
purposes of Rule 16b-3.
(p) "Nonstatutory Stock Option" means an Option not intended to qualify as
an Incentive Stock Option.
(q) "Officer" means (i) prior to the Listing Date, any person designated
by the Company as an officer and (ii) from and after the Listing Date, a person
who is an officer of the Company within the meaning of Section 16 of the
Exchange Act and the rules and regulations promulgated thereunder.
(r) "Option" means a stock option granted pursuant to the Plan.
(s) "Option Agreement" means a written agreement between the Company and
an Optionee evidencing the terms and conditions of an individual Option grant.
Each Option Agreement shall be subject to the terms and conditions of the Plan.
(t) "Optionee" means a person to whom an Option is granted pursuant to the
Plan or, if applicable, such other person who holds an outstanding Option.
(u) "Outside Director" means a Director who either (i) is not a current
employee of the Company or an "affiliated corporation" (within the meaning of
the Treasury regulations promulgated under Section 162(m) of the Code), is not a
former employee of the Company or an "affiliated corporation" receiving
compensation for prior services (other than benefits under a tax qualified
pension plan), was not an officer of the Company or an "affiliated corporation"
at any time, and is not currently receiving direct or indirect remuneration from
the Company or an "affiliated corporation" for services in any capacity other
than as a Director, or (ii) is otherwise considered an "outside director" for
purposes of Section 162(m) of the Code.
(v) "Plan" means this 1997 Stock Option Plan.
(w) "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any successor to
Rule 16b-3 as in effect with respect to the Company at the time discretion is
being exercised regarding the Plan.
(x) "Securities Act" means the Securities Act of 1933, as amended.
<PAGE>
3. Administration.
(a) The Plan shall be administered by the Board unless and until the Board
delegates administration to a Committee, as provided in subsection 3(c).
(b) The Board shall have the power, subject to, and within the limitations
of, the express provisions of the Plan:
(1) To determine from time to time which of the persons eligible
under the Plan shall be granted Options; when and how each Option shall be
granted; whether an Option will be an Incentive Stock Option or a Nonstatutory
Stock Option; the provisions of each Option granted (which need not be
identical), including the time or times such Option may be exercised in whole or
in part; and the number of shares for which an Option shall be granted to each
such person.
(2) To construe and interpret the Plan and Options granted under it,
and to establish, amend and revoke rules and regulations for its administration.
The Board, in the exercise of this power, may correct any defect, omission or
inconsistency in the Plan or in any Option Agreement, in a manner and to the
extent it shall deem necessary or expedient to make the Plan fully effective.
(3) To amend the Plan or an Option as provided in Section 11.
(c) The Board may delegate administration of the Plan to a committee of
the Board composed of two (2) or more members (the "Committee"), all of the
members of which Committee may be, in the discretion of the Board, Non-Employee
Directors and/or Outside Directors. If administration is delegated to a
Committee, the Committee shall have, in connection with the administration of
the Plan, the powers theretofore possessed by the Board, including the power to
delegate to a subcommittee of two (2) or more Outside Directors any of the
administrative powers the Committee is authorized to exercise (and references in
this Plan to the Board shall thereafter be to the Committee or such a
subcommittee), subject, however, to such resolutions, not inconsistent with the
provisions of the Plan, as may be adopted from time to time by the Board. The
Board may abolish the Committee at any time and revest in the Board the
administration of the Plan. Additionally, prior to the Listing Date, and
notwithstanding anything to the contrary contained herein, the Board may
delegate administration of the Plan to any person or persons and the term
"Committee" shall apply to any person or persons to whom such authority has been
delegated. Notwithstanding anything in this Section 3 to the contrary, the Board
or the Committee may delegate to a committee of one or more members of the Board
the authority to grant Options to eligible persons who (1) are not then subject
to Section 16 of the Exchange Act and/or (2) are either (i) not then Covered
Employees and are not expected to be Covered Employees at the time of
recognition of income resulting from such Option, or (ii) not persons with
respect to whom the Company wishes to comply with Section 162(m) of the Code.
<PAGE>
4. Shares Subject To The Plan.
(a) Subject to the provisions of Section 10 relating to adjustments upon
changes in stock, the stock that may be sold pursuant to Options shall not
exceed 1,500,000 shares of the Company's common stock. If any Option shall for
any reason expire or otherwise terminate, in whole or in part, without having
been exercised in full, the stock not purchased under such Option shall revert
to and again become available for issuance under the Plan.
(b) The stock subject to the Plan may be unissued shares or reacquired
shares, bought on the market or otherwise.
5. Eligibility.
(a) Incentive Stock Options may be granted only to Employees. Nonstatutory
Stock Options may be granted only to Employees, Directors or Consultants.
(b) No person shall be eligible for the grant of an Option if, at the time
of grant, such person owns (or is deemed to own pursuant to Section 424(d) of
the Code) stock possessing more than ten percent (10%) of the total combined
voting power of all classes of stock of the Company or of any of its Affiliates
unless the exercise price of such Option is at least one hundred ten percent
(110%) of the Fair Market Value of such stock at the date of grant and the
Option is not exercisable after the expiration of five (5) years from the date
of grant.
(c) Subject to the provisions of Section 10 relating to adjustments upon
changes in stock, no person shall be eligible to be granted Options covering
more than one million (1,000,000) shares of the Company's common stock in any
calendar year. This subsection 5(c) shall not apply prior to the Listing Date
and, following the Listing Date, shall not apply until (i) the earliest of: (A)
the first material modification of the Plan (including any increase to the
number of shares reserved for issuance under the Plan in accordance with Section
4); (B) the issuance of all of the shares of common stock reserved for issuance
under the Plan; (C) the expiration of the Plan; or (D) the first meeting of
shareholders at which directors are to be elected that occurs after the close of
the third calendar year following the calendar year in which occurred the first
registration of an equity security under Section 12 of the Exchange Act; or (ii)
such other date required by Section 162(m) of the Code and the rules and
regulations promulgated thereunder.
6. Option Provisions.
Each Option shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate. The provisions of separate
Options need not be identical, but each Option shall include (through
incorporation of provisions hereof by reference in the Option or otherwise) the
substance of each of the following provisions:
<PAGE>
(a) Term. No Option shall be exercisable after the expiration of ten (10)
years from the date it was granted.
(b) Price. The exercise price of each Incentive Stock Option shall be not
less than one hundred percent (100%) of the Fair Market Value of the stock
subject to the Option on the date the Option is granted; the exercise price of
each Nonstatutory Stock Option shall be not less than eighty-five percent (85%)
of the Fair Market Value of the stock subject to the Option on the date the
Option is granted. Notwithstanding the foregoing, an Option (whether an
Incentive Stock Option or a Nonstatutory Stock Option) may be granted with an
exercise price lower than that set forth in the preceding sentence if such
Option is granted pursuant to an assumption or substitution for another option
in a manner satisfying the provisions of Section 424(a) of the Code.
(c) Consideration. The purchase price of stock acquired pursuant to an
Option shall be paid, to the extent permitted by applicable statutes and
regulations, either (i) in cash at the time the Option is exercised, or (ii) at
the discretion of the Board or the Committee, at the time of the grant of the
Option, (A) by delivery to the Company of other common stock of the Company, (B)
according to a deferred payment or other arrangement (which may include, without
limiting the generality of the foregoing, the use of other common stock of the
Company) with the person to whom the Option is granted or to whom the Option is
transferred pursuant to subsection 6(d), or (C) in any other form of legal
consideration that may be acceptable to the Board. In the case of any deferred
payment arrangement, interest shall be compounded at least annually and shall be
charged at the minimum rate of interest necessary to avoid the treatment as
interest, under any applicable provisions of the Code, of any amounts other than
amounts stated to be interest under the deferred payment arrangement. In
addition, to the extent required by law, the par value of the stock will be paid
in cash at the time the Option is exercised.
(d) Transferability. Prior to the Listing Date, an Option (whether an
Incentive Stock Option or a Nonstatutory Stock Option) shall not be transferable
except by will or by the laws of descent and distribution, and shall be
exercisable during the lifetime of the person to whom the Option is granted only
by such person. From and after the Listing Date, a Nonstatutory Stock Option may
be transferable to the extent provided in the Option Agreement; provided,
however, that if the Option Agreement does not specifically provide for
transferability, then such Nonstatutory Stock Option shall not be transferable
except by will or by the laws of descent and distribution. Notwithstanding the
foregoing, the person to whom the Option is granted may, by delivering written
notice to the Company, in a form satisfactory to the Company, designate a third
party who, in the event of the death of the Optionee, shall thereafter be
entitled to exercise the Option.
(e) Vesting. The total number of shares of stock subject to an Option may,
but need not, be allotted in periodic installments (which may, but need not, be
equal). The Option Agreement may provide that from time to time during each of
such installment periods, the Option may become exercisable ("vest") with
respect to some or all of the shares allotted to that period, and may be
exercised with respect to some or all of the shares allotted to such
<PAGE>
period and/or any prior period as to which the Option became vested but was not
fully exercised. The Option may be subject to such other terms and conditions on
the time or times when it may be exercised (which may be based on performance or
other criteria) as the Board may deem appropriate. The vesting provisions of
individual Options may vary, provided, however that prior to the Listing Date,
each Option will provide for vesting of at least twenty percent (20%) per year
of the total number of shares subject to the Option. Notwithstanding the
foregoing, an Option granted to an Officer, Director or Consultant may become
fully exercisable, subject to reasonable conditions such as continued
employment, at any time or during any period established by the Company or of
any of its Affiliates. The provisions of this subsection 6(e) are subject to any
Option provisions governing the minimum number of shares as to which an Option
may be exercised.
(f) Securities Law Compliance. The Company may require any Optionee, or
any person to whom an Option is transferred under subsection 6(d), as a
condition of exercising any such Option, (1) to give written assurances
satisfactory to the Company as to the Optionee's knowledge and experience in
financial and business matters and/or to employ a purchaser representative
reasonably satisfactory to the Company who is knowledgeable and experienced in
financial and business matters, and that he or she is capable of evaluating,
alone or together with the purchaser representative, the merits and risks of
exercising the Option; and (2) to give written assurances satisfactory to the
Company stating that such person is acquiring the stock subject to the Option
for such person's own account and not with any present intention of selling or
otherwise distributing the stock. The foregoing requirements, and any assurances
given pursuant to such requirements, shall be inoperative if (i) the issuance of
the shares upon the exercise of the Option has been registered under a then
currently effective registration statement under the Securities Act, or (ii) as
to any particular requirement, a determination is made by counsel for the
Company that such requirement need not be met in the circumstances under the
then applicable securities laws. The Company may require the Optionee to provide
such other representations, written assurances or information which the Company
shall determine is necessary, desirable or appropriate to comply with applicable
securities and other laws as a condition of granting an Option to such Optionee
or permitting the Optionee to exercise such Option. The Company may, upon advice
of counsel to the Company, place legends on stock certificates issued under the
Plan as such counsel deems necessary or appropriate in order to comply with
applicable securities laws, including, but not limited to, legends restricting
the transfer of the stock.
(g) Termination of Employment or Relationship as a Director or Consultant.
In the event an Optionee's Continuous Status as an Employee, Director or
Consultant terminates (other than upon the Optionee's death or disability), the
Optionee may exercise his or her Option (to the extent that the Optionee was
entitled to exercise it as of the date of termination) but only within such
period of time ending on the earlier of (i) the date three (3) months following
the termination of the Optionee's Continuous Status as an Employee, Director or
Consultant, or such longer or shorter period, which shall not be less than
thirty (30) days, specified in the Option Agreement, or (ii) the expiration of
the term of the Option as set forth in the Option Agreement; provided, however,
if the Optionee is terminated for cause, then the Option shall terminate on the
date Optionee's Continuous Status as an
<PAGE>
Employee, Director or Consultant ceases. If, at the date of termination, the
Optionee is not entitled to exercise his or her entire Option, the shares
covered by the unexercisable portion of the Option shall revert to and again
become available for issuance under the Plan. If, after termination, the
Optionee does not exercise his or her Option within the time specified in the
Option Agreement, the Option shall terminate, and the shares covered by such
Option shall revert to and again become available for issuance under the Plan.
An Optionee's Option Agreement may also provide that if the exercise of the
Option following the termination of the Optionee's Continuous Status as an
Employee, Director, or Consultant (other than upon the Optionee's death or
disability) would result in liability under Section 16(b) of the Exchange Act,
then the Option shall terminate on the earlier of (i) the expiration of the term
of the Option set forth in the Option Agreement, or (ii) the tenth (10th) day
after the last date on which such exercise would result in such liability under
Section 16(b) of the Exchange Act. Finally, an Optionee's Option Agreement may
also provide that if the exercise of the Option following the termination of the
Optionee's Continuous Status as an Employee, Director or Consultant (other than
upon the Optionee's death or disability) would be prohibited at any time solely
because the issuance of shares would violate the registration requirements under
the Securities Act, then the Option shall terminate on the earlier of (i) the
expiration of the term of the Option set forth in the first paragraph of this
subsection 6(g), or (ii) the expiration of a period of three (3) months after
the termination of the Optionee's Continuous Status as an Employee, Director or
Consultant during which the exercise of the Option would not be in violation of
such registration requirements.
(h) Disability of Optionee. In the event an Optionee's Continuous Status
as an Employee, Director or Consultant terminates as a result of the Optionee's
disability, the Optionee may exercise his or her Option (to the extent that the
Optionee was entitled to exercise it as of the date of termination), but only
within such period of time ending on the earlier of (i) the date twelve (12)
months following such termination (or such longer or shorter period, which in no
event shall be less than six (6) months, specified in the Option Agreement), or
(ii) the expiration of the term of the Option as set forth in the Option
Agreement. If, at the date of termination, the Optionee is not entitled to
exercise his or her entire Option, the shares covered by the unexercisable
portion of the Option shall revert to and again become available for issuance
under the Plan. If, after termination, the Optionee does not exercise his or her
Option within the time specified herein, the Option shall terminate, and the
shares covered by such Option shall revert to and again become available for
issuance under the Plan.
(i) Death of Optionee. In the event of the death of an Optionee during, or
within a period specified in the Option Agreement after the termination of, the
Optionee's Continuous Status as an Employee, Director or Consultant, the Option
may be exercised (to the extent the Optionee was entitled to exercise the Option
as of the date of death) by the Optionee's estate, by a person who acquired the
right to exercise the Option by bequest or inheritance or by a person designated
to exercise the option upon the Optionee's death pursuant to subsection 6(d),
but only within the period ending on the earlier of (i) the date eighteen (18)
months following the date of death (or such longer or shorter period, which in
no event shall be less than six (6)
<PAGE>
months, specified in the Option Agreement), or (ii) the expiration of the term
of such Option as set forth in the Option Agreement. If, at the time of death,
the Optionee was not entitled to exercise his or her entire Option, the shares
covered by the unexercisable portion of the Option shall revert to and again
become available for issuance under the Plan. If, after death, the Option is not
exercised within the time specified herein, the Option shall terminate, and the
shares covered by such Option shall revert to and again become available for
issuance under the Plan.
(j) Early Exercise. The Option may, but need not, include a provision
whereby the Optionee may elect at any time while an Employee, Director or
Consultant to exercise the Option as to any part or all of the shares subject to
the Option prior to the full vesting of the Option. Any unvested shares so
purchased shall be subject to a repurchase right in favor of the Company, with
the repurchase price to be equal to the original purchase price of the stock, or
to any other restriction the Board determines to be appropriate. Prior to the
Listing Date, however, any unvested shares so purchased shall be subject to a
repurchase right in favor of the Company, with the repurchase price to be equal
to the original purchase price of the stock, or to any other restriction the
Board determines to be appropriate; provided, however, that (i) the right to
repurchase at the original purchase price shall lapse at a minimum rate of
twenty percent (20%) per year over five (5) years from the date the Option was
granted, and (ii) such right shall be exercisable only within (A) the ninety
(90)-day period following the termination of employment or the relationship as a
Director or Consultant, or (B) such longer period as may be agreed to by the
Company and the Optionee (for example, for purposes of satisfying the
requirements of Section 1202(c)(3) of the Code (regarding "qualified small
business stock")), and (iii) such right shall be exercisable only for cash or
cancellation of purchase money indebtedness for the shares. Notwithstanding the
foregoing, shares received on exercise of an Option by an Officer, Director or
Consultant may be subject to additional or greater restrictions.
(k) Right of Repurchase. The Option may, but need not, include a provision
whereby the Company may elect, prior to the Listing Date, to repurchase all or
any part of the vested shares exercised pursuant to the Option; provided,
however, that (i) such repurchase right shall be exercisable only within (A) the
ninety (90)-day period following the termination of employment or the
relationship as a Director or Consultant (or in the case of a post-termination
exercise of the Option, the ninety (90)-day period following such post-
termination exercise), or (B) such longer period as may be agreed to by the
Company and the Optionee (for example, for purposes of satisfying the
requirements of Section 1202(c)(3) of the Code (regarding "qualified small
business stock")), (ii) such repurchase right shall be exercisable for less than
all of the vested shares only with the Optionee's consent, and (iii) such right
shall be exercisable only for cash or cancellation of purchase money
indebtedness for the shares at a repurchase price equal to the stock's Fair
Market Value at the time of such termination. Notwithstanding the foregoing,
shares received on exercise of an Option by an Officer, Director or Consultant
may be subject to additional or greater restrictions specified in the Option
Agreement.
<PAGE>
(l) Right of First Refusal. The Option may, but need not, include a
provision whereby the Company may elect, prior to the Listing Date, to exercise
a right of first refusal following receipt of notice from the Optionee of the
intent to transfer all or any part of the shares exercised pursuant to the
Option. Such right of first refusal must be exercised by the Company no more
than thirty (30) days following receipt of notice of the Optionee's intent to
transfer shares and must be exercised as to all the shares the Optionee intends
to transfer unless the Optionee consents to exercise for less than all the
shares offered. The purchase of the shares following exercise must be completed
within sixty (60) days of the Company's receipt of notice of the Optionee's
intent to transfer shares or such longer period of time as has been offered by
the person to whom the Optionee intends to transfer the shares.
(m) Withholding. To the extent provided by the terms of an Option
Agreement, the Optionee may satisfy any federal, state or local tax withholding
obligation relating to the exercise of such Option by any of the following means
or by a combination of such means: (1) tendering a cash payment; (2) authorizing
the Company to withhold shares from the shares of the common stock otherwise
issuable to the Optionee as a result of the exercise of the Option; or (3)
delivering to the Company owned and unencumbered shares of the common stock of
the Company.
7. Covenants Of The Company.
(a) During the terms of the Options, the Company shall keep available at
all times the number of shares of stock required to satisfy such Options.
(b) The Company shall seek to obtain from each regulatory commission or
agency having jurisdiction over the Plan such authority as may be required to
issue and sell shares of stock upon exercise of the Options; provided, however,
that this undertaking shall not require the Company to register under the
Securities Act either the Plan, any Option or any stock issued or issuable
pursuant to any such Option. If, after reasonable efforts, the Company is unable
to obtain from any such regulatory commission or agency the authority which
counsel for the Company deems necessary for the lawful issuance and sale of
stock under the Plan, the Company shall be relieved from any liability for
failure to issue and sell stock upon exercise of such Options unless and until
such authority is obtained.
8. Use Of Proceeds From Stock.
Proceeds from the sale of stock pursuant to Options shall constitute
general funds of the Company.
9. Miscellaneous.
(a) The Board shall have the power to accelerate the time at which an
Option may first be exercised or the time during which an Option or any part
thereof will vest pursuant to subsection 6(e), notwithstanding the provisions in
the Option stating the time at which it may first be exercised or the time
during which it will vest.
<PAGE>
(b) Neither an Optionee nor any person to whom an Option is transferred
under subsection 6(d) shall be deemed to be the holder of, or to have any of the
rights of a holder with respect to, any shares subject to such Option unless and
until such person has satisfied all requirements for exercise of the Option
pursuant to its terms.
(c) Throughout the term of any Option, the Company shall deliver to the
holder of such Option, not later than one hundred twenty (120) days after the
close of each of the Company's fiscal years during the Option term, a balance
sheet and an income statement. This section shall not apply (i) after the
Listing Date, or (ii) when issuance is limited to key employees whose duties in
connection with the Company assure them access to equivalent information.
(d) Nothing in the Plan or any instrument executed or Option granted
pursuant thereto shall confer upon any Employee, Director, Consultant or
Optionee any right to continue in the employ of the Company or any Affiliate (or
to continue acting as a Director or Consultant or shall affect the right of the
Company or any Affiliate to terminate the employment of any Employee, with or
without cause, to remove any Director as provided in the Company's Bylaws and
the provisions of the California General Corporation Law, or to terminate the
relationship of any Consultant subject to the terms of that Consultant's
agreement with the Company or Affiliate to which such Consultant is providing
services.
(e) To the extent that the aggregate Fair Market Value (determined at the
time of grant) of stock with respect to which Incentive Stock Options are
exercisable for the first time by any Optionee during any calendar year under
all plans of the Company and its Affiliates exceeds one hundred thousand dollars
($100,000), the Options or portions thereof which exceed such limit (according
to the order in which they were granted) shall be treated as Nonstatutory Stock
Options.
(f) (1) The Board or the Committee shall have the authority to effect, at
any time and from time to time (i) the repricing of any outstanding Options
under the Plan and/or (ii) with the consent of the affected holders of Options,
the cancellation of any outstanding Options and the grant in substitution
therefor of new Options under the Plan covering the same or different numbers of
shares of common stock, but having an exercise price per share not less than
eighty-five percent (85%) of the Fair Market Value (one hundred percent (100%)
of the Fair Market Value in the case of an Incentive Stock Option or, in the
case of a ten percent (10%) shareholder (as defined in subsection 5(b)), not
less than one hundred and ten percent (110%) of the Fair Market Value) per share
of common stock on the new grant date.
(2) Shares subject to an Option canceled under this subsection 9(f)
shall continue to be counted, for the applicable period in which it was granted,
against the maximum award of Options permitted to be granted pursuant to
subsection 5(c) of the Plan. The repricing of an Option under this subsection
9(f), resulting in a reduction of the exercise price, shall be deemed to be a
cancellation of the original Option and the grant of a substitute Option; in the
event of such repricing, both the original and the substituted Options shall be
<PAGE>
counted for the applicable period against the maximum awards of Options
permitted to be granted pursuant to subsection 5(c) of the Plan. The provisions
of this subsection 9(f)(2) shall be applicable only to the extent required by
Section 162(m) of the Code.
(g) Re-Load Options. Without in any way limiting the authority of the
Board or Committee to make or not to make grants of Options hereunder, the Board
or Committee shall have the authority (but not an obligation) to include as part
of any Option Agreement a provision entitling the Optionee to a further Option
(a "Re-Load Option") in the event the Optionee exercises the Option evidenced by
the Option Agreement, in whole or in part, by surrendering other shares of
common stock in accordance with this Plan and the terms and conditions of the
Option Agreement. Any such Re-Load Option (i) shall be for a number of shares
equal to the number of shares surrendered as part or all of the exercise price
of such Option; (ii) shall have an expiration date which is the same as the
expiration date of the Option the exercise of which gave rise to such Re-Load
Option; and (iii) shall have an exercise price which is equal to one hundred
percent (100%) of the Fair Market Value of the stock subject to the Re-Load
Option on the date of exercise of the original Option. Notwithstanding the
foregoing, a Re-Load Option which is granted to a 10% shareholder (as described
in subsection 5(b)), shall have an exercise price which is equal to one hundred
ten percent (110%) of the Fair Market Value of the stock subject to the Re-Load
Option on the date of exercise of the original Option and shall have a term
which is no longer than five (5) years.
Any such Re-Load Option may be an Incentive Stock Option or a Nonstatutory
Stock Option, as the Board or Committee may designate at the time of the grant
of the original Option; provided, however, that the designation of any Re-Load
Option as an Incentive Stock Option shall be subject to the one hundred thousand
dollar ($100,000) annual limitation on exercisability of Incentive Stock Options
described in subsection 9(e) of the Plan and in Section 422(d) of the Code.
There shall be no Re-Load Options on a Re-Load Option. Any such Re-Load Option
shall be subject to the availability of sufficient shares under subsection 4(a)
and the limits on the grants of Options under subsection 5(c) and shall be
subject to such other terms and conditions as the Board or Committee may
determine which are not inconsistent with the express provisions of the Plan
regarding the terms of Options.
<PAGE>
10. Adjustments Upon Changes In Stock.
(a) If any change is made in the stock subject to the Plan, or subject to
any Option (through merger, consolidation, reorganization, recapitalization,
stock dividend, dividend in property other than cash, stock split, liquidating
dividend, combination of shares, exchange of shares, change in corporate
structure or other transaction not involving the receipt of consideration by the
Company), the Plan will be appropriately adjusted in the type(s) and maximum
number of securities subject to the Plan pursuant to subsection 4(a) and the
maximum number of securities subject to award to any person during any calendar
year pursuant to subsection 5(c), and the outstanding Options will be
appropriately adjusted in the type(s) and number of securities and price per
share of stock subject to such outstanding Options. Such adjustments shall be
made by the Board or Committee, the determination of which shall be final,
binding and conclusive. (The conversion of any convertible securities of the
Company shall not be treated as a "transaction not involving the receipt of
consideration by the Company.")
(b) In the event of: (1) a dissolution, liquidation, or sale of all or
substantially all of the assets of the Company; (2) a merger or consolidation in
which the Company is not the surviving corporation; (3) a reverse merger in
which the Company is the surviving corporation but the shares of the Company's
common stock outstanding immediately preceding the merger are converted by
virtue of the merger into other property, whether in the form of securities,
cash or otherwise; or (4) the acquisition by any person, entity or group within
the meaning of Section 13(d) or 14(d) of the Exchange Act, or any comparable
successor provisions (excluding any employee benefit plan, or related trust,
sponsored or maintained by the Company or any Affiliate of the Company) of the
beneficial ownership (within the meaning of Rule 13d-3 promulgated under the
Exchange Act, or comparable successor rule) of securities of the Company
representing at least fifty percent (50%) of the combined voting power entitled
to vote in the election of directors, then: (i) any surviving or acquiring
corporation shall assume Options outstanding under the Plan or shall substitute
similar options (including an option to acquire the same consideration paid to
shareholders in the transaction described in this Subsection 10(b)) for those
outstanding under the Plan, or (ii) in the event any surviving or acquiring
corporation refuses to assume such Options or to substitute similar options for
those outstanding under the Plan, (A) with respect to Options held by persons
then performing services as Employees, Directors or Consultants and subject to
any applicable provisions of the California Corporate Securities Law of 1968 and
related regulations relied upon as a condition of issuing securities pursuant to
the Plan, the vesting of such Options and the time during which such Options may
be exercised shall be accelerated prior to such event and the Options terminated
if not exercised after such acceleration and at or prior to such event, and (B)
with respect to any other Options outstanding under the Plan, such Options shall
be terminated if not exercised prior to such event.
<PAGE>
11. Amendment Of The Plan And Options.
(a) The Board at any time, and from time to time, may amend the Plan.
However, except as provided in paragraph 10 relating to adjustments upon changes
in stock, no amendment shall be effective unless approved by the shareholders of
the Company to the extent shareholder approval is necessary for the Plan to
satisfy the requirements of Section 422 of the Code, Rule 16b-3 under the
Exchange Act or any Nasdaq or securities exchange listing requirements.
(b) The Board may in its sole discretion submit any other amendment to the
Plan for shareholder approval, including, but not limited to, amendments to the
Plan intended to satisfy the requirements of Section 162(m) of the Code and the
regulations promulgated thereunder regarding the exclusion of performance-based
compensation from the limit on corporate deductibility of compensation paid to
certain executive officers.
(c) It is expressly contemplated that the Board may amend the Plan in any
respect the Board deems necessary or advisable to provide Optionees with the
maximum benefits provided or to be provided under the provisions of the Code and
the regulations promulgated thereunder relating to Incentive Stock Options
and/or to bring the Plan and/or Incentive Stock Options granted under it into
compliance therewith.
(d) Rights and obligations under any Option granted before amendment of
the Plan shall not be impaired by any amendment of the Plan unless (i) the
Company requests the consent of the person to whom the Option was granted and
(ii) such person consents in writing.
(e) The Board at any time, and from time to time, may amend the terms of
any one or more Options; provided, however, that the rights and obligations
under any Option shall not be impaired by any such amendment unless (i) the
Company requests the consent of the person to whom the Option was granted and
(ii) such person consents in writing.
12. Termination Or Suspension Of The Plan.
(a) The Board may suspend or terminate the Plan at any time. Unless sooner
terminated, the Plan shall terminate on May 22, 2007, which shall be within ten
(10) years from the date the Plan is adopted by the Board or approved by the
shareholders of the Company, whichever is earlier. No Options may be granted
under the Plan while the Plan is suspended or after it is terminated.
(b) Rights and obligations under any Option granted while the Plan is in
effect shall not be impaired by suspension or termination of the Plan, except
with the written consent of the person to whom the Option was granted.
<PAGE>
13. Effective Date Of Plan.
The Plan shall become effective as determined by the Board, but no Options
granted under the Plan shall be exercised unless and until the Plan has been
approved by the shareholders of the Company, which approval shall be within
twelve (12) months before or after the date the Plan is adopted by the Board.
<PAGE>
PREVIEW SOFTWARE, INC.
STOCK OPTION GRANT NOTICE
(1997 Stock Option Plan)
Preview Software, Inc. (the "Company"), pursuant to its 1997 Stock Option Plan
(the "Plan"), hereby grants to Optionee an option (the "Option") to purchase the
number of shares of the Company's common stock set forth below. This Option is
subject to all of the terms and conditions as set forth herein and in
Attachments I, II and II which are incorporated herein in their entirety.
Optionee:
Date of Grant:
Vesting Commencement Date:
Shares Subject to Option:
Exercise Price Per Share:
Expiration Date:
___ Incentive Stock Option ____ Nonstatutory Stock Option
Exercise Schedule: Immediately Exercisable, subject to the right of
-----------------
repurchase in favor of the Company, at the
Exercise Price Per Share with respect to shares
not then vested according to the Vesting Schedule
below.
Vesting Schedule: 1/4 of the total number of shares shall vest on
----------------
the first anniversary of the Vesting Commencement
Date set forth above and 1/48th of the total
number of shares subject to the option shall vest
the end of each month following the Vesting
Commencement Date.
Payment: Any or a combination of the following: (i) by cash or check, (ii)
pursuant to a Regulation T program, as set forth in the Stock Option Agreement,
(iii) delivering shares of previously-owned common stock, as set forth in the
Stock Option Agreement; or (iv) by promissory note.
Additional Terms/Acknowledgements: The undersigned Optionee acknowledges receipt
of, and understands and agrees to, this Grant Notice, the Stock Option Agreement
and the Plan. Optionee further acknowledges that as of the Date of Grant, this
Grant Notice, the Stock Option Agreement and the Plan set forth the entire
understanding between Optionee and the Company regarding the acquisition of
stock in the Company and supersedes all prior oral and written agreements on
that subject with the exception of (i) options previously granted and delivered
to Optionee under the Plan.
PREVIEW SOFTWARE, INC. OPTIONEE:
By:__________________________ _______________________________
Signature
Title:_______________________
Date:________________________ Date:__________________________
Attachment I: Stock Option Agreement
Attachment II: Form of Early Exercise Agreement and Restricted Stock
Purchase Agreement
Attachment III 1997 Stock Option Plan
<PAGE>
ATTACHMENT I
STOCK OPTION AGREEMENT
----------------------
Pursuant to the Grant Notice and this Stock Option Agreement, the Company
has granted you an option to purchase the number of shares of the Company's
common stock ("Common Stock") indicated in the Grant Notice at the exercise
price indicated in the Grant Notice.
Your option is granted in connection with and in furtherance of the
Company's compensatory benefit plan for the Company's employees (including
officers), directors or consultants, and is intended to comply with the
provisions of (i) Rule 701 promulgated by the Securities and Exchange Commission
under the Securities Act of 1933, as amended (the "Securities Act") and (ii)
Section 25102(o) of the California Corporations Code. Defined terms not
explicitly defined in this Stock Option Agreement but defined in the Plan shall
have the same definitions as in the Plan.
The details of your option are as follows:
1. VESTING. Subject to the limitations contained herein, your option will
vest as provided in the Grant Notice, provided that vesting will cease upon the
termination of your Continuous Status as an Employee, Director or Consultant.
2. Method Of Payment.
(a) Payment Options. Payment of the exercise price by cash or check
is due in full upon exercise of all or any part of your option, provided that
you may elect, to the extent permitted by applicable law and the Grant Notice,
to make payment of the exercise price under one of the following alternatives:
(i) Payment pursuant to a program developed under Regulation T
as promulgated by the Federal Reserve Board which, prior to the issuance of
Common Stock, results in either the receipt of cash (or check) by the Company or
the receipt of irrevocable instructions to pay the aggregate exercise price to
the Company from the sales proceeds;
(ii) Provided that at the time of exercise the Company's Common
Stock is publicly traded and quoted regularly in the Wall Street Journal,
payment by delivery of already-owned shares of Common Stock, held for the period
required to avoid a charge to the Company's reported earnings, and owned free
and clear of any liens, claims, encumbrances or security interests, which Common
Stock shall be valued at its fair market value on the date of exercise;
(iii) Payment pursuant to a promissory note; or
<PAGE>
(iv) Payment by a combination of the above methods.
3. Exercise Prior To Vesting. If permitted in the Grant Notice, and
subject to the provisions of your option contained herein, you may elect, at any
time that is both (i) during your Continuous Status as an Employee, Director or
----
Consultant and (ii) during your option's term, to exercise all or part of your
option, including the unvested portion of your option; provided, however, that:
(i) a partial exercise of your option shall be deemed to cover
first vested shares and then the earliest vesting installment of unvested
shares;
(ii) any shares so purchased from installments which have not
vested as of the date of exercise shall be subject to the purchase option in
favor of the Company as described in the Company's form of Early Exercise Stock
Purchase Agreement;
(iii) you shall enter into the Company's form of Early Exercise
Stock Purchase Agreement with a vesting schedule that will result in the same
vesting as if no early exercise had occurred; and
(iv) your option shall not be exercisable with respect to any
unvested installment to the extent such exercise would cause the aggregate fair
market value of any shares subject to incentive stock options granted you by the
Company (valued as of their grant date) which would become exercisable for the
first time during any calendar year to exceed $100,000.
4. Whole Shares. Your option may only be exercised for whole shares.
5. Securities Law Compliance. Notwithstanding anything to the contrary
contained herein, your option may not be exercised unless the shares issuable
upon exercise of your option are then registered under the Securities Act or, if
such shares are not then so registered, the Company has determined that such
exercise and issuance would be exempt from the registration requirements of the
Securities Act.
6. Term. The term of your option commences on the Date of Grant and
expires upon the earliest of:
(i) the Expiration Date indicated in the Grant Notice;
(ii) the tenth (10th) anniversary of the Date of Grant;
(iii) eighteen (18) months after your death, if you die during,
or within three (3) months after the termination of your Continuous Status as
Employee, Director or Consultant;
<PAGE>
(iv) twelve (12) months after the termination of your
Continuous Status as Employee, Director or Consultant due to disability;
(v) immediately after the termination of your Continuous
Status as Employee, Director or Consultant for Cause; or
(vi) three (3) months after the termination of your Continuous
Status as an Employee, Director or Consultant for any other reason, provided
that if during any part of such three (3)-month period the option is not
exercisable solely because of the condition set forth in paragraph 5 (Securities
Law Compliance), in which event the option shall not expire until the earlier of
the Expiration Date or until it shall have been exercisable for an aggregate
period of three (3) months after the termination of Continuous Status as an
Employee, Director or Consultant.
For these purposes, "Cause" shall constitute conviction of any felony, the
commission of any act of fraud, embezzlement or dishonesty with respect to the
Company, any unauthorized use or disclosure of confidential information or trade
secrets of the Company, any other intentional misconduct adversely affecting the
business or affairs of the Company in a material manner or repeated unexcused
absence from the Company.
To obtain the federal income tax advantages associated with an "incentive
stock option," the Code requires that at all times beginning on the grant date
of the option and ending on the day three (3) months before the date of the
option's exercise, you must be an employee of the Company, except in the event
of your death or permanent and total disability. The Company cannot guarantee
that your option will be treated as an "incentive stock option" if you exercise
your option more than three (3) months after the date your employment with the
Company terminates.
7. EXERCISE.
(a) You may exercise your option during its term (and the unvested
portion of your option if the Grant Notice so permits) by delivering a notice of
exercise (in a form designated by the Company) together with the exercise price
to the Secretary of the Company, or to such other person as the Company may
designate, during regular business hours, together with such additional
documents as the Company may then require.
(b) By exercising your option you agree that:
(i) as a condition to any exercise of your option, the Company
may require you to enter an arrangement providing for the payment by you to the
Company of any tax withholding obligation of the Company arising by reason of
(1) the exercise of your option; (2) the lapse of any substantial risk of
forfeiture to which the shares are subject at the time of exercise; or (3) the
disposition of shares acquired upon such exercise;
(ii) you will notify the Company in writing within fifteen (15)
days after the date of any disposition of any of the shares of the Common Stock
issued upon exercise of an incentive stock option that occurs within two (2)
years after the Date of Grant or
-3-
<PAGE>
within one (1) year after such shares of Common Stock are transferred upon
exercise of your option; and
(iii) the Company (or a representative of the underwriters) may,
in connection with the first underwritten registration of the offering of any
securities of the Company under the Act, require that you not sell or otherwise
transfer or dispose of any shares of Common Stock or other securities of the
Company during such period (not to exceed one hundred eighty (180) days)
following the effective date of the registration statement of the Company filed
under the Act as may be requested by the Company or the representative of the
underwriters. You further agree that the Company may impose stop-transfer
instructions with respect to securities subject to the foregoing restrictions
until the end of such period.
8. TRANSFERABILITY. Your option is not transferable, except by will
or by the laws of descent and distribution, and is exercisable during your life
only by you. Notwithstanding the foregoing, by delivering written notice to the
Company, in a form satisfactory to the Company, you may designate a third party
who, in the event of your death, shall thereafter be entitled to exercise your
option.
9. RIGHT OF FIRST REFUSAL/RIGHT OF REPURCHASE. In addition to any
other limitation on transfer created by applicable securities laws, you may not
assign, encumber or dispose of any interest in the shares granted under the
Option (the "Shares") except in compliance with the provisions below and
applicable securities laws.
(a) Right of First Refusal. Before any Shares held by you or your
transferee (either being sometimes referred to herein as the "Holder") may be
sold or otherwise transferred (including transfer by gift or operation of law),
the Company or its assignee(s) shall have a right of first refusal to purchase
the Shares on the terms and conditions set forth in this Section 9(a) (the
"Right of First Refusal").
(i) Notice of Proposed Transfer. The Holder of the Shares shall
---------------------------
deliver to the Company a written notice (the "Notice") stating: (i) the Holder's
bona fide intention to sell or otherwise transfer such Shares; (ii) the name of
each proposed purchaser or other transferee ("Proposed Transferee"); (iii) the
number of Shares to be transferred to each Proposed Transferee; and (iv) the
terms and conditions of each proposed sale or transfer. The Holder shall offer
the Shares at the same price (the "Offered Price") and upon the same terms (or
terms as similar as reasonably possible) to the Company or its assignee(s).
(ii) Exercise of Right of First Refusal. At any time within
----------------------------------
thirty (30) days after receipt of the Notice, the Company and/or its assignee(s)
may, by giving written notice to the Holder, elect to purchase all, but not less
than all, of the Shares proposed to be transferred to any one or more of the
Proposed Transferees, at the purchase price determined in accordance with
subsection (iii) below.
(iii) Purchase Price. The purchase price ("Purchase Price") for
--------------
the Shares purchased by the Company or its assignee(s) under this Section 9(a)
shall be the
-4-
<PAGE>
Offered Price. If the Offered Price includes consideration other than cash, the
cash equivalent value of the non-cash consideration shall be determined by the
Board of Directors of the Company in good faith.
(iv) Payment. Payment of the Purchase Price shall be made, at the
-------
option of the Company or its assignee(s), in cash (by check), by cancellation of
all or a portion of any outstanding indebtedness of the Holder to the Company
(or, in the case of repurchase by an assignee, to the assignee), or by any
combination thereof within 30 days after receipt of the Notice or in the manner
and at the times set forth in the Notice.
(v) Holder's Right to Transfer. If all of the Shares proposed in
--------------------------
the Notice to be transferred to a given Proposed Transferee are not purchased by
the Company and/or its assignee(s) as provided in this Section 9(a), then the
Holder may sell or otherwise transfer such Shares to that Proposed Transferee at
the Offered Price or at a higher price, provided that such sale or other
transfer is consummated within 60 days after the date of the Notice and provided
further that any such sale or other transfer is effected in accordance with any
applicable securities laws and the Proposed Transferee agrees in writing that
the provisions of this Section 9 shall continue to apply to the Shares in the
hands of such Proposed Transferee. If the Shares described in the Notice are not
transferred to the Proposed Transferee within such period, or if the Holder
proposes to change the price or other terms to make them more favorable to the
Proposed Transferee, a new Notice shall be given to the Company, and the Company
and/or its assignees shall again be offered the Right of First Refusal before
any Shares held by the Holder may be sold or otherwise transferred.
(vi) Exception for Certain Family Transfers. Anything to the
--------------------------------------
contrary contained in this Section 9(a) notwithstanding, the transfer of any or
all of the Shares during your lifetime or on your death by will or intestacy to
your Immediate Family or a trust for the benefit of your Immediate Family shall
be exempt from the provisions of this Section 9(a). "Immediate Family" as used
herein shall mean spouse, lineal descendant or antecedent, father, mother,
brother or sister. In such case, the transferee or other recipient shall receive
and hold the Shares so transferred subject to the provisions of this Section,
and there shall be no further transfer of such Shares except in accordance with
the terms of this Section 9.
(b) Involuntary Transfer.
--------------------
(i) Company's Right to Purchase upon Involuntary Transfer.
-----------------------------------------------------
In the event, at any time after the date of this Agreement, of any transfer by
operation of law or other involuntary transfer (including death or divorce, but
excluding a transfer to Immediate Family as set forth in Section 9(a)(vi) above)
of all or a portion of the Shares by the record holder thereof, the Company
shall have an option to purchase all of the Shares transferred at the greater of
the purchase price paid by your pursuant to this Agreement or the fair market
value of the Shares on the date of transfer. Upon such a transfer, the person
acquiring the Shares shall promptly notify the Secretary of the Company of such
transfer. The right to purchase such Shares shall be provided to the Company for
a period of thirty (30) days following receipt by the Company of written notice
by the person acquiring the Shares.
-5-
<PAGE>
(ii) Price for Involuntary Transfer. With respect to any
------------------------------
stock to be transferred pursuant to Section 9(b)(i), the price per Share shall
be a price set by the Board of Directors of the Company that will reflect the
current value of the stock in terms of present earnings and future prospects of
the Company. The Company shall notify you or your executor of the price so
determined within thirty (30) days after receipt by it of written notice of the
transfer or proposed transfer of Shares. However, if you do not agree with the
valuation as determined by the Board of Directors of the Company, you shall be
entitled to have the valuation determined by an independent appraiser to be
mutually agreed upon by the Company and you whose fees shall be borne equally by
the Company and you.
(c) Assignment. The right of the Company to purchase any part of the
----------
Shares may be assigned in whole or in part to any shareholder or shareholders of
the Company or other persons or organizations; provided, however, that an
-------- -------
assignee, other than a corporation that is the parent or a 100% owned subsidiary
of the Company, must pay the Company, upon assignment of such right, cash equal
to the difference between the original purchase price and fair market value, if
the original purchase price is less than the fair market value of the Shares
subject to the assignment.
(d) Restrictions Binding on Transferees. All transferees of Shares or
-----------------------------------
any interest therein will receive and hold such Shares or interest subject to
the provisions of this Agreement. Any sale or transfer of the Company's Shares
shall be void unless the provisions of this Agreement are satisfied.
(e) Termination of Rights. The right of first refusal granted the
---------------------
Company by Section 9(a) above and the option to repurchase the Shares in the
event of an involuntary transfer granted the Company by Section 9(b) above shall
terminate upon the first sale of Common Stock of the Company to the general
public pursuant to a registration statement filed with and declared effective by
the Securities and Exchange Commission under the Securities Act of 1933, as
amended (the "Securities Act"). Upon termination of the right of first refusal
described in Section 9(a) above, a new certificate or certificates representing
the Shares not repurchased shall be issued, on request, without the legend
referred to herein and delivered to you.
10. OPTION NOT A SERVICE CONTRACT. Your option is not an employment
contract and nothing in your option shall be deemed to create in any way
whatsoever any obligation on your part to continue in the employ of the Company,
or of the Company to continue your employment with the Company. In addition,
nothing in your option shall obligate the Company, its shareholders, board of
directors, officers or employees to continue any relationship which you might
have as a director or consultant for the Company.
11. NOTICES. Any notices provided for in your option or the Plan shall be
given in writing and shall be deemed effectively given upon receipt or, in the
case of notices delivered by the Company to you, five (5) days after deposit in
the United States mail, postage prepaid, addressed to you at the last address
you provided to the Company.
-6-
<PAGE>
12. GOVERNING PLAN DOCUMENT. Your option is subject to all the provisions
of the Plan, the provisions of which are hereby made a part of your option,
including without limitation the provisions of the Plan relating to option
provisions, and is further subject to all interpretations, amendments, rules and
regulations which may from time to time be promulgated and adopted pursuant to
the Plan. In the event of any conflict between the provisions of your option and
those of the Plan, the provisions of the Plan shall control.
-7-
<PAGE>
ATTACHMENT II
PREVIEW SOFTWARE, INC.
1997 STOCK PLAN
EARLY EXERCISE NOTICE AND RESTRICTED STOCK PURCHASE AGREEMENT
-------------------------------------------------------------
This Agreement ("Agreement") is made as of ______________, ___ 1997, by and
---------
between Preview Software, Inc., a California corporation (the "Company"), and
-------
______________ ("Purchaser"). To the extent any capitalized terms used in this
---------
Agreement are not defined, they shall have the meaning ascribed to them in the
1997 Stock Plan.
1. Exercise of Option. Subject to the terms and conditions hereof,
------------------
Purchaser hereby elects to exercise his or her option to purchase 100,000 shares
of the Common Stock (the "Shares") of the Company under and pursuant to the
------
Company's 1997 Stock Plan (the "Plan") and the Stock Option Agreement dated
----
October 14, 1997 (the "Option Agreement"). Of these Shares, Purchaser has
----------------
elected to purchase 100,000 of those Shares which have become vested as of the
date hereof under the Vesting Schedule set forth in the Notice of Stock Option
Grant (the "Vested Shares"). The purchase price for the Shares shall be $0.25
-------------
per Share for a total purchase price of $25,000.00. The term "Shares" refers to
------
the purchased Shares and all securities received in replacement of the Shares or
as stock dividends or splits, all securities received in replacement of the
Shares in a recapitalization, merger, reorganization, exchange or the like, and
all new, substituted or additional securities or other properties to which
Purchaser is entitled by reason of Purchaser's ownership of the Shares.
2. Time and Place of Exercise. The purchase and sale of the Shares under
--------------------------
this Agreement shall occur at the principal office of the Company simultaneously
with the execution and delivery of this Agreement in accordance with the
provisions of Section 3 of the Option Agreement. On such date, the Company will
deliver to Purchaser a certificate representing the Shares to be purchased by
Purchaser (which shall be issued in Purchaser's name) against payment of the
purchase price therefor by Purchaser by: (a) a check made payable to the
Company, (b) promissory note, (c) delivery of shares of the Common Stock of the
Company in accordance with Section 3 of the Option Agreement, or (d) by a
combination of the foregoing.
3. Limitations on Transfer. In addition to any other limitation on
-----------------------
transfer created by applicable securities laws, Purchaser shall not assign,
encumber or dispose of any interest in the Shares while the Shares are subject
to the Company's Repurchase Option (as defined below), except as provided below.
After any Shares have been released from such Repurchase Option, Purchaser shall
not assign, encumber or dispose of any interest in such Shares except in
compliance with the provisions below and applicable securities laws.
(a) Repurchase Option.
-----------------
(i) In the event of the voluntary or involuntary termination
of Purchaser's employment or consulting relationship with the Company for any
reason (including death or disability), with or without cause, the Company shall
upon the date of such termination (the
-8-
<PAGE>
"Termination Date") have an irrevocable, exclusive option (the "Repurchase
---------------- ----------
Option") for a period of 60 days from such date to repurchase all or any portion
- ------
of the Unvested Shares held by Purchaser as of the Termination Date which have
not yet been released from the Company's Repurchase Option at the original
purchase price per Share specified in Section 1 (adjusted for any stock splits,
stock dividends and the like).
(ii) The Repurchase Option shall be exercised by the Company by
written notice to Purchaser or Purchaser's executor and, at the Company's
option, (A) by delivery to Purchaser or Purchaser's executor with such notice of
a check in the amount of the purchase price for the Shares being purchased, or
(B) in the event Purchaser is indebted to the Company, by cancellation by the
Company of an amount of such indebtedness equal to the purchase price for the
Shares being repurchased, or (C) by a combination of (A) and (B) so that the
combined payment and cancellation of indebtedness equals such purchase price.
Upon delivery of such notice and payment of the purchase price in any of the
ways described above, the Company shall become the legal and beneficial owner of
the Shares being repurchased and all rights and interest therein or related
thereto, and the Company shall have the right to transfer to its own name the
number of Shares being repurchased by the Company, without further action by
Purchaser.
(iii) One hundred percent (100%) of the Unvested Shares shall
initially be subject to the Repurchase Option. The Unvested Shares shall be
released from the Repurchase Option in accordance with the Vesting Schedule set
forth in the Notice of Stock Option Grant until all Shares are released from the
Repurchase Option. Fractional shares shall be rounded to the nearest whole
share.
(b) Right of First Refusal. Before any Shares held by Purchaser or
----------------------
any transferee of Purchaser (either being sometimes referred to herein as the
"Holder") may be sold or otherwise transferred (including transfer by gift or
------
operation of law), the Company or its assignee(s) shall have a right of first
refusal to purchase the Shares on the terms and conditions set forth in this
Section 3(b) (the "Right of First Refusal").
----------------------
(i) Notice of Proposed Transfer. The Holder of the Shares
---------------------------
shall deliver to the Company a written notice (the "Notice") stating: (i) the
------
Holder's bona fide intention to sell or otherwise transfer such Shares; (ii) the
name of each proposed purchaser or other transferee ("Proposed Transferee");
-------------------
(iii) the number of Shares to be transferred to each Proposed Transferee; and
(iv) the terms and conditions of each proposed sale or transfer. The Holder
shall offer the Shares at the same price (the "Offered Price") and upon the same
-------------
terms (or terms as similar as reasonably possible) to the Company or its
assignee(s).
(ii) Exercise of Right of First Refusal. At any time within
----------------------------------
thirty (30) days after receipt of the Notice, the Company and/or its assignee(s)
may, by giving written notice to the Holder, elect to purchase all, but not less
than all, of the Shares proposed to be transferred to any one or more of the
Proposed Transferees, at the purchase price determined in accordance with
subsection (iii) below.
(iii) Purchase Price. The purchase price ("Purchase Price") for
-------------- --------------
the Shares purchased by the Company or its assignee(s) under this Section 3(b)
shall be the Offered
-9-
<PAGE>
Price. If the Offered Price includes consideration other than cash, the cash
equivalent value of the non-cash consideration shall be determined by the Board
of Directors of the Company in good faith.
(iv) Payment. Payment of the Purchase Price shall be made, at
the option of the Company or its assignee(s), in cash (by check), by
cancellation of all or a portion of any outstanding indebtedness of the Holder
to the Company (or, in the case of repurchase by an assignee, to the assignee),
or by any combination thereof within 30 days after receipt of the Notice or in
the manner and at the times set forth in the Notice.
(v) Holder's Right to Transfer. If all of the Shares proposed
--------------------------
in the Notice to be transferred to a given Proposed Transferee are not purchased
by the Company and/or its assignee(s) as provided in this Section 3(b), then the
Holder may sell or otherwise transfer such Shares to that Proposed Transferee at
the Offered Price or at a higher price, provided that such sale or other
transfer is consummated within 60 days after the date of the Notice and provided
further that any such sale or other transfer is effected in accordance with any
applicable securities laws and the Proposed Transferee agrees in writing that
the provisions of this Section 3 shall continue to apply to the Shares in the
hands of such Proposed Transferee. If the Shares described in the Notice are not
transferred to the Proposed Transferee within such period, or if the Holder
proposes to change the price or other terms to make them more favorable to the
Proposed Transferee, a new Notice shall be given to the Company, and the Company
and/or its assignees shall again be offered the Right of First Refusal before
any Shares held by the Holder may be sold or otherwise transferred.
(vi) Exception for Certain Family Transfers. Anything to the
--------------------------------------
contrary contained in this Section 3(b) notwithstanding, the transfer of any or
all of the Shares during Purchaser's lifetime or on Purchaser's death by will or
intestacy to Purchaser's immediate family or a trust for the benefit of
Purchaser's immediate family shall be exempt from the provisions of this Section
3(b). "Immediate Family" as used herein shall mean spouse, lineal descendant or
----------------
antecedent, father, mother, brother or sister. In such case, the transferee or
other recipient shall receive and hold the Shares so transferred subject to the
provisions of this Section, and there shall be no further transfer of such
Shares except in accordance with the terms of this Section 3.
(c) Involuntary Transfer.
--------------------
(i) Company's Right to Purchase upon Involuntary Transfer. In
-----------------------------------------------------
the event, at any time after the date of this Agreement, of any transfer by
operation of law or other involuntary transfer (including death or divorce, but
excluding a transfer to Immediate Family as set forth in Section 3(b)(vi) above)
of all or a portion of the Shares by the record holder thereof, the Company
shall have an option to purchase all of the Shares transferred at the greater of
the purchase price paid by Purchaser pursuant to this Agreement or the fair
market value of the Shares on the date of transfer. Upon such a transfer, the
person acquiring the Shares shall promptly notify the Secretary of the Company
of such transfer. The right to purchase such Shares shall be provided to the
Company for a period of thirty (30) days following receipt by the Company of
written notice by the person acquiring the Shares.
(ii) Price for Involuntary Transfer. With respect to any stock
------------------------------
to be transferred pursuant to Section 3(c)(i), the price per Share shall be a
price set by the Board of Directors of the Company that will reflect the current
value of the stock in terms of present earnings
-10-
<PAGE>
and future prospects of the Company. The Company shall notify Purchaser or his
or her executor of the price so determined within thirty (30) days after receipt
by it of written notice of the transfer or proposed transfer of Shares. However,
if the Purchaser does not agree with the valuation as determined by the Board of
Directors of the Company, the Purchaser shall be entitled to have the valuation
determined by an independent appraiser to be mutually agreed upon by the Company
and the Purchaser and whose fees shall be borne equally by the Company and the
Purchaser.
(d) Assignment. The right of the Company to purchase any part of the
----------
Shares may be assigned in whole or in part to any shareholder or shareholders of
the Company or other persons or organizations; provided, however, that an
-------- -------
assignee, other than a corporation that is the parent or a 100% owned subsidiary
of the Company, must pay the Company, upon assignment of such right, cash equal
to the difference between the original purchase price and fair market value, if
the original purchase price is less than the fair market value of the Shares
subject to the assignment.
(e) Restrictions Binding on Transferees. All transferees of Shares or
-----------------------------------
any interest therein will receive and hold such Shares or interest subject to
the provisions of this Agreement, including, insofar as applicable, the
Company's option to repurchase under Section 3(a). Any sale or transfer of the
Company's Shares shall be void unless the provisions of this Agreement are
satisfied.
(f) Termination of Rights. The right of first refusal granted the
---------------------
Company by Section 3(b) above and the option to repurchase the Shares in the
event of an involuntary transfer granted the Company by Section 3(c) above shall
terminate upon the first sale of Common Stock of the Company to the general
public pursuant to a registration statement filed with and declared effective by
the Securities and Exchange Commission under the Securities Act of 1933, as
amended (the "Securities Act"). Upon termination of the right of first refusal
--------------
described in Section 3(b) and the expiration or exercise of the Company's
repurchase option described in Section 3(a) above, a new certificate or
certificates representing the Shares not repurchased shall be issued, on
request, without the legend referred to in Section 6(a)(ii) herein and delivered
to Purchaser.
4. Escrow of Unvested Shares. For purposes of facilitating the
-------------------------
enforcement of the provisions of Section 3 above, Purchaser agrees, immediately
upon receipt of the certificate(s) for the Shares subject to the Company's
Repurchase Option described in Section 3(a), to deliver such certificate(s),
together with an Assignment Separate from Certificate in the form attached to
this Agreement as Attachment A executed by Purchaser and by Purchaser's spouse
------------
(if required for transfer), in blank, to the Secretary of the Company, or the
Secretary's designee, to hold such certificate(s) and Assignment Separate from
Certificate in escrow and to take all such actions and to effectuate all such
transfers and/or releases as are in accordance with the terms of this Agreement.
Purchaser hereby acknowledges that the Secretary of the Company, or the
Secretary's designee, is so appointed as the escrow holder with the foregoing
authorities as a material inducement to make this Agreement and that said
appointment is coupled with an interest and is accordingly irrevocable.
Purchaser agrees that said escrow holder shall not be liable to any party hereof
(or to any other party). The escrow holder may rely upon any letter, notice or
other document executed by any signature purported to be genuine and may resign
at any time. Purchaser agrees that if the Secretary of the Company, or the
Secretary's designee, resigns as escrow holder for any or no reason, the Board
of Directors of the Company shall have the power to appoint a successor to serve
as escrow holder pursuant to the terms of this Agreement.
-11-
<PAGE>
5. Investment and Taxation Representations. In connection with the
---------------------------------------
purchase of the Shares, Purchaser represents to the Company the following:
(a) Purchaser is aware of the Company's business affairs and
financial condition and has acquired sufficient information about the Company to
reach an informed and knowledgeable decision to acquire the securities.
Purchaser is purchasing these securities for investment for his or her own
account only and not with a view to, or for resale in connection with, any
"distribution" thereof within the meaning of the Securities Act.
(b) Purchaser understands that the securities have not been
registered under the Securities Act by reason of a specific exemption therefrom,
which exemption depends upon, among other things, the bona fide nature of
Purchaser's investment intent as expressed herein.
(c) Purchaser understands that the Shares are "restricted securities"
under applicable U.S. federal and state securities laws and that, pursuant to
these laws, Purchaser must hold the Shares indefinitely unless they are
registered with the Securities and Exchange Commission and qualified by state
authorities, or an exemption from such registration and qualification
requirements is available. Purchaser acknowledges that the Company has no
obligation to register or qualify the Shares for resale. Purchaser further
acknowledges that if an exemption from registration or qualification is
available, it may be conditioned on various requirements including, but not
limited to, the time and manner of sale, the holding period for the Shares, and
requirements relating to the Company which are outside of the Purchaser's
control, and which the Company is under no obligation and may not be able to
satisfy.
(d) Purchaser understands that Purchaser may suffer adverse tax
consequences as a result of Purchaser's purchase or disposition of the Shares.
Purchaser represents that Purchaser has consulted any tax consultants Purchaser
deems advisable in connection with the purchase or disposition of the Shares and
that Purchaser is not relying on the Company for any tax advice.
6. Restrictive Legends and Stop-Transfer Orders.
--------------------------------------------
(a) Legends. The certificate or certificates representing the Shares
-------
shall bear the following legends (as well as any legends required by applicable
state and federal corporate and securities laws):
(i) THE SHARES REPRESENTED BY THIS CERTIFICATE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AND HAVE BEEN ACQUIRED FOR
INVESTMENT AND NOT WITH A VIEW TO, OR IN
CONNECTION WITH, THE SALE OR DISTRIBUTION
THEREOF. NO SUCH SALE OR DISPOSITION MAY BE
EFFECTED WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT RELATED THERETO OR AN OPINION OF
COUNSEL IN A FORM SATISFACTORY TO THE COMPANY
THAT SUCH REGISTRATION IS NOT REQUIRED UNDER
THE SECURITIES ACT OF 1933.
-12-
<PAGE>
(ii) THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE
TRANSFERRED ONLY IN ACCORDANCE WITH THE TERMS OF
AN AGREEMENT BETWEEN THE COMPANY AND THE SHAREHOLDER,
A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE
COMPANY.
(b) Stop-Transfer Notices. Purchaser agrees that, in order to ensure
---------------------
compliance with the restrictions referred to herein, the Company may issue
appropriate "stop transfer" instructions to its transfer agent, if any, and
that, if the Company transfers its own securities, it may make appropriate
notations to the same effect in its own records.
(c) Refusal to Transfer. The Company shall not be required (i) to
-------------------
transfer on its books any Shares that have been sold or otherwise transferred in
violation of any of the provisions of this Agreement or (ii) to treat as owner
of such Shares or to accord the right to vote or pay dividends to any purchaser
or other transferee to whom such Shares shall have been so transferred.
7. No Employment Rights. Nothing in this Agreement shall affect in any
--------------------
manner whatsoever the right or power of the Company, or a parent or subsidiary
of the Company, to terminate Purchaser's employment or consultancy, for any
reason, with or without cause.
8. Section 83(b) Election. Purchaser understands that Section 83(a) of
----------------------
the Internal Revenue Code of 1986, as amended (the "Code"), taxes as ordinary
----
income for a nonstatutory stock option and as alternative minimum taxable income
for an incentive stock option the difference between the amount paid for the
Shares and the fair market value of the Shares as of the date any restrictions
on the Shares lapse. In this context, "restriction" means the right of the
-----------
Company to buy back the Shares pursuant to the Repurchase Option set forth in
Section 3(a) of this Agreement. Purchaser understands that Purchaser may elect
to be taxed at the time the Shares are purchased, rather than when and as the
Repurchase Option expires, by filing an election under Section 83(b) (an "83(b)
-----
Election") of the Code with the Internal Revenue Service within 30 days from the
- --------
date of purchase. Even if the fair market value of the Shares at the time of
the execution of this Agreement equals the amount paid for the Shares, the
election must be made to avoid income and alternative minimum tax treatment
under Section 83(a) in the future. Purchaser understands that failure to file
such an election in a timely manner may result in adverse tax consequences for
Purchaser. Purchaser further understands that an additional copy of such
election form should be filed with his or her federal income tax return for the
calendar year in which the date of this Agreement falls. Purchaser acknowledges
that the foregoing is only a summary of the effect of United States federal
income taxation with respect to purchase of the Shares hereunder, and does not
purport to be complete. Purchaser further acknowledges that the Company has
directed Purchaser to seek independent advice regarding the applicable
provisions of the Code, the income tax laws of any municipality, state or
foreign country in which Purchaser may reside, and the tax consequences of
Purchaser's death.
Purchaser agrees that he or she will execute and deliver to the Company
with this executed Agreement a copy of the Acknowledgment and Statement of
Decision Regarding Section 83(b) Election (the "Acknowledgment") attached hereto
--------------
as Attachment B. Purchaser further agrees that he or she will execute and
------------
submit with the Acknowledgment a copy of the 83(b) Election attached hereto as
Attachment C (for income tax purposes in connection with the early exercise of a
- ------------
-13-
<PAGE>
nonstatutory stock option) or Attachment D (for alternative minimum tax purposes
------------
in connection with the early exercise of an incentive stock option) if Purchaser
has indicated in the Acknowledgment his or her decision to make such an
election.
9. Market Stand-off Agreement. In connection with the initial public
--------------------------
offering of the Company's securities and upon request of the Company or the
underwriters managing any underwritten offering of the Company's securities,
Purchaser agrees not to sell, make any short sale of, loan, grant any option for
the purchase of, or otherwise dispose of any Shares (other than those included
in the registration) without the prior written consent of the Company or such
underwriters, as the case may be, for such period of time (not to exceed 180
days) from the effective date of such registration as may be requested by the
Company or such managing underwriters and to execute an agreement reflecting the
foregoing as may be requested by the underwriters at the time of the public
offering.
10. Miscellaneous.
-------------
(a) Governing Law. This Agreement and all acts and transactions
-------------
pursuant hereto and the rights and obligations of the parties hereto shall be
governed, construed and interpreted in accordance with the laws of the State of
California, without giving effect to principles of conflicts of law.
(b) Entire Agreement; Enforcement of Rights. This Agreement and the
---------------------------------------
documents referred to in this Agreement set forth the entire agreement and
understanding of the parties relating to the subject matter herein and merges
all prior discussions between them. No modification of or amendment to this
Agreement, nor any waiver of any rights under this Agreement, shall be effective
unless in writing signed by the parties to this Agreement. The failure by
either party to enforce any rights under this Agreement shall not be construed
as a waiver of any rights of such party.
(c) Severability. If one or more provisions of this Agreement are
------------
held to be unenforceable under applicable law, the parties agree to renegotiate
such provision in good faith. In the event that the parties cannot reach a
mutually agreeable and enforceable replacement for such provision, then (i) such
provision shall be excluded from this Agreement, (ii) the balance of the
Agreement shall be interpreted as if such provision were so excluded and (iii)
the balance of the Agreement shall be enforceable in accordance with its terms.
(d) Construction. This Agreement is the result of negotiations
------------
between and has been reviewed by each of the parties hereto and their respective
counsel, if any; accordingly, this Agreement shall be deemed to be the product
of all of the parties hereto, and no ambiguity shall be construed in favor of or
against any one of the parties hereto.
(e) Notices. Any notice required or permitted by this Agreement shall
-------
be in writing and shall be deemed sufficient when delivered personally or sent
by telegram or fax or forty-eight (48) hours after being deposited in the U.S.
mail, as certified or registered mail, with postage prepaid, and addressed to
the party to be notified at such party's address as set forth below or as
subsequently modified by written notice.
-14-
<PAGE>
(f) Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
(g) Successors and Assigns. The rights and benefits of this Agreement
----------------------
shall inure to the benefit of, and be enforceable by the Company's successors
and assigns. The rights and obligations of Purchaser under this Agreement may
only be assigned with the prior written consent of the Company.
(h) California Corporate Securities Law. THE SALE OF THE SECURITIES
-----------------------------------
WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE
COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF THE
SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR
PRIOR TO THE QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT
FROM QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA
CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY
CONDITIONED UPON THE QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT.
[Signature Page Follows]
-15-
<PAGE>
The parties have executed this Agreement as of the date first set forth
above.
COMPANY:
PREVIEW SOFTWARE, INC.
By:_________________________________
Name:_______________________________
(print)
Title:______________________________
345 California Avenue, Suite 3
Palo Alto, CA 92306
PURCHASER:
[NAME]
____________________________________
(Signature)
____________________________________
(Print Name)
Address:
I, ______________________, spouse of [Optionee], have read and hereby approve
the foregoing Agreement. In consideration of the Company's granting my spouse
the right to purchase the Shares as set forth in the Agreement, I hereby agree
to be irrevocably bound by the Agreement and further agree that any community
property or other such interest shall hereby by similarly bound by the
Agreement. I hereby appoint my spouse as my attorney-in-fact with respect to any
amendment or exercise of any rights under the Agreement.
_____________________________
Spouse of [Optionee]
-16-
<PAGE>
ATTACHMENT III
1997 STOCK OPTION PLAN
<PAGE>
ATTACHMENT A
------------
ASSIGNMENT SEPARATE FROM CERTIFICATE
------------------------------------
FOR VALUE RECEIVED and pursuant to that certain Early Exercise Notice
and Restricted Stock Purchase Agreement between the undersigned ("Purchaser")
---------
and Preview Software, Inc. (the "Company") dated ____________ (the "Agreement")
------- ---------
Purchaser hereby sells, assigns and transfers unto the Company
_______________________________ (________) shares of the Common Stock of the
Company, standing in Purchaser's name on the books of the Company and
represented by Certificate No. _____, and hereby irrevocably appoints
_____________________________ to transfer said stock on the books of the Company
with full power of substitution in the premises. THIS ASSIGNMENT MAY ONLY BE
USED AS AUTHORIZED BY THE AGREEMENT AND THE ATTACHMENTS THERETO.
Dated: __________________
Signature:
______________________________________
______________________________________
Spouse of ____________ (if applicable)
Instruction: Please do not fill in any blanks other than the signature line. The
purpose of this assignment is to enable the Company to exercise its Repurchase
Option set forth in the Agreement without requiring additional signatures on the
part of Purchaser.
<PAGE>
ATTACHMENT B
------------
ACKNOWLEDGMENT AND STATEMENT OF DECISION
----------------------------------------
REGARDING SECTION 83(b) ELECTION
--------------------------------
The undersigned (which term includes the undersigned's spouse), a purchaser
of 100,000 shares of Common Stock of Preview Software, Inc., a California
corporation (the "Company") by exercise of an option (the "Option") granted
------- ------
pursuant to the Company's 1997 Stock Plan (the "Plan"), hereby states as
----
follows:
1. The undersigned acknowledges receipt of a copy of the Plan relating
to the offering of such shares. The undersigned has carefully reviewed the Plan
and the option agreement pursuant to which the Option was granted.
2. The undersigned either (check and complete as applicable):
(a) ____ has consulted, and has been fully advised by, the undersigned's
own tax advisor regarding the federal, state and local tax
consequences of purchasing shares under the Plan, and particularly
regarding the advisability of making elections pursuant to Section
83(b) of the Internal Revenue Code of 1986, as amended (the "Code")
----
and pursuant to the corresponding provisions, if any, of applicable
state law; or
(b) ____ has knowingly chosen not to consult such a tax advisor.
3. The undersigned hereby states that the undersigned has decided
(check as applicable):
(a) ____ to make an election pursuant to Section 83(b) of the Code, and is
submitting to the Company, together with the undersigned's executed
Early Exercise Notice and Restricted Stock Purchase Agreement, an
executed form entitled "Election Under Section 83(b) of the Internal
Revenue Code of 1986;"
(b) ____ not to make an election pursuant to Section 83(b) of the Code.
4. Neither the Company nor any subsidiary or representative of the
Company has made any warranty or representation to the undersigned with respect
to the tax consequences of the undersigned's purchase of shares under the Plan
or of the making or failure to make an election pursuant to Section 83(b) of the
Code or the corresponding provisions, if any, of applicable state law.
Date:_____________________ ___________________________
Date:_____________________ ___________________________
Spouse of______________
<PAGE>
ISO EXERCISE
ATTACHMENT D
------------
ELECTION UNDER SECTION 83(b)
----------------------------
OF THE INTERNAL REVENUE CODE OF 1986
------------------------------------
FOR PURPOSES OF THE ALTERNATIVE MINIMUM TAX
-------------------------------------------
The undersigned taxpayer hereby elects, pursuant to the above-referenced
Internal Revenue Code Section, to include in his or her alternative minimum
taxable income for the current taxable year, as compensation for services, the
excess, if any, of the fair market value of the property described below:
1. The name, address, taxpayer identification number and taxable year of the
undersigned are as follows:
NAME OF TAXPAYER: _________________
NAME OF SPOUSE: ______________________________________
ADDRESS:
IDENTIFICATION NO. OF TAXPAYER:_______________
IDENTIFICATION NO. OF SPOUSE:_________________
TAXABLE YEAR: 1997
2. The property with respect to which the election is made is described as
follows:
100,000 shares of the Common Stock $ 0.001 par value, of Preview Software,
Inc., a California corporation (the "Company").
-------
3. The date on which the property was transferred is: October 14, 1997
4. The property is subject to the following restrictions:
Repurchase option at cost in favor of the Company upon termination of
taxpayer's employment or consulting relationship.
5. The fair market value at the time of transfer, determined without regard to
any restriction other than a restriction which by its terms will never
lapse, of such property is: $25,000.00
6. The amount (if any) paid for such property: $25,000.00
The undersigned has submitted a copy of this statement to the person for whom
the services were performed in connection with the undersigned's receipt of the
above-described property. The transferee of such property is the person
performing the services in connection with the transfer of said property.
The undersigned understands that the foregoing election may not be revoked
- --------------------------------------------------------------------------
except with the consent of the Commissioner.
- -------------------------------------------
Dated: ______________ __________________________________
Dated: ______________ __________________________________
Spouse of _________________
<PAGE>
EXHIBIT 10.4
PREVIEW SOFTWARE, INC.
NEW 1997 STOCK OPTION PLAN
1. Purposes of the Plan. The purposes of this New 1997 Stock Option Plan
--------------------
are to attract and retain the best available personnel for positions of
substantial responsibility, to provide additional incentive to Employees and
Consultants of the Company and its Subsidiaries and to promote the success of
the Company's business. Options granted under the Plan may be incentive stock
options (as defined under Section 422 of the Code) or nonstatutory stock
options, as determined by the Administrator at the time of grant of an option
and subject to the applicable provisions of Section 422 of the Code, as amended,
and the regulations promulgated thereunder.
2. Definitions. As used herein, the following definitions shall apply:
-----------
(a) "Administrator" means the Board or any of its Committees
-------------
appointed pursuant to Section 4 of the Plan.
(b) "Board" means the Board of Directors of the Company.
-----
(c) "Code" means the Internal Revenue Code of 1986, as amended.
----
(d) "Committee" means the Committee appointed by the Board of
---------
Directors in accordance with Section 4(a) of the Plan.
(e) "Common Stock" means the Common Stock of the Company.
------------
(f) "Company" means Preview Software, Inc., a California corporation.
-------
(g) "Consultant" means any person, including an advisor, who is
----------
engaged by the Company or any Parent or Subsidiary to render services and is
compensated for such services, and any director of the Company whether
compensated for such services or not.
(h) "Continuous Status as an Employee or Consultant" means the
----------------------------------------------
absence of any interruption or termination of service as an Employee or
Consultant. Continuous Status as an Employee or Consultant shall not be
considered interrupted in the case of: (i) sick leave; (ii) military leave;
(iii) any other leave of absence approved by the Administrator, provided that
such leave is for a period of not more than ninety (90) days, unless
reemployment upon the expiration of such leave is guaranteed by contract or
statute, or unless provided otherwise pursuant to Company policy adopted from
time to time; or (iv) in the case of transfers between locations of the Company
or between the Company, its Subsidiaries or their respective successors. For
purposes of this Plan, a change in status from an Employee to a Consultant or
from a Consultant to an Employee will not constitute an interruption of
Continuous Status as an Employee or Consultant.
<PAGE>
(i) "Employee" means any person, including officers and directors,
--------
employed by the Company or any Parent or Subsidiary of the Company, with the
status of employment determined based upon such minimum number of hours or
periods worked as shall be determined by the Administrator in its discretion,
subject to any requirements of the Code. The payment of a director's fee to a
Director shall not be sufficient to constitute "employment" of such Director by
the Company.
(j) "Exchange Act" means the Securities Exchange Act of 1934, as
------------
amended.
(k) "Fair Market Value" means, as of any date, the fair market value
-----------------
of Common Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system including without limitation the National
Market of the National Association of Securities Dealers, Inc. Automated
Quotation ("NASDAQ") System, its Fair Market Value shall be the closing sales
price for such stock (or the closing bid, if no sales were reported), as quoted
on such system or exchange, or the exchange with the greatest volume of trading
in Common Stock for the last market trading day prior to the time of
determination, as reported in The Wall Street Journal or such other source as
the Administrator deems reliable;
(ii) If the Common Stock is quoted on the NASDAQ System (but not
on the National Market thereof) or regularly quoted by a recognized securities
dealer but selling prices are not reported, its Fair Market Value shall be the
mean between the high bid and low asked prices for the Common Stock for the last
market trading day prior to the time of determination, as reported in The Wall
Street Journal or such other source as the Administrator deems reliable; or
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Administrator.
(l) "Incentive Stock Option" means an Option intended to qualify as
----------------------
an incentive stock option within the meaning of Section 422 of the Code, as
designated in the applicable written option agreement.
(m) "Nonstatutory Stock Option" means an Option not intended to
-------------------------
qualify as an Incentive Stock Option, as designated in the applicable written
option agreement.
(n) "Option" means a stock option granted pursuant to the Plan.
------
(o) "Optioned Stock" means the Common Stock subject to an Option.
--------------
(p) "Optionee" means an Employee or Consultant who receives an
--------
Option.
(q) "Parent" means a "parent corporation," whether now or hereafter
------ ------------------
existing, as defined in Section 424(e) of the Code, or any successor provision.
(r) "Plan" means this 1997 Stock Option Plan.
----
-2-
<PAGE>
(s) "Reporting Person" means an officer, director, or greater than
----------------
ten percent shareholder of the Company within the meaning of Rule 16a-2 under
the Exchange Act, who is required to file reports pursuant to Rule 16a-3 under
the Exchange Act.
(t) "Rule 16b-3" means Rule 16b-3 promulgated under the Exchange Act,
----------
as the same may be amended from time to time, or any successor provision.
(u) "Share" means a share of the Common Stock, as adjusted in
-----
accordance with Section 11 of the Plan.
(v) "Stock Exchange" means any stock exchange or consolidated stock
--------------
price reporting system on which prices for the Common Stock are quoted at any
given time.
(w) "Subsidiary" means a "subsidiary corporation," whether now or
---------- ----------------------
hereafter existing, as defined in Section 424(f) of the Code, or any successor
provision.
3. Stock Subject to the Plan. Subject to the provisions of Section 11 of
-------------------------
the Plan, the maximum aggregate number of shares that may be optioned and sold
under the Plan is 986,000 shares of Common Stock. The shares may be authorized,
but unissued, or reacquired Common Stock. If an Option should expire or become
unexercisable for any reason without having been exercised in full, the
unpurchased Shares that were subject thereto shall, unless the Plan shall have
been terminated, become available for future grant under the Plan. In addition,
any shares of Common Stock which are retained by the Company upon exercise of an
Option in order to satisfy the exercise or purchase price for such Option or any
withholding taxes due with respect to such exercise shall be treated as not
issued and shall continue to be available under the Plan. Shares repurchased by
the Company pursuant to any repurchase right which the Company may have shall
not be available for future grant under the Plan.
4. Administration of the Plan.
--------------------------
(a) Initial Plan Procedure. Prior to the date, if any, upon which the
----------------------
Company becomes subject to the Exchange Act, the Plan shall be administered by
the Board or a committee appointed by the Board.
(b) Plan Procedure After the Date, if any, Upon Which the Company
-------------------------------------------------------------
Becomes Subject to the Exchange Act.
- -----------------------------------
(i) Multiple Administrative Bodies. If permitted by Rule 16b-3,
------------------------------
grants under the Plan may be made by different bodies with respect to directors,
non-director officers and Employees or Consultants who are not Reporting
Persons.
(ii) Administration With Respect to Reporting Persons. With
------------------------------------------------
respect to grants of Options to Employees who are Reporting Persons, such grants
shall be made by (A) the Board if the Board may make grants to Reporting Persons
under the Plan in compliance with Rule 16b-3, or (B) a committee designated by
the Board to make grants to Reporting Persons under the Plan, which committee
shall be constituted in such a manner as to
-3-
<PAGE>
permit grants under the Plan to comply with Rule 16b-3. Once appointed, such
committee shall continue to serve in its designated capacity until otherwise
directed by the Board. From time to time the Board may increase the size of the
committee and appoint additional members thereof, remove members (with or
without cause) and appoint new members in substitution therefor, fill vacancies,
however caused, and remove all members of the committee and thereafter directly
make grants to Reporting Persons under the Plan, all to the extent permitted by
Rule 16b-3.
(iii) Administration With Respect to Consultants and Other
----------------------------------------------------
Employees. With respect to grants of Options to Employees or Consultants who are
- ---------
not Reporting Persons, the Plan shall be administered by (A) the Board or (B) a
committee designated by the Board, which committee shall be constituted in such
a manner as to satisfy the legal requirements relating to the administration of
incentive stock option plans, if any, of California corporate and securities
laws, of the Code and of any applicable Stock Exchange (the "Applicable Laws").
---------------
Once appointed, such Committee shall continue to serve in its designated
capacity until otherwise directed by the Board. From time to time the Board may
increase the size of the Committee and appoint additional members thereof,
remove members (with or without cause) and appoint new members in substitution
therefor, fill vacancies, however caused, and remove all members of the
Committee and thereafter directly administer the Plan, all to the extent
permitted by the Applicable Laws.
(c) Powers of the Administrator. Subject to the provisions of the
---------------------------
Plan and in the case of a Committee, the specific duties delegated by the Board
to such Committee, and subject to the approval of any relevant authorities,
including the approval, if required, of any Stock Exchange, the Administrator
shall have the authority, in its discretion:
(i) to determine the Fair Market Value of the Common Stock, in
accordance with Section 2(k) of the Plan;
(ii) to select the Consultants and Employees to whom Options
may from time to time be granted hereunder;
(iii) to determine whether and to what extent Options or any
combination thereof are granted hereunder;
(iv) to determine the number of shares of Common Stock to be
covered by each such option granted hereunder;
(v) to approve forms of agreement for use under the Plan;
(vi) to determine the terms and conditions, not inconsistent
with the terms of the Plan, of any option granted hereunder;
(vii) to determine whether and under what circumstances an
Option may be settled in cash under Section 9(f) instead of Common Stock;
-4-
<PAGE>
(viii) to reduce the exercise price of any Option to the then
current Fair Market Value if the Fair Market Value of the Common Stock covered
by such Option shall have declined since the date the Option was granted;
(ix) to construe and interpret the terms of the Plan and
Options granted under the Plan; and
(x) in order to fulfill the purposes of the Plan and without
amending the Plan, to modify grants of Options to participants who are foreign
nationals or employed outside of the United States in order to recognize
differences in local law, tax policies or customs.
(d) Effect of Administrator's Decision. All decisions, determinations
----------------------------------
and interpretations of the Administrator shall be final and binding on all
holders of Options.
5. Eligibility.
-----------
(a) Recipients of Grants. Nonstatutory Stock Options may be granted
--------------------
to Employees and Consultants. Incentive Stock Options may be granted only to
Employees. An Employee or Consultant who has been granted an Option may, if he
or she is otherwise eligible, be granted additional Options.
(b) Type of Option. Each Option shall be designated in the written
--------------
option agreement as either an Incentive Stock Option or a Nonstatutory Stock
Option. However, notwithstanding such designations, to the extent that the
aggregate Fair Market Value of the Shares with respect to which Options
designated as Incentive Stock Options are exercisable for the first time by any
Optionee during any calendar year (under all plans of the Company or any Parent
or Subsidiary) exceeds $100,000, such excess Options shall be treated as
Nonstatutory Stock Options. For purposes of this Section 5(b), Incentive Stock
Options shall be taken into account in the order in which they were granted, and
the Fair Market Value of the Shares subject to an Incentive Stock Option shall
be determined as of the date of the grant of such Option.
(c) Employment Relationship. The Plan shall not confer upon any
-----------------------
Optionee any right with respect to continuation of employment or consulting
relationship with the Company, nor shall it interfere in any way with such
Optionee's right or the Company's right to terminate his or her employment or
consulting relationship at any time, with or without cause.
6. Term of Plan. The Plan shall become effective upon the earlier to
------------
occur of its adoption by the Board of Directors or its approval by the
shareholders of the Company as described in Section 18 of the Plan. It shall
continue in effect for a term of ten (10) years unless sooner terminated under
Section 14 of the Plan.
7. Term of Option. The term of each Option shall be the term stated in
--------------
the Option Agreement; provided, however, that the term shall be no more than ten
(10) years from the date of grant thereof or such shorter term as may be
provided in the Option Agreement. However, in the case of an Incentive Stock
Option granted to an Optionee who, at the time the Option is
-5-
<PAGE>
granted, owns stock representing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Company or any Parent or
Subsidiary, the term of the Option shall be five (5) years from the date of
grant thereof or such shorter term as may be provided in the Option Agreement.
8. Option Exercise Price and Consideration.
---------------------------------------
(a) The per share exercise price for the Shares to be issued pursuant
to exercise of an Option shall be such price as is determined by the Board, but
shall be subject to the following:
(i) In the case of an Incentive Stock Option that is:
(A) granted to an Employee who, at the time of the grant of
such Incentive Stock Option, owns stock representing more than ten percent (10%)
of the total combined voting power of all classes of stock of the Company or any
Parent or Subsidiary, the per Share exercise price shall be no less than 110% of
the Fair Market Value per Share on the date of grant.
(B) granted to any Employee, the per Share exercise price
shall be no less than 100% of the Fair Market Value per Share on the date of
grant.
(ii) In the case of a Nonstatutory Stock Option that is:
(A) granted to a person who, at the time of the grant of
such Option, owns stock representing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Company or any Parent or
Subsidiary, the per Share exercise price shall be no less than 110% of the Fair
Market Value per Share on the date of the grant.
(B) granted to any person, the per Share exercise price
shall be no less than 85% of the Fair Market Value per Share on the date of
grant.
(b) The consideration to be paid for the Shares to be issued upon
exercise of an Option, including the method of payment, shall be determined by
the Administrator (and, in the case of an Incentive Stock Option, shall be
determined at the time of grant) and may consist entirely of (1) cash, (2)
check, (3) promissory note, (4) other Shares that (x) in the case of Shares
acquired upon exercise of an Option, have been owned by the Optionee for more
than six months on the date of surrender or such other period as may be required
to avoid a charge to the Company's earnings, and (y) have a Fair Market Value on
the date of surrender equal to the aggregate exercise price of the Shares as to
which such Option shall be exercised, (5) authorization for the Company to
retain from the total number of Shares as to which the Option is exercised that
number of Shares having a Fair Market Value on the date of exercise equal to the
exercise price for the total number of Shares as to which the Option is
exercised, (6) delivery of a properly executed exercise notice together with
such other documentation as the Administrator and the broker, if applicable,
shall require to effect an exercise of the Option and delivery to the Company of
the sale or loan proceeds required to pay the exercise price and any
-6-
<PAGE>
applicable income or employment taxes, (7) delivery of an irrevocable
subscription agreement for the Shares that irrevocably obligates the option
holder to take and pay for the Shares not more than twelve months after the date
of delivery of the subscription agreement, (8) any combination of the foregoing
methods of payment, or (9) such other consideration and method of payment for
the issuance of Shares to the extent permitted under Applicable Laws. In making
its determination as to the type of consideration to accept, the Administrator
shall consider if acceptance of such consideration may be reasonably expected to
benefit the Company.
9. Exercise of Option.
------------------
(a) Procedure for Exercise; Rights as a Shareholder. Any Option
-----------------------------------------------
granted hereunder shall be exercisable at such times and under such conditions
as determined by the Administrator, including performance criteria with respect
to the Company and/or the Optionee, and as shall be permissible under the terms
of the Plan; provided that such Option shall become exercisable at the rate of
at least twenty percent (20%) per year over five (5) years from the date the
Option is granted. In the event that any of the Shares issued upon exercise of
an Option should be subject to a right of repurchase in the Company's favor,
such repurchase right shall lapse at the rate of at least twenty percent (20%)
per year over five (5) years from the date the Option is granted.
Notwithstanding the above, in the case of an option granted to an officer,
director or Consultant of the Company or any Parent or Subsidiary of the
Company, the option may become fully exercisable, or a repurchase right, if any,
in favor of the Company shall lapse, at any time or during any period
established by the Administrator.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of such
exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and the Company has
received full payment for the Shares with respect to which the Option is
exercised. Full payment may, as authorized by the Board, consist of any
consideration and method of payment allowable under Section 8(b) of the Plan.
Until the issuance (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company) of the stock
certificate evidencing such Shares, no right to vote or receive dividends or any
other rights as a shareholder shall exist with respect to the Optioned Stock,
not withstanding the exercise of the Option. The Company shall issue (or cause
to be issued) such stock certificate promptly upon exercise of the Option. No
adjustment will be made for a dividend or other right for which the record date
is prior to the date the stock certificate is issued, except as provided in
Section 11 of the Plan.
Exercise of an Option in any manner shall result in a decrease in the
number of Shares that thereafter may be available, both for purposes of the Plan
and for sale under the Option, by the number of Shares as to which the Option is
exercised.
(b) Termination of Employment or Consulting Relationship. Subject to
----------------------------------------------------
Section 9(c), in the event of termination of an Optionee's Continuous Status as
an Employee or Consultant with the Company, such Optionee may, but only within
three (3) months (or such other period of time not less than thirty (30) days as
is determined by the Administrator, with
-7-
<PAGE>
such determination in the case of an Incentive Stock Option being made at the
time of grant of the Option and not exceeding three (3) months) after the date
of such termination (but in no event later than the expiration date of the term
of such Option as set forth in the Option Agreement), exercise his or her Option
to the extent that the Optionee was entitled to exercise it at the date of such
termination. To the extent that Optionee was not entitled to exercise the Option
at the date of such termination, or if Optionee does not exercise such Option to
the extent so entitled within the time specified herein, the Option shall
terminate. No termination shall be deemed to occur and this Section 9(b) shall
not apply if (i) the Optionee is a Consultant who becomes an Employee; or (ii)
the Optionee is an Employee who becomes a Consultant.
(c) Disability of Optionee.
----------------------
(i) Notwithstanding Section 9(b) above, in the event of
termination of an Optionee's Continuous Status as an Employee or Consultant as a
result of his or her total and permanent disability (within the meaning of
Section 22(e)(3) of the Code), Optionee may, but only within twelve (12) months
from the date of such termination (but in no event later than the expiration
date of the term of such Option as set forth in the Option Agreement), exercise
the Option to the extent otherwise entitled to exercise it at the date of such
termination. To the extent that Optionee was not entitled to exercise the Option
at the date of termination, or if Optionee does not exercise such Option to the
extent so entitled within the time specified herein, the Option shall terminate.
(ii) In the event of termination of an Optionee's Continuous
Status as an Employee or Consultant as a result of a disability which does not
fall within the meaning of total and permanent disability (as set forth in
Section 22(e)(3) of the Code), Optionee may, but only within six (6) months from
the date of such termination (but in no event later than the expiration date of
the term of such Option as set forth in the Option Agreement), exercise the
Option to the extent otherwise entitled to exercise it at the date of such
termination. However, to the extent that such Optionee fails to exercise an
Option which is an Incentive Stock Option ("ISO") (within the meaning of Section
---
422 of the Code) within three (3) months of the date of such termination, the
Option will not qualify for ISO treatment under the Code. To the extent that
Optionee was not entitled to exercise the Option at the date of termination, or
if Optionee does not exercise such Option to the extent so entitled within six
months (6) from the date of termination, the Option shall terminate.
(d) Death of Optionee. In the event of the death of an Optionee
-----------------
during the period of Continuous Status as an Employee or Consultant since the
date of grant of the Option, or within thirty (30) days following termination of
Optionee's Continuous Status as an Employee or Consultant, the Option may be
exercised, at any time within six (6) months following the date of death (but in
no event later than the expiration date of the term of such Option as set forth
in the Option Agreement), by Optionee's estate or by a person who acquired the
right to exercise the Option by bequest or inheritance, but only to the extent
of the right to exercise that had accrued at the date of death or, if earlier,
the date of termination of Optionee's Continuous Status as an Employee or
Consultant. To the extent that Optionee was not entitled to exercise the
-8-
<PAGE>
Option at the date of death or termination, as the case may be, or if Optionee
does not exercise such Option to the extent so entitled within the time
specified herein, the Option shall terminate.
(e) Rule 16b-3. Options granted to Reporting Persons shall comply
----------
with Rule 16b-3 and shall contain such additional conditions or restrictions as
may be required thereunder to qualify for the maximum exemption for Plan
transactions.
(f) Buyout Provisions. The Administrator may at any time offer to buy
-----------------
out for a payment in cash or Shares, an Option previously granted, based on such
terms and conditions as the Administrator shall establish and communicate to the
Optionee at the time that such offer is made.
10. Stock Withholding to Satisfy Withholding Tax Obligations. At the
--------------------------------------------------------
discretion of the Administrator, Optionees may satisfy withholding obligations
as provided in this paragraph. When an Optionee incurs tax liability in
connection with an Option, which tax liability is subject to tax withholding
under applicable tax laws, and the Optionee is obligated to pay the Company an
amount required to be withheld under applicable tax laws, the Optionee may
satisfy the withholding tax obligation by one or some combination of the
following methods: (a) by cash payment, or (b) out of Optionee's current
compensation, (c) if permitted by the Administrator, in its discretion, by
surrendering to the Company Shares that (i) in the case of Shares previously
acquired from the Company, have been owned by the Optionee for more than six
months on the date of surrender, and (ii) have a fair market value on the date
of surrender equal to or less than Optionee's marginal tax rate times the
ordinary income recognized, or (d) by electing to have the Company withhold from
the Shares to be issued upon exercise of the Option, if any, that number of
Shares having a fair market value equal to the amount required to be withheld.
For this purpose, the fair market value of the Shares to be withheld shall be
determined on the date that the amount of tax to be withheld is to be determined
(the "Tax Date").
--------
Any surrender by a Reporting Person of previously owned Shares to satisfy
tax withholding obligations arising upon exercise of this Option must comply
with the applicable provisions of Rule 16b-3.
All elections by an Optionee to have Shares withheld to satisfy tax
withholding obligations shall be made in writing in a form acceptable to the
Administrator and shall be subject to the following restrictions:
(a) the election must be made on or prior to the applicable Tax Date;
(b) once made, the election shall be irrevocable as to the particular
Shares of the Option as to which the election is made; and
(c) all elections shall be subject to the consent or disapproval of
the Administrator.
-9-
<PAGE>
In the event the election to have Shares withheld is made by an Optionee
and the Tax Date is deferred under Section 83 of the Code because no election is
filed under Section 83(b) of the Code, the Optionee shall receive the full
number of Shares with respect to which the Option is exercised but such Optionee
shall be unconditionally obligated to tender back to the Company the proper
number of Shares on the Tax Date.
11. Adjustments Upon Changes in Capitalization, Merger or Certain Other
-------------------------------------------------------------------
Transactions.
- ------------
(a) Changes in Capitalization. Subject to any required action by the
-------------------------
shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Option, and the number of shares of Common Stock that have been
authorized for issuance under the Plan but as to which no Options have yet been
granted or that have been returned to the Plan upon cancellation or expiration
of an Option, as well as the price per share of Common Stock covered by each
such outstanding Option, shall be proportionately adjusted for any increase or
decrease in the number of issued shares of Common Stock resulting from a stock
split, reverse stock split, stock dividend, combination, recapitalization or
reclassification of the Common Stock, or any other increase or decrease in the
number of issued shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to an Option.
(b) Dissolution or Liquidation. In the event of the proposed
--------------------------
dissolution or liquidation of the Company, the Board shall notify the Optionee
at least fifteen (15) days prior to such proposed action. To the extent it has
not been previously exercised, the Option will terminate immediately prior to
the consummation of such proposed action.
(c) Merger or Sale of Assets. In the event of a proposed sale of all
------------------------
or substantially all of the Company's assets or a merger of the Company with or
into another corporation where the successor corporation issues its securities
to the Company's shareholders, each outstanding Option shall be assumed or an
equivalent option or right shall be substituted by such successor corporation or
a parent or subsidiary of such successor corporation, unless the successor
corporation does not agree to assume the Option or to substitute an equivalent
option, in which case such Option shall terminate upon the consummation of the
merger or sale of assets.
(d) Certain Distributions. In the event of any distribution to the
---------------------
Company's shareholders of securities of any other entity or other assets (other
than dividends payable in cash or stock of the Company) without receipt of
consideration by the Company, the Administrator may, in its discretion,
appropriately adjust the price per share of Common Stock covered by each
outstanding Option to reflect the effect of such distribution.
-10-
<PAGE>
12. Non-Transferability of Options. Options may not be sold, pledged,
------------------------------
assigned, hypothecated, transferred, or disposed of in any manner other than by
will or by the laws of descent or distribution and may be exercised or purchased
during the lifetime of the Optionee, only by the Optionee.
13. Time of Granting Options. The date of grant of an Option shall, for
------------------------
all purposes, be the date on which the Administrator makes the determination
granting such Option, or such other date as is determined by the Board; provided
however that in the case of any Incentive Stock Option, the grant date shall be
the later of the date on which the Administrator makes the determination
granting such Incentive Stock Option or the date of commencement of the
Optionee's employment relationship with the Company. Notice of the
determination shall be given to each Employee or Consultant to whom an Option is
so granted within a reasonable time after the date of such grant.
14. Amendment and Termination of the Plan.
-------------------------------------
(a) Authority to Amend or Terminate. The Board may at any time amend,
-------------------------------
alter, suspend or discontinue the Plan, but no amendment, alteration, suspension
or discontinuation shall be made that would impair the rights of any Optionee
under any grant theretofore made, without his or her consent. In addition, to
the extent necessary and desirable to comply with Rule 16b-3 or with Section 422
of the Code (or any other applicable law or regulation, including the
requirements of any Stock Exchange), the Company shall obtain shareholder
approval of any Plan amendment in such a manner and to such a degree as
required.
(b) Effect of Amendment or Termination. No amendment or termination
----------------------------------
of the Plan shall adversely affect Options already granted, unless mutually
agreed otherwise between the Optionee and the Board, which agreement must be in
writing and signed by the Optionee and the Company.
15. Conditions Upon Issuance of Shares. Shares shall not be issued
----------------------------------
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act of
1933, as amended, the Exchange Act, the rules and regulations promulgated
thereunder, and the requirements of any Stock Exchange.
As a condition to the exercise of an Option, the Company may require the
person exercising such Option to represent and warrant at the time of any such
exercise that the Shares are being purchased only for investment and without any
present intention to sell or distribute such Shares if, in the opinion of
counsel for the Company, such a representation is required by law.
16. Reservation of Shares. The Company, during the term of this Plan,
---------------------
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan. The inability of the
Company to obtain authority from any regulatory body having jurisdiction, which
authority is deemed by the Company's counsel to be necessary to the lawful
issuance and sale of any Shares hereunder, shall relieve the Company of any
-11-
<PAGE>
liability in respect of the failure to issue or sell such Shares as to which
such requisite authority shall not have been obtained.
17. Agreements. Options shall be evidenced by written agreements in such
----------
form as the Administrator shall approve from time to time.
18. Shareholder Approval. Continuance of the Plan shall be subject to
--------------------
approval by the shareholders of the Company within twelve (12) months before or
after the date the Plan is adopted. Such shareholder approval shall be obtained
in the degree and manner required under applicable state and federal law and the
rules of any Stock Exchange upon which the Common Stock is listed. All Options
issued under the Plan shall become void in the event such approval is not
obtained.
19. Information and Documents to Optionees. The Company shall provide
--------------------------------------
financial statements at least annually to each Optionee during the period such
Optionee has one or more Options outstanding, and in the case of an individual
who acquired Shares pursuant to the Plan, during the period such individual owns
such Shares. The Company shall not be required to provide such information if
the issuance of Options under the Plan is limited to key employees whose duties
in connection with the Company assure their access to equivalent information.
In addition, at the time of issuance of any securities under the Plan, the
Company shall provide to the Optionee a copy of the Plan and a copy of any
agreement(s) pursuant to which securities under the Plan are issued.
-12-
<PAGE>
PREVIEW SOFTWARE, INC.
AMENDED STOCK OPTION GRANT NOTICE
(1997 Stock Option Plan)
Preview Software, Inc. and Optionee hereby amend and restate in its entirety the
Stock Option Grant Notice (the "Original Notice") between Preview Software, Inc.
and Optionee dated May 23, 1997 as follows:
Preview Software, Inc. (the "Company"), pursuant to its 1997 Stock Option Plan
(the "Plan") hereby grants to Optionee an option to purchase the number of
shares of the Company's common stock set forth below. This option is subject to
all of the terms and conditions as set forth herein and in Attachments I, II and
III, which are incorporated herein in their entirety.
Optionee: ((Optionee))
Date of Grant: ((Date of Grant))
Vesting Commencement Date: ((Vesting Commencement Date))
Shares Subject to Option: ((Shares Subject to Option))
Exercise Price Per Share: ((Exercise Price Per Share))
Expiration Date: ((Expiration Date))
((Incentive Stock Option)) Incentive Stock Option ((Nonstatutory
Stock Option)) Nonstatutory Stock Option
Exercise Schedule: Immediately Exercisable, subject to the right of
-----------------
repurchase in favor of the Company, at the Exercise
Price Per Share with respect to shares not then vested
according to the Vesting Schedule below.
Vesting Schedule: 25% vested 12 months from Vesting Commencement Date;
----------------
1/48th vests at the end of each month thereafter.
Payment: Any or a combination of the following: (i) by cash or check, (ii)
pursuant to a Regulation T program, as set forth in the Stock Option Agreement,
(iii) delivering shares of previously-owned common stock, as set forth in the
Stock Option Agreement, or (iv) by promissory note.
Additional Terms/Acknowledgments: The undersigned Optionee acknowledges receipt
of, and understands and agrees to, this Grant Notice, the Stock Option Agreement
and the Plan. Optionee further acknowledges that as of the Date of Grant, this
Grant Notice, the Stock Option Agreement and the Plan set forth the entire
understanding between Optionee and the Company regarding the acquisition of
stock in the Company and supersedes all prior oral and written agreements on
that subject with the exception of (i) options previously granted and delivered
to Optionee under the Plan, and (ii) the following agreements only:
Other Agreements: ((Other Agreements))
PREVIEW SOFTWARE, INC. OPTIONEE:
By:________________________________ ___________________________________
Signature
Title:_____________________________
Date:______________________________ Date:______________________________
Attachment I: Stock Option Agreement
Attachment II: Notice of Exercise and Restricted Stock Purchase Agreement
Attachment III: 1997 Stock Option Plan
<PAGE>
ATTACHMENT I
STOCK OPTION AGREEMENT
----------------------
Pursuant to the Grant Notice and this Stock Option Agreement, the Company
has granted you an option to purchase the number of shares of the Company's
common stock ("Common Stock") indicated in the Grant Notice at the exercise
price indicated in the Grant Notice.
Your option is granted in connection with and in furtherance of the
Company's compensatory benefit plan for the Company's employees (including
officers), directors or consultants, and is intended to comply with the
provisions of (i) Rule 701 promulgated by the Securities and Exchange Commission
under the Securities Act of 1933, as amended (the "Securities Act") and (ii)
Section 25102(o) of the California Corporations Code. Defined terms not
explicitly defined in this Stock Option Agreement but defined in the Plan shall
have the same definitions as in the Plan.
The details of your option are as follows:
1. Vesting. Subject to the limitations contained herein, your option will
vest as provided in the Grant Notice, provided that vesting will cease upon the
termination of your Continuous Status as an Employee, Director or Consultant.
2. Method Of Payment.
(a) Payment Options. Payment of the exercise price by cash or check
is due in full upon exercise of all or any part of your option, provided that
you may elect, to the extent permitted by applicable law and the Grant Notice,
to make payment of the exercise price under one of the following alternatives:
(i) Payment pursuant to a program developed under
Regulation T as promulgated by the Federal Reserve Board which, prior to the
issuance of Common Stock, results in either the receipt of cash (or check) by
the Company or the receipt of irrevocable instructions to pay the aggregate
exercise price to the Company from the sales proceeds;
(ii) Provided that at the time of exercise the Company's
Common Stock is publicly traded and quoted regularly in the Wall Street Journal,
payment by delivery of already-owned shares of Common Stock, held for the period
required to avoid a charge to the Company's reported earnings, and owned free
and clear of any liens, claims, encumbrances or security interests, which Common
Stock shall be valued at its fair market value on the date of exercise;
(iii) Payment pursuant to a promissory note; or
(iv) Payment by a combination of the above methods.
<PAGE>
3. Exercise Prior To Vesting. If permitted in the Grant Notice, and
subject to the provisions of your option contained herein, you may elect, at any
time that is both (i) during your Continuous Status as an Employee, Director or
----
Consultant and (ii) during your option's term, to exercise all or part of your
option, including the unvested portion of your option; provided, however, that:
(i) a partial exercise of your option shall be deemed to
cover first vested shares and then the earliest vesting installment of unvested
shares;
(ii) any shares so purchased from installments which have
not vested as of the date of exercise shall be subject to the purchase option in
favor of the Company as described in the Company's form of Early Exercise Stock
Purchase Agreement;
(iii) you shall enter into the Company's form of Early
Exercise Stock Purchase Agreement with a vesting schedule that will result in
the same vesting as if no early exercise had occurred; and
(iv) your option shall not be exercisable with respect to
any unvested installment to the extent such exercise would cause the aggregate
fair market value of any shares subject to incentive stock options granted you
by the Company (valued as of their grant date) which would become exercisable
for the first time during any calendar year to exceed $100,000.
4. Whole Shares. Your option may only be exercised for whole shares.
5. Securities Law Compliance. Notwithstanding anything to the contrary
contained herein, your option may not be exercised unless the shares issuable
upon exercise of your option are then registered under the Securities Act or, if
such shares are not then so registered, the Company has determined that such
exercise and issuance would be exempt from the registration requirements of the
Securities Act.
6. Term. The term of your option commences on the Date of Grant and
expires upon the earliest of:
(i) the Expiration Date indicated in the Grant Notice;
(ii) the tenth (10th) anniversary of the Date of Grant;
(iii) eighteen (18) months after your death, if you die
during, or within three (3) months after the termination of your Continuous
Status as Employee, Director or Consultant;
(iv) twelve (12) months after the termination of your
Continuous Status as Employee, Director or Consultant due to disability;
-2-
<PAGE>
(v) immediately after the termination of your Continuous
Status as Employee, Director or Consultant for Cause; or
(vi) three (3) months after the termination of your
Continuous Status as an Employee, Director or Consultant for any other reason,
provided that if during any part of such three (3)-month period the option is
not exercisable solely because of the condition set forth in paragraph 5
(Securities Law Compliance), in which event the option shall not expire until
the earlier of the Expiration Date or until it shall have been exercisable for
an aggregate period of three (3) months after the termination of Continuous
Status as an Employee, Director or Consultant.
For these purposes, "Cause" shall constitute conviction of any felony,
the commission of any act of fraud, embezzlement or dishonesty with respect to
the Company, any unauthorized use or disclosure of confidential information or
trade secrets of the Company, any other intentional misconduct adversely
affecting the business or affairs of the Company in a material manner or
repeated unexcused absence from the Company.
To obtain the federal income tax advantages associated with an
"incentive stock option," the Code requires that at all times beginning on the
grant date of the option and ending on the day three (3) months before the date
of the option's exercise, you must be an employee of the Company, except in the
event of your death or permanent and total disability. The Company cannot
guarantee that your option will be treated as an "incentive stock option" if you
exercise your option more than three (3) months after the date your employment
with the Company terminates.
7. Exercise.
(a) You may exercise your option during its term (and the unvested
portion of your option if the Grant Notice so permits) by delivering a notice of
exercise (in a form designated by the Company) together with the exercise price
to the Secretary of the Company, or to such other person as the Company may
designate, during regular business hours, together with such additional
documents as the Company may then require.
(b) By exercising your option you agree that:
(i) as a condition to any exercise of your option, the
Company may require you to enter an arrangement providing for the payment by you
to the Company of any tax withholding obligation of the Company arising by
reason of (1) the exercise of your option; (2) the lapse of any substantial risk
of forfeiture to which the shares are subject at the time of exercise; or (3)
the disposition of shares acquired upon such exercise;
(ii) you will notify the Company in writing within fifteen
(15) days after the date of any disposition of any of the shares of the Common
Stock issued upon exercise of an incentive stock option that occurs within two
(2) years after the Date of Grant or within one (1) year after such shares of
Common Stock are transferred upon exercise of your option; and
-3-
<PAGE>
(iii) the Company (or a representative of the underwriters)
may, in connection with the first underwritten registration of the offering of
any securities of the Company under the Act, require that you not sell or
otherwise transfer or dispose of any shares of Common Stock or other securities
of the Company during such period (not to exceed one hundred eighty (180) days)
following the effective date of the registration statement of the Company filed
under the Act as may be requested by the Company or the representative of the
underwriters. You further agree that the Company may impose stop-transfer
instructions with respect to securities subject to the foregoing restrictions
until the end of such period.
8. Transferability. Your option is not transferable, except by will or by
the laws of descent and distribution, and is exercisable during your life only
by you. Notwithstanding the foregoing, by delivering written notice to the
Company, in a form satisfactory to the Company, you may designate a third party
who, in the event of your death, shall thereafter be entitled to exercise your
option.
9. Right of First Refusal/Right of Repurchase. In addition to any other
limitation on transfer created by applicable securities laws, you may not
assign, encumber or dispose of any interest in the shares granted under the
Option (the "Shares") except in compliance with the provisions below and
applicable securities laws.
(a) Right of First Refusal. Before any Shares held by you or your
----------------------
transferee (either being sometimes referred to herein as the "Holder") may be
sold or otherwise transferred (including transfer by gift or operation of law),
the Company or its assignee(s) shall have a right of first refusal to purchase
the Shares on the terms and conditions set forth in this Section 9(a) (the
"Right of First Refusal").
(i) Notice of Proposed Transfer. The Holder of the Shares
---------------------------
shall deliver to the Company a written notice (the "Notice") stating: (i) the
Holder's bona fide intention to sell or otherwise transfer such Shares; (ii) the
name of each proposed purchaser or other transferee ("Proposed Transferee");
(iii) the number of Shares to be transferred to each Proposed Transferee; and
(iv) the terms and conditions of each proposed sale or transfer. The Holder
shall offer the Shares at the same price (the "Offered Price") and upon the same
terms (or terms as similar as reasonably possible) to the Company or its
assignee(s).
(ii) Exercise of Right of First Refusal. At any time
----------------------------------
within thirty (30) days after receipt of the Notice, the Company and/or its
assignee(s) may, by giving written notice to the Holder, elect to purchase all,
but not less than all, of the Shares proposed to be transferred to any one or
more of the Proposed Transferees, at the purchase price determined in accordance
with subsection (iii) below.
(iii) Purchase Price. The purchase price ("Purchase
--------------
Price") for the Shares purchased by the Company or its assignee(s) under this
Section 9(a) shall be the Offered Price. If the Offered Price includes
consideration other than cash, the cash equivalent value of the non-cash
consideration shall be determined by the Board of Directors of the Company in
good faith.
-4-
<PAGE>
(iv) Payment. Payment of the Purchase Price shall be made,
-------
at the option of the Company or its assignee(s), in cash (by check), by
cancellation of all or a portion of any outstanding indebtedness of the Holder
to the Company (or, in the case of repurchase by an assignee, to the assignee),
or by any combination thereof within 30 days after receipt of the Notice or in
the manner and at the times set forth in the Notice.
(v) Holder's Right to Transfer. If all of the Shares
--------------------------
proposed in the Notice to be transferred to a given Proposed Transferee are not
purchased by the Company and/or its assignee(s) as provided in this Section
9(a), then the Holder may sell or otherwise transfer such Shares to that
Proposed Transferee at the Offered Price or at a higher price, provided that
such sale or other transfer is consummated within 60 days after the date of the
Notice and provided further that any such sale or other transfer is effected in
accordance with any applicable securities laws and the Proposed Transferee
agrees in writing that the provisions of this Section 9 shall continue to apply
to the Shares in the hands of such Proposed Transferee. If the Shares described
in the Notice are not transferred to the Proposed Transferee within such period,
or if the Holder proposes to change the price or other terms to make them more
favorable to the Proposed Transferee, a new Notice shall be given to the
Company, and the Company and/or its assignees shall again be offered the Right
of First Refusal before any Shares held by the Holder may be sold or otherwise
transferred.
(vi) Exception for Certain Family Transfers. Anything to
--------------------------------------
the contrary contained in this Section 9(a) notwithstanding, the transfer of any
or all of the Shares during your lifetime or on your death by will or intestacy
to your Immediate Family or a trust for the benefit of your Immediate Family
shall be exempt from the provisions of this Section 9(a). "Immediate Family" as
used herein shall mean spouse, lineal descendant or antecedent, father, mother,
brother or sister. In such case, the transferee or other recipient shall receive
and hold the Shares so transferred subject to the provisions of this Section,
and there shall be no further transfer of such Shares except in accordance with
the terms of this Section 9.
(b) Involuntary Transfer.
--------------------
(i) Company's Right to Purchase upon Involuntary
--------------------------------------------
Transfer. In the event, at any time after the date of this Agreement, of any
- --------
transfer by operation of law or other involuntary transfer (including death or
divorce, but excluding a transfer to Immediate Family as set forth in Section
9(a)(vi) above) of all or a portion of the Shares by the record holder thereof,
the Company shall have an option to purchase all of the Shares transferred at
the greater of the purchase price paid by your pursuant to this Agreement or the
fair market value of the Shares on the date of transfer. Upon such a transfer,
the person acquiring the Shares shall promptly notify the Secretary of the
Company of such transfer. The right to purchase such Shares shall be provided to
the Company for a period of thirty (30) days following receipt by the Company of
written notice by the person acquiring the Shares.
(ii) Price for Involuntary Transfer. With respect to any
------------------------------
stock to be transferred pursuant to Section 9(b)(i), the price per Share shall
be a price set by the
-5-
<PAGE>
Board of Directors of the Company that will reflect the current value of the
stock in terms of present earnings and future prospects of the Company. The
Company shall notify you or your executor of the price so determined within
thirty (30) days after receipt by it of written notice of the transfer or
proposed transfer of Shares. However, if you do not agree with the valuation as
determined by the Board of Directors of the Company, you shall be entitled to
have the valuation determined by an independent appraiser to be mutually agreed
upon by the Company and you whose fees shall be borne equally by the Company and
you.
(c) Assignment. The right of the Company to purchase any part of the
----------
Shares may be assigned in whole or in part to any shareholder or shareholders of
the Company or other persons or organizations; provided, however, that an
-------- -------
assignee, other than a corporation that is the parent or a 100% owned subsidiary
of the Company, must pay the Company, upon assignment of such right, cash equal
to the difference between the original purchase price and fair market value, if
the original purchase price is less than the fair market value of the Shares
subject to the assignment.
(d) Restrictions Binding on Transferees. All transferees of Shares or
-----------------------------------
any interest therein will receive and hold such Shares or interest subject to
the provisions of this Agreement. Any sale or transfer of the Company's Shares
shall be void unless the provisions of this Agreement are satisfied.
(e) Termination of Rights. The right of first refusal granted the
---------------------
Company by Section 9(a) above and the option to repurchase the Shares in the
event of an involuntary transfer granted the Company by Section 9(b) above shall
terminate upon the first sale of Common Stock of the Company to the general
public pursuant to a registration statement filed with and declared effective by
the Securities and Exchange Commission under the Securities Act of 1933, as
amended (the "Securities Act"). Upon termination of the right of first refusal
described in Section 9(a) above, a new certificate or certificates representing
the Shares not repurchased shall be issued, on request, without the legend
referred to herein and delivered to you.
10. Option Not a Service Contract. Your option is not an employment
contract and nothing in your option shall be deemed to create in any way
whatsoever any obligation on your part to continue in the employ of the Company,
or of the Company to continue your employment with the Company. In addition,
nothing in your option shall obligate the Company, its shareholders, board of
directors, officers or employees to continue any relationship which you might
have as a director or consultant for the Company.
11. Notices. Any notices provided for in your option or the Plan shall be
given in writing and shall be deemed effectively given upon receipt or, in the
case of notices delivered by the Company to you, five (5) days after deposit in
the United States mail, postage prepaid, addressed to you at the last address
you provided to the Company.
12. Governing Plan Document. Your option is subject to all the provisions
of the Plan, the provisions of which are hereby made a part of your option,
including without limitation the provisions of the Plan relating to option
provisions, and is further subject to all interpretations,
-6-
<PAGE>
amendments, rules and regulations which may from time to time be promulgated and
adopted pursuant to the Plan. In the event of any conflict between the
provisions of your option and those of the Plan, the provisions of the Plan
shall control.
-7-
<PAGE>
ATTACHMENT II
PREVIEW SOFTWARE, INC.
1997 STOCK PLAN
EXERCISE NOTICE AND RESTRICTED STOCK PURCHASE AGREEMENT
-------------------------------------------------------
This Agreement ("Agreement") is made as of ______________, by and between
---------
Preview Software, Inc., a California corporation (the "Company"), and (Optionee)
-------
("Purchaser"). To the extent any capitalized terms used in this Agreement are
---------
not defined, they shall have the meaning ascribed to them in the 1997 Stock
Plan.
1. Exercise of Option. Subject to the terms and conditions hereof,
------------------
Purchaser hereby elects to exercise his or her option to purchase __________
shares of the Common Stock (the "Shares") of the Company under and pursuant to
------
the Company's 1997 Stock Plan (the "Plan") and the Stock Option Agreement dated
----
______________, (the "Option Agreement"). The purchase price for the Shares
----------------
shall be $(ExercisePricePerShare) per Share for a total purchase price of)
$_______________. The term "Shares" refers to the purchased Shares and all
------
securities received in replacement of the Shares or as stock dividends or
splits, all securities received in replacement of the Shares in a
recapitalization, merger, reorganization, exchange or the like, and all new,
substituted or additional securities or other properties to which Purchaser is
entitled by reason of Purchaser's ownership of the Shares.
2. Time and Place of Exercise. The purchase and sale of the Shares under
--------------------------
this Agreement shall occur at the principal office of the Company simultaneously
with the execution and delivery of this Agreement in accordance with the
provisions of Section 3 of the Option Agreement. On such date, the Company will
deliver to Purchaser a certificate representing the Shares to be purchased by
Purchaser (which shall be issued in Purchaser's name) against payment of the
purchase price therefor by Purchaser by: (a) a check made payable to the
Company, (b) promissory note, (c) delivery of shares of the Common Stock of the
Company in accordance with Section 3 of the Option Agreement, or (d) by a
combination of the foregoing.
3. Limitations on Transfer. In addition to any other limitation on
-----------------------
transfer created by applicable securities laws, Purchaser shall not assign,
encumber or dispose of any interest in the Shares except in compliance with the
provisions below and applicable securities laws.
(a) Right of First Refusal. Before any Shares held by Purchaser or
----------------------
any transferee of Purchaser (either being sometimes referred to herein as the
"Holder") may be sold or otherwise transferred (including transfer by gift or
------
operation of law), the Company or its assignee(s) shall have a right of first
refusal to purchase the Shares on the terms and conditions set forth in this
Section 3(a) (the "Right of First Refusal").
----------------------
(i) Notice of Proposed Transfer. The Holder of the Shares shall
---------------------------
deliver to the Company a written notice (the "Notice") stating: (i) the
------
Holder's bona fide intention to sell or otherwise transfer such Shares; (ii) the
name of each proposed purchaser or other transferee ("Proposed Transferee");
-------------------
(iii) the number of Shares to be transferred to each Proposed Transferee; and
(iv) the terms and conditions of each proposed sale or transfer. The Holder
shall offer the Shares
<PAGE>
at the same price (the "Offered Price") and upon the same terms (or terms as
-------------
similar as reasonably possible) to the Company or its assignee(s).
(ii) Exercise of Right of First Refusal. At any time within
----------------------------------
thirty (30) days after receipt of the Notice, the Company and/or its assignee(s)
may, by giving written notice to the Holder, elect to purchase all, but not less
than all, of the Shares proposed to be transferred to any one or more of the
Proposed Transferees, at the purchase price determined in accordance with
subsection (iii) below.
(iii) Purchase Price. The purchase price ("Purchase Price")
-------------- --------------
for the Shares purchased by the Company or its assignee(s) under this Section
3(a) shall be the Offered Price. If the Offered Price includes consideration
other than cash, the cash equivalent value of the non-cash consideration shall
be determined by the Board of Directors of the Company in good faith.
(iv) Payment. Payment of the Purchase Price shall be made, at
-------
the option of the Company or its assignee(s), in cash (by check), by
cancellation of all or a portion of any outstanding indebtedness of the Holder
to the Company (or, in the case of repurchase by an assignee, to the assignee),
or by any combination thereof within 30 days after receipt of the Notice or in
the manner and at the times set forth in the Notice.
(v) Holder's Right to Transfer. If all of the Shares proposed
--------------------------
in the Notice to be transferred to a given Proposed Transferee are not purchased
by the Company and/or its assignee(s) as provided in this Section 3(a), then the
Holder may sell or otherwise transfer such Shares to that Proposed Transferee at
the Offered Price or at a higher price, provided that such sale or other
transfer is consummated within 60 days after the date of the Notice and provided
further that any such sale or other transfer is effected in accordance with any
applicable securities laws and the Proposed Transferee agrees in writing that
the provisions of this Section 3 shall continue to apply to the Shares in the
hands of such Proposed Transferee. If the Shares described in the Notice are not
transferred to the Proposed Transferee within such period, or if the Holder
proposes to change the price or other terms to make them more favorable to the
Proposed Transferee, a new Notice shall be given to the Company, and the Company
and/or its assignees shall again be offered the Right of First Refusal before
any Shares held by the Holder may be sold or otherwise transferred.
(vi) Exception for Certain Family Transfers. Anything to the
--------------------------------------
contrary contained in this Section 3(a) notwithstanding, the transfer of any or
all of the Shares during Purchaser's lifetime or on Purchaser's death by will or
intestacy to Purchaser's Immediate Family or a trust for the benefit of
Purchaser's Immediate Family shall be exempt from the provisions of this Section
3(a). "Immediate Family" as used herein shall mean spouse, lineal descendant or
----------------
antecedent, father, mother, brother or sister. In such case, the transferee or
other recipient shall receive and hold the Shares so transferred subject to the
provisions of this Section, and there shall be no further transfer of such
Shares except in accordance with the terms of this Section 3.
(b) Involuntary Transfer.
--------------------
(i) Company's Right to Purchase upon Involuntary Transfer. In
-----------------------------------------------------
the event, at any time after the date of this Agreement, of any transfer by
operation of law or other involuntary transfer (including death or divorce, but
excluding a transfer to Immediate Family as set
-2-
<PAGE>
forth in Section 3(a)(vi) above) of all or a portion of the Shares by the record
holder thereof, the Company shall have an option to purchase all of the Shares
transferred at the greater of the purchase price paid by Purchaser pursuant to
this Agreement or the fair market value of the Shares on the date of transfer.
Upon such a transfer, the person acquiring the Shares shall promptly notify the
Secretary of the Company of such transfer. The right to purchase such Shares
shall be provided to the Company for a period of thirty (30) days following
receipt by the Company of written notice by the person acquiring the Shares.
(ii) Price for Involuntary Transfer. With respect to any
------------------------------
stock to be transferred pursuant to Section 3(b)(i), the price per Share shall
be a price set by the Board of Directors of the Company that will reflect the
current value of the stock in terms of present earnings and future prospects of
the Company. The Company shall notify Purchaser or his or her executor of the
price so determined within thirty (30) days after receipt by it of written
notice of the transfer or proposed transfer of Shares. However, if the Purchaser
does not agree with the valuation as determined by the Board of Directors of the
Company, the Purchaser shall be entitled to have the valuation determined by an
independent appraiser to be mutually agreed upon by the Company and the
Purchaser and whose fees shall be borne equally by the Company and the
Purchaser.
(c) Assignment. The right of the Company to purchase any part of the
----------
Shares may be assigned in whole or in part to any shareholder or shareholders of
the Company or other persons or organizations; provided, however, that an
-------- -------
assignee, other than a corporation that is the parent or a 100% owned subsidiary
of the Company, must pay the Company, upon assignment of such right, cash equal
to the difference between the original purchase price and fair market value, if
the original purchase price is less than the fair market value of the Shares
subject to the assignment.
(d) Restrictions Binding on Transferees. All transferees of Shares
-----------------------------------
or any interest therein will receive and hold such Shares or interest subject to
the provisions of this Agreement. Any sale or transfer of the Company's Shares
shall be void unless the provisions of this Agreement are satisfied.
(e) Termination of Rights. The right of first refusal granted the
---------------------
Company by Section 3(a) above and the option to repurchase the Shares in the
event of an involuntary transfer granted the Company by Section 3(b) above shall
terminate upon the first sale of Common Stock of the Company to the general
public pursuant to a registration statement filed with and declared effective by
the Securities and Exchange Commission under the Securities Act of 1933, as
amended (the "Securities Act"). Upon termination of the right of first refusal
--------------
described in Section 3(a) above, a new certificate or certificates representing
the Shares not repurchased shall be issued, on request, without the legend
referred to in Section 6(a)(ii) herein and delivered to Purchaser.
4. Investment and Taxation Representations. In connection with the
---------------------------------------
purchase of the Shares, Purchaser represents to the Company the following:
(a) Purchaser is aware of the Company's business affairs and
financial condition and has acquired sufficient information about the Company to
reach an informed and knowledgeable decision to acquire the securities.
Purchaser is purchasing these securities for investment for his or her own
account only and not with a view to, or for resale in connection with, any
"distribution" thereof within the meaning of the Securities Act.
-3-
<PAGE>
(b) Purchaser understands that the securities have not been
registered under the Securities Act by reason of a specific exemption therefrom,
which exemption depends upon, among other things, the bona fide nature of
Purchaser's investment intent as expressed herein.
(c) Purchaser understands that the Shares are "restricted securities"
under applicable U.S. federal and state securities laws and that, pursuant to
these laws, Purchaser must hold the Shares indefinitely unless they are
registered with the Securities and Exchange Commission and qualified by state
authorities, or an exemption from such registration and qualification
requirements is available. Purchaser acknowledges that the Company has no
obligation to register or qualify the Shares for resale. Purchaser further
acknowledges that if an exemption from registration or qualification is
available, it may be conditioned on various requirements including, but not
limited to, the time and manner of sale, the holding period for the Shares, and
requirements relating to the Company which are outside of the Purchaser's
control, and which the Company is under no obligation and may not be able to
satisfy.
(d) Purchaser understands that Purchaser may suffer adverse tax
consequences as a result of Purchaser's purchase or disposition of the Shares.
Purchaser represents that Purchaser has consulted any tax consultants Purchaser
deems advisable in connection with the purchase or disposition of the Shares and
that Purchaser is not relying on the Company for any tax advice.
5. Restrictive Legends and Stop-Transfer Orders.
--------------------------------------------
(a) Legends. The certificate or certificates representing the Shares
-------
shall bear the following legends (as well as any legends required by applicable
state and federal corporate and securities laws):
(i) THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AND HAVE BEEN ACQUIRED FOR INVESTMENT AND
NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE
SALE OR DISTRIBUTION THEREOF. NO SUCH SALE OR
DISPOSITION MAY BE EFFECTED WITHOUT AN EFFECTIVE
REGISTRATION STATEMENT RELATED THERETO OR AN
OPINION OF COUNSEL IN A FORM SATISFACTORY TO THE
COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER
THE SECURITIES ACT OF 1933.
(ii) THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE
TRANSFERRED ONLY IN ACCORDANCE WITH THE TERMS OF AN
AGREEMENT BETWEEN THE COMPANY AND THE SHAREHOLDER, A COPY OF
WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY.
(b) Stop-Transfer Notices. Purchaser agrees that, in order to ensure
---------------------
compliance with the restrictions referred to herein, the Company may issue
appropriate "stop transfer"
-4-
<PAGE>
instructions to its transfer agent, if any, and that, if the Company transfers
its own securities, it may make appropriate notations to the same effect in its
own records.
(c) Refusal to Transfer. The Company shall not be required (i) to
-------------------
transfer on its books any Shares that have been sold or otherwise transferred in
violation of any of the provisions of this Agreement or (ii) to treat as owner
of such Shares or to accord the right to vote or pay dividends to any purchaser
or other transferee to whom such Shares shall have been so transferred.
6. No Employment Rights. Nothing in this Agreement shall affect in any
--------------------
manner whatsoever the right or power of the Company, or a parent or subsidiary
of the Company, to terminate Purchaser's employment or consultancy, for any
reason, with or without cause.
7. Market Stand-off Agreement. In connection with the initial public
--------------------------
offering of the Company's securities and upon request of the Company or the
underwriters managing any underwritten offering of the Company's securities,
Purchaser agrees not to sell, make any short sale of, loan, grant any option for
the purchase of, or otherwise dispose of any Shares (other than those included
in the registration) without the prior written consent of the Company or such
underwriters, as the case may be, for such period of time (not to exceed 180
days) from the effective date of such registration as may be requested by the
Company or such managing underwriters and to execute an agreement reflecting the
foregoing as may be requested by the underwriters at the time of the public
offering.
8. Miscellaneous.
-------------
(a) Governing Law. This Agreement and all acts and transactions
-------------
pursuant hereto and the rights and obligations of the parties hereto shall be
governed, construed and interpreted in accordance with the laws of the State of
California, without giving effect to principles of conflicts of law.
(b) Entire Agreement; Enforcement of Rights. This Agreement sets
---------------------------------------
forth the entire agreement and understanding of the parties relating to the
subject matter herein and merges all prior discussions between them. No
modification of or amendment to this Agreement, nor any waiver of any rights
under this Agreement, shall be effective unless in writing signed by the parties
to this Agreement. The failure by either party to enforce any rights under this
Agreement shall not be construed as a waiver of any rights of such party.
(c) Severability. If one or more provisions of this Agreement are
------------
held to be unenforceable under applicable law, the parties agree to renegotiate
such provision in good faith. In the event that the parties cannot reach a
mutually agreeable and enforceable replacement for such provision, then (i) such
provision shall be excluded from this Agreement, (ii) the balance of the
Agreement shall be interpreted as if such provision were so excluded and (iii)
the balance of the Agreement shall be enforceable in accordance with its terms.
(d) Construction. This Agreement is the result of negotiations
------------
between and has been reviewed by each of the parties hereto and their respective
counsel, if any; accordingly, this Agreement shall be deemed to be the product
of all of the parties hereto, and no ambiguity shall be construed in favor of or
against any one of the parties hereto.
-5-
<PAGE>
(e) Notices. Any notice required or permitted by this Agreement shall
-------
be in writing and shall be deemed sufficient when delivered personally or sent
by telegram or fax or forty-eight (48) hours after being deposited in the U.S.
mail, as certified or registered mail, with postage prepaid, and addressed to
the party to be notified at such party's address as set forth below or as
subsequently modified by written notice.
(f) Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
(g) Successors and Assigns. The rights and benefits of this Agreement
----------------------
shall inure to the benefit of, and be enforceable by the Company's successors
and assigns. The rights and obligations of Purchaser under this Agreement may
only be assigned with the prior written consent of the Company.
(h) California Corporate Securities Law. THE SALE OF THE SECURITIES
-----------------------------------
WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE
COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF THE
SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR
PRIOR TO THE QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT
FROM QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA
CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY
CONDITIONED UPON THE QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT.
[Signature Page Follows]
-6-
<PAGE>
The parties have executed this Agreement as of the date first set forth
above.
COMPANY:
PREVIEW SOFTWARE, INC.
By:__________________________________
Name:________________________________
(print)
Title:_______________________________
345 California
Avenue, Suite 3
Palo Alto, CA 92306
PURCHASER:
(Optionee)
_____________________________________
(Signature)
_____________________________________
(Print Name)
Address:
(Address1)
(Address2)
I, ______________________, spouse of (Optionee), have read and hereby approve
the foregoing Agreement. In consideration of the Company's granting my spouse
the right to purchase the Shares as set forth in the Agreement, I hereby agree
to be irrevocably bound by the Agreement and further agree that any community
property or other such interest shall hereby by similarly bound by the
Agreement. I hereby appoint my spouse as my attorney-in-fact with respect to
any amendment or exercise of any rights under the Agreement.
_______________________________
Spouse of (Optionee)
-7-
<PAGE>
EXHIBIT 10.5
PREVIEW SYSTEMS, INC.
1998 STOCK OPTION PLAN
1. Purposes of the Plan. The purposes of this 1998 Stock Option Plan
--------------------
are to attract and retain the best available personnel for positions of
substantial responsibility, to provide additional incentive to Employees and
Consultants of the Company and its Subsidiaries and to promote the success of
the Company's business. Options granted under the Plan may be incentive stock
options (as defined under Section 422 of the Code) or nonstatutory stock
options, as determined by the Administrator at the time of grant of an option
and subject to the applicable provisions of Section 422 of the Code, as amended,
and the regulations promulgated thereunder.
2. Definitions. As used herein, the following definitions shall
-----------
apply:
(a) "Administrator" means the Board or any of its Committees appointed
-------------
pursuant to Section 4 of the Plan.
(b) "Affiliate" means an entity other than a Subsidiary in which the
---------
Company owns an equity interest or which, together with the Company, is under
common control of a third person or entity.
(c) "Applicable Laws" means the legal requirements relating to the
---------------
administration of stock option and restricted stock purchase plans under
applicable U.S. state corporate laws, U.S. federal and applicable state
securities laws, the Code, any stock exchange rules or regulations and the
applicable laws of any other country or jurisdiction where Options or Stock
Purchase Rights are granted under the Plan, as such laws, rules, regulations and
requirements shall be in place from time to time.
(d) "Board" means the Board of Directors of the Company.
-----
(e) "Code" means the Internal Revenue Code of 1986, as amended.
----
(f) "Committee" means the Committee appointed by the Board of
---------
Directors in accordance with Section 4(a) of the Plan.
(g) "Common Stock" means the Common Stock of the Company.
------------
(h) "Company" means Preview Systems, Inc., a Delaware corporation.
-------
(i) "Consultant" means any person, including an advisor, who is
----------
engaged by the Company or any Parent or Subsidiary to render services and is
compensated for such services, and any director of the Company whether
compensated for such services or not.
(j) "Continuous Status as an Employee or Consultant" means the absence
----------------------------------------------
of any interruption or termination of service as an Employee or Consultant.
Continuous Status as
<PAGE>
an Employee or Consultant shall not be considered interrupted in the case of:
(i) sick leave; (ii) military leave; (iii) any other leave of absence approved
by the Administrator, provided that such leave is for a period of not more than
ninety (90) days, unless reemployment upon the expiration of such leave is
guaranteed by contract or statute, or unless provided otherwise pursuant to
Company policy adopted from time to time; or (iv) in the case of transfers
between locations of the Company or between the Company, its Subsidiaries or
their respective successors. For purposes of this Plan, a change in status from
an Employee to a Consultant or from a Consultant to an Employee will not
constitute an interruption of Continuous Status as an Employee or Consultant.
(k) "Director" means a member of the Board of Directors of the
--------
Company.
(l) "Employee" means any person (including, if appropriate, Officers,
--------
Directors and Named Executives) employed by the Company or any Parent,
Subsidiary or Affiliate of the Company, with the status of employment determined
based upon such minimum number of hours or periods worked as shall be determined
by the Administrator in its discretion, subject to any requirements of the Code.
The payment of a director's fee to a Director shall not be sufficient to
constitute "employment" of such Director by the Company.
(m) "Exchange Act" means the Securities Exchange Act of 1934, as
------------
amended.
(n) "Fair Market Value" means, as of any date, the fair market value
-----------------
of Common Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system including without limitation the National
Market of the National Association of Securities Dealers, Inc. Automated
Quotation ("NASDAQ") System, its Fair Market Value shall be the closing sales
price for such stock (or the closing bid, if no sales were reported), as quoted
on such system or exchange, or the exchange with the greatest volume of trading
in Common Stock for the last market trading day prior to the time of
determination, as reported in The Wall Street Journal or such other source as
the Administrator deems reliable;
(ii) If the Common Stock is quoted on the NASDAQ System (but not
on the National Market thereof) or regularly quoted by a recognized securities
dealer but selling prices are not reported, its Fair Market Value shall be the
mean between the high bid and low asked prices for the Common Stock for the last
market trading day prior to the time of determination, as reported in The Wall
Street Journal or such other source as the Administrator deems reliable; or
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Administrator.
(o) "Incentive Stock Option" means an Option intended to qualify as
----------------------
an incentive stock option within the meaning of Section 422 of the Code, as
designated in the applicable written option agreement.
-2-
<PAGE>
(p) "Listed Security" means any security of the Company that is
---------------
listed or approved for listing on a national securities exchange or designated
or approved for designation as a national market system security on an
interdealer quotation system by the National Association of Securities Dealers,
Inc.
(q) "Named Executive" means any individual who, on the last day of
---------------
the Company's fiscal year, is the chief executive officer of the Company (or is
acting in such capacity) or among the four most highly compensated officers of
the Company (other than the chief executive officer). Such officer status shall
be determined pursuant to the executive compensation disclosure rules under the
Exchange Act.
(r) "Nonstatutory Stock Option" means an Option not intended to
-------------------------
qualify as an Incentive Stock Option, as designated in the applicable written
option agreement.
(s) "Officer" means a person who is an officer of the Company within
-------
the meaning of Section 16(a) of the Exchange Act and the rules and regulations
promulgated thereunder.
(t) "Option" means a stock option granted pursuant to the Plan.
------
(u) "Optioned Stock" means the Common Stock subject to an Option.
--------------
(v) "Optionee" means an Employee or Consultant who receives an
--------
Option.
(w) "Parent" means a "parent corporation," whether now or hereafter
------ ------------------
existing, as defined in Section 424(e) of the Code, or any successor provision.
(x) "Plan" means this 1998 Stock Option Plan.
----
(y) "Reporting Person" means an officer, director, or greater than
----------------
ten percent shareholder of the Company within the meaning of Rule 16a-2 under
the Exchange Act, who is required to file reports pursuant to Rule 16a-3 under
the Exchange Act.
(z) "Rule 16b-3" means Rule 16b-3 promulgated under the Exchange Act,
----------
as the same may be amended from time to time, or any successor provision.
(aa) "Share" means a share of the Common Stock, as adjusted in
-----
accordance with Section 12 of the Plan.
(bb) "Stock Exchange" means any stock exchange or consolidated stock
--------------
price reporting system on which prices for the Common Stock are quoted at any
given time.
(cc) "Subsidiary" means a "subsidiary corporation," whether now or
---------- ----------------------
hereafter existing, as defined in Section 424(f) of the Code, or any successor
provision.
-3-
<PAGE>
(dd) "Ten Percent Holder" means a person who owns stock representing
------------------
more than ten percent (10%) of the voting power of all classes of stock of the
Company or any Parent or Subsidiary.
3. Stock Subject to the Plan. Subject to the provisions of Section
-------------------------
12 of the Plan, the maximum aggregate number of shares that may be optioned and
sold under the Plan is 2,850,000 shares of Common Stock (on a post-split basis),
plus an automatic annual increase on the first day of each of the Company's
fiscal years beginning in 2000 and ending in 2008 equal to the lesser of (i)
800,000 Shares (on a post-split basis), (ii) five percent (5%) of the Shares
outstanding on the last day of the immediately preceding fiscal year, or (iii)
such lesser number of shares as is determined by the Board of Directors. The
shares may be authorized, but unissued, or reacquired Common Stock. If an
Option should expire or become unexercisable for any reason without having been
exercised in full, the unpurchased Shares that were subject thereto shall,
unless the Plan shall have been terminated, become available for future grant
under the Plan. In addition, any shares of Common Stock which are retained by
the Company upon exercise of an Option in order to satisfy the exercise or
purchase price for such Option or any withholding taxes due with respect to such
exercise shall be treated as not issued and shall continue to be available under
the Plan. Shares repurchased by the Company pursuant to any repurchase right
which the Company may have shall not be available for future grant under the
Plan.
4. Administration of the Plan.
--------------------------
(a) General. The Plan shall be administered by the Board or a
-------
Committee, or a combination thereof, as determined by the Board. The Plan may
be administered by different administrative bodies with respect to different
classes of Optionees and, if permitted by the Applicable Laws, the Board may
authorize one or more officers (who may (but need not) be Officers) to grant
Options to Employees and Consultants.
(b) Administration With Respect to Reporting Persons. With respect to
------------------------------------------------
Options granted to Reporting Persons and Named Executives, the Plan may (but
need not) be administered so as to permit such Options to qualify for the
exemption set forth in Rule 16b-3 and to qualify as performance-based
compensation under Section 162(m) of the Code.
(c) Committee Composition. If a Committee has been appointed pursuant
---------------------
to this Section 4, such Committee shall continue to serve in its designated
capacity until otherwise directed by the Board. From time to time the Board may
increase the size of any Committee and appoint additional members thereof,
remove members (with or without cause) and appoint new members in substitution
therefor, fill vacancies (however caused) and remove all members of a Committee
and thereafter directly administer the Plan, all to the extent permitted by the
Applicable Laws and, in the case of a Committee administering the Plan pursuant
to Section 4(b) above, to the extent permitted or required by Rule 16b-3 and
Section 162(m) of the Code.
(d) Powers of the Administrator. Subject to the provisions of the
---------------------------
Plan and in the case of a Committee, the specific duties delegated by the Board
to such Committee, and
-4-
<PAGE>
subject to the approval of any relevant authorities, including the approval, if
required, of any Stock Exchange, the Administrator shall have the authority, in
its discretion:
(i) to determine the Fair Market Value of the Common Stock, in
accordance with Section 2(n) of the Plan;
(ii) to select the Consultants and Employees to whom Options may
from time to time be granted hereunder;
(iii) to determine whether and to what extent Options or any
combination thereof are granted hereunder;
(iv) to determine the number of shares of Common Stock to be
covered by each such option granted hereunder;
(v) to approve forms of agreement for use under the Plan;
(vi) to determine the terms and conditions, not inconsistent
with the terms of the Plan, of any option granted hereunder;
(vii) to determine whether and under what circumstances an Option
may be settled in cash under Section 10(g) instead of Common Stock;
(viii) to reduce the exercise price of any Option to the then
current Fair Market Value if the Fair Market Value of the Common Stock covered
by such Option shall have declined since the date the Option was granted;
(ix) to construe and interpret the terms of the Plan and Options
granted under the Plan; and
(x) in order to fulfill the purposes of the Plan and without
amending the Plan, to modify grants of Options to participants who are foreign
nationals or employed outside of the United States in order to recognize
differences in local law, tax policies or customs.
(e) Effect of Administrator's Decision. All decisions, determinations
----------------------------------
and interpretations of the Administrator shall be final and binding on all
holders of Options.
5. Eligibility.
-----------
(a) Recipients of Grants. Nonstatutory Stock Options may be granted
--------------------
to Employees and Consultants. Incentive Stock Options may be granted only to
Employees, provided however that Employees of an Affiliate shall not be eligible
to receive Incentive Stock Options. An Employee or Consultant who has been
granted an Option may, if he or she is otherwise eligible, be granted additional
Options.
-5-
<PAGE>
(b) Type of Option. Each Option shall be designated in the written
--------------
option agreement as either an Incentive Stock Option or a Nonstatutory Stock
Option. However, notwithstanding such designations, to the extent that the
aggregate Fair Market Value of the Shares with respect to which Options
designated as Incentive Stock Options are exercisable for the first time by any
Optionee during any calendar year (under all plans of the Company or any Parent
or Subsidiary) exceeds $100,000, such excess Options shall be treated as
Nonstatutory Stock Options. For purposes of this Section 5(b), Incentive Stock
Options shall be taken into account in the order in which they were granted, and
the Fair Market Value of the Shares subject to an Incentive Stock Option shall
be determined as of the date of the grant of such Option.
(c) Employment Relationship. The Plan shall not confer upon any
-----------------------
Optionee any right with respect to continuation of employment or consulting
relationship with the Company, nor shall it interfere in any way with such
Optionee's right or the Company's right to terminate his or her employment or
consulting relationship at any time, with or without cause.
6. Term of Plan. The Plan shall become effective upon the earlier to
------------
occur of its adoption by the Board of Directors or its approval by the
shareholders of the Company as described in Section 19 of the Plan. It shall
continue in effect for a term of ten (10) years unless sooner terminated under
Section 15 of the Plan.
7. Term of Option. The term of each Option shall be the term stated
--------------
in the Option Agreement; provided, however, that the term shall be no more than
ten (10) years from the date of grant thereof or such shorter term as may be
provided in the Option Agreement. However, in the case of an Incentive Stock
Option granted to an Optionee who, at the time the Option is granted, owns stock
representing more than ten percent (10%) of the total combined voting power of
all classes of stock of the Company or any Parent or Subsidiary, the term of the
Option shall be five (5) years from the date of grant thereof or such shorter
term as may be provided in the Option Agreement.
8. Limitation on Grants to Employees. Subject to adjustment as
---------------------------------
provided in Section 13 below, the maximum number of Shares which may be subject
to Options granted to any one Employee under this Plan for any fiscal year of
the Company shall be 1,000,000 Shares.
9. Option Exercise Price and Consideration.
---------------------------------------
(a) The per share exercise price for the Shares to be issued pursuant
to exercise of an Option shall be such price as is determined by the Board, but
shall be subject to the following:
(i) In the case of an Incentive Stock Option that is:
(A) granted to an Employee who, at the time of the grant of
such Incentive Stock Option, is a Ten Percent Holder, the per Share exercise
price shall be no less than 110% of the Fair Market Value per Share on the date
of grant.
-6-
<PAGE>
(B) granted to any other Employee, the per Share exercise
price shall be no less than 100% of the Fair Market Value per Share on the date
of grant.
(ii) In the case of a Nonstatutory Stock Option that is:
(A) granted prior to the date, if any, on which the Common
Stock becomes a Listed Security, to a person who, at the time of the grant of
such Option, is a Ten Percent Holder, the per Share exercise price shall be no
less than 110% of the Fair Market Value per Share on the date of the grant.
(B) granted to a person who, at the time of the grant of
such Option, is a Named Executive of the Company, the per share Exercise Price
shall be no less than 100% of the Fair Market Value on the date of grant if such
Option is intended to qualify as performance-based compensation under Section
162(m) of the Code; or
(C) granted prior to the date, if any, on which the Common
Stock becomes a Listed Security to any person other than a Named Executive or a
Ten Percent Holder, the per Share exercise price shall be no less than 85% of
the Fair Market Value per Share on the date of grant if required by the
Applicable Laws and, if not so required, shall be such price as is determined by
the Administrator.
(iii) Notwithstanding the foregoing, Options may be granted with a
per Share exercise price other than as required above pursuant to a merger or
other corporate transaction.
(b) The consideration to be paid for the Shares to be issued upon exercise
of an Option, including the method of payment, shall be determined by the
Administrator (and, in the case of an Incentive Stock Option, shall be
determined at the time of grant) and may consist entirely of (1) cash, (2)
check, (3) promissory note, (4) other Shares that (x) in the case of Shares
acquired upon exercise of an Option, have been owned by the Optionee for more
than six months on the date of surrender or such other period as may be required
to avoid a charge to the Company's earnings, and (y) have a Fair Market Value on
the date of surrender equal to the aggregate exercise price of the Shares as to
which such Option shall be exercised, (5) authorization for the Company to
retain from the total number of Shares as to which the Option is exercised that
number of Shares having a Fair Market Value on the date of exercise equal to the
exercise price for the total number of Shares as to which the Option is
exercised, (6) delivery of a properly executed exercise notice together with
such other documentation as the Administrator and the broker, if applicable,
shall require to effect an exercise of the Option and delivery to the Company of
the sale or loan proceeds required to pay the exercise price and any applicable
income or employment taxes, (7) delivery of an irrevocable subscription
agreement for the Shares that irrevocably obligates the option holder to take
and pay for the Shares not more than twelve months after the date of delivery of
the subscription agreement, (8) any combination of the foregoing methods of
payment, or (9) such other consideration and method of payment for the issuance
of Shares to the extent permitted under Applicable Laws. In making its
determination as to the type of consideration to accept, the Administrator shall
consider if acceptance of such consideration may be reasonably expected to
benefit the Company.
-7-
<PAGE>
10. Exercise of Option.
------------------
(a) Procedure for Exercise; Rights as a Shareholder. Any Option
-----------------------------------------------
granted hereunder shall be exercisable at such times and under such conditions
as determined by the Administrator, including performance criteria with respect
to the Company and/or the Optionee, and as shall be permissible under the terms
of the Plan; provided, however, that if required by the Applicable Laws, any
Option granted prior to the date, if any, upon which the Common Stock becomes a
Listed Security shall become exercisable at the rate of at least 20% per year
over five years from the date the Option is granted. In the event that any of
the Shares issued upon exercise of an Option (which exercise occurs prior to the
date, if any, upon which the Common Stock becomes a Listed Security) should be
subject to a right of repurchase in the Company's favor, such repurchase right
shall, if required by the Applicable Laws, lapse at the rate of at least 20% per
year over five years from the date the Option is granted. Notwithstanding the
above, in the case of an Option granted to an officer (including but not limited
to Officers), Director or Consultant of the Company or any Parent or Subsidiary
of the Company, the Option may become fully exercisable, and a repurchase right,
if any, in favor of the Company shall lapse, at any time or during any period
established by the Administrator.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of such
exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and the Company has
received full payment for the Shares with respect to which the Option is
exercised. Full payment may, as authorized by the Board, consist of any
consideration and method of payment allowable under Section 9(b) of the Plan.
Until the issuance (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company) of the stock
certificate evidencing such Shares, no right to vote or receive dividends or any
other rights as a shareholder shall exist with respect to the Optioned Stock,
not withstanding the exercise of the Option. The Company shall issue (or cause
to be issued) such stock certificate promptly upon exercise of the Option. No
adjustment will be made for a dividend or other right for which the record date
is prior to the date the stock certificate is issued, except as provided in
Section 12 of the Plan.
Exercise of an Option in any manner shall result in a decrease in the
number of Shares that thereafter may be available, both for purposes of the Plan
and for sale under the Option, by the number of Shares as to which the Option is
exercised.
(b) Termination of Employment or Consulting Relationship. In the
----------------------------------------------------
event of termination of an Optionee's Continuous Status as an Employee or
Consultant with the Company, such Optionee may, but only within three (3) months
(or such other period of time not less than thirty (30) days as is determined by
the Administrator, with such determination in the case of an Incentive Stock
Option being made at the time of grant of the Option and not exceeding three (3)
months) after the date of such termination (but in no event later than the
expiration date of the term of such Option as set forth in the Option
Agreement), exercise his or her Option to the extent that the Optionee was
entitled to exercise it at the date of such
-8-
<PAGE>
termination. To the extent that Optionee was not entitled to exercise the Option
at the date of such termination, or if Optionee does not exercise such Option to
the extent so entitled within the time specified herein, the Option shall
terminate. No termination shall be deemed to occur and this Section 10(b) shall
not apply if (i) the Optionee is a Consultant who becomes an Employee; or (ii)
the Optionee is an Employee who becomes a Consultant.
(c) Disability of Optionee.
----------------------
(i) Notwithstanding Section 10(b) above, in the event of
termination of an Optionee's Continuous Status as an Employee or Consultant as a
result of his or her total and permanent disability (within the meaning of
Section 22(e)(3) of the Code), Optionee may, but only within twelve (12) months
from the date of such termination (but in no event later than the expiration
date of the term of such Option as set forth in the Option Agreement), exercise
the Option to the extent otherwise entitled to exercise it at the date of such
termination. To the extent that Optionee was not entitled to exercise the Option
at the date of termination, or if Optionee does not exercise such Option to the
extent so entitled within the time specified herein, the Option shall terminate.
(ii) In the event of termination of an Optionee's Continuous
Status as an Employee or Consultant as a result of a disability which does not
fall within the meaning of total and permanent disability (as set forth in
Section 22(e)(3) of the Code), Optionee may, but only within six (6) months from
the date of such termination (but in no event later than the expiration date of
the term of such Option as set forth in the Option Agreement), exercise the
Option to the extent otherwise entitled to exercise it at the date of such
termination. However, to the extent that such Optionee fails to exercise an
Option which is an Incentive Stock Option ("ISO") (within the meaning of Section
---
422 of the Code) within three (3) months of the date of such termination, the
Option will not qualify for ISO treatment under the Code. To the extent that
Optionee was not entitled to exercise the Option at the date of termination, or
if Optionee does not exercise such Option to the extent so entitled within six
months (6) from the date of termination, the Option shall terminate.
(d) Death of Optionee. In the event of the death of an Optionee
-----------------
during the period of Continuous Status as an Employee or Consultant since the
date of grant of the Option, or within thirty (30) days following termination of
Optionee's Continuous Status as an Employee or Consultant, the Option may be
exercised, at any time within six (6) months following the date of death (but in
no event later than the expiration date of the term of such Option as set forth
in the Option Agreement), by Optionee's estate or by a person who acquired the
right to exercise the Option by bequest or inheritance, but only to the extent
of the right to exercise that had accrued at the date of death or, if earlier,
the date of termination of Optionee's Continuous Status as an Employee or
Consultant. To the extent that Optionee was not entitled to exercise the Option
at the date of death or termination, as the case may be, or if Optionee does not
exercise such Option to the extent so entitled within the time specified herein,
the Option shall terminate.
(e) Extension of Exercise Period. The Administrator shall have full
----------------------------
power and authority to extend the period of time for which an Option is to
remain exercisable following
-9-
<PAGE>
termination of an Optionee's Continuous Status as an Employee or Consultant from
the periods set forth in Sections 10(b), 10(c) and 10(d) above or in the Option
Agreement to such greater time as the Board shall deem appropriate, provided
that in no event shall such Option be exercisable later than the date of
expiration of the term of such Option as set forth in the Option Agreement.
(f) Rule 16b-3. Options granted to Reporting Persons shall comply
----------
with Rule 16b-3 and shall contain such additional conditions or restrictions as
may be required thereunder to qualify for the maximum exemption for Plan
transactions.
(g) Buyout Provisions. The Administrator may at any time offer to buy
-----------------
out for a payment in cash or Shares, an Option previously granted, based on such
terms and conditions as the Administrator shall establish and communicate to the
Optionee at the time that such offer is made.
11. Taxes.
-----
(a) As a condition of the exercise of an Option granted under the
Plan, the Participant (or in the case of the Participant's death, the person
exercising the Option) shall make such arrangements as the Administrator may
require for the satisfaction of any applicable federal, state, local or foreign
withholding tax obligations that may arise in connection with the exercise of
Option and the issuance of Shares. The Company shall not be required to issue
any Shares under the Plan until such obligations are satisfied.
(b) In the case of an Employee and in the absence of any other
arrangement, the Employee shall be deemed to have directed the Company to
withhold or collect from his or her compensation an amount sufficient to satisfy
such tax obligations from the next payroll payment otherwise payable after the
date of an exercise of the Option.
(c) This Section 11(c) shall apply only after the date, if any, upon
which the Common Stock becomes a Listed Security. In the case of Participant
other than an Employee (or in the case of an Employee where the next payroll
payment is not sufficient to satisfy such tax obligations, with respect to any
remaining tax obligations), in the absence of any other arrangement and to the
extent permitted under the Applicable Laws, the Participant shall be deemed to
have elected to have the Company withhold from the Shares to be issued upon
exercise of the Option that number of Shares having a Fair Market Value
determined as of the applicable Tax Date (as defined below) equal to the amount
required to be withheld. For purposes of this Section 11, the Fair Market Value
of the Shares to be withheld shall be determined on the date that the amount of
tax to be withheld is to be determined under the Applicable Laws (the "Tax
---
Date").
- ----
(d) If permitted by the Administrator, in its discretion, a
Participant may satisfy his or her tax withholding obligations upon exercise of
an Option or Stock Purchase Right by surrendering to the Company Shares that (i)
in the case of Shares previously acquired from the Company, have been owned by
the Participant for more than six (6) months on the date of
-10-
<PAGE>
surrender, and (ii) have a Fair Market Value determined as of the applicable Tax
Date equal to the amount required to be withheld.
(e) Any election or deemed election by a Participant to have Shares
withheld to satisfy tax withholding obligations under Section 11(c) or (d) above
shall be irrevocable as to the particular Shares as to which the election is
made and shall be subject to the consent or disapproval of the Administrator.
Any election by a Participant under Section 11(d) above must be made on or prior
to the applicable Tax Date.
(f) In the event an election to have Shares withheld is made by a
Participant and the Tax Date is deferred under Section 83 of the Code because no
election is filed under Section 83(b) of the Code, the Participant shall receive
the full number of Shares with respect to which the Option is exercised but such
Participant shall be unconditionally obligated to tender back to the Company the
proper number of Shares on the applicable Tax Date.
12. Adjustments Upon Changes in Capitalization, Merger or Certain
-------------------------------------------------------------
Other Transactions.
- ------------------
(a) Changes in Capitalization. Subject to any required action by the
-------------------------
shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Option, the number of shares of Common Stock that have been
authorized for issuance under the Plan but as to which no Options have yet been
granted or that have been returned to the Plan upon cancellation or expiration
of an Option, and the numbers of shares set forth in Section 3(a)(i) and 8
above, as well as the price per share of Common Stock covered by each such
outstanding Option, shall be proportionately adjusted for any increase or
decrease in the number of issued shares of Common Stock resulting from a stock
split, reverse stock split, stock dividend, combination, recapitalization or
reclassification of the Common Stock, or any other increase or decrease in the
number of issued shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to an Option.
(b) Dissolution or Liquidation. In the event of the proposed
--------------------------
dissolution or liquidation of the Company, the Board shall notify the Optionee
at least fifteen (15) days prior to such proposed action. To the extent it has
not been previously exercised, the Option will terminate immediately prior to
the consummation of such proposed action.
(c) Merger or Sale of Assets. In the event of a proposed sale of all
------------------------
or substantially all of the Company's assets or a merger of the Company with or
into another corporation where the successor corporation issues its securities
to the Company's shareholders, each outstanding Option shall be assumed or an
equivalent option or right shall be substituted by such successor corporation or
a parent or subsidiary of such successor corporation, unless the
-11-
<PAGE>
successor corporation does not agree to assume the Option or to substitute an
equivalent option, in which case such Option shall terminate upon the
consummation of the merger or sale of assets.
(d) Certain Distributions. In the event of any distribution to the
---------------------
Company's shareholders of securities of any other entity or other assets (other
than dividends payable in cash or stock of the Company) without receipt of
consideration by the Company, the Administrator may, in its discretion,
appropriately adjust the price per share of Common Stock covered by each
outstanding Option to reflect the effect of such distribution.
13. Non-Transferability of Options. Options may not be sold,
------------------------------
pledged, assigned, hypothecated, transferred, or disposed of in any manner other
than by will or by the laws of descent or distribution provided that, after the
date, if any, upon which the Common Stock becomes a Listed Security, the
Administrator may in its discretion grant transferable Nonstatutory Stock
Options pursuant to Option Agreements specifying (i) the manner in which such
Nonstatutory Stock Options are transferable and (ii) that any such transfer
shall be subject to the Applicable Laws. The designation of a beneficiary by an
Optionee will not constitute a transfer. An Option may be exercised, during the
lifetime of the holder of Option, only by such holder or a transferee permitted
by this Section 13.
14. Time of Granting Options. The date of grant of an Option shall,
------------------------
for all purposes, be the date on which the Administrator makes the determination
granting such Option, or such other date as is determined by the Board; provided
however that in the case of any Incentive Stock Option, the grant date shall be
the later of the date on which the Administrator makes the determination
granting such Incentive Stock Option or the date of commencement of the
Optionee's employment relationship with the Company. Notice of the
determination shall be given to each Employee or Consultant to whom an Option is
so granted within a reasonable time after the date of such grant.
15. Amendment and Termination of the Plan.
-------------------------------------
(a) Authority to Amend or Terminate. The Board may at any time amend,
alter, suspend or discontinue the Plan, but no amendment, alteration, suspension
or discontinuation shall be made that would impair the rights of any Optionee
under any grant theretofore made, without his or her consent. In addition, to
the extent necessary and desirable to comply with the Applicable Laws, the
Company shall obtain stockholder approval of any Plan amendment in such a manner
and to such a degree as required.
(b) Effect of Amendment or Termination. No amendment or termination
----------------------------------
of the Plan shall adversely affect Options already granted, unless mutually
agreed otherwise between the Optionee and the Board, which agreement must be in
writing and signed by the Optionee and the Company.
16. Conditions Upon Issuance of Shares. Shares shall not be issued
----------------------------------
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without
-12-
<PAGE>
limitation, the Securities Act of 1933, as amended, the Exchange Act, the rules
and regulations promulgated thereunder, and the requirements of any Stock
Exchange.
As a condition to the exercise of an Option, the Company may require the
person exercising such Option to represent and warrant at the time of any such
exercise that the Shares are being purchased only for investment and without any
present intention to sell or distribute such Shares if, in the opinion of
counsel for the Company, such a representation is required by law.
17. Reservation of Shares. The Company, during the term of this
---------------------
Plan, will at all times reserve and keep available such number of Shares as
shall be sufficient to satisfy the requirements of the Plan. The inability of
the Company to obtain authority from any regulatory body having jurisdiction,
which authority is deemed by the Company's counsel to be necessary to the lawful
issuance and sale of any Shares hereunder, shall relieve the Company of any
liability in respect of the failure to issue or sell such Shares as to which
such requisite authority shall not have been obtained.
18. Agreements. Options shall be evidenced by written agreements in
----------
such form as the Administrator shall approve from time to time.
19. Stockholder Approval. If required by the Applicable Laws,
--------------------
continuance of the Plan shall be subject to approval by the stockholders of the
Company within twelve (12) months before or after the date the Plan, or an
amendment to the Plan, is adopted. Such stockholder approval shall be obtained
in the degree and manner required under the Applicable Laws. All Options issued
under the Plan shall become void in the event such approval is not obtained.
20. Information and Documents to Optionees. Prior to the date, if
--------------------------------------
any, on which the Common Stock becomes a Listed Security and if required by the
Applicable Laws, the Company shall provide financial statements at least
annually to each Optionee during the period such Optionee has one or more
Options outstanding, and in the case of an individual who acquired Shares
pursuant to the Plan, during the period such individual owns such Shares. The
Company shall not be required to provide such information if the issuance of
Options under the Plan is limited to key employees whose duties in connection
with the Company assure their access to equivalent information. In addition, at
the time of issuance of any securities under the Plan, the Company shall provide
to the Optionee a copy of the Plan and a copy of any agreement(s) pursuant to
which securities under the Plan are issued.
-13-
<PAGE>
PREVIEW SYSTEMS, INC.
1998 STOCK OPTION PLAN
NOTICE OF STOCK OPTION GRANT
----------------------------
(Optionee)
__________________________
__________________________
You have been granted an option to purchase Common Stock "Common Stock" of
------------
Preview Systems, Inc. (the "Company") as follows:
-------
Board Approval Date: ((BoardApprovalDate))
Date of Grant (Later of Board
Approval Date or Commencement
of Employment/Consulting): ((GrantDate))
Vesting Commencement Date: ((VestingCommencementDate0)
Exercise Price per Share: $((ExercisePrice))
Total Number of Shares Granted: ((NoofShares))
Total Exercise Price: $((TotalExercisePrice))
Type of Option: ((NoSharesISO)) Incentive Stock Option
-----------
((NoSharesNSO)) Nonstatutory Stock
-----------
Option
Term/Expiration Date: ((ExpirDate))
Vesting Schedule: This Option may be exercised, in whole
or in part, in accordance with the
following schedule:
((VestingSchedule))
Termination Period: This Option may be exercised for 90 days
after termination of employment or
consulting relationship except as set
out in Sections 6 and 7 of the Stock
Option Agreement (but in no event later
than the Expiration Date).
<PAGE>
By your signature and the signature of the Company's representative below,
you and the Company agree that this Option is granted under and governed by the
terms and conditions of the 1998 Stock Option Plan and the Stock Option
Agreement, both of which are attached and made a part of this document.
((Optionee)): Preview Systems, Inc.
___________________________ By:______________________________
Signature
___________________________ ______________________________
Print Name Print Name and Title
-2-
<PAGE>
PREVIEW SYSTEMS, INC.
1998 STOCK OPTION PLAN
STOCK OPTION AGREEMENT
----------------------
1. Grant of Option. Preview Systems, Inc., a Delaware corporation (the
---------------
"Company"), hereby grants to ((Optionee)) ("Optionee"), an option (the "Option")
------- -------- ------
to purchase a total number of shares of Common Stock (the "Shares") set forth in
------
the Notice of Stock Option Grant, at the exercise price per share set forth in
the Notice of Stock Option Grant (the "Exercise Price") subject to the terms,
--------------
definitions and provisions of the Preview Systems, Inc. 1998 Stock Option Plan
(the "Plan") adopted by the Company, which is incorporated herein by reference.
----
Unless otherwise defined herein, the terms defined in the Plan shall have the
same defined meanings in this Option.
If designated an Incentive Stock Option, this Option is intended to qualify as
an Incentive Stock Option as defined in Section 422 of the Code.
2. Exercise of Option. This Option shall be exercisable during its Term
------------------
in accordance with the Vesting Schedule set out in the Notice of Stock Option
Grant and with the provisions of Section 9 of the Plan as follows:
(a) Right to Exercise.
-----------------
(i) This Option may not be exercised for a fraction of a share.
(ii) In the event of Optionee's death, disability or other
termination of employment, the exercisability of the Option is governed by
Sections 5, 6 and 7 below, subject to the limitation contained in Section
2(a)(i).
(iii) In no event may this Option be exercised after the
Expiration Date of this Option as set forth in the Notice of Stock Option Grant.
(b) Method of Exercise. This Option shall be exercisable by execution
------------------
and delivery of the Exercise Notice and Restricted Stock Purchase Agreement
attached hereto as Exhibit A (the "Exercise Agreement") or of any other form of
--------- ------------------
written notice approved for such purpose by the Company which shall state the
election to exercise the Option, the number of Shares in respect of which the
Option is being exercised, and such other representations and agreements as to
the holder's investment intent with respect to such shares of Common Stock as
may be required by the Company pursuant to the provisions of the Plan. Such
written notice shall be signed by Optionee and shall be delivered in person or
by certified mail to the Secretary of the Company. The written notice shall be
accompanied by payment of the Exercise Price. This Option shall be deemed to be
exercised upon receipt by the Company of such written notice accompanied by the
Exercise Price.
No Shares will be issued pursuant to the exercise of an Option unless
such issuance and such exercise shall comply with all relevant provisions of
applicable law and the
<PAGE>
requirements of any stock exchange upon which the Shares may then be listed.
Assuming such compliance, for income tax purposes the Shares shall be considered
transferred to Optionee on the date on which the Option is exercised with
respect to such Shares.
3. Method of Payment. Payment of the Exercise Price shall be by any of
-----------------
the following, or a combination thereof, at the election of Optionee:
(a) cash or check;
(b) cancellation of outstanding indebtedness;
(c) surrender of other shares of Common Stock of the Company which
(i) in the case of Shares acquired pursuant to the exercise of a Company option,
have been owned by Optionee for more than six months on the date of surrender,
and (ii) have a Fair Market Value on the date of surrender equal to the Exercise
Price of the Shares as to which the Option is being exercised; or
(d) if there is a public market for the Shares and they are
registered under the Exchange Act, delivery of a properly executed exercise
notice together with irrevocable instructions to a broker to deliver promptly to
the Company the amount of sale or loan proceeds required to pay the Exercise
Price.
4. Restrictions on Exercise. This Option may not be exercised until such
------------------------
time as the Plan has been approved by the stockholders of the Company, or if the
issuance of such Shares upon such exercise or the method of payment of
consideration for such shares would constitute a violation of any applicable
federal or state securities or other law or regulation, including any rule under
Part 207 of Title 12 of the Code of Federal Regulations as promulgated by the
Federal Reserve Board. As a condition to the exercise of this Option, the
Company may require Optionee to make any representation and warranty to the
Company as may be required by any applicable law or regulation.
5. Termination of Relationship. In the event of termination of
---------------------------
Optionee's Continuous Status as an Employee or Consultant, Optionee may, to the
extent otherwise so entitled at the date of such termination (the "Termination
-----------
Date"), exercise this Option during the Termination Period set forth in the
- ----
Notice of Stock Option Grant. To the extent that Optionee was not entitled to
exercise this Option at such Termination Date, or if Optionee does not exercise
this Option within the Termination Period, the Option shall terminate.
6. Disability of Optionee.
----------------------
(a) Notwithstanding the provisions of Section 5 above, in the event of
termination of Optionee's Continuous Status as an Employee or Consultant as a
result of Optionee's total and permanent disability (as defined in Section
22(e)(3) of the Code), Optionee may, but only within twelve months from the
Termination Date (but in no event later than the Expiration Date set forth in
the Notice of Stock Option Grant), exercise this Option to the extent Optionee
was entitled to exercise it as of such Termination Date. To the extent that
Optionee was not entitled to exercise the Option as of the Termination Date, or
if
-2-
<PAGE>
Optionee does not exercise such Option (to the extent so entitled) within the
time specified in this Section 6(a), the Option shall terminate.
(b) Notwithstanding the provisions of Section 5 above, in the event of
termination of Optionee's consulting relationship or Continuous Status as an
Employee as a result of disability not constituting a total and permanent
disability (as set forth in Section 22(e)(3) of the Code), Optionee may, but
only within six months from the Termination Date (but in no event later than the
Expiration Date set forth in the Notice of Stock Option Grant), exercise the
Option to the extent Optionee was entitled to exercise it as of such Termination
Date; provided, however, that if this is an Incentive Stock Option and Optionee
fails to exercise this Incentive Stock Option within three months from the
Termination Date, this Option will cease to qualify as an Incentive Stock Option
(as defined in Section 422 of the Code) and Optionee will be treated for federal
income tax purposes as having received ordinary income at the time of such
exercise in an amount generally measured by the difference between the Exercise
Price for the Shares and the Fair Market Value of the Shares on the date of
exercise. To the extent that Optionee was not entitled to exercise the Option
at the Termination Date, or if Optionee does not exercise such Option to the
extent so entitled within the time specified in this Section 6(b), the Option
shall terminate.
7. Death of Optionee. In the event of the death of Optionee (a) during
-----------------
the Term of this Option and while an Employee or Consultant of the Company and
having been in Continuous Status as an Employee or Consultant since the date of
grant of the Option, or (b) within 30 days after Optionee's Termination Date,
the Option may be exercised at any time within six months following the date of
death (but in no event later than the Expiration Date set forth in the Notice of
Stock Option Grant), by Optionee's estate or by a person who acquired the right
to exercise the Option by bequest or inheritance, but only to the extent of the
right to exercise that had accrued at the Termination Date.
8. Non-Transferability of Option. This Option may not be transferred in
-----------------------------
any manner otherwise than by will or by the laws of descent or distribution and
may be exercised during the lifetime of Optionee only by him or her. The terms
of this Option shall be binding upon the executors, administrators, heirs,
successors and assigns of Optionee.
9. Term of Option. This Option may be exercised only within the Term set
--------------
forth in the Notice of Stock Option Grant, subject to the limitations set forth
in Section 7 of the Plan.
10. Tax Consequences. Set forth below is a brief summary as of the date
----------------
of this Option of certain of the federal and California tax consequences of
exercise of this Option and disposition of the Shares under the laws in effect
as of the Date of Grant. THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX
LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. OPTIONEE SHOULD CONSULT A TAX
ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES.
(a) Exercise of Incentive Stock Option. If this Option qualifies as
----------------------------------
an Incentive Stock Option, there will be no regular federal or California income
tax liability upon the exercise of the Option, although the excess, if any, of
the Fair Market Value of the
-3-
<PAGE>
Shares on the date of exercise over the Exercise Price will be treated as an
adjustment to the alternative minimum tax for federal tax purposes and may
subject Optionee to the alternative minimum tax in the year of exercise.
(b) Exercise of Nonstatutory Stock Option. If this Option does not
-------------------------------------
qualify as an Incentive Stock Option, there may be a regular federal income tax
liability and a California income tax liability upon the exercise of the Option.
Optionee will be treated as having received compensation income (taxable at
ordinary income tax rates) equal to the excess, if any, of the Fair Market Value
of the Shares on the date of exercise over the Exercise Price. If Optionee is
an employee, the Company will be required to withhold from Optionee's
compensation or collect from Optionee and pay to the applicable taxing
authorities an amount equal to a percentage of this compensation income at the
time of exercise.
(c) Disposition of Shares. In the case of a Nonstatutory Stock
---------------------
Option, if Shares are held for at least one year, any gain realized on
disposition of the Shares will be treated as long-term capital gain for federal
and California income tax purposes. In the case of an Incentive Stock Option,
if Shares transferred pursuant to the Option are held for at least one year
after exercise and are disposed of at least two years after the Date of Grant,
any gain realized on disposition of the Shares will also be treated as long-term
capital gain for federal and California income tax purposes. In either case,
the long-term capital gain will be taxed for federal income tax and alternative
minimum tax purposes at a maximum rate of 28% if the Shares are held more than
one year but less than 18 months after exercise and at 20% if the Shares are
held more than 18 months after exercise. If Shares purchased under an Incentive
Stock Option are disposed of within one year after exercise or within two years
after the Date of Grant, any gain realized on such disposition will be treated
as compensation income (taxable at ordinary income rates) to the extent of the
difference between the Exercise Price and the lesser of (i) the Fair Market
Value of the Shares on the date of exercise, or (ii) the sale price of the
Shares.
(d) Notice of Disqualifying Disposition of Incentive Stock Option
-------------------------------------------------------------
Shares. If the Option granted to Optionee herein is an Incentive Stock Option,
- ------
and if Optionee sells or otherwise disposes of any of the Shares acquired
pursuant to the Incentive Stock Option on or before the later of (i) the date
two years after the Date of Grant, or (ii) the date one year after the date of
exercise, Optionee shall immediately notify the Company in writing of such
disposition. Optionee acknowledges and agrees that he or she may be subject to
income tax withholding by the Company on the compensation income recognized by
Optionee from the early disposition by payment in cash or out of the current
earnings paid to Optionee.
11. Withholding Tax Obligations. Optionee understands that, upon
---------------------------
exercising a Nonstatutory Stock Option, he or she will recognize income for tax
purposes in an amount equal to the excess of the then Fair Market Value of the
Shares over the Exercise Price. However, the timing of this income recognition
may be deferred for up to six months if Optionee is subject to Section 16 of the
Exchange Act. If Optionee is an employee, the Company will be required to
withhold from Optionee's compensation, or collect from Optionee and pay to the
applicable taxing authorities an amount equal to a percentage of this
-4-
<PAGE>
compensation income. Additionally, Optionee may at some point be required to
satisfy tax withholding obligations with respect to the disqualifying
disposition of an Incentive Stock Option. Optionee shall satisfy his or her tax
withholding obligation arising upon the exercise of this Option by one or some
combination of the following methods: (a) by cash payment, (b) out of Optionee's
current compensation, (c) if permitted by the Administrator, in its discretion,
by surrendering to the Company Shares which (i) in the case of Shares previously
acquired from the Company, have been owned by Optionee for more than six months
on the date of surrender, and (ii) have a Fair Market Value on the date of
surrender equal to or greater than Optionee's marginal tax rate times the
ordinary income recognized, or (d) by electing to have the Company withhold from
the Shares to be issued upon exercise of the Option that number of Shares having
a Fair Market Value equal to the amount required to be withheld. For this
purpose, the Fair Market Value of the Shares to be withheld shall be determined
on the date that the amount of tax to be withheld is to be determined (the "Tax
---
Date").
- -----
If Optionee is subject to Section 16 of the Exchange Act (an "Insider"),
-------
any surrender of previously owned Shares to satisfy tax withholding obligations
arising upon exercise of this Option must comply with the applicable provisions
of Rule 16b-3 promulgated under the Exchange Act ("Rule 16b-3").
----------
All elections by Optionee to have Shares withheld to satisfy tax
withholding obligations shall be made in writing in a form acceptable to the
Administrator and shall be subject to the following restrictions:
(a) the election must be made on or prior to the applicable Tax Date;
(b) once made, the election shall be irrevocable as to the particular
Shares of the Option as to which the election is made; and
(c) all elections shall be subject to the consent or disapproval of
the Administrator.
12. Market Standoff Agreement. In connection with the initial public
-------------------------
offering of the Company's securities and upon request of the Company or the
underwriters managing such underwritten offering of the Company's securities,
Optionee agrees not to sell, make any short sale of, loan, grant any option for
the purchase of, or otherwise dispose of any securities of the Company (other
than those included in the registration) without the prior written consent of
the Company or such underwriters, as the case may be, for such period of time
(not to exceed 180 days) from the effective date of such registration as may be
requested by the Company or such managing underwriters and to execute an
agreement reflecting the foregoing as may be requested by the underwriters at
the time of the Company's initial public offering.
[Signature page follows]
-5-
<PAGE>
This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original and all of which together shall constitute one
document.
Preview Systems, Inc.
By:__________________________________________
__________________________________________
(Print name and title)
OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO THE
OPTION HEREOF IS EARNED ONLY BY CONTINUING EMPLOYMENT OR CONSULTANCY AT THE WILL
OF THE COMPANY (NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED THIS OPTION OR
ACQUIRING SHARES HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT
NOTHING IN THIS AGREEMENT, NOR IN THE COMPANY'S STOCK OPTION PLAN WHICH IS
INCORPORATED HEREIN BY REFERENCE, SHALL CONFER UPON OPTIONEE ANY RIGHT WITH
RESPECT TO CONTINUATION OF EMPLOYMENT OR CONSULTANCY BY THE COMPANY, NOR SHALL
IT INTERFERE IN ANY WAY WITH OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO
TERMINATE OPTIONEE'S EMPLOYMENT OR CONSULTANCY AT ANY TIME, WITH OR WITHOUT
CAUSE.
Optionee acknowledges receipt of a copy of the Plan and represents that he
or she is familiar with the terms and provisions thereof, and hereby accepts
this Option subject to all of the terms and provisions thereof. Optionee has
reviewed the Plan and this Option in their entirety, has had an opportunity to
obtain the advice of counsel prior to executing this Option and fully
understands all provisions of the Option. Optionee hereby agrees to accept as
binding, conclusive and final all decisions or interpretations of the
Administrator upon any questions arising under the Plan or this Option.
Dated: ________________________ ______________________________
((Optionee))
-6-
<PAGE>
EXHIBIT A
---------
PREVIEW SYSTEMS, INC.
1998 STOCK OPTION PLAN
EXERCISE NOTICE AND RESTRICTED STOCK PURCHASE AGREEMENT
-------------------------------------------------------
This Agreement ("Agreement") is made as of ______________, by and between
---------
Preview Systems, Inc., a Delaware corporation (the "Company"), and ((Optionee))
-------
("Purchaser"). To the extent any capitalized terms used in this Agreement are
---------
not defined, they shall have the meaning ascribed to them in the 1998 Stock
Option Plan.
1. Exercise of Option. Subject to the terms and conditions hereof,
------------------
Purchaser hereby elects to exercise his or her option to purchase __________
shares of the Common Stock (the "Shares") of the Company under and pursuant to
------
the Company's 1998 Stock Option Plan (the "Plan") and the Stock Option Agreement
----
dated ______________, (the "Option Agreement"). The purchase price for the
----------------
Shares shall be $((ExercisePrice)) per Share for a total purchase price of
$_______________. The term "Shares" refers to the purchased Shares and all
------
securities received in replacement of the Shares or as stock dividends or
splits, all securities received in replacement of the Shares in a
recapitalization, merger, reorganization, exchange or the like, and all new,
substituted or additional securities or other properties to which Purchaser is
entitled by reason of Purchaser's ownership of the Shares.
2. Time and Place of Exercise. The purchase and sale of the Shares under
--------------------------
this Agreement shall occur at the principal office of the Company simultaneously
with the execution and delivery of this Agreement in accordance with the
provisions of Section 2(b) of the Option Agreement. On such date, the Company
will deliver to Purchaser a certificate representing the Shares to be purchased
by Purchaser (which shall be issued in Purchaser's name) against payment of the
exercise price therefor by Purchaser by (a) check made payable to the Company,
(b) cancellation of indebtedness of the Company to Purchaser, (c) delivery of
shares of the Common Stock of the Company in accordance with Section 3 of the
Option Agreement, or (d) a combination of the foregoing.
3. Limitations on Transfer. In addition to any other limitation on
-----------------------
transfer created by applicable securities laws, Purchaser shall not assign,
encumber or dispose of any interest in the Shares except in compliance with the
provisions below and applicable securities laws.
(a) Right of First Refusal. Before any Shares held by Purchaser or
----------------------
any transferee of Purchaser (either being sometimes referred to herein as the
"Holder") may be sold or otherwise transferred (including transfer by gift or
------
operation of law), the Company or its assignee(s) shall have a right of first
refusal to purchase the Shares on the terms and conditions set forth in this
Section 3(a) (the "Right of First Refusal").
----------------------
(i) Notice of Proposed Transfer. The Holder of the Shares shall
---------------------------
deliver to the Company a written notice (the "Notice") stating: (i) the
------
Holder's bona fide
<PAGE>
intention to sell or otherwise transfer such Shares; (ii) the name of each
proposed purchaser or other transferee ("Proposed Transferee"); (iii) the number
-------------------
of Shares to be transferred to each Proposed Transferee; and (iv) the terms and
conditions of each proposed sale or transfer. The Holder shall offer the Shares
at the same price (the "Offered Price") and upon the same terms (or terms as
-------------
similar as reasonably possible) to the Company or its assignee(s).
(ii) Exercise of Right of First Refusal. At any time within 30 days
----------------------------------
after receipt of the Notice, the Company and/or its assignee(s) may, by giving
written notice to the Holder, elect to purchase all, but not less than all, of
the Shares proposed to be transferred to any one or more of the Proposed
Transferees, at the purchase price determined in accordance with subsection
(iii) below.
(iii) Purchase Price. The purchase price ("Purchase Price") for
-------------- --------------
the Shares purchased by the Company or its assignee(s) under this Section 3(a)
shall be the Offered Price. If the Offered Price includes consideration other
than cash, the cash equivalent value of the non-cash consideration shall be
determined by the Board of Directors of the Company in good faith.
(iv) Payment. Payment of the Purchase Price shall be made, at the
-------
option of the Company or its assignee(s), in cash (by check), by cancellation of
all or a portion of any outstanding indebtedness of the Holder to the Company
(or, in the case of repurchase by an assignee, to the assignee), or by any
combination thereof within 30 days after receipt of the Notice or in the manner
and at the times set forth in the Notice.
(v) Holder's Right to Transfer. If all of the Shares proposed in
--------------------------
the Notice to be transferred to a given Proposed Transferee are not purchased by
the Company and/or its assignee(s) as provided in this Section 3(a), then the
Holder may sell or otherwise transfer such Shares to that Proposed Transferee at
the Offered Price or at a higher price, provided that such sale or other
transfer is consummated within 60 days after the date of the Notice and provided
further that any such sale or other transfer is effected in accordance with any
applicable securities laws and the Proposed Transferee agrees in writing that
the provisions of this Section 3 shall continue to apply to the Shares in the
hands of such Proposed Transferee. If the Shares described in the Notice are not
transferred to the Proposed Transferee within such period, or if the Holder
proposes to change the price or other terms to make them more favorable to the
Proposed Transferee, a new Notice shall be given to the Company, and the Company
and/or its assignees shall again be offered the Right of First Refusal before
any Shares held by the Holder may be sold or otherwise transferred.
(vi) Exception for Certain Family Transfers. Anything to the contrary
--------------------------------------
contained in this Section 3(a) notwithstanding, the transfer of any or all of
the Shares during Purchaser's lifetime or on Purchaser's death by will or
intestacy to Purchaser's Immediate Family (as defined below) or a trust for the
benefit of Purchaser's Immediate Family shall be exempt from the provisions of
this Section 3(a). "Immediate Family" as used herein shall mean spouse, lineal
----------------
descendant or antecedent, father, mother, brother or sister. In such case, the
transferee or other recipient shall receive and hold the Shares so transferred
subject to the
-2-
<PAGE>
provisions of this Section, and there shall be no further transfer of such
Shares except in accordance with the terms of this Section 3.
(b) Involuntary Transfer.
--------------------
(i) Company's Right to Purchase upon Involuntary Transfer. In
-----------------------------------------------------
the event, at any time after the date of this Agreement, of any transfer by
operation of law or other involuntary transfer (including divorce or death, but
excluding, in the event of death, a transfer to Immediate Family as set forth in
Section 3(a)(vi) above) of all or a portion of the Shares by the record holder
thereof, the Company shall have the right to purchase all of the Shares
transferred at the greater of the purchase price paid by Purchaser pursuant to
this Agreement or the Fair Market Value of the Shares on the date of transfer.
Upon such a transfer, the person acquiring the Shares shall promptly notify the
Secretary of the Company of such transfer. The right to purchase such Shares
shall be provided to the Company for a period of 30 days following receipt by
the Company of written notice by the person acquiring the Shares.
(ii) Price for Involuntary Transfer. With respect to any stock to
------------------------------
be transferred pursuant to Section 3(b)(i), the price per Share shall be a price
set by the Board of Directors of the Company that will reflect the current value
of the stock in terms of present earnings and future prospects of the Company.
The Company shall notify Purchaser or his or her executor of the price so
determined within 30 days after receipt by it of written notice of the transfer
or proposed transfer of Shares. However, if the Purchaser does not agree with
the valuation as determined by the Board of Directors of the Company, the
Purchaser shall be entitled to have the valuation determined by an independent
appraiser to be mutually agreed upon by the Company and the Purchaser and whose
fees shall be borne equally by the Company and the Purchaser.
(c) Assignment. The right of the Company to purchase any part of the
----------
Shares may be assigned in whole or in part to any stockholder or stockholders of
the Company or other persons or organizations; provided, however, that an
assignee, other than a corporation that is the Parent or a 100% owned Subsidiary
of the Company, must pay the Company, upon assignment of such right, cash equal
to the difference between the original purchase price and Fair Market Value, if
the original purchase price is less than the Fair Market Value of the Shares
subject to the assignment.
(d) Restrictions Binding on Transferees. All transferees of Shares or
-----------------------------------
any interest therein will receive and hold such Shares or interest subject to
the provisions of this Agreement. Any sale or transfer of the Shares shall be
void unless the provisions of this Agreement are satisfied.
(e) Termination of Rights. The Right of First Refusal and the
---------------------
Company's right to repurchase the Shares in the event of an involuntary transfer
pursuant to Section 3(b) above shall terminate upon the first sale of Common
Stock of the Company to the general public pursuant to a registration statement
filed with and declared effective by the Securities and Exchange Commission
under the Securities Act of 1933, as amended (the "Securities Act").
--------------
-3-
<PAGE>
(f) Market Standoff Agreement. In connection with the initial public
-------------------------
offering of the Company's securities and upon request of the Company or the
underwriters managing such underwritten offering of the Company's securities,
Purchaser agrees not to sell, make any short sale of, loan, grant any option for
the purchase of, or otherwise dispose of any securities of the Company (other
than those included in the registration) without the prior written consent of
the Company or such underwriters, as the case may be, for such period of time
(not to exceed 180 days) from the effective date of such registration as may be
requested by the Company or such managing underwriters and to execute an
agreement reflecting the foregoing as may be requested by the underwriters at
the time of the Company's initial public offering.
4. Investment and Taxation Representations. In connection with the
---------------------------------------
purchase of the Shares, Purchaser represents to the Company the following:
(a) Purchaser is aware of the Company's business affairs and
financial condition and has acquired sufficient information about the Company to
reach an informed and knowledgeable decision to acquire the Shares. Purchaser is
purchasing the Shares for investment for his or her own account only and not
with a view to, or for resale in connection with, any "distribution" thereof
within the meaning of the Securities Act.
(b) Purchaser understands that the Shares have not been registered
under the Securities Act by reason of a specific exemption therefrom, which
exemption depends upon, among other things, the bona fide nature of Purchaser's
investment intent as expressed herein.
(c) Purchaser understands that the Shares are "restricted securities"
under applicable U.S. federal and state securities laws and that, pursuant to
these laws, Purchaser must hold the Shares indefinitely unless they are
registered with the Securities and Exchange Commission and qualified by state
authorities, or an exemption from such registration and qualification
requirements is available. Purchaser acknowledges that the Company has no
obligation to register or qualify the Shares for resale. Purchaser further
acknowledges that if an exemption from registration or qualification is
available, it may be conditioned on various requirements including, but not
limited to, the time and manner of sale, the holding period for the Shares, and
requirements relating to the Company which are outside of the Purchaser's
control, and which the Company is under no obligation and may not be able to
satisfy.
(d) Purchaser understands that Purchaser may suffer adverse tax
consequences as a result of Purchaser's purchase or disposition of the Shares.
Purchaser represents that Purchaser has consulted any tax consultants Purchaser
deems advisable in connection with the purchase or disposition of the Shares and
that Purchaser is not relying on the Company for any tax advice.
5. Restrictive Legends and Stop-Transfer Orders.
--------------------------------------------
(a) Legends. The certificate or certificates representing the Shares
-------
shall bear the following legends (as well as any legends required by applicable
state and federal corporate and securities laws):
-4-
<PAGE>
(i) THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AND HAVE BEEN
ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN
CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH
SALE OR DISTRIBUTION MAY BE EFFECTED WITHOUT AN EFFECTIVE
REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF
COUNSEL IN A FORM SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF
1933.
(ii) THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE
TRANSFERRED ONLY IN ACCORDANCE WITH THE TERMS OF AN
AGREEMENT BETWEEN THE COMPANY AND THE STOCKHOLDER, A COPY OF
WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY.
(b) Stop-Transfer Notices. Purchaser agrees that, in order to ensure
---------------------
compliance with the restrictions referred to herein, the Company may issue
appropriate "stop transfer" instructions to its transfer agent, if any, and
that, if the Company transfers its own securities, it may make appropriate
notations to the same effect in its own records.
(c) Refusal to Transfer. The Company shall not be required (i) to
-------------------
transfer on its books any Shares that have been sold or otherwise transferred in
violation of any of the provisions of this Agreement or (ii) to treat as owner
of such Shares or to accord the right to vote or pay dividends to any purchaser
or other transferee to whom such Shares shall have been so transferred.
(d) Removal of Legend. When all of the following events have
-----------------
occurred, the Shares then held by Purchaser will no longer be subject to the
legend referred to in Section 5(a)(ii): (i) the termination of the Right of
First Refusal; and (ii) the expiration or termination of the market standoff
provisions of Section 3(f) (and of any agreement entered pursuant to Section
3(f)). After such time, and upon Purchaser's request, a new certificate or
certificates representing the Shares not repurchased shall be issued without the
legend referred to in Section 5(a)(ii), and delivered to Purchaser.
6. No Employment Rights. Nothing in this Agreement shall affect in any
--------------------
manner whatsoever the right or power of the Company, or a Parent or Subsidiary
of the Company, to terminate Purchaser's employment or consulting relationship,
for any reason, with or without cause.
-5-
<PAGE>
7. Miscellaneous.
-------------
(a) Governing Law. This Agreement and all acts and transactions
-------------
pursuant hereto and the rights and obligations of the parties hereto shall be
governed, construed and interpreted in accordance with the laws of the State of
California, without giving effect to principles of conflicts of law.
(b) Entire Agreement; Enforcement of Rights. This Agreement sets
---------------------------------------
forth the entire agreement and understanding of the parties relating to the
subject matter herein and merges all prior discussions between them. No
modification of or amendment to this Agreement, nor any waiver of any rights
under this Agreement, shall be effective unless in writing signed by the parties
to this Agreement. The failure by either party to enforce any rights under this
Agreement shall not be construed as a waiver of any rights of such party.
(c) Severability. If one or more provisions of this Agreement are
------------
held to be unenforceable under applicable law, the parties agree to renegotiate
such provision in good faith. In the event that the parties cannot reach a
mutually agreeable and enforceable replacement for such provision, then (i) such
provision shall be excluded from this Agreement, (ii) the balance of the
Agreement shall be interpreted as if such provision were so excluded and (iii)
the balance of the Agreement shall be enforceable in accordance with its terms.
(d) Construction. This Agreement is the result of negotiations
------------
between and has been reviewed by each of the parties hereto and their respective
counsel, if any; accordingly, this Agreement shall be deemed to be the product
of all of the parties hereto, and no ambiguity shall be construed in favor of or
against any one of the parties hereto.
(e) Notices. Any notice required or permitted by this Agreement shall
-------
be in writing and shall be deemed sufficient when delivered personally or sent
by telegram or fax or 48 hours after being deposited in the U.S. mail, as
certified or registered mail, with postage prepaid, and addressed to the party
to be notified at such party's address as set forth below or as subsequently
modified by written notice.
(f) Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
(g) Successors and Assigns. The rights and benefits of this Agreement
----------------------
shall inure to the benefit of, and be enforceable by the Company's successors
and assigns. The rights and obligations of Purchaser under this Agreement may
only be assigned with the prior written consent of the Company.
[Signature Page Follows]
-6-
<PAGE>
The parties have executed this Exercise Notice and Restricted Stock
Purchase Agreement as of the date first set forth above.
COMPANY:
Preview Systems, Inc.
By:___________________________________________
Name:____________________________________________
(print)
Title:___________________________________________
1601 S. DeAnza Blvd., Suite 100
Cupertino, CA 95014
PURCHASER:
((OPTIONEE))
_________________________________________________
(Signature)
_________________________________________________
(Print Name)
Address:
_________________________________________________
_________________________________________________
I, ______________________, spouse of ((Optionee)), have read and hereby approve
the foregoing Agreement. In consideration of the Company's granting my spouse
the right to purchase the Shares as set forth in the Agreement, I hereby agree
to be bound irrevocably by the Agreement and further agree that any community
property or similar interest that I may have in the Shares shall hereby be
similarly bound by the Agreement. I hereby appoint my spouse as my attorney-in-
fact with respect to any amendment or exercise of any rights under the
Agreement.
___________________________________________
Spouse of ((Optionee))
-7-
<PAGE>
EXHIBIT 10.6
PREVIEW SYSTEMS, INC.
1999 DIRECTORS' STOCK OPTION PLAN
---------------------------------
1. Purposes of the Plan. The purposes of this Directors' Stock
--------------------
Option Plan are to attract and retain the best available personnel for service
as Directors of the Company, to provide additional incentive to the Outside
Directors of the Company to serve as Directors, and to encourage their continued
service on the Board.
All options granted hereunder shall be nonstatutory stock options.
2. Definitions. As used herein, the following definitions shall
-----------
apply:
(a) "Board" means the Board of Directors of the Company.
-----
(b) "Change of Control" means a sale of all or substantially all of
-----------------
the Company's assets, or any merger or consolidation of the Company with or into
another corporation other than a merger or consolidation in which the holders of
more than 50% of the shares of capital stock of the Company outstanding
immediately prior to such transaction continue to hold (either by the voting
securities remaining outstanding or by their being converted into voting
securities of the surviving entity) more than 50% of the total voting power
represented by the voting securities of the Company, or such surviving entity,
outstanding immediately after such transaction.
(c) "Code" means the Internal Revenue Code of 1986, as amended.
----
(d) "Common Stock" means the Common Stock of the Company.
------------
(e) "Company" means Preview Systems, Inc., a Delaware corporation.
-------
(f) "Continuous Status as a Director" means the absence of any
-------------------------------
interruption or termination of service as a Director.
(g) "Corporate Transaction" means a dissolution or liquidation of the
---------------------
Company, a sale of all or substantially all of the Company's assets, or a
merger, consolidation or other capital reorganization of the Company with or
into another corporation.
(h) "Director" means a member of the Board.
--------
(i) "Employee" means any person, including any officer or Director,
--------
employed by the Company or any Parent or Subsidiary of the Company. The payment
of a director's fee by the Company shall not be sufficient in and of itself to
constitute "employment" by the Company.
(j) "Exchange Act" means the Securities Exchange Act of 1934, as
------------
amended.
<PAGE>
(k) "Option" means a stock option granted pursuant to the Plan. All
------
options shall be nonstatutory stock options (i.e., options that are not intended
to qualify as incentive stock options under Section 422 of the Code).
(l) "Optioned Stock" means the Common Stock subject to an Option.
--------------
(m) "Optionee" means an Outside Director who receives an Option.
--------
(n) "Outside Director" means a Director who is not an Employee.
----------------
(o) "Parent" means a "parent corporation," whether now or hereafter
------
existing, as defined in Section 424(e) of the Code.
(p) "Plan" means this 1999 Directors' Stock Option Plan.
----
(q) "Share" means a share of the Common Stock, as adjusted in
-----
accordance with Section 11 of the Plan.
(r) "Subsidiary" means a "subsidiary corporation," whether now or
----------
hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section
-------------------------
11 of the Plan, the maximum aggregate number of Shares which may be optioned and
sold under the Plan is 300,000 Shares of Common Stock (on a post-split basis),
plus an automatic annual increase on the first day of each of the Company's
fiscal years beginning in 2000 and ending in 2009 equal to the lesser of (i)
150,000 Shares (on a post-split basis), (ii) one percent (1%) of the Shares
outstanding on the last day of the immediately preceding fiscal year or (iii) a
lesser amount determined by the Board (the "Pool"). The Shares may be
----
authorized, but unissued, or reacquired Common Stock.
If an Option should expire or become unexercisable for any reason without
having been exercised in full, the unpurchased Shares which were subject thereto
shall, unless the Plan has been terminated, become available for future grant
under the Plan. In addition, any Shares of Common Stock that are retained by the
Company upon exercise of an Option in order to satisfy the exercise price for
such Option, or any withholding taxes due with respect to such exercise, shall
be treated as not issued and shall continue to be available under the Plan. If
Shares that were acquired upon exercise of an Option are subsequently
repurchased by the Company, such Shares shall not in any event be returned to
the Plan and shall not become available for future grant under the Plan.
4. Administration of and Grants of Options under the Plan.
------------------------------------------------------
(a) Administrator. Except as otherwise required herein, the Plan
-------------
shall be administered by the Board.
-2-
<PAGE>
(b) Procedure for Grants. All grants of Options hereunder shall be
--------------------
automatic and nondiscretionary and shall be made strictly in accordance with the
following provisions:
(i) No person shall have any discretion to select which Outside
Directors shall be granted Options or to determine the number of Shares to be
covered by Options granted to Outside Directors.
(ii) Each Outside Director shall be automatically granted an
Option to purchase Shares (the "First Option") as follows: (A) with respect to
persons who are Outside Directors on the effective date of this Plan, as
determined in accordance with Section 6 hereof, 10,000 Shares (on a post-split
basis) on such effective date, and (B) with respect to any person who becomes an
Outside Director after the effective date of this Plan, 20,000 Shares (on a
post-split basis) on the date on which such person first becomes an Outside
Director, whether through election by the shareholders of the Company or
appointment by the Board of Directors to fill a vacancy.
(iii) Each Outside Director shall thereafter be automatically
granted an Option to purchase 10,000 Shares (the "Subsequent Option") on the
date of each Annual Meeting of the Company's stockholders immediately following
which such Outside Director is serving on the Board, provided that, on such
date, he or she shall have served on the Board for at least six (6) months prior
to the date of such Annual Meeting.
(iv) Notwithstanding the provisions of subsections (ii) and (iii)
hereof, in the event that a grant would cause the number of Shares subject to
outstanding Options plus the number of Shares previously purchased upon exercise
of Options to exceed the Pool, then each such automatic grant shall be for that
number of Shares determined by dividing the total number of Shares remaining
available for grant by the number of Outside Directors receiving an Option on
the automatic grant date. Any further grants shall then be deferred until such
time, if any, as additional Shares become available for grant under the Plan
through action of the stockholders to increase the number of Shares which may be
issued under the Plan or through cancellation or expiration of Options
previously granted hereunder.
(v) Notwithstanding the provisions of subsections (ii) and (iii)
hereof, any grant of an Option made before the Company has obtained stockholder
approval of the Plan in accordance with Section 17 hereof shall be conditioned
upon obtaining such stockholder approval of the Plan in accordance with Section
17 hereof.
(vii) The terms of each Option granted hereunder shall be as
follows:
(1) each Option shall be exercisable only while the Outside
Director remains a Director of the Company, except as set forth in Section 9
below;
(2) the exercise price per Share shall be 100% of the fair
market value per Share on the date of grant of each option, determined in
accordance with Section 8 hereof,;
-3-
<PAGE>
(3) each Option shall be fully vested and exercisable on the
date of grant.
(c) Powers of the Board. Subject to the provisions and restrictions
-------------------
of the Plan, the Board shall have the authority, in its discretion: (i) to
determine, upon review of relevant information and in accordance with Section
8(b) of the Plan, the fair market value of the Common Stock; (ii) to determine
the exercise price per Share of Options to be granted, which exercise price
shall be determined in accordance with Section 8 of the Plan; (iii) to interpret
the Plan; (iv) to prescribe, amend and rescind rules and regulations relating to
the Plan; (v) to authorize any person to execute on behalf of the Company any
instrument required to effectuate the grant of an Option previously granted
hereunder; and (vi) to make all other determinations deemed necessary or
advisable for the administration of the Plan.
(d) Effect of Board's Decision. All decisions, determinations and
--------------------------
interpretations of the Board shall be final and binding on all Optionees and any
other holders of any Options granted under the Plan.
(e) Suspension or Termination of Option. If the Chief Executive
-----------------------------------
Officer or his or her designee reasonably believes that an Optionee has
committed an act of misconduct, such officer may suspend the Optionee's right to
exercise any option pending a determination by the Board (excluding the Outside
Director accused of such misconduct). If the Board (excluding the Outside
Director accused of such misconduct) determines an Optionee has committed an act
of embezzlement, fraud, dishonesty, nonpayment of an obligation owed to the
Company, breach of fiduciary duty or deliberate disregard of the Company rules
resulting in loss, damage or injury to the Company, or if an Optionee makes an
unauthorized disclosure of any Company trade secret or confidential information,
engages in any conduct constituting unfair competition, induces any Company
customer to breach a contract with the Company or induces any principal for whom
the Company acts as agent to terminate such agency relationship, neither the
Optionee nor his or her estate shall be entitled to exercise any Option
whatsoever. In making such determination, the Board of Directors (excluding the
Outside Director accused of such misconduct) shall act fairly and shall give the
Optionee an opportunity to appear and present evidence on Optionee's behalf at a
hearing before the Board or a committee of the Board.
5. Eligibility. Options may be granted only to Outside Directors. All
-----------
Options shall be automatically granted in accordance with the terms set forth in
Section 4(b) above. An Outside Director who has been granted an Option may, if
he or she is otherwise eligible, be granted an additional Option or Options in
accordance with such provisions.
The Plan shall not confer upon any Optionee any right with respect to
continuation of service as a Director or nomination to serve as a Director, nor
shall it interfere in any way with any rights which the Director or the Company
may have to terminate his or her directorship at any time.
6. Term of Plan; Effective Date. The Plan shall become effective on the
----------------------------
effectiveness of the registration statement under the Securities Act of 1933, as
amended, relating
-4-
<PAGE>
to the Company's initial public offering of securities. It shall continue in
effect for a term of ten (10) years unless sooner terminated under Section 13 of
the Plan.
7. Term of Options. The term of each Option shall be ten (10) years from
---------------
the date of grant thereof unless an Option terminates sooner pursuant to Section
9 below.
8. Exercise Price and Consideration.
--------------------------------
(a) Exercise Price. The per Share exercise price for the Shares to be
--------------
issued pursuant to exercise of an Option shall be 100% of the fair market value
per Share on the date of grant of the Option.
(b) Fair Market Value. The fair market value shall be determined by
-----------------
the Board; provided however that in the event the Common Stock is traded on the
Nasdaq National Market or listed on a stock exchange, the fair market value per
Share shall be the closing sales price on such system or exchange on the date of
grant of the Option (or, in the event that the Common Stock is not traded on
such date, on the immediately preceding trading date), as reported in The Wall
--------
Street Journal, or if there is a public market for the Common Stock but the
- --------------
Common Stock is not traded on the Nasdaq National Market or listed on a stock
exchange, the fair market value per Share shall be the mean of the bid and asked
prices of the Common Stock in the over-the-counter market on the date of grant,
as reported in The Wall Street Journal (or, if not so reported, as otherwise
------------------------
reported by the National Association of Securities Dealers Automated Quotation
("Nasdaq") System). For purposes of the First Options granted on the effective
date of this Plan, the fair market value per Share shall be the Price to Public
as set forth in the final prospectus filed with the Securities Exchange
Commission pursuant to Rule 424 under the Securities Act of 1933, as amended.
(c) Form of Consideration. The consideration to be paid for the
---------------------
Shares to be issued upon exercise of an Option shall consist entirely of cash,
check, other Shares of Common Stock having a fair market value on the date of
surrender equal to the aggregate exercise price of the Shares as to which the
Option shall be exercised (which, if acquired from the Company, shall have been
held for at least six months), or any combination of such methods of payment
and/or any other consideration or method of payment as shall be permitted under
applicable corporate law.
9. Exercise of Option.
------------------
(a) Procedure for Exercise; Rights as a Stockholder. Any Option
-----------------------------------------------
granted hereunder shall be exercisable at such times as are set forth in Section
4(b) above; provided however that no Options shall be exercisable prior to
stockholder approval of the Plan in accordance with Section 17 below has been
obtained.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of such
exercise has been given to the Company in accordance with the terms of the
Option by the
-5-
<PAGE>
person entitled to exercise the Option and full payment for the Shares with
respect to which the Option is exercised has been received by the Company. Full
payment may consist of any consideration and method of payment allowable under
Section 8(c) of the Plan. Until the issuance (as evidenced by the appropriate
entry on the books of the Company or of a duly authorized transfer agent of the
Company) of the stock certificate evidencing such Shares, no right to vote or
receive dividends or any other rights as a stockholder shall exist with respect
to the Optioned Stock, notwithstanding the exercise of the Option. A share
certificate for the number of Shares so acquired shall be issued to the Optionee
as soon as practicable after exercise of the Option. No adjustment will be made
for a dividend or other right for which the record date is prior to the date the
stock certificate is issued, except as provided in Section 11 of the Plan.
Exercise of an Option in any manner shall result in a decrease in
the number of Shares which thereafter may be available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(b) Termination of Continuous Status as a Director. If an Outside
----------------------------------------------
Director ceases to serve as a Director, he or she may, but only within ninety
(90) days after the date he or she ceases to be a Director of the Company,
exercise his or her Option to the extent that he or she was entitled to exercise
it at the date of such termination. Notwithstanding the foregoing, in no event
may the Option be exercised after its term set forth in Section 7 has expired.
To the extent that such Outside Director was not entitled to exercise an Option
at the date of such termination, or does not exercise such Option (to the extent
he or she was entitled to exercise) within the time specified above, the Option
shall terminate and the Shares underlying the unexercised portion of the Option
shall revert to the Plan.
(c) Disability of Optionee. Notwithstanding Section 9(b) above, in
----------------------
the event a Director is unable to continue his or her service as a Director with
the Company as a result of his or her total and permanent disability (as defined
in Section 22(e)(3) of the Code), he or she may, but only within twelve (12)
months from the date of such termination, exercise his or her Option to the
extent he or she was entitled to exercise it at the date of such termination.
Notwithstanding the foregoing, in no event may the Option be exercised after its
term set forth in Section 7 has expired. To the extent that he or she was not
entitled to exercise the Option at the date of termination, or if he or she does
not exercise such Option (to the extent he or she was entitled to exercise)
within the time specified above, the Option shall terminate and the Shares
underlying the unexercised portion of the Option shall revert to the Plan.
(d) Death of Optionee. In the event of the death of an Optionee: (A)
-----------------
during the term of the Option who is, at the time of his or her death, a
Director of the Company and who shall have been in Continuous Status as a
Director since the date of grant of the Option, or (B) three (3) months after
the termination of Continuous Status as a Director, the Option may be exercised,
at any time within twelve (12) months following the date of death, by the
Optionee's estate or by a person who acquired the right to exercise the Option
by bequest or inheritance, but only to the extent of the right to exercise that
had accrued at the date of death or the date of termination, as applicable.
Notwithstanding the foregoing, in no event may the Option be exercised after its
term set forth in Section 7 has expired. To the extent that an Optionee was not
-6-
<PAGE>
entitled to exercise the Option at the date of death or termination or if he or
she does not exercise such Option (to the extent he or she was entitled to
exercise) within the time specified above, the Option shall terminate and the
Shares underlying the unexercised portion of the Option shall revert to the
Plan.
10. Nontransferability of Options. The Option may not be sold, pledged,
-----------------------------
assigned, hypothecated, transferred or disposed of in any manner other than by
will or by the laws of descent or distribution or pursuant to a qualified
domestic relations order (as defined by the Code or the rules thereunder). The
designation of a beneficiary by an Optionee does not constitute a transfer. An
Option may be exercised during the lifetime of an Optionee only by the Optionee
or a transferee permitted by this Section.
11. Adjustments Upon Changes in Capitalization; Corporate Transactions.
------------------------------------------------------------------
(a) Adjustment. Subject to any required action by the stockholders of
----------
the Company, the number of shares of Common Stock covered by each outstanding
Option, the number of Shares of Common Stock set forth in Sections 4(b)(ii),
(iii) and (iv) above, and the number of Shares of Common Stock which have been
authorized for issuance under the Plan but as to which no Options have yet been
granted or which have been returned to the Plan upon cancellation or expiration
of an Option, as well as the price per Share of Common Stock covered by each
such outstanding Option, shall be proportionately adjusted for any increase or
decrease in the number of issued Shares of Common Stock resulting from a stock
split, reverse stock split, stock dividend, combination or reclassification of
the Common Stock (including any such change in the number of Shares of Common
Stock effected in connection with a change in domicile of the Company) or any
other increase or decrease in the number of issued Shares of Common Stock
effected without receipt of consideration by the Company; provided however that
conversion of any convertible securities of the Company shall not be deemed to
have been "effected without receipt of consideration." Such adjustment shall be
made by the Board, whose determination in that respect shall be final, binding
and conclusive. Except as expressly provided herein, no issuance by the Company
of shares of stock of any class, or securities convertible into shares of stock
of any class, shall affect, and no adjustment by reason thereof shall be made
with respect to, the number or price of shares of Common Stock subject to an
Option.
(b) Corporate Transactions; Change of Control. In the event of a
-----------------------------------------
Corporate Transaction, each outstanding Option shall be assumed or an equivalent
option shall be substituted by the successor corporation or a Parent or
Subsidiary of such successor corporation, unless the successor corporation does
not agree to assume the outstanding Options or to substitute equivalent options,
in which case the Options shall terminate upon the consummation of the
transaction; provided however that in the event of a Change of Control, each
optionee shall have the right to exercise all of his or her options to purchase
Shares, immediately prior to the consummation of the transaction.
For purposes of this Section 11(b), an Option shall be considered
assumed, without limitation, if, at the time of issuance of the stock or other
consideration upon such Corporate Transaction or Change of Control, each
Optionee would be entitled to receive upon
-7-
<PAGE>
exercise of an Option the same number and kind of shares of stock or the same
amount of property, cash or securities as the Optionee would have been entitled
to receive upon the occurrence of such transaction if the Optionee had been,
immediately prior to such transaction, the holder of the number of Shares of
Common Stock covered by the Option at such time (after giving effect to any
adjustments in the number of Shares covered by the Option as provided for in
this Section 11); provided however that if such consideration received in the
transaction was not solely common stock of the successor corporation or its
Parent, the Administrator may, with the consent of the successor corporation,
provide for the consideration to be received upon exercise of the Option to be
solely common stock of the successor corporation or its Parent equal to the Fair
Market Value of the per Share consideration received by holders of Common Stock
in the transaction.
(c) Certain Distributions. In the event of any distribution to the
---------------------
Company's stockholders of securities of any other entity or other assets (other
than dividends payable in cash or stock of the Company) without receipt of
consideration by the Company, the Administrator may, in its discretion,
appropriately adjust the price per Share of Common Stock covered by each
outstanding Option to reflect the effect of such distribution.
12. Time of Granting Options. The date of grant of an Option shall, for
------------------------
all purposes, be the date determined in accordance with Section 4(b) hereof.
Notice of the determination shall be given to each Outside Director to whom an
Option is so granted within a reasonable time after the date of such grant.
13. Amendment and Termination of the Plan.
-------------------------------------
(a) Amendment and Termination. The Board may amend or terminate the
-------------------------
Plan from time to time in such respects as the Board may deem advisable;
provided that, to the extent necessary and desirable to comply with Rule 16b-3
under the Exchange Act (or any other applicable law or regulation), the Company
shall obtain approval of the stockholders of the Company to Plan amendments to
the extent and in the manner required by such law or regulation.
(b) Effect of Amendment or Termination. Any such amendment or
----------------------------------
termination of the Plan that would impair the rights of any Optionee shall not
affect Options already granted to such Optionee and such Options shall remain in
full force and effect as if this Plan had not been amended or terminated, unless
mutually agreed otherwise between the Optionee and the Board, which agreement
must be in writing and signed by the Optionee and the Company.
14. Conditions Upon Issuance of Shares. Notwithstanding any other
----------------------------------
provision of the Plan or any agreement entered into by the Company pursuant to
the Plan, the Company shall not be obligated, and shall have no liability for
failure, to issue or deliver any Shares under the Plan unless such issuance or
delivery would comply with the legal requirements relating to the administration
of stock option plans under applicable U.S. state corporate laws, U.S. federal
and applicable state securities laws, the Code, any stock exchange or Nasdaq
rules or regulations to which the Company may be subject and the applicable laws
of any other country or jurisdiction
-8-
<PAGE>
where Options are granted under the Plan, as such laws, rules, regulations and
requirements shall be in place from time to time (the "Applicable Laws"). Such
---------------
compliance shall be determined by the Company in consultation with its legal
counsel.
As a condition to the exercise of an Option, the Company may require
the person exercising such Option to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required by law.
15. Reservation of Shares. The Company, during the term of this Plan,
---------------------
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
16. Option Agreement. Options shall be evidenced by written option
----------------
agreements in such form as the Board shall approve.
17. Stockholder Approval. If required by the Applicable Laws, continuance
--------------------
of the Plan shall be subject to approval by the stockholders of the Company.
Such stockholder approval shall be obtained in the manner and to the degree
required under the Applicable Laws.
-9-
<PAGE>
PREVIEW SYSTEMS, INC.
1999 DIRECTORS' STOCK OPTION PLAN
NOTICE OF STOCK OPTION GRANT
----------------------------
((Optionee))
((OptioneeAddress1))
((OptioneeAddress2))
You have been granted an option to purchase Common Stock of Preview
Systems, Inc. (the "Company") as follows:
-------
Date of Grant ((GrantDate))
Vesting Commencement Date ((VestingStartDate))
Exercise Price per Share ((ExercisePrice))
Total Number of Shares Granted ((SharesGranted))
Total Exercise Price ((TotalExercisePrice))
Expiration Date ((ExpirDate))
Vesting Schedule This Option may be exercised, in whole
or in part, in accordance with the
following schedule: 100% of the Option
Shares shall be vested and exercisable
in full as of the Date of Grant.
Termination Period This Option may be exercised for 90 days
after termination of Optionee's
Continuous Status as a Director, or such
longer period as may be applicable upon
death or Disability of Optionee as
provided in the Plan, but in no event
later than the Expiration Date as
provided above.
<PAGE>
By your signature and the signature of the Company's representative below,
you and the Company agree that this option is granted under and governed by the
terms and conditions of the 1999 Directors' Stock Option Plan and the
Nonstatutory Stock Option Agreement, all of which are attached and made a part
of this document.
OPTIONEE: PREVIEW SYSTEMS, INC.
_______________________ By:_______________________
Signature
Title:____________________
_______________________
Print Name
-11-
<PAGE>
PREVIEW SYSTEMS, INC.
NONSTATUTORY STOCK OPTION AGREEMENT
-----------------------------------
1. Grant of Option. The Board of Directors of the Company hereby grants
---------------
to the Optionee named in the Notice of Stock Option Grant attached as Part I of
this Agreement (the "Optionee"), an option (the "Option") to purchase a number
-------- ------
of Shares, as set forth in the Notice of Stock Option Grant, at the exercise
price per share set forth in the Notice of Stock Option Grant (the "Exercise
--------
Price"), subject to the terms and conditions of the 1999 Directors' Stock
- -----
Option Plan (the "Plan"), which is incorporated herein by reference.
----
(Capitalized terms not defined herein shall have the meanings ascribed to such
terms in the Plan.) In the event of a conflict between the terms and conditions
of the Plan and the terms and conditions of this Nonstatutory Stock Option
Agreement, the terms and conditions of the Plan shall prevail.
2. Exercise of Option.
------------------
(a) Right to Exercise. This Option is exercisable during its term in
-----------------
accordance with the Vesting Schedule set out in the Notice of Stock Option Grant
and the applicable provisions of the Plan and this Nonstatutory Stock Option
Agreement. In the event of Optionee's death, disability or other termination of
Optionee's employment or consulting relationship, the exercisability of the
Option is governed by the applicable provisions of the Plan and this
Nonstatutory Stock Option Agreement.
(b) Method of Exercise. This Option is exercisable by delivery of an
------------------
exercise notice, in the form attached as Exhibit A (the "Exercise Notice"),
--------- ---------------
which shall state the election to exercise the Option, the number of Shares in
respect of which the Option is being exercised (the "Exercised Shares"), and
----------------
such other representations and agreements as may be required by the Company
pursuant to the provisions of the Plan. The Exercise Notice shall be signed by
the Optionee and shall be delivered in person or by certified mail to the
Secretary of the Company. The Exercise Notice shall be accompanied by payment
of the aggregate Exercise Price as to all Exercised Shares. This Option shall
be deemed to be exercised upon receipt by the Company of such fully executed
Exercise Notice accompanied by such aggregate Exercise Price.
No Shares shall be issued pursuant to the exercise of this Option
unless such issuance and exercise complies with all relevant provisions of law
and the requirements of any stock exchange or quotation service upon which the
Shares are then listed. Assuming such compliance, for income tax purposes the
Exercised Shares shall be considered transferred to the Optionee on the date the
Option is exercised with respect to such Exercised Shares.
3. Method of Payment. Payment of the aggregate Exercise Price shall be
-----------------
by any of the following, or a combination thereof, at the election of the
Optionee:
(a) cash;
<PAGE>
(b) check;
(c) delivery of a properly executed exercise notice together with
such other documentation as the Administrator and the broker, if applicable,
shall require to effect an exercise of the Option and delivery to the Company of
the sale or loan proceeds required to pay the exercise price; or
(d) surrender of other Shares which (i) in the case of Shares
acquired upon exercise of an option, have been owned by the Optionee for more
than six (6) months on the date of surrender, and (ii) have a Fair Market Value
on the date of surrender equal to the aggregate Exercise Price of the Exercised
Shares.
4. Non-Transferability of Option. This Option may not be transferred in
-----------------------------
any manner otherwise than by will or by the laws of descent or distribution or
pursuant to a domestic relations order (as defined by the Code or the rules
thereunder) and may be exercised during the lifetime of Optionee only by the
Optionee or a transferee permitted by Section 10 of the Plan. The terms of the
Plan and this Nonstatutory Stock Option Agreement shall be binding upon the
executors, administrators, heirs, successors and assigns of the Optionee.
5. Term of Option. This Option may be exercised only within the term set
--------------
out in the Notice of Stock Option Grant, and may be exercised during such term
only in accordance with the Plan and the terms of this Nonstatutory Stock Option
Agreement.
6. Tax Consequences. Set forth below is a brief summary of certain
----------------
federal tax consequences relating to this Option under the law in effect as of
the date of grant. THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX LAWS AND
REGULATIONS ARE SUBJECT TO CHANGE. OPTIONEE SHOULD CONSULT HIS OR HER OWN TAX
ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES.
(a) Exercising the Option. Since this Option does not qualify as an
---------------------
incentive stock option under Section 422 of the Code, the Optionee may incur
regular federal income tax liability upon exercise. The Optionee will be
treated as having received compensation income (taxable at ordinary income tax
rates) equal to the excess, if any, of the fair market value of the Exercised
Shares on the date of exercise over their aggregate Exercise Price.
(b) Disposition of Shares. If the Optionee holds the Option Shares
---------------------
for more than one year, gain realized on disposition of the Shares will be
treated as long-term capital gain for federal income tax purposes. The long-
term capital gain will be taxed for federal income tax purposes as a maximum
rate of 20 percent.
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<PAGE>
By your signature and the signature of the Company's representative below,
you and the Company agree that this Option is granted under and governed by the
terms and conditions of the Plan and this Nonstatutory Stock Option Agreement.
Optionee has reviewed the Plan and this Nonstatutory Stock Option Agreement in
their entirety, has had an opportunity to obtain the advice of counsel prior to
executing this Nonstatutory Stock Option Agreement and fully understands all
provisions of the Plan and Nonstatutory Stock Option Agreement. Optionee hereby
agrees to accept as binding, conclusive and final all decisions or
interpretations of the Administrator upon any questions relating to the Plan and
Nonstatutory Stock Option Agreement.
PREVIEW SYSTEMS, INC.
_____________________________ By:_________________________
((Optionee))
Title:______________________
-14-
<PAGE>
CONSENT OF SPOUSE
-----------------
The undersigned spouse of Optionee has read and hereby approves the terms
and conditions of the Plan and this Nonstatutory Stock Option Agreement. In
consideration of the Company's granting his or her spouse the right to purchase
Shares as set forth in the Plan and this Nonstatutory Stock Option Agreement,
the undersigned hereby agrees to be irrevocably bound by the terms and
conditions of the Plan and this Nonstatutory Stock Option Agreement and further
agrees that any community property interest shall be similarly bound. The
undersigned hereby appoints the undersigned's spouse as attorney-in-fact for the
undersigned with respect to any amendment or exercise of rights under the Plan
or this Nonstatutory Stock Option Agreement.
____________________________
Spouse of Optionee
<PAGE>
EXHIBIT A
---------
NOTICE OF EXERCISE
------------------
To: Preview Systems, Inc.
Attn: Stock Option Administrator
Subject: Notice of Intention to Exercise Stock Option
--------------------------------------------
This is official notice that the undersigned ("Optionee") intends to
--------
exercise Optionee's option to purchase __________ shares of Preview Systems,
Inc. Common Stock, under and pursuant to the Company's 1999 Directors' Stock
Option Plan and the Nonstatutory Stock Option Agreement dated _______________,
as follows:
Grant Number: ______________________________
Date of Purchase: ______________________________
Number of Shares: ______________________________
Purchase Price: ______________________________
Method of Payment of
Purchase Price: ______________________________
Social Security No.: ______________________________
The shares should be issued as follows:
Name: ______________________________
Address: ______________________________
______________________________
______________________________
Signed: ______________________________
Date: ______________________________
<PAGE>
EXHIBIT 10.7
PREVIEW SYSTEMS, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
---------------------------------
The following constitute the provisions of the 1999 Employee Stock Purchase
Plan of Preview Systems, Inc.
1. Purpose. The purpose of the Plan is to provide employees of the
-------
Company and its Designated Subsidiaries with an opportunity to purchase Common
Stock of the Company. It is the intention of the Company to have the Plan
qualify as an "Employee Stock Purchase Plan" under Section 423 of the Code. The
provisions of the Plan shall, accordingly, be construed so as to extend and
limit participation in a manner consistent with the requirements of that section
of the Code.
2. Definitions.
-----------
(a) "Board" means the Board of Directors of the Company.
-----
(b) "Code" means the Internal Revenue Code of 1986, as amended.
----
(c) "Common Stock" means the Common Stock of the Company.
------------
(d) "Company" means Preview Systems, Inc., a Delaware corporation.
-------
(e) "Compensation" means total cash compensation received by an
------------
Employee from the Company or a Designated Subsidiary. By way of illustration,
but not limitation, Compensation includes regular compensation such as salary,
wages, overtime, shift differentials, bonuses, commissions and incentive
compensation, but excludes relocation, expense reimbursements, tuition or other
reimbursements and income realized as a result of participation in any stock
option, stock purchase, or similar plan of the Company or any Designated
Subsidiary.
(f) "Continuous Status as an Employee" means the absence of any
--------------------------------
interruption or termination of service as an Employee. Continuous Status as an
Employee shall not be considered interrupted in the case of (i) sick leave; (ii)
military leave; (iii) any other leave of absence approved by the Administrator,
provided that such leave is for a period of not more than 90 days, unless
reemployment upon the expiration of such leave is guaranteed by contract or
statute, or unless provided otherwise pursuant to Company policy adopted from
time to time; or (iv) in the case of transfers between locations of the Company
or between the Company and its Designated Subsidiaries.
(g) "Contributions" means all amounts credited to the account of a
-------------
participant pursuant to the Plan.
(h) "Corporate Transaction" means a sale of all or substantially all
---------------------
of the Company's assets, or a merger, consolidation or other capital
reorganization of the Company with or into another corporation, or any other
transaction or series of related transactions in
<PAGE>
which the Company's stockholders immediately prior thereto own less than 50% of
the voting stock of the Company (or its successor or parent) immediately
thereafter.
(i) "Designated Subsidiaries" means the Subsidiaries that have been
-----------------------
designated by the Board from time to time in its sole discretion as eligible to
participate in the Plan; provided however that the Board shall only have the
discretion to designate Subsidiaries if the issuance of options to such
Subsidiary's Employees pursuant to the Plan would not cause the Company to incur
adverse accounting charges.
(j) "Employee" means any person, including an Officer, who is an
--------
Employee for tax purposes and who is customarily employed for at least twenty
(20) hours per week and more than five (5) months in a calendar year by the
Company or one of its Designated Subsidiaries.
(k) "Exchange Act" means the Securities Exchange Act of 1934, as
------------
amended.
(l) "Offering Date" means the first business day of each Offering
-------------
Period of the Plan.
(m) "Offering Period" means a period of twenty-four (24) months
---------------
commencing on November 1 and May 1 of each year, except for the first Offering
Period as set forth in Section 4(a).
(n) "Officer" means a person who is an officer of the Company within
-------
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(o) "Plan" means this Employee Stock Purchase Plan.
----
(p) "Purchase Date" means the last day of each Purchase Period of the
-------------
Plan.
(q) "Purchase Period" means a period of six (6) months within an
---------------
Offering Period, except for the Purchase Periods in the first Offering Period as
set forth in Section 4(b).
(r) "Purchase Price" means with respect to a Purchase Period an
--------------
amount equal to 85% of the Fair Market Value (as defined in Section 7(b) below)
of a Share of Common Stock on the Offering Date or on the Purchase Date,
whichever is lower; provided, however, that in the event (i) of any increase in
the number of Shares available for issuance under the Plan as a result of a
stockholder-approved amendment to the Plan, and (ii) all or a portion of such
additional Shares are to be issued with respect to one or more Offering Periods
that are underway at the time of such increase ("Additional Shares"), and (iii)
-----------------
the Fair Market Value of a Share of Common Stock on the date of such increase
(the "Approval Date Fair Market Value") is higher than the Fair Market Value on
-------------------------------
the Offering Date for any such Offering Period, then in such instance the
Purchase Price with respect to Additional Shares shall be 85% of the Approval
Date Fair Market Value or the Fair Market Value of a Share of Common Stock on
the Purchase Date, whichever is lower.
-2-
<PAGE>
(s) "Share" means a share of Common Stock, as adjusted in accordance
-----
with Section 19 of the Plan.
(t) "Subsidiary" means a corporation, domestic or foreign, of which
----------
not less than 50% of the voting shares are held by the Company or a Subsidiary,
whether or not such corporation now exists or is hereafter organized or acquired
by the Company or a Subsidiary.
3. Eligibility.
-----------
(a) Any person who is an Employee as of the Offering Date of a given
Offering Period shall be eligible to participate in such Offering Period under
the Plan, subject to the requirements of Section 5(a) and the limitations
imposed by Section 423(b) of the Code; provided however that eligible Employees
may not participate in more than one Offering Period at a time.
(b) Any provisions of the Plan to the contrary notwithstanding, no
Employee shall be granted an option under the Plan (i) if, immediately after the
grant, such Employee (or any other person whose stock would be attributed to
such Employee pursuant to Section 424(d) of the Code) would own capital stock of
the Company and/or hold outstanding options to purchase stock possessing five
percent (5%) or more of the total combined voting power or value of all classes
of stock of the Company or of any subsidiary of the Company, or (ii) if such
option would permit his or her rights to purchase stock under all employee stock
purchase plans (described in Section 423 of the Code) of the Company and its
Subsidiaries to accrue at a rate that exceeds Twenty-Five Thousand Dollars
($25,000) of the Fair Market Value (as defined in Section 7(b) below) of such
stock (determined at the time such option is granted) for each calendar year in
which such option is outstanding at any time.
4. Offering Periods and Purchase Periods.
-------------------------------------
(a) Offering Periods. The Plan shall be generally implemented by a
----------------
series of Offering Periods of twenty-four (24) months' duration, with new
Offering Periods (other than the first Offering Period) commencing on or about
May 1 and November 1 of each year (or at such other time or times as may be
determined by the Board of Directors). The first Offering Period shall commence
on the beginning of the effective date of the Registration Statement on Form S-1
for the initial public offering of the Company's Common Stock (the "IPO Date")
--------
and continue until October 31, 2001. The Plan shall continue until terminated
in accordance with Section 19 hereof. The Board of Directors of the Company
shall have the power to change the duration and/or the frequency of Offering
Periods with respect to future offerings without stockholder approval if such
change is announced at least five (5) days prior to the scheduled beginning of
the first Offering Period to be affected.
(b) Purchase Periods. Each Offering Period shall generally consist of
----------------
four (4) consecutive purchase periods of six (6) months' duration. The last day
of each Purchase Period shall be the "Purchase Date" for such Purchase Period.
-------------
A Purchase Period commencing on May 1 shall end on the next October 31. A
Purchase Period commencing on November 1 shall end on the next April 30. The
first Purchase Period of the first Offering Period shall
-3-
<PAGE>
commence on the IPO Date and shall end on April 30, 2000. The Board of Directors
of the Company shall have the power to change the duration and/or frequency of
Purchase Periods with respect to future purchases without stockholder approval
if such change is announced at least five (5) days prior to the scheduled
beginning of the first Purchase Period to be affected.
5. Participation.
-------------
(a) An eligible Employee may become a participant in the Plan by
completing a subscription agreement on the form provided by the Company and
filing it with the Company's Human Resources Department or the stock brokerage
or other financial services firm designated by the Company (the "Designated
Broker") prior to the applicable Offering Date, unless a later time for filing
the subscription agreement is set by the Board for all eligible Employees with
respect to a given Offering Period. The subscription agreement shall set forth
the percentage of the participant's Compensation (subject to Section 6(a) below)
to be paid as Contributions pursuant to the Plan.
(b) Payroll deductions shall commence on the first full payroll
following the Offering Date and shall end on the last payroll paid on or prior
to the last Purchase Period of the Offering Period to which the subscription
agreement is applicable, unless sooner terminated by the participant as provided
in Section 10.
6. Method of Payment of Contributions.
----------------------------------
(a) A participant shall elect to have payroll deductions made on each
payday during the Offering Period in an amount not less than one percent (1%)
and not more than twenty percent (20%) (or such other percentage as the Board
may establish from time to time before an Offering Date) of such participant's
Compensation on each payday during the Offering Period. All payroll deductions
made by a participant shall be credited to his or her account under the Plan. A
participant may not make any additional payments into such account.
(b) A participant may discontinue his or her participation in the
Plan as provided in Section 10, or, unless otherwise provided by the
Administrator, on one occasion only during a Purchase Period may increase and on
one occasion only during a Purchase Period may decrease the rate of his or her
Contributions with respect to the ongoing Offering Period by completing and
filing with the Company a new subscription agreement authorizing a change in the
payroll deduction rate. The change in rate shall be effective as of the
beginning of the next calendar month following the date of filing of the new
subscription agreement, if the agreement is filed at least ten (10) business
days prior to such date and, if not, as of the beginning of the next succeeding
calendar month.
(c) Notwithstanding the foregoing, to the extent necessary to comply
with Section 423(b)(8) of the Code and Section 3(b) herein, a participant's
payroll deductions may be decreased during any Offering Period scheduled to end
during the current calendar year to 0%. Payroll deductions shall re-commence at
the rate provided in such participant's subscription agreement at the beginning
of the first Offering Period that is scheduled to end in the following calendar
year, unless terminated by the participant as provided in Section 10.
-4-
<PAGE>
7. Grant of Option.
---------------
(a) On the Offering Date of each Offering Period, each eligible
Employee participating in such Offering Period shall be granted an option to
purchase on each Purchase Date a number of Shares of the Company's Common Stock
determined by dividing such Employee's Contributions accumulated prior to such
Purchase Date and retained in the participant's account as of the Purchase Date
by the applicable Purchase Price; provided however that the maximum number of
Shares an Employee may purchase during each Purchase Period shall be 2,000
Shares (on a post-split basis) (subject to any adjustment pursuant to Section 19
below), and provided further that such purchase shall be subject to the
limitations set forth in Sections 3(b) and 13.
(b) The fair market value of the Company's Common Stock on a given
date (the "Fair Market Value") shall be determined by the Board in its
-----------------
discretion based on the closing sales price of the Common Stock for such date
(or, in the event that the Common Stock is not traded on such date, on the
immediately preceding trading date), as reported by the National Association of
Securities Dealers Automated Quotation (Nasdaq) National Market or, if such
price is not reported, the mean of the bid and asked prices per share of the
Common Stock as reported by Nasdaq or, in the event the Common Stock is listed
on a stock exchange, the Fair Market Value per share shall be the closing sales
price on such exchange on such date (or, in the event that the Common Stock is
not traded on such date, on the immediately preceding trading date), as reported
in The Wall Street Journal. For purposes of the Offering Date under the first
-----------------------
Offering Period under the Plan, the Fair Market Value of a share of the Common
Stock of the Company shall be the Price to Public as set forth in the final
prospectus filed with the Securities and Exchange Commission pursuant to Rule
424 under the Securities Act of 1933, as amended.
8. Exercise of Option. Unless a participant withdraws from the Plan as
------------------
provided in Section 10, his or her option for the purchase of Shares will be
exercised automatically on each Purchase Date of an Offering Period, and the
maximum number of full Shares subject to the option will be purchased at the
applicable Purchase Price with the accumulated Contributions in his or her
account. No fractional Shares shall be issued. Any payroll deductions
accumulated in a participant's account that are not sufficient to purchase a
full Share shall be retained in the participant's account for the subsequent
Purchase Period or Offering Period, subject to earlier withdrawal by the
participant as provided in Section 10 below. Any other amounts left over in a
participant's account after a Purchase Date shall be returned to the
participant. The Shares purchased upon exercise of an option hereunder shall be
deemed to be transferred to the participant on the Purchase Date. During his or
her lifetime, a participant's option to purchase Shares hereunder is exercisable
only by him or her.
9. Delivery. As promptly as practicable after each Purchase Date of each
--------
Offering Period, the number of Shares purchased by each participant upon
exercise of his or her option shall be deposited into an account established in
the participant's name with the Designated Broker.
-5-
<PAGE>
10. Voluntary Withdrawal; Termination of Employment.
-----------------------------------------------
(a) A participant may withdraw all but not less than all the
Contributions credited to his or her account under the Plan at any time prior to
each Purchase Date by giving written notice to the Company or the Designated
Broker, as directed by the Company. All of the participant's Contributions
credited to his or her account will be paid to him or her promptly after receipt
of his or her notice of withdrawal and his or her option for the current period
will be automatically terminated, and no further Contributions for the purchase
of Shares will be made during the Offering Period.
(b) Upon termination of the participant's Continuous Status as an
Employee prior to the Purchase Date of an Offering Period for any reason,
including retirement or death, the Contributions credited to his or her account
will be returned to him or her or, in the case of his or her death, to the
person or persons entitled thereto under Section 14, and his or her option will
be automatically terminated.
(c) In the event an Employee fails to remain in Continuous Status as
an Employee of the Company for at least twenty (20) hours per week during the
Offering Period in which the employee is a participant, he or she will be deemed
to have elected to withdraw from the Plan and the Contributions credited to his
or her account will be returned to him or her and his or her option terminated.
(d) A participant's withdrawal from an offering will not have any
effect upon his or her eligibility to participate in a succeeding offering or in
any similar plan that may hereafter be adopted by the Company.
11. Automatic Withdrawal. If the Fair Market Value of the Shares on any
--------------------
Purchase Date of an Offering Period is less than the Fair Market Value of the
Shares on the Offering Date for such Offering Period, then every participant
shall automatically (i) be withdrawn from such Offering Period at the close of
such Purchase Date and after the acquisition of Shares for such Purchase Period,
and (ii) be enrolled in the Offering Period commencing on the first business day
subsequent to such Purchase Period. Participants shall automatically be
withdrawn as of October 31, 1999 from the Offering Period beginning on the IPO
Date and re-enrolled in the Offering Period beginning on November 1, 1999 if the
Fair Market Value of the Shares on the IPO Date is greater than the Fair Market
Value of the Shares on October 31, 1999, unless a participant notifies the
Administrator prior to October 31, 1999 that he or she does not wish to be
withdrawn and re-enrolled.
12. Interest. No interest shall accrue on the Contributions of a
--------
participant in the Plan.
13. Stock.
-----
(a) Subject to adjustment as provided in Section 19, the maximum
number of Shares which shall be made available for sale under the Plan shall be
500,000 Shares (on a post-split basis), plus an automatic annual increase on the
first day of each of the Company's
-6-
<PAGE>
fiscal years beginning in 2000 and ending in 2009 equal to the lesser of (i)
400,000 Shares (on a post-split basis), (ii) two percent (2%) of the Shares
outstanding on the last day of the immediately preceding fiscal year or (iii) a
lesser amount determined by the Board. If the Board determines that, on a given
Purchase Date, the number of shares with respect to which options are to be
exercised may exceed (i) the number of shares of Common Stock that were
available for sale under the Plan on the Offering Date of the applicable
Offering Period, or (ii) the number of shares available for sale under the Plan
on such Purchase Date, the Board may in its sole discretion provide (x) that the
Company shall make a pro rata allocation of the Shares of Common Stock available
for purchase on such Offering Date or Purchase Date, as applicable, in as
uniform a manner as shall be practicable and as it shall determine in its sole
discretion to be equitable among all participants exercising options to purchase
Common Stock on such Purchase Date, and continue all Offering Periods then in
effect, or (y) that the Company shall make a pro rata allocation of the shares
available for purchase on such Offering Date or Purchase Date, as applicable, in
as uniform a manner as shall be practicable and as it shall determine in its
sole discretion to be equitable among all participants exercising options to
purchase Common Stock on such Purchase Date, and terminate any or all Offering
Periods then in effect pursuant to Section 20 below. The Company may make pro
rata allocation of the Shares available on the Offering Date of any applicable
Offering Period pursuant to the preceding sentence, notwithstanding any
authorization of additional Shares for issuance under the Plan by the Company's
stockholders subsequent to such Offering Date.
(b) The participant shall have no interest or voting right in Shares
covered by his or her option until such option has been exercised.
(c) Shares to be delivered to a participant under the Plan will be
registered in the name of the participant or in the name of the participant and
his or her spouse.
14. Administration. The Board, or a committee named by the Board, shall
--------------
supervise and administer the Plan and shall have full power to adopt, amend and
rescind any rules deemed desirable and appropriate for the administration of the
Plan and not inconsistent with the Plan, to construe and interpret the Plan, and
to make all other determinations necessary or advisable for the administration
of the Plan.
15. Designation of Beneficiary.
--------------------------
(a) A participant may designate a beneficiary who is to receive any
Shares and cash, if any, from the participant's account under the Plan in the
event of such participant's death subsequent to the end of a Purchase Period but
prior to delivery to him or her of such Shares and cash. In addition, a
participant may designate a beneficiary who is to receive any cash from the
participant's account under the Plan in the event of such participant's death
prior to the Purchase Date of an Offering Period. If a participant is married
and the designated beneficiary is not the spouse, spousal consent shall be
required for such designation to be effective. Beneficiary designations under
this Section 15(a) shall be made as directed by the Company's Human Resources
Department.
-7-
<PAGE>
(b) Such designation of beneficiary may be changed by the participant
(and his or her spouse, if any) at any time by written notice. In the event of
the death of a participant and in the absence of a beneficiary validly
designated under the Plan who is living at the time of such participant's death,
the Company shall deliver such Shares and/or cash to the executor or
administrator of the estate of the participant, or if no such executor or
administrator has been appointed (to the knowledge of the Company), the Company,
in its discretion, may deliver such Shares and/or cash to the spouse or to any
one or more dependents or relatives of the participant, or if no spouse,
dependent or relative is known to the Company, then to such other person as the
Company may designate.
16. Transferability. Neither Contributions credited to a participant's
---------------
account nor any rights with regard to the exercise of an option or to receive
Shares under the Plan may be assigned, transferred, pledged or otherwise
disposed of in any way (other than by will, the laws of descent and
distribution, or as provided in Section 15) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be without
effect, except that the Company may treat such act as an election to withdraw
funds in accordance with Section 10.
17. Use of Funds. All Contributions received or held by the Company under
------------
the Plan may be used by the Company for any corporate purpose, and the Company
shall not be obligated to segregate such Contributions.
18. Reports. Individual accounts will be maintained for each participant
-------
in the Plan. Statements of account will be provided to participating Employees
by the Company or the Designated Broker at least annually, which statements will
set forth the amounts of Contributions, the per Share Purchase Price, the number
of Shares purchased and the remaining cash balance, if any.
19. Adjustments Upon Changes in Capitalization; Corporate Transactions.
------------------------------------------------------------------
(a) Adjustment. Subject to any required action by the stockholders of
----------
the Company, the number of Shares covered by each option under the plan that has
not yet been exercised and the number of Shares that have been authorized for
issuance under the Plan but have not yet been placed under option (collectively,
the "Reserves"), as well as the maximum number of shares of Common Stock that
--------
may be purchased by a participant in a Purchase Period, the number of shares of
Common Stock set forth in Section 13(a)(i) above, and the price per Share of
Common Stock covered by each option under the Plan that has not yet been
exercised, shall be proportionately adjusted for any increase or decrease in the
number of issued Shares resulting from a stock split, reverse stock split, stock
dividend, combination or reclassification of the Common Stock (including any
such change in the number of Shares of Common Stock effected in connection with
a change in domicile of the Company), or any other increase or decrease in the
number of Shares effected without receipt of consideration by the Company;
provided however that conversion of any convertible securities of the Company
shall not be deemed to have been "effected without receipt of consideration."
Such adjustment shall be made by the Board, whose determination in that respect
shall be final, binding and conclusive. Except as expressly provided herein, no
issue by the Company of shares of stock of any class, or
-8-
<PAGE>
securities convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or price
of Shares subject to an option.
(b) Corporate Transactions. In the event of a dissolution or
----------------------
liquidation of the Company, any Purchase Period and Offering Period then in
progress will terminate immediately prior to the consummation of such action,
unless otherwise provided by the Board. In the event of a Corporate Transaction,
each option outstanding under the Plan shall be assumed or an equivalent option
shall be substituted by the successor corporation or a parent or Subsidiary of
such successor corporation. In the event that the successor corporation refuses
to assume or substitute for outstanding options, each Purchase Period and
Offering Period then in progress shall be shortened and a new Purchase Date
shall be set (the "New Purchase Date"), as of which date any Purchase Period and
-----------------
Offering Period then in progress will terminate. The New Purchase Date shall be
on or before the date of consummation of the transaction and the Board shall
notify each participant in writing, at least ten (10) days prior to the New
Purchase Date, that the Purchase Date for his or her option has been changed to
the New Purchase Date and that his or her option will be exercised automatically
on the New Purchase Date, unless prior to such date he or she has withdrawn from
the Offering Period as provided in Section 10. For purposes of this Section 19,
an option granted under the Plan shall be deemed to be assumed, without
limitation, if, at the time of issuance of the stock or other consideration upon
a Corporate Transaction, each holder of an option under the Plan would be
entitled to receive upon exercise of the option the same number and kind of
shares of stock or the same amount of property, cash or securities as such
holder would have been entitled to receive upon the occurrence of the
transaction if the holder had been, immediately prior to the transaction, the
holder of the number of Shares of Common Stock covered by the option at such
time (after giving effect to any adjustments in the number of Shares covered by
the option as provided for in this Section 19); provided however that if the
consideration received in the transaction is not solely common stock of the
successor corporation or its parent (as defined in Section 424(e) of the Code),
the Board may, with the consent of the successor corporation, provide for the
consideration to be received upon exercise of the option to be solely common
stock of the successor corporation or its parent equal in Fair Market Value to
the per Share consideration received by holders of Common Stock in the
transaction.
The Board may, if it so determines in the exercise of its sole discretion,
also make provision for adjusting the Reserves, as well as the price per Share
of Common Stock covered by each outstanding option, in the event that the
Company effects one or more reorganizations, recapitalizations, rights offerings
or other increases or reductions of Shares of its outstanding Common Stock, and
in the event of the Company's being consolidated with or merged into any other
corporation.
20. Amendment or Termination.
------------------------
(a) The Board may at any time and for any reason terminate or amend
the Plan. Except as provided in Section 19, no such termination of the Plan may
affect options previously granted, provided that the Plan or an Offering Period
may be terminated by the Board on a Purchase Date or by the Board's setting a
new Purchase Date with respect to an Offering
-9-
<PAGE>
Period and Purchase Period then in progress if the Board determines that
termination of the Plan and/or the Offering Period is in the best interests of
the Company and the stockholders or if continuation of the Plan and/or the
Offering Period would cause the Company to incur adverse accounting charges as a
result of a change after the effective date of the Plan in the generally
accepted accounting rules applicable to the Plan. Except as provided in Section
19 and in this Section 20, no amendment to the Plan shall make any change in any
option previously granted that adversely affects the rights of any participant.
In addition, to the extent necessary to comply with Rule 16b-3 under the
Exchange Act, or under Section 423 of the Code (or any successor rule or
provision or any applicable law or regulation), the Company shall obtain
stockholder approval in such a manner and to such a degree as so required.
(b) Without stockholder consent and without regard to whether any
participant rights may be considered to have been adversely affected, the Board
(or its committee) shall be entitled to change the Offering Periods and Purchase
Periods, limit the frequency and/or number of changes in the amount withheld
during an Offering Period, establish the exchange ratio applicable to amounts
withheld in a currency other than U.S. dollars, permit payroll withholding in
excess of the amount designated by a participant in order to adjust for delays
or mistakes in the Company's processing of properly completed withholding
elections, establish reasonable waiting and adjustment periods and/or accounting
and crediting procedures to ensure that amounts applied toward the purchase of
Common Stock for each participant properly correspond with amounts withheld from
the participant's Compensation, and establish such other limitations or
procedures as the Board (or its committee) determines in its sole discretion
advisable that are consistent with the Plan.
21. Notices. All notices or other communications by a participant to the
-------
Company under or in connection with the Plan shall be deemed to have been duly
given when received in the form specified by the Company at the location, or by
the person, designated by the Company for the receipt thereof.
22. Conditions Upon Issuance of Shares. Shares shall not be issued with
----------------------------------
respect to an option unless the exercise of such option and the issuance and
delivery of such Shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Exchange Act, the rules and regulations
promulgated thereunder, applicable state securities laws and the requirements of
any stock exchange upon which the Shares may then be listed, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.
As a condition to the exercise of an option, the Company may require the
person exercising such option to represent and warrant at the time of any such
exercise that the Shares are being purchased only for investment and without any
present intention to sell or distribute such Shares if, in the opinion of
counsel for the Company, such a representation is required by any of the
aforementioned applicable provisions of law.
-10-
<PAGE>
23. Term of Plan; Effective Date. The Plan shall become effective upon
----------------------------
the IPO Date. It shall continue in effect for a term of ten (10) years unless
sooner terminated under Section 20.
24. Additional Restrictions of Rule 16b-3. The terms and conditions of
-------------------------------------
options granted hereunder to, and the purchase of Shares by, persons subject to
Section 16 of the Exchange Act shall comply with the applicable provisions of
Rule 16b-3. This Plan shall be deemed to contain, and such options shall
contain, and the Shares issued upon exercise thereof shall be subject to, such
additional conditions and restrictions as may be required by Rule 16b-3 to
qualify for the maximum exemption from Section 16 of the Exchange Act with
respect to Plan transactions.
-11-
<PAGE>
PREVIEW SYSTEMS, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
----------------------
New Election ______
Change of Election ______
1. I, ________________________, hereby elect to participate in the
Preview Systems, Inc. 1999 Employee Stock Purchase Plan (the "Plan") for the
----
Offering Period ______________, ____ to _______________, ____, and subscribe to
purchase shares of the Company's Common Stock in accordance with this
Subscription Agreement and the Plan.
2. I elect to have Contributions in the amount of ____% of my
Compensation, as those terms are defined in the Plan, applied to this purchase.
I understand that this amount must not be less than 1% and not more than 20% of
my Compensation during the Offering Period. (Please note that no fractional
percentages are permitted).
3. I hereby authorize payroll deductions from each paycheck during the
Offering Period at the rate stated in Item 2 of this Subscription Agreement. I
understand that all payroll deductions made by me shall be credited to my
account under the Plan and that I may not make any additional payments into such
account. I understand that all payments made by me shall be accumulated for the
purchase of shares of Common Stock at the applicable purchase price determined
in accordance with the Plan. I further understand that, except as otherwise set
forth in the Plan, shares will be purchased for me automatically on the Purchase
Date of each Offering Period unless I otherwise withdraw from the Plan by giving
written notice to the Company for such purpose.
4. I understand that I may discontinue at any time prior to the Purchase
Date my participation in the Plan as provided in Section 10 of the Plan. I also
understand that, unless otherwise provided by the Plan administrator, I can
increase or decrease the rate of my Contributions on one occasion only with
respect to each rate change during any Purchase Period by completing and filing
a new Subscription Agreement with such increase or decrease taking effect as of
the beginning of the calendar month following the date of filing of the new
Subscription Agreement, if filed at least ten (10) business days prior to the
beginning of such month. Further, I may change the rate of deductions for
future Offering Periods by filing a new Subscription Agreement, and any such
change will be effective as of the beginning of the next Offering Period. In
addition, I acknowledge that, unless I discontinue my participation in the Plan
as provided in Section 10 of the Plan, my election will continue to be effective
for each successive Offering Period.
<PAGE>
5. I have received a copy of the Company's most recent description of the
Plan and a copy of the complete "Preview Systems, Inc. 1999 Employee Stock
Purchase Plan." I understand that my participation in the Plan is in all
respects subject to the terms of the Plan.
6. Shares purchased for me under the Plan should be issued in the name(s)
of (name of employee or employee and spouse only):
____________________________________
____________________________________
7. In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all payments and shares due to me under the Plan:
NAME: (Please print) _____________________________________
(First) (Middle) (Last)
______________________ _____________________________________
(Relationship) (Address)
_____________________________________
8. I understand that if I dispose of any shares received by me pursuant
to the Plan within 2 years after the Offering Date (the first day of the
Offering Period during which I purchased such shares) or within 1 year after the
Purchase Date, I will be treated for federal income tax purposes as having
received ordinary compensation income at the time of such disposition in an
amount equal to the excess of the fair market value of the shares on the
Purchase Date over the price that I paid for the shares, regardless of whether I
disposed of the shares at a price less than their fair market value at the
Purchase Date. The remainder of the gain or loss, if any, recognized on such
disposition will be treated as capital gain or loss.
I hereby agree to notify the Company in writing within 30 days after the
------------------------------------------------------------------------
date of any such disposition, and I will make adequate provision for federal,
- -----------------------------------------------------------------------------
state or other tax withholding obligations, if any, that arise upon the
- -----------------------------------------------------------------------
disposition of the Common Stock. The Company may, but will not be obligated to,
- -------------------------------
withhold from my compensation the amount necessary to meet any applicable
withholding obligation including any withholding necessary to make available to
the Company any tax deductions or benefits attributable to the sale or early
disposition of Common Stock by me.
9. If I dispose of such shares at any time after expiration of the 2-year
and 1-year holding periods, I understand that I will be treated for federal
income tax purposes as having received compensation income only to the extent of
an amount equal to the lesser of (1) the excess of the fair market value of the
shares at the time of such disposition over the purchase price that I paid for
the shares under the option, or (2) 15% of the fair market value of the shares
-2-
<PAGE>
on the Offering Date. The remainder of the gain or loss, if any, recognized on
such disposition will be treated as capital gain or loss.
I understand that this tax summary is only a summary and is subject to
----------------------------------------------------------------------
change. I further understand that I should consult a tax advisor concerning the
- ------
tax implications of the purchase and sale of stock under the Plan.
10. I hereby agree to be bound by the terms of the Plan. The
effectiveness of this Subscription Agreement is dependent upon my eligibility to
participate in the Plan.
SIGNATURE:____________________________________________
SOCIAL SECURITY #:____________________________________
DATE:_________________________________________________
SPOUSE'S SIGNATURE (necessary
if beneficiary is not spouse):
______________________________________________________
(Signature)
______________________________________________________
(Print name)
-3-
<PAGE>
PREVIEW SYSTEMS, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
--------------------
I, __________________________, hereby elect to withdraw my participation in
the Preview Systems, Inc. 1999 Employee Stock Purchase Plan (the "Plan") for the
----
Offering Period that began on _________ ___, _____. This withdrawal covers all
Contributions credited to my account and is effective on the date designated
below.
I understand that all Contributions credited to my account will be paid to
me within ten (10) business days of receipt by the Company of this Notice of
Withdrawal and that my option for the current period will automatically
terminate, and that no further Contributions for the purchase of shares can be
made by me during the Offering Period.
The undersigned further understands and agrees that he or she shall be
eligible to participate in succeeding offering periods only by delivering to the
Company a new Subscription Agreement.
Dated:___________________ ______________________________
Signature of Employee
______________________________
Social Security Number
<PAGE>
EXHIBIT 10.9
PREVIEW SYSTEMS, INC.
COMMON STOCK PURCHASE AGREEMENT
-------------------------------
This Common Stock Purchase Agreement (the "Agreement") is made as of July
---------
5, 1999 by and between Preview Systems, Inc., a Delaware corporation (the
"Company"), and Vincent Pluvinage ("Purchaser").
------- ---------
1. Sale of Stock. Subject to the terms and conditions of this Agreement,
-------------
on the Purchase Date (as defined below) the Company will issue and sell to
Purchaser, and Purchaser agrees to purchase from the Company, 250,000 shares of
the Company's Common Stock (the "Shares") at a purchase price of $3.25 per Share
------
for a total purchase price of $812,500.00. The term "Shares" refers to the
purchased Shares and all securities received in replacement of or in connection
with the Shares pursuant to stock dividends or splits, all securities received
in replacement of the Shares in a recapitalization, merger, reorganization,
exchange or the like, and all new, substituted or additional securities or other
properties to which Purchaser is entitled by reason of Purchaser's ownership of
the Shares.
2. Purchase. The purchase and sale of the Shares under this Agreement
--------
shall occur at the principal office of the Company simultaneously with the
execution of this Agreement by the parties or on such other date as the Company
and Purchaser shall agree (the "Purchase Date"). On the Purchase Date, the
-------------
Company will deliver to Purchaser a certificate representing the Shares to be
purchased by Purchaser (which shall be issued in Purchaser's name) against
payment of the purchase price therefor by Purchaser by delivery of (a) a check
in the amount of $25.00; (b) a promissory note in the form attached as Exhibit A
---------
to this Agreement in the principle amount of $812,475.00 and a (c) Pledge and
Security Agreement in the form attached as Exhibit B to this Agreement.
---------
3. Limitations on Transfer. In addition to any other limitation on
-----------------------
transfer created by applicable securities laws, Purchaser shall not assign,
encumber or dispose of any interest in the Shares while the Shares are subject
to the Company's Repurchase Option (as defined below). After any Shares have
been released from the Repurchase Option, Purchaser shall not assign, encumber
or dispose of any interest in such Shares except in compliance with the
provisions below and applicable securities laws.
(a) Repurchase Option.
-----------------
(i) In the event of the voluntary or involuntary termination
of Purchaser's employment or consulting relationship with the Company for any
reason (including death or disability), with or without cause, the Company shall
upon the date of such termination (the "Termination Date") have an irrevocable,
----------------
exclusive option (the "Repurchase Option") to repurchase all or any portion of
-----------------
the Shares held by Purchaser as of the Termination Date which have not yet been
released from the Company's Repurchase Option at the original purchase price per
Share specified in Section 1 (adjusted for any stock splits, stock dividends and
the like).
-1-
<PAGE>
(ii) The Repurchase Option shall be exercised by the Company by
written notice at any time following the Termination Date to Purchaser or
Purchaser's executor and, at the Company's option, (A) by delivery to Purchaser
or Purchaser's executor with such notice of a check in the amount of the
purchase price for the Shares being purchased, or (B) in the event Purchaser is
indebted to the Company, by cancellation by the Company of an amount of such
indebtedness equal to the purchase price for the Shares being repurchased, or
(C) by a combination of (A) and (B) so that the combined payment and
cancellation of indebtedness equals such purchase price. Upon delivery of such
notice and payment of the purchase price in any of the ways described above, the
Company shall become the legal and beneficial owner of the Shares being
repurchased and all rights and interest therein or related thereto, and the
Company shall have the right to transfer to its own name the number of Shares
being repurchased by the Company, without further action by Purchaser.
(iii) One hundred percent (100%) of the Shares shall initially
be subject to the Repurchase Option. 2.0833% of the total number of Shares shall
be released from the Repurchase Option at the end of each month after the
Vesting Commencement Date (as set forth on the signature page of this Agreement,
until all Shares are released from the Repurchase Option, provided, however,
that such releases from the Repurchase Option shall immediately cease as of the
Termination Date. Fractional shares shall be rounded to the nearest whole share.
(b) Right of First Refusal. Before any Shares held by Purchaser or
----------------------
any transferee of Purchaser (either being sometimes referred to herein as the
"Holder") may be sold or otherwise transferred (including transfer by gift or
------
operation of law), the Company or its assignee(s) shall have a right of first
refusal to purchase the Shares on the terms and conditions set forth in this
Section 3(b) (the "Right of First Refusal").
----------------------
(i) Notice of Proposed Transfer. The Holder of the Shares
---------------------------
shall deliver to the Company a written notice (the "Notice") stating: (A) the
------
Holder's bona fide intention to sell or otherwise transfer such Shares; (B) the
name of each proposed purchaser or other transferee ("Proposed Transferee"); (C)
-------------------
the number of Shares to be transferred to each Proposed Transferee; and (D) the
terms and conditions of each proposed sale or transfer. The Holder shall offer
the Shares at the same price (the "Offered Price") and upon the same terms (or
-------------
terms as similar as reasonably possible) to the Company or its assignee(s).
(ii) Exercise of Right of First Refusal. At any time within 30
----------------------------------
days after receipt of the Notice, the Company and/or its assignee(s) may, by
giving written notice to the Holder, elect to purchase all, but not less than
all, of the Shares proposed to be transferred to any one or more of the Proposed
Transferees, at the purchase price determined in accordance with subsection
(iii) below.
(iii) Purchase Price. The purchase price ("Purchase Price") for
-------------- --------------
the Shares purchased by the Company or its assignee(s) under this Section 3(b)
shall be the Offered Price. If the Offered Price includes consideration other
than cash, the cash equivalent value of the non-cash consideration shall be
determined by the Board of Directors of the Company in good faith.
-2-
<PAGE>
(iv) Payment. Payment of the Purchase Price shall be made, at
-------
the option of the Company or its assignee(s), in cash (by check), by
cancellation of all or a portion of any outstanding indebtedness of the Holder
to the Company (or, in the case of repurchase by an assignee, to the assignee),
or by any combination thereof within 30 days after receipt of the Notice or in
the manner and at the times set forth in the Notice.
(v) Holder's Right to Transfer. If all of the Shares proposed
--------------------------
in the Notice to be transferred to a given Proposed Transferee are not purchased
by the Company and/or its assignee(s) as provided in this Section 3(b), then the
Holder may sell or otherwise transfer such Shares to that Proposed Transferee at
the Offered Price or at a higher price, provided that such sale or other
transfer is consummated within 60 days after the date of the Notice and provided
further that any such sale or other transfer is effected in accordance with any
applicable securities laws and the Proposed Transferee agrees in writing that
the provisions of this Section 3 shall continue to apply to the Shares in the
hands of such Proposed Transferee. If the Shares described in the Notice are not
transferred to the Proposed Transferee within such period, or if the Holder
proposes to change the price or other terms to make them more favorable to the
Proposed Transferee, a new Notice shall be given to the Company, and the Company
and/or its assignees shall again be offered the Right of First Refusal before
any Shares held by the Holder may be sold or otherwise transferred.
(vi) Exception for Certain Family Transfers. Anything to the
--------------------------------------
contrary contained in this Section 3(b) notwithstanding, the transfer of any or
all of the Shares during Purchaser's lifetime or on Purchaser's death by will or
intestacy to Purchaser's Immediate Family or a trust for the benefit of
Purchaser or Purchaser's Immediate Family shall be exempt from the provisions of
this Section 3(b). "Immediate Family" as used herein shall mean spouse, lineal
----------------
descendant or antecedent, father, mother, brother or sister. In such case, the
transferee or other recipient shall receive and hold the Shares so transferred
subject to the provisions of this Section, and there shall be no further
transfer of such Shares except in accordance with the terms of this Section 3.
(c) Involuntary Transfer.
--------------------
(i) Company's Right to Purchase upon Involuntary Transfer. In
-----------------------------------------------------
the event, at any time after the date of this Agreement, of any transfer by
operation of law or other involuntary transfer (including divorce or death, but
excluding in the event of death a transfer to Immediate Family as set forth in
Section 3(b)(vi) above) of all or a portion of the Shares by the record holder
thereof, the Company shall have the right to purchase all of the Shares
transferred at the greater of the purchase price paid by Purchaser pursuant to
this Agreement or the fair market value of the Shares on the date of transfer.
Upon such a transfer, the person acquiring the Shares shall promptly notify the
Secretary of the Company of such transfer. The right to purchase such Shares
shall be provided to the Company for a period of 30 days following receipt by
the Company of written notice by the person acquiring the Shares.
(ii) Price for Involuntary Transfer. With respect to any stock
------------------------------
to be transferred pursuant to Section 3(c)(i), the price per Share shall be a
price set by the Board of
-3-
<PAGE>
Directors of the Company that will reflect the current value of the stock in
terms of present earnings and future prospects of the Company. The Company shall
notify Purchaser or his or her executor of the price so determined within 30
days after receipt by it of written notice of the transfer or proposed transfer
of Shares. However, if Purchaser does not agree with the valuation as determined
by the Board of Directors of the Company, Purchaser shall be entitled to have
the valuation determined by an independent appraiser to be mutually agreed upon
by the Company and Purchaser and whose fees shall be borne equally by the
Company and Purchaser.
(d) Assignment. The right of the Company to purchase any part of the
----------
Shares may be assigned in whole or in part to any stockholder or stockholders of
the Company or other persons or organizations.
(e) Restrictions Binding on Transferees. All transferees of Shares
-----------------------------------
or any interest therein will receive and hold such Shares or interest subject to
the provisions of this Agreement. Any sale or transfer of the Shares shall be
void unless the provisions of this Agreement are satisfied.
(f) Termination of Rights. The Right of First Refusal and the
---------------------
Company's right to repurchase the Shares in the event of an involuntary transfer
pursuant to Section 3(c) above shall terminate upon the first sale of Common
Stock of the Company to the general public pursuant to a registration statement
filed with and declared effective by the Securities and Exchange Commission
under the Securities Act of 1933, as amended (the "Securities Act").
--------------
(g) Market Standoff Agreement. In connection with the initial public
-------------------------
offering of the Company's securities and upon request of the Company or the
underwriters managing such offering of the Company's securities, Purchaser
agrees not to sell, make any short sale of, loan, grant any option for the
purchase of, or otherwise dispose of any securities of the Company (other than
those included in the registration) without the prior written consent of the
Company or such underwriters, as the case may be, for such period of time (not
to exceed 180 days) from the effective date of such registration as may be
requested by the Company or such managing underwriters and to execute an
agreement reflecting the foregoing as may be requested by the underwriters at
the time of the Company's initial public offering.
4. Escrow of Unvested Shares. For purposes of facilitating the
-------------------------
enforcement of the provisions of Section 3 above, Purchaser agrees, immediately
upon receipt of the certificate(s) for the Shares subject to the Repurchase
Option, to deliver such certificate(s), together with an Assignment Separate
from Certificate in the form attached to this Agreement as Exhibit C executed by
---------
Purchaser and by Purchaser's spouse (if required for transfer), in blank, to the
Secretary of the Company, or the Secretary's designee, to hold such
certificate(s) and Assignment Separate from Certificate in escrow and to take
all such actions and to effectuate all such transfers and/or releases as are in
accordance with the terms of this Agreement. Purchaser hereby acknowledges that
the Secretary of the Company, or the Secretary's designee, is so appointed as
the escrow holder with the foregoing authorities as a material inducement to
make this Agreement and that said appointment is coupled with an interest and is
accordingly irrevocable. Purchaser agrees that said escrow holder shall not be
liable to any party hereof (or
-4-
<PAGE>
to any other party). The escrow holder may rely upon any letter, notice or other
document executed by any signature purported to be genuine and may resign at any
time. Purchaser agrees that if the Secretary of the Company, or the Secretary's
designee, resigns as escrow holder for any or no reason, the Board of Directors
of the Company shall have the power to appoint a successor to serve as escrow
holder pursuant to the terms of this Agreement.
5. Investment and Taxation Representations. In connection with the
---------------------------------------
purchase of the Shares, Purchaser represents to the Company the following:
(a) Purchaser is aware of the Company's business affairs and
financial condition and has acquired sufficient information about the Company to
reach an informed and knowledgeable decision to acquire the Shares. Purchaser is
purchasing the Shares for investment for his or her own account only and not
with a view to, or for resale in connection with, any "distribution" thereof
within the meaning of the Securities Act.
(b) Purchaser understands that the Shares have not been registered
under the Securities Act by reason of a specific exemption therefrom, which
exemption depends upon, among other things, the bona fide nature of Purchaser's
investment intent as expressed herein.
(c) Purchaser understands that the Shares are "restricted securities"
under applicable U.S. federal and state securities laws and that, pursuant to
these laws, Purchaser must hold the Shares indefinitely unless they are
registered with the Securities and Exchange Commission and qualified by state
authorities, or an exemption from such registration and qualification
requirements is available. Purchaser acknowledges that the Company has no
obligation to register or qualify the Shares for resale. Purchaser further
acknowledges that if an exemption from registration or qualification is
available, it may be conditioned on various requirements including, but not
limited to, the time and manner of sale, the holding period for the Shares, and
requirements relating to the Company which are outside of the Purchaser's
control, and which the Company is under no obligation and may not be able to
satisfy.
(d) Purchaser understands that Purchaser may suffer adverse tax
consequences as a result of Purchaser's purchase or disposition of the Shares.
Purchaser represents that Purchaser has consulted any tax consultants Purchaser
deems advisable in connection with the purchase or disposition of the Shares and
that Purchaser is not relying on the Company for any tax advice.
6. Restrictive Legends and Stop-Transfer Orders.
--------------------------------------------
(a) Legends. The certificate or certificates representing the Shares
-------
shall bear the following legends (as well as any legends required by applicable
state and federal corporate and securities laws):
(i) THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH
A
-5-
<PAGE>
VIEW TO, OR IN CONNECTION WITH, THE SALE OR
DISTRIBUTION THEREOF. NO SUCH SALE OR DISTRIBUTION
MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL
IN A FORM SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES
ACT OF 1933.
(ii) THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE
TRANSFERRED ONLY IN ACCORDANCE WITH THE TERMS OF AN
AGREEMENT BETWEEN THE COMPANY AND THE STOCKHOLDER,
A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF
THE COMPANY.
(iii) Any legend required to be placed thereon by the
California Commissioner of Corporations.
(b) Stop-Transfer Notices. Purchaser agrees that, in order to ensure
---------------------
compliance with the restrictions referred to herein, the Company may issue
appropriate "stop transfer" instructions to its transfer agent, if any, and
that, if the Company transfers its own securities, it may make appropriate
notations to the same effect in its own records.
(c) Refusal to Transfer. The Company shall not be required (i) to
-------------------
transfer on its books any Shares that have been sold or otherwise transferred in
violation of any of the provisions of this Agreement or (ii) to treat as owner
of such Shares or to accord the right to vote or pay dividends to any purchaser
or other transferee to whom such Shares shall have been so transferred.
(d) Removal of Legend. When all of the following events have
-----------------
occurred, the Shares then held by Purchaser will no longer be subject to the
legend referred to in Section 6(a)(ii): (i) the termination of the Right of
First Refusal; (ii) the expiration or termination of the market standoff
provisions of Section 3(g) (and of any agreement entered pursuant to Section
3(g)); and (iii) the expiration or exercise in full of the Repurchase Option.
After such time, and upon Purchaser's request, a new certificate or certificates
representing the Shares not repurchased shall be issued without the legend
referred to in Section 6(a)(ii), and delivered to Purchaser.
7. No Employment Rights. Nothing in this Agreement shall affect in any
--------------------
manner whatsoever the right or power of the Company, or a parent or subsidiary
of the Company, to terminate Purchaser's employment or consulting relationship,
for any reason, with or without cause.
8. Section 83(b) Election. Purchaser understands that Section 83(a) of
----------------------
the Internal Revenue Code of 1986, as amended (the "Code"), taxes as ordinary
----
income the difference between the amount paid for the Shares and the fair market
value of the Shares as of the date any
-6-
<PAGE>
restrictions on the Shares lapse. In this context, "restriction" means the right
-----------
of the Company to buy back the Shares pursuant to the Repurchase Option set
forth in Section 3(a) of this Agreement. Purchaser understands that Purchaser
may elect to be taxed at the time the Shares are purchased, rather than when and
as the Repurchase Option expires, by filing an election under Section 83(b) (an
"83(b) Election") of the Code with the Internal Revenue Service within 30 days
--------------
from the date of purchase. Even if the fair market value of the Shares at the
time of the execution of this Agreement equals the amount paid for the Shares,
the election must be made to avoid income under Section 83(a) in the future.
Purchaser understands that failure to file such an election in a timely manner
may result in adverse tax consequences for Purchaser. Purchaser further
understands that an additional copy of such election form should be filed with
his or her federal income tax return for the calendar year in which the date of
this Agreement falls. Purchaser acknowledges that the foregoing is only a
summary of the effect of United States federal income taxation with respect to
purchase of the Shares hereunder, and does not purport to be complete. Purchaser
further acknowledges that the Company has directed Purchaser to seek independent
advice regarding the applicable provisions of the Code, the income tax laws of
any municipality, state or foreign country in which Purchaser may reside, and
the tax consequences of Purchaser's death.
Purchaser agrees that he will execute and deliver to the Company with
this executed Agreement a copy of the Acknowledgment and Statement of Decision
Regarding Section 83(b) Election (the "Acknowledgment"), attached hereto as
--------------
Exhibit D. Purchaser further agrees that Purchaser will execute and submit with
- ---------
the Acknowledgment a copy of the 83(b) Election, attached hereto as Exhibit E,
---------
if Purchaser has indicated in the Acknowledgment his or her decision to make
such an election.
9. Miscellaneous.
-------------
(a) Governing Law. This Agreement and all acts and transactions
-------------
pursuant hereto and the rights and obligations of the parties hereto shall be
governed, construed and interpreted in accordance with the laws of the State of
California, without giving effect to principles of conflicts of law.
(b) Entire Agreement; Enforcement of Rights. This Agreement sets
---------------------------------------
forth the entire agreement and understanding of the parties relating to the
subject matter herein and merges all prior discussions between them. No
modification of or amendment to this Agreement, nor any waiver of any rights
under this Agreement, shall be effective unless in writing signed by the parties
to this Agreement. The failure by either party to enforce any rights under this
Agreement shall not be construed as a waiver of any rights of such party.
(c) Severability. If one or more provisions of this Agreement are
------------
held to be unenforceable under applicable law, the parties agree to renegotiate
such provision in good faith. In the event that the parties cannot reach a
mutually agreeable and enforceable replacement for such provision, then (i) such
provision shall be excluded from this Agreement, (ii) the balance of the
Agreement shall be interpreted as if such provision were so excluded and (iii)
the balance of the Agreement shall be enforceable in accordance with its terms.
-7-
<PAGE>
(d) Construction. This Agreement is the result of negotiations
------------
between and has been reviewed by each of the parties hereto and their respective
counsel, if any; accordingly, this Agreement shall be deemed to be the product
of all of the parties hereto, and no ambiguity shall be construed in favor of or
against any one of the parties hereto.
(e) Notices. Any notice required or permitted by this Agreement shall
-------
be in writing and shall be deemed sufficient when delivered personally or sent
by telegram or fax or 48 hours after being deposited in the U.S. mail, as
certified or registered mail, with postage prepaid, and addressed to the party
to be notified at such party's address or fax number as set forth below or as
subsequently modified by written notice.
(f) Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
(g) Successors and Assigns. The rights and benefits of this Agreement
----------------------
shall inure to the benefit of, and be enforceable by the Company's successors
and assigns. The rights and obligations of Purchaser under this Agreement may
only be assigned with the prior written consent of the Company.
(h) California Corporate Securities Law. THE SALE OF THE SECURITIES
-----------------------------------
WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE
COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF THE
SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR
PRIOR TO THE QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT
FROM QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA
CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY
CONDITIONED UPON THE QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT.
[Signature Page Follows]
-8-
<PAGE>
The parties have executed this Agreement as of the date first set forth
above.
PREVIEW SYSTEMS, INC.
By: /s/ Vincent Pluvinage
-------------------------------------
Title: CEO
Address: 1601 South DeAnza Blvd.
Suite 100 Cupertino, CA 95014
PURCHASER ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO
SECTION 3 HEREOF IS EARNED ONLY BY CONTINUING SERVICE AS AN EMPLOYEE OR
CONSULTANT AT THE WILL OF THE COMPANY. PURCHASER FURTHER ACKNOWLEDGES AND
AGREES THAT NOTHING IN THIS AGREEMENT SHALL CONFER UPON PURCHASER ANY RIGHT WITH
RESPECT TO CONTINUATION OF SUCH EMPLOYMENT OR CONSULTING RELATIONSHIP WITH THE
COMPANY, NOR SHALL IT INTERFERE IN ANY WAY WITH PURCHASER'S RIGHT OR THE
COMPANY'S RIGHT TO TERMINATE PURCHASER'S EMPLOYMENT OR CONSULTING RELATIONSHIP
AT ANY TIME, WITH OR WITHOUT CAUSE.
PURCHASER:
VINCENT PLUVINAGE
/s/ Vincent Pluvinage
----------------------------------------
(Signature)
Address:
49 Spencer Lane
Atherton, CA 94027
Vesting Commencement
Date: May 5, 1999
I, Margaret G. Farrell, spouse of Vincent Pluvinage, have read and hereby
-------------------
approve the foregoing Agreement. In consideration of the Company's granting my
spouse the right to purchase the Shares as set forth in the Agreement, I hereby
agree to be irrevocably bound by the Agreement and further agree that any
community property or similar interest that I may have in the Shares shall be
similarly bound by the Agreement. I hereby appoint my spouse as my attorney-in-
fact with respect to any amendment or exercise of any rights under the
Agreement.
/s/ Margaret G. Farrell
------------------------------
______________________________
-9-
<PAGE>
EXHIBIT A
--------
PROMISSORY NOTE
---------------
$812,475.00 Cupertino, California
July ___, 1999
For value received, the undersigned promises to pay Preview Systems, Inc.,
a Delaware corporation (the "Company"), at its principal office the principal
-------
sum of $812,475.00 with interest from the date hereof at a rate of 5.32% per
annum, compounded semiannually, on the unpaid balance of such principal sum.
Such principal and interest shall be due and payable on July ___, 2002.
If the undersigned's employment or consulting relationship with the Company
is terminated prior to payment in full of this Note, this Note shall be
immediately due and payable.
Principal and interest are payable in lawful money of the United States of
America. AMOUNTS DUE UNDER THIS NOTE MAY BE PREPAID AT ANY TIME WITHOUT
INTEREST OR PENALTY.
Should suit be commenced to collect any sums due under this Note, such sum
as the Court may deem reasonable shall be added hereto as attorneys' fees. The
makers and endorsers have severally waived presentment for payment, protest,
notice of protest, and notice of nonpayment of this Note.
This Note, which is full recourse, is secured by a pledge of certain shares
of Common Stock of the Company and is subject to the terms of a Pledge and
Security Agreement between the undersigned and the Company of even date
herewith.
_____________________________________________
Vincent Pluvinage
<PAGE>
EXHIBIT B
---------
PLEDGE AND SECURITY AGREEMENT
-----------------------------
This Pledge and Security Agreement (the "Agreement") is entered into this
---------
_____ day of July by and between Preview Systems, Inc., a Delaware corporation
(the "Company") and Vincent Pluvinage ("Purchaser").
------- ---------
RECITALS
--------
In connection with Purchaser's purchase of certain shares of the Company's
Common Stock (the "Shares") pursuant to a Common Stock Purchase Agreement dated
------
July ___, 1999 between Purchaser and the Company, Purchaser is delivering a
promissory note of even date herewith (the "Note") in full or partial payment of
----
the exercise price for the Shares. The company requires that the Note be
secured by a pledge of the Shares on the terms set forth below.
AGREEMENT
---------
In consideration of the Company's acceptance of the Note as full or partial
payment of the exercise price of the Shares, and for other good and valuable
consideration, the receipt of which is hereby acknowledged, the parties hereto
agree as follows:
1. The Note shall become payable in full upon the voluntary or
involuntary termination or cessation of employment of Purchaser with the
Company, for any reason, with or without cause (including death or disability).
2. Purchaser shall deliver to the Secretary of the Company, or his or her
designee (hereinafter referred to as the "Pledge Holder"), all certificates
-------------
representing the Shares, together with an Assignment Separate from Certificate
in the form attached to this Agreement as Attachment A executed by Purchaser and
------------
by Purchaser's spouse (if required for transfer), in blank, for use in
transferring all or a portion of the Shares to the Company if, as and when
required pursuant to this Agreement. In addition, if Purchaser is married,
Purchaser's spouse shall execute the signature page attached to this Agreement.
3. As security for the payment of the Note and any renewal, extension or
modification of the Note, Purchaser hereby grants to the Company a security
interest in and pledges with and delivers to the Company Purchaser's Shares
(sometimes referred to herein as the "Collateral").
----------
4. In the event that Purchaser prepays all or a portion of the Note, in
accordance with the provisions thereof, Purchaser intends, unless written notice
to the contrary is delivered to the Pledge Holder, that the Shares represented
by the portion of the Note so repaid, including annual interest thereon, shall
continue to be so held by the Pledge Holder, to serve as independent collateral
for the outstanding portion of the Note for the purpose of commencing the
holding
-1-
<PAGE>
period set forth in Rule 144(d) promulgated under the Securities Act of 1933, as
amended (the "Securities Act").
--------------
5. In the event of any foreclosure of the security interest created by
this Agreement, the Company may sell the Shares at a private sale or may
repurchase the Shares itself. The parties agree that, prior to the establishment
of a public market for the Shares of the Company, the securities laws affecting
sale of the Shares make a public sale of the Shares commercially unreasonable.
The parties further agree that the repurchasing of such Shares by the Company,
or by any person to whom the Company may have assigned its rights under this
Agreement, is commercially reasonable if made at a price determined by the Board
of Directors in its discretion, fairly exercised, representing what would be the
fair market value of the Shares reduced by any limitation on transferability,
whether due to the size of the block of shares or the restrictions of applicable
securities laws.
6. In the event of default in payment when due of any indebtedness under
the Note, the Company may elect then, or at any time thereafter, to exercise all
rights available to a secured party under the California Commercial Code
including the right to sell the Collateral at a private or public sale or
repurchase the Shares as provided above. The proceeds of any sale shall be
applied in the following order:
(a) To the extent necessary, proceeds shall be used to pay all
reasonable expenses of the Company in enforcing this Agreement and the Note,
including, without limitation, reasonable attorney's fees and legal expenses
incurred by the Company.
(b) To the extent necessary, proceeds shall be used to satisfy
any remaining indebtedness under Purchaser's Note.
(c) Any remaining proceeds shall be delivered to Purchaser.
7. Upon full payment by Purchaser of all amounts due under the Note,
Pledge Holder shall deliver to Purchaser all Shares in Pledge Holder's
possession belonging to Purchaser, and Pledge Holder shall thereupon be
discharged of all further obligations under this Agreement; provided, however,
-------- -------
that Pledge Holder shall nevertheless retain the Shares as escrow agent if at
the time of full payment by Purchaser said Shares are still subject to a
Repurchase Option in favor of the Company.
-2-
<PAGE>
The parties have executed this Pledge and Security Agreement as of the date
first set forth above.
COMPANY:
PREVIEW SYSTEMS, INC.
By:_______________________________________________
Name:_____________________________________________
(print)
Title:____________________________________________
Address: 1601 South DeAnza Blvd, Suite 100
Cupertino, CA 95014
PURCHASER:
VINCENT PLUVINAGE
__________________________________________________
(Signature)
Address:
________________________
________________________
SPOUSE OF VINCENT PLUVINAGE (if any):
__________________________________________________
(Signature)
__________________________________________________
(Print Name)
-3-
<PAGE>
ATTACHMENT A
------------
ASSIGNMENT SEPARATE FROM CERTIFICATE
------------------------------------
FOR VALUE RECEIVED and pursuant to that certain Pledge and Security
Agreement between the undersigned ("Purchaser") and Preview Systems, Inc. (the
--------
"Company") dated July ___, 1999 (the "Agreement"), Purchaser hereby sells,
------- ---------
assigns and transfers unto the Company _______________________________
(________) shares of the Common Stock of the Company standing in Purchaser's
name on the Company's books and represented by Certificate No. _____, and hereby
irrevocably appoints _______________________ to transfer said stock on the books
of the Company with full power of substitution in the premises. THIS ASSIGNMENT
MAY ONLY BE USED AS AUTHORIZED BY THE AGREEMENT.
Dated: _________________
Signature:
Vincent Pluvinage
__________________________________________________
Spouse of Vincent Pluvinage (if applicable)
Instruction: Please do not fill in any blanks other than the signature line.
The purpose of this assignment is to perfect the security interest of the
Company pursuant to the Agreement.
<PAGE>
EXHIBIT C
---------
ASSIGNMENT SEPARATE FROM CERTIFICATE
------------------------------------
FOR VALUE RECEIVED and pursuant to that certain Common Stock Purchase
Agreement between the undersigned ("Purchaser") and Preview Systems, Inc. (the
---------
"Company") dated July ___, 1999 (the "Agreement"), Purchaser hereby sells,
------- ---------
assigns and transfers unto the Company _____________________________ (________)
shares of the Common Stock of the Company standing in Purchaser's name on the
Company's books and represented by Certificate No. ______, and does hereby
irrevocably constitute and appoint _____________________________ to transfer
said stock on the books of the Company with full power of substitution in the
premises. THIS ASSIGNMENT MAY ONLY BE USED AS AUTHORIZED BY THE AGREEMENT AND
THE EXHIBITS THERETO.
Dated: ______________________
Signature:
______________________________
Vincent Pluvinage
______________________________
Spouse of Vincent Pluvinage (if applicable)
Instruction: Please do not fill in any blanks other than the signature line.
The purpose of this assignment is to enable the Company to exercise its
repurchase option set forth in the Agreement without requiring additional
signatures on the part of Purchaser.
<PAGE>
EXHIBIT D
---------
ACKNOWLEDGMENT AND STATEMENT OF DECISION
----------------------------------------
REGARDING SECTION 83(b) ELECTION
--------------------------------
The undersigned has entered a stock purchase agreement with Preview
Systems, Inc., a Delaware corporation (the "Company"), pursuant to which the
-------
undersigned is purchasing 250,000 shares of Common Stock of the Company (the
"Shares"). In connection with the purchase of the Shares, the undersigned
------
hereby represents as follows:
1. The undersigned has carefully reviewed the stock purchase agreement
pursuant to which the undersigned is purchasing the Shares.
2. The undersigned either [check and complete as applicable]:
(a) ____ has consulted, and has been fully advised by, the
undersigned's own tax advisor, __________________________,
whose business address is _____________________________,
regarding the federal, state and local tax consequences of
purchasing the Shares, and particularly regarding the
advisability of making elections pursuant to Section 83(b) of
the Internal Revenue Code of 1986, as amended (the "Code") and
----
pursuant to the corresponding provisions, if any, of
applicable state law; or
(b) ____ has knowingly chosen not to consult such a tax advisor.
3. The undersigned hereby states that the undersigned has decided [check
as applicable]:
(a) ____ to make an election pursuant to Section 83(b) of the Code,
and is submitting to the Company, together with the
undersigned's executed Common Stock Purchase Agreement, an
executed form entitled "Election Under Section 83(b) of the
Internal Revenue Code of 1986;" or
(b) ____ not to make an election pursuant to Section 83(b) of the
Code.
-1-
<PAGE>
4. Neither the Company nor any subsidiary or representative of the
Company has made any warranty or representation to the undersigned with respect
to the tax consequences of the undersigned's purchase of the Shares or of the
making or failure to make an election pursuant to Section 83(b) of the Code or
the corresponding provisions, if any, of applicable state law.
Date:__________________________________________
Vincent Pluvinage
Date:___________________________________________
Spouse of Vincent Pluvinage
-2-
<PAGE>
EXHIBIT 10.10
PREVIEW SYSTEMS, INC.
COMMON STOCK PURCHASE AGREEMENT
-------------------------------
This Common Stock Purchase Agreement (the "Agreement") is made as of July
---------
6, 1999 by and between Preview Systems, Inc., a Delaware corporation (the
"Company"), and Brad Solso ("Purchaser").
------- ---------
1. Sale of Stock. Subject to the terms and conditions of this Agreement,
-------------
on the Purchase Date (as defined below) the Company will issue and sell to
Purchaser, and Purchaser agrees to purchase from the Company, 300,000 shares of
the Company's Common Stock (the "Shares") at a purchase price of $3.25 per Share
------
for a total purchase price of $975,000.00. The term "Shares" refers to the
purchased Shares and all securities received in replacement of or in connection
with the Shares pursuant to stock dividends or splits, all securities received
in replacement of the Shares in a recapitalization, merger, reorganization,
exchange or the like, and all new, substituted or additional securities or other
properties to which Purchaser is entitled by reason of Purchaser's ownership of
the Shares.
2. Purchase. The purchase and sale of the Shares under this Agreement
--------
shall occur at the principal office of the Company simultaneously with the
execution of this Agreement by the parties or on such other date as the Company
and Purchaser shall agree (the "Purchase Date"). On the Purchase Date, the
-------------
Company will deliver to Purchaser a certificate representing the Shares to be
purchased by Purchaser (which shall be issued in Purchaser's name) against
payment of the purchase price therefor by Purchaser by delivery of (a) a check
in the amount of $30.00; (b) a promissory note in the form attached as Exhibit A
---------
to this Agreement in the principle amount of $974,970.00 and a (c) Pledge and
Security Agreement in the form attached as Exhibit B to this Agreement.
---------
3. Limitations on Transfer. In addition to any other limitation on
-----------------------
transfer created by applicable securities laws, Purchaser shall not assign,
encumber or dispose of any interest in the Shares while the Shares are subject
to the Company's Repurchase Option (as defined below). After any Shares have
been released from the Repurchase Option, Purchaser shall not assign, encumber
or dispose of any interest in such Shares except in compliance with the
provisions below and applicable securities laws.
(a) Repurchase Option.
-----------------
(i) In the event of the voluntary or involuntary termination
of Purchaser's employment or consulting relationship with the Company for any
reason (including death or disability), with or without cause, the Company shall
upon the date of such termination (the "Termination Date") have an irrevocable,
----------------
exclusive option (the "Repurchase Option") to repurchase all or any portion of
-----------------
the Shares held by Purchaser as of the Termination Date which have not yet been
released from the Company's Repurchase Option at the original purchase price per
Share specified in Section 1 (adjusted for any stock splits, stock dividends and
the like).
<PAGE>
(ii) The Repurchase Option shall be exercised by the Company by
written notice at any time following the Termination Date to Purchaser or
Purchaser's executor and, at the Company's option, (A) by delivery to Purchaser
or Purchaser's executor with such notice of a check in the amount of the
purchase price for the Shares being purchased, or (B) in the event Purchaser is
indebted to the Company, by cancellation by the Company of an amount of such
indebtedness equal to the purchase price for the Shares being repurchased, or
(C) by a combination of (A) and (B) so that the combined payment and
cancellation of indebtedness equals such purchase price. Upon delivery of such
notice and payment of the purchase price in any of the ways described above, the
Company shall become the legal and beneficial owner of the Shares being
repurchased and all rights and interest therein or related thereto, and the
Company shall have the right to transfer to its own name the number of Shares
being repurchased by the Company, without further action by Purchaser.
(iii) One hundred percent (100%) of the Shares shall initially
be subject to the Repurchase Option. Three forty-eighths (3/48) of the Shares
shall be released from the Repurchase Option on the three-month anniversary of
the Vesting Commencement Date; six forty-eighths (6/48) of the Shares shall be
released from the Repurchase Option on the nine-month anniversary of the Vesting
Commencement Date; and one forty-eighth (1/48) of the Shares shall be released
from the Repurchase Option every month thereafter such that all Shares shall be
released from the Repurchase Option four years from the Vesting Commencement
Date, provided, however, that such releases from the Repurchase Option shall
immediately cease as of the Termination Date. Fractional shares shall be rounded
to the nearest whole share. Notwithstanding the foregoing, in the event during
Purchaser's employment with the Company there occurs a "change in control",
which results in a material reduction of the Purchaser's responsibilities within
90 days of such change of control, 50% of the Shares then subject to the
Repurchase Option shall be released from the Repurchase Option. If such change
in control occurs during the one year period following the Vesting Commencement
Date, an aggregate total of 187,500 Shares (which number includes Shares
previously released from the Repurchase Option) shall be or have been released
from the Repurchase Option. "Change of Control" means (i) any acquisition of
more than 50% of the Company's then outstanding voting securities or (ii) the
sale or disposition of all or substantially all of the assets of the Company.
(b) Right of First Refusal. Before any Shares held by Purchaser or
----------------------
any transferee of Purchaser (either being sometimes referred to herein as the
"Holder") may be sold or otherwise transferred (including transfer by gift or
------
operation of law), the Company or its assignee(s) shall have a right of first
refusal to purchase the Shares on the terms and conditions set forth in this
Section 3(b) (the "Right of First Refusal").
----------------------
(i) Notice of Proposed Transfer. The Holder of the Shares
---------------------------
shall deliver to the Company a written notice (the "Notice") stating: (A) the
------
Holder's bona fide intention to sell or otherwise transfer such Shares; (B) the
name of each proposed purchaser or other transferee ("Proposed Transferee"); (C)
-------------------
the number of Shares to be transferred to each Proposed Transferee; and (D) the
terms and conditions of each proposed sale or transfer. The Holder shall offer
the Shares at the same price (the "Offered Price") and upon the same terms (or
-------------
terms as similar as reasonably possible) to the Company or its assignee(s).
-2-
<PAGE>
(ii) Exercise of Right of First Refusal. At any time within 30
----------------------------------
days after receipt of the Notice, the Company and/or its assignee(s) may, by
giving written notice to the Holder, elect to purchase all, but not less than
all, of the Shares proposed to be transferred to any one or more of the Proposed
Transferees, at the purchase price determined in accordance with subsection
(iii) below.
(iii) Purchase Price. The purchase price ("Purchase Price") for
-------------- --------------
the Shares purchased by the Company or its assignee(s) under this Section 3(b)
shall be the Offered Price. If the Offered Price includes consideration other
than cash, the cash equivalent value of the non-cash consideration shall be
determined by the Board of Directors of the Company in good faith.
(iv) Payment. Payment of the Purchase Price shall be made, at
-------
the option of the Company or its assignee(s), in cash (by check), by
cancellation of all or a portion of any outstanding indebtedness of the Holder
to the Company (or, in the case of repurchase by an assignee, to the assignee),
or by any combination thereof within 30 days after receipt of the Notice or in
the manner and at the times set forth in the Notice.
(v) Holder's Right to Transfer. If all of the Shares proposed
--------------------------
in the Notice to be transferred to a given Proposed Transferee are not purchased
by the Company and/or its assignee(s) as provided in this Section 3(b), then the
Holder may sell or otherwise transfer such Shares to that Proposed Transferee at
the Offered Price or at a higher price, provided that such sale or other
transfer is consummated within 60 days after the date of the Notice and provided
further that any such sale or other transfer is effected in accordance with any
applicable securities laws and the Proposed Transferee agrees in writing that
the provisions of this Section 3 shall continue to apply to the Shares in the
hands of such Proposed Transferee. If the Shares described in the Notice are not
transferred to the Proposed Transferee within such period, or if the Holder
proposes to change the price or other terms to make them more favorable to the
Proposed Transferee, a new Notice shall be given to the Company, and the Company
and/or its assignees shall again be offered the Right of First Refusal before
any Shares held by the Holder may be sold or otherwise transferred.
(vi) Exception for Certain Family Transfers. Anything to the
--------------------------------------
contrary contained in this Section 3(b) notwithstanding, the transfer of any or
all of the Shares during Purchaser's lifetime or on Purchaser's death by will or
intestacy to Purchaser's Immediate Family or a trust for the benefit of
Purchaser or Purchaser's Immediate Family shall be exempt from the provisions of
this Section 3(b). "Immediate Family" as used herein shall mean spouse, lineal
----------------
descendant or antecedent, father, mother, brother or sister. In such case, the
transferee or other recipient shall receive and hold the Shares so transferred
subject to the provisions of this Section, and there shall be no further
transfer of such Shares except in accordance with the terms of this Section 3.
(c) Involuntary Transfer.
--------------------
(i) Company's Right to Purchase upon Involuntary Transfer. In
-----------------------------------------------------
the event, at any time after the date of this Agreement, of any transfer by
operation of law or
-3-
<PAGE>
other involuntary transfer (including divorce or death, but excluding in the
event of death a transfer to Immediate Family as set forth in Section 3(b)(vi)
above) of all or a portion of the Shares by the record holder thereof, the
Company shall have the right to purchase all of the Shares transferred at the
greater of the purchase price paid by Purchaser pursuant to this Agreement or
the fair market value of the Shares on the date of transfer. Upon such a
transfer, the person acquiring the Shares shall promptly notify the Secretary of
the Company of such transfer. The right to purchase such Shares shall be
provided to the Company for a period of 30 days following receipt by the Company
of written notice by the person acquiring the Shares.
(ii) Price for Involuntary Transfer. With respect to any stock
------------------------------
to be transferred pursuant to Section 3(c)(i), the price per Share shall be a
price set by the Board of Directors of the Company that will reflect the current
value of the stock in terms of present earnings and future prospects of the
Company. The Company shall notify Purchaser or his or her executor of the price
so determined within 30 days after receipt by it of written notice of the
transfer or proposed transfer of Shares. However, if Purchaser does not agree
with the valuation as determined by the Board of Directors of the Company,
Purchaser shall be entitled to have the valuation determined by an independent
appraiser to be mutually agreed upon by the Company and Purchaser and whose fees
shall be borne equally by the Company and Purchaser.
(d) Assignment. The right of the Company to purchase any part of the
----------
Shares may be assigned in whole or in part to any stockholder or stockholders of
the Company or other persons or organizations.
(e) Restrictions Binding on Transferees. All transferees of Shares or
-----------------------------------
any interest therein will receive and hold such Shares or interest subject to
the provisions of this Agreement. Any sale or transfer of the Shares shall be
void unless the provisions of this Agreement are satisfied.
(f) Termination of Rights. The Right of First Refusal and the
---------------------
Company's right to repurchase the Shares in the event of an involuntary transfer
pursuant to Section 3(c) above shall terminate upon the first sale of Common
Stock of the Company to the general public pursuant to a registration statement
filed with and declared effective by the Securities and Exchange Commission
under the Securities Act of 1933, as amended (the "Securities Act").
--------------
(g) Market Standoff Agreement. In connection with the initial public
-------------------------
offering of the Company's securities and upon request of the Company or the
underwriters managing such offering of the Company's securities, Purchaser
agrees not to sell, make any short sale of, loan, grant any option for the
purchase of, or otherwise dispose of any securities of the Company (other than
those included in the registration) without the prior written consent of the
Company or such underwriters, as the case may be, for such period of time (not
to exceed 180 days) from the effective date of such registration as may be
requested by the Company or such managing underwriters and to execute an
agreement reflecting the foregoing as may be requested by the underwriters at
the time of the Company's initial public offering.
4. Escrow of Unvested Shares. For purposes of facilitating the
-------------------------
enforcement of the provisions of Section 3 above, Purchaser agrees, immediately
upon receipt of the certificate(s)
-4-
<PAGE>
for the Shares subject to the Repurchase Option, to deliver such certificate(s),
together with an Assignment Separate from Certificate in the form attached to
this Agreement as Exhibit C executed by Purchaser and by Purchaser's spouse (if
---------
required for transfer), in blank, to the Secretary of the Company, or the
Secretary's designee, to hold such certificate(s) and Assignment Separate from
Certificate in escrow and to take all such actions and to effectuate all such
transfers and/or releases as are in accordance with the terms of this Agreement.
Purchaser hereby acknowledges that the Secretary of the Company, or the
Secretary's designee, is so appointed as the escrow holder with the foregoing
authorities as a material inducement to make this Agreement and that said
appointment is coupled with an interest and is accordingly irrevocable.
Purchaser agrees that said escrow holder shall not be liable to any party hereof
(or to any other party). The escrow holder may rely upon any letter, notice or
other document executed by any signature purported to be genuine and may resign
at any time. Purchaser agrees that if the Secretary of the Company, or the
Secretary's designee, resigns as escrow holder for any or no reason, the Board
of Directors of the Company shall have the power to appoint a successor to serve
as escrow holder pursuant to the terms of this Agreement.
5. Investment and Taxation Representations. In connection with the
---------------------------------------
purchase of the Shares, Purchaser represents to the Company the following:
(a) Purchaser is aware of the Company's business affairs and
financial condition and has acquired sufficient information about the Company to
reach an informed and knowledgeable decision to acquire the Shares. Purchaser is
purchasing the Shares for investment for his or her own account only and not
with a view to, or for resale in connection with, any "distribution" thereof
within the meaning of the Securities Act.
(b) Purchaser understands that the Shares have not been registered
under the Securities Act by reason of a specific exemption therefrom, which
exemption depends upon, among other things, the bona fide nature of Purchaser's
investment intent as expressed herein.
(c) Purchaser understands that the Shares are "restricted securities"
under applicable U.S. federal and state securities laws and that, pursuant to
these laws, Purchaser must hold the Shares indefinitely unless they are
registered with the Securities and Exchange Commission and qualified by state
authorities, or an exemption from such registration and qualification
requirements is available. Purchaser acknowledges that the Company has no
obligation to register or qualify the Shares for resale. Purchaser further
acknowledges that if an exemption from registration or qualification is
available, it may be conditioned on various requirements including, but not
limited to, the time and manner of sale, the holding period for the Shares, and
requirements relating to the Company which are outside of the Purchaser's
control, and which the Company is under no obligation and may not be able to
satisfy.
(d) Purchaser understands that Purchaser may suffer adverse tax
consequences as a result of Purchaser's purchase or disposition of the Shares.
Purchaser represents that Purchaser has consulted any tax consultants Purchaser
deems advisable in connection with the purchase or disposition of the Shares and
that Purchaser is not relying on the Company for any tax advice.
-5-
<PAGE>
6. Restrictive Legends and Stop-Transfer Orders.
--------------------------------------------
(a) Legends. The certificate or certificates representing the Shares
-------
shall bear the following legends (as well as any legends required by applicable
state and federal corporate and securities laws):
(i) THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH
A VIEW TO, OR IN CONNECTION WITH, THE SALE OR
DISTRIBUTION THEREOF. NO SUCH SALE OR DISTRIBUTION
MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL
IN A FORM SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES
ACT OF 1933.
(ii) THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE
TRANSFERRED ONLY IN ACCORDANCE WITH THE TERMS OF AN
AGREEMENT BETWEEN THE COMPANY AND THE STOCKHOLDER,
A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF
THE COMPANY.
(iii) Any legend required to be placed thereon by the
California Commissioner of Corporations.
(b) Stop-Transfer Notices. Purchaser agrees that, in order to ensure
---------------------
compliance with the restrictions referred to herein, the Company may issue
appropriate "stop transfer" instructions to its transfer agent, if any, and
that, if the Company transfers its own securities, it may make appropriate
notations to the same effect in its own records.
(c) Refusal to Transfer. The Company shall not be required (i) to
-------------------
transfer on its books any Shares that have been sold or otherwise transferred in
violation of any of the provisions of this Agreement or (ii) to treat as owner
of such Shares or to accord the right to vote or pay dividends to any purchaser
or other transferee to whom such Shares shall have been so transferred.
(d) Removal of Legend. When all of the following events have
-----------------
occurred, the Shares then held by Purchaser will no longer be subject to the
legend referred to in Section 6(a)(ii): (i) the termination of the Right of
First Refusal; (ii) the expiration or termination of the market standoff
provisions of Section 3(g) (and of any agreement entered pursuant to Section
3(g)); and (iii) the expiration or exercise in full of the Repurchase Option.
After such time, and
-6-
<PAGE>
upon Purchaser's request, a new certificate or certificates representing the
Shares not repurchased shall be issued without the legend referred to in Section
6(a)(ii), and delivered to Purchaser.
7. No Employment Rights. Nothing in this Agreement shall affect in any
--------------------
manner whatsoever the right or power of the Company, or a parent or subsidiary
of the Company, to terminate Purchaser's employment or consulting relationship,
for any reason, with or without cause.
8. Section 83(b) Election. Purchaser understands that Section 83(a) of
----------------------
the Internal Revenue Code of 1986, as amended (the "Code"), taxes as ordinary
----
income the difference between the amount paid for the Shares and the fair market
value of the Shares as of the date any restrictions on the Shares lapse. In this
context, "restriction" means the right of the Company to buy back the Shares
-----------
pursuant to the Repurchase Option set forth in Section 3(a) of this Agreement.
Purchaser understands that Purchaser may elect to be taxed at the time the
Shares are purchased, rather than when and as the Repurchase Option expires, by
filing an election under Section 83(b) (an "83(b) Election") of the Code with
--------------
the Internal Revenue Service within 30 days from the date of purchase. Even if
the fair market value of the Shares at the time of the execution of this
Agreement equals the amount paid for the Shares, the election must be made to
avoid income under Section 83(a) in the future. Purchaser understands that
failure to file such an election in a timely manner may result in adverse tax
consequences for Purchaser. Purchaser further understands that an additional
copy of such election form should be filed with his or her federal income tax
return for the calendar year in which the date of this Agreement falls.
Purchaser acknowledges that the foregoing is only a summary of the effect of
United States federal income taxation with respect to purchase of the Shares
hereunder, and does not purport to be complete. Purchaser further acknowledges
that the Company has directed Purchaser to seek independent advice regarding the
applicable provisions of the Code, the income tax laws of any municipality,
state or foreign country in which Purchaser may reside, and the tax consequences
of Purchaser's death.
Purchaser agrees that he will execute and deliver to the Company with
this executed Agreement a copy of the Acknowledgment and Statement of Decision
Regarding Section 83(b) Election (the "Acknowledgment"), attached hereto as
--------------
Exhibit D. Purchaser further agrees that Purchaser will execute and submit with
- ---------
the Acknowledgment a copy of the 83(b) Election, attached hereto as Exhibit E,
---------
if Purchaser has indicated in the Acknowledgment his or her decision to make
such an election.
9. Miscellaneous.
-------------
(a) Governing Law. This Agreement and all acts and transactions
-------------
pursuant hereto and the rights and obligations of the parties hereto shall be
governed, construed and interpreted in accordance with the laws of the State of
California, without giving effect to principles of conflicts of law.
(b) Entire Agreement; Enforcement of Rights. This Agreement sets
---------------------------------------
forth the entire agreement and understanding of the parties relating to the
subject matter herein and merges all prior discussions between them. No
modification of or amendment to this
-7-
<PAGE>
Agreement, nor any waiver of any rights under this Agreement, shall be effective
unless in writing signed by the parties to this Agreement. The failure by either
party to enforce any rights under this Agreement shall not be construed as a
waiver of any rights of such party.
(c) Severability. If one or more provisions of this Agreement are
------------
held to be unenforceable under applicable law, the parties agree to renegotiate
such provision in good faith. In the event that the parties cannot reach a
mutually agreeable and enforceable replacement for such provision, then (i) such
provision shall be excluded from this Agreement, (ii) the balance of the
Agreement shall be interpreted as if such provision were so excluded and (iii)
the balance of the Agreement shall be enforceable in accordance with its terms.
(d) Construction. This Agreement is the result of negotiations
------------
between and has been reviewed by each of the parties hereto and their respective
counsel, if any; accordingly, this Agreement shall be deemed to be the product
of all of the parties hereto, and no ambiguity shall be construed in favor of or
against any one of the parties hereto.
(e) Notices. Any notice required or permitted by this Agreement shall
-------
be in writing and shall be deemed sufficient when delivered personally or sent
by telegram or fax or 48 hours after being deposited in the U.S. mail, as
certified or registered mail, with postage prepaid, and addressed to the party
to be notified at such party's address or fax number as set forth below or as
subsequently modified by written notice.
(f) Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
(g) Successors and Assigns. The rights and benefits of this Agreement
----------------------
shall inure to the benefit of, and be enforceable by the Company's successors
and assigns. The rights and obligations of Purchaser under this Agreement may
only be assigned with the prior written consent of the Company.
(h) California Corporate Securities Law. THE SALE OF THE SECURITIES
-----------------------------------
WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE
COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF THE
SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR
PRIOR TO THE QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT
FROM QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA
CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY
CONDITIONED UPON THE QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT.
[Signature Page Follows]
-8-
<PAGE>
The parties have executed this Agreement as of the date first set forth
above.
PREVIEW SYSTEMS, INC.
By: /s/ Vincent Pluvinage
---------------------------
Title: CEO
-------------------------
Address: 1601 South DeAnza Blvd. Suite 100
Cupertino, CA 95014
PURCHASER ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO
SECTION 3 HEREOF IS EARNED ONLY BY CONTINUING SERVICE AS AN EMPLOYEE OR
CONSULTANT AT THE WILL OF THE COMPANY. PURCHASER FURTHER ACKNOWLEDGES AND
AGREES THAT NOTHING IN THIS AGREEMENT SHALL CONFER UPON PURCHASER ANY RIGHT WITH
RESPECT TO CONTINUATION OF SUCH EMPLOYMENT OR CONSULTING RELATIONSHIP WITH THE
COMPANY, NOR SHALL IT INTERFERE IN ANY WAY WITH PURCHASER'S RIGHT OR THE
COMPANY'S RIGHT TO TERMINATE PURCHASER'S EMPLOYMENT OR CONSULTING RELATIONSHIP
AT ANY TIME, WITH OR WITHOUT CAUSE.
PURCHASER:
BRAD SOLSO
/s/ Bradford Solso
--------------------------------
(Signature)
Address:
435 Occidental Avenue
--------------------------
San Mateo, CA 94402
--------------------------
Vesting Commencement
Date: July 6, 1999
I, Dana M. Solso, spouse of Brad Solso, have read and hereby approve the
foregoing Agreement. In consideration of the Company's granting my spouse the
right to purchase the Shares as set forth in the Agreement, I hereby agree to be
irrevocably bound by the Agreement and further agree that any community property
or similar interest that I may have in the Shares shall be similarly bound by
the Agreement. I hereby appoint my spouse as my attorney-in-fact with respect
to any amendment or exercise of any rights under the Agreement.
/s/ Dana Solso
--------------------------------
-9-
<PAGE>
EXHIBIT A
---------
PROMISSORY NOTE
---------------
$974,970.00 Cupertino, California
July ___, 1999
For value received, the undersigned promises to pay Preview Systems, Inc.,
a Delaware corporation (the "Company"), at its principal office the principal
-------
sum of $974,970.00 with interest from the date hereof at a rate of 5.32% per
annum, compounded semiannually, on the unpaid balance of such principal sum.
Such principal and interest shall be due and payable on July ___, 2002.
If the undersigned's employment or consulting relationship with the Company
is terminated prior to payment in full of this Note, this Note shall be
immediately due and payable.
Principal and interest are payable in lawful money of the United States of
America. AMOUNTS DUE UNDER THIS NOTE MAY BE PREPAID AT ANY TIME WITHOUT
INTEREST OR PENALTY.
Should suit be commenced to collect any sums due under this Note, such sum
as the Court may deem reasonable shall be added hereto as attorneys' fees. The
makers and endorsers have severally waived presentment for payment, protest,
notice of protest, and notice of nonpayment of this Note.
This Note, which is full recourse, is secured by a pledge of certain shares
of Common Stock of the Company and is subject to the terms of a Pledge and
Security Agreement between the undersigned and the Company of even date
herewith.
_______________________________________________
Brad Solso
<PAGE>
EXHIBIT B
---------
PLEDGE AND SECURITY AGREEMENT
-----------------------------
This Pledge and Security Agreement (the "Agreement") is entered into this
---------
_____ day of July by and between Preview Systems, Inc., a Delaware corporation
(the "Company") and Brad Solso ("Purchaser").
------- ---------
RECITALS
--------
In connection with Purchaser's purchase of certain shares of the Company's
Common Stock (the "Shares") pursuant to a Common Stock Purchase Agreement dated
------
July ___, 1999 between Purchaser and the Company, Purchaser is delivering a
promissory note of even date herewith (the "Note") in full or partial payment of
----
the exercise price for the Shares. The company requires that the Note be
secured by a pledge of the Shares on the terms set forth below.
AGREEMENT
---------
In consideration of the Company's acceptance of the Note as full or partial
payment of the exercise price of the Shares, and for other good and valuable
consideration, the receipt of which is hereby acknowledged, the parties hereto
agree as follows:
1. The Note shall become payable in full upon the voluntary or
involuntary termination or cessation of employment of Purchaser with the
Company, for any reason, with or without cause (including death or disability).
2. Purchaser shall deliver to the Secretary of the Company, or his or her
designee (hereinafter referred to as the "Pledge Holder"), all certificates
-------------
representing the Shares, together with an Assignment Separate from Certificate
in the form attached to this Agreement as Attachment A executed by Purchaser and
------------
by Purchaser's spouse (if required for transfer), in blank, for use in
transferring all or a portion of the Shares to the Company if, as and when
required pursuant to this Agreement. In addition, if Purchaser is married,
Purchaser's spouse shall execute the signature page attached to this Agreement.
3. As security for the payment of the Note and any renewal, extension or
modification of the Note, Purchaser hereby grants to the Company a security
interest in and pledges with and delivers to the Company Purchaser's Shares
(sometimes referred to herein as the "Collateral").
----------
4. In the event that Purchaser prepays all or a portion of the Note, in
accordance with the provisions thereof, Purchaser intends, unless written notice
to the contrary is delivered to the Pledge Holder, that the Shares represented
by the portion of the Note so repaid, including annual interest thereon, shall
continue to be so held by the Pledge Holder, to serve as independent collateral
for the outstanding portion of the Note for the purpose of commencing the
holding
-1-
<PAGE>
period set forth in Rule 144(d) promulgated under the Securities Act of 1933, as
amended (the "Securities Act").
--------------
5. In the event of any foreclosure of the security interest created by
this Agreement, the Company may sell the Shares at a private sale or may
repurchase the Shares itself. The parties agree that, prior to the establishment
of a public market for the Shares of the Company, the securities laws affecting
sale of the Shares make a public sale of the Shares commercially unreasonable.
The parties further agree that the repurchasing of such Shares by the Company,
or by any person to whom the Company may have assigned its rights under this
Agreement, is commercially reasonable if made at a price determined by the Board
of Directors in its discretion, fairly exercised, representing what would be the
fair market value of the Shares reduced by any limitation on transferability,
whether due to the size of the block of shares or the restrictions of applicable
securities laws.
6. In the event of default in payment when due of any indebtedness under
the Note, the Company may elect then, or at any time thereafter, to exercise all
rights available to a secured party under the California Commercial Code
including the right to sell the Collateral at a private or public sale or
repurchase the Shares as provided above. The proceeds of any sale shall be
applied in the following order:
(a) To the extent necessary, proceeds shall be used to pay all
reasonable expenses of the Company in enforcing this Agreement and the Note,
including, without limitation, reasonable attorney's fees and legal expenses
incurred by the Company.
(b) To the extent necessary, proceeds shall be used to satisfy
any remaining indebtedness under Purchaser's Note.
(c) Any remaining proceeds shall be delivered to Purchaser.
7. Upon full payment by Purchaser of all amounts due under the Note,
Pledge Holder shall deliver to Purchaser all Shares in Pledge Holder's
possession belonging to Purchaser, and Pledge Holder shall thereupon be
discharged of all further obligations under this Agreement; provided, however,
-------- -------
that Pledge Holder shall nevertheless retain the Shares as escrow agent if at
the time of full payment by Purchaser said Shares are still subject to a
Repurchase Option in favor of the Company.
-2-
<PAGE>
The parties have executed this Pledge and Security Agreement as of the date
first set forth above.
COMPANY:
PREVIEW SYSTEMS, INC.
By:_______________________________________________
Name:_____________________________________________
(print)
Title:____________________________________________
Address: 1601 South DeAnza Blvd, Suite 100
Cupertino, CA 95014
PURCHASER:
BRAD SOLSO
__________________________________________________
(Signature)
Address:
_________________________
_________________________
SPOUSE OF BRAD SOLSO (if any):
___________________________________
(Signature)
___________________________________
(Print Name)
-3-
<PAGE>
ATTACHMENT A
------------
ASSIGNMENT SEPARATE FROM CERTIFICATE
------------------------------------
FOR VALUE RECEIVED and pursuant to that certain Pledge and Security
Agreement between the undersigned ("Purchaser") and Preview Systems, Inc. (the
--------
"Company") dated July ___, 1999 (the "Agreement"), Purchaser hereby sells,
------- ---------
assigns and transfers unto the Company ___________________________ (__________)
shares of the Common Stock of the Company standing in Purchaser's name on the
Company's books and represented by Certificate No. _____, and hereby irrevocably
appoints _______________________ to transfer said stock on the books of the
Company with full power of substitution in the premises. THIS ASSIGNMENT MAY
ONLY BE USED AS AUTHORIZED BY THE AGREEMENT.
Dated: _________________
Signature:
Brad Solso
__________________________________________________
Spouse of Brad Solso (if applicable)
Instruction: Please do not fill in any blanks other than the signature line.
The purpose of this assignment is to perfect the security interest of the
Company pursuant to the Agreement.
-1-
<PAGE>
EXHIBIT C
---------
ASSIGNMENT SEPARATE FROM CERTIFICATE
------------------------------------
FOR VALUE RECEIVED and pursuant to that certain Common Stock Purchase
Agreement between the undersigned ("Purchaser") and Preview Systems, Inc. (the
---------
"Company") dated July ___, 1999 (the "Agreement"), Purchaser hereby sells,
- -------- ---------
assigns and transfers unto the Company ____________________________ (________)
shares of the Common Stock of the Company standing in Purchaser's name on the
Company's books and represented by Certificate No. ______, and does hereby
irrevocably constitute and appoint _____________________________ to transfer
said stock on the books of the Company with full power of substitution in the
premises. THIS ASSIGNMENT MAY ONLY BE USED AS AUTHORIZED BY THE AGREEMENT AND
THE EXHIBITS THERETO.
Dated: ______________________
Signature:
_____________________________________
Brad Solso
_____________________________________
Spouse of Brad Solso (if applicable)
Instruction: Please do not fill in any blanks other than the signature line.
The purpose of this assignment is to enable the Company to exercise its
repurchase option set forth in the Agreement without requiring additional
signatures on the part of Purchaser.
-1-
<PAGE>
EXHIBIT D
---------
ACKNOWLEDGMENT AND STATEMENT OF DECISION
----------------------------------------
REGARDING SECTION 83(b) ELECTION
--------------------------------
The undersigned has entered a stock purchase agreement with Preview
Systems, Inc., a Delaware corporation (the "Company"), pursuant to which the
-------
undersigned is purchasing 300,000 shares of Common Stock of the Company (the
"Shares"). In connection with the purchase of the Shares, the undersigned
------
hereby represents as follows:
1. The undersigned has carefully reviewed the stock purchase agreement
pursuant to which the undersigned is purchasing the Shares.
2. The undersigned either [check and complete as applicable]:
(a) ____ has consulted, and has been fully advised by, the
undersigned's own tax advisor, __________________________,
whose business address is _____________________________,
regarding the federal, state and local tax consequences of
purchasing the Shares, and particularly regarding the
advisability of making elections pursuant to Section 83(b) of
the Internal Revenue Code of 1986, as amended (the "Code") and
----
pursuant to the corresponding provisions, if any, of applicable
state law; or
(b) ____ has knowingly chosen not to consult such a tax advisor.
3. The undersigned hereby states that the undersigned has decided [check
as applicable]:
(a) ____ to make an election pursuant to Section 83(b) of the Code,
and is submitting to the Company, together with the
undersigned's executed Common Stock Purchase Agreement, an
executed form entitled "Election Under Section 83(b) of the
Internal Revenue Code of 1986;" or
(b) ____ not to make an election pursuant to Section 83(b) of the
Code.
-1-
<PAGE>
4. Neither the Company nor any subsidiary or representative of the
Company has made any warranty or representation to the undersigned with respect
to the tax consequences of the undersigned's purchase of the Shares or of the
making or failure to make an election pursuant to Section 83(b) of the Code or
the corresponding provisions, if any, of applicable state law.
Date:_____________________________________________
Brad Solso
Date:_____________________________________________
Spouse of Brad Solso
-2-
<PAGE>
EXHIBIT 10.11(a)
ONE THOUSAND BROADWAY BUILDING LIMITED PARTNERSHIP
LEASE AGREEMENT
TERMS AND CONDITIONS
--------------------
SECTION 1. DEMISE AND RENT
- ---------- ---------------
1.1 Demise: Landlord hereby leases to Tenant and Tenant hereby leases
------
from Landlord, upon and subject to the terms, covenants, provisions and
conditions of this Lease Agreement (herein called the "Lease"), the premises
described in Section 1.2 in the building (herein called "Building") located on
the Land described on EXHIBIT A attached hereto and incorporated herein.
---------
1.2 Premises: The Premises (herein called "Premises") leased to Tenant
--------
are described in the Basic Lease Information, and are outlined on the floor
plan(s) for the Building attached hereto as EXHIBIT B and incorporated herein by
---------
this reference.
1.3 Commencement and Expiration Dates: The term of this Lease (herein
---------------------------------
called "Lease Term") shall be for the period specified in the Basic Lease
Information subject to adjustment as provided in Section 30 (or until sooner
terminated as herein provided). After the Commencement Date has occurred, the
parties shall attach an addendum to this Lease confirming when the actual
Commencement Date occurred.
1.4 Rent: The rents shall be and consist of a Base Rent (herein called
----
"Base Rent") and Additional Rent (herein called "Additional Rent"). For purposes
of this Lease Agreement, Base Rent and Additional Rent are referred to
collectively as "Rent." Base Rent shall be the amount indicated in the Basic
Lease Information. Base Rent shall be payable in equal monthly installments in
advance on the first day of each and every calendar month during the term of
this Lease (except to the extent otherwise specifically provided elsewhere in
this Lease and except that Tenant shall pay, upon the execution and delivery of
this Lease by Tenant, the sum indicated in the Basic Lease Information, to be
applied against the first installment or installments of Base Rent becoming due
under this Lease). Additional Rent shall consist of all other sums of money as
shall become due and payable by Tenant to Landlord hereunder. All rent shall be
paid in lawful money of the United States of America to Landlord at its office
or such other place, as Landlord shall designate by notice to Tenant. Tenant
shall pay the Base Rent and Additional Rent promptly when due without notice or
demand therefor and without any abatement, deduction or setoff for any reason
whatsoever, except as expressly provided in this Lease. If the Commencement Date
occurs on a day other than the first day of a calendar month, the Base Rent for
that partial calendar month shall be prorated on a daily basis. If the Basic
Lease Information provides for the abatement of Base Rent for specified periods
of time during the term of the Lease ("Free Rent Period(s)"), none of the Base
Rent specified in this Lease as payable during the Lease Term shall be allocable
to any such Free Rent Period(s). In the event of any default by Tenant, Landlord
shall have the right to collect Rent for the Premises from Tenant for all Free
Rent Period(s) at the same Base Rent in effect immediately after any such Free
Rent Period(s).
1.5 Late Charge: Tenant recognizes that late payment of any Rent from
-----------
Tenant to Landlord will result in administrative expense to Landlord, the extent
of which additional expense is extremely difficult and economically impractical
to ascertain. Tenant therefore agrees that if Rent from Tenant to Landlord
remains unpaid ten (10) days after said amount is due, the amount of such unpaid
Rent or other payments shall be increased by a late charge to be paid to
Landlord by Tenant in an amount equal to five percent (5%) of the amount of the
delinquent Rent or other payment. Tenant agrees that such amount is a reasonable
estimate of the loss and expense to be suffered by Landlord as a result of such
late payment by Tenant and may be charged by Landlord to defray such loss and
expense. The provisions of this Section in no way relieve Tenant of the
obligation to pay Rent or other payments on or before the date on which they are
due, nor do the terms of this Section in any way affect Landlord's remedies
pursuant to Section 21 of this Lease in the event Rent is past due.
1.6 Confidentiality: Tenant shall keep the Rent and other terms of this
---------------
Lease confidential from other current and prospective occupants of the Building
and any other buildings owned by Landlord except to the extent disclosure is
reasonably necessary in the conduct of Tenant's business. If Tenant violates
this requirement then Tenant shall lose all concessions agreed to by Landlord
under this Lease such as free rent, moving allowances, above standard Tenant
Improvement allowance and the like and shall reimburse Landlord for any such
items already
<PAGE>
received. Tenant acknowledges that the actual damage caused to Landlord by a
violation of this requirement will be difficult to determine and that the
liquidated damages specified are a reasonable estimate of the damage that would
be caused by disclosure of the Lease terms in violation of this requirement.
SECTION 2. USE:
- ---------- ---
2.1 Generally: Tenant shall use and occupy the Premises continuously
----------
during the term of this Lease for the use specified in the Basic Lease
Information and for no other purpose without the written consent of Landlord,
which consent shall not be unreasonably withheld. If any governmental license or
permit, other than a Certificate of Occupancy shall be required for the proper
and lawful conduct of Tenant's business in the Premises or any part thereof,
Tenant, at its expense, shall duly procure and thereafter maintain such license
or permit and submit the same to Landlord for inspection. Tenant shall at all
times comply with the terms and conditions of each such license or permit.
Tenant shall not do or permit anything to be done in or about the Premises which
will in any way obstruct or interfere with the rights of other tenants or
occupants of the Building or injure or annoy them, nor use or allow the Premises
to be used for any improper, immoral, unlawful or objectionable purpose, nor
shall Tenant cause or maintain or permit any nuisance in, on, or about the
Premises. Tenant shall not commit or allow the commission of any waste in, on,
or about the Premises. Tenant shall not use the Premises or permit anything to
be done in or about the Premises which will in any way conflict with any law,
statute, ordinance, or governmental rule or regulation now in force or which may
hereafter be enacted or promulgated. Tenant shall not do or permit anything to
be done on or about the Premises or bring or keep anything therein which will in
any way increase the rate of any insurance upon the Building in which the
Premises are situated or any of its contents or cause a cancellation of said
insurance or otherwise affect said insurance in any manner. Tenant shall, at its
sole cost and expense, promptly comply with all laws statues, ordinances, and
governmental rules, regulations, or requirements now in force or which may
hereafter be in force ("Legal Requirements") and with the requirements of any
board of fire underwriters or other similar body now or hereafter constituted
relating to or affecting the condition, use, or occupancy of the Premises,
excluding structural changes not related to or affected by: (i) alterations or
improvements made by or for Tenant; or (ii) Tenant's acts. The judgment of any
court of competent jurisdiction or the admission of Tenant in an action against
Tenant whether Landlord be a party thereto or not, that Tenant has so violated
any such law, statute, ordinance, rule, regulation, or requirement, shall be
conclusive of such violation between Landlord and Tenant. Tenant shall use its
best efforts to prevent any violation of applicable Legal Requirements by its
partners, directors, officers, agents, and employees.
2.2 ADA Law Compliance: Landlord and Tenant acknowledge that the
------------------
provisions of the Americans with Disabilities Act (the "ADA") allow allocation
of responsibility for compliance with the terms and conditions of the ADA in the
Lease. Landlord and Tenant agree that the responsibility for compliance with the
ADA shall be allocated as set forth in this Section. Tenant shall be responsible
for compliance with the applicable provisions of the ADA with respect to all
improvements within the Premises except that Landlord represents that any
improvements designed by Landlord's office planner and installed by Landlord
pursuant to Exhibit C will conform to the requirements of the ADA Compliance
Guidelines in effect as of the date of substantial completion of the work.
Landlord shall be responsible for compliance with the provisions of the title
III of the ADA with respect to the exterior of the Building and the land
including parking areas, sidewalks and walkways, and the like, together with all
common areas of the Building. Neither Landlord nor Tenant shall be obligated to
supervise, monitor or otherwise review the compliance activities of the other.
Tenant acknowledges that the expense of Landlord's fulfillment of its ADA
obligations is an element of Operating Expenses as such term is defined in the
Lease. Any such ADA expense for capital improvements shall be amortized over the
useful life of the same for purposes of Operating Expenses in the same manner as
provided in the Lease for capital improvements intended to reduce Operating
Expenses. References in this Lease to Legal Requirements shall be deemed to
refer to the ADA among other laws.
2.3 Environmental Law Compliance: For purposes of this Section the term
----------------------------
"Hazardous Substances" shall mean and include all hazardous and toxic
substances, waste or materials, any pollutant or contaminant, including, without
limitation, PCBs, asbestos, asbestos-containing material, and raw materials that
are included under or regulated by any Environmental Laws. For purposes of this
Lease the term "Environmental Laws" shall mean and include all federal, state
and local statutes, ordinances, regulations and rules presently in force or
hereafter enacted relating to environmental quality, contamination, and clean-up
of Hazardous Substances, including, without limitation, the comprehensive
Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C.
(S)6091 et seq., as amended by the Superfund Amendments and Reauthorization Act
-- ---
of 1986, the Resource Conservation and Recovery Act of 1976, 42 U.S.C. (S)6091
-2-
<PAGE>
et seq., as amended by the Hazardous and Solid Waste Amendments of 1984, and
- -- ---
state superlien and environmental clean-up statutes and all rules and
regulations presently or hereafter promulgated under said statutes as amended.
References in this Lease to Legal Requirements shall be deemed to refer to
Environmental Laws among other laws. Landlord represents that to the best of
its current actual knowledge, the Building and the Land are in compliance with
all Environmental Laws respecting Hazardous Substances, and that Landlord has
received no notice of any pending or threatened lien, action or proceeding
respecting any alleged violation of Environmental Laws respecting Hazardous
Substances that has occurred on or near the Land or in or about the Building.
Tenant acknowledges that the expense of compliance with Environmental Laws is an
element of Operating Expenses except to the extent that any such expense
resulted from the fault of the Landlord. Landlord shall use reasonable efforts
to recover any expense of compliance with Environmental Laws from any third
party who is liable for the same and credit any such recovery against Operating
Expenses.
2.4 Indemnity Regarding Legal Violations: Tenant shall indemnify and
------------------------------------
hold harmless Landlord and all Superior Lessors and/or Superior Mortgagees and
its and their respective partners, directors, officers, agents and employees
from and against any and all claims arising from or in connection with the
violation of Legal Requirements including but not limited to the ADA or
Environmental Laws, occurring in, at or about the Building and the Land due to
the acts or omissions of Tenant or its partners, directors, officers, agents and
employees; together with all costs, expenses and liabilities incurred or in
connection with each such claim, action, proceeding or appeal, including,
without limitation, all attorneys' fees and expenses. Landlord shall indemnify
and hold harmless Tenant and its partners, directors, officers, agents and
employees from and against any and all claims arising from or in connection with
the violation of Legal Requirements including but not limited to the ADA or
Environmental Laws occurring in, at or about the Building and the Land due to
the acts or omissions of Landlord or its partners, directors, officers, agents
and employees; together with all costs, expenses and liabilities incurred or in
connection with each such claim, action, proceeding, or appeal, including,
without limitation, all attorneys' fees and expenses.
SECTION 3. TENANT'S ACCEPTANCE AND MAINTENANCE OF PREMISES:
- ---------- -----------------------------------------------
By taking possession of the Premises, Tenant accepts the Premises as
being in the condition in which Landlord is obligated to deliver them and
otherwise in good order, condition and repair. Landlord's obligations to
maintain the building are as set forth in Section 14.1 hereof. Tenant shall, at
all times during the term hereof at Tenant's sole cost and expense, keep the
following items in good order, condition and repair: (i) floor coverings, (ii)
wall coverings, (iii)paint, (iv) casework, (v) ceiling tiles, (vi) all of
Tenant's Property (as defined in Section 13.2 herein); and (vii) any and all
non-Building-Standard Tenant Improvements. Landlord shall have no obligation to
alter, remove, improve, repair, decorate, or paint the premises or any part
thereof except as specified in EXHIBIT C attached hereto and made a part hereof.
---------
No representations respecting the condition of the Premises or the Building have
been made by Landlord to Tenant, except as herein set forth.
SECTION 4. OPERATING EXPENSES AND TAXES
- --------- ----------------------------
4.1 Operating Expenses: For the purposes of this Lease, the term
------------------
"Operating expenses" shall mean all expenses paid or incurred by Landlord (or on
Landlord's behalf) as reasonably determined by Landlord to be necessary or
appropriate for the efficient operation, maintenance and repair of the Land
and/or Building, including the common areas of the Building, including without
limitation: (i) salaries, wages, medical, surgical, union and general welfare
benefits (including, without limitation, group life insurance) and pension
payments of employees of Landlord engaged in the repair, operation and
maintenance of the Land and/or Building; (ii) payroll taxes, workers'
compensation insurance, uniforms and related expenses for employees; (iii) the
cost of all charges for gas, steam, electricity, heat, ventilation, air-
conditioning, water and other utilities furnished to the Building, together with
any taxes on such utilities; (iv) the cost of painting of public areas; (v) the
cost of all charges of insurance, including rent loss insurance, casualty,
liability, fire with extended coverage endorsement and fidelity insurance, with
regard to the Land and/or Building and the maintenance and/or operation thereof;
(vi) the cost or rental of all supplies including without limitation, cleaning
supplies, light bulbs, tubes and ballasts, materials and equipment and sales and
other taxes thereon; (vii) the cost of hand tools and other movable equipment
used in the repair maintenance or operation of the Building amortized over the
useful life of such hand tools and movable equipment (as reasonably estimated by
Landlord); (viii) the cost of all charges for window and other cleaning and
janitorial and security services; (ix) charges of independent contractors
performing repairs or services to the Land and/or Building; (x) non-capital
-3-
<PAGE>
repairs; (xi) remodeling of the public and common areas of the Building
including, without limitation, repainting, replacement and repair of
furnishings, fixtures, accessories, carpeting or other floor covering, wall and
window coverings in the public and common areas, the cost of which shall be
amortized (with interest at the rate of nine percent [9%] on the unamortized
balance) over the useful life of the improvements as reasonably estimated by
Landlord; (xii) alterations and improvements to the Building made by reason of
the laws and requirements of any public authorities or the requirements of
insurance bodies; (xiii) management fees paid to a third party, or, if no
managing agent is employed by Landlord, Landlord shall be entitled to charge a
management fee which is not in excess of four percent (4%) of gross revenue, and
such fee shall be included in the Operating Expenses; (xiv) the cost of any
capital improvements or repairs to the Building and/or of any machinery or
equipment installed in the Building amortized (with interest at the rate of nine
percent [9%] on the unamortized balance) over the useful life of the
improvement, machinery and/or equipment as reasonably estimated by Landlord,
which is made or becomes operational, as the case may be, after the completion
of the construction of the Building and which have a reasonable probability of
reducing the expenses which otherwise would be included in Operating Expenses;
(xv) reasonable legal, accounting and other professional fees incurred in
connection with operation, maintenance and management of the Land and/or
Building; (xvi) the cost of providing elevator service; (xvii) the cost of
landscape and parking area maintenance and repair; (xviii) the common area
charges to which the Building is subject; (xix) Taxes as defined in Section 4.3;
and (xx) all other charges properly allocable to the operation, repair and
maintenance of the Building in accordance with generally accepted accounting
principles.
4.2 Exclusions From Operating Expenses: Operating expenses shall not
----------------------------------
include: (i) depreciation or amortization (except as provided above in Section
4.1); (ii) interest on and amortization of debts (except as provided above in
Section 4.1); (iii) leasehold improvements made for new tenants of the Building;
(iv) leasing commissions, attorneys' fees, costs and disbursements and other
expenses (including advertising) incurred in connection with leasing,
renovating, or improving space for tenants or other occupants or prospective
tenants or occupants of the Building; (v) refinancing costs; (vi) the cost of
any work or services performed for any tenant(s) of the Building (including
Tenant), whether at the expense of Landlord or such tenant(s), to the extent
that such work or services is in excess of the work or services which Landlord,
at its expense, is required to furnish to Tenant under this Lease with Tenant;
(vii) the cost of any electricity furnished to the Premises or any other space
in the Building leased to tenants in excess of the electricity to be provided by
Landlord under this Lease with Tenant; (viii) damages recoverable by any tenant
due to violation by Landlord of any of the terms and conditions of this Lease or
any other lease relating to the Building; (ix) repairs occasioned by fire,
windstorm or other casualty, to the extent such repairs are paid for by
insurance proceeds; and (x) capital repairs and replacements (except as provided
above in Section 4.1).
4.3 Taxes: The term "Taxes" shall include (i) all real property taxes
-----
and assessments and personal property taxes, charges, rates, duties and
assessments rated, levied or imposed by any governmental authority with respect
to the Land, the Building and any improvements, fixtures and equipment located
therein or thereon, and with respect to all other property of Landlord, real or
personal, located in or on the Land or the Building and used in connection with
the operation of the Building; (ii) any tax in lieu of a real property tax;
(iii) any tax or excise levied or assessed by any governmental authority on the
rentals payable under this Lease or rentals accruing from the use of the Land or
the Building; provided that this shall not include federal or state, corporate
or personal income taxes; and (iv) any tax or excise imposed or assessed against
Landlord which is measured or based in whole or in part on the capital employed
by Landlord to improve the Land and construct the Building.
SECTION 5. PAYMENT OF OPERATING EXPENSES:
- --------- -----------------------------
5.1 Operating Year: As used in this Section 5, the term "Operating
--------------
Year" shall mean each calendar year of the Lease Term and in the event this
Lease begins or ends on any date other than the first day of the calendar year,
the calculations, costs and payments referred to herein shall be prorated as
provided in Section 31.11.
5.2 Tenant's Pro Rata Share: Tenant shall pay, as Additional Rent, its
-----------------------
pro rata share of the increase in Operating Expenses of the Building, if any,
over the Base Year Amount. Tenant's pro rata share of the increase in Operating
Expenses of the Building for each Operating Year shall be calculated as follows:
the actual Operating Expenses for each Operating Year less the Base year Amount
shall be multiplied by Tenant's percentage (as specified in the Basic Lease
Information, and as adjusted as provided herein). If in any Operating Year
Tenant occupies the Premises for less than the full Operating Year, then the
product from the foregoing multiplication shall
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be multiplied by the percentage of the Operating Year in which Tenant occupied
the Premises. "Tenant's percentage" shall mean a percentage, the numerator of
which is the number of rentable square feet of the leased Premises and the
denominator of which is the total number of rentable square feet of the
Building, whether or not such space is actually rented. The Tenant's percentage
(as specified in the Basic Lease Information, and adjusted as provided herein)
shall be changed from time to time to reflect any change in the total rentable
square footage in the Building. All calculations of rentable area shall be on
the basis as originally used to determine the rentable area shown in the Basic
Lease Information. The "Base year Amount" shall mean the actual Operating
Expenses during the Base Year specified in the Basic Lease Information less any
portion thereof resulting from any utility rate increases occurring after the
Commencement Date of the Lease and prior to the end of the Base Year. During the
periods when the Building is not fully occupied, Landlord shall reasonably
adjust Operating Expenses to reflect the costs that would normally have been
incurred had the Building been fully occupied for the entire period and the
Building had been fully assessed for property tax purposes. The Building shall
be considered fully occupied when occupancy reaches Ninety-five percent (95%).
If during any Operating Year the tenant of any space in the Building performs
work or services therein pursuant to a written agreement between Landlord and
such tenant in lieu of having Landlord perform the same and the cost thereof
would have been included in the Landlord's Operating Expenses, then in any such
event(s), at Landlord's option, the Operating Expenses for such Operating Year
shall be adjusted to reflect the Operating Expenses that would have been
incurred if Landlord had performed such work or services, as the case may be.
5.3 Written Statement of Estimate: Prior to the commencement of each
-----------------------------
Operating Year during the Lease Term, Landlord shall furnish Tenant with a
written statement setting forth Tenant's pro rata share of the estimated
increase in Operating Expenses and Taxes for the next Operating Year. Tenant
shall pay to Landlord as Additional Rent commencing on January 1 of the
Operating Year, and thereafter on the first day of each calendar month, an
amount equal to one-twelfth of the amount of Tenant's pro rata share as shown in
Landlord's written statement. In the event Landlord delivers the written
statement late, Tenant shall continue to pay to Landlord an amount equal to one-
twelfth of Tenant's pro rata share of the estimated Operating Expenses for the
immediately preceding Operating Year until Landlord does furnish the written
statement, at which time Tenant shall pay the amount of any excess of the
Tenant's pro rata share for the expired portion of the current Operating Year
over the Tenant's actual payments during such time and any excess payments by
Tenant shall be credited to the next due payment of Rent from Tenant. The late
delivery of any written statement by Landlord shall not constitute a waiver of
Tenant's obligation to pay its pro rata share of Operating Expenses nor subject
the Landlord to any liability, but Landlord shall use reasonable efforts to
deliver such written statements of estimated increase in Operating Expenses as
soon as reasonably possible after the commencement of each Operating Year.
5.4 Final Written Statement: Within 120 days after the close of each
-----------------------
Operating Year during the Lease term, Landlord shall deliver to Tenant a written
statement (the "Operating Statement") setting forth Tenant's actual pro rata
share of the increase in Operating Expenses for the preceding Operating Year. In
the event Tenant's pro rata share of the actual increase in Operating Expenses
is in excess of the Tenant's pro rata estimated increase in Operating Expenses,
Tenant shall pay the amount of such excess to Landlord as Additional Rent within
thirty (30) days after receipt of such statement by Tenant. In the event
Tenant's pro rata share of the actual increase in Operating Expenses is less
than the Tenant's pro rata share of the estimated increase in Operating Expenses
actually paid by Tenant then the amount of the excess overpayment shall be paid
by Landlord to Tenant within thirty (30) days following the date of such
statement or Landlord may elect to apply the overpayment to Tenant's next Rent
payment, reimbursing only the excess over such next payment, if any. The late
delivery of any written statement by Landlord shall not constitute a waiver of
Tenant's obligation to pay its pro rata share of Operating Expenses, but
Landlord shall use reasonable efforts to deliver such written statements as soon
as reasonably possible after the commencement of each Operating Year.
5.5 Tenant Examination: The Operating Statement referred to herein need
------------------
not be audited but shall contain sufficient detail to enable Tenant to verify
the calculation of its pro rata share. In addition, Tenant, upon at least five
days advance written notice to Landlord and during business hours, may examine
any invoices, receipts, canceled checks, vouchers or other instruments used to
support the figures shown on the Operating Statement, provided, however, that
Tenant shall only be entitled to such an examination once in each Operating
Year.
5.6 Disputes: Each such Operating Statement given by Landlord pursuant
--------
to this Section shall be conclusive and binding upon Tenant unless within thirty
(30) days after the receipt of such Operating Statement
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<PAGE>
Tenant shall notify Landlord that it disputes the correctness of the Operating
Statement, specifying the particular respects in which the Operating Statement
is claimed to be incorrect. If such disputes shall not have been settled by
agreement, either party, within thirty (30) days after receipt of such
Statement, may pursue its available legal remedies, but Tenant hereby agrees
that a dispute over the Operating Statement or any error by Landlord in
interpreting or applying Section 4 or in calculating the amounts in the
Operating Statement shall not be a breach of this Lease by Landlord, and even if
any legal preceding over the Operating Statement is resolved against Landlord
this Lease shall remain in full force and effect and Landlord shall not be
liable for any consequential damages, and pending the determination of such
dispute, Tenant, within ten (10) days of receipt of such Operating Statement,
shall pay Additional Rent in accordance with the Operating Statement, without
prejudice to Tenant's position. If the dispute shall be determined in Tenant's
favor, Landlord shall forthwith pay to Tenant the amount of Tenant's overpayment
of rents resulting from compliance with the Operating Statement.
5.7 Payment: If an Operating Year ends after the expiration or
-------
termination of this Lease, the Additional Rent in respect thereof payable under
this Section shall be paid by Tenant within ten (10) days of is receipt of the
Operating Statement for such Operating Year.
5.8 No Reduction in Amount of Base Rent: Nothing in the Lease shall be
-----------------------------------
construed to mean the Base Rent amount specified in the Basic Lease Information
shall be reduced due to any decrease in Operating Expenses, it being intended
that the amount of the Base Rent remain fixed throughout the Lease Term.
SECTION 6. SECURITY DEPOSIT:
- ---------- ----------------
6.1 Security Deposit: Upon the execution of this Lease by Tenant,
----------------
Tenant shall pay to Landlord the sum indicated in the Basic Lease Information as
security for the full and faithful performance and observance by Tenant of
Tenant's covenants and obligations under this Lease and Tenant shall not be
entitled to interest thereon (the "Security Deposit"). Failure to promptly pay
such Security Deposit shall be considered a default under this Lease. Landlord
may commingle this Security Deposit. If Tenant defaults in the full and prompt
payment and performance of any of Tenant's covenants and obligations under this
Lease, including, but not limited to, the payment Base Rent and Additional Rent,
Landlord may use, apply or retain the whole or any part of the Security Deposit
so deposited to the extent required for the payment of any Base Rent and
Additional Rent or any other sums as to which Tenant is in default or for any
such sums which Landlord may expend or may be required to expend by reason of
Tenant's default in respect of any of the terms, covenants and conditions of
this Lease, including, but not limited to, any damages or deficiency in the
reletting of the Premises, whether such damages or deficiency accrue before or
after summary proceedings or other re-entry by Landlord.
6.2 Disposition of Security Deposit: If Landlord shall so use, apply or
-------------------------------
retain the whole or any part of the security, Tenant shall upon demand
immediately deposit with Landlord a sum equal to the amount so used, applied or
retained, as security as aforesaid. If Tenant shall fully and faithfully comply
with all of Tenant's covenants and obligations under this Lease, the security or
any blance thereof shall be returned or paid over to Tenant after the date on
which this Lease shall expire or sooner end or terminate. In the event of any
sale of Landlord's interest in the Building or an leasing of the Building,
whether or not in connection with a sale or leasing of the Land, Landlord shall
have the right to transfer the security to the vendee or lessee and Landlord
shall thereupon be released by Tenant from all liability for the return or
payment thereof; and Tenant shall look solely to the new landlord for the return
or payment of the same; and the provisions hereof shall apply to every transfer
or assignment made of the same to a new land lord. Tenant shall not assign or
encumber or attempt to assign or encumber the monies deposited herein as
security and neither Landlord nor its successors or assigns shall be bound by
any such assignment, encumbrance, attempted assignment or attempted encumbrance.
SECTION 7. SUBORDINATION, NOTICE TO SUPERIOR LESSORS AND MORTGAGEES:
- ---------- --------------------------------------------------------
7.1 Subordination: Any lease to which this Lease is, at the time
-------------
referred to, subject and subordinate is herein called "Superior Lease" and the
lessor of a Superior Lease or its successor in interest, at the time referred
to, is herein called "Superior Lessor," and any mortgage to which this Lease is,
at the time referred to, subject and subordinate is herein called "Superior
Mortgage" and the holder of a Superior Mortgage, or its successor in interest,
at the time referred to, is herein called "Superior Mortgagee." This Lease, and
all rights of Tenant hereunder, are and shall be subject and subordinate to any
ground leases covering the Land and/or the Building now or hereafter
-6-
<PAGE>
existing, and to all mortgages which may now or hereafter affect the Land and/or
the Building and/or any of such leases, whether or not such mortgages shall also
cover other lands and/or buildings and/or leases, to each and every advance made
or hereafter to be made under such mortgages, and to all renewals,
modifications, replacements and extensions of such leases and such mortgages.
This Section shall be self-operative, and no further instrument of subordination
shall be required. In confirmation of such subordination, Tenant shall promptly
execute, acknowledge or deliver any instrument that Landlord, any Superior
Lessor or any Superior Mortgagee may reasonably request to evidence such
subordination; and if Tenant fails to execute, acknowledge or deliver any such
instruments within ten (10) days after request therefor, Tenant hereby
irrevocably constitutes and appoints Landlord as Tenant's attorney-in-fact,
coupled with an interest, to execute and deliver any such instruments for and on
behalf of Tenant.
7.2 Notice: If any act or omission of Landlord would give Tenant the
------
right, immediately or after lapse of a period of time, to cancel or terminate
this Lease, or to claim a partial or total eviction, Tenant shall not exercise
such right: (i) until it has given written notice of such act or omission to
Landlord and each Superior Mortgagee and each Superior Lessor whose name and
address shall previously have been furnished to Tenant; and (ii) until thirty
(30) days shall have elapsed following the time when such Superior Mortgagee or
Superior Lessor shall have become entitled under such Superior Mortgage or
Superior Lease, as the case may be, to remedy the same.
7.3 Attornment: For the purposes of this Section, the term "Successor
----------
Landlord" shall mean the Superior Lessor or Superior Mortgagee if the same
succeeds to the rights of Landlord under this Lease, whether through possession
or foreclosure action or delivery of a new lease or deed, or any third party
that succeeds to the rights of Landlord under this Lease by virtue of having
purchased the Land and the Building at a foreclosure sale. At the request of a
Successor Landlord and upon such Successor Landlord's written agreement to
accept Tenant's attornment, and to not disturb Tenant's quiet possession of the
Premises, Tenant shall attorn to and recognize such Successor Landlord as
Tenant's Landlord under this Lease and shall promptly execute and deliver any
instrument that such Successor Landlord may reasonably request to evidence such
attornment. Upon such attornment this Lease shall continue in full force and
effect as a direct lease between the Successor Landlord and Tenant upon all of
the terms, conditions and covenants as are set forth in this Lease except that
the Successor Landlord shall not: (i) be liable for any previous act or
omission of Landlord under this Lease; (ii) be subject to any offset, deficiency
or defense which theretofore shall have accrued to Tenant against Landlord;
(iii) be bound by any previous modification of this Lease or by any previous
prepayment of more than one (1) month's Base Rent, unless such modification or
prepayment shall have been expressly approved in writing by the Superior Lessor
or the Superior Mortgagee through or by reason of which the Successor Landlord
shall have succeeded to the right of Landlord under this Lease; (iv) be liable
for the commencement or completion of any construction or any contribution
toward construction or installation of any improvements upon the Premises
required under this Lease, or any expansion or rehabilitation of existing
improvements upon the Premises, or for restoration of improvements following any
casualty not required to be insured under this Lease or for the costs of any
restoration in excess of the proceeds recovered under any insurance required to
be carried under this Lease; (v) be liable for the right and claim under this
Lease in, to and upon any award or other compensation heretofore or hereafter to
be made for any taking by eminent domain of any part of the Premises, and as to
the right of disposition thereof, the same shall be in accordance with the
provisions of any Superior Lease or Superior Mortgage; (vi) be liable for any
right and claim under this Lease in, to and upon any proceeds payable under all
policies of fire and rent insurance upon the Premises and as to the right of
disposition thereof, the same shall be in accordance with the terms of any
Superior Lease or Superior Mortgage; (vii) be liable for any lien, right, power
or interest, if any, which may have arisen or intervened in the period between
the recording of any Superior Mortgage and the execution of this Lease or any
lien or judgment which may arise at any item under the terms of this Lease; or
(viii) be liable for the return of any security deposit which was not actually
transferred to the Successor Landlord.
SECTION 8. QUIET ENJOYMENT:
- ---------- ---------------
So long as Tenant pays all of the Base Rent and Additional Rent and
performs all of Tenant's other obligations hereunder, Tenant shall peaceably and
quietly have, hold and enjoy the Premises without hindrance, ejection or
molestation by Landlord or any person lawfully claiming through or under
Landlord, subject nevertheless, to the provisions of this Lease and to any
Superior Lease and/or Superior Mortgage. This covenant shall be construed as a
covenant running with the Land, and is not, nor shall it be construed as, a
personal covenant of Landlord, except to the extent of Landlord's interest in
this Lease and only so long as such interest shall continue, and thereafter this
covenant shall be binding only upon subsequent successors in interest of
Landlord's interest in
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<PAGE>
this Lease, to the extent of their respective interests, as and when they shall
acquire the same, and so long as they shall retain such interest.
SECTION 9. ASSIGNMENT AND SUBLETTING:
- ---------- -------------------------
9.1 Generally: Tenant shall not sell, assign, sublet, encumber, or
---------
otherwise transfer by operation of law or otherwise this Lease or any interest
herein, or the Premises or any portion thereof, without the prior written
consent of Landlord (which Landlord shall not unreasonably withhold) nor shall
Tenant permit any lien to be placed on the Tenant's interest by operation of
law. Any change in effective control of a corporation, partnership or other
artificial entity which is the Tenant shall be deemed a transfer of this Lease.
Any transfer hereunder by Tenant shall not result in Tenant being released or
discharged from any liability under this Lease. Any sale, assignment,
encumbrance, subletting, occupation, lien or other transfer of this Lease which
does not comply with the provisions of this Section 9 shall be void. Any listing
on Building directories or other signage using a name other than Tenant's in
conjunction with the Premises will not be deemed, nor will it substitute for,
Landlord's consent, as required by this Lease, to any sublease, assignment or
other occupancy of the Premises.
9.1.1 Tenant shall, by written notice, advise Landlord of its
desire from and after a stated date (which shall not be less than thirty [30]
days nor more than ninety [90] days after the date of Tenant's notice), to
transfer its interest in the Premises or any portion thereof for any part of the
term hereof; and such notice by Tenant shall state the name and address of the
proposed transferee, and Tenant shall deliver to Landlord a true and complete
copy of the proposed transfer instrument with said notice.
9.1.2 Upon any request by Tenant to transfer all or any part of
the Premises, Landlord shall have the right to either: (a) permit the transfer
on the conditions referred to in Section 9.2 and any other conditions Landlord
may impose, (b) deny Tenant's request, in which event this Lease shall continue
in full force and effect and unmodified; or (c) terminate this Lease by written
notice to Tenant with respect to the portion of the Premises described in
Tenant's notice and if Landlord desires, to then lease such space to any party
including the transferee identified in Tenant's notice at whatever times
Landlord establishes. Any such termination with respect to less than all of the
Premises shall result in a percentage reduction in Rent equal to the percentage
of the Premises as to which the Lease is terminated.
9.2 Conditions of Landlord's Consent; As a condition to Landlord's
--------------------------------
prior written consent as provided for in this Section, the transferee(s) shall
agree in writing to comply with and be bound by all of the terms, covenants,
conditions, provisions and agreements of this Lease, and Tenant shall deliver to
Landlord, promptly after execution, an executed copy of each transfer instrument
and an agreement of said compliance by each transferee. Landlord may require as
a condition granting consent to a transfer that Tenant shall pay to Landlord all
profits from the transfer determined by deducting from the total consideration
paid directly or indirectly to or for the benefit of Tenant or its designee for
the transferred interest, the reasonable costs of the transfer incurred by the
Tenant and subtracting the remaining rent obligation of the Tenant at such time
under this Lease. For purposes of determining all profits form the transfer,
substance shall control over form such that Landlord may ignore any attempt by
Tenant to inflate the purchase price of any other assets transferred in any
attempt to conceal the profit on the transfer of the Tenant's interest in this
Lease. Sums payable hereunder shall be paid to Landlord as and when paid by the
transferee to Tenant.
SECTION 10. INSURANCE:
- ----------- ---------
10.1 Waiver of Right of Recovery: Neither party, nor its officers,
---------------------------
directors, employees, agents or invitees, nor, in case of Tenant, its
subtenants, shall be liable to the other party or to any insurance company (by
way of subrogation or otherwise) insuring the other party for any loss or damage
to any building, structure or other tangible property normally covered under a
standard policy of insurance for fire, theft and extended coverage, or losses
under workers' compensation law and benefits, even though such loss or damage
might have been occasioned by the negligence of such party, its agents or
employees; provided, however, that if, by reason of the foregoing waiver, either
party shall be unable to obtain any such insurance, such waiver shall be deemed
not to have been made by such party and, provided, further, that if either party
shall be unable to obtain any such insurance without the payment of an
additional premium therefor, then, unless the party claiming the benefit of such
waiver shall agree to pay such party for the cost of such additional premium
within thirty (30) days after notice setting forth such
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<PAGE>
requirement and the amount of the additional premium, such waiver shall be of no
force and effect between such party and such claiming party.
10.2 Public Liability Insurance: Tenant, as its expense, shall maintain
--------------------------
at all times during the term of this Lease, public liability insurance in
respect of the Premises and the conduct or operation of business therein, with
Landlord and its managing agent, if any, and any Superior Lessor or Superior
Mortgagee whose name and address shall previously have been furnished to Tenant,
as additional insureds, with One Million and No/100 Dollars ($1,000,000.00)
minimum combined single limit coverage, or its equivalent. All such insurance
shall insure the performance by Tenant of the indemnity agreement as to
liability for injury to, illness of, or death of persons and damage to property
set forth in Section 17. Tenant shall deliver to Landlord and any additional
insured such fully paid for policies or certificates of insurance, in form
satisfactory to Landlord insured by the insurance company or its authorized
agent, at least ten (10) days before the Commencement Date. Tenant shall procure
and pay for renewals of such insurance from time to time before the expiration
thereof, and Tenant shall deliver to Landlord and any additional insured such
renewal policy or certificate at least thirty (30) days before the expiration of
any existing policy. All such policies shall contain a provision whereby the
same cannot be canceled or modified unless Landlord and any additional insured
is given at least twenty (20) days prior written notice of such cancellation or
modification.
10.3 Acceptable Insurance Companies: All insurance policies required to
------------------------------
be carried by Tenant hereunder shall be issued by responsible insurance
companies authorized to issue insurance in the State of Oregon rated B VII or
higher by Best's Insurance Rating Service.
10.4 Increase in Coverage: Landlord may from time to time, but not more
--------------------
frequently than once every three (3) years, require that the amount of public
liability insurance to be maintained by Tenant under Section 10.2 be increased
so that the amount thereof adequately protects the Landlord's interest based on
amounts of coverage required of comparable tenants in comparable buildings.
SECTION 11. RULES AND REGULATIONS:
- ----------- ---------------------
Tenant shall faithfully observe and comply with the rules and
regulations printed on or annexed to this Lease as EXHIBIT E and all reasonable
---------
modifications thereof and additions thereto from time to time established by
Landlord by written notice to Tenant. Landlord shall not be responsible for the
nonperformance by any other Tenant or occupant of the Building of any said rules
and regulations but Landlord shall use reasonable efforts to remedy any
violation of the rules and regulations applicable to any other Building occupant
upon Tenant's request.
SECTION 12. ALTERATIONS:
- ----------- -----------
12.1 Requirements: Tenant shall not make or suffer to be made any
------------
alterations, additions, or improvements in, on, or to the Premises or any part
thereof without the prior written consent of Landlord. Any such alterations,
additions, or improvements in, on, or to said Premises, except for Tenant's
movable furniture and equipment, shall immediately become Landlord's property
and, at the end of the term hereof, shall remain on the Premises without
compensation to Tenant. In the event Landlord consents to the making of any such
alterations, additions, or improvements by Tenant, the same shall be made by
Tenant, at Tenant's sole cost and expense, in accordance with plans and
specifications approved by Landlord, and any contractor or person selected by
Tenant to make the same must first be approved in writing by Landlord. If the
alterations, additions or improvements shall be made by Landlord for Tenant's
account, Tenant shall reimburse Landlord for the cost thereof within twenty (20)
days after receipt of a statement, setting forth the actual cost of such
alterations, additions or improvements. In any event Tenant shall pay Landlord
an administrative charge of fifteen percent (15%) of the actual cost of such
alterations, additions or improvements. After the expiration or sooner
termination of the Lease Term and upon demand by Landlord, Tenant shall remove
any or all alterations, additions, or improvements made by or for the account of
Tenant, designated by Landlord to be removed, and Tenant shall repair and
restore the Premises to their original condition, subject to ordinary wear and
tear. Such removal, repair and restoration work shall be done promptly and with
all due diligence at Tenant's sole cost and expense. The provisions of this
Section 12 shall not apply to the initial Tenant Improvements described in
Exhibit C to this Lease.
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12.2 Indemnification of Landlord: Tenant, at its expense, and with
---------------------------
diligence and dispatch, shall procure the cancellation or discharge of all
notices of violation arising from or otherwise connected with alterations, or
any other work, labor, services or materials done for or supplied to Tenant, or
any other person claiming through or under Tenant, which shall be issued by any
public authority having or asserting jurisdiction. Tenant shall defend,
indemnify and save harmless Landlord and any Superior Lessor or Superior
Mortgagee from and against any and all mechanic's and other liens and
encumbrances filed in connection with alterations, or any other work, labor,
services or materials done for or supplied to Tenant, or any person claiming
through or under Tenant, including without limitation, security interests in any
materials, fixtures or articles so installed in and constituting part of the
Premises and against all costs, expenses and liabilities incurred in connection
with any such lien or encumbrance or any action or proceeding brought thereon.
Tenant, at its expense, shall procure the satisfaction or discharge of record of
all such liens and encumbrances within fifteen (15) days after the filing
thereof. Nothing herein contained shall prevent Tenant from contesting, in good
faith and at its own expense, any notice of violation, or lien provided Tenant
posts for the protection of Landlord security acceptable to Landlord.
SECTION 13. LANDLORD'S AND TENANT'S PROPERTY:
- ----------- --------------------------------
13.1 Landlord's Property: All fixtures, carpeting equipment,
-------------------
improvements and appurtenances attached to or built into the Premises at the
commencement of or during the term of this Lease, whether or not by or at the
expense of Tenant, shall be and remain a part of the Premises, shall be deemed
the property of landlord and shall not be removed by Tenant, except as provided
in Section 13.2; provided, that at Landlord's written request, Tenant shall, at
its sole expense and upon termination of the Lease, remove those items specified
by Landlord, including any or all fixtures, equipment, improvements,
appurtenances and other personal property, which are deemed herein the property
of Landlord, but not including the initial Tenant Improvements provided by
Landlord pursuant to Exhibit C of this Lease. Tenant's covenant to remove
property specified by Landlord shall survive the termination of this Lease.
13.2 Tenant's Property: All unattached business and trade fixtures,
-----------------
machinery and equipment, communications equipment and office equipment which are
installed in the Premises by or for the account of Tenant without expense to
Landlord and which can be removed without structural damage to the Building and
all furniture, furnishings (excluding window coverings) and other articles of
movable personal property owned by Tenant and located in the Premises (herein
collectively called "Tenant's Property") shall be and remain the property of
Tenant and may be removed by Tenant at any time during the term of this Lease;
provided, that if any of Tenant's Property is removed, Tenant shall repair or
pay the cost of repairing any damage to the Premises or to the Building
resulting from the installation and/or removal thereof. Any equipment or other
property for which Landlord shall have granted any allowance or credit to Tenant
shall be deemed not to have been installed by or for the account of Tenant
without expense to Landlord, shall not be considered Tenant's Property, and
shall be deemed the property of Landlord.
13.3 Abandonment: Any items of Tenant's Property which shall remain in
-----------
the Premises after the expiration date of this Lease, or after a period of
fifteen (15) days following an earlier termination date, at the option of
Landlord, may be deemed to have been abandoned, and in such case such items may
be retained by Landlord, without accountability, in such manner as Landlord
shall determine at Tenant's expense.
SECTION 14. SERVICES AND UTILITIES:
- ----------- ----------------------
14.1 Building Maintenance: Landlord shall maintain the Building,
--------------------
including public and common areas of the Building, such as the lobbies, stairs,
elevators, corridors and rest rooms, the windows in the Building, the
mechanical, plumbing and electrical equipment serving the Building, and the
structure itself, in reasonably good order and condition except for damage
occasioned by the act of the Tenant, which damage shall be repaired by Landlord
at Tenant's expense.
14.2 Utilities: Provided the 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 agrees to furnish to the Premises from
7:00 A.M. to 6:00 P.M. on weekdays and 8:00 A.M. to 1:00 P.M. on Saturdays,
exclusive of legal holidays, water and electricity suitable for the intended use
of the Premises, heat and air-conditioning required in Landlord's reasonable
judgment for the comfortable use and occupation of the Premises, janitorial
services during
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the times and in the manner that such services are, in Landlord's reasonable
judgment, customarily furnished in comparable office buildings in the immediate
market area, and elevator service which shall mean service by unattended
automatic elevators. Landlord shall provide additional or after-hours heating or
air-conditioning at Tenant's request, and 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 coverings 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 the regulations and requirements which Landlord may
prescribe for the proper functioning and protection of the heating, ventilating,
and air-conditioning system. 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. Any sums payable under Section 14 shall be considered Additional Rent
and may be added to any installment of Base Rent thereafter becoming due, and
Landlord shall have the same remedies for a default in payment of such sum as
for a default in the payment of Base Rent.
14.3 Excess Usage: If Tenant uses excessive amounts of non-metered
------------
utilities or services of any kind because of operation outside of normal
Building hours, high demands from office machinery and equipment, nonstandard
lighting, or any other cause, Landlord may impose a reasonable charge, currently
estimated at $12.00 per hour for supplying such extra utilities services, which
charge shall be payable monthly by Tenant in conjunction with Rent payments.
Landlord may install in the Premises a special meter to measure the amount of
water, electric current or other resource consumed for any such other use. In
case of dispute over any extra charge under this paragraph, Landlord shall
designate a qualified independent engineer whose decision shall be conclusive on
both parties. The party not prevailing in such dispute shall pay the cost of
such engineer's determination.
14.4 Disclaimer: Landlord shall not be in default hereunder or be liable
----------
for any damages directly or indirectly resulting from, or by reason of (i) the
installation, use or interruption of use of any equipment in connection with the
furnishing of the foregoing utilities and services, (ii) 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, any
other accidents or other conditions beyond the reasonable control of Landlord,
or by the making of repairs or improvements to the Premises or the Building, or
(iii) the limitation, curtailment, rationing or restriction on use of water or
electricity, gas or any other form of energy or any other service or utility
whatsoever serving the Premises or the Building. Furthermore, Landlord shall be
entitled to cooperate voluntarily in a reasonable manner with the efforts of
national, state or local governmental agencies or utilities suppliers in
reducing energy or other resource consumption. Rent shall be abated in
accordance with the terms of Section 18 due to the occurrence of any of the
foregoing conditions which are covered b Landlord's insurance.
14.5 Use of Common Areas and Facilities: All common facilities and areas
----------------------------------
furnished by Landlord in or near the Building, including parking areas, lighting
facilities, pedestrian sidewalks and ramps, landscaped areas, exterior
stairways, rest rooms and other areas and improvements provided by Landlord for
the general use, in common, of tenants, their officers, agents, employees and
customers shall at all times by subject to the exclusive control and management
of Landlord. Without limiting the scope of such discretion, Landlord shall have
the full right and authority to employ all personnel and to establish, modify
and enforce reasonable rules and regulations necessary for the proper operation
and maintenance of common areas and facilities. Landlord shall have the right
to close all or any portion of the common areas or facilities to such extent as,
in the opinion of Landlord's legal counsel, may be legally sufficient to prevent
a dedication thereof or the accrual of any rights to any person (other than
Tenant) or the public therein; and to do and perform such other acts in and to
said areas and improvements as the Landlord shall reasonably determine to be
advisable. If the common area of this Building includes surface parking areas
on the Land, then at all times Tenant's use (including use by Tenant or Tenant's
employees, agents, invitees and licensees) of such surface parking area shall
not exceed the Tenant's percentage of the Building as specified in the Basic
Lease Information. All common areas and facilities not within the Premises,
which Tenant may be permitted to use and occupy, are to be used and occupied
under a revocable license, and if the amount of such areas be diminished,
Landlord shall not be subject to any liability nor shall Tenant be entitled to
any compensation or diminution or abatement of Rent, nor shall such diminution
of such areas be deemed constructive or actual eviction.
14.6 Signage: Landlord shall provide tenant, at no additional charge,
-------
Building standard signage.
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14.7 Mailbox: Landlord shall furnish Tenant, without additional charge,
-------
a locked mailbox in the Building.
SECTION 15. ACCESS AND NAME:
- ----------- ---------------
Landlord reserves and shall at all times have the right to re-enter the
Premises upon 24 hours' prior notice to Tenant (except in an emergency) to
inspect the same, to supply janitor service and any other service to be provided
by Landlord to Tenant hereunder, to show said Premises to prospective
purchasers, mortgagees or tenants, to post notices of nonresponsibility, and to
alter, improve or repair the Premises and any portion of the Building of which
the Premises are a part, without abatement of Rent. Landlord may for such
purpose erect, use and maintain scaffolding, pipes, conduits and other necessary
structures in and through the Premises where reasonably required by the
character of the work to be performed, provided that entrance to the Premises
shall to be blocked thereby, and further provided that the business of Tenant
shall not be interfered with unreasonably. Tenant hereby waives any claim for
damages for any injury or inconvenience to or interference with Tenant's
business, any loss of occupancy or quiet enjoyment of the Premises and any other
loss occasioned by Landlord's conduct pursuant to this Section. For each of the
purposes stated in this Section, Landlord shall at all times have and retain a
key with which to unlock all of the doors in, upon and about the Premises,
excluding Tenant's vaults and safes or special security areas (designated in
advance). Landlord shall have the right to use any and all means which Landlord
may deem necessary or proper to open all doors in an emergency, in order to
obtain entry to any portion of the Premises, and any entry to any portion of the
Premises obtained by Landlord by any such means, or otherwise shall not under
any circumstances by 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 all or part of the Premises. Landlord shall also have the right at
any time, without the same constituting an actual or constructive eviction and
without incurring any liability to Tenant, to change the arrangement and/or
location of entrances or passageways, doors and doorways, corridors, elevators,
stairs, toilets or other public parts of the Building and to change the name,
number or designation by which the building is commonly known.
SECTION 16. NOTICE OF OCCURRENCES:
- ----------- ---------------------
Tenant shall give prompt notice to Landlord of: (i) any occurrence
in or about the Premises for which Landlord might be liable; (ii) any fire or
other casualty in the Premises; (iii) any damage to or defect in the Premises
including the fixtures, equipment and appurtenances thereof, for the repair of
which Landlord might be responsible; and (iv) damage to or defect in any part or
appurtenances of the Building's sanitary, electrical, heating, ventilating, air-
conditioning, elevator or other systems located in or passing through the
Premises or any part thereof.
SECTION 17. NONLIABILITY AND INDEMNIFICATION:
- ----------- ---------------------------------
17.1 Waiver: Landlord shall not be liable for any loss or damage to
------
person or property sustained by Tenant, or other persons, which may be caused by
theft, or by any act or neglect of any tenant of the Building or by any other
person in or about the Building. Neither Landlord nor any partner, director,
officer, agent, servant or employee of Landlord shall be liable to Tenant for
any loss, injury or damage to Tenant or to any other person, or to its or their
property, irrespective of the cause of such injury, damage or loss, except to
the extent caused by or resulting from the negligence or intentionally wrongful
act or intentionally wrongful omission of Landlord, its agents servants or
employees in the operation or maintenance of the Premises or the Building.
Further, neither Landlord nor any partner, director, officer, agent, servant or
employee of Landlord shall be liable: (i) for any such damage caused by other
tenants or persons in, upon or about the Building, or caused by operations in
construction of any private, public or quasi-public work; or (ii) even if
negligent, for consequential damages, including lost profits, of Tenant or any
person claiming through or under Tenant.
17.2 Indemnification: Tenant shall indemnify and hold harmless Landlord
---------------
and all Superior Lessors and/or Superior Mortgagees and its and their respective
partners, directors, officers, agents and employees from and against any and all
third part claims for bodily injury and/or property damage arising from or in
connection with any accident, injury or damage whatever (even if caused by
Landlord's negligence or breach of this Lease) occurring in, at or upon the
Premises; together with all costs, expenses and liabilities incurred or in
connection with each such claim or action or proceeding brought thereon,
including, without limitation, all attorneys' fees and expenses at trial
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and upon appeal. Landlord shall indemnify and hold harmless Tenant and its
directors, officers, agents and employees from and against any and all third
party claims for bodily injury and/or property damage arising from or in
connection with any accident, injury or damage whatever (even if caused by
Tenant's negligence or breach of this Lease) occurring in, at or upon the common
areas of the Land and the Building; together with all costs, expenses and
liabilities incurred or in connection with each such claim or action or
proceeding brought thereon, including, without limitation, all attorneys' fees
and expenses at trial and upon appeal. The foregoing indemnity obligations of
the parties shall be limited to the amount of liability insurance coverage
required of Tenant under Section 10 of this Lease.
17.3 Duty to Defend: In case any action or proceeding is brought
--------------
against Landlord and/or any Superior Lessor and/or Superior Mortgagee and/or its
or their partners, directors, officers, agents and/or employees and such claim
is a claim from which Tenant is obligated to indemnify Landlord pursuant to
Section 17.2, Tenant, upon notice from Landlord or such Superior Lessor or
Superior Mortgagee, shall resist and defend such action or proceeding (by
counsel reasonably satisfactory to Landlord). The obligation of Tenant under
this Section 17 shall survive termination of this Lease. In case any action or
proceeding is brought against Tenant and/or its directors, officers, agents
and/or employees and such claim is a claim from which Landlord is obligated to
indemnify Tenant pursuant to Section 17.2, Landlord, upon notice from Tenant,
shall resist and defend such action or proceeding (by counsel reasonably
satisfactory to Tenant). The obligation of Landlord under this Section 17 shall
survive termination of this Lease.
SECTION 18. DAMAGE OR DESTRUCTION:
- ----------- ---------------------
18.1 Casualty: If the Premises or the Building are damaged by fire or
--------
other casualty, Landlord shall forthwith repair the same unless this Lease is
terminated as permitted herein. Within twenty (20) days from the date of such
damage, Landlord shall notify Tenant if the Building is damaged in excess of
twenty-five percent (25%) of the Building's precasualty value, as reasonably
determined by Landlord (damage in excess of such amount being referred to as
"Major Damage" and damage equal to or less than such amount being referred to as
"Minor Damage"). If Major Damage occurs, Landlord may elect to terminate the
Lease. If Minor Damage occurs then Landlord shall repair such damage and
rebuild that portion of the Building or the Premises damaged. In the event of
Major Damage, if Landlord gives its written notice to Tenant electing to rebuild
or in the event of Minor Damage, this Lease shall remain in full force and
effect provided the repairs are completed within one hundred twenty (120) days
except the Rent shall be reasonably abated during the period of repair based on
that portion of the Premises not reasonably usable by Tenant. If in the event
of Major Damage, Landlord elects by written notice to Tenant not to rebuild,
then this Lease shall automatically terminate as of the effective date of such
notice, the Rent shall be reduced by a proportionate amount based upon the
extent to which said damage interfered with the business carried on by Tenant in
the Premises, and the Tenant shall pay such reduced Rent up to the date of
termination. Landlord agrees to refund to Tenant any Rent previously paid for
any period of time subsequent to such date of termination. Landlord shall not
be required to repair any damage by fire or other cause to the property of
Tenant and any paneling, decorations, railings, floor coverings, or any
alterations, additions, fixtures or improvements installed on the Premises by or
at the expense of the Tenant.
18.2 Condemnation: If more than twenty-five percent (25%) of the Land
------------
and/or Building shall be taken or appropriated under the power of eminent domain
or conveyed in lieu thereof, Landlord shall have the right to terminate this
Lease. If such taking renders the Premises unsuitable for the conduct of
Tenant's business then Tenant shall have the right to terminate this Lease. If
this Lease is terminated, Landlord shall receive (and Tenant shall assign to
Landlord upon demand from Landlord) any and all income, rent, award or any
interest thereon which may be paid or owed in connection with the exercise of
such power of eminent domain or conveyance in lieu thereof, and Tenant shall
have no claim against the agency exercising such power or receiving such
conveyance, for any part of such sum paid by virtue of such proceedings, whether
to not attributable to the value of the unexpired term of this Lease except for
the unamortized value of Tenant Improvements paid for by Tenant and relocation
benefits, if any. If a part of the Land and/or Building shall be so taken or
appropriated or conveyed and Landlord hereto shall elect not to terminate this
lease, Landlord shall nonetheless receive (and Tenant shall assign to Landlord
upon demand from Landlord) any and all income, rent, award or any interest
thereon paid or owed in connection with such taking, appropriation or
conveyance; and if the Premises have been damaged as a consequence of such
partial taking or appropriation or conveyance, Landlord shall restore the
Premises and this Lease shall remain in full force and effect except that Tenant
shall be entitled to an appropriate reduction in Rent while such restoration is
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being made by Landlord. Such proportionate reduction shall be based upon the
extent to which the restoration being made by Landlord shall interfere with the
business carried on by Tenant in the demised Premises. Landlord will not be
required to repair or restore any injury or damage to the property of Tenant or
make any repairs or restoration to any alterations, additions, fixtures or
improvements installed in the Premises by or at the expense of Tenant.
SECTION 19. SURRENDER AND HOLDING OVER:
- ----------- --------------------------
19.1 General: On the last day of the term of this Lease, or upon
-------
re-entry by Landlord upon the Premises, Tenant shall quit and surrender the
Premises to Landlord "broom-clean" and in good order, condition and repair,
except for ordinary wear and tear in accordance with the provisions of Section
13 of this Lease.
19.2 Surrender: No agreement relating to the surrender of the Premises
---------
by Tenant shall be valid unless in writing and signed by Landlord.
19.3 Holding Over with Consent: Any holding over after the expiration
-------------------------
of the term of this Lease with the written consent of the Landlord shall be a
tenancy from month to month. The terms, covenants and conditions of such
tenancy shall be the same as provided herein, and the monthly Rent shall be the
then fair market rent for the Premises as determined by Landlord, subject to
adjustment as provided in Section 4 herein. Acceptance by Landlord of Rent
after such expiration shall not result in any other tenancy or any renewal of
the term of this Lease, and the provisions of this Section are in addition to
and do not affect Landlord's right of re-entry or other rights provided under
this Lease or by applicable law.
19.4 Holding Over Without Consent: If Tenant shall retain possession of
----------------------------
the Premises or any part thereof without Landlord's consent following the
expiration or sooner termination of this Lease for any reason, then Tenant shall
pay to Landlord for each day of such retention double the amount of the daily
Rent for the last period prior to the date of such expiration or termination,
subject to adjustment as provided in Section 4. Tenant shall also indemnify and
hold Landlord harmless from any loss or liability resulting from delay by Tenant
in surrendering the Premises, including, without limitation, any claims made by
any succeeding tenant founded on such delay. Alternatively, if Landlord gives
notice to Tenant of Landlord's election thereof, such holding over shall
constitute renewal of this Lease for a period from month to month. Acceptance
of Rent by Landlord following expiration or termination shall not constitute a
renewal of this Lease, and nothing contained in this Section shall waive
Landlord's right of re-entry or any other right. Unless Landlord exercises the
option hereby given to it, Tenant shall be only a Tenant at sufferance, whether
or not Landlord accepts any Rent from Tenant while Tenant is holding over
without Landlord's written consent.
SECTION 20. EVENTS OF DEFAULT:
- ----------- -----------------
20.1 Events of Default: The occurrence of any one or more of the
-----------------
following events of default shall constitute a breach of this Lease by Tenant:
20.1.1 If Tenant shall default in the payment of any security
deposit, Base Rent or Additional Rent, and such default shall continue for ten
(10) days after Landlord shall have given Tenant a notice specifying the same;
or
20.1.2 If Tenant shall, whether by action or inaction, be in
default of any of its obligations under this Lease (other than a default in the
payment of Base Rent or Additional Rent) and such default shall continue and not
be remedied within twenty (20) days after Landlord shall have given to Tenant a
notice specifying the same, or, in the case of a default which cannot with due
diligence be cured within a period of twenty (20) days and the continuance of
which for the period required for cure will not subject Landlord or any Superior
Lessor to prosecution for a crime or termination of any Superior Lease or
foreclosure of any Superior Mortgage, if Tenant shall not, (i) within said
twenty (20) day period advise Landlord of Tenant's intention to take all steps
necessary to remedy such default; (ii) duly commence within said twenty (20) day
period, and thereafter diligently prosecute to completion all steps necessary to
remedy the default; and (iii) complete such remedy within a reasonable time
after the date of said notice of Landlord; or
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<PAGE>
20.1.3 If any event shall occur or any contingency shall arise
whereby this Lease or the estate hereby granted or the unexpired balance of the
term hereof would, by operation of law or otherwise, devolve upon or pass to any
person, firm or corporation other than Tenant, except as expressly permitted by
Section 9; or
20.1.4 If tenant shall vacate or abandon the Premises; or
20.1.5 If Tenant or any guarantor of Tenant's obligations shall
make a general assignment for the benefit of creditors, or shall be unable to
pay its debts as they become due, or shall file a petition in bankruptcy, or
shall be adjudicated as bankrupt or insolvent, or shall file a petition seeking
any reorganization, arrangement, composition, readjustment, liquidation,
dissolution or similar relief under any present or future statue, law or
regulation, or shall file an answer admitting or shall fail timely to contest
the material allegations of a petition filed against it in any such proceeding,
or shall seek or consent to or acquiesce in the appointment of any trustee,
receiver or liquidator of Tenant or any material part of its properties; or
20.1.6 If within ninety (90) days after the commencement of any
proceeding against Tenant seeking any reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar relief under any present or
future statue, law or regulation, such proceeding shall not have been dismissed
or if, within ninety (90) days after the appointment without the consent or
acquiescence of Tenant of any trustee, receiver or liquidator of Tenant or of
any material part of its properties, such appointment shall not have been
vacated; or
20.1.7 If this Lease or any estate of Tenant hereunder shall be
levied upon under any attachment or execution and such attachment or execution
is not vacated within ten (10) days.
20.2 Limitation of Tenant Right to Notice: During any twelve (12) month
------------------------------------
period, Tenant shall be entitled to only two (2) notices pursuant to Section
20.1.1 and one (1) notice each for the same type of default pursuant to Section
20.1.2.
SECTION 21. REMEDIES UPON DEFAULT:
- ----------- ---------------------
21.1 Remedies: Upon the occurrence of an event of default constituting
--------
a breach of this Lease under Section 20, Landlord may exercise any one or more
of the remedies set forth in this Section 21 or in Section 24, or any other
remedy available under applicable law or contained in this Lease.
21.1.1 Landlord or Landlord's agents and employees may immediately
or at any time thereafter re-enter the Premises, or any part thereof, either by
summary eviction proceedings or by any suitable action or proceeding at law, or
by force to otherwise, without being liable to indictment, prosecution or
damages therefor, and may repossess the same, and may remove any person
therefrom, to the end that Landlord may have, hold and enjoy the Premises.
21.1.2 Landlord at its option may relet the whole or any part of
the Premises from time to time, either in the name of the Landlord or otherwise,
to such tenants, for such terms ending before, on or after the expiration date
of the Lease Term, at such rentals and upon such other conditions (including
concessions, tenant improvements, and free rent periods) as Landlord may
determine to be appropriate. Landlord at its option may make such physical
changes to the Premises as Landlord considers advisable or necessary in
connection with any such reletting or proposed reletting, without relieving
Tenant of any liability under this Lease or otherwise affecting Tenant's
liability. If there is other unleased space in the Building, Landlord may lease
such other space without prejudice to its remedies against the Tenant.
21.1.3 Whether or not Landlord retakes possession or relets the
Premises, Landlord shall have the right to recover unpaid rent and all damages
caused by the default, including attorneys' fees. Damages shall include, without
limitation: (i) all rentals lost; (ii) all legal expenses and other related
costs incurred by Landlord following Tenant's default; (iii) all costs incurred
by Landlord in restoring the Premises to good order and condition, or in
remodeling, renovating or otherwise preparing the Premises for reletting; and
(iv) all costs incurred by Landlord in reletting the Premises, including,
without limitation, any brokerage commissions and the value of Landlord's time.
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21.1.4 To the extent permitted under Oregon law, Landlord may sue
periodically for damages as they accrue without barring a later action for
further damages. Landlord may in one action recover accrued damages plus damages
attributable to the remaining Lease Term equal to the difference between the
rent reserved in this Lease (including an estimated amount of Additional Rent as
determined by Landlord) for the balance of the Lease Term after the time of
award, and the fair rental value of the Premises for the same period, discounted
to the time of award at the rate of nine percent (9%) per annum. If Landlord has
relet the Premises for the period which otherwise would have constituted the
unexpired portion of the Lease Term or any part, the amount of rent reserved
upon such reletting shall be deemed, prima facie, to be the fair and reasonable
rental value for the part or the whole of the Premises so relet during the term
of the reletting.
21.2 Cumulative Remedies: The remedies provided for in this Lease are
-------------------
cumulative and are not intended to be exclusive of any other remedies to which
Landlord may lawfully be entitled at any time, and Landlord may invoke any
remedy allowed at law or in equity, including an action for specific
performance, as if specific remedies were not provided for herein. In the event
of a breach or threatened breach by Tenant of any of its obligations under this
Lease, Landlord shall also have the right to obtain an injunction and any other
appropriate equitable relief.
21.3 Termination: Even though Tenant has breached this Lease, the Lease
-----------
shall continue in effect for so long as Landlord does not agree in writing to
terminate Tenant's continuing contractual liability, and Landlord may enforce
all its rights and remedies under this Lease, including the right to recover the
rent as it becomes due under this Lease. Acts of maintenance or preservation or
efforts to relet the Premises or the appointment of a receiver upon initiative
of Landlord to protect Landlord's interest under this Lease shall not constitute
a termination of Tenant's right to possession except to the extent required
otherwise under Oregon law or unless written notice of termination is given by
Landlord to Tenant.
21.4 Interest on Damages: In addition to any other remedies Landlord
-------------------
may have under this Lease, and without reducing or adversely affecting any of
Landlord's rights and remedies under this Section 21, if any Base Rent,
Additional Rent or damages payable hereunder by Tenant to Landlord are not paid
within five (5) days after demand therefor, the same shall bear interest at the
annual rate of fifteen percent (15%) or the maximum rate permitted by law,
whichever is less, calculated monthly from the due date thereof until paid, and
the amount of such interest shall be included as Additional Rent hereunder.
SECTION 22. SERVICES IN THE EVENT OF DEFAULT:
- ----------- --------------------------------
In addition to any rights and remedies which Landlord may have
under this Lease, if there shall be a default hereunder by Tenant which shall
not have been remedied within the applicable grace period, Landlord shall not be
obligated to furnish Tenant or the Premises any heat, ventilation or air-
conditioning services outside of business hours on business days, or any extra
or additional cleaning services; and the discontinuance of any one or more such
services shall be without liability by Landlord to Tenant and shall not reduce,
diminish or otherwise affect any of Tenant's covenants and obligations under
this Lease.
SECTION 23. NO WAIVERS OF PERFORMANCE:
- ----------- -------------------------
The failure of either party to insist in any one or more instances
upon the strict performance of any one or more of the obligations of this Lease,
or to exercise any election herein contained, shall not be construed as a waiver
or relinquishment for the future of the performance of such one or more
obligations or any other obligations of this Lease or of the right to exercise
such election, but the same shall continue and remain in full force and effect
with respect to any subsequent breach, act or omission. The receipt by Landlord
of Rent with knowledge of a breach by Tenant of any obligation of this Lease
shall not be deemed a waiver of such breach.
SECTION 24. CURING TENANT'S DEFAULTS:
- ----------- ------------------------
All covenants and agreements to be performed by the 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 except as expressly provided
otherwise herein. If the Tenant shall fail to pay any sum money, other than
Rent, required to be
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paid by it hereunder or shall fail to perform any other act on its part to be
performed hereunder, and such failure shall continue for the periods referred to
in Section 20 hereof after notice thereof by the Landlord, the Landlord may make
any such payment or perform any such act on the Tenant's part to be made or
performed as in this Lease provided but shall not be obligated so to do. Any
such payment or performance shall not be a waiver or release of Tenant's
obligations. All sums so paid by the Landlord and all necessary incidental costs
together with interest thereon at the rate specified in Section 21.4 from the
date of such payment by the Landlord shall be payable as Additional Rent to the
Landlord on demand, and the Tenant covenants to pay any such sums, and the
Landlord shall have, in addition to any other right or remedy of the Landlord,
the same rights and remedies in the event of the nonpayment thereof by the
Tenant as in the case of default by the Tenant in the payment of the Rent.
SECTION 25. BROKER:
- ----------- ------
Tenant covenants, warrants and represents that no broker except as
provided in the Basic Lease Information (the "Broker") was instrumental in
bringing about or consummating this Lease and that Tenant had no conversations
or negotiations with any broker except the Broker concerning the leasing of the
Premises. Tenant agrees to indemnify and hold harmless Landlord against and from
any claims for any brokerage commissions and all costs, expenses and liabilities
in connection therewith, including, without limitation, attorneys' fees and
expenses, arising out of any conversations or negotiations had by Tenant with
any broker other than the Broker. Landlord shall pay any brokerage commissions
due the Broker as per a separate agreement between Landlord and the Broker.
SECTION 26. NOTICES:
- ----------- -------
Any notice, statement, demand, consent, approval or other communication required
or permitted to be given, rendered or made by either party to the other,
pursuant to this Lease or pursuant to any applicable law or requirement of
public authority, shall be in writing (whether or not so stated elsewhere in
this Lease). Notices shall be deemed to have been properly given, rendered or
made: if delivered in persons to the Landlord or Tenant and receipt is
acknowledged; or, if sent postage prepaid by registered or certified mail,
return receipt requested, effective forty-eight (48) hours after posted in a
United States post office station or letter box in the continental United
States, addressed to the other party at the address designated by the party
(except that after the Commencement Date, Tenant's address, unless Tenant shall
give notice to the contrary, shall be the Building). Either party may, by
notice as aforesaid, designate a different address or addresses for notices,
statements, demands, consents, approvals or other communications intended for
it.
SECTION 27. ESTOPPEL CERTIFICATES:
- ----------- ---------------------
Each party agrees, at any time and from time to time, as requested
by the other party with not less than ten (10) days' prior notice, to execute
and deliver to the other a statement certifying that this Lease is unmodified
and in full force and effect (or if there have been modifications, that the same
is in full force and effect as modified and stating the modifications),
certifying the dates to which the Base Rent and Additional Rent have been paid,
stating whether or not, to the best knowledge of the signer, the other party is
in default in performance of any of its obligations under this Lease, and, if
so, specifying each such default of which the signer shall have knowledge, and
stating whether or not, to the best knowledge of the signer, any event has
occurred which with the giving of notice or passage of time, or both, would
constitute such a default, and, if so, specifying each such event, it being
intended that any such statement delivered pursuant hereto shall be deemed a
representation and warranty to be relied upon by the party requesting the
certificate and by others with whom such party may be dealing, regardless of
independent investigation. Tenant also shall include in any such statement such
other information concerning this Lease as Landlord may reasonably request. If
either party fails to respond within fifteen (15) days of receipt by the party
of a written request for such a statement, the party shall be deemed to have
given such statement and shall be deemed to have admitted the accuracy of any
information contained in the request for such statement and that the Lease is
unmodified and in full force and effect, that there are not uncured defaults in
Landlord's performance, and that not more than one (1) month's rent has been
paid in advance.
SECTION 28. MEMORANDUM OF LEASE:
- ----------- -------------------
Tenant shall not record this Lease. Upon ten (10) days prior
written notice from Landlord, Tenant shall execute, acknowledge and deliver to
Landlord a memorandum of lease in respect of this Lease sufficient for
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recording. Such memorandum shall not be deemed to change or otherwise affect any
of the obligations or provisions of this Lease.
SECTION 29. RELOCATION OF PREMISES:
- ----------- ----------------------
In the event Landlord requires the Premises for use in conjunction
with another suite or other reasons connected with the Building planning
program, Landlord shall have the right, after first giving sixty (60) days
written notice to Tenant to move the Tenant to another space of similar size
within the building subject to Tenant's approval of such space which approval
shall not be unreasonably withheld. Such move shall be at the sole cost and
expense of Landlord, including but not limited to all costs and expenses related
to improving the space with leasehold improvements equal to those then in the
Premises, moving the furniture, office equipment and other contents of the
Premises to the new space, reinstating telecommunications equipment, printing of
new stationery, business cards and other printed matter bearing the address of
the Tenant and such other expenses as Tenant may incur, it being the intention
of the parties that Tenant incur no cost or expense as a result of the move.
After such move, all terms and conditions of Lease shall remain in full force
and effect, save and excepting that the Premises shall be the new space.
SECTION 30. ADJUSTMENT OF COMMENCEMENT AND EXPIRATION DATES:
- ----------- -----------------------------------------------
30.1 Commencement Date: The term of this Lease shall commence on a date
-----------------
(herein the "Commencement Date") which shall be the date specified in the Basic
Lease Information unless:
30.1.1 Landlord notifies Tenant of an earlier or later
Commencement Date at least thirty (30) days in advance; or
30.1.2 Tenant actually occupies the Premises earlier than the date
specified in the Basic Lease Information or any notice given pursuant to Section
30.1.1, in which event the occupancy date shall be the Commencement Date.
30.2 Tenant Obligations: If the Premises are not ready for Tenant's
------------------
occupancy by the Commencement Date (as specified in the Basic Lease Information)
due to the fault of the Landlord or due to the occurrence of an event of force
of majeure, the Base Rent and Additional Rent payable hereunder shall be abated
for the time period of such delay. However, regardless of when the Commencement
Date occurs, and subject only to the rent abatement provisions of section 18.1,
rent shall commence no later than one hundred eighty (180) days after the Date
of Lease Document Issuance specified in the Basic Lease Information and shall
continue except to the extent of any period of rent-free occupancy specified in
the Basic Lease Information. If the Tenant Improvements are not completed on the
Commencement Date due to the (i) the failure of Tenant to fulfill any obligation
pursuant to the terms of this Lease or any exhibit hereto, including without
limitation Tenant's failure to comply with the Construction Information
Submittal and Construction Approval Dates specified in the Basic Lease
Information; or (ii) any changes in the Tenant Improvements requested by Tenant,
then Tenant shall not be entitled to any abatement of rent due to such delay.
30.3 Tenant Termination Rights: In the event the Premises are not ready
-------------------------
for Tenant's occupancy within sixty (60) days of the Commencement Date specified
in the Basic Lease Information, because of the holding over or retention of
possession by any tenant, subtenant or occupant, or because of the fact that a
temporary or permanent certificate of occupancy has not been procured, or
because the Premises are not ready for occupancy for any other reason, Tenant
may terminate this Lease by written notice if Tenant is not responsible for the
delay; and provided, however, that such sixty (60) day period may at Landlord's
sole option be extended by any period, not to exceed ninety (90) days from the
Commencement Date specified in the Basic Lease Information for delays due to an
occurrence of any of the events of force of majeure described in Section 31.5,
casualties, acts of God, strikes, shortages of labor or materials or other
causes beyond the reasonable control of Landlord. If the Premises are not ready
for Tenant's occupancy within such ninety (90) day period, this Lease shall be
deemed null and void and all rights and obligations of the parties shall
terminate, and Landlord shall not be subject to any liability therefor.
Termination under this Section 30.3 shall be Tenant's sole remedy and Tenant
shall have no other rights or claims hereunder at law or in equity except that
Landlord shall return to Tenant promptly after any termination any rent
deposited previously with Landlord.
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<PAGE>
30.4 Expiration Date: In the event the Commencement Date is adjusted to
---------------
a date other than as specified in the Basic Lease Information, then Landlord may
elect by written notice to make a comparable adjustment to the Expiration Date
provided that such adjustment shall include additional days to the extent
necessary for the Expiration Date to fall on the last day of a calendar month.
If such notice is not given, then the term of this Lease shall terminate, unless
sooner terminated by Landlord, on the Expiration Date set forth in the Basic
Lease Information.
30.5 Early Occupancy: If Landlord has given Tenant permission to enter
---------------
into the possession of the Premises prior to the Commencement Date, such
possession or occupancy shall be deemed to be upon all the terms, covenants,
conditions and provisions of this Lease, including, without limitation, the
payment of Base Rent and the Additional Rent.
SECTION 31. MISCELLANEOUS:
- ----------- -------------
31.1 Merger: All understandings and agreements heretofore had between
------
the parties are merged in this Lease and any other written agreement(s) made
concurrently herewith, which alone fully and completely express the agreement of
the parties and which are entered into after full investigation, neither party
relying upon any statement or representation not embodied in this Lease or any
other written agreement(s) made concurrently herewith.
31.2 Modifications: No agreement shall be effective to change, modify,
-------------
waive, release, discharge, terminate or effect an abandonment of this Lease, in
whole or in part, unless such agreement is in writing, refers expressly to this
Lease and is signed by the party against whom enforcement is sought. If Tenant
shall at any time request Landlord to sublet the Premises for Tenant's account,
Landlord or its agent is authorized to receive the keys for such purposes
without releasing Tenant from any of its obligations under this Lease, and
Tenant hereby releases Landlord of any liability for loss or damage to any of
the Tenant's Property in connection with such subletting.
31.3 Successors and Assigns: Except as otherwise expressly provided in
----------------------
this Lease, the obligations of this Lease shall bind and benefit the successors
and assigns of the parties hereto with the same effect as if mentioned in each
instance where a party is named or referred to; provided, however, that (i) no
violation of the provisions of Section 9 shall operate to vest any rights in any
successor or assignee of Tenant; and (ii) the provisions of this Section shall
not be construed as modifying the provisions of Sections 9 or 20.
31.4 Nonrecourse Lease: Tenant shall look only to Landlord's estate and
-----------------
property in the Land and the Building (or the proceeds thereof) for the
satisfaction of Tenant's remedies for the collection of a judgment (or other
judicial process) requiring the payment of money by Landlord in the event of any
default by Landlord hereunder, and no other property or assets of Landlord or
its partners or principals, disclosed or undisclosed, shall be subject to levy,
execution or other enforcement procedure for the satisfaction of Tenant's
remedies under or with respect to this Lease, the relationship of Landlord and
Tenant hereunder or Tenant's use or occupancy of the Premises.
31.5 Force Majeure: The obligations of Tenant hereunder shall be in no
-------------
wise affected, impaired or excused, nor shall Landlord have any liability
whatsoever to Tenant, because:
31.5.1 Landlord is unable to fulfill, or is delayed in fulfilling,
any of its obligations under this Lease by reason of strike, other labor
trouble, governmental pre-emption of priorities or other controls in connection
with a national or other public emergency or shortages of fuel, supplies or
labor resulting therefrom, or any other cause, whether similar or dissimilar,
beyond Landlord's reasonable control; or
31.5.2 Of any failure or defect in the supply, quantity or
character of electricity, water or other utilities furnished to the Premises, by
reason of any requirement, act or omission of the public utility or others
serving the Building with electric energy, steam, oil, gas, or water, or for any
other reason whether similar or dissimilar, beyond Landlord's reasonable
control.
31.6 Definitions: For the purpose of this Lease, the following terms
-----------
have the meanings indicated:
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<PAGE>
31.6.1 The term "mortgage" shall include a mortgage and/or deed of
trust, and the term "holder of a mortgage" or "mortgagee" or words of similar
import shall include a mortgagee of a mortgage or a beneficiary of a deed of
trust.
31.6.2 The term "laws and requirements and of any public
authorities" and words of similar import shall mean laws and ordinances of any
or all of the federal, state, city, town, county, borough and village
governments and rules, regulations, orders and directives of any and all
departments, subdivisions, bureaus, agencies or offices thereof, and of any
other governmental, public or quasi-public authorities having jurisdiction over
the Building and/or the Premises, and the direction of any public officer
pursuant to law, whether now or hereafter in force.
31.6.3 The term "requirements of insurance bodies" and words of
similar import shall mean rules, regulations, orders and other requirements of
the Oregon Surveying and Rating Bureau and/or any other similar body performing
the same or similar functions and having jurisdiction or cognizance over the
Building and/or the Premises, whether now or hereafter in force.
31.6.4 The term "Tenant" shall mean the Tenant herein named or any
assignee or other successor in interest (immediate or remote) of the Tenant
herein named, which at the time in question is the owner of the Tenant's estate
and interest granted by this Lease; but the foregoing provisions of this
subsection shall not be construed to permit any assignment of this Lease or to
relieve the Tenant herein named or any assignee or other successor in interest
(whether immediate or remote) of the Tenant herein named from the full and
prompt payment, performance and observance of the covenants, obligations and
conditions to be paid, performed and observed by Tenant under this Lease.
31.6.5 The term "Land" shall mean the real property lot or parcel
upon which the Building is located including without limitation parking areas,
landscaped areas, walkways, driveways, sidewalks and curbs.
31.6.6 The term "Landlord" shall mean only the owner at the time
in question of the Building or of a lease of the Building so that in the event
of any transfer or transfers of title to the Building or of Landlord's interest
in a lease of the Building, the transferor shall be and hereby is relieved and
freed of all obligations of Landlord under this Lease accruing after such
transfer, and it shall be deemed without further agreement that such transferee
has assumed and agreed to perform and observe all obligations of Landlord herein
during the period it is the holder of Landlord's interest under this Lease.
31.6.7 The term "herein," "hereof" and "hereunder," and words of
similar import, shall be construed to refer to this Lease as a whole, and not to
any particular Section, unless expressly so stated.
31.6.8 The term "and/or" when applied to two or more matters or
things shall be construed to apply to any one or more or all thereof as the
circumstances warrant at the time in question.
31.6.9 The term "person" shall mean natural person or persons, a
partnership, a corporation, and any other form of business or legal association
or entity.
31.7 Effect of Expiration: Upon the expiration or other termination of
--------------------
this Lease, neither party shall have any further obligation or liability to the
other except as otherwise expressly provided in this Lease and except for such
obligations as by their nature or under the circumstances can only be, or by the
provisions of this Lease, may be, performed after such expiration or other
termination; and, in any even, unless otherwise expressly provided in this
Lease, any liability for a payment (including, without limitation, Additional
Rent, herein) which shall have accrued to or with respect to any period ending
at the time of expiration or other termination of this Lease shall survive the
expiration or other termination of this Lease.
31.8 Modifications for Superior Mortgagee: If any Superior Mortgagee
------------------------------------
shall require any modification(s) of this Lease, Tenant upon ten (10) days prior
written notice of Landlord's request, shall execute and deliver to Landlord such
instruments effecting such modification(s) as Landlord shall require, provided
that such modification(s) do not adversely affect in any material respect any of
Tenant's rights under this Lease.
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31.9 Excavation: If an excavation shall be made upon land adjacent to
----------
or under the Building, or shall be authorized to be made, Tenant shall afford to
the person causing or authorized to cause such excavation, license to enter the
Premises for the purpose of performing such work as said person shall deem
necessary or desirable to preserve and protect the Building from injury or
damage and to support the same by proper foundations, and without reducing or
otherwise affecting Tenant's obligations under this Lease.
31.10 Union Contracts: Tenant agrees that the exercise of its rights
---------------
pursuant to the provision of Section 12 or of any other provisions of this Lease
or the Exhibits hereto shall not be done in a manner which would violate
Landlord's union contracts affecting the Land and/or Building, nor create any
lawful work stoppage, picketing, labor disruption or any interference with the
business of Landlord or any tenant or occupant of the Building.
31.11 Prorations: Any apportionments or prorations of Base Rent or
----------
Additional Rent to be made under this Lease shall be computed on the basis of a
three hundred sixty (360) day year, with twelve (12) months of thirty (30) days
each.
31.12 Governing Law: Regardless of the place of execution or performance,
-------------
this Lease shall be governed by and construed in accordance with the laws of the
State of Oregon. If any provision of this Lease or the application thereof to
any person or circumstances shall, for any reason and to any extent, be invalid
or unenforceable, the remainder of this Lease and the application of that
provision to other persons or circumstances shall not be affected but rather
shall be enforced to the extent permitted by law. The table of contents,
captions, heading and titles in this Lease are solely for convenience or
reference and shall not affect its interpretation. Each covenant, agreement,
obligation or other provision of this Lease on Tenant's part to be performed,
shall be deemed and construed as a separate and independent covenant of Tenant,
not dependent on any other provision of this Lease. All terms and words used in
this Lease, regardless of the number or gender in which they are used, shall be
deemed to include any other number and any other gender as the context may
require. Time is of the essence of this Lease and all of its provisions.
31.13 Light Air and View: Any diminution or shutting off of light, air
------------------
or view by any structure which may be erected on lands adjacent to or near the
Building shall in no way affect this Lease or impose any liability on Landlord.
31.14 Tenant Representations: If Tenant is a corporation, each person
----------------------
executing this Lease on behalf of Tenant does hereby covenant and warrant that:
31.14.1 Tenant is duly incorporated and validly existing under the
laws of its state of incorporation, and, if such corporation is existing under
the laws of a jurisdiction other than Oregon, qualified to transact business in
Oregon;
31.14.2 Tenant has full corporate right and authority to enter
into this Lease and to perform all Tenant's obligations hereunder; and
31.14.3 Each person (and both of the persons if more than one
signs) signing this Lease on behalf of the corporation is duly and validly
authorized to do so.
31.15 Defined Terms: Words capitalized other than the first word of a
-------------
sentence are defined terms and have the meaning, throughout this Lease, given to
them when they are first used with an initial capital or when used in quotation
marks.
31.16 Counterparts: This Lease may be executed in one or more
------------
counterparts by separate signature, each of which shall be deemed an original,
but all of which together shall constitute one and the same instrument, binding
on all parties hereto, even though all parties are not signatories to the
original or the same counterpart. Any counterpart of this Lease that has
attached to it separate signature pages, which together contain the signatures
of all parties, shall for all purposes be deemed a fully executed instrument,
and in making proof of this Lease, it shall not be necessary to produce or
account for more than one such counterpart.
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31.17 Costs and Attorney Fees:
-----------------------
31.17.1 No Suit or Action Filed. If this Lease is placed in the
-----------------------
hands of an attorney due to a default in the payment or performance of any of
its terms, the defaulting party shall pay, immediately upon demand, the other
party's reasonable attorney fees, collection costs even though no suit or action
is filed thereon, and any other fees or expenses incurred by the nondefaulting
party.
31.17.2 Arbitration or Mediation: Trial and Appeal. If any
-------------------------------------------
arbitration, mediation, or other proceeding is brought in lieu of litigation, or
if legal action is instituted to enforce or interpret any of the terms of this
Lease or if legal action is instituted in a Bankruptcy Court for a United States
District Court to enforce or interpret any of the terms of this Lease, to seek
relief from an automatic stay, to obtain adequate protection, or to otherwise
assert the interest of Landlord in a bankruptcy proceeding, the party not
prevailing shall pay the prevailing party's costs and disbursements, the fees
and expenses of expert witnesses in determining reasonable attorney fees
pursuant to ORCP 68, and such sums as the court may determine to be reasonable
for the prevailing party's attorney fees connected with the trial and any appeal
and by petition for review thereof.
31.17.3 Definitions. For purposes of this Contract, the term
-----------
attorney fees includes all charges of the prevailing party's attorneys and their
staff (including without limitation legal assistants, paralegals, word
processing, and other support personnel) and any postpetition fees in a
bankruptcy court. For purposes of this Contract, the term fees and expenses
includes but is not limited to long-distance charges; expenses of facsimile
transmission; expenses for postage (including costs of registered or certified
mail and return receipts), express mail, or parcel deliver; mileage and all
deposition charges, including but not limited to court reporters' charges,
appearance fees, and all costs of transcription; costs incurred in searching
records.
IN WITNESS WHEREOF, Landlord and Tenant have duly executed this Lease Agreement
as of the date and year first above written.
LANDLORD TENANT
- -------- ------
One Thousand Broadway Building L.P., Portland Software, Inc.
an Oregon Limited Partnership
BY: 1000 Inc.
General Partner
By: /s/ Dirk Koopman By: /s/ Charles Jennings
----------------------------------- -------------------------------
Charles Jennings
Title: Vice President Title: Chairman, President & CEO
Date: 7/19/96 Date: 7/17/96
--------------------------------- -----------------------------
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EXHIBIT A
ONE THOUSAND BROADWAY BUILDING LIMITED PARTNERSHIP
Legal Description for Land
--------------------------
Lots 5, 6, 7 and 8, Block 182,
CITY OF PORTLAND, in the City of Portland,
County of Multnomah, State of Oregon
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[DIAGRAM: EXHIBIT B--EIGHTEENTH FLOOR]
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<PAGE>
EXHIBIT C
ONE THOUSAND BROADWAY BUILDING LIMITED PARTNERSHIP
Work Agreement
--------------
Section 1. TENANT IMPROVEMENTS PROVIDED BY LANDLORD. Landlord agrees to
- ----------------------------------------------------
provide the following Tenant Improvements in the Premises:
1.1 Space "A" previously occupied by Hillman Properties Northwest:
Repair existing walls; touchup painted surfaces; install five (5) relights in
interior offices; install one stand-up height laminate counter top w/ rounded
corners; replace light fixture and repair ceiling tile in conference room; Four
(4) duplex outlets; replace missing electrical face plates; and shampoo existing
carpets.
1.2 Space "B" previously occupied by Rolf Communications: Replace carpet
/ base molding and paint to match space (A). Remove demising walls and install
"employee's only" door as indicated on floorplan.
1.3 Space "C" presently vacant: Landlord to provide Tenant an allowance
of $23.00 per rentable square foot (excluding space planning services) to
complete improvements per mutually agreed upon floorplan. Construction on space
(C) will be completed in time to allow Tenant to take possession of the premises
no later than December 1, 1996.
SECTION 2. DESIGN OF TENANT IMPROVEMENTS.
- -----------------------------------------
2.1 CDP Preparation: Landlord's office planner shall prepare a
---------------
construction document package (hereafter the "CDP") consisting of a floor plan,
a reflected ceiling/lighting plan and Tenant's supplement specification.
2.1.1 The CDP shall be based upon the schematic space plan
attached as Exhibit D and the construction information provided by the Tenant.
2.1.2 Tenant shall provide Landlord's office planner with all of
the construction information requested by Landlord's office planner by no later
than the construction information submittal date specified in the Basic Lease.
2.1.3 Tenant shall be responsible for all delays in occupancy and
additional costs, including without limitation design fees, resulting from its
failure to submit such information on time and any Tenant requested changes in
the Tenant Improvements specified in this Lease. (herein "Change Items")
2.2 CDP Approval: Tenant shall approve the CDP by the construction
------------
document approval date specified in the Basic Lease Information subject to any
corrections requested to make the CDP consistent with the construction
information submitted to Landlord's office planner, and subject to any requested
deletions. The CDP shall include a statement (the "Statement") of the costs, if
any, for which Tenant will be responsible under the terms of this Work
Agreement. The CDP and statement included therein must be approved by the
Tenant in writing before the Landlord will proceed to obtain building permits
and commence construction.
2.3 Tenant Responsibilities: Tenant shall be responsible for delays and
-----------------------
additional costs, including without limitation design fees, caused by: (i) any
changes made by Tenant to the CDP other than corrections and deletions of the
type described in Section 2.2; (ii) Tenant's failure to approve the CDP and the
Statement by the construction document approval date; or (iii) by delays in
delivery of non-building-standard materials requiring long lead times. Tenant
shall pay, prior to taking occupancy of the Premises, all of the Landlord's
design fees arising out of the inclusion of non-building-standard materials in
the premises.
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<PAGE>
SECTION 3. CONSTRUCTION
- ------------------------
3.1 Bidding of the Work: As soon as reasonably possible after the
-------------------
completion of Tenant's CDP and approval thereof by Tenant, Landlord shall
solicit bids from independent contractors for the construction of the Tenant
Improvement work. Tenant shall have the right to observe the opening of the bids
for the work.
3.2 Authorization to Proceed: Within five (5) days of the opening of
------------------------
the bids, Tenant shall give Landlord written authorization to complete the
Premises in accordance with the CDP. Tenant may in such authorization delete any
or all such items of extra cost. In the absence of such written authorization,
Landlord shall not be obligated to commence work on the Premises. Tenant shall
be responsible for any costs due to any resulting delay in completion of the
Premises. Landlord shall complete the construction of the Tenant Improvements as
soon as reasonably possible after the approval to commence construction has been
given by the Tenant.
3.3 Completion and Payment: Landlord's contractor shall complete the
----------------------
Tenant Improvements in accordance with Tenant's approved CDP. Tenant shall
promptly pay for Improvements provided at Tenant's expense prior to taking
occupancy of the Premises.
SECTION 4. FIELD CHANGE ORDERS
- -------------------------------
If Tenant shall request any change in the Tenant approved CDP, Tenant shall
request such change in writing to Landlord, and such request shall be
accompanied by all information necessary to prepare plans and specifications for
such change. After receiving this information, Landlord shall cause its office
planner to prepare such plans and specifications and a proposed field change
order ("FCO") as soon as reasonably thereafter. Landlord shall not be obligated
to proceed with any work which would be affected by a proposed FCO until it is
effective or the Tenant withdraws the FCO request. Tenant shall be responsible
for any and all delays in construction and occupancy caused by Tenant's FCO
requests. The proposed FCO shall set forth the estimated cost of the changes
(including design fees). The proposed FCO shall be effective only when signed
by both he Landlord and the Tenant. Even if Tenant fails to approve the
proposed FCO, Tenant shall be responsible for the cost of preparing any plans
and specifications for the proposed FCO. The actual cost, including design and
administration fees, of any FCO shall be paid by Tenant on or before the date
Tenant first occupies the Premises unless stated otherwise in the FCO.
SECTION 5. IMPROVEMENTS CONSTRUCTED BY TENANT
- ----------------------------------------------
If any work is to be performed in connection with Tenant Improvements on the
Premises by Tenant or Tenant's contractor:
5.1 Landlord's Approval: Such work shall not proceed until Landlord's
-------------------
written approval of each of the following items: (a) Tenant's contractor; (b)
public liability and property damage insurance carried by Tenant or its
contractor; and (c) schematic plans and specifications for such work. The
detailed construction plans and specifications shall be prepared by Landlord's
office planner at Tenant's expense based upon the schematic plans and
specifications. All such work shall be done in strict conformity with such final
plans and specifications subject to field change orders prepared and approved in
the manner specified in Section 4 above.
5.2 Permits: All work shall be done in conformity with a valid building
-------
permit (obtained at Tenant's expense) when required, a copy of which shall be
furnished to Landlord before such work is commenced, and in any case, all such
work shall be performed in accordance with all applicable governmental
regulations at Tenant's sole expense. Notwithstanding any failure by Landlord to
object to any such work, Landlord shall have no responsibility for Tenant's
failure to meet all applicable regulations.
5.3 Coordination: All work by Tenant or Tenant's contractor shall be
------------
scheduled through Landlord. Tenant or Tenant's contractor shall arrange for
necessary utility, hoisting and elevator service with landlord's contractor and
shall pay such reasonable charges for such services as may be charged by
Landlord's contractor.
5.4 Manner of Entry: Tenant's entry to the Premises for any purpose,
---------------
including without limitation, inspection or performance of Tenant construction
by Tenant's agents, prior to the Lease Commencement Date as specified in the
Basic Lease Information shall be at such times as are approved by Landlord and
subject to all the
-26-
<PAGE>
terms and conditions of the lease except the payment of Rent. Tenant's entry
shall mean entry by Tenant, its officers, contractors, licensees, agents,
servants, employees, guests, invitees, or visitors.
5.5 Faulty Work: Tenant shall promptly reimburse Landlord upon demand
-----------
for any extra expense incurred by the Landlord by reason of faulty work done by
Tenant or its contractors or by any reason of any delays caused by such work, or
by reason of inadequate cleanup.
-27-
<PAGE>
[DIAGRAM: EXHIBIT D---EIGHTEENTH FLOOR]
-28-
<PAGE>
EXHIBIT E
---------
ONE THOUSAND BROADWAY BUILDING LIMITED PARTNERSHIP
--------------------------------------------------
Rules and Regulations
---------------------
1. The rights of each tenant in the entrances, corridors and elevators
servicing the Building are limited to ingress and egress from such tenant's
Premises for tenant and its employees, licensees and invitees, and no tenant
shall use, or permit the use of, the entrances, corridors or elevators for any
other purpose. No tenant shall invite to the tenant's Premises, or permit the
visit of, persons in such numbers or under such conditions as to unreasonably
interfere with the use and enjoyment of any of the plazas, entrances, corridors,
elevators and other facilities of the Building by any other tenants. No tenant
shall encumber or obstruct, or permit the encumbrance of any of the sidewalks,
plazas, entrances, corridors, elevators, fire exits or stairways of the
Building. Landlord reserves the right to control and operate the public
portions of the Building and the public facilities as well as facilities
furnished for the common use of the tenants, in such manner as it in its
reasonable judgment deems best for the benefit of the tenants generally.
2. Admission to the Building in certain areas and during certain hours
may be restricted by Landlord by means of access devices such as keys, entry
cards, combination codes and the like. Landlord may require all persons admitted
to or leaving the Building outside of business hours on business days to provide
appropriate identification, use a designated access device and to comply with
all other building security requirements. Tenant shall be responsible for all
persons to whom it issues an access device or discloses an access code and shall
be liable to Landlord for all acts or omissions of such persons. Any person
whose presence in the Building at any time shall, in the reasonable judgment of
Landlord, be prejudicial to the safety, character or reputation of the Building
or of its tenants may be denied access to the Building by closing the doors or
otherwise for the safety of the tenants and protection of property in the
Building. Each tenant shall pay Landlord a refundable deposit in an amount
reasonably determined by Landlord from time to time for each access device
issued to a tenant.
3. Smoking is prohibited at all times in all areas of the Building,
including, but not limited to, restrooms, corridors, stairwells, lobbies and
elevators.
4. No tenant shall obtain or accept for use in its Premises ice, food,
beverages, cleaning or other similar services from any persons reasonably
prohibited in writing from furnishing such services. Such services shall be
furnished only at such hours, and under such reasonable regulations, as may be
fixed by Landlord from time to time.
5. The cost of repairing any damage to the public portions of the
Building, the common areas or the public facilities or to any facilities used in
common with other tenants, caused by a tenant or its employees, agents,
contractors, licensees or invitees, shall be paid by such tenant.
6. No awnings or other projections shall be attached to the outside walls
of the Building. No curtains, blinds, shades or screens, if any, which are
different from the standards adopted by Landlord for the Building shall be
attached to or hung in or used in connection with any exterior window or door of
the Premises of any tenant without the prior written consent of Landlord. All
tenants with Premises visible from one of the lobbies, or any other public
portion of the Building, shall furnish and maintain the Premises in a first-
class manner, utilizing furnishings and other decorations commensurate in
quality and style with the furnishings and decor in the public portions of the
Building.
7. No lettering, sign, advertisement, notice, or object shall be
displayed in or on the exterior windows or doors, or on the outside of any
tenant's Premises, or at any point inside any tenant's Premises where the same
might be visible outside of such Premises, without the prior written consent of
Landlord. In the event of the violation of the foregoing by any tenant, Landlord
may remove the same without any liability, and may charge the expense incurred
in such removal to the tenant violating this rule. Interior signs, elevator cab
designations and lettering on doors shall, if and when approved by Landlord, be
inscribed, painted or affixed for each tenant by Landlord at the expense of such
tenant, and shall be of a size, color and style acceptable to Landlord.
-29-
<PAGE>
8. The windows that reflect or admit light and air into the halls,
passageways or other public places in the Building shall not be covered or
obstructed by any tenant, nor shall any bottles, parcels or other articles be
placed on the windowsills.
9. No showcases or other articles shall be put in front of or affixed to
any part of the exterior of the Building, nor placed in the halls, corridors or
vestibules.
10. No bicycles, vehicles, animals, fish or birds of any kind shall be
brought into or kept in or about the Premises of any tenant or the Building
except in areas designated by Landlord.
11. No noise, including, but not limited to, music or the playing of
musical instruments, recordings, radio or televisions, which, in the judgment
Landlord, might disturb other tenants in the Building, shall be made or
permitted by any tenant. Nothing shall be done or permitted in the Premises of
any tenant which would impair or interfere with the use or enjoyment by any
other tenant of any other space in the Building.
12. No tenant, nor any of tenant's contractors, employees, agents,
visitors, licensees, shall at any time bring into or keep upon the Premises or
the Building any inflammable, combustible, explosive, or otherwise dangerous
fluid, chemical or substance.
13. Additional locks or bolts of any kind which shall not be operable by
the Grand Master Key for the Building shall not be placed upon any of the doors
or windows by any tenant, nor shall any changes be made in locks or mechanisms
thereof which shall make such locks inoperable by said Grand Master Key.
Additional keys for a tenant's Premises and rest rooms shall be procured only
from the Landlord who may make a reasonable charge therefor. Each tenant shall,
upon the termination of its tenancy, turn over to Landlord all keys of stores,
offices, and toilet rooms, either furnished to, or otherwise procured by, such
tenant, and in the event of the loss of any keys furnished by Landlord, such
tenant shall pay to Landlord the cost thereof.
14. All removals, or the carrying in or out of any safes, freight,
furniture, packages, boxes, crates or any other object or matter of any
description must take place during such hours and in such elevators, and in such
manner as Landlord or its agent may determine from time to time. The persons
employed to move safes and other heavy objects shall be reasonably acceptable to
Landlord and, if so required by law, shall hold a Master Rigger's or comparable
license. Arrangements will be made by Landlord with any tenant for moving large
quantities of furniture and equipment into or out of the Building. All labor and
engineering costs incurred by Landlord in connection with any moving specified
in this rule including a reasonable charge for overhead and profit, shall be
paid by Tenant to Landlord, on demand.
15. Landlord reserves the right to inspect all objects and matter to be
brought into the Building and to exclude from the building all objects and
matter which violate any of these Rules and Regulations or the Lease of which
this Exhibit is a part. Landlord may require any person leaving the Building
with any package or other object or matter to submit a pass listing such package
or object or matter from the tenant from whose Premises the package or object or
matter is being removed, but the establishment and enlargement of such
requirement shall not impose any responsibility on Landlord for the protection
of any tenant against the removal of property from the Premises of such tenant.
Landlord shall in no way be liable to any tenant for damages or loss arising
form the admission, exclusion or ejection of any person to or from the Premises
or Building under the provisions of this Rule or of Rule 2 hereof.
16. No tenant shall occupy or permit any portion of its Premises to be
occupied as an office for secretarial or word processing services without the
prior written consent of Landlord. No tenant shall use its Premises or any part
thereof to be used, for manufacturing or sale at retail or auction of
merchandise, goods or property of any kind or for the possession, storage,
manufacture, or sale of liquor, narcotics, dope, tobacco in any form, or as a
barber, beauty or manicure shop, or as a school.
17. Landlord shall have the right to prohibit any advertising or
identifying sign by any tenant which , in Landlord's reasonable judgment, tends
to impair the reputation of the Building or its desirability as a building for
-30-
<PAGE>
others, and upon written notice from Landlord, such tenant shall refrain from
and discontinue such advertising or identifying sign.
18. Landlord shall have the right to prescribe the weight and position of
safes and other objects or excessive weight, and no safe or other object whose
weight exceeds the lawful load for the area upon which it would stand shall be
brought into or kept upon any tenant's Premises. If, in the judgment of the
Landlord, it is necessary to distribute the concentrated weight of any heavy
object, the work involved in such distribution shall be done at the expense of
the tenant and in such manner as Landlord shall determine.
19. No machinery or mechanical equipment other than ordinary portable
business machines may be installed or operated in any tenant's Premises without
Landlord's prior written consent which consent shall not be unreasonably
withheld or delayed, and in no case (even where the same are of a type so
excepted or as so consented to by Landlord) shall any machines or mechanical
equipment be so placed or operated as to disturb other tenants, but machines and
mechanical equipment which may be permitted to be installed and used in tenant's
Premises shall be so equipped, installed and maintained by such tenant as to
prevent any disturbing noise, vibrations or electrical or other interference
from being transmitted from such Premises to any other area of the Building.
20. Landlord, its contractors, and their respective employees shall have
the right to use, without charge therefor, all light, power, and water in the
Premises of any tenant while cleaning or making repairs or alterations in the
Premises of such tenant.
21. No Premises of any tenant shall be used for lodging or sleeping or for
any immoral or illegal purpose.
22. The requirement of tenants will be attended to only upon application
at the office of the Building. Employees of Landlord shall not perform any work
or do anything outside of their regular duties, unless under special
instructions from Landlord.
23. Canvassing, soliciting and peddling in the Building are prohibited and
each tenant shall cooperate to prevent the same.
24. No tenant shall cause or permit any unusual or objectionable odors to
emanate from its Premises which would annoy other tenants or create a public or
private nuisance. No cooking shall be done in the Premises of any tenant except
as is expressly permitted in such tenant's Lease.
25. Nothing shall be done or permitted in any tenant's Premises, and
nothing shall be brought into or kept in any tenant's Premises, which would
impair or interfere with any of the Building's services or the proper and
economic heating, cleaning or other servicing of the Building or the Premises,
or the use or enjoyment by any other tenant of any other Premises, nor shall
there be installed by any tenant any ventilating, air-conditioning, electrical
or other equipment of any kind which, in the reasonable judgment of Landlord,
might cause any such impairment or interference.
26. No acids, vapors or other materials shall be discharged or permitted
to be discharged into the waste lines, vents or flues of the Building which may
damage them. The water and wash closets and other plumbing fixtures in or
serving any tenant's Premises shall not be used for any purpose other than the
purposes for which they were designed or constructed, and no sweepings, rubbish,
rags, acids or other foreign substances shall be deposited therein. All damages
resulting from any misuse of the fixtures shall be borne by the tenants who, or
whose servants, employees, agents, visitors, or licensees shall have caused the
same. Any cuspidors or containers or receptacles used as such in the Premises of
any tenant or for garbage or similar refuse, shall be emptied, cared for and
cleaned by and at the expense of such tenant.
27. All entrance doors in each tenant's Premises shall be left locked all
windows shall be left closed by the tenant when the tenant's Premises are not in
use. Entrance doors shall not be propped open at any time. Each tenant, before
closing and leaving its Premises at any time, shall turn out all lights.
28. Hand trucks not equipped with rubber tires and side guards shall not
be used within the Building.
-31-
<PAGE>
29. Each Tenant shall lower and close the coverings for all windows in
each Tenant's Premises above the ground floor as reasonably required because of
the position of the sun, during the operation of the Building air-conditioning
system to cool or ventilate the tenant's Premises.
30. Landlord reserves the right to rescind, alter or waive any rule or
regulation at any time prescribed for the Building when, in its reasonable
judgment, it deems it necessary, desirable or proper for its best interest and
for the best interests of the tenants generally, and no alteration or waiver of
any rule or regulation in favor of one tenant shall operate as an alteration or
waiver in favor of any other tenant. Landlord shall not be responsible to any
tenant for the nonobservance or violation by any other tenant of any of the
rules and regulations at any time prescribed for the Building.
-32-
<PAGE>
1000 BROADWAY
OPERATING EXPENSES
(Based on 95% Office Occupancy)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
1991 1992 1993 1994 1995 1996
Base Yr. Base Yr. Base Yr. Base Yr. Base Yr. Estimate
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Management 177,186 171,615 175,018 176,802 177,129 177,709
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
Taxes 635,036 574,946 511,942 477,642 448,417 422,507
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
Insurance 52,915 56,114 51,250 58,653 57,072 59,840
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
Utilities 320,871 339,655 360,215 318,199 329,975 338,971
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
Cleaning 206,401 214,303 222,713 235,205 230,627 246,502
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
Repair & Maint. 78,278 88,645 85,991 102,722 106,276 103,800
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
Supplies 45,521 47,115 52,328 54,227 38,649 40,971
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
General Oper. 160,564 193,172 199,474 235,423 235,122 240,840
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
Total 1,676,502 1,685,565 1,658,931 1,658,873 1,623,267 1,631,140
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
Cost PSF 6.99 7.02 6.91 6.91 6.76 6.79
- -----------------------------------------------------------------------------------------------------------
</TABLE>
-33-
<PAGE>
EXHIBIT F
---------
ONE THOUSAND BROADWAY BUILDING LIMITED PARTNERSHIP
--------------------------------------------------
ADDENDUM:
---------
SECTION 1. FIRST RIGHT OF REFUSAL.
- ---------- ----------------------
Tenant shall have the right of first refusal during the Term of the Lease
with respect to the portion of the Building which is shown on Exhibit G to the
Lease. In the event that Landlord is prepared to Lease all or any portion of
such additional space to a third party, Landlord shall give to Tenant written
notice of the same. Tenant shall have the right, within five (5) days of receipt
of such notice, to elect to Lease such additional space on the same terms and
conditions as Landlord is prepared to Lease the same to the third party, as
disclosed by Landlord's notice, based on similar credit worthiness of each
tenant. Tenant's election shall be exercised by written notice to notice, based
on similar credit worthiness of each tenant. Tenant's election shall be
exercised by written notice to Landlord given prior to the expiration of such
five (5) day period. In the event that Tenant gives such notice, Landlord and
Tenant shall enter into a modification of this Lease reflecting the inclusion of
the additional space. In the event the Tenant does not give such written notice,
then Landlord shall be free to Lease such additional space to the intended third
party lessee, on the terms set forth in the original notice given from Landlord
to Tenant. In the event that landlord does not subsequently Lease such
additional space to such third party, or discontinues negotiations with such
third party, then such additional space shall again become subject to the right
of first refusal set forth herein.
The right of first refusal set forth herein shall only apply so long as
Tenant is not in default hereunder. In the event this Lease is terminated for
any reason, the rights granted to Tenant in this paragraph shall also terminate
at the same time. In the event Tenant exercises the right of first refusal
provided herein and subsequently becomes in default, Landlord may elect, by
written notice to Tenant, to terminate Tenant's prior election to exercise its
right of first refusal, in which event Tenant shall have no rights with respect
to additional space. The right of first refusal is personal to the Tenant named
herein and shall only exist so long as the Tenant named herein is in actual
occupancy of the Premises.
SECTION 2. EXPANSION
- ---------- ---------
Tenant has agreed to expand into Spaces "B" and "C" as of December 1, 1996.
This expansion is subject to an existing tenant vacating Space "B" on the
expiration of their lease on October 31, 1996. In the event such space is not
available for occupancy by December 1, 1996, Landlord will extend the reduced
rental rate until such space is available for occupancy.
SECTION 3. PAYMENT OF OPERATING EXPENSES
- ---------- -----------------------------
Landlord will provide to Tenant a rent credit within ten (10) days of its
delivery to Tenant of the Operating Statement for such Operating year. The
balance of Section 5.7 remains unchanged.
SECTION 4. HOLDING OVER WITH CONSENT
- ---------- -------------------------
Landlord and Tenant agree that, in the event tenant holds over with the
consent of Landlord, rental for the first six (6) months of the holdover term
shall be calculated at $20.35 per rentable square foot; thereafter; if Tenant
remains in the subject space, the rental shall be the then current fair market
rent for the premises as determined by Landlord, subject to adjustment as
provided in Section 4 of the initial lease agreement.
-34-
<PAGE>
ONE THOUSAND BROADWAY BUILDING LIMITED PARTNERSHIP
LEASE AGREEMENT
Basic Lease Information
-----------------------
The following Basic Lease Information is hereby incorporated into and made
a part of the Lease between Landlord and Tenant to which it is attached. Each
reference in the Lease to any of the Basic Lease Information shall mean the
respective information set forth below and such information shall be deemed
incorporated as a part of the terms provided under the particular Lease Section
pertaining to such information. In the event of any conflict between any Basic
Lease Information and the Lease, the former shall control.
1. Building: 1000 Broadway Building
--------
2. Landlord: One Thousand Broadway Building Limited Partnership,
--------
an Oregon Limited Partnership
3. Landlord's Address for Giving Notices and Payment of Rent:
---------------------------------------------------------
1000, Inc.
1000 SW Broadway
Portland, Oregon 97205
4. Tenant: Portland Software, Inc.
------
5. Premises: The floor area on the 18th floor of the Building consisting
--------
of approximately 11.578 rentable square feet as outlined on the floor
plan of the Building attached hereto as Exhibit B. The precise amount
of the rentable area in the Premises shall be reasonably determined by
Landlord's office planner. Base Rent, Tenant's Percentage, the number
of parking spaces, if any, available to Tenant and any similar item
based upon the size of the Premises shall be adjusted to reflect the
precise rentable area in the Premises.
6. Parking Space Allowance: Nine (9) parking stalls at the then current
-----------------------
market rate, based on a ratio of one (1) parking stall per 1,250
rentable square feet leased.
7. Use of Premises: (Section 2) Software Development
---------------
8. Lease Document Issuance: July 3, 1996
-----------------------
9. Lease Document Execution Date: July 17, 1996
-----------------------------
10. Construction Information Submittal Date: Tenant shall provide
---------------------------------------
Landlord's office planner with all of the construction information
requested by Landlord's office planner no later than four (4) working
days from the Lease Document Execution Date (item 9 above) in
accordance with Exhibit C of this lease (Exhibit C, Section 4.1).
11. Construction Document Approval Date: Landlord's office planner shall
-----------------------------------
deliver the Construction Document Package (see Exhibit C, Section 4.1)
to Tenant for approval within ten (10) working days after Landlord's
office planner has received all of the construction information from
Tenant in accordance with Exhibit C, Section 4.2, of this Lease.
Tenant shall approve the Construction Document Package within three
(3) working days after Landlord's office planner has delivered it to
Tenant, subject to any corrections requested to make the CDP
consistent with Tenant's construction information and any requested
deletions. (Exhibit C, Section 4.2)
12. Commencement Date: August 1, 1996 or such earlier or later date as
-----------------
provided in Section 30 of the Lease Agreement. (Section 1.3)
-35-
<PAGE>
13. Expiration Date: September 30, 2001 or such earlier date as provided
---------------
in Section 30 of the Lease Agreement. (Section 1.3)
14. Rent:
----
Months PSF/Annual Monthly
------ ---------- -------
1-2 0 0
3-5 $16.50 $12,270.50
6-18 $17.00 $16,402.17
19-36 $17.50 $16,884.58
37-62 $18.50 $17,849.42
Payable in advance, on the first day of each calendar month. The
months referred to in this Section are lease months not calendar
months. For example, the first Lease month will begin on the
Commencement Date and end on the day prior to its first monthly
anniversary.
15. Tenant's Percentage of Operating Expenses: 4.82% (Section 5.2)
-----------------------------------------
16. Base Year for Adjustments to Operating Expenses: The 1997 Calendar
-----------------------------------------------
year. (Section 5.2)
17. Security Deposit: $17,849.42 (Section 6)
----------------
18. Brokers: Grubb & Ellis Company and United Real Estate Services, Inc.
-------
LANDLORD: TENANT:
One Thousand Broadway Limited Partnership, Portland Software, Inc.
an Oregon Limited Partnership an Oregon Corporation
BY: 1000, Inc.
By: /s/ Dirk Koopman By: /s/ Charles Jennings
--------------------------------------- -----------------------------
Dirk Koopman Charles Jennings
Title: Vice President Title: Chairman, President & CEO
Date: 7/19/96 Date: 7/17/96
------------------------------------- ---------------------------
-36-
<PAGE>
EXHIBIT 10.11(b)
1000 BROADWAY BUILDING
FIRST LEASE AMENDMENT
According to the terms of the lease executed July 17, 1996, between Portland
Software, Inc., and 1000, Inc. and Sections 1.3 and 30, this First Lease
Amendment, dated August 14, 1996, confirms the following:
1. The Commencement date of the lease shall be August 1, 1996.
2. The Lease Termination date will be September 30, 2001.
3. The Base rentals shall be as follows:
8-1-96 to 9-30-96 -0-
10-1-96 to 12-31-96 $ 12,270.50 per month
1-1-97 to 1-31-98 $ 16,402.17 per month
2-1-98 to 7-31-99 $ 16,884.58 per month
8-1-99 to 9-30-2001 $ 17,849.42 per month
Agreed:
1000 Broadway Building LP Portland Software, Inc.
/s/ Dirk Koopman /s/ Charles Jennings
- ------------------------------- ----------------------------------------
Dirk Koopman, Vice President Charles Jennings, President & CEO
Date: 10/7/96 Date: 9/27/96
------------------------- ----------------------------------
<PAGE>
EXHIBIT 10.11(C)
FIRST AMENDMENT TO
ONE THOUSAND BROADWAY BUILDING LEASE AGREEMENT
By and Between
One Thousand Broadway Building Limited Partnership
and
Portland Software, Inc.
This First Amendment is entered into and executed by ONE THOUSAND BROADWAY
BUILDING LIMITED PARTNERSHIP ("Landlord"), and PORTLAND SOFTWARE, INC., an
Oregon corporation ("Tenant").
RECITALS
--------
A. Landlord and Tenant have previously entered into an agreement to lease
space in the One Thousand Broadway office building which lease was dated
July 3, 1996, covering the following premises:
Approximately 11,578 rentable square feet of space (the "Premises")
and situated on the eighteenth (18th) floor of the One Thousand
Broadway Building (the "Building") located at Lots 5, 6, 7 and 8,
Block 182, City of Portland, in the City of Portland, County of
Multnomah, State of Oregon, the Premises being more particularly
described in the Lease to which reference is here made for all
purposes.
B. Tenant has requested and Landlord has agreed to extend the initial term of
the lease and amortize additional tenant improvements over the lease term.
Tenant and Landlord desire to amend the Lease to evidence their agreements.
C. Unless otherwise indicated, all capitalized terms used herein shall have
the same meanings as are attributed thereto in the Lease.
NOW, THEREFORE, Landlord and Tenant desire to amend the Lease to evidence their
agreement with respect to the foregoing:
TERMS AND CONDITIONS
--------------------
1. Lease Term: The lease term shall be extended to February 28, 2002.
----------
2. Tenant Improvements: Landlord has agreed to amortize $12,232 over the
-------------------
remaining lease term commencing January 1, 1997 and expiring February 28,
2002 with interest of 12% per annum.
<PAGE>
3. Base Rent: Effective January 1, 1997, base rent charges will be as
---------
follows:
<TABLE>
<CAPTION>
Original Premises Amortization Total
----------------- ------------ -----
<S> <C> <C> <C>
January 1997-June 1998: $ 16,402.17 $263.05 $16,665.22
July 1998-September 1999: $16, 884.58 $263.05 $17,147.63
October 1999-February 2002: $ 17,849.42 $263.05 $18,112.47
</TABLE>
Executed in multiple counterparts, effective as of the 26 day of November, 1996.
LANDLORD: TENANT:
One Thousand Broadway Building Limited Portland Software, Inc.
Partnership, an Oregon limited partnership
By: /s/ Ed Wholihan
---------------------------
By: 1000, Inc., General Partner
----------------------------------
Name: Ed Wholihan
-------------------------
By: /s/ Thomas P. Moyer
----------------------------------
Title: CFO
------------------------
-2-
<PAGE>
EXHIBIT 10.11(d)
SECOND AMDENDMENT TO
ONE THOUSAND BROADWAY BUILDING LEASE AGREEMENT
By and Between
One Thousand Broadway Building Limited Partnership
and
Portland Software, Inc.
This Second Amendment is entered into and executed by ONE THOUSAND BROADWAY
BUILDING LIMITED PARTNNERSHIP ("Landlord"), and PORTLAND SOFTWARE, INC., an
Oregon corporation ("Tenant").
RECITALS
--------
A. Landlord and Tenant have previously entered into an agreement to lease
space in the One Thousand Broadway office building which lease was dated
July 3, 1996, and amended on November 26, 1996, covering the following
premises:
Approximately 11,578 rentable square feet of space (the "Premises")
and situated on the eighteenth (18/th/) floor of the One Thousand
Broadway Building (the "Building") located at Lots 5,6,7 and 8, Block
182, City of Portland, in the City of Portland, County of Multnomah,
State of Oregon, the Premises being more particularly described in the
Lease to which reference is here made for all purposes.
B. Tenant has requested and Landlord has agreed to expand Tenant into
additional space on the 17th floor, extend the initial term of the lease
and up to amortize additional tenant improvements over the lease term.
Tenant and Landlord desire to amend the Lease to evidence their agreements.
Unless otherwise indicated, all capitalized terms used herein shall have
the same meanings as are attributed thereto in the Lease.
NOW, THEREFORE, Landlord and Tenant desire to amend the Lease to evidence their
agreement with respect to the foregoing:
TERMS AND CONDITIONS
--------------------
1. Premises Tenant agrees to expand into approximately 6,224 rentable square
--------
feet as of March 1, 1998 or as soon as the required tenant improvements are
completed and the subject space is available for occupancy, resulting in a
total of 17,802 rentable square feet.
2. Tenant Improvements: Landlord has agreed to provide Tenant with an
-------------------
allowance of $13.00 per rentable square foot ($80,912) and, in addition
agrees to amortize up to $45,081 over the term of the lease, together with
interest at 10% per annum.
<PAGE>
3. Lease Term: The lease term shall be extended to the end of the month five
----------
(5) years from the completion of the tenant improvements in the expansion
space.
4. Base Rent: Effective March 1, 1998, or as soon as the required tenant
---------
improvements are completed and the monthly base rent charges will be as
follows:
<TABLE>
<CAPTION>
Existing Expansion
--------------- ---------------
Premises Premises Amortization* Total
--------------- --------------- ------------------ ---------------
<S> <C> <C> <C> <C>
March 1998-June 1998: $16,665.22 $10,373.33 $949.92 $27,988.47
July 1998-Sept 1999: $17,147.63 $10,373.33 $949.92 $28,470.88
October 1999-August 2000: $18,112.47 $10,373.33 $949.92 $29,435.72
Sept 2000-Feb 2002: $18,112.47 $11,670.00 $949.92 $30,732.39
March 2000-December 2002: $21,708.75 $11,670.00 $949.92 $34,328.67
</TABLE>
*Assumes authorization of $45,081; may be adjusted due to final amount
authorized.
5. Tenant's Percentage of Operating Expenses: Tenant's percentage of operating
-----------------------------------------
expenses will be adjusted as follows:
Existing Premises Expansion Premises Total
----------------- ------------------ -----
4.82% 2.59% 7.41%
6. Base Year for Operating Expenses: The base year for operating expenses
--------------------------------
shall be the 1998 calendar year.
7. Parking: Landlord will provide Tenant with five (5) additional parking
-------
stalls in the building at the then current market rate; total parking
stalls after the expansion is completed will total fourteen (14) spaces.
Executed in multiple counterparts, effective as of the 9 day of November, 1997.
LANDLORD: TENANT:
One Thousand Broadway Building Limited Portland Software, Inc.
Partnership, an Oregon limited partnership
By: /s/ Edward Wholihan
-----------------------
By: 1000, Inc., General Partner Name: Edward Wholihan
---------------------
By: /s/ Thomas P. Moyer Title: CFO
-------------------------- --------------------
-2-
<PAGE>
EXHIBIT 10.12(a)
STANDARD OFFICE LEASE-GROSS
1. Basic Lease Provisions ("Basic Lease Provisions")
1.1 Parties: This Lease, dated, for reference purposes only, September 5,
1997, is made by and between South Bay/Copley Joint Venture, a California
general partnership, (herein called "Lessor") and Preview Software, Inc., a
California corporation doing business under the name of Preview Software,
(herein called "Lessee").
1.2 Premises: Suite Numbers 100 and 180, consisting of approximately
8,465 rentable square feet, more or less, including an approximate 11.6% load
factor as defined in Paragraph 2 and shown on Exhibit "A" hereto (the
"Premises").
1.3 Building: Commonly described as being located at 1601 South DeAnza
Boulevard in the City of Cupertino, in the county of Santa Clara, State of
California.
1.4 Use: general office, subject to Paragraph 6.
1.5 Term: Three (3) years commencing September 22,1997 ("Commencement
Date") and ending September 21, 2000 as defined in Paragraph 3.
1.6 Base Rent: Twenty-five Thousand Three Hundred Ninety-five and
00/100ths Dollars ($25,395.00) per month, payable on the first (1/st/) day of
each month, per Paragraph 4.1.
1.7 Base Rent Increase: The monthly Base Rent payable under Paragraph 1.6
above shall be adjusted as follows and as provided in Paragraph 4.3 below.
September 15, 1998 $26,242.00
September 15, 1999 $27,088.00
1.8 Rent Paid Upon Execution: Twenty-five Thousand Three Hundred Ninety-
five and 00/100ths Dollars ($25,395.00) for the first month's rent.
1.9 Security Deposit: Seventy-seven Thousand Eight Hundred Seventy-eight
and 00/100ths Dollars ($77,878.00) as set forth in Paragraph 5 below.
1.10 Lessee's Share of Operating Expense Increase: 11.89% as defined in
Paragraph 4.2.
<PAGE>
2. Premises, Parking and Common Areas:
2.1 Premises: The Premises are a portion of a building, herein sometimes
referred to as the "Building" identified in Paragraph 1.3 of the Basic Lease
Provisions. "Building" shall include adjacent parking structures used in
connection therewith. The Premises, the Building, the common Areas, the land
upon which the same are located, along with all other buildings and improvements
thereon or thereunder, are herein collectively referred to as the "Office
Building Project." Lessor hereby leases to Lessee and Lessee leases from Lessor
for the term, at the rental, and upon all of the conditions set forth herein,
the real property referred to in the Basic Lease Provisions, Paragraph 1.2, as
the "Premises," including rights to the Common Areas as hereinafter specified.
2.2 Vehicle Parking: So longs as Lessee is not in default, and subject to
the rules and regulations attached hereto, and as established by Lessor from
time to time, Lessee shall be entitled to rent and use 31 parking spaces in the
Office Building Project at the monthly rate applicable from time to time for
monthly parking as set by Lessor and/or its licenses.
2.2.1 If Lessee commits, permits or allows any of the prohibited
activities described in the Lease or the rules then in effect, then Lessor shall
have the right, without notice, in addition to such other rights and remedies
that it may have, to remove or tow away the vehicle involved and charge the cost
to Lessee, which cost shall be immediately payable upon demand by lessor.
2.3 Common Areas - Definition. The term "Common Areas" is defined as all
areas and facilities outside the Premises and within the exterior boundary line
of the Office Building Project that are provided and designated by the Lessor
from time to time for the general non-exclusive use of Lessor, Lessee and of
other lessees of the Office Building Project and their respective employees,
suppliers, shippers, customers, and invitees, including, but not limited to,
common entrances, lobbies, corridors, stairways and stairwells, public
restrooms, elevators, escalators, parking areas to the extent not otherwise
prohibited by this Lease, loading and unloading areas, trash areas, roadways,
sidewalks, walkways, parkways, ramps, driveways, landscaped areas and decorative
walls.
2.4 Common Areas - Rules and Regulations. Lessee agrees to abide by and
conform to the rules and regulations attached hereto as Exhibit B with respect
to the Office Building Project and Common Areas, and to cause its employees,
suppliers, shippers, customers, and invitees to so abide and conform. Lessor or
such other person(s) as Lessor may appoint shall have the exclusive control and
management of the Common Areas and shall have the right from time to time, to
modify, amend and enforce said rules and regulations. Lessor shall not be
responsible to Lessee for the non-compliance with said rules and regulations by
other lessees, their agents, employees and invitees of the Office Building
Project.
2.5 Common Areas - Changes. Lessor shall have the right, in Lessor's sole
discretion, from time to time:
(a) To make changes to the Building interior and exterior and Common
Areas, including, without limitation, changes in the location, size, shape,
number, and appearance thereof, including, but not limited to, the lobbies,
windows, stairways, air shafts, elevators, escalators, restrooms, driveways,
entrances, parking spaces, parking areas, loading and unloading areas, ingress,
egress, direction of traffic, decorative walls, landscaped areas and walkways;
provided, however, Lessor shall at all times provide the parking facilities
required by applicable law;
(b) To close temporarily any of the Common Areas for maintenance
purposes so long as reasonable access to the Premises remains available;
(c) To designate other land and improvements outside the boundaries
of the Office Building Project to be a part of the Common Areas, provided that
such other land and improvements have a reasonable and functional relationship
to the Office Building Project;
(d) To add additional buildings and improvements to the Common Areas;
-2-
<PAGE>
(e) To use the Common Areas while engaged in making additional
improvements, repairs or alterations to the Office Building Project as Lessor
may in the exercise of sound business judgment deem to be appropriate.
3. Term.
3.1 Term. The Term and Commencement Date of this Lease shall be as
specified in Paragraph 1.5 of the Basic Lease Provisions.
3.2 Delay in Possession. Notwithstanding said Commencement Date, if for
any reason Lessor cannot deliver possession of the Premises to Lessee on said
date and subject to Paragraph 3.2.2, Lessor shall not be subject to any
liability therefore, nor shall such failure affect the validity of this lease or
the obligations of Lessee hereunder or extend the term hereof; but, in such
case, Lessee shall not be obligated to pay rent or perform any other obligation
of Lessee under the terms of this Lease, except as may be otherwise provided in
this Lease, until possession of the Premises is tendered to Lessee, as
hereinafter defined; provided, however, that if Lessor shall not have delivered
possession of the Premises within sixty (60) days following said Commencement
Date, as the same may be extended under the terms of a Work Letter executed by
Lessor and Lessee, Lessee may at lessee's option, by notice in writing to Lessor
within ten (10) days thereafter cancel this Lease, in which event the parties
shall be discharged from all obligations hereunder; provided, however, that, as
to lessee's obligations, Lessee first reimburses Lessor for all costs incurred
for Non-Standard Improvements and, as to Lessor's obligations, Lessor shall
return any money previously deposited by Lessee (less any offsets due Lessor for
Non-Standard Improvements); and provided further, that if such written notice by
Lessee is not received by Lessor within said ten (10) day period, Lessee's right
to cancel this lease hereunder shall terminate and be of no further force of
effect.
3.2.1 Possession Tendered - Defined. Possession of the Premises shall
be deemed tendered to Lessee ("Tender of Possession") when (1) the improvements
to be provided by Lessor under this Lease are substantially completed, (2) the
building utilities are ready for use in the Premises, and (3) Lessee has
reasonable access to the Premises.
3.2.2 Delays Caused by Lessee. There shall be no abatement of rent,
and the sixty (60) day period following the Commencement Date before which
Lessee's right to cancel this Lease accrues under Paragraph 3.2, shall not be
deemed extended to the extent of any delays caused by acts or omissions of
lessee, lessee's agents, employees and contractors.
3.3 Early Possession. If lessee occupies the Premises prior to said
Commencement Date, such occupancy shall be subject to all provisions of this
Lease, such occupancy shall not change the termination date, and lessee shall
pay rent for such occupancy.
3.4 Uncertain Commencement. In the event commencement of the lease term is
defined as the completion of the improvements, Lessee and Lessor shall execute
no amendment to this Lease establishing the date of Tender of Possession (as
defined in Paragraph 3.2.1) of the actual taking of possession by Lessee,
whichever first occurs, as the Commencement Date.
4. Rent.
4.1 Base Rent. Subject to adjustment as hereinafter provided in Paragraph
4.3, and except as may be otherwise expressly provided in this Lease, Lessee
shall pay to lessor the Base Rent for the Premises set forth in Paragraph 1.6 of
the Basic Lease Provisions, without offset or deduction, Lessee shall pay Lessor
upon execution hereof the advance Base Rent described in Paragraph 1.8 of the
Basic Lease Provisions. Rent for any period during the term hereof which is for
less than one month shall be prorated based upon the actual number of days of
the calendar month involved. Rent shall be payable in lawful money of the United
States to Lessor at the address stated herein or to such other persons or at
such other places as Lessor may designate in writing.
-3-
<PAGE>
4.2 Operating Expense Increase. Lessee shall pay to Lessor during the term
hereof, in addition to the Base Rent, Lessee's Share, as hereinafter defined, of
the amount by which all Operating Expenses, as hereinafter defined, for each
Comparison Year exceeds the amount of all Operating Expenses for the Base Year,
such excess being hereinafter referred to as the "Operating Expense Increase,"
in accordance with the following provisions:
(a) "Lessee's Share" is defined, for purposes of this Lease, as the
percentage set forth in Paragraph 1.10 of the Basic lease Provisions, which
percentage has been determined by dividing the approximate square footage of the
Premises by the total approximate square footage of the rentable space contained
in the Office building Project. It is understood and agreed that the square
footage figures set forth in the Basic Lease Provisions are approximations
which Lessor and Lessee agree are reasonable and shall not be subject to
revision except in connection with an actual change in the size of the Premises
or change in the space available for lease in the Office Building Project.
(b) "Basic Year" is defined as the calendar year in which the Lease
term commences.
(c) "Comparison Year" is defined as each calendar year during the
term of this Lease subsequent to the Base Year; provided, however, Lessee shall
have no obligation to pay a share of the Operating Expense Increase applicable
to the first twelve (12) months of the Lease Term (other than such as are
mandated by a governmental authority, as to which government mandated expenses
Lessee shall pay Lessee's Share, notwithstanding they occur during the first
twelve (12) months). Lessee's Share of the Operating Expense Increase for the
first and last Comparison Years of the lease Term shall be prorated according to
that portion of such Comparison Year as to which Lessee is responsible for a
share of such increase.
(d) "Operating Expenses" is defined for purposes of this Lease, to
include all costs, if any, incurred Lessor in the exercise of its reasonable
discretion, for:
(i) The operation, repair, maintenance, and replacement, in
neat, clean, safe, good order and condition, of the Office Building Project,
including, but not limited to, the following:
(aa) The Common Areas, including their surfaces,
coverings, decorative items, carpets, drapes and window coverings, and including
parking areas, loading and unloading areas, trash areas, roadways, sidewalks,
walkways, stairways, parkways, driveways, landscaped areas, striping, bumpers,
irrigation systems, Common Area lighting facilities, building exteriors and
roofs, fences and gates.
(bb) All heating, air conditioning, plumbing, electrical
systems, life safety equipment, telecommunication and other equipment used in
common by, or for the benefit of, lessees or occupants of the Office Building
Project, including elevators and escalators, tenant directories, fire detection
systems including sprinkler systems maintenance and repair.
(ii) Trash disposal, janitorial and security services;
(iii) Any other service to be provided by Lessor that is
elsewhere in this Lease stated to be an "Operating Expense";
(iv) The costs of the premiums for the liability and property
insurance policies to be maintained by Lessor under paragraph 8 hereof;
(v) The amount of the real property taxes to be paid by Lessor
under Paragraph 10.1 hereof;
(vi) The cost of water, sewer, gas, electricity, and other
publicly mandated services to the Office Building Project;
-4-
<PAGE>
(vii) Labor, salaries and applicable fringe benefits and costs,
materials, supplies and tools, used in maintaining and/or cleaning the Office
Building Project and accounting and a management fee attributable to the
operation of the Office building Project;
(viii) Replacing and/or adding improvements mandated by any
governmental agency and any repairs or removals necessitated thereby amortized
over its useful life according to federal income tax regulations or guidelines
for depreciation thereof (including interest on the unamortized balance as is
then reasonable in the judgment of Lessor's accountants);
(ix) Replacements of equipment or improvements that have a
useful life for depreciation purposes according to federal income tax guidelines
of five (5) years or less, as amortized over such life.
(e) Operating Expenses shall not include the costs of replacements of
equipment or improvements that have a useful life for federal income tax
purposes in excess of five (5) years unless it is of the type described in
Paragraph 4.2 (d)(viii), in which case their cost shall be included as above
provided.
(f) Operating Expenses shall not include any expenses paid by any
lessee directly to third parties, or as to which Lessor is otherwise reimbursed
by any third party, other tenant, or by insurance proceeds.
(g) Lessee's Share of Operating Expense Increase shall be payable to
Lessee within ten (10) days after a reasonable detailed statement of actual
expenses is presented to Lessee by Lessor. At Lessor's option, however, an
amount may be estimated by Lessor from time to time in advance of Lessee's Share
of the Operating Expenses Increase for any Comparison Year, and the same shall
be payable monthly or quarterly, as Lessor shall designate, during each
Comparison Year of the lease term, on the same day as the Base Rent is due
hereunder. In the event that Lessee pays Lessor's estimate of Lessee's Share of
Operating Expense Increase as aforesaid, Lessor shall deliver to Lessee within
sixty (60) days after the expiration of each Comparison Year a reasonably
detailed statement showing Lessee's Share of the actual Operating Expense
Increase incurred during such year. If Lessee's payments under this Paragraph
4.2(g) during said Comparison Year exceed Lessee's Share as indicated on said
statement, Lessee shall be entitled to credit the amount of such over payment
against Lessee's Share of Operating Expenses Increase next falling due. If
Lessee's payments under this paragraph during said Comparison Year were less
than Lessee's Share as indicted on said statement, Lessee shall pay to lessor
the amount of the deficiency within ten (10) days after delivery by Lessor to
Lessee of said statement. Lessor and Lessee shall forthwith adjust between them
by cash payment any balance determined to exist with respect to that portion of
the last Comparison Year for which Lessee is responsible as to Operating Expense
Increases, notwithstanding that the Lease term may have terminated before the
end of such Comparison Year.
5. Security Deposit. Lessee shall deposit the aggregate sum of Seventy-seven
Thousand Eight Hundred Seventy-eight and 00/100ths Dollars ($77,878.00) (the
"Security Deposit") upon execution of this Lease. Fifty Thousand Seven Hundred
Ninety and 00/100ths Dollars ($50,790.00) of such Security Deposit shall be
provided in the form of the Letter of Credit as defined below, and Twenty-seven
Thousand Eight-eight and 00/100ths Dollars ($27,088.00) of the Security Deposit
shall be provided in the form of cash (the "Cash Security Deposit") to secure
the faithful performance by Lessee of cash term, covenant and condition of this
Lease. If Lessee shall at any time fail to make any payment or fail to keep or
perform any term, covenant or condition on its part to be made or performed or
kept under this Lease, Lessor may, but shall not be obligated to and without
waiving or releasing Lessee from any obligation under this Lease, use, apply or
retain any part of the Cash Security Deposit (A) to the extent of any sum due to
Lessor; or (B) to compensate Lessor for any loss, damages, attorneys' fees or
expense sustained by Lessor due to Lessee's default. In such event, Lessee
shall, within five (5) days of written demand by Lessor, remit to Lessor
sufficient funds to restore the Cash Security Deposit to its original sum. No
interest shall accrue on the Cash Security Deposit. Lessor shall not be required
to keep the Cash Security Deposit separate from its general funds. Should Lessee
comply with all the terms covenants, and conditions of this Lease and at the end
of the term of this Lease leave the Premises in the condition required by this
Lease then said Cash Security Deposit, less any sums owing to Lessor, shall be
returned to Lessee within thirty (30) days after the termination of this Lease
and vacancy of the Premises by Lessee.
-5-
<PAGE>
As used herein, the term "Letter of Credit" shall mean and refer to a sight
draft, non-documentary, clean, irrevocable and unconditional Letter of Credit
allowing for partial draws issued by a bank, and upon terms and conditions, in
all respects reasonably satisfactory to Lessor. Among other things, the Letter
of Credit shall be for a minimum term of twelve (12) months. Lessee shall keep
the Letter of Credit (or a replacement Letter of Credit) in effect throughout
the term of this Lease except as otherwise provided below. Lessee shall renew,
extend or replace the Letter of Credit as necessary and deliver satisfactory
written evidence thereof to Lessor at least twenty (20) days prior to the
expiration date of the Letter of Credit so that a valid Letter of Credit which
complies with the provisions of this Paragraph shall be in effect during the
entire period required hereby. If Lessee fails to timely renew, extend or
replace the Letter of Credit and/or deliver reasonably satisfactory written
evidence thereof to Lessor, Lessor shall be entitled to immediately draw upon
and obtain payments of the entire amount of the Letter of Credit, and hold such
sum as portion of the Security Deposit for Lessee's performance of the Lease.
Upon occurrence of an Event of Default under this Lease (after lapse of the
applicable cure period hereunder, if any), Lessor shall be entitled to
immediately draw upon and obtain payment under the Letter of Credit of an amount
as may be required to satisfy Lessee's Default under this Lease and Lessor shall
apply the amount so drawn and obtained to such Default. Within ten (10) days
following Lessor's draw upon the Letter of Credit, Lessee shall replace or
reinstate the Letter of Credit to the full amount required to be provided
hereunder. Lessor may draw upon the Letter of Credit by presentation of a draft,
signed by a partner of Lessor or its Agent, which shall be payable on sight by
the issuing bank and the issuing bank shall pay the same in such manner
(including, without limitation, wire transfer to the account of Lessor) as shall
be specified by Lessor or its Agent.
Notwithstanding anything to the contrary in this Lease; Lessor may only use the
Security Deposit if an Event of Default (beyond any notice and applicable cure
period) under the Lease has occurred and is continuing. Upon such Event of
Default, Lessor shall first use the cash amount of the Cash Security Deposit as
reimbursement for the Event of Default. In the event, the amount of the Cash
Security Deposit is insufficient to cure the Event of Default, Lessor may draw
upon the Letter of Credit. If Lessor draws upon the Letter of Credit to Lessee's
failure to renew, extend or replace the Letter of Credit, Lessor shall
immediately reimburse the entire amount drawn to Lessee upon Lessee's delivery
of a replacement Letter of Credit to Lessor.
6. Use.
6.1 Use. The Premises shall be used and occupied only for the purpose set
forth in Paragraph 1.4 of the Basic Lease Provisions or any other use which is
reasonably comparable to that use and for no other purpose.
6.2 Compliance with Law.
(a) Lessor warrants to Lessee that the Premises, in the state
existing on the date that the Lease term commences, but without regard to
alterations or improvements made by Lessee or the use for which Lessee or the
use for which Lessee will occupy the Premises, does not violate any covenants or
restrictions of record, or any applicable building code, regulation or ordinance
in effect on such Lease term Commencement Date. In the event it is determined
that this warranty has been violated, then it shall be the obligation of the
Lessor, after written notice from Lessee, to promptly, at Lessor's sole cost an
expense, rectify any such violation.
(b) Except as provided in Paragraph 6.2(a) Lessee shall, at Lessee's
expense, promptly comply with all applicable statues, ordinances, rules,
regulations, orders, covenants and restrictions of record, and requirements of
any fire insurance underwriters or rating bureaus, now in effect or which may
hereafter come into effect whether or not they elect a change in policy from
that now existing, during the term or any part of the term hereof, relating in
any manner to the Premises and the occupation and use by Lessee of the Premises.
Lessee shall conduct its business in a lawful manner and shall not use or permit
the use of the Premises or the Common Areas in any manner that will tend to
create waste or a nuisance or shall tend to disturb other occupants of the
Office Building Project
-6-
<PAGE>
6.3 Condition of Premises.
(a) Lessor shall deliver the Premises to Lessee in a clean condition
on the Lease Commencement Date (unless Lessee is already in possession) and
Lessor warrants to Lessee that the plumbing lighting, air conditioning, and
heating systems in the Premises shall be in good operating condition, in the
event that if notice from Lessee setting forth with specificity the nature of
the violation, to promptly, at Lessor's sole cost, rectify such violation.
(b) Except as otherwise provided in this Lease, Lessee hereby accepts
the Premises and the Office Building Project in their condition existing as of
the Lease Commencement Date or the date that Lessee takes possession of the
Premises, whichever is earlier, subject to all applicable zoning, municipal,
county and state laws, ordinances and regulations governing and regulating the
use of the Premises, and any easements covenants or restrictions of record, and
accepts this Lease subject thereto and to all matters disclosed thereby and by
any exhibits attached hereon. Lessee nor Lessor's agent or agents has made any
representation or warranty as to the present or future suitability of the
Premises, Common Areas, or Office Building Project for the conduct of Lessee's
business.
7. Maintenance, Repairs, Alterations and Common Area Services.
7.1 Lessor's Obligations. Lessor shall keep the Office Building Project,
including the Premises, interior and exterior walls, roof, and Common Areas, and
the equipment whether used exclusively for the Premises or in common with other
premises, in good condition and repair; provided, however, Lessor shall not be
obligated to paint, repair or replace wall coverings, or to repair or replace
any improvements that are not ordinarily a part of the Building or are above
then Building standards. Except as provided in Paragraph 9.5, there shall be no
abatement of rent or liability of Lessee on account of any injury or
interference with Lessee's business with respect to any improvements,
alterations or repairs made by Lessor to the Office Building Project or any part
thereof. Lessee expressly waives the benefits of any statute now or hereinafter
in effect which would otherwise afford Lessee the right to make repairs at
Lessor's expense or to terminate this Lease because of Lessor's failure to keep
the Premises in good order, condition and repair.
7.2 Lessee's Obligations.
(a) Notwithstanding Lessor's obligation to keep the Premises in good
condition and repair, Lessee shall be responsible for payment of the cost
thereof to Lessor as additional rent for that portion of the cost of any
maintenance and repair of the Premises, or any equipment (wherever located) that
serves only Lessee or the Premises, to the extent such cost is attributable to
causes beyond normal wear and tear. Lessee shall be responsible for the cost of
painting, repairing or replacing wall coverings, and to repair or replace any
Premises Improvements that are not ordinarily a part of the Building or that are
above then Building standards. Lessor may, at its option, upon reasonable
notice, elect to have Lessee perform any particular such maintenance or repairs
the cost of which is otherwise Lessee's responsibility hereunder.
(b) On the last day of the term hereof or on any sooner termination,
Lessee shall surrender the Premises to Lessor in the same condition as received,
ordinary wear and tear excepted, clean and free of debris. Any damage or
deterioration of the Premises shall not be deemed ordinary wear and tear if the
same could have been prevented by good maintenance practices by Lessee. Lessee
shall repair any damage to the Premises occasioned by the installation or
removal of Lessee's trade fixtures, alterations, furnishings and equipment.
Except as otherwise stated in this lease, Lessee shall leave the air lines,
power panels, electrical distribution systems, lighting fixtures, air
conditioning, window coverings, wall coverings, carpets, wall paneling, ceilings
and plumbing on the Premises and in good operating condition.
7.3 Alterations and Additions.
(a) Lessee shall not, without Lessor's prior written consent make any
alterations, improvements, additions, Utility Installations or repairs in, on or
about the Premises, or the Office Building Project. As used in this Paragraph
7.3 the term "Utility Installation" shall mean carpeting, window and wall
coverings,
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power panels, electrical distribution systems, lighting fixtures, air
conditioning, plumbing, and telephone and telecommunication wiring and
equipment. At the expiration of the term, Lessor may require the removal of any
or all of said alterations, improvements, additions or Utility Installations,
and the restoration of the Premises and the Office Building Project to their
prior condition, at Lessee's expense. Should Lessor permit Lessee to make its
own alterations, improvements, additions or Utility Installations, Lessee shall
use only such contractors as has been expressly approved by Lessor, and Lessor
may require Lessee to provide Lessor, at Lessee's sole cost and expense, a lien
and completion bond in the amount equal to one and on-half times the estimated
cost of such improvements, to insure Lessor against any liability for mechanic's
and materialmen's liens and to insure completion of the work. Should Lessee make
any alterations, improvements, additions or Utility Installations without the
prior approval of Lessor, or use a contractor not expressly approved by Lessor,
lessor may, at any time during the term of this Lease, require that Lessee
remove any part or all of the same.
(b) Any alterations, improvements, additions or Utility Installations
in or about the Premises or the Office Building Project that Lessee shall desire
to make shall be presented to Lessor in written form, with proposed detailed
plans. If Lessor shall give its consent to Lessee's making such alteration,
improvement, addition or Utility Installation, the consent shall be deemed
conditioned upon Lessee acquiring a permit to do so from the applicable
governmental agencies, furnishing a copy thereof to Lessor prior to the
commencement of the work, and compliance by Lessee with all conditions of said
permit in a prompt and expeditious manner.
(c) Lessee shall pay, when due, all claims for labor or materials
furnished or alleged to have been furnished to or for Lessee at or for use in
the Premises, which claims are or may be secured by any mechanic's or
materialmen's lien against the Premises, the Building or the Office Building
Project, or any interest therein.
(d) Lessee shall give Lessor not less than ten (10) day's notice
prior to the commencement of any work in the Premises by Lessee, and Lessor
shall have the right to post notices of non-responsibility in or on the Premises
or the Building as provided by law. If Lessee shall, in good faith, contest the
validity of any such lien, claim or demand, then Lessee shall, at its sole
expense defend itself and Lessor against the same and shall pay and satisfy any
such adverse judgment that may be rendered thereon before the enforcement
thereof against the Lessor or the Premises, the Building or the Office Building
Project, upon the condition that if Lessor shall require, Lessee shall furnish
to Lessor a surely bond satisfactory to Lessor in an amount equal to such
contested lien claim or demand indemnifying Lessor against liability for the
same and holding the Premises, the Building and the Office Building Project free
from the effect of such lien or claim. In addition, Lessor may require Lessee to
pay Lessor's reasonable attorneys' fees and costs in participating in such
action if Lessor shall decide it is to Lessor's best interest to do so.
(e) All alterations, improvements, additions and Utility
Installations (whether or not such Utility Installations constitute trade
fixtures of Lessee), which may be made to the Premises by Lessee, including, but
not limited to, floor coverings, paneling, doors, drapes, built-ins, moldings,
sound attenuation, and lighting and telephone or communication systems, conduit,
wiring and outlets, shall be made and done in a good and workmanlike manner and
of good and sufficient quality and materials and shall be the property of Lessor
and remain upon and be surrendered with the Premises at the expiration of the
Lease term), unless lessor requires their removal pursuant to Paragraph 7.3(a).
Provided Lessee is not in default, notwithstanding the provisions of this
Paragraph 7.3(e), Lessee's personal property and equipment, other than that
which is affixed to the Premises so that it cannot be removed without material
damage to the Premises or the Building, and other than Utility Installations,
shall remain the property of Lessee and may be removed by Lessee subject to the
provisions of Paragraph 7.2.
(f) Lessee shall provide the Lessor with as-built plans and
specifications for any alterations, improvement, additions or Utility
Installation.
7.4 Utility Additions. Lessor reserves the right to install new or
additional utility facilities throughout the Office Building Project for the
benefit of Lessor or Lessee, or any other lessee of the Office Building Project,
including, but not by way of limitation, such utilities as plumbing, electrical
systems, communication systems, and fire protection and detection systems, so
long as such installations do not unreasonably interfere with Lessee's use of
the Premises.
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8. Insurance; Indemnity.
8.1 Liability Insurance - Lessee. Lessee shall, at Lessee's expense,
obtain and keep in force during the term of this Lease a policy of Comprehensive
Liability Insurance utilizing an Insurance Services Office standard form with
Broad Form General Liability Endorsement (GL0404), or equivalent, in an amount
of not less than $1,000,000 per occurrence of bodily injury and property damage
combined or in a greater amount as reasonably determined by Lessor and shall
insure Lessee with Lessor as an additional insured against liability arising out
of the use, occupancy or maintenance of the Premises. Compliance with the above
requirement shall not, however, limit the liability of Lessee hereunder.
8.2 Liability Insurance - Lessor. Lessor shall obtain and keep in force
during the term of this Lease a policy of Combined Single Limit Bodily Injury
and Broad Form Property Damage Insurance, plus coverage against such other risks
Lessor deems advisable from time to time, insuring Lessor, but not Lessee,
against liability arising out of the ownership, use, occupancy or maintenance of
the Office Building Project in an amount not less than $5,000,000.00 per
occurrence.
8.3 Property Insurance - Lessee. Lessee shall, at Lessee's expense, obtain
and keep in force during the term of this Lease for the benefit of Lessee,
replacement cost fire and extended coverage insurance, with vandalism and
malicious mischief, sprinkler leakage and earthquake sprinkler leakage
endorsements, in an amount sufficient to cover not less than 100% of the full
replacement cost, as the same may exist form time to time, of all of Lessee's
personal property, fixtures, equipment and tenant improvements.
8.4 Property Insurance - Lessor. Lessor shall obtain and keep in force
during the term of this Lease a policy or policies of insurance covering loss or
damage to the Office Building project improvements, but not Lessee's personal
property, fixtures, equipment or tenant improvements, in the amount of the full
replacement cost thereof, as the same may exist from time to time, utilizing
Insurance Services Office standard form, or equivalent, providing protection
against all perils included within the classification of fire, extended
coverage, vandalism, malicious mischief, plate glass, and such other perils as
Lessor deems advisable or may be required by a lender having a lien on the
Office Building Project. In addition, Lessor shall obtain and keep in force,
during the term of this Lease, a policy of rental value insurance covering a
period of one year, with loss payable to Lessor, which insurance shall also
cover all Operating Expenses for said period. Lessee will not be named in any
such policies carried by Lessor and shall have to right to any proceeds
therefrom. The policies required by these Paragraphs 8.2 and 8.4 shall contain
such deductibles as Lessor or the aforesaid lender may determine. In the event
that the Premises shall suffer an insured loss as defined in Paragraph 9.1(f)
hereof, the deductible amounts under the applicable insurance policies carried
by Lessor. Lessee shall pay the entirety of any increase in the property
insurance premium for the Office Building Project over what it was immediately
prior to the commencement of the term of this Lease if the increase is specified
by Lessor's insurance carrier as being caused by the nature of Lessee's
occupancy or any act or omission of Lessee.
8.5 Insurance Policies. Lessee shall deliver to Lessor copies of liability
insurance policies required under Paragraph 8.1 or certificates evidencing the
existence and amounts of such insurance within seven (7) days after the
Commencement Date of this Lease. No such policy shall be canceled or subject to
reduction of coverage or other modification except after thirty (30) days' prior
written notice to Lessor. Lessee shall, at least thirty (30) days prior to the
expiration of such policies, furnish Lessor with renewals thereof.
8.6 Waiver of Subrogation. Lessee and Lessor each hereby release and
relieve the other, and waive their entire right of recovery against the other,
for direct or consequential loss or damage arising out of or incident to the
perils covered by property insurance carried by such party, whether due to the
negligence of Lessor or Lessee or their agents employees, contractors and/or
invitees. If necessary all property insurance policies required under this Lease
shall be endorsed to so provide.
8.7 Indemnity. Lessee shall indemnify and hold harmless Lessor and its
agents, Lessors master or ground lessor, partners and lenders, from and against
any and all claims for damage to the person or property of anyone or any entity
arising from Lessee's use of the Office Building Project, or from the conduct of
Lessee's
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business or from any activity, work or things done, permitted or suffered by
Lessee in or about the Premises or elsewhere and shall further indemnify and
hold harmless Lessor from any and all claims, costs and expenses arising from
any act or omission of Lessee, or any of Lessee's agents, contractors,
employees, or invitees, and from and against all costs, attorneys' fees,
expenses and liabilities incurred by Lessor as the result of any such use,
conduct, activity, work, things done, permitted or suffered, breach, default or
negligence, and in dealing reasonably therewith, including, but not limited to,
the defense or pursuit of any claim or any action or proceeding involved
therein; and in case any action or proceeding be brought against Lessor be
reason of any such matter, Lessee upon notice from Lessor shall defend the same
at Lessee's expense by counsel reasonably satisfactory to Lessor and Lessor
shall cooperate with Lessee in such defense. Lessee need not have first paid any
such claim in order to be so indemnified. Lessee, as a material part of the
consideration to Lessor hereby assumes all risk of damage to property of Lessee
or injury to persons, in, upon or about the Office Building Project arising from
any cause and Lessee hereby waives all claims in respect thereof against Lessor.
8.8 Exemption of lessor from Liability. Lessee hereby agrees that lessor
shall not be liable for injury to Lessee's business or any loss of income
therefrom or for loss of or damage to the goods, wares, merchandise or other
property of Lessee, Lessee's employees, invitees, customers, or any other person
in or about the Premises or the Office Building Project, nor shall Lessor be
liable for injury to the person of Lessee, Lessee's employees, agents or
contractors, whether such damage or injury is caused by or results from theft,
fire, steam, electricity, gas, water or rain, or from the breakage, leakage,
obstruction or other defects of pipes, sprinklers, wires, appliances, plumbing,
air conditioning or lighting fixtures, or from any other cause, whether said
damage or injury results from conditions arising upon the Premises or upon other
portions of the Office Building Project, or from other sources or places, or
from new construction or the repair, alteration or improvement of any part of
the Office Building Project, or of the equipment, of repairing the same is
inaccessible, Lessor shall not be liable for any damages arising from any act or
neglect of any other lessee, occupant or user of the Office Building Project,
nor from the failure of Lessor to enforce the provisions of any other lease of
any other lessee of the Office Building Project.
8.9 No Representation of Adequate Coverage. Lessor makes no representation
that the limits or forms of coverage of insurance specified in this Paragraph 8
are adequate to cover Lessee's property or obligations under this Lease.
9. Damage or Destruction.
9.1 Definitions.
(a) "Premises Damage" shall mean if the Premises are damaged or
destroyed to any extent.
(b) "Premises Building Partial Damage" shall mean if the Building of
which the Premises are a part is damaged or destroyed to the extent that the
cost to repair is less than fifty percent (50%) of the then Replacement cost of
the Building.
(c) "Premises Building Total Destruction" shall mean if the Building
of which the Premises are a part is damaged or destroyed to the extent that the
cost to repair is fifty percent (50%) or more of the then Replacement Cost of
the Building.
(d) "Office Building Project Buildings" shall mean all of the
buildings on the Office Building Project site.
(e) "Office Building Project Buildings Total Destruction" shall mean
if the Office Building Project Buildings are damaged or destroyed to the extent
that the cost of repair is fifty percent (50%) or more of the then Replacement
cost of the Office Building Project Buildings.
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(f) "Insured Loss" shall mean damage or destruction which was caused
by an even t required to be covered by the insurance described in Paragraph 8.
The fact that an Insured Loss has a deductible amount shall not make the loss an
uninsured loss.
(g) "Replacement Cost" shall mean the amount of money necessary to be
spent in order to repair or rebuild the damaged area to the condition that
existed immediately prior to the damage occurring, excluding all improvements
made be lessees, other than those installed by Lessor at Lessee's expense.
9.2 Premises Damage; Premises Building Partial Damage.
(a) Insured Loss: Subject to the provisions of Paragraphs 9.4 and
9.5, if at any time during the term of this Lease there is damage which is an
insured Loss and which falls within the classification of Premises Damage or
Premises Building Partial Damage, then Lessor shall, as soon as reasonably
possible and to the extent the required materials and labor are readily
available through usual commercial channels, at Lessor's expense, repair such
damage (but not Lessee's fixtures, equipment or tenant improvements originally
paid for by Lessee) to its condition existing at the time of the damage, and
this Lease shall continue in full force and effect.
(b) Uninsured Loss: Subject to the provisions of Paragraphs 9.4 and
9.5, if at any time during the term of this Lease there is damage which is an
Insured Loss and which falls into the classification of either Premises Damage
or Premises Building Partial Damage, unless caused by a negligent or willful act
of Lessee (in which event Lessee shall make the repairs at lessee's expense),
which damage prevents Lessee from making any substantial use of the Premises,
Lessor may at Lessor's option either (i) repair such damage as soon as
reasonably possible at Lessor's expense, in which even this Lease shall continue
in full force and effect, or (ii) give written notice to Lessee within thirty
(30) days after the date of occurrence of such damage of Lessor's intention to
cancel and terminate this lease as of the date of the occurrence of such damage,
in which event this Lease shall terminate as of the date of the occurrence of
such damage.
9.3 Premises Building Total Destruction; Office Building Project Total
Destruction. Subject to the provisions of Paragraphs 9.4 and 9.5, if at any time
during the term of this Lease there is damage, whether or not its is an Insured
Loss, which falls into the classifications of either (i) Premises Building Total
Destruction, or (ii) Office Building Project Total Destruction, then Lessor may
at Lessor's option either (i) repair such damage or destruction as soon as
reasonably possible at Lessor's expense (to the extent the required materials
are readily available through usual commercial channels) to its condition
existing at the time of damage, but not to Lessee's fixtures, equipment or
tenant improvements, and this Lease shall continue in full force and effect, or
(ii) give written notice to lessee within thirty (30) days after the date of
occurrence of such damage of Lessor's intention to cancel and terminate this
Lease, in which case this Lease shall terminate as of the date of the occurrence
of such damage.
9.4 Damage near End of Term.
(a) Subject to Paragraph 9.4(b), if at any time during the last
twelve (12) months of the term of this Lease there is substantial damage to the
Premises, Lessor may at Lessor's option cancel and terminate this Lease as of
the date of occurrence of such damage by giving written notice to Lessee of
Lessor's election to do so within 30 days after the date of occurrence of such
damage.
(b) Notwithstanding Paragraph 9.4(a), in the event that Lessee has an
option to extend or renew this Lease, and the time within which said option may
be exercised has not yet expired, Lessee shall exercise such option, if it is to
be exercised at all, no later than twenty (20) days after the occurrence of an
Insured Loss falling within the classification of Premises Damage during the
last twelve (12) months of the term of this Lease. If Lessee duly exercises such
option during said twenty (20) day period, Lessor shall, at Lessor's expense,
repair such damage, but not Lessee's fixtures, equipment or tenant improvements,
as soon as reasonably possible and this Lease shall continue in full force and
effect. If Lessee fails to exercise such option during said twenty (20) day
period, then Lessor may at Lessor's option terminate and cancel this Lease as of
the expiration of said twenty (20) day period, notwithstanding any term or
provision in the grant of option to the contrary.
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9.5 Abatement of Rent; Lessee's Remedies.
(a) In the event Lessor repairs or restores the Building or Premises
pursuant to the provisions of this Paragraph 9, and any part of the Premises are
not usable (including loss of use due to loss of access or essential services),
the rent payable hereunder (including Lessee's Share of Operating Expense
Increase) for the period during which such damage, repair or restoration
continues shall be abated, provided (1) the damage was not the result of the
negligence of Lessee, and (2) such abatement shall only be to the extent the
operation and profitability of Lessee's business as operated from the Premises
is adversely affected. Except for said abatement of rent, if any, Lessee shall
have no claim against Lessor for any damage suffered by reason of any such
damage, destruction, repair or restoration.
(b) If Lessor shall be obligated to repair or restore the Premises or
the Building under the provisions of this Paragraph 9 and shall not commence
such repair or restoration within ninety (90) days after such occurrence, or if
Lessor shall not complete the restoration and repair within six (6) months after
such occurrence, Lessee may at Lessee's option cancel and terminate this Lease
by giving Lessor written notice of Lessee's election to do so at any time prior
to the commencement or completion, respectively, of such repair or restoration.
In such event this Lease shall terminate as of the date of such notice.
(c) Lessee agrees to cooperate with Lessor in connection with any
such restoration and repair, including, but not limited to, the approval and/or
execution of plans and specifications required.
9.6 Termination - Advance Payments. Upon termination of this Lease
pursuant to this Paragraph 9, an equitable adjustment shall be made concerning
advance rent and any advance payments made by Lessee to Lessor. Lessor shall, in
addition, return to Lessee so much of Lessee's security deposit as has not
therefore been applied by Lessor.
9.7 Waiver. Lessor and Lessee waive the provisions of any statute which
relate to termination of leases when leased property is destroyed and agree that
such event shall be governed by the terms of this Lease.
10. Real Property Taxes.
10.1 Payment of Taxes. Lessor shall pay the real property tax, defined in
Paragraph 10.3, applicable to the Office Building Project subject to
reimbursement by Lessee of Lessee's Share of such taxes in accordance with the
provisions of Paragraph 4.2, except as otherwise provided in Paragraph 10.2.
10.2 Additional Improvements. Lessee shall not be responsible for paying
any increase in real property tax specified in the tax assessor's records and
work sheets as being caused by additional improvements placed upon the Office
Building Project by other lessees or by Lessor for the exclusive enjoyment of
any other lessee. Lessee shall, however, pay to Lessor at the time that
Operating Expenses are payable under Paragraph 4.2(c) the entirety of any
increase in real property tax if assessed solely by reason of additional
improvements placed upon the Premises by Lessee or at Lessee's request.
10.3 Definition of "Real Property Tax." As used herein, the term "real
property tax" shall include any form of real estate tax or assessment, general,
special, ordinary, and any license fee, commercial rental tax, improvement bond
or bonds, levy or tax (other than inheritance, personal income or estate taxes)
imposed on the Office Building Project or any portion thereof by any authority
having the direct or indirect power to tax, including any city, county, state or
federal government, or any school, agricultural, sanitary, fire, street,
drainage or other improvement district thereof, as against any legal or
equitable interest of Lessor in the Office Building Project. The term "real
property tax" shall also include any tax, fee, levy, assessment or charge (i) in
substitution of, partially or totally, any tax, fee, levy, assessment or charge
hereinabove included within the definition of "real property tax" shall also
include any tax, fee, levy assessment or within the definition of "real property
tax," or (ii) the nature of which was hereinbefore included within the
definition of "real property tax," or (iii) which is imposed for a service or
right not charged prior to June 1, 1978, or, if previously charged, has been
increased since June 1, 1978, or (iv) which is imposed as a result of a change
in ownership, as a defined by applicable local statutes for property tax
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purposes, of the Office Building Project or which is added to a tax or charge
hereinbefore included within the definition of real property tax by reason of
such change of ownership, or (v) which is imposed by reason of this transaction,
any modification or changes hereto, or any transfers hereof.
10.4 Joint Assessment. If the improvements or property, the taxes for
which are to be paid separately by Lessee under Paragraph 10.2 or 10.5 are not
separately assessed, Lessee's portion of that tax shall be equitably determined
by Lessor from the respective valuation assigned in the assessor's work sheets
or such other information (which may include the cost of construction) as may be
reasonably available. Lessor's reasonable determination thereof, on good faith,
shall be conclusive.
10.5 Personal Property Taxes.
(a) Lessee shall pay prior to delinquency all taxes assessed against
and levied upon trade fixtures, furnishings, equipment and all other personal
property of Lessee contained in the Premises or elsewhere.
(b) If any of Lessee's said personal property shall be assessed with
Lessor's real property, Lessee shall pay to Lessor the taxes attributable to
Lessee within ten (10) days after receipt of a written statement setting forth
the taxes applicable to Lessee's property.
11. Utilities.
11.1 Services Provided by Lessor. Lessor shall provide heating,
ventilation, air conditioning, and janitorial service as reasonably required,
reasonable amounts of electricity for normal lighting and office machines, water
for reasonable and normal drinking and lavatory use, and replacement light bulbs
and/or fluorescent tubes and ballasts for standard overhead fixtures.
11.2 Services Exclusive to Lessee. Lessee shall pay for all water, gas,
heat, light, power, telephone and other utilities and services specially or
exclusively supplied and/or metered exclusively to the Premises or to Lessee,
together with any taxes thereon. If any such services are not separately metered
to the Premises, Lessee shall pay at Lessor's option, either Lessee's Share or a
reasonable proportion to be determined by Lessor of all charges jointly metered
with other premises in the Building. As of the execution date hereof, there are
no such services specially or exclusively supplied or metered exclusively to the
Premises.
11.3 Hours of Service. Said services and utilities shall be provided
during generally accepted business days and hours or such other days or hours as
may hereafter be set forth. Utilities and services required at other times shall
be subject to advance request and reimbursement by Lessee to Lessor of the cost
thereof. After hours usage of the HVAC system will be billed at $25.00 per hour.
Accepted business hours are 7:00 a.m. to 7:00 p.m. Monday through Friday.
11.4 Excess Usage by Lessee. Lessee shall not make connection to the
utilities except by or through existing outlets and shall not install or use
machinery or equipment in or about the Premises that uses excess water, lighting
or power, or suffer or permit any act that causes extra burden upon the
utilities or services, including, but not limited to, security services, over
standard office usage for the Office Building Project. Lessor shall require
Lessee to reimburse Lessor for any excess expenses or costs that may arise out
of a breach of this subparagraph by Lessee. Lessor may, in its sole discretion,
install at Lessee's expense supplemental equipment and/or separate metering
applicable to Lessee's excess usage or loading.
11.5 Interruptions. There shall be no abatement of rent and Lessor shall
not be liable in any respect whatsoever for the inadequacy, stoppage,
interruption or discontinuance of any utility or service due to riot, strike,
labor dispute, breakdown, accident, repair or other cause beyond Lessor's
reasonable control or in cooperation with governmental request or directions.
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12. Nonassignment.
A. Landlord's Consent Required. Tenant's interest in this Lease is not
----------------------------
assignable, by operation of law or otherwise, nor shall Tenant have
the right to sublet the Premises, transfer any interest of Tenant
therein or permit any use of the Premises by another party, without
the prior written consent of landlord to such assignment, subletting,
transfer or use, which consent Landlord agrees not to withhold
unreasonably subject to the provisions of Subparagraph B below. A
consent to one assignment, subletting, occupancy or use by another
party shall not be deemed to be a consent to any subsequent
assignment, subletting, occupancy or use by another party. Any
assignment or subletting without such consent shall be void and shall,
at the option of Landlord, terminate this Lease.
Landlord's waiver or consent to any assignment or subletting hereunder
shall not relieve Tenant from any obligation under this Lease unless
the consent shall so provide.
B. Transferee Information Required. If Tenant desires to assign its
--------------------------------
interest in this Lease or sublet the Premises, or transfer any
interest of Tenant therein, or permit the use of the Premises by
another party (hereinafter collectively referred to as a "Transfer"),
Tenant shall give Landlord at least thirty (30) days prior written
notice of the proposed Transfer and of the terms of such proposed
Transfer, including, but not limited to, the name and legal
composition of the proposed transferee, a financial statement of the
proposed transferee, the nature of the proposed transferee's business
to be carried on in the Premises, the payment to be made or other
consideration to be given to Tenant on account of the Transfer, and
such other pertinent information as may be requested by Landlord, all
in sufficient detail to enable Landlord to evaluate the proposed
Transfer and the prospective transferee. It is the intent of the
parties hereto that this Lease shall confer upon Tenant only the right
to use and occupy the Premises, and to exercise such other rights as
are conferred upon Tenant by this Lease. The parties agree that this
Lease is not intended to have a bonus value nor to serve as a vehicle
whereby Tenant may profit by a future Transfer of this Lease or the
right to use or occupy the Premises as a result of any favorable terms
contained herein, or future changes in the market for leased space.
It is the intent of the parties that any such bonus value that may
attach to this Lease shall be and remain the exclusive property of
Landlord. Accordingly, in the event Tenant seeks to Transfer its
interest in this Lease or the Premises, Landlord shall have the
following options, which may be exercised at its sole choice without
limiting landlord n the exercise of any other right or remedy which
Landlord may have by reason of such proposed Transfer:
(1) Landlord may elect to terminate this Lease effective as of the
proposed effective date of the proposed Transfer and release
Tenant from any further liability hereunder accruing after such
termination date by giving Tenant written notice of such
termination within twenty (20) days after receipt by Landlord of
Tenant's notice of intent to transfer as provided above. If
Landlord makes such election to terminate this Lease; Tenant
shall surrender the Premises, in accordance with Paragraph 34, on
or before the effective termination date; or
(2) Landlord may consent to the proposed Transfer on the condition
that Tenant agrees to pay to Landlord, as additional rent, any
and all rents or other consideration (including key money)
received by Tenant from the transferee by reason of such Transfer
in excess of the rent payable by Tenant to Landlord under this
Lease (less any brokerage commissions or advertising expenses
incurred by Tenant in connection with the Transfer). Tenant
expressly agrees that the foregoing is a reasonable condition for
obtaining Landlord's consent to any Transfer; or
(3) Landlord may reasonably withhold its consent to the proposed
Transfer.
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13. Default: Remedies.
13.1 Default. The occurrence of any one or more of the following events
shall constitute a material default of this Lease by Lessee:
(a) The vacation or abandonment of the Premises by Lessee. Vacation
of the Premises shall include the failure to occupy the Premises for a
continuous period of sixty (60) days or more, whether or not rent is paid.
(b) The breach by Lessee of any of the covenants, conditions or
provisions of Paragraphs 7.3(a), (b) or (d) (Alterations), 12.1 (Assignment or
Subletting), 13.1(a) (Vacation or Abandonment), 13.1(e) (Insolvency), 13.1(f)
(False Statement), 16(a) (Estoppel Certificate), 30(b) (Subordination), 33
(Auctions), or 41.1 (Easements), all of which are hereby deemed to be material,
non-curable defaults without the necessity of any notice by Lessor to Lessee
thereof.
(c) The failure by Lessee to make any payment of rent or any other
payment required to be made by Lessee hereunder, as and when due, where such
failure shall continue for a period of three (3) days after written notice
thereof from Lessor to Lessee. In the event that Lessor serves Lessee with a
Notice to Pay Rent or Quit pursuant to applicable Unlawful Detainer statutes
such Notice to Pay Rent or Quit shall also constitute the notice required by the
subparagraph.
(d) The failure by Lessee to observe or perform any of the covenants,
conditions or provisions of this Lease to be observed or performed by Lessee
other than those referenced in Subparagraphs (b) and (c) above, where such
failure shall continue for a period of thirty (30) days after written notice
thereof from Lessor to Lessee; provided, however, that if the nature of Lessee's
noncompliance is such that more than thirty (30) days are reasonably required
for its cure, then Lessee shall not be deemed to be in default if Lessee
commenced such cure within said thirty (30) day period and thereafter diligently
pursues such cure to completion. To the extent permitted by law, such thirty
(30) day notice shall constitute the sole and exclusive notice required to be
given to Lessee under applicable Unlawful Detainer statutes.
(e) The making by Lessee of any general arrangement or general
assignment for the benefit of creditors; (ii) Lessee becoming a "debtor" as
defined in 11 U.S.C. 101 or any successor statute thereto (unless, in the case
of a petition filed against Lessee, the same is dismissed within sixty (60)
days); (iii) the appointment of a trustee or receiver to take possession of
substantially all of Lessee's assets located at the Premises or of Lessee's
interest in this Lease, where possession is not restored to Lessee within thirty
(30) days; or (iv) the attachment, execution or other judicial seizure of
substantially all of Lessee's assets located at the Premises or of Lessee's
interest in this Lease, where such seizure is not discharged within thirty (30)
days. In the event that any provision of this Paragraph 13.1(e) is contrary to
any applicable law, such provision shall be of no force or effect.
(f) The discovery by Lessor that any financial statement given to
Lessor by Lessee, or its successor in interest or by any guarantor of Lessee's
obligation hereunder, was materially false.
13.2 Remedies. In the event of any material default or breach of this
Lease by Lessee, Lessor may at any time thereafter, with or without notice or
demand and without limiting Lessor in the exercise of any right or remedy which
Lessor may have by reason of such default:
(a) Terminate Lessee's right to possession of the Premises by any
lawful means, in which case this Lease and the term hereof shall terminate and
Lessee shall immediately surrender possession of the Premises to Lessor. In such
event Lessor shall be entitled to recover from Lessee all damages incurred by
Lessor by reason of Lessee's default, including, but not limited to, the cost of
recovering possession of the Premises; expenses of reletting, including
necessary renovation and alteration of the Premises, reasonable attorneys' fees,
and any real estate commission actually paid; the worth at the time of award by
the court having jurisdiction thereof of the amount by which the unpaid rent for
the balance of the term after the time of such award exceeds the amount of
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such rental loss for the same period that Lessee proves could be reasonably
avoided that portion of the leasing commission paid by Lessor pursuant to
Paragraph 15 applicable to the unexpired term of this lease.
(b) Maintain Lessee's right to possession in which case this Lease
shall continue in effect whether or not Lessee shall have vacated or abandoned
the Premises. In such event Lessor shall be entitled to enforce all of Lessor's
rights and remedies under this Lease, including the right to recover the rent as
it becomes due hereunder.
(c) Pursue any other remedy now or hereafter available to Lessor
under the laws or judicial decisions of the state wherein the Premises are
located. Unpaid installments of rent and other unpaid monetary obligations to
Lessor under the terms of this lease shall bear interest from the date due at
the maximum rate then allowable by law.
13.3 Default by Lessor. Lessor shall not be in default unless Lessor fails
to perform obligations required of Lessor within a reasonable time, but in no
event later than thirty (30) days after written notice by Lessee to Lessor and
to the holder of any first mortgage or deed of trust covering the Premises whose
name and address shall have thereforeto been furnished to Lessee in writing,
specifying wherein Lessor has failed to perform such obligation; provided,
however, that if the nature of Lessor's obligation is such that more than thirty
(30) days are required to performance then Lessor shall not be in default if
Lessor commences performance within such 30-day period and thereafter diligently
pursues the same to completion.
13.4 Late Charges. Lessee hereby acknowledges that late payment by Lessee
to Lessor of Base Rent, Lessee's Share of Operating Expense Increase or other
sums due hereunder will cause Lessor to incur costs not contemplated by this
Lease, the exact amount of which will be extremely difficult to ascertain. Such
costs include, but are not limited to, processing and accounting charges, and
late charges which may be imposed on Lessor by the terms of any mortgage or
trust deed covering the Office building Project. Accordingly, if any installment
of Base Rent, Operating Expenses Increase, or any other sum due from Lessee
shall not be received by Lessor or Lessor's designee within ten (10) days after
such amount shall be due, then, without any requirements for notice to Lessee,
Lessee shall pay to Lessor a late charge equal to 6% of such overdue amount. The
parties hereby agree that such late charge represents a fair and reasonable
estimate of the costs Lessor will incur by reason of late payment by Lessee.
Acceptance of such late charge by Lessor shall in no event constitute a waiver
of Lessee's default with respect to such overdue amount, nor prevent Lessor from
exercising any of the other rights and remedies granted hereunder.
14. Condemnation. If the Premises or any portion thereof or the Office Building
Project are taken under the power of eminent domain, or sold under the
terms of the exercise of said power (all of which are herein called
"condemnation"), this Lease shall terminate as to the part so taken as of
the date the condemning authority takes title or possession, whichever
first occurs; provided that if so much of the Premises or the Office
Building Project are taken by such condemnation as would substantially and
adversely affect the operation and profitability of Lessee's business
conducted from the Premises, Lessee shall have the option, to be exercised
only in writing within thirty (30) days after Lessor shall have given
Lessee written notice of such taking (or in the absence of such notice,
within thirty (30) days after receipt after the condemning authority shall
have taken possession), to terminate this Lease as of the date the
condemning authority takes such possession. If Lessee does not terminate
this Lease in accordance with the foregoing, this Lease shall remain in
full force and effect as to the portion of the Premises remaining, except
that the rent and Lessee's Share of Operating Expense Increase shall be
reduced from the Common Areas usable by Lessee and no reduction of rent
shall occur with respect thereto or by reason thereof. Lessor shall have
the option in its sole discretion to terminate this Lease as of the taking
of possession by the condemning authority, by giving written notice to the
Lessee of such election within thirty (30) days after receipt of notice of
a taking by condemnation of any part of the Premises or the Office Building
Project. Any award for the taking of all or any part of the Premises or the
Office Building Project under the power of eminent domain or any payments
made under threat of the exercise of such power shall be the property of
Lessor, whether such award shall be made as compensation for diminution in
value of the leasehold or for the taking of the fee, or as severance
damages; provided, however, that Lessee shall be entitled to any separate
award for loss of
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or damage to Lessee's trade fixtures, removable personal property and
unamortized tenant improvements that have been paid for by Lessee. For that
purpose the cost of such improvements shall be amortized over the original
term of this Lease excluding any options. In the event that this Lease is
not terminated by reason of such condemnation, Lessor shall to the extent
of severance damages received by Lessor in connection with such
condemnation, repair any damage to the Premises caused by such condemnation
except to the extent that Lessee has been reimbursed therefor by the
condemning authority. Lessee shall pay any amount in excess of such
severance damages required to complete such repair.
15. Brokers. Lessee represents and warrants to lessor that it has not dealt
with any broker respecting this transaction other than Cornish & Carey, and
hereby agrees to indemnify and hold Lessor harmless from and against any
brokerage commission or fees, obligation, claim or damage 9including
attorneys' fees) paid or incurred respecting any other broker claiming
through Lessee or with which/whom Lessee has dealt. It is acknowledged that
one or more of lessor's partners may be real estate brokers. Lessor shall
be responsible for paying any brokerage commission due with respect to this
Lease per separate agreement with Cornish & Carey and the Staubach Company.
16. Estoppel Certificate.
(a) Each party (as "responding party") shall at any time upon not less
than ten (10) days' prior written notice from the other party ("requesting
party") execute, acknowledge and deliver to the requesting party a statement in
writing (i) certifying that this Lease is unmodified and in full force and
effect (or, if modified, stating the nature of such modification and certifying
that this lease, as so modified, is in full force and effect) and the date to
which the rent and other charges are paid in advance, if any, and (ii)
acknowledging that there are not, to the responding party's knowledge, any
uncured defaults on the part of the requesting party, or specifying such
defaults if any are claimed. Any such statement may be conclusively relied upon
by any prospective purchaser or encumbrancer of the Office Building Project or
of the business of Lessee.
(b) At the requesting party's option, the failure to deliver such
statement within such time shall be a material default of this Lease by the
party who is to respond without any further notice to such party, or it shall be
conclusive upon such party that (i) this Lease is in full force and effect,
without modification except as may be represented by the requesting party, (ii)
there are no uncured defaults in the requesting party's performance, and (iii)
if Lessor is the requesting party, not more than one month's rent has been paid
in advance.
(c) If Lessor desires to finance, refinance, or sell the Office Building
Project, or any part thereof, Lessee hereby agrees to deliver to any lender or
purchaser designated by Lessor such financial statements of Lessee as may be
reasonably required by such lender or purchaser. Such statements shall include
the past three (3) years' financial statements of Lessee. All such financial
statements shall be received by Lessor and such lender or purchaser in
confidence and shall be used only for the purposes herein set forth.
17. Lessor's Liability. The term "Lessor" as used herein shall mean only the
owner or owners, at the time in question, of the fee title or a lessee's
interest in a ground lease of the Office Building Project, and except as
expressly provided in Paragraph 15, in the event of any transfer of such
title or interest, Lessor herein named (and in case of any subsequent
transfers then the grantor) shall be relieved from and after the date of
such transfer of all liability as respects Lessor's obligations thereafter
to be performed, provided that any funds in the hands of Lessor or the then
grantor at the time of such transfer, in which Lessee has an interest,
shall be delivered to the grantee. The obligations contained in this Lease
to be performed by Lessor shall, subject as aforesaid, be binding on
Lessor's successors and assigns, only during their respective periods of
ownership.
18. Severability. The invalidity of any provision of this Lease as determined
by a court of competent jurisdiction shall in no way affect the validity of
any other provision hereof.
19. Interest on Past-Due Obligations. Except as expressly herein provided, any
amount due to Lessor not paid when due shall bear interest at the maximum
rate then allowable by law or judgments from the date
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due. Payment of such interest shall not excuse or cure any default by
Lessee under this Lease; provided, however, that interest shall not be
payable on late charges incurred by Lessee nor on any amounts upon which
late charges are paid by Lessee.
20. Time of Essence. Time is of the essence with respect to the obligations to
be performed under this Lease.
21. Additional Rent. All monetary obligations of Lessee to Lessor under the
terms of this Lease, including, but not limited, to Lessee's Share of
Operating Expense Increase and any other expenses payable by Lessee
hereunder shall be deemed to be rent.
22. Incorporation of Prior Agreements; Amendments. This Lease contains all
agreements of the parties with respect to any matter mentioned herein. No
prior or contemporaneous agreement or understanding pertaining to any such
matter shall be effective. This Lease may be modified in writing only,
signed by the parties in interest at the time of the modification. Except
as otherwise stated in this Lease, Lessee hereby acknowledges that neither
the real estate broker listed in Paragraph 15 hereof nor any cooperating
broker on this transaction nor the Lessor or any employee or agents of any
said persons has made any oral or written warranties or representations to
Lessee relative to the condition or use by Lessee of the Premises or the
Office Building Project and Lessee acknowledges that lessee assumes all
responsibility regarding the Occupational Safety Health Act, the legal use
and adaptability of the Premises and the compliance thereof with all
applicable laws and regulations in effect during the term of this Lease.
23. Notices. Any notice required or permitted to be given hereunder shall be in
writing and may be given by personal delivery or by certified or registered
mail, and shall be deemed sufficiently given if delivered or addressed to
Lessee or to Lessor at the address noted below or adjacent to the signature
of the respective parties, as the case may be. Mailed notices shall be
deemed given upon actual receipt at the address required, or forty-eight
hours following deposit in the mail, postage prepaid, whichever first
occurs. Either party may by notice to the other specify a different address
for notice purposes except that upon Lessee's taking possession of the
Premises, the Premises shall constitute the Lessee's address for notice
purposes. A copy of all notices required or permitted to be given to Lessor
hereunder shall be concurrently transmitted to such party or parties at
such addresses as Lessor may from time to time hereafter designate by
notice to Lessee.
24. Waivers. No waiver by Lessor of any provision hereof shall be deemed a
waiver of any other provision hereof or of any subsequent breach by Lessee
of the same or any other provision. Lessor's consent to, or approval of,
any act shall not be deemed to render unnecessary the obtaining of Lessor's
consent to or approval of any subsequent act by Lessee. The acceptance of
rent hereunder by Lessor shall not be a waiver of any preceding breach by
Lessee of any provision hereof, other than the failure of Lessee to pay the
particular rent so accepted, regardless of Lessor's knowledge of such
preceding breach at the time of acceptance of such rent.
25. Recording. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a "short form" memorandum of
this Lease for recording purposes.
26. Holding Over. If Lessee, with Lessor's consent, remains in possession of
the Premises or any part thereof after the expiration of the term hereof,
such occupancy shall be a tenancy from month to month upon all the
provisions of this Lease pertaining to the obligations of Lessee, except
that the rent payable shall be one hundred fifty percent (150%) of the rent
payable immediately preceding the termination date of this Lease, and all
Options, if any, granted under the terms of this Lease shall be deemed
terminated and be of no further effect during said month to month tenancy.
27. Cumulative Remedies. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other
remedies at law or in equity.
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28. Covenants and Conditions. Each provision of this Lease performable by
Lessee shall be deemed both a covenant and a condition.
29. Binding Effect: Choice of Law. Subject to any provisions hereof restricting
assignment or subletting by Lessee and subject to the provisions of
Paragraph 17, this Lease shall bind the parties, their personal
representatives, successors and assignees. This Lease shall be governed by
the laws of the state where the Office Building Project is located and any
litigation concerning this Lease between the parties hereto shall be
initiated in the county in which the Office Building Project is located.
30. Subordination.
(a) This Lease, and any Option or right of first refusal granted hereby,
at Lessor's option, shall be subordinate to any ground lease, mortgage, deed of
trust, or any other hypothecation of security now or hereafter placed upon the
Office Building Project and to any and all advances made on the security thereof
and to all renewals, modifications, consolidations, replacements and extensions
thereof. Notwithstanding such subordination, Lessee's right to quiet possession
of the Premises shall not be disturbed if Lessee is not in default and so long
as Lessee shall pay the rent and observe and perform all of the provisions of
this Lease, unless this Lease is otherwise terminated pursuant to its terms. If
any mortgagee, trustee or ground lessor shall elect to have this Lease and any
Options granted hereby prior to the lien of its mortgage, deed or trust or
ground lease, and shall give written notice thereof to Lessee, this Lease and
such Options shall be deemed prior to such mortgage, deed of trust or ground
lease, whether this Lease or such Options are dated prior or subsequent to the
date of said mortgage, deed of trust or ground lease or the date of recording
thereof.
(b) Lessee agrees to execute any documents required to effectuate an
attornment, a subordination, or to make this Lease or any Option granted herein
prior to the lien of any mortgage, deed of trust or ground lease, as the case
may be. Lessee's failure to execute such documents within the ten (10) days
after written demand shall constitute a material default by Lessee hereunder
without further notice to Lessee or, at Lessor's option, Lessor shall execute
such documents on behalf of Lessee as Lessee's attorney-in-fact. Lessee does
hereby make, constitute and irrevocably appoint Lessor as Lessee's attorney-in-
fact and in Lessee's name, place and stead, to execute such documents in
accordance with this Paragraph 30(b).
31. Attorneys' Fees.
31.1 If either party or the broker(s) named herein bring an action to
enforce the terms hereof or declare rights hereunder, the prevailing party in
such action, trial or appeal thereon, shall be entitled to his reasonable
attorneys' fees to be paid by the leasing party as fixed by the court in the
same or a separate suit, and whether or not such action is pursued to decision
or judgment. The provisions of this paragraph shall inure to the benefit of the
broker named herein who seeks to enforce a right hereunder.
31.2 The attorneys' fee award shall not be computed in accordance with any
court fee schedule, but shall be such as to fully reimburse all attorneys' fees
reasonably incurred in good faith.
31.3 Lessor shall be entitled to reasonable attorneys' fees and all other
costs and expenses incurred in the preparation and service of notice of default
and consultations in connection herewith, whether or not a legal transaction is
subsequently commenced in connection with such default.
32. Lessor's Access.
32.1 Lessor and Lessor's agents shall have the right to enter the Premises
at reasonable times for the purpose of inspecting the same, performing any
services required of Lessor, showing the same to prospective purchasers,
lenders, or lessees, taking such safety measures, erecting such scaffolding or
other necessary structures, making such alterations, repairs, improvements or
additions to the Premises or the Office Building Project as Lessor may
reasonably deem necessary or desirable and the erecting, using and maintaining
of utilities, services, pipes and conduits through the Premises and/or other
premises as long as there is no material adverse effect to Lessee's use of
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the Premises. Lessor may at any time place on or about the Premises of the
Building any ordinary "For Sale" signs and Lessor may at any time during the
last 120 days of the term hereof place on or about the Premises any ordinary
"For Lease" signs.
32.2 All activities of Lessor pursuant to this Paragraph shall be without
abatement of rent, nor shall Lessor have any Liability to Lessee for the same.
32.3 Lessor shall have the right to retain keys to the Premises and to
unlock all doors in or upon the Premises other than to files, vaults and safes,
and in the case of emergency to enter the Premises by any reasonably appropriate
means, and any such entry shall not be deemed a forcible or unlawful entry or
detainer of the Premises or an eviction. Lessee waives any charges for damages
or injuries or interference with Lessee's property or business in connection
therewith.
33. Auctions. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises or the Common
Area without first having obtained Lessor's prior written consent.
Notwithstanding anything to the contrary in this Lease. Lessor shall not be
obligated to exercise any standard of reasonableness in determining whether
to grant such consent. The holding of any auction on the Premises or Common
Areas in violation of this Paragraph shall constitute a material default of
this Lease.
34. Signs. Lessee shall not place any sign upon the Premises or the Office
Building Project without Lessor's prior written consent. Under no
circumstances shall Lessee place a sign on any roof of the Office Building
Project.
35. Merger. The voluntary or other surrender of this Lease by Lessee, or a
mutual cancellation thereof, or a termination by Lessor, shall not work a
merger, and shall, at the option of Lessor, terminate all or any existing
subtenancies or may, at the option of Lessor, operate as an assignment to
Lessor of any or all of such subtenancies.
36. Consents. Except for Paragraphs 33 (Auctions) and 34 (Signs) hereof,
wherever in this Lease, the consent of one party is required to an act of
the other party such consent shall not be unreasonably withheld or delayed.
37. Guarantor. In the event that there is a guarantor of this Lease, said
guarantor shall have the same obligations as Lessee under this Lease.
38. Quiet Possessions. Upon Lessee paying the rent for the Premises and
observing and performing all of the covenants, conditions and provisions on
Lessee's part to be observed and performed hereunder, Lessee shall have
quiet possession of the Premises for the entire term hereof subject to all
of the provisions of this Lease. The individuals executing this Lease on
behalf of Lessor represent and warrant to lessee that they are fully
authorized and legally capable of executing this Lease on behalf of Lessor
and that such execution is binding upon all parties holding an ownership
interest in the Office Building Project.
39. Hazardous Material.
A. Definitions. As used herein, the term "Hazardous Material" shall mean
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any substance: (i) the presence of which requires investigation or
remediation under any federal, state or local statutes, regulation,
ordinance, order, action, policy or common law; (ii) which is or
becomes defined "hazardous waste," "hazardous substance," pollutant or
contaminant under any federal, state or local statute, regulation,
rule or ordinance or amendments thereto including, without limitation,
the Comprehensive Environmental Response, Compensation and Liability
Act (42 U.S.C. Section 9601 et seq.) and/or the Resource Conservation
and Recovery Act (42 U.S.C. Section 6901 et seq.); (iii) which is
toxic, explosive, corrosive, flammable, infectious, radioactive,
carcinogenic, mutagenic, or otherwise hazardous and is or becomes
regulated by any governmental authority,
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agency, department, commission, board, agency, or instrumentality of
the United States, the State of California or any political
subdivision thereof; (iv) the presence of which on the Premises causes
or threatens to cause a nuisance upon the Premises or to adjacent
properties or poses or threatens to pose a hazard to the health or
safety of persons on or about the Premises; (v) the presence of which
on adjacent properties could constitute a trespass to Landlord or
Tenant; (vi) without limitation which contains gasoline, diesel fuel,
or other petroleum hydrocarbons; (vii) without limitation which
contains polychlorinated byphenyls (PCBs), asbestos or urea
formaldehyde foam insulation; or (viii) without limitation radon gas.
B. Landlord's Indemnity. Landlord shall indemnify, defend, protect and
--------------------
hold Tenant harmless from and against all liabilities, claims,
penalties, fines, response costs and other expenses (including, but
limited to, reasonable attorneys' fees and consultants' fees and
costs) arising out of, resulting from, or caused by any Hazardous
Material used, generated, discharged, transported to or from, stored
or disposed of by Landlord or its Agents in, on, under, over, through
or about the Premises and/or the surrounding real property.
C. Permitted Use. Subject to compliance by Tenant with the provisions of
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Subparagraphs D, E, F, G, I, J and K below, Tenant shall be permitted
to use and store on the Premises those Hazardous Materials listed in
Exhibit "D" attached hereto in the quantities attached set forth in
Exhibit "D."
D. Hazardous Materials Management Plan. Prior to Tenant using, handling,
------------------------------------
transporting or storing any Hazardous Material at or about the
Premises (including, without limitation, those listed in Exhibit "D"),
Tenant shall submit to Landlord a Hazardous Materials Management Plan
("HMMP") for Landlord's review and approval, which approval shall not
be unreasonably withheld. The HMMP shall describe: (i) the quantities
of each material to be used, (ii) the purpose for which each material
is to be used, (iii) the method of storage of each material, (iv) the
method of transporting each material to and from the Premises and
within the Premises, (v) the methods Tenant will employ to monitor the
use of the material and to detect any leaks or potential hazards, and
(vi) any other information any department of any governmental entity
(city, state, or federal) requires prior to the issuance of any
required permit for the Premises or during Tenant's occupancy of the
Premises. Landlord may, but shall have obligation to review and
approve the foregoing information and HMO, and such review and
approval or failure to review and approve shall not act as an estoppel
or otherwise waive Landlord's rights under this Lease or relieve
Tenant of its obligations under this lease. If Landlord determines in
good faith by inspection of the Premises or review of the HMMP that
the methods in use or described by Tenant are not adequate in
Landlord's good faith judgment to prevent or eliminate the existence
of environmental hazards, the Tenant shall not use, handle, transport,
or store such Hazardous Materials at or about the Premises unless and
until such methods are approved by Landlord in good faith and added to
an approved HMMP. Once approved by Landlord, Tenant shall strictly
comply with the HMMP and shall not change its use, operations or
procedures with respect to Hazardous Materials without submitting an
amended HMMP for Landlord's review and approval as provided above.
E. Use Restriction. Except as specifically allowed in Subparagraph C
----------------
above. Tenant shall not cause or permit any Hazardous Material to be
used, stored, generated, discharged, transported to or from or
disposed of in or about the Premises, or any other land or
improvements in the vicinity of the Premises. Without limiting the
generality of the foregoing, Tenant, at its sole cost, shall comply
with all Laws relating to the storage, use, generation, transport,
discharge and disposal by Tenant or its Agents of any Hazardous
Material. If the presence of any Hazardous Material on the Premises
caused or permitted by Tenant or its Agents results in contamination
of the Premises or any soil, air, ground or surface waters under,
through, over, on, in or about the Premises, Tenant, at its expense,
shall promptly take all actions necessary to return the Premises
and/or the surrounding real property to the condition existing prior
to the appearances of such Hazardous Material.
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F. Tenant Indemnity. Tenant shall defend, protect, hold harmless and
-----------------
indemnify Landlord and its Agents and Lenders with respect to all
actions, claims, losses (including, diminution in value of the
Premises), fines, penalties, fees (including, but not limited to,
reasonable attorneys' and consultants' fees and costs) costs, damages,
liabilities, remediation costs, investigation costs, response costs
and other expenses arising out of, resulting from, or caused by any
Hazardous Material used, generated discharged, transported to or from,
stored, or disposed of by Tenant or its Agents in, on, under, over,
through or about the Premises and/or the surrounding real property.
Tenant shall not suffer any lien to be recorded against the Premises
as a consequence for the disposal of any Hazardous Material on the
Premises by Tenant or its Agents, including any so called state,
federal or local "super fund" lien related to the "clean up" of any
Hazardous Material in, over, on, under through, or about the Premises.
G. Compliance. Tenant shall immediately notify Landlord of any inquiry,
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test, investigation, enforcement proceeding by or against Tenant or
the Premises concerning any Hazardous Material. Any remediation plan
prepared by or on behalf of Tenant must be submitted to landlord prior
to conducting any work pursuant to such plan and prior to submittal to
any applicable government authority and shall be subject to Landlord's
consent. Tenant acknowledges that Landlord, as the owner of the
Property, at its election, shall have the sole right to negotiate,
defend, approve and appeal any action taken or order issued with
regard to any Hazardous Material by any applicable governmental
authority.
H. Assignment and Subletting. It shall not be unreasonable for Landlord
--------------------------
to withhold its consent to any proposed assignment or subletting if
(i) the proposed assignee's or subtenant's anticipated use of the
Premises involves the storage, generation, discharge, transport, use
or disposal of any Hazardous Material not permitted under Subparagraph
C above; (ii) if the proposed assignee or subtenant has been required
by any prior landlord, lender, or governmental authority to "clean up"
or remediate any Hazardous Material and has failed to promptly do so;
(iii) if the proposed assignee or subtenant is subject to
investigation or enforcement order or proceeding by any governmental
authority in connection with the use, generation, discharge,
transport, or storage of any material amount of Hazardous Material;
provided that (ii) and (iii) will not apply in the case of a Fortune
500 Company.
I. Surrender. Upon the expiration or earlier termination of the Lease,
----------
Tenant, at its sole cost, shall remove all Hazardous Materials from
the Premises that Tenant or its Agents introduced to the Premises. If
Tenant fails to so surrender the Premises, Tenant shall indemnify,
protect, defend and hold Landlord harmless from and against all
damages resulting from Tenant's failure to surrender the Premises as
required by this Paragraph, including without limitation, any actions,
claims losses, liabilities, fees (including, but not limited to,
reasonable attorneys' fees and consultants' fees and costs), fines,
costs, penalties, or damages in connection with the condition of the
Premises including, without limitation, damages occasioned by the
inability to relet the Premises or a reduction in the fair market
and/or rental value of the Premises by reason of the existence of any
Hazardous Materials in, on, over, under, through or around the
Premises.
J. Right to Appoint Consultant. Landlord shall have the right to appoint
----------------------------
a consultant to conduct an investigation to determine whether any
Hazardous Material is being used, generated, discharged, transported
to or from, stored or disposed of in, on, over, through, or about the
Premises, in an appropriate and lawful manner. If Tenant has violated
any Law or covenant in this Lease regarding the use, storage or
disposal of Hazardous Materials on or about the Premises, Tenant shall
reimburse Landlord for the cost of such investigation. Tenant, at its
expense, shall comply with all reasonable recommendations of the
consultant required to conform Tenant's use, storage or disposal of
Hazardous Materials to the requirements of applicable Law or to
fulfill the obligations of Tenant hereunder.
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K. Holding Over. If any action of any kind is required to be taken by
-------------
any governmental authority to clean-up, remove, remediate or monitor
Hazardous Material (the presence of which is the result of the acts or
omissions of Tenant or its Agents) and such action is not completed
prior to the expiration or earlier termination of the Lease, Tenant
shall be deemed to have impermissibly held over until such time as
such required action is completed, and Landlord shall be entitled to
all damages directly or indirectly incurred in connection with such
holding over, including without limitation, damages occasioned by the
inability to re-let the Premises or a reduction of the fair market
and/or rental value of the Premises.
L. Existing Environmental Reports. Tenant hereby acknowledges that it
-------------------------------
has received, read and reviewed the reports and test results described
in Exhibit "C" attached hereto and made a part hereof (the "Existing
Environmental Reports").
M. Provisions Survive Termination. The provisions of this Paragraph 39
-------------------------------
shall survive the expiration or termination of this Lease.
N. Controlling Provisions. The provisions of this Paragraph 39 are
-----------------------
intended to govern the rights and liabilities of the Landlord and
Tenant hereunder respecting Hazardous Materials to the exclusion of
any provisions in this Lease that might otherwise be deemed
applicable. The provisions of this Paragraph 39 shall be controlling
with respect to any provisions in this Lease that are inconsistent
with this Paragraph 39.
40. Options.
40.1 Definition. As used in this Paragraph the word "Option has the
following meaning: (1) the right or option to extend the term of this lease or
to renew this Lease or to extend or renew any lease that Lessee has on other
property of Lessor; (2) the option of right of first refusal to lease the
Premises or the right of first offer to lease the Premises or the right of first
refusal to lease other space within the Office Building Project or other
property of Lessor or the right of first offer to lease other space within the
Office Building Project or other property of Lessor; (3) the right or option to
purchase the Premises or Office Building Project, or the right of first refusal
to purchase the Premises or the Office Building Project or the right of first
offer to purchase the Premises or the Office Building Project, or the right or
option to purchase other property of Lessor, or the right of first refusal to
purchase other property of Lessor or the right of first offer to purchase other
property of Lessor.
40.2 Options Personal. Each Option granted to Lessee in this Lease is
personal to the original Lessee and may be exercised only by the original Lessee
while occupying the Premises who does so without the intent of thereafter
assigning this Lease or subletting the Premises or any portion thereof, any may
not be exercised or be assigned, voluntarily or involuntarily, by or to any
person or entity other than Lessee provided, however, that an option may be
exercised by or assigned to any Lessee Affiliate as defined in Paragraph 12.2 of
this Lease. The Options, if any, herein granted to Lessee are not assignable
separate and apart form this Lease, nor may any Option be separated from this
Lease in any manner, either by reservation or otherwise.
40.3 Multiple Options. In the event that Lessee has any multiple options
to extend or renew this Lease a later option cannot be exercised unless the
prior option to extend or renew this Lease has been so exercised.
40.4 Effect of a Default on Options.
(a) Lessee shall have no right to exercise an Option, notwithstanding
any provision in the grant of option to the contrary, (i) during the time
commencing from the date Lessor gives to Lessee a notice of default pursuant to
paragraph 13.1(c) or 13.1(d) and continuing until the noncompliance alleged in
said notice of default is cured, or (ii) during the period of time commencing on
the day after a monetary obligation to Lessor is due from Lessee and unpaid
(without any necessity for notice thereof to Lessee) and continuing until the
obligation is paid, or (iii) in the event that Lessor has given to Lessee three
or more notices of default under Paragraph 13.1(c), or Paragraph 13.1(d),
whether or not the defaults are cured, during the 12 month period of time
immediately prior to
-23-
<PAGE>
the time that Lessee attempts to exercise the subject Option, (iv) if Lessee has
committed any no-curable breach, including, without limitation, those described
in Paragraph 13.1(b), or is otherwise in default of any of the terms, covenants
or conditions of this Lease.
(b) The period of time within which Option may be exercised shall
not be extended or enlarged by reason of Lessee's inability to exercise an
Option because of the provisions of Paragraph 39.4(a).
(c) All rights of Lessee under the provisions of an Option shall
terminate and be of no further force or effect, notwithstanding lessee's due and
timely exercise of the Option, if, after such exercise and during the term of
this Lease, (i) Lessee fails to pay to Lessor a monetary obligation of Lessee
for a period of thirty (30) days after such obligation becomes due (without any
necessity of Lessor to give notice thereof to Lessee), or (ii) Lessee fails to
commence to cure a default specified in Paragraph 1.3(d) within thirty (30) days
after the date that Lessor gives notice to Lessee of such default and/or Lessee
fails thereafter to diligently prosecute said cure to completion, or (iii)
Lessor gives to Lessee three or more notices of default under Paragraph 13.1(c),
or Paragraph 13.1(d), whether or not the defaults are cured, or (iv) if Lessee
has committed any no-curable breach, including, without limitation, those
described in Paragraph 13.1(b), or is otherwise in default of any of the terms,
covenants and conditions of this Lease.
41. Security Measures - Lessor's Reservations.
41.1 Lessee hereby acknowledges that Lessor shall have no obligation
whatsoever to provide or other security measures for the benefit of the Premises
or the Office Building Project. Lessee assumes all responsibility for the
protection of lessee, its agents, and invitees and the property of lessee and of
Lessee's agents and invitees from acts of third parties. Nothing herein
contained shall prevent Lessor, at lessor's sole option, from providing security
protection for the Office Building Project or any part thereof, in which event
the cost thereof, shall be included within the definition of Operating Expense,
as set forth in Paragraph 4.2(b).
41.2 Lessor shall have the following rights:
(a) To change the name, address or title of the Office Building
Project or building in which the Premises are located upon not less than ninety
(90) days prior written notice;
(b) To, at Lessee's expense, provide and install Building standard
graphics on the door of the Premises and such portions of the Common Areas as
Lessor shall reasonably deem appropriate;
(c) To permit any lessee the exclusive right to conduct any business
as long as such exclusive does not conflict with any rights expressly given
herein;
(d) To place such signs, notices or displays as Lessor reasonably
deems necessary or advisable upon the roof, exterior of the buildings or the
Office Building Project or on pole signs in the Common Areas.
41.3 Lessee shall not:
(a) Use a representation (photographic or otherwise) of the Building
or the Office Building Project or their name(s) in connection with Lessee's
business;
(b) Suffer or permit anyone, except in emergency, to go upon the
roof of the Building.
42. Easements.
42.1 Lessor reserves to itself the right, from time to time, to grant such
easements, rights and dedications that Lessor deems necessary or desirable, and
to cause the recordation of Parcel Maps and restrictions, so long as such
easements, rights, dedications, Maps and restrictions do not unreasonably
interfere with the use of
-24-
<PAGE>
the Premises by Lessee. Lessee shall sign any of the aforementioned documents
upon request of Lessor and failure to do so shall constitute a material default
of this Lease by Lessee without the need for further notice to Lessee.
42.2 The obstruction of Lessee's view, air, or light by any structure
erected in the vicinity of the Building, whether by Lessor or third parties,
shall in no way affect this Lease or impose any liability upon Lessor.
43. Performance Under Protest. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one party to the other under the
provisions hereof, the party against whom the obligation to pay the money
is asserted shall have the right to make payment "under protest" and such
payment shall not be regarded as a voluntary payment, and there shall
survive the right on the part of said party to institute suit for recovery
of such sum. If it shall be adjudged that there was no legal obligation on
the part of said party to pay such sum or any part thereof, said party
shall be entitled to recover such sum or so much thereof as it was not
legally required to pay under the provisions of this Lease.
44. Authority. If Lessee is a corporation, trust, or general or limited
partnership, Lessee, and each individual executing this Lease on behalf of
such entity represent and warrant that such individual is duly authorized
to execute and deliver this Lease on behalf of said entity. If Lessee is a
corporation, trust or partnership, Lessee shall, within thirty (30) days
after execution of this Lease, deliver to Lessor evidence of such authority
satisfactory to Lessor.
45. Conflict. Any conflict between the printed provisions, Exhibits or Addenda
of this Lease and the typewritten or handwritten provisions, if any, shall
be controlled by the typewritten or handwritten provisions.
46. No Offer. Preparation of this Lease by Lessor or Lessor's agent and
submission of same to Lessee shall not be deemed an offer to Lessee to
lease. This Lease shall become binding upon Lessor and Lessee only when
fully executed by both parties.
47. Lender Modification. Lessee agrees to make such reasonable modifications to
this Lease as may be reasonably required by an institutional lender in
connection with the obtaining of normal financing or refinancing of the
Office Building Project.
48. Multiple Parties. If more than one person or entity is named as either
Lessor or Lessee herein, except as otherwise expressly provided herein, the
obligations of the Lessor or Lessee herein shall be the joint and several
responsibility of all persons or entities named herein as such Lessor or
Lessee, respectively.
49. Attachments. Attached hereto are the following documents which constitute a
part of this Lease:
Exhibits A and B
-25-
<PAGE>
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM
AND PROVISION CONTAINED HEREIN AND, BY EXECUTION OF THIS LEASE, SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT
THE TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY
REASONABLE AND EFFECTUATE THE INTENT OF LESSOR AND LESSEE WITH RESPECT TO
THE PREMISES.
IF THIS LEASE HAS BEEN FILLED IN IT HAS BEEN
PREPARED FOR SUBMISSION TO YOUR ATTORNEY FOR HIS
APPROVAL. NO REPRESENTATION OR RECOMMENDATION IS
MADE BY THE AMERICAN INDUSTRIAL REAL ESTATE
ASSOCIATION OR BY THE REAL ESTATE BROKER OR ITS
AGENTS OR EMPLOYEES AS TO THE LEGAL SUFFICIENCY,
LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR
THE TRANSACTION RELATING THERETO. THE PARTIES SHALL
RELY SOLELY UPON THE ADVICE OF THEIR OWN LEGAL
COUNSEL, AS TO THE LEGAL AND TAX CONSEQUENCES OF
THIS LEASE.
LESSOR LESSEE
South Bay/Copley Joint Venture, a Preview Software, Inc., a California
California general partnership corporation
By: South Bay/Courtyards, By: /s/ Vincent Pluvinage
a California limited ---------------------------------
partnership
Its: President & CEO
---------------------------------
By: /s/ James D. Muir By: Vincent Pluvinage
---------------------------- ---------------------------------
James D. Muir
-26-
<PAGE>
[DIAGRAM - EXHIBIT A]
<PAGE>
RULES AND REGULATIONS FOR
STANDARD OFFICE LEASE
Dated: September 5, 1997
GENERAL RULES
1. Lessee shall not suffer or permit the obstruction of any Common Areas,
including driveways, walkways and stairways.
2. Lessor reserves the right to refuse access to any persons Lessor in good
faith judges to be a threat to the safety, reputation, or property of the Office
Building Project and its occupants.
3. Lessee shall not make or permit any noise or odors that annoy or interfere
with other lessees or persons having business within the Office Building
Project.
4. Lessee shall not keep animals or birds within the Office building Project,
and shall not bring bicycles, motorcycles, or other vehicles into areas not
designated as authorized for same.
5. Lessee shall not make, suffer or permit litter except in appropriate
receptacles for that purpose.
6. Lessee shall not alter any lock or install new or additional locks or
bolts.
7. Lessee shall be responsible for the inappropriate use of any toilet rooms,
plumbing or other utilities. No foreign substances of any kind are to be
inserted therein.
8. Lessee shall not deface the walls, partitions or other surfaces of the
Premises or Office Building Project.
9. Lessee shall not suffer or permit anything in or around the Premises or
Building that causes excessive vibration or floor loading in any part of the
Office Building Project.
10. Furniture, significant freight and equipment shall be moved into or out of
the building only with the Lessor's knowledge and consent, and subject to such
reasonable limitations, techniques and timing, as may be designated by Lessor.
Lessee shall be responsible for any damage to the Office Building Project
arising from any such activity.
11. Lessee shall not employ any service or contractor for services or work to
be performed in the Building, except as approved by Lessor.
12. Lessor reserves the right to close and lock the Building on Saturdays,
Sundays and legal holidays, and on other days between the hours of 7:00 P.M. and
7:00 A.M. of the following day. If Lessee uses the Premises during such
periods, Lessee shall be responsible for securely locking any doors it may have
opened for entry.
13. Lessee shall return all keys at the termination of its tenancy and shall be
responsible for the cost of replacing any keys that are lost.
14. No window coverings, shades or awnings shall be installed or used by
Lessee.
15. No Lessees, employees or invites shall go upon the roof of the Building.
<PAGE>
16. Lessee shall not suffer or permit smoking or carrying of lighted cigars or
cigarettes in areas reasonably designated by Lessor or by applicable
governmental agencies as non-smoking areas.
17. Lessee shall not use any method of heating or air conditioning other than
as provided by Lessor.
18. Lessee shall not install, maintain or operate any vending machines upon the
Premises without Lessor's written consent.
19. The Premises shall not be used for lodging or manufacturing, cooking or
food preparation.
20. Lessee shall comply with all safety, fire protection and evacuation
regulations established by Lessor or any applicable governmental agency.
21. Lessor reserves the right to waive any one of these rules or regulations,
and/or as to any particular Lessee, and any such waiver shall not constitute a
waiver of any other rule or regulation or any subsequent application thereof to
such Lessee.
22. Lessee assumes all risks from theft or vandalism and agrees to keep its
Premises locked as may be required.
23. Lessor reserves the right to make such other reasonable rules and
regulations as it may from time to time deem necessary for the appropriate
operation and safety of the Office Building Project and its occupants. Lessee
agrees to abide by these and such rules and regulations.
PARKING RULES
1. Parking areas shall be used only for parking by vehicles no longer than
full size, passenger automobiles herein called "Permitted Size Vehicles."
Vehicles other than Permitted Size Vehicles are herein referred to as "Oversized
Vehicles."
2. Lessee shall not permit or allow any vehicles that belong to or are
controlled by Lessee or Lessee's employees, suppliers, shippers, customers, or
invitees to be loaded, unloaded, or parked in areas other than those designated
by Lessor for such activities.
3. Parking stickers or identification devices shall be the property of Lessor
and be returned to Lessor by the holder thereof upon termination of the holder's
parking privileges. Lessee will pay such replacement charge as is reasonably
established by Lessor for the loss of such device.
4. Lessor reserves the right to refuse the sale of monthly identification
devices to any person or entity that willfully refuses to comply with the
applicable rules, regulations, laws and/or agreements.
5. Lessor reserves the right to relocate all or a part of parking spaces from
floor to floor, within one floor, and/or to reasonably adjacent offsite
location(s), and to reasonably allocate them between compact and standard size
spaces, as long as the same complies with applicable laws, ordinances and
regulations.
6. Users of the parking area will obey all posted signs and park only in the
areas designated for vehicle parking.
7. Unless otherwise instructed, every person using the parking area is
required to park and lock his own vehicle. Lessor will not be responsible for
any damage to vehicles, injury to persons or loss of property, all of which
risks are assumed by the party using the parking area.
<PAGE>
8. Validation, if established, will be permissible only by such method or
methods as Lessor and/or its licensee may establish at rates generally
applicable to visitor parking.
9. The maintenance, washing, waxing or cleaning of vehicles in the parking
structure of Common Areas is prohibited.
10. Lessee shall be responsible for seeing that all of its employees, agents
and invitees comply with the applicable parking rules, regulations, laws and
agreements.
11. Lessor reserves the right to modify these rules and/or adopt such other
reasonable and non-discriminatory rules and regulations it may deem necessary
for the proper operation of the parking area.
12. Such parking use as is herein provided is intended merely as a license only
and no bailment is intended or shall be created hereby.
EXHIBIT B
<PAGE>
EXHIBIT 10.12(b)
FIRST AMENDMENT TO LEASE
This First Amendment to Lease ("First Amendment") is made by and between South
Bay/Copley Joint Venture, Inc., a California general partnership, ("Lessor"),
and Preview Software, Inc., a California corporation, ("Lessee") for the
premises located at 1601 De Anza Boulevard, Suites 100 & 180, Cupertino,
California.
A. By Lease dated September 5, 1997, Lessor has leased to Lessee certain
property commonly known as 1601 De Anza Boulevard, Suites 100 & 180, Cupertino,
California.
B. Lessor and Lessee wish to amend the lease to reflect the change in
common areas effective September 19, 1997.
NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency
of which is hereby acknowledged, Lessor and Lessee hereby agree as follows:
1. Paragraph 1.2 "Premises" shall be modified to reflect that the approximate
size of the Premises shall hereafter be 8,399 rentable square feet, which
includes a common area loud factor of approximately 10.87%
2. Paragraph 1.10 "Lessee's Share of Operating Expense Increase" shall be
changed from 11.89% to 10.37%.
3. Base Rent shall be modified as follows:
09/22/1997 - 09/14/1998 $25,197.00 per month
09/15/1998 - 09/14/1999 $26,037.40 per month
09/15/1999 - 09/21/2000 $26,876.80 per month
Except as modified herein, all other terms and conditions of the Lease between
the parties above described shall continue in full force and effect.
LESSOR: LESSEE:
South Bay/Copley Joint Venture, Inc., a Preview Software, Inc., a California
California general partnership corporation
By: South Bay Courtyards, a California
Limited partnership
By: /s/ James D. Mair By: /s/ Vincent Pluvinage
---------------------------- --------------------------------
Print Name: James D. Mair Print Name: Vincent Pluvinage
------------------------
Its: General Partner Its: President/CEO
------------------------------
Dated: 11/25/97 Dated: 11/25/97
------------------------- ----------------------------
<PAGE>
EXHIBIT 10.12(c)
SECOND AMENDMENT TO LEASE AGREEMENT
Page 1 of 3
This Second Amendment to Lease Agreement (the "Second Amendment") is made and
entered into as of August 26, 1998 by and between Preview Software, Inc., a
California corporation ("Tenant"), and Limar Realty Corp. #26, a California
corporation ("Landlord"), successor in interest to the South Bay/Copley Joint
Venture, a California general partnership, with reference to the following
facts:
RECITALS
A. Landlord and Tenant entered into that certain Lease Agreement dated
September 5, 1997, as subsequently amended on September 19, 1997
(collectively, the "Lease") whereby Tenant is leasing from Landlord and
Landlord is leasing to Tenant that certain real property located at 1601
south De Anza Blvd., Suites 100 and 180, Cupertino, California containing
approximately 8,399 rentable square feet (the "Original Premises"), as such
premises are more fully described in the Lease.
B. Tenant and Landlord wish to modify some of the provisions of the Lease to
extend the term of the Lease and to permit Tenant to lease approximately
2,046 additional rentable square feet (Suite 111-the "Expansion Premises")
so that the total area shall become approximately 10,445 rentable square
feet (the "Expanded Premises") as shown in Exhibit A attached hereto.
C. Landlord and Tenant desire to modify the Lease on the terms and conditions
set forth in this Second Amendment.
NOW, THEREFORE, in consideration of the mutual covenants, representations and
warranties contained in the Lease and this Second Amendment, Landlord and Tenant
hereto agree as follows:
1. Recitals: Landlord and Tenant agree that the above recitals are true
--------
and correct.
2. Premises: Commencing upon the earlier of (I) substantial completion
--------
of the Tenant Improvements in the Expansion Premises as reasonably
determined by Landlord's building architect, or (ii) the commencement
of move-in by Tenant into the Expansion Premises (the "Expanded
Premises Commencement Date"), Landlord hereby leases to Tenant and
Tenant hereby leases from Landlord the Expanded Premises containing
approximately 10,445 rentable square feet upon all of the terms and
conditions set forth in the Lease, as the same are amended by this
Second Amendment.
3. Term: The term of the Lease for the Expanded Premises shall be
----
extended through August 22, 2001.
4. Monthly Base Rent: Commencing on the Expanded Premises Commencement
-----------------
Date, the Monthly Base Rent paid by Tenant to Landlord shall be as
follows:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------
Monthly Base Rent for
Period (Inclusive) Expanded Premises
---------------------------------------------------------------------------
<S> <C>
Expanded Premises Commencement Date through 9/14/99 $ 32,482.30
---------------------------------------------------------------------------
9/15/99-9/21/00 $ 33,579.50
---------------------------------------------------------------------------
9/22/00-8/22/01 $ 34,922.68
---------------------------------------------------------------------------
</TABLE>
5. Tenant's Proportionate Share: Commencing on the Expanded Premises
----------------------------
Commencement Date, Tenant's proportionate share of Operating Expenses
shall be increased from 10.37% to 12.90% (of the Cupertino Corporate
Center).
6. Condition of the Premises: Landlord agrees to fully build out the
-------------------------
Expanded Premises as open office space with new building standard
carpet, paint, ceiling and ceiling lighting, and working electrical
and HVAC systems. The cost of further improvements, if
<PAGE>
SECOND AMENDMENT TO LEASE AGREEMENT
Page 2 of 3
requested by the Tenant, for private offices and/or conference rooms,
shall be reimbursed to Landlord by the Tenant within twenty (20) days
of Landlord's billing Alternatively, if Tenant so requests, the cost
for such further improvements shall be paid for by the Landlord and
fully amortized over the term of the Lease at 8% per annum interest,
payable monthly as additional Rent.
7. Security Deposit: the Security Deposit shall be increased from Seventy
----------------
Seven Thousand Eight Hundred Seventy-Eight and 00/100 Dollars
($77,878.00) to Ninety-Seven Thousand Two Hundred Twelve and 00/100
Dollars ($97,212.00), with such increased amount to be payable to
Landlord upon Tenant's execution of this Second Amendment.
8. First Right to Negotiate: From the Expanded Premises Commencement Date
------------------------
until August 21, 2001, Tenant shall have the First Right to Negotiate
on Suite 131, (containing approximately 1,910 rentable square feet) at
1601 De Anza Blvd., Cupertino, California (the "Offered Space"). When
Landlord decides to market the Offered Space, Landlord will so notify
Tenant, specifying rental rate, terms and conditions. If Tenant wishes
to lease the Offered Space, Tenant shall so notify Landlord in writing
within five (5) business days after the date of such notice and
diligently proceed with negotiations on the Offered Space. If the
negotiations do not result in Tenant and Landlord executing a letter
of intent for the Offered Space within ten (10) days of Tenant's
notice to Landlord or if Tenant and Landlord do not execute a lease
for the Offered Space within twenty (20) days of Tenant's notice to
Landlord, Tenant's First Right to Negotiate on the Offered Space shall
terminate and no longer be of any force or effect.
9. Effect of Amendment: Except as modified herein, the terms and
-------------------
conditions of the Lease shall remain unmodified and continue in full
force and effect. In the event of any conflict between the terms and
conditions of the Lease and this Second Amendment, the terms and
conditions of this Second Amendment shall prevail.
10. Definitions: Unless otherwise defined in this Second Amendment, all
-----------
terms not defined in this Second Amendment shall have the meaning set
forth in the Lease.
11. Authority: Subject to the provisions of the Lease, this Second
---------
Amendment shall be binding upon and inure to the benefit of the
parties hereto, their respective heirs, legal representatives,
successors and assigns. Each party hereto and the persons signing
below warrant that the person signing below on such party's behalf is
authorized to do so and to bind such party to the terms of this Second
Amendment.
IN WITNESS WHEREROF, the parties hereto have executed this Second Amendment as
of the first date set forth hereinabove.
TENANT: LANDLORD:
Preview Software, Inc., Limar Realty Corp. #26,
a California corporation a California corporation
By: /s/ Edward Wholihan By: /s/ Theodore H. Kruttschnitt
------------------- ----------------------------
Name: Edward Wholihan Name: Theodore H. Kruttschnitt
----------------- --------------------------
Title: CFO Title: President
---------------- -------------------------
Date: 9/22/98 Date: 9/25/98
----------------- --------------------------
<PAGE>
Exhibit A
[Diagram]
<PAGE>
EXHIBIT 10.13(a)
- --------------------------------------------------------------------------------
LOAN AND SECURITY AGREEMENT
PREVIEW SYSTEMS, INC.
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
1 ACCOUNTING AND OTHER TERMS............................................ 1
2 LOAN AND TERMS OF PAYMENT............................................. 1
2.1 Credit Extensions................................................ 1
2.2 Overadvances..................................................... 2
2.3 Interest Rate, Payments.......................................... 2
2.4 Fees............................................................. 3
3 CONDITIONS OF LOANS................................................... 3
3.1 Conditions Precedent to Initial Credit Extension................. 3
3.2 Conditions Precedent to all Credit Extensions.................... 3
4 CREATION OF SECURITY INTEREST......................................... 3
4.1 Grant of Security Interest....................................... 3
5 REPRESENTATIONS AND WARRANTIES........................................ 4
5.1 Due Organization and Authorization............................... 4
5.2 Collateral....................................................... 4
5.3 Litigation....................................................... 4
5.4 No Material Adverse Change in Financial Statements............... 4
5.5 Solvency......................................................... 4
5.6 Regulatory Compliance............................................ 4
5.7 Subsidiaries..................................................... 5
5.8 Full Disclosure.................................................. 5
6 AFFIRMATIVE COVENANTS................................................. 5
6.1 Government Compliance............................................ 5
6.2 Financial Statements, Reports, Certificates...................... 5
6.3 Inventory; Returns............................................... 6
6.4 Taxes............................................................ 6
6.5 Insurance........................................................ 6
6.6 Primary Accounts................................................. 7
6.7 Financial Covenants.............................................. 7
6.8 Further Assurances............................................... 7
7 NEGATIVE COVENANTS.................................................... 7
7.1 Dispositions..................................................... 7
7.2 Changes in Business, Ownership, Management or Business Locations. 7
7.3 Mergers or Acquisitions.......................................... 8
7.4 Indebtedness..................................................... 8
7.5 Encumbrance...................................................... 8
7.6 Distributions; Investments....................................... 8
7.7 Transactions with Affiliates..................................... 8
</TABLE>
-ii-
<PAGE>
<TABLE>
<S> <C>
7.8 Subordinated Debt................................................. 8
7.9 Compliance........................................................ 8
8 EVENTS OF DEFAULT...................................................... 9
8.1 Payment Default................................................... 9
8.2 Covenant Default.................................................. 9
8.3 Material Adverse Change........................................... 9
8.4 Attachment........................................................ 9
8.5 Insolvency........................................................ 9
8.6 Other Agreements.................................................. 10
8.7 Judgments......................................................... 10
8.8 Misrepresentations................................................ 10
9 BANK'S RIGHTS AND REMEDIES............................................. 10
9.1 Rights and Remedies............................................... 10
9.2 Power of Attorney................................................. 11
9.3 Accounts Collection............................................... 11
9.4 Bank Expenses..................................................... 11
9.5 Bank's Liability for Collateral................................... 11
9.6 Remedies Cumulative............................................... 11
9.7 Demand Waiver..................................................... 12
10 NOTICES................................................................ 12
11 CHOICE OF LAW, VENUE AND JURY TRIAL WAIVER............................. 12
12 GENERAL PROVISIONS..................................................... 12
12.1 Successors and Assigns........................................... 12
12.2 Indemnification.................................................. 13
12.3 Time of Essence.................................................. 13
12.4 Severability of Provision........................................ 13
12.5 Amendments in Writing, Integration............................... 13
12.6 Counterparts..................................................... 13
12.7 Survival......................................................... 13
12.8 Confidentiality.................................................. 14
12.9 Attorneys' Fees, Costs and Expenses.............................. 14
13 DEFINITIONS............................................................ 14
13.1 Definitions...................................................... 14
</TABLE>
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<PAGE>
This LOAN AND SECURITY AGREEMENT dated November 2, 1998, between SILICON
VALLEY BANK ("Bank"), whose address is 3003 Tasman Drive, Santa Clara,
California 95054 with a loan production office located at 11000 SW Stratus, Ste.
170, Beaverton, Oregon 97008-7113 and PREVIEW SYSTEMS, INC. ("Borrower"), whose
address is 1000 SW Broadway, Ste 1850, Portland, Oregon 97205 provides the terms
on which Bank will lend to Borrower and Borrower will repay Bank. The parties
agree as follows:
For valuable consideration, this Loan and Security Agreement replaces that
certain QuickStart Loan and Security Agreement, dated December 1, 1997, by and
between Preview Software, Inc. and Bank and that certain QuickStart Loan and
Security, dated January 27, 1997, by and between Portland Software, Inc. and
Bank.
1 ACCOUNTING AND OTHER TERMS
--------------------------
Accounting terms not defined in this Agreement will be construed following
GAAP Calculations and determinations must be made following GAAP. The term
"financial statements" includes the notes and schedules. The terms "including"
and "includes" always mean "including (or includes) without limitation," in this
or any Loan Document. This Agreement shall be construed to impart upon Bank a
duty to act reasonably at all times.
2 LOAN AND TERMS OF PAYMENT
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2.1 Credit Extensions.
-----------------
Borrower will pay Bank the unpaid principal amount of all Credit
Extensions and interest on the unpaid principal amount of the Credit Extensions.
2.1.1 Revolving Advances.
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(a) Bank will make Advances not exceeding (i) the Committed
Revolving Line, minus (ii) the Cash Management Services Sublimit, minus (iii)
the amount of all outstanding Letters of Credit (including drawn but
unreimbursed Letters of Credit). Amounts borrowed under this Section may be
repaid and reborrowed during the term of this Agreement.
(b) To obtain an Advance, Borrower must notify Bank by
facsimile or telephone by 3:00 p.m. Pacific time on the Business Day the Advance
is to be made. Borrower must promptly confirm the notification by delivering to
Bank the Payment/Advance Form attached as Exhibit B. Bank will credit Advances
to Borrower's deposit account. Bank may make Advances under this Agreement based
on instructions from a Responsible Officer or his or her designee or without
instructions if the Advances are necessary to meet Obligations which have become
due. Bank may rely on any telephone notice given by a person whom Bank believes
is a Responsible Officer or designee. Borrower will indemnify Bank for any loss
Bank suffers due to reliance.
(c) The Committed Revolving Line terminates on the Revolving
Maturity Date, when all Advances and other amounts due under this Agreement are
immediately payable.
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2.1.2 Letters of Credit.
-----------------
Bank will issue or have issued Letters of Credit for Borrower's
account not exceeding (i) the Committed Revolving Line minus (ii) the
outstanding principal balance of the Advances minus the Cash Management Services
Sublimit; however, the face amount of outstanding Letters of Credit (including
drawn but unreimbursed Letters of Credit and any Letter of Credit Reserve) may
not exceed $300,000. Each Letter of Credit will have an expiry date of no later
than 180 days after the Revolving Maturity Date, but Borrower's reimbursement
obligation will be secured by cash on terms acceptable to Bank at any time after
the Revolving Maturity Date if the term of this Agreement is not extended by
Bank.
2.1.3 Cash Management Services Sublimit.
---------------------------------
Borrower may use up to $300,000 for Bank's Cash Management
Services, which may include merchant services and business credit card services
identified in various cash management services agreements related to such
services (the "Cash Management Services"). All amounts Bank pays for any Cash
Management Services will be treated as Advances under the Committed Revolving
Line.
2.1.4 Term Loan.
---------
(a) For valuable consideration, Bank will make a Term Loan
available to Borrower to be used to refinance that certain QuickStart loan
#1100051174 by and between Preview Software, Inc. and Bank.
Borrower will pay 36 equal installments of principal plus
Interest of $13,115 (the "Term Loan Payment"). Each Term Loan Payment is payable
on the 2nd of each month during the term of the loan. Borrower's final Term Loan
Payment, due on November 2, 2001, includes all outstanding Term Loan principal
and accrued interest.
2.2 Overadvances.
------------
If Borrower's Obligations under Section 2.1.1, 2.1.2 and 2.1.3 exceed
the Committed Revolving Line, Borrower must immediately pay in cash to Bank the
excess.
2.3 Interest Rate, Payments.
-----------------------
(a) Interest Rate. (i) Advances accrue interest on the outstanding
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principal balance at a per annum rate of 1 percentage point above the Prime
Rate; and (ii) the Term Loan accrues interest at a per annum rate of 1
percentage point above the Prime Rate. After an Event of Default, Obligations
accrue interest at 5 percent above the rate effective immediately before the
Event of Default. The interest rate increases or decreases when the Prime Rate
changes. Interest is computed on a 360 day year for the actual number of days
elapsed.
(b) Payments. Interest due on the Committed Revolving Line is
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payable on the 1st of each month. Bank may debit any of Borrower's deposit
accounts including Account Number 3300083130 for principal and interest payments
or any amounts Borrower owes Bank. Bank will notify Borrower when it debits
Borrower's accounts. These debits are not a set-off.
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Payments received after 12:00 noon Pacific time are considered received at the
opening of business on the next Business Day. When a payment is due on a day
that is not a Business Day, the payment is due the next Business Day and
additional fees or interest accrue.
2.4 Fees.
----
Borrower will pay:
(a) Facility Fee. A fully earned, non-refundable Facility Fee of
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$5,000 for the Committed Revolving Line due on the Closing Date; and
(b) Bank Expenses. All Bank Expenses (including reasonable attorneys'
-------------
fees and expenses) incurred through and after the date of this Agreement, are
payable when due.
3 CONDITIONS OF LOANS.
-------------------
3.1 Conditions Precedent to Initial Credit Extension.
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Bank's obligation to make the initial Credit Extension is subject to
the condition precedent that it receive the agreements, documents and fees it
requires.
The initial Credit Extension under the Term Loan shall be used to pay
off that certain QuickStart loan #1100051174 by and between Preview Software,
Inc. and Bank.
3.2 Conditions Precedent to all Credit Extensions.
---------------------------------------------
Bank's obligations to make each Credit Extension, including the
initial Credit Extension, is subject to the following:
(a) timely receipt of any Payment/Advance Form; and
(b) the representations and warranties in Section 5 must be
materially true on the date of the Payment/Advance Form and on the effective
date of each Credit Extension and no Event of Default may have occurred and be
continuing, or result from the Credit Extension. Each Credit Extension is
Borrower's representation and warranty on that date that the representations and
warranties of Section 5 remain true.
4 CREATION OF SECURITY INTEREST
-----------------------------
4.1 Grant of Security Interest.
--------------------------
Borrower grants Bank a continuing security interest in all presently
existing and later acquired Collateral to secure all Obligations and performance
of each of Borrower's duties under the Loan Documents. Except for Permitted
Liens, any security interest will be a first priority security interest in the
Collateral. Bank may place a "hold" on any deposit account pledged as
Collateral.
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5 REPRESENTATIONS AND WARRANTIES
------------------------------
Borrower represents and warrants as follows:
5.1 Due Organization and Authorization.
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Borrower and each Subsidiary is duly existing and in good standing in
its state of formation and qualified and licensed to do business in, and in good
standing in, any state in which the conduct of its business or its ownership of
property requires that it be qualified.
The execution, delivery and performance of the Loan Documents have
been duly authorized, and do not conflict with Borrower's formation documents,
nor constitute an event of default under any material agreement by which
Borrower is bound. Borrower is not in default under any agreement to which or
by which it is bound in which the default could cause a Material Adverse Change.
5.2 Collateral.
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Borrower has good title to the Collateral, free of Liens except
Permitted Liens. All Inventory is in all material respects of good and
marketable quality, free from material defects.
5.3 Litigation.
----------
Except as shown in the Schedule, there are no actions or proceedings
pending or, to Borrower's knowledge, threatened by or against Borrower or any
Subsidiary in which an adverse decision could cause a Material Adverse Change.
5.4 No Material Adverse Change in Financial Statements.
--------------------------------------------------
All consolidated financial statements for Borrower, and any
Subsidiary, delivered to Bank fairly present in all material respects Borrower's
consolidated financial condition and Borrower's consolidate results of
operations. There has not been any material deterioration in Borrower's
consolidated financial condition since the date of the most recent financial
statements submitted to Bank.
5.5 Solvency.
--------
The fair salable value of Borrower's assets (including goodwill minus
disposition costs) exceeds the fair value of its liabilities; the Borrower is
not left with unreasonably small capital after the transactions in this
Agreement; and Borrower is able to pay its debts (including trade debts) as they
mature.
5.6 Regulatory Compliance.
---------------------
Borrower is not an "investment company" or a company "controlled" by
an "investment company" under the Investment Company Act. Borrower is not
engaged as one of its important activities in extending credit for margin stock
(under Regulations G, T and U of the
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Federal Reserve Board of Governors). Borrower has complied with the Federal Fair
Labor Standards Act. Borrower has not violated any laws, ordinances or rules,
the violation of which could cause a Material Adverse Change. None of Borrower's
or any Subsidiary's properties or assets has been used by Borrower or any
Subsidiary or, to the best of Borrower's knowledge, by previous Persons, in
disposing, producing, storing, treating, or transporting any hazardous substance
other than legally. Borrower and each Subsidiary has timely filed all required
tax returns and paid, or made adequate provision to pay, all taxes, except those
being contested in good faith with adequate reserves under GAAP. Borrower and
each Subsidiary has obtained all consents, approvals and authorizations of, made
all declarations or filings with, and given all notices to, all government
authorities that are necessary to continue its business as currently conducted.
5.7 Subsidiaries.
------------
Borrower does not own any stock, partnership interest or other equity
securities except for Permitted Investments.
5.8 Full Disclosure.
---------------
No representation, warranty or other statement of Borrower in any
certificate or written statement given to Bank contains any untrue statement of
a material fact or omits to state a material fact necessary to make the
statements contained in the certificates or statements not misleading.
6 AFFIRMATIVE COVENANTS
---------------------
Borrower will do all of the following:
6.1 Government Compliance.
---------------------
Borrower will maintain its and all Subsidiaries' legal existence and
good standing in its jurisdiction of formation and maintain qualification in
each jurisdiction in which the failure to so qualify could have a material
adverse effect on Borrower's business or operations. Borrower will comply, and
have each Subsidiary comply, with all laws, ordinances and regulations to which
it is subject, noncompliance with which could have a material adverse effect on
Borrower's business or operations or cause a Material Adverse Change.
6.2 Financial Statements, Reports, Certificates.
-------------------------------------------
(a) Borrower will deliver to Bank: (i) as soon as available, but no
later than 30 days after the last day of each month, a company prepared
consolidated balance sheet and income statement covering Borrower's consolidated
operations during the period, in a form and certified by a Responsible Officer
acceptable to Bank; (ii) as soon as available, but no later than 90 days after
the last day of Borrower's fiscal year, audited consolidated financial
statements prepared under GAAP, consistently applied, together with an
unqualified opinion on the financial statements from an independent certified
public accounting firm acceptable to Bank; (iii) a prompt report of any legal
actions pending or threatened against Borrower or any Subsidiary that could
result in damages or costs to Borrower or any Subsidiary of $100,000 or
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more; and (iv) budgets, sales projections, operating plans or other financial
information Bank requests.
(b) Prior to each Advance and within 30 days after the last day of
each month, Borrower will deliver to Bank with the monthly financial statements
a Compliance Certificate signed by a Responsible Officer in the form of Exhibit
C.
6.3 Inventory; Returns.
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Borrower will keep all Inventory in good and marketable condition,
free from material defects. Returns and allowances between Borrower and its
account debtors will follow Borrower's customary practices as they exist at
execution of this Agreement. Borrower must promptly notify Bank of all returns,
recoveries, disputes and claims, that involve more than $50,000.
6.4 Taxes.
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Borrower will make, and cause each Subsidiary to make, timely payment
of all material federal, state, and local taxes or assessments and will deliver
to Bank, on demand, appropriate certificates attesting to the payment.
6.5 Insurance.
---------
Borrower will keep its business and the Collateral insured for risks
and in amounts, as Bank requests. Insurance policies will be in a form, with
companies, and in amounts that are satisfactory to Bank. All property policies
will have a lender's loss payable endorsement showing Bank as an additional loss
payee and all liability policies will show the Bank as an additional insured and
provide that the insurer must give Bank at least 20 days notice before canceling
its policy. At Bank's request, Borrower will deliver certified copies of
policies and evidence of all premium payments. Proceeds payable under any
policy will, at Bank's option, be payable to Bank on account of the Obligations.
Statutory notice regarding insurance:
WARNING
Unless you provide us with evidence of the insurance coverage as required
by our contract or loan agreement, we may purchase insurance at your expense to
protect our interest. This insurance may, but need not, also protect your
interest. If the collateral becomes damaged, the coverage we purchase may not
pay any claim you make or any claim made against you. You may later cancel this
coverage by providing evidence that you have obtained property coverage
elsewhere.
You are responsible for the cost of any insurance purchased by us. The
cost of this insurance may be added to your contract or loan balance. If the
cost is added to your contract or loan balance, the interest rate on the
underlying contract or loan will apply to this added amount. The effective date
of coverage may be the date your prior coverage lapsed or the date you failed to
provide proof of coverage.
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This coverage we purchased may be considerably more expensive than
insurance you can obtain on your own and may not satisfy any need for property
damage coverage or any mandatory liability insurance requirements imposed by
applicable law.
6.6 Primary Accounts.
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Borrower will maintain its primary depository and operating accounts
with Bank.
6.7 Financial Covenants.
-------------------
Borrower will maintain as of the last day of each month:
(i) Quick Ratio [Adjusted]. A ratio of Quick Assets to Current
----------------------
Liabilities minus Deferred Revenue of at least 1.50 to 1.00.
(ii) Tangible Net Worth. A Tangible Net Worth of at least
------------------
$1,000,000.
(iii) Liquidity Coverage. A ratio of unrestricted cash (and
------------------
equivalents) plus 50% of Borrower's accounts receivable, as stated on Borrower's
balance sheet, divided by all outstanding debt with Bank of not less than 3.00
to 1.00.
6.8 Further Assurances.
------------------
Borrower will execute any further instruments and take further action
as Bank requests to perfect or continue Bank's security interest in the
Collateral or to effect the purposes of this Agreement.
7 NEGATIVE COVENANTS
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Borrower will not do any of the following:
7.1 Dispositions.
------------
Convey, sell, lease, transfer or otherwise dispose of (collectively
"Transfer"), or permit any of its Subsidiaries to Transfer, all or any part of
its business or property, other than Transfers (i) of Inventory in the ordinary
course of business; (ii) of non-exclusive licenses and similar arrangements for
the use of the property of Borrower or its Subsidiaries in the ordinary course
of business; or (iii) of worn-out or obsolete Equipment. Nothing in this
Section 7.1 shall be construed to limit the ability of Borrower to issue
securities to employees, consultants, investors, lessors or other Persons.
7.2 Changes in Business, Ownership, Management or Business Locations.
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Engage in or permit any of its Subsidiaries to engage in any business
other than the businesses currently engaged in by Borrower or have a material
change in its ownership of greater than 25%. Borrower will not, without at
least 30 days prior written notice, relocate its chief executive office or add
any new offices or business locations.
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7.3 Mergers or Acquisitions.
-----------------------
(i) Merge or consolidate, or permit any of its Subsidiaries to
merge or consolidate, with any other Person, or acquire, or permit any of its
Subsidiaries to acquire, all or substantially all of the capital stock or
property of another Person, except (i) where no Event of Default has occurred
and is continuing or would result from such action during the term of this
Agreement and Tangible Net Worth will not decrease by more than 25%; or (ii)
merge or consolidate a Subsidiary into another Subsidiary or into Borrower.
7.4 Indebtedness.
------------
Create, incur, assume, or be liable for any Indebtedness, or permit
any Subsidiary to do so, other than Permitted Indebtedness.
7.5 Encumbrance.
-----------
Create, incur, or allow any Lien on any of its property, or assign or
convey any right to receive income, including the sale of any Accounts, or
permit any of its Subsidiaries to do so, except for Permitted Liens, or permit
any Collateral not to be subject to the first priority security interest granted
here.
7.6 Distributions; Investments.
--------------------------
Directly or indirectly acquire or own any Person, or make any
Investment in any Person, other than Permitted Investments, or permit any of its
Subsidiaries to do so. Pay any dividends or make any distribution or payment or
redeem, retire or purchase any capital stock.
7.7 Transactions with Affiliates.
----------------------------
Directly or indirectly enter or permit any material transaction with
any Affiliate except transactions that are in the ordinary course of Borrower's
business, on terms less favorable to Borrower than would be obtained in an arm's
length transaction with a non-affiliated Person.
7.8 Subordinated Debt.
-----------------
Make or permit any payment on any Subordinated Debt, except under the
terms of the Subordinated Debt, or amend any provision in any document relating
to the Subordinated Debt without Bank's prior written consent.
7.9 Compliance.
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Become an "investment company" or a company controlled by an
"investment company," under the Investment Company Act of 1940 or undertake as
one of its important activities extending credit to purchase or carry margin
stock, or use the proceeds of any Credit Extension for that purpose; fail to
meet the minimum funding requirements of ERISA, permit a Reportable Event or
Prohibited Transaction, as defined in ERISA, to occur; fail to comply with the
Federal Fair Labor Standards Act or violate any other law or regulation, if the
violation could
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have a material adverse effect on Borrower's business or operations or cause a
Material Adverse Change, or permit any of its Subsidiaries to do so.
8 EVENTS OF DEFAULT
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Any one of the following is an Event of Default:
8.1 Payment Default.
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If Borrower fails to pay any of the Obligations;
8.2 Covenant Default.
----------------
If Borrower does not perform any obligation in Section 6 or violates
any covenant in Section 7 or does not perform or observe any other material
term, condition or covenant in this Agreement, any Loan Documents, or in any
agreement between Borrower and Bank and as to any default under a term,
condition or covenant that can be cured, has not cured the default within 10
days after it occurs, or if the default cannot be cured within 10 days or cannot
be cured after Borrower's attempts within 10 day period, and the default may be
cured within a reasonable time, then Borrower has an additional period (of not
more than 30 days) to attempt to cure the default. During the additional time,
the failure to cure the default is not an Event of Default (but no Credit
Extensions will be made during the cure period);
8.3 Material Adverse Change.
-----------------------
(i) If there occurs a material impairment in the perfection or
priority of the Bank's security interest in the Collateral or in the value of
such Collateral which is not covered by adequate insurance or (ii) if the Bank
determines, based upon information available to it and in its reasonable
judgment, that there is a reasonable likelihood that Borrower will fail to
comply with one or more of the financial covenants in Section 6 during the next
succeeding financial reporting period.
8.4 Attachment.
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If any material portion of Borrower's assets is attached, seized,
levied on, or comes into possession of a trustee or receiver and the attachment,
seizure or levy is not removed in 10 days, or if Borrower is enjoined,
restrained, or prevented by court order from conducting a material part of its
business or if a judgment or other claim becomes a Lien on a material portion of
Borrower's assets, or if a notice of lien, levy, or assessment is filed against
any of Borrower's assets by any government agency and not paid within 10 days
after Borrower receives notice. These are not Events of Default if stayed or if
a bond is posted pending contest by Borrower (but no Credit Extensions will be
made during the cure period);
8.5 Insolvency.
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If Borrower becomes insolvent or if Borrower begins an Insolvency
Proceeding or an Insolvency Proceeding is begun against Borrower and not
dismissed or stayed within 30 days (but no Credit Extensions will be made before
any Insolvency Proceeding is dismissed);
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8.6 Other Agreements.
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If there is a default in any agreement between Borrower and a third
party that gives the third party the right to accelerate any Indebtedness
exceeding $100,000 or that could cause a Material Adverse Change;
8.7 Judgments.
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If a money judgment(s) in the aggregate of at least $50,000 is
rendered against Borrower and is unsatisfied and unstayed for 10 days (but no
Credit Extensions will be made before the judgment is stayed or satisfied); or
8.8 Misrepresentations.
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If Borrower or any Person acting for Borrower makes any material
misrepresentation or material misstatement now or later in any warranty or
representation in this Agreement or in any writing delivered to Bank or to
induce Bank to enter this Agreement or any Loan Document.
9 BANK'S RIGHTS AND REMEDIES
--------------------------
9.1 Rights and Remedies.
-------------------
When an Event of Default occurs and continues Bank may, without notice
or demand, do any or all of the following:
(a) Declare all Obligations immediately due and payable (but if an
Event of Default described in Section 8.5 occurs all Obligations are immediately
due and payable without any action by Bank);
(b) Stop advancing money or extending credit for Borrower's benefit
under this Agreement or under any other agreement between Borrower and Bank;
(c) Settle or adjust disputes and claims directly with account
debtors for amounts, on terms and in any order that Bank considers advisable;
(d) Make any payments and do any acts it considers necessary or
reasonable to protect its security interest in the Collateral. Borrower will
assemble the Collateral if Bank requires and make it available as Bank
designates. Bank may enter premises where the Collateral is located, take and
maintain possession of any part of the Collateral, and pay, purchase, contest,
or compromise any Lien which appears to be prior or superior to its security
interest and pay all expenses incurred. Borrower grants Bank a license to enter
and occupy any of its premises, without charge, to exercise any of Bank's rights
or remedies;
(e) Apply to the Obligations any (i) balances and deposits of
Borrower it holds, or (ii) any amount held by Bank owing to or for the credit or
the account of Borrower;
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(f) Ship, reclaim recover, store, finish, maintain, repair, prepare
for sale, advertise for sale, and sell the Collateral; and
(g) Dispose of the Collateral according to the Code.
9.2 Power of Attorney.
-----------------
Effective only when an Event of Default occurs and continues, Borrower
irrevocably appoints Bank as its lawful attorney to: (i) endorse Borrower's name
on any checks or other forms of payment or security; (ii) sign Borrower's name
on any invoice or bill of lading for any Account or drafts against account
debtors, (iii) make, settle, and adjust all claims under Borrower's insurance
policies; (iv) settle and adjust disputes and claims about the Accounts directly
with account debtors, for amounts and on terms Bank determines reasonable; and
(v) transfer the Collateral into the name of Bank or a third party as the Code
permits. Bank may exercise the power of attorney to sign Borrower's name on any
documents necessary to perfect or continue the perfection of any security
interest regardless of whether an Event of Default has occurred. Bank's
appointment as Borrower's attorney in fact, and all of Bank's rights and powers,
coupled with an interest, are irrevocable until all Obligations have been fully
repaid and performed and Bank's obligation to provide Credit Extensions
terminates.
9.3 Accounts Collection.
-------------------
When an Event of Default occurs and continues, Bank may notify any
Person owing Borrower money of Bank's security interest in the funds and verify
the amount of the Account. Borrower must collect all payments in trust for Bank
and, if requested by Bank, immediately deliver the payments to Bank in the form
received from the account debtor, with proper endorsements for deposit.
9.4 Bank Expenses.
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If Borrower fails to pay any amount or furnish any required proof of
payment to third persons Bank may make all or part of the payment or obtain
insurance policies required in Section 8.5, and take any action under the
policies Bank deems prudent. Any amounts paid by Bank are Bank Expenses and
immediately due and payable, bearing interest at the then applicable rate and
secured by the Collateral. No payments by Bank are deemed an agreement to make
similar payments in the future or Bank's waiver of any Event of Default.
9.5 Bank's Liability for Collateral.
-------------------------------
If Bank complies with reasonable banking practices it is not liable
for: (a) the safekeeping of the Collateral; (b) any loss or damage to the
Collateral; (c) any diminution in the value of the Collateral; or (d) any act or
default of any carrier, warehouseman, bailee, or other person. Borrower bears
all risk of loss, damage or destruction of the Collateral.
9.6 Remedies Cumulative.
-------------------
Bank's rights and remedies under this Agreement, the Loan Documents,
and all other agreements are cumulative. Bank has all rights and remedies
provided under the Code, by
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law, or in equity. Bank's exercise of one right or remedy is not an election,
and Bank's waiver of any Event of Default is not a continuing waiver. Bank's
delay is not a waiver, election, or acquiescence. No waiver is effective unless
signed by Bank and then is only effective for the specific instance and purpose
for which it was given.
9.7 Demand Waiver.
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Borrower waives demand, notice of default or dishonor, notice of
payment and nonpayment, notice of any default, nonpayment at maturity, release,
compromise, settlement, extension, or renewal of accounts, documents,
instruments, chattel paper, and guarantees held by Bank on which Borrower is
liable.
10 NOTICES
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All notices or demands by any party about this Agreement or any other
related agreement must be in writing and be personally delivered or sent by an
overnight delivery service, by certified mail, postage prepaid, return receipt
requested, or by telefacsimile to the addresses set forth at the beginning of
this Agreement. A Party may change its notice address by giving the other Party
written notice.
11 CHOICE OF LAW, VENUE AND JURY TRIAL WAIVER
------------------------------------------
Oregon law governs the Loan Documents without regard to principles of
conflicts of law. Borrower and Bank each submit to the exclusive jurisdiction
of the State and Federal courts in Washington County, Oregon.
BORROWER AND BANK EACH WAIVE THEIR RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE
OF ACTION ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY CONTEMPLATED
TRANSACTION, INCLUDING CONTRACT, TORT, BREACH OF DUTY AND ALL OTHER CLAIMS.
THIS WAIVER IS A MATERIAL INDUCEMENT FOR BOTH PARTIES TO ENTER INTO THIS
AGREEMENT. EACH PARTY HAS REVIEWED THIS WAIVER WITH ITS COUNSEL.
12 GENERAL PROVISIONS
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12.1 Successors and Assigns.
----------------------
This Agreement binds and is for the benefit of the successors and
permitted assigns of each party. Borrower may not assign this Agreement or any
rights under it without Bank's prior written consent which may be granted or
withheld in Bank's discretion. Bank has the right, without the consent of or
notice to Borrower, to sell, transfer, negotiate, or grant participation in all
or any part of, or any interest in, Bank's obligations, rights and benefits
under this Agreement.
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12.2 Indemnification.
---------------
Borrower will indemnify, defend and hold harmless Bank and its
officers, employees, and agents against: (a) all obligations, demands, claims,
and liabilities asserted by any other party in connection with the transactions
contemplated by the Loan Documents; and (b) all losses or Bank Expenses
incurred, or paid by Bank from, following, or consequential to transactions
between Bank and Borrower (including reasonable attorneys fees and expenses),
except for losses caused by Bank's gross negligence or willful misconduct.
12.3 Time of Essence.
---------------
Time is of the essence for the performance of all obligations in this
Agreement.
12.4 Severability of Provision.
-------------------------
Each provision of this Agreement is severable from every other
provision in determining the enforceability of any provision.
12.5 Amendments in Writing, Integration.
----------------------------------
All amendments to this Agreement must be in writing and signed by
Borrower and Bank. This Agreement represents the entire agreement about this
subject matter, and supersedes prior negotiations or agreements. All prior
agreements, understandings, representations, warranties, and negotiations
between the parties about the subject matter of this Agreement merge into this
Agreement and the Loan Documents. UNDER OREGON LAW, MOST AGREEMENTS, PROMISES
AND COMMITMENTS MADE BY THE BANK AFTER OCTOBER 3, 1989 CONCERNING LOANS AND
OTHER CREDIT EXTENSIONS WHICH ARE NOT FOR PERSONAL, FAMILY OR HOUSEHOLD PURPOSES
OR SECURED SOLELY BY THE BORROWER'S RESIDENCE MUST BE IN WRITING, EXPRESS
CONSIDERATION AND BE SIGNED BY US TO BE ENFORCEABLE.
12.6 Counterparts.
------------
This Agreement may be executed in any number of counterparts and by
different parties on separate counterparts, each of which, when executed and
delivered, are an original, and all taken together, constitute one agreement.
12.7 Survival.
--------
All covenants, representations and warranties made in this Agreement
continue in full force while any Obligations remain outstanding. The obligations
of Borrower in Section 12.2 to indemnify Bank will survive until all statutes of
limitations for actions that may be brought against Bank have run.
-13-
<PAGE>
12.8 Confidentiality.
---------------
In handling any confidential information, Bank will exercise the same
degree of care that it exercises for its own proprietary information, but
disclosure of information may be made (i) to Bank's subsidiaries or affiliates
in connection with their business with Borrower, (ii) to prospective transferees
or purchasers of any interest in the Loans, (iii) as required by law,
regulation, subpoena, or other order, (iv) as required in connection with Bank's
examination or audit and (v) as Bank considers appropriate exercising remedies
under this Agreement. Confidential information does not include information
that either: (a) is in the public domain or in Bank's possession when disclosed
to Bank, or becomes part of the public domain after disclosure to Bank; or (b)
is disclosed to Bank by a third party, if Bank does not know that the third
party is prohibited from disclosing the information.
12.9 Attorneys' Fees, Costs and Expenses.
-----------------------------------
In any action or proceeding between Borrower and Bank arising out of
the Loan Documents, the prevailing party will be entitled to recover its
reasonable attorneys' fees and other costs and expenses incurred, in addition to
any other relief to which it may be entitled.
13 DEFINITIONS
-----------
13.1 Definitions.
-----------
In this Agreement:
"Accounts" are all existing and later arising accounts, contract
rights, and other obligations owed Borrower in connection with its sale or lease
of goods (including licensing software and other technology) or provision of
services, all credit insurance, guaranties, other security and all merchandise
returned or reclaimed by Borrower and Borrower's Books relating to any of the
foregoing.
"Advance" or "Advances" is a loan advance (or advances) under the
Committed Revolving Line.
"Affiliate" of a Person is a Person that owns or controls directly or
indirectly the Person, any Person that controls or is controlled by or is under
common control with the Person, and each of that Person's senior executive
officers, directors, partners and, for any Person that is a limited liability
company, that Person's managers and members.
"Bank Expenses" are all audit fees and expenses and reasonable costs
or expenses (including reasonable attorneys' fees and expenses) for preparing,
negotiating, administering, defending and enforcing the Loan Documents
(including appeals or Insolvency Proceedings).
"Borrower's Books" are all Borrower's books and records including
ledgers, records regarding Borrower's assets or liabilities, the Collateral,
business operations or financial condition and all computer programs or discs or
any equipment containing the information.
-14-
<PAGE>
"Business Day" is any day that is not a Saturday, Sunday or a day on
which the Bank is closed.
"Cash Management Services" are defined in Section 2.1.3.
"Closing Date" is the date of this Agreement.
"Code" is the Oregon Uniform Commercial Code.
"Collateral" is the property described on Exhibit A.
---------
"Committed Revolving Line" is an Advance of up to $1,000,000.
"Contingent Obligation" is, for any Person, any direct or indirect
liability, contingent or not, of that Person for (i) any indebtedness, lease,
dividend, letter of credit or other obligation of another such as an obligation
directly or indirectly guaranteed, endorsed, co-made, discounted or sold with
recourse by that Person, or for which that Person is directly or indirectly
liable; (ii) any obligations for undrawn letters of credit for the account of
that Person; and (iii) all obligations from any interest rate, currency or
commodity swap agreement, interest rate cap or collar agreement, or other
agreement or arrangement designated to protect a Person against fluctuation in
interest rates, currency exchange rates or commodity prices; but "Contingent
Obligation" does not include endorsements in the ordinary course of business.
The amount of a Contingent Obligation is the stated or determined amount of the
primary obligation for which the Contingent Obligation is made or, if not
determinable, the maximum reasonably anticipated liability for it determined by
the Person in good faith; but the amount may not exceed the maximum of the
obligations under the guarantee or other support arrangement.
"Credit Extension" is each Advance, Letter of Credit, Term Loan, Cash
Management Service, or any other extension of credit by Bank for Borrower's
benefit.
"Current Liabilities" are the aggregate amount of Borrower's Total
Liabilities which mature within one (1) year.
"Deferred Revenue" is all amounts received in advance of performance
under contracts and not yet recognized as revenue.
"Equipment" is all present and future machinery, equipment, tenant
improvements, furniture, fixtures, vehicles, tools, parts and attachments in
which Borrower has any interest.
"ERISA" is the Employment Retirement Income Security Act of 1974, and
its regulations.
"GAAP" is generally accepted accounting principles.
"Indebtedness" is (a) indebtedness for borrowed money or the deferred
price of property or services, such as reimbursement and other obligations for
surety bonds and letters of
-15-
<PAGE>
credit, (b) obligations evidenced by notes, bonds, debentures or similar
instruments, (c) capital lease obligations and (d) Contingent Obligations.
"Insolvency Proceeding" are proceedings by or against any Person under
the United States Bankruptcy Code, or any other bankruptcy or insolvency law,
including assignments for the benefit of creditors, compositions, extensions
generally with its creditors, or proceedings seeking reorganization,
arrangement, or other relief.
"Inventory" is present and future inventory in which Borrower has any
interest, including merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products intended for sale or
lease or to be furnished under a contract of service, of every kind and
description now or later owned by or in the custody or possession, actual or
constructive, of Borrower, including inventory temporarily out of its custody or
possession or in transit and including returns on any accounts or other proceeds
(including insurance proceeds) from the sale or disposition of any of the
foregoing and any documents of title.
"Investment" is any beneficial ownership of (including stock,
partnership interest or other securities) any Person, or any loan, advance or
capital contribution to any Person.
"Letter of Credit" is defined in Section 2.
"Lien" is a mortgage, lien, deed of trust, charge, pledge, security
interest or other encumbrance.
"Loan Documents" are, collectively, this Agreement, any note, or notes
or guaranties executed by Borrower or Guarantor, and any other present or future
agreement between Borrower and/or for the benefit of Bank in connection with
this Agreement, all as amended, extended or restated.
"Material Adverse Change" is defined in Section 8.3.
"Obligations" are debts, principal, interest, Bank Expenses and other
amounts Borrower owes Bank now or later, including letters of credit and
Exchange Contracts and including interest accruing after Insolvency Proceedings
begin and debts, liabilities, or obligations of Borrower assigned to Bank.
"Permitted Indebtedness" is:
(a) Borrower's indebtedness to Bank under this Agreement or any other
Loan Document;
(b) Indebtedness existing on the Closing Date and shown on the
Schedule;
(c) Subordinated Debt;
(d) Indebtedness to trade creditors incurred in the ordinary course of
business; and
-16-
<PAGE>
(e) Indebtedness secured by Permitted Liens.
"Permitted Investments" are:
(a) Investments shown on the Schedule and existing on the Closing
Date; and
(b) (i) marketable direct obligations issued or unconditionally
guaranteed by the United States or its agency or any State maturing within 1
year from its acquisition, (ii) commercial paper maturing no more than 1 year
after its creation and having the highest rating from either Standard & Poor's
Corporation or Moody's Investors Service, Inc., and (iii) Bank's certificates of
deposit issued maturing no more than 1 year after issue.
"Permitted Liens" are:
(a) Liens existing on the Closing Date and shown on the Schedule or
arising under this Agreement or other Loan Documents;
(b) Liens for taxes, fees, assessments or other government charges or
levies, either not delinquent or being contested in good faith and for which
Borrower maintains adequate reserves on its Books, if they have no priority over
--
any of Bank's security interests;
(c) Purchase money Liens (i) on Equipment acquired or held by Borrower
or its Subsidiaries incurred for financing the acquisition of the Equipment, or
(ii) existing on equipment when acquired, if the Lien is confined to the
--
property and improvements and the proceeds of the equipment;
(d) Leases or subleases and licenses or sublicenses granted in the
ordinary course of Borrower's business and any interest or title of a lessor,
licensor or under any lease or license, if the leases, subleases, licenses and
--
sublicenses permit granting Bank a security interest;
(e) Liens incurred in the extension, renewal or refinancing of the
indebtedness secured by Liens described in (a) through (c), but any extension,
---
renewal or replacement Lien must be limited to the property encumbered by the
existing Lien and the principal amount of the indebtedness may not increase.
"Person" is any individual, sole proprietorship, partnership, limited
liability company, joint venture, company association, trust, unincorporated
organization, association, corporation, institution, public benefit corporation,
firm, joint stock company, estate, entity or government agency.
"Prime Rate" is Bank's most recently announced "prime rate," even if
it is not Bank's lowest rate.
"Quick Assets" is, on any date, the Borrower's consolidated,
unrestricted cash, cash equivalents, net billed accounts receivable and
investments with maturities of fewer than 12 months determined according to
GAAP.
-17-
<PAGE>
"Responsible Officer" is each of the Chief Executive Officer, the
President, the Chief Financial Officer and the Controller of Borrower.
"Revolving Maturity Date" is November 1,1999.
"Schedule" is any attached schedule of exceptions.
"Subordinated Debt" is debt incurred by Borrower subordinated to
Borrower's debt to Bank (and identified as subordinated by Borrower and Bank).
"Subsidiary" is for any Person, or any other business entity of which
more than 50% of the voting stock or other equity interests is owned or
controlled, directly or indirectly, by the Person or one or more Affiliates of
the Person .
"Tangible Net Worth" is, on any date, the consolidated total assets of
Borrower and its Subsidiaries minus, (i) any amounts attributable to (a)
-----
goodwill, (b) intangible items such as unamortized debt discount and expense,
Patents, trade and service marks and names, Copyrights and research and
development expenses except prepaid expenses, and (c) reserves not already
deducted from assets, and (ii) Total Liabilities plus Subordinated Debt.
---
"Term Loan" is a loan of $472,154 for the purpose to pay off the
outstanding principal balance under that certain QuickStart Loan and Security
Agreement, dated December 1, 1997, by and between Preview Software, Inc. and
Bank.
"Term Loan Maturity Date" is November 2, 2001.
"Total Liabilities" is on any day, obligations that should, under
GAAP, be classified as liabilities on Borrower's consolidated balance sheet,
including all Indebtedness, and current portion Subordinated Debt allowed to be
paid, but excluding all other Subordinated Debt.
BORROWER:
Preview Systems Inc.
By: /s/ Ed Wholihan
-------------------------------
Title: CFO
---------------------------
BANK:
SILICON VALLEY
By: /s/ Eric Siouw
------------------------------
Title: Vice President
---------------------------
-18-
<PAGE>
EXHIBIT A
---------
The Collateral consists of all of Borrower's right, title and interest in
and to the following:
All goods and equipment now owned or hereafter acquired, including, without
limitation, all machinery, fixtures, vehicles (including motor vehicles and
trailers), and any interest in any of the foregoing, and all attachments,
accessories, accessions, replacements, substitutions, additions, and
improvements to any of the foregoing, wherever located;
All inventory, now owned or hereafter acquired, including, without
limitation, all merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products including such
inventory as is temporarily out of Borrower's custody or possession or in
transit and including any returns upon any accounts or other proceeds, including
insurance proceeds, resulting from the sale or disposition of any of the
foregoing and any documents of title representing any of the above;
All contract rights and general intangibles now owned or hereafter
acquired, including, without limitation, goodwill, trademarks, servicemarks,
trade styles, trade names, patents, patent applications, leases, license
agreements, franchise agreements, blueprints, drawings, purchase orders,
customer lists, route lists, infringements, claims, computer programs, computer
discs, computer tapes, literature, reports, catalogs, design rights, income tax
refunds, payments of insurance and rights to payment of any kind;
All now existing and hereafter arising accounts, contract rights,
royalties, license rights and all other forms of obligations owing to Borrower
arising out of the sale or lease of goods, the licensing of technology or the
rendering of services by Borrower, whether or not earned by performance, and any
and all credit insurance, guaranties, and other security therefor, as well as
all merchandise returned to or reclaimed by Borrower;
All documents, cash, deposit accounts, securities, securities entitlements,
securities accounts, investment property, financial assets, letters of credit,
certificates of deposit, instruments and chattel paper now owned or hereafter
acquired and Borrower's Books relating to the foregoing;
All copyright rights, copyright applications, copyright registrations and
like protections in each work of authorship and derivative work thereof, whether
published or unpublished, now owned or hereafter acquired; all trade secret
rights, including all rights to unpatented inventions, know-how, operating
manuals, license rights and agreements and confidential information, now owned
or hereafter acquired; all mask work or similar rights available for the
protection of semiconductor chips, now owned or hereafter acquired; all claims
for damages by way of any past, present and future infringement of any of the
foregoing; and
All Borrower's Books relating to the foregoing and any and all claims,
rights and interests in any of the above and all substitutions for, additions
and accessions to and proceeds thereof.
<PAGE>
EXHIBIT B
---------
LOAN PAYMENT/ADVANCE TELEPHONE REQUEST FORM
DEADLINE FOR SAME DAY PROCESSING IS 3:00 P.M., P.S.T.
TO: CENTRAL CLIENT SERVICE DIVISION DATE: _______________________________
FAX# (408) 496-2426 TIME: _______________________________
- ------------------------------------------------------------------------------
FROM: Preview Systems, Inc.
------------------------------------------------------------------------
CLIENT NAME (BORROWER)
REQUESTED BY:
________________________________________________________________
AUTHORIZED SIGNER'S NAME
AUTHORIZED SIGNATURE: ________________________________________________________
PHONE NUMBER:
________________________________________________________________
FROM ACCOUNT #: _____________________ TO ACCOUNT #: ______________________
REQUESTED TRANSACTION TYPE REQUESTED DOLLAR AMOUNT
- -------------------------- -----------------------
PRINCIPAL INCREASED (ADVANCE) $
-----------------------
PRINCIPAL PAYMENT (ONLY) $
-----------------------
INTEREST PAYMENT (ONLY) $
-----------------------
PRINCIPAL AND INTEREST (PAYMENT) $
-----------------------
OTHER INSTRUCTIONS: __________________________________________________________
- --------------------------------------------------------------------------------
All Borrower's representations and warranties in the Loan and Security Agreement
are true, correct and complete in all material respects on the date of the
telephone request for and Advance confirmed by this Borrowing Certificate; but
those representations and warranties expressly referring to another date shall
be true, correct and complete in all material respects as of that date.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
BANK USE ONLY
TELEPHONE REQUEST:
- -----------------
The following person is authorized to request the loan payment transfer/loan
advance on the advance designated account and is known to me.
_________________________________ _____________________________
Authorized Requester Phone #
_________________________________ _____________________________
Received By (Bank) Phone #
_________________________________
Authorized Signature (Bank)
- --------------------------------------------------------------------------------
<PAGE>
EXHIBIT C
COMPLIANCE CERTIFICATE
TO: SILICON VALLEY BANK
3003 Tasman Drive
Santa Clara, CA 95054
FROM: PREVIEW SYSTEMS, INC.
The undersigned authorized officer of Preview Systems, Inc. ("Borrower")
certifies that under the terms and conditions of the Loan and Security Agreement
between Borrower and Bank (the "Agreement"), (i) Borrower is in complete
compliance for the period ending ________________ with all required covenants
except as noted below and (ii) all representations and warranties in the
Agreement are true and correct in all material respects on this date. Attached
are the required documents supporting the certification. The Officer certifies
that these are prepared in accordance with Generally Accepted Accounting
Principles (GAAP) consistently applied from one period to the next except as
explained in an accompanying letter or footnotes. The Officer acknowledges that
no borrowings may be requested at any time or date of determination that
Borrower is not in compliance with any of the terms of the Agreement, and that
compliance is determined not just at the date this certificate is delivered.
Please indicate compliance status by circling Yes/No under "Complies" column.
<TABLE>
<CAPTION>
Reporting Covenant Required Complies
------------------ -------- --------
<S> <C> <C>
Monthly financial statements Monthly within 30 days Yes No
Comp. Certificate Monthly within 30 days* Yes No
Annual (Audited) FYE within 90 days Yes No
*and prior to each Advance for Liquidity Coverage only.
</TABLE>
<TABLE>
<CAPTION>
Reporting Covenant Required Actual Complies
------------------ -------- ------ --------
<S> <C> <C> <C>
Maintain on a Monthly Basis:
Minimum Tangible Net Worth $1,000,000 $_______ Yes No
Minimum Adjusted Quick Ratio 1.50:1.00 ___:1.00 Yes No
Minimum Liquidity Coverage 3.00:1.00 ___:1.00 Yes No
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
---------------------------------------
Comments Regarding Exceptions: See Attached. BANK USE ONLY
Sincerely, Received by: __________________________
AUTHORIZED SIGNER
Preview Systems, Inc.
Date: _________________________________
_____________________________________________
Signature Verified: _____________________________
AUTHORIZED SIGNER
_____________________________________________
Title Date: _________________________________
Compliance Status: Yes No
- --------------------------------------------- ---------------------------------------
Date
</TABLE>
<PAGE>
EXHIBIT 10.13(b)
LOAN MODIFICATION AGREEMENT
This Loan Modification Agreement is entered into as of July 1, 1999, by and
between Preview Systems, Inc. ("Borrower") and Silicon Valley Bank ("Bank").
1. DESCRIPTION OF EXISTING INDEBTEDNESS: Among other indebtedness which may be
------------------------------------
owing by Borrower to Bank, Borrower is indebted to Bank pursuant to, among other
documents, a Loan and Security Agreement, dated November 2, 1998, as may be
amended from time to time, (the "Loan Agreement"). The Loan Agreement provided
for, among other things, a Committed Revolving Line in the original principal
amount of One Million Dollars ($1,000,000) and a Term Loan in the original
amount of Four Hundred Seventy Two Thousand One Hundred Fifty Four Dollars
($472,154). Defined terms used but not otherwise defined herein shall have the
same meanings as in the Loan Agreement.
Hereinafter, all indebtedness owing by Borrower to Bank shall be referred to as
the "Indebtedness."
2. DESCRIPTION OF COLLATERAL AND GUARANTIES. Repayment of the Indebtedness is
----------------------------------------
secured by the Collateral as described in the Loan Agreement.
Hereinafter, the above-described security documents and guaranties, together
with all other documents securing repayment of the Indebtedness shall be
referred to as the "Security Documents". Hereinafter, the Security Documents,
together with all other documents evidencing or securing the Indebtedness shall
be referred to as the "Existing Loan Documents".
3. DESCRIPTION OF CHANGE IN TERMS.
------------------------------
A. Waiver of Financial Covenant Default.
------------------------------------
1. Bank hereby waives Borrower's existing default under the Loan
Agreement by virtue of Borrower's failure to comply with the (i) Tangible Net
Worth covenant as of the months ended February 28, 1999, March 31, 1999 and
April 30, 1999; and (ii) Adjusted Quick Ratio and Liquidity Coverage covenants
as of the months ended March 31, 1999 and April 30, 1999. Bank's waiver of
Borrowers compliance of these covenant shall apply only to the foregoing
periods. Accordingly, for the month ended May 30, 1999, Borrower shall be in
compliance with these covenants.
Bank's agreement to waive the above-described default (1) in no
way shall be deemed an agreement by the Bank to waive Borrower's compliance with
the above-described covenants as of all other dates and (2) shall not limit or
impair the Bank's right to demand strict performance of these covenants as of
all other dates and (3) shall not limit or impair the Bank's right to demand
strict performance of all other covenants as of any date.
4. CONSISTENT CHANGES. The Existing Loan Documents are hereby amended wherever
------------------
necessary to reflect the changes described above.
<PAGE>
5. PAYMENT OF LOAN FEE. Borrower shall pay to Bank a fee in the amount of One
-------------------
Thousand Dollars ($1,000) (the "Loan Fee"), plus all out-of-pocket expenses.
6. NO DEFENSES OF BORROWER. Borrower (and each guarantor and pledgor signing
-----------------------
below) agrees that, as of the date hereof, it has no defenses against the
obligations to pay any amounts under the Indebtedness.
7. CONTINUING VALIDITY. Borrower (and each guarantor and pledgor signing
-------------------
below) understands and agrees that in modifying the existing Indebtedness, Bank
is relying upon Borrowers representations, warranties, and agreements, as set
forth in the Existing Loan Documents. Except as expressly modified pursuant to
this Loan Modification Agreement, the terms of the Existing Loan Documents
remain unchanged and in full force and effect. Bank's agreement to
modifications to the existing Indebtedness pursuant to this Loan Modification
Agreement in no way shall obligate Bank to make any future modifications to the
Indebtedness. Nothing in this Loan Modification Agreement shall constitute a
satisfaction of the Indebtedness. It is the intention of Bank and Borrower to
retain as liable parties all makers and endorsers of Existing Loan Documents,
unless the party is expressly released by Bank in writing. No maker, endorser,
or guarantor will be released by virtue of this Loan Modification Agreement.
The terms of this paragraph apply not only to this Loan Modification Agreement,
but also to all subsequent loan modification agreements.
8. CONDITION. The effectiveness of this Loan Modification Agreement is
---------
conditioned upon payment of the Loan Fee.
This Loan Modification Agreement is executed as of the date first written
above.
BORROWER: BANK:
PREVIEW SYSTEMS, INC. SILICON VALLEY BANK
By: /s/ Elizabeth Ettling By: /s/ Eric Siouw
---------------------------- ----------------------------
Name: Elizabeth Ettling Name: Eric Siouw
-------------------------- --------------------------
Title: Controller Title: Vice President
------------------------- -------------------------
-2-
<PAGE>
EXHIBIT 10.16
AGREEMENT AND PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION, dated as of May 28, 1998 (the
"Agreement"), by and among PREVIEW SYSTEMS, INC., (formerly known as P2
Software, Inc.) a Delaware corporation ("Newco"), PREVIEW SOFTWARE, INC., a
California corporation ("Preview"), PORTLAND SOFTWARE, INC., an Oregon
corporation ("Portland"), PREVIEW ACQUISITION CORP., a California corporation
and PORTLAND ACQUISITION CORP., an Oregon Corporation.
WHEREAS, (i) Newco is a newly formed corporation organized and existing
under the laws of the State of Delaware, one-half of the issued and outstanding
capital stock of which is owned by each of Preview and Portland, (ii) Preview is
a corporation organized and existing under the laws of the State of California
and (iii) Portland is a corporation organized and existing under the laws of the
State of Oregon; and
WHEREAS, Preview and Portland have caused Newco to form a wholly owned
subsidiary called Preview Acquisition Corp., a corporation organized under the
laws of the State of California ("Preview Sub"), and a wholly owned subsidiary
called Portland Acquisition Corp., a corporation organized under the laws of the
State of Oregon ("Portland Sub"), and all the outstanding capital stock of each
of Preview Sub and Portland Sub is owned by Newco; and
WHEREAS, the Board of Directors of each of Newco, Preview and Portland deem
it advisable and in the best interests of their stockholders or shareholders, as
the case may be, that each of Preview and Portland become subsidiaries of Newco
pursuant to the Mergers (as hereinafter defined) provided for in this Agreement,
and desire to make certain representations, warranties and agreements in
connection with such Mergers; and
WHEREAS, for Federal income tax purposes, it is intended that the
transactions contemplated by this Agreement constitute transactions described in
section 351 and/or section 368 of the Internal Revenue Code of 1986, as amended
(the "Code"), and the regulations thereunder.
NOW THEREFORE, in consideration of the foregoing, the representations,
warranties, covenants and agreements set forth in this Agreement and such other
good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties to this Agreement, intending to be legally bound
hereby, agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
For purposes of this Agreement, the following terms shall have the
following meanings:
Section 1.1 "Affiliate" shall mean, as to any person, any other person
that directly or indirectly controls, or is under common control with or is
controlled by such person.
<PAGE>
Section 1.2 "Agreement" shall have the meaning in the introductory
clauses above.
Section 1.3 "Articles of Merger" shall have the meaning set forth in
Section 2.3.
Section 1.4 "CGCL" shall have the meaning set forth in Section 2.1(a).
Section 1.5 "Cause" shall have the meaning set forth in Section 7.7(a).
Section 1.6 "COBRA" shall have the meaning set forth in Section 4.10(a).
Section 1.7 "Code" shall have the meaning set forth in the introductory
clauses hereto.
Section 1.8 "Disclosure Documents" shall have the meaning provided in
Section 1.19.
Section 1.9 "Dissenting Shares" shall have the meaning provided in
Section 8.2(e).
Section 1.10 "Effective Time" shall have the meaning set forth in Section
2.3.
Section 1.11. "End-User Licenses" shall have the meaning set forth in
Section 4.7(a)(viii).
Section 1.12 "ERISA" shall have the meaning set forth in Section 4.10(b).
Section 1.13 "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
Section 1.14 "Fairness Hearing" shall mean the hearing pursuant to Section
25142 of the CGCL on the fairness of the Mergers and the securities issued in
connection therewith.
Section 1.15 "Fully Diluted Preview Shares" shall have the meaning
provided in Section 2.1(c).
Section 1.16 "Fully Diluted Portland Shares" shall have the meaning
provided in Section 2.2(c).
Section 1.17 "GAAP" shall have the meaning set forth in Section 4.5(a).
Section 1.18 "Governmental Entity" shall mean any court, administrative
agency or commission or other governmental authority or instrumentality,
domestic or foreign.
Section 1.19 "Hearing Documents" shall mean the Application for
Qualification of Securities by permit under Section 25121 of the CGCL, the
related Notice of Hearing and the proxy statements and other disclosure
materials (collectively, such notice, proxy statements and other disclosure
materials are referred to as the "Disclosure Documents") to be supplied to the
shareholders of Preview and Portland in connection with the transactions
contemplated hereby (collectively, the "Hearing Documents").
-2-
<PAGE>
Section 1.20 "Incentive Stock Option" shall have the meaning provided in
Section 2.2(b).
Section 1.21 "Intellectual Property Rights" shall have the meaning
provided in Section 4.13(h).
Section 1.22 "Knowledge of Portland" means the actual knowledge of Charles
Jennings, Al Miksch and Edward Wholihan; references to the "Knowledge of
Preview" means the actual knowledge of Vincent Pluvinage, Karl Hirsch and R.
Douglas Rivers.
Section 1.23 "Licenses" shall have the meaning provided in Section 4.17.
Section 1.24 "Material Adverse Effect," with respect to any party, shall
mean a material adverse effect (or any development which, insofar as reasonably
can be foreseen, in the future is reasonably likely to have a material adverse
effect) on the business, assets, financial or other condition, results of
operations or prospects of such party and its Subsidiaries taken as a whole.
Section 1.25 "Merger Agreements" shall mean the Preview Merger Agreement
and the Portland Merger Agreement.
Section 1.26 "Mergers" shall mean the Preview Merger and the Portland
Merger.
Section 1.27 "Newco Board" shall have the meaning set forth in Section
2.5(a)(i).
Section 1.28 "Newco Common Stock" shall have the meaning set forth in
Section 2.1(a)(i).
Section 1.29 "Newco Preferred Stock" shall mean the Newco Series A
Preferred Stock, Newco Series B Preferred Stock, Newco Series C Preferred Stock,
Newco Series D Preferred Stock and Newco Series E Preferred Stock.
Section 1.30 "Newco Series A Preferred Stock," "Newco Series B Preferred
Stock," "Series C Preferred Stock" and "Newco Series D Preferred" shall have the
meanings set forth in Section 2.1.
Section 1.31 "Newco Series E Preferred Stock" shall have the meaning set
forth in Section 2.2.
Section 1.32 "Newco Stock Option Plan" shall have the meaning set forth in
Section 7.9.
Section 1.33 "OBCA" shall have the meaning set forth in Section 2.2(a).
Section 1.34 "Portland Charter Documents" shall have the meaning set forth
in Section 4.1.
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Section 1.35 "Portland Common Stock" shall have the meaning set forth in
Section 2.2(a)(i).
Section 1.36 "Portland Common Stock Exchange Amount" shall have the
meaning set forth in Section 2.2(a)(ii).
Section 1.37 "Portland Disclosure Schedule" shall have the meaning set
forth in Article IV.
Section 1.38 "Portland Employee Plans" shall have the meaning set forth in
Section 4.10(b).
Section 1.39 "Portland Financial Statements" shall have the meaning set
forth in Section 4.5(a).
Section 1.40 "Portland Intellectual Property Rights" shall have the
meaning provided in Section 4.13(h).
Section 1.41 "Portland Legal Proceedings" shall have the meaning set forth
in Section 4.8.
Section 1.42 "Portland Merger" shall have the meaning set forth in Section
2.2(a).
Section 1.43 "Portland Merger Agreement" shall have the meaning set forth
in Section 2.2(a).
Section 1.44 "Portland Options" shall have the meaning set forth in
Section 4.2(c).
Section 1.45 "Portland Plan" shall have the meaning set forth in Section
4.2(c).
Section 1.46 "Portland Preferred Stock" shall have the meaning set forth
in Section 2.2(a)(ii).
Section 1.47 "Portland Preferred Stock Exchange Amount" shall have the
meaning set forth in Section 2.2(a)(ii).
Section 1.48 "Portland Products" shall have the meaning set forth in
Section 4.13(b).
Section 1.49 "Portland" shall have the meaning set forth in the
introductory clauses above.
Section 1.50 "Portland Stock Options" means the options to acquire
Portland Common Stock outstanding as of the Effective Time.
Section 1.51 "Portland Sub" shall have the meaning set forth in the
introductory clauses hereto.
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Section 1.52 "Portland Warrants" shall have the meaning set forth in
Section 4.2(d).
Section 1.53 "Preview Charter Documents" shall have the meaning set forth
in Section 5.1.
Section 1.54 "Preview Common Stock" shall have the meaning set forth in
Section 2.1(a)(i).
Section 1.55 "Preview Common Stock Exchange Amount" shall have the meaning
set forth in Section 2.1(a)(i).
Section 1.56 "Preview Disclosure Schedule" shall have the meaning set
forth in Article V.
Section 1.57 "Preview Employee Plans" shall have the meaning set forth in
Section 5.10(b).
Section 1.58 "Preview Exchange Ratio" shall have the meaning set forth in
Section 2.1(c).
Section 1.59 "Preview Financial Statements" shall have the meaning set
forth in Section 5.5(a).
Section 1.60 "Preview Intellectual Property Rights" shall have the
meaning set forth in Section 5.13(h).
Section 1.61 "Preview Legal Proceedings" shall have the meaning set forth
in Section 5.8.
Section 1.62 "Preview Merger" shall have the meaning set forth in Section
2.1(a).
Section 1.63 "Preview Merger Agreement" shall have the meaning set forth
in Section 2.1(a).
Section 1.64 "Preview New Plan" shall have the meaning set forth in
Section 5.2(c).
Section 1.65 "Preview Old Plan" shall have the meaning set forth in
Section 5.2(c).
Section 1.66 "Preview Plans" shall have the meaning set forth in Section
5.2(c).
Section 1.67 "Preview Preferred Stock" means the Preview Series A
Preferred, Series B Preferred, Series C Preferred and Series D Preferred Stock.
Section 1.68 "Preview Products" shall have the meaning set forth in
Section 5.13(b).
Section 1.69 "Preview Series A Preferred" shall have the meaning set forth
in Section 2.1(a)(ii).
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Section 1.70 "Preview Series A Preferred Exchange Amount" shall have the
meaning set forth in Section 2.1(a)(ii).
Section 1.71 "Preview Series B Preferred" shall have the meaning set forth
in Section 2.1(a)(iii).
Section 1.72 "Preview Series B Preferred Exchange Amount" shall have the
meaning set forth in Section 2.1(a)(iii).
Section 1.73 "Preview Series C Preferred" shall have the meaning set forth
in Section 2.1(a)(iv).
Section 1.74 "Preview Series C Preferred Stock Exchange Amount" shall have
the meaning set forth in Section 2.1(a)(iv).
Section 1.75 "Preview Series D Preferred" shall have the meaning set forth
in Section 2.1(a)(v).
Section 1.76 "Preview Series D Preferred Stock Exchange Amount" shall have
the meaning set forth in Section 2.1(a)(v).
Section 1.77 "Preview" shall have the meaning set forth in the
introductory clauses above.
Section 1.78 "Preview Stock Options" means the options to acquire Preview
Common Stock outstanding as of the Effective Time.
Section 1.79 "Preview Sub" shall have the meaning set forth in the
introductory clauses hereto.
Section 1.80 "Preview Warrants" means the warrants, if any, to acquire
Preview Preferred Stock or Preview Common Stock outstanding as of the Effective
Time.
Section 1.81 "Returns" shall have the meaning set forth in Section
4.12(a)(ii).
Section 1.82 "SEC" shall mean the United States Securities and Exchange
Commission.
Section 1.83 "Securities Act" shall mean the Securities Act of 1933, as
amended.
Section 1.84 "Stock Options" shall mean the Portland Stock Options and the
Preview Stock Options.
Section 1.85 "Subsidiary" shall have the meaning set forth in Rule 1-02 of
Regulation S-X of the SEC.
Section 1.86 "Taxes" shall have the meaning set forth in Section
4.12(a)(i).
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Section 1.87 "Termination Date" shall have the meaning set forth in
Section 9.1.
Section 1.88 "Third Party" shall mean any person or group that is deemed
to be a "person" within the meaning of Section 13(d) of the Exchange Act.
ARTICLE II
THE MERGERS
Section 2.1 Preview Merger.
(a) Preview and Portland will cause Newco and Preview Sub to
execute and deliver, and Preview will execute and deliver, and agrees, subject
to the terms and conditions of this Agreement and the Preview Merger Agreement,
to submit to its shareholders for adoption and approval as required under the
California General Corporation Law (the "CGCL"), together with this Agreement,
in accordance with Article II hereof, the Agreement of Merger, a form of which
is set forth as Exhibit A hereto, with such further changes as may be mutually
agreed upon by the parties to this Agreement (the "Preview Merger Agreement"),
providing for the merger of Preview Sub with and into Preview (the "Preview
Merger") and the conversion of each outstanding share of:
(i) Preview Common Stock, par value $0.01 per share (the
"Preview Common Stock"), into that number of shares of Newco Common Stock par
value $0.0001 per share (the "Newco Common Stock") equal to the Preview Common
Stock Exchange Amount; the "Preview Common Stock Exchange Amount" shall equal
one share of Preview Common Stock outstanding at the Effective Time multiplied
by the "Preview Exchange Ratio;"
(ii) Preview Series A Preferred Stock (the "Preview Series A
Preferred") into that number of shares of Newco Series A Preferred Stock par
value $0.0001 per share (the "Newco Series A Preferred") equal to the Preview
Series A Preferred Exchange Amount; the "Preview Series A Preferred Exchange
Amount" shall equal one share of Preview Series A Preferred issued and
outstanding at the Effective Time multiplied by the Preview Exchange Ratio;
(iii) Preview Series B Preferred Stock (the "Preview Series B
Preferred") into that number of shares of Newco Series B Preferred Stock par
value $0.0001 per share (the "Newco Series B Preferred") equal to the Preview
Series B Preferred Exchange Amount; the "Preview Series B Preferred Exchange
Amount" shall equal one share of Preview Series B Preferred issued and
outstanding at the Effective Time multiplied by the Preview Exchange Ratio;
(iv) Preview Series C Preferred Stock (the "Preview Series C
Preferred") into that number of shares of Newco Series C Preferred Stock par
value $0.0001 per share (the "Newco Series C Preferred") equal to the Preview
Series C Preferred Exchange Amount; the "Preview Series C Preferred Stock
Exchange Amount" shall equal one share of
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Preview Series C Preferred issued and outstanding at the Effective Time
multiplied by the Preview Exchange Ratio; and
(v) Preview Series D Preferred Stock (the "Preview Series D
Preferred") into that number of shares of Newco Series D Preferred Stock par
value $0.0001 per share (the "Newco Series D Preferred") equal to the Preview
Series D Preferred Exchange Amount; the "Preview Series D Preferred Stock
Exchange Amount" shall equal one share of Preview Series D Preferred issued and
outstanding at the Effective Time multiplied by the Preview Exchange Ratio.
(b) At the Effective Time, to the extent permitted by the terms of
the relevant governing instruments, each outstanding Preview Stock Option and
each outstanding Preview Warrant, whether vested or unvested, shall be assumed
or exchanged by Newco for an option or warrant of Newco, as applicable, to
acquire, on substantially the same terms and conditions as were applicable under
such Preview Stock Option or Preview Warrant, the same number of shares (rounded
down to the nearest whole share) of Newco Common Stock or Newco Preferred Stock
as the holder of such Preview Stock Option or Preview Warrant would have been
entitled to receive pursuant to the Preview Merger had such holder exercised
such option or warrant in full immediately prior to the Effective Time, at a
Newco per share exercise price (rounded up to the nearest whole cent) equal to
(i) the per share exercise price for the shares of Preview Common Stock or
Preview Preferred Stock, as applicable, purchasable pursuant to such Preview
Stock Option or Preview Warrant divided by (ii) the Preview Exchange Ratio;
provided, however, that in the case of any option to which section 421 of the
Code applies by reason of its qualification under any of sections 422-424 of the
Code ("incentive stock options"), the option price, the number of shares
purchasable pursuant to such option and the terms and conditions of exercise of
such option shall be determined in order to comply with section 424(a) of the
Code, subject to the terms and conditions of the relevant governing instruments.
(c) The "Preview Exchange Ratio" shall equal one. The "Fully Diluted
Preview Shares" shall equal the fully diluted shares of capital stock of Preview
as of the Effective Time, assuming the conversion of all convertible securities
of Preview and the exercise of all outstanding options, warrants and other
rights to acquire Preview capital stock and shall include Preview Dissenting
Shares, if any.
(d) As provided in the Preview Merger Agreement, Preview shall be the
surviving corporation in the Preview Merger and shall become a wholly owned
subsidiary of Newco. From and after the Effective Time, the identity and
separate existence of Preview Sub shall cease, and Preview shall succeed,
without other transfer, to all the rights, properties, debts and liabilities of
Preview Sub.
(e) In connection with the Preview Merger, Preview and Portland shall
take such actions as may be necessary to cause Newco to reserve sufficient
shares of Newco Common Stock, Newco Preferred Stock, Newco Series A Preferred,
Newco Series B Preferred, Newco Series C Preferred and Newco Series D Preferred
prior to the Preview Merger, to permit the issuance of shares of Newco Common
Stock and Newco Preferred Stock (i) to the holders of
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Preview Common Stock and Preview Preferred Stock as of the Effective Time in
accordance with the terms of the Preview Merger Agreement and (ii) upon the
exercise of Preview Stock Options and Preview Warrants (and conversion of
preferred stock underlying such warrants) to be assumed or exchanged for
equivalent securities of Newco in accordance with Section 2.1(b) of this
Agreement. Each of Newco and Preview shall use its best efforts to cause the
Preview Merger to be consummated in accordance with the terms of this Agreement
and the Preview Merger Agreement.
Section 2.2 Portland Merger.
(a) Preview and Portland will cause Newco and Portland Sub to
execute and deliver, and Portland will execute and deliver, and agrees, subject
to the terms and conditions of this Agreement and the Portland Merger Agreement,
to submit to its shareholders for adoption and approval, as required under the
Oregon Business Corporation Act (the "OBCA"), together with this Agreement, in
accordance with Article II hereof, the Agreement of Merger, a form of which is
set forth as Exhibit B hereto, with such further changes as may be mutually
agreed upon by the parties to this Agreement (the "Portland Merger Agreement"),
providing for the merger of Portland Sub with and into Portland (the "Portland
Merger") and the conversion of each outstanding share of:
(i) Portland Common Stock, par value $.01 per share (the
"Portland Common Stock") into that number of shares of Newco Common Stock equal
to the Portland Common Stock Exchange Amount; the "Portland Common Stock
Exchange Amount" shall equal one share of Portland Common Stock multiplied by
the Portland Exchange Ratio (as defined below);
(ii) Portland Preferred Stock, par value $.01 per share,
including both the Portland Series A Preferred Stock and the Portland Series B
Preferred Stock (the "Portland Preferred Stock") into that number of shares of
Newco Series E Preferred Stock par value $0.0001 per share (the "Newco Series E
Preferred Stock") equal to the Portland Preferred Stock Exchange Amount; the
"Portland Preferred Stock Exchange Amount" shall equal one share of Portland
Preferred Stock multiplied by the Portland Exchange Ratio.
(b) At the Effective Time, to the extent permitted by the terms of
the relevant governing instruments, each outstanding Portland Stock Option and
each outstanding Portland Warrant, whether vested or unvested, shall be assumed
as exchanged by Newco for an option or warrant of Newco, as applicable, to
acquire, on substantially the same terms and conditions as were applicable under
such Portland Stock Option or Portland Warrant, the same number of shares
(rounded down to the nearest whole share) of Newco Common Stock or Newco
Preferred Stock as the holder of such Portland Stock Option or Portland Warrant
would have been entitled to receive pursuant to the Portland Merger had such
holder exercised such option or warrant in full immediately prior to the
Effective Time, at a Newco per share exercise price (rounded up to the nearest
whole cent) equal to (i) the per share exercise price for the shares of Portland
Common Stock or Portland Preferred Stock, as applicable, purchasable pursuant to
such Portland Stock Option or Portland Warrant divided by (ii) the Portland
Exchange Ratio; provided,
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however, that in the case of any option to which section 421 of the Code applies
by reason of its qualification under any of sections 422-424 of the Code
("incentive stock options"), the option price, the number of shares purchasable
pursuant to such option and the terms and conditions of exercise of such option
shall be determined in order to comply with section 424(a) of the Code, subject
to the terms and conditions of the relevant governing instruments.
(c) The "Portland Exchange Ratio" shall equal the quotient
obtained by dividing (a) the Fully Diluted Preview Shares by (b) the Fully
Diluted Portland Shares. The "Fully Diluted Portland Shares" shall equal the
fully diluted shares of capital stock of Portland as of the Effective Time,
assuming the conversion of all convertible securities of Portland and the
exercise of all outstanding options and warrants and other rights to acquire
Portland capital stock and shall include Portland Dissenting Shares, if any.
Notwithstanding the foregoing, for purposes of calculating the Portland Exchange
Ratio pursuant to this Section 2.2(c), the "Fully Diluted Preview Shares" and
the "Fully Diluted Portland Shares" shall not include the securities outstanding
or to be issued as set forth on Schedule 2.2(c), as such schedule may be amended
or modified from time to time by the parties pursuant to Section 9.3 hereof.
(d) As set forth in the Portland Merger Agreement, Portland shall
be the surviving corporation in the Portland Merger and shall become a wholly
owned subsidiary of Newco. From and after the Effective Time, the identity and
separate existence of Portland Sub shall cease, and Portland shall succeed,
without other transfer, to all the rights, properties, debts and liabilities of
Portland Sub.
(e) In connection with the Portland Merger, Preview and Portland
shall take such actions as may be necessary to cause Newco to reserve sufficient
shares of Newco Common Stock and Newco Preferred Stock prior to the Portland
Merger to permit the issuance of shares of Newco Common Stock and Newco
Preferred Stock (i) to the holders of Portland Common Stock and Newco Preferred
Stock as of the Effective Time in accordance with the terms of the Portland
Merger Agreement and (ii) upon the exercise of Portland Stock Options and
Portland Warrants to be assumed by or exchanged for equivalent securities of
Newco in accordance with Section 2.2(b) of this Agreement. Each of Newco and
Portland shall use its best efforts to cause the Portland Merger to be
consummated in accordance with the terms of this Agreement and the Portland
Merger Agreement.
Section 2.3 Filing of Merger Agreements and Related Certificates.
Immediately after all conditions to this Agreement have been satisfied or
waived, the articles of merger pertaining to the Preview Merger and the Portland
Merger, respectively (together the "Articles of Merger"), or such other
documents necessary to effect the Mergers, shall be executed and filed in
accordance with the CGCL and the OBCA, as the case may be, and the Mergers
shall become effective substantially simultaneously in accordance with the terms
of the Merger Agreements (such time and date are referred to herein as the
"Effective Time").
Section 2.4 Effect of Mergers. The parties agree to the following
provisions with respect to the Mergers:
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(a) Names of Surviving Corporations. The names of Preview and
Portland, as the surviving corporations in the Mergers, from and after the
Effective Time shall be, respectively, "Preview Software, Inc." and "Portland
Software, Inc." until changed or amended in accordance with applicable law.
(b) Charter Documents. At the Effective Time (i) the Articles of
Incorporation and Bylaws of Preview, as in effect immediately prior to the
Effective Time, shall be amended so that the operative provisions read in their
entireties exactly as the Articles of Incorporation and Bylaws, respectively, of
Preview Sub, except that the name of the corporation specified therein shall be
"Preview Software, Inc." and (ii) the Articles of Incorporation and Bylaws of
Portland, shall be amended so that the operative provisions read in their
entireties exactly as the Articles of Incorporation and Bylaws, respectively, of
Portland Sub, as in effect immediately prior to the Effective Time, except that
the name of the corporation specified therein shall be "Portland Software, Inc."
(c) Other Effects. The Preview Merger shall have such other
effects as are set forth in the Preview Merger Agreement and the CGCL and the
Portland Merger shall have such other effects as are set forth in the Portland
Merger Agreement and the OBCA.
Section 2.5 Directors and Officers of Newco, Preview and Portland;
Headquarters.
(a) Newco Governance.
(i) Preview and Portland shall take all actions necessary to
cause the directors comprising the full board of directors of Newco (the "Newco
Board") at the Effective Time to be comprised of seven directors. Preview and
Portland agree that the initial Board of Directors of Newco shall consist of the
persons listed on Exhibit C. If, prior to the Effective Time, any of the
foregoing persons shall decline or be unable to serve as a Newco director,
Preview and Portland shall jointly designate another person to serve in such
person's stead. If Preview and Portland are unable to agree on a replacement
designee prior to the Effective Time, the Newco Board shall appoint a
replacement to fill the resulting vacancy if permitted by the Newco Articles of
Incorporation with respect to the vacant seat.
(ii) At or prior to the Effective Time, Preview and Portland
shall cause (A) the person listed as such on Exhibit C hereto to be designated
as Chairman of the Board of Directors of Newco and (B) Newco to designate the
persons listed on such Exhibit C to be named officers of Newco, holding the
positions indicated on such Exhibit; provided, that if any such persons are
unwilling or unable to serve in such capacities, their replacements shall be
selected by the Newco Board as constituted at the Effective Time. Newco shall
also have such other officers as may be elected by the Newco Board. The home
office activities of Newco from and after the Effective Time shall be as further
set forth on such Exhibit C.
(b) Tenure. The foregoing officers and directors of Newco,
Preview and Portland shall hold their positions until their resignation or
removal or the election or appointment of their successors in the manner
provided by each corporation's respective charter documents and applicable law.
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Section 2.6 Approval of Mergers by Newco. Newco, as the sole shareholder
of each of Portland Sub and Preview Sub, has heretofore executed a formal
written consent under (i) Section 60.211 of the OBCA, approving, authorizing and
adopting the Portland Merger Agreement and (ii) Section 603 of the CGCL,
approving, authorizing and adopting the Preview Merger Agreement.
Section 2.7 Newco Certificate of Incorporation. Prior to the Effective
Time, Preview and Portland, as the shareholders of Newco, shall cause Newco to
amend its certificate of incorporation to read in its entirety as set forth in
Exhibit D hereto, with such further changes thereto as Preview and Portland may
mutually agree, and to amend its bylaws in a manner reasonably acceptable to
Portland and Preview.
Section 2.8 Preview Sub and Portland Sub Charter Documents. Prior to the
Effective Time the articles of incorporation and bylaws of each of Preview Sub
and Portland Sub shall be amended in a manner reasonably acceptable to each of
Preview and Portland.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF NEWCO
Newco represents and warrants to Preview and Portland as follows:
Section 3.1 Organization and Qualification. Newco is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has the requisite power and authority to own, lease and operate its
properties and to carry on its business as it is now being conducted, and is
duly qualified to do business and in good standing in each jurisdiction in which
the properties owned, leased or operated by it or the nature of the business
conducted by it makes such qualification necessary, except where the failure to
so qualify or be in good standing would not have a Material Adverse Effect on
Newco. True, accurate and complete copies of the certificate of incorporation
and bylaws of Newco as in effect on the date hereof, including all amendments
thereto, have heretofore been delivered to Preview and Portland.
Section 3.2 Capitalization.
(a) The authorized capital stock of Newco consists of 1,000 shares
of Newco Common Stock. As of the date hereof, there were 1,000 shares of Newco
Common Stock issued and outstanding, 500 shares of which are owned by Preview
and 500 shares of which are owned by Portland, and all of which are validly
issued, fully paid and nonassessable and are not subject to and were not issued
in violation of any preemptive rights.
(b) Except for this Agreement and the Merger Agreements, there are
not now, and at the Effective Time there will not be, any options, warrants,
calls, rights, subscriptions, convertible securities or other rights or
agreements, arrangements or commitments of any kind obligating Newco to issue,
transfer or sell any securities of Newco. There are no outstanding contractual
or other obligations of Newco to purchase, redeem or otherwise acquire any
shares of
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Newco Common Stock. There is not now, and at the Effective Time there will not
be, any stockholder agreement, voting trust or other agreement or understanding
to which Newco is a party or bound relating to the voting of any shares of the
capital stock of Newco.
Section 3.3 Authority. Newco has all requisite corporate power and
authority to execute and deliver this Agreement and the Merger Agreements and to
consummate the transactions contemplated hereby and thereby. The execution and
delivery of this Agreement and the Merger Agreements, and the consummation by
Newco of the transactions contemplated hereby and thereby, have been duly
authorized by Newco's board of directors and stockholders and no other corporate
proceedings on the part of Newco are necessary to authorize the execution and
delivery of this Agreement and the Merger Agreements and the consummation by
Newco of the transactions contemplated hereby and thereby. This Agreement has
been and, as of the Effective Time, the Merger Agreements will have been, duly
and validly executed and delivered by Newco and, assuming the due authorization,
execution and delivery hereof and thereof by Preview and Portland, constitute or
will constitute, as the case may be, valid and binding agreements of Newco,
enforceable against Newco in accordance with their terms, except that such
enforceability may be subject to (i) bankruptcy, insolvency, reorganization,
moratorium or other similar laws now or hereafter in effect relating to or
affecting creditors' rights generally and (ii) by general principles of equity
(regardless of whether enforcement is sought in a proceeding in equity or at
law).
Section 3.4 Consents and Approvals; No Violation. None of the execution
and delivery of this Agreement or the Merger Agreements, the consummation by
Newco of the transactions contemplated hereby and thereby or compliance by Newco
with any of the provisions hereof will (i) conflict with or result in a breach
of any provision of the certificate of incorporation or bylaws of Newco, (ii)
require any consent, approval, authorization or permit of, or filing with or
notification to, any governmental or regulatory authority, except (A) pursuant
to Section 3(a)(10) of the Securities Act and certain state securities statutes
and (B) for filing the Articles of Merger with respect to the Mergers pursuant
to the OBCA and the CGCL, (iii) result in a default (or an event which with
notice or lapse of time or both would become a default) or give to any third
party any right of termination, cancellation, amendment or acceleration under,
or result in the creation of a lien or encumbrance on any of the assets of Newco
pursuant to any note, license, agreement or other instrument or obligation to
which Newco is a party or by which Newco or any of its assets may be bound or
affected, or (iv) violate or conflict with any order, writ, injunction, decree,
statute, rule or regulation applicable to Newco or any of its properties or
assets; other than (A) such defaults, rights of termination, cancellation,
amendment or acceleration, liens and encumbrances, violations and conflicts set
forth pursuant to (iii) and (iv) above, and (B) failure to obtain such consents,
approvals, authorizations, permits or filings, as set forth pursuant to (ii)
above, which, in the aggregate, would not have a Material Adverse Effect on
Newco.
Section 3.5 No Prior Activities. Except for obligations or liabilities
incurred in connection with their respective incorporation or organization or
the negotiation and consummation of this Agreement and the Merger Agreements and
the transactions contemplated hereby and thereby, none of Newco, Preview Sub or
Portland Sub has incurred any obligations or
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liabilities nor engaged in any business or activities of any type or kind
whatsoever or entered into any agreements or arrangements with any person or
entity.
Section 3.6 Information Supplied. The information supplied or to be
supplied by Newco for inclusion in the Hearing Documents, including any
amendments and supplements thereto, will not, either at the date mailed to
shareholders of Preview and Portland or at the times of the meetings of
shareholders of Preview and Portland to be held in connection with the
transactions contemplated by this Agreement and the Merger Agreements contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PORTLAND
Portland represents and warrants to Preview, except as otherwise set forth
in the Portland Disclosure Schedule (the "Portland Disclosure Schedule") as
follows:
Section 4.1 Organization and Qualification. Each of Portland and its
Subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation and has the
requisite power and authority to own, lease and operate its properties and to
carry on its business as it is now being conducted, and is duly qualified to do
business and in good standing in each jurisdiction in which the properties
owned, leased or operated by it or the nature of the business conducted by it
makes such qualification necessary, except where the failure to so qualify or be
in good standing would not have a Material Adverse Effect on Portland. True and
complete copies of the articles of incorporation and bylaws of Portland (the
"Portland Charter Documents") as in effect on the date hereof, including all
amendments thereto, have heretofore been made available or delivered to Preview.
The copy of the minute books of Portland provided to Preview's counsel contains
minutes of all meetings of directors and shareholders and all actions by written
consent without a meeting by the directors and shareholders since the date of
incorporation and reflects all actions by the directors (and any committee of
directors) and shareholders with respect to all transactions referred to in such
minutes accurately in all material respects.
Section 4.2 Capitalization. The authorized capital of Portland consists,
or will consist, immediately prior to the Effective Time, of:
(a) 5,338,323 shares of Portland Preferred Stock, of which 838,323
shares have been designated Portland Series A Preferred Stock, 838,323 of which
are issued and outstanding immediately prior to the Effective Time and 4,500,000
shares have been designated Portland Series B Preferred Stock, 2,395,209 of
which are issued and outstanding. The rights, privileges and preferences of the
Portland Preferred Stock are as stated in the Portland Charter Documents.
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(b) 20,000,000 shares of Portland Common Stock, 7,466,210 shares
of which are issued and outstanding immediately prior to the Effective Time. All
of the outstanding shares of Portland Common Stock have been duly authorized,
fully paid and are nonassessable and issued in compliance with all applicable
Federal and state securities laws. Portland has reserved 5,338,323 shares of
Portland Common Stock for issuance upon conversion of the Portland Preferred
Stock.
(c) Portland has issued and outstanding options to acquire
2,393,526 shares of Portland Common Stock (the "Portland Options") to officers,
directors, employees and consultants of Portland pursuant to a 1994 Stock
Incentive Plan (the "Portland Plan"). Options to acquire 1,828,224 shares remain
available for future grant under the Portland Plan.
(d) Portland has issued and currently has outstanding warrants to
acquire (i) 674,000 shares of Portland Common Stock and (ii) 838,324 shares
of Portland Series B Preferred Stock (collectively, the "Portland Warrants").
(e) Except as set forth in the preceding subparagraphs, there are
no outstanding options, warrants, rights (including conversion or preemptive
rights and rights of first refusal or similar rights) or agreements, orally or
in writing, for the purchase or acquisition from Portland of any shares of its
capital stock (other than as set forth in the Portland Series A Preferred Stock
Purchase Agreement dated October 21, 1996 and the Series B Stock Purchase
Agreement dated August 1, 1997, as amended by and among Portland and the parties
listed therein).
(f) All issued and outstanding shares of Portland Preferred
Stock and Portland Common Stock have been duly authorized and validly issued and
are fully paid and nonassessable and free of any preemptive or similar rights
contained in the Portland Charter Documents. All outstanding shares of
Portland's capital stock issued have been or will be issued in compliance with
applicable state and Federal securities laws.
Section 4.3 Authority. Portland has all requisite corporate power and
authority to execute and deliver this Agreement and the Portland Merger
Agreement and, subject to approval of this Agreement and the Portland Merger
Agreement by the shareholders of Portland, to consummate the transactions
contemplated hereby and thereby. The execution and delivery of this Agreement
and the Portland Merger Agreement, and the consummation by Portland of the
transactions contemplated hereby and thereby, have been duly authorized by
Portland's board of directors and no other corporate proceedings on the part of
Portland are necessary to authorize the execution and delivery of this Agreement
and the Portland Merger Agreement and the consummation by Portland of the
transactions contemplated hereby and thereby except for the approval of this
Agreement and the Portland Merger Agreement by the shareholders of Portland.
This Agreement has been, and as of the Effective Time, the Portland Merger
Agreement will be, duly and validly executed and delivered by Portland and,
assuming the due authorization, execution and delivery hereof and thereof by
Newco, Preview Sub, Portland Sub and Preview, constitute or will constitute, as
the case may be, valid and binding agreements of Portland, enforceable against
Portland in accordance with their terms, except that such enforceability may
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be subject to (i) bankruptcy, insolvency, reorganization, moratorium or other
similar laws now or hereafter in effect relating to or affecting creditors'
rights generally and (ii) by general principles of equity (regardless of whether
enforcement is sought in a proceeding in equity or at law).
Section 4.4 Consents and Approvals; No Violation. None of the execution
and delivery by Portland of this Agreement and the Portland Merger Agreement,
the consummation by Portland of the transactions contemplated hereby and thereby
or compliance by Portland with any of the provisions of this Agreement will (i)
conflict with or result in a breach of any provision of the respective charters
or bylaws (or similar governing documents) of Portland or any of its
Subsidiaries, (ii) require any consent, approval, authorization or permit of, or
filing with or notification to, any Governmental Entity, except (A) pursuant to
Section 3(a)(10) of the Securities Act and certain state securities statutes,
and (B) for filing the Articles of Merger with respect to the Portland Merger
pursuant to the OBCA, (iii) except as set forth in the Portland Disclosure
Schedule, result in a default (or an event which with notice or lapse of time or
both would become a default) or give to any third party any right of
termination, cancellation, amendment or acceleration under, or result in the
creation of a lien or encumbrance on any of the assets of Portland or any of its
Subsidiaries pursuant to any note, license, agreement or other instrument or
obligation to which Portland or any of its Subsidiaries is a party or by which
Portland or any of its Subsidiaries or any of their respective assets may be
bound or affected, or (iv) violate or conflict with any order, writ, injunction,
decree, statute, rule or regulation applicable to Portland or any of its
Subsidiaries or any of their respective properties or assets, other than (A)
such defaults, rights of termination, cancellation, amendment or acceleration,
liens and encumbrances, violations and conflicts set forth pursuant to (iii) and
(iv) above, and (B) such consents, approvals, authorizations, permits or
filings, as set forth pursuant to (ii) above that are not obtained, which, in
the aggregate, would not have a Material Adverse Effect on Portland and would
not materially impair Portland's ability to consummate the transactions
contemplated by this Agreement and the Portland Merger Agreement.
Section 4.5 Financial Statements; Absence of Undisclosed Liabilities.
(a) Portland has furnished Preview with the audited balance sheet
of Portland as of December 31, 1997, and the related audited statements of
operations, cash flows and changes in stockholders' equity for the year ended
December 31, 1997, and the unaudited balance sheet of Portland as of March 31,
1998, and the related statements of operations, cash flows and changes in
stockholders' equity for the three-month period ended March 31, 1998 (the
"Portland Financial Statements"). All of such financial statements, including
the notes thereto, (i) are in accordance with the respective books of Portland;
(ii) have been prepared in accordance with generally accepted accounting
principles ("GAAP") consistently applied throughout the periods involved except
that the unaudited financial statements do not contain footnotes; (iii) present
fairly the financial position of Portland as of the respective dates thereof and
the results of operations and cash flows of Portland for the respective periods
indicated therein; and (iv) do not reflect any material items of nonrecurring
income except as stated therein.
(b) Portland has no liabilities of any nature, whether accrued,
absolute, contingent or otherwise, and whether due or to become due, that would
be required to be
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reflected in a balance sheet, or in the notes thereto, prepared in accordance
with GAAP that were not disclosed or provided for in the Portland Financial
Statements or the notes thereto other than liabilities incurred since March 31,
1998, which were incurred in the ordinary course of business and are not
individually or in the aggregate, material to Portland's business. All reserves
set forth on the Portland Financial Statements or the notes thereto are
adequate. There are no material loss contingencies (as such term is used in
Statement of Financial Accounting Standards No. 5) that are not adequately
provided for in the Portland Financial Statements or reflected in the notes
thereto.
Section 4.6 Absence of Changes. Since March 31, 1998: (a) there has been
no material adverse change in Portland's business or any development particular
to Portland's business and not generally known to the public that reasonably
could be expected to cause a material adverse change in Portland's business; (b)
there has been no damage, destruction or loss (whether or not covered by
insurance) which has had a material adverse effect on any assets material to
Portland's business; (c) there has been no change by Portland in accounting
principles or methods except insofar as may be required by a change in generally
accepted accounting principles; (d) there has been no revaluation by Portland of
any of its assets, including, without limitation, writing down the value of
inventory or writing off notes or accounts receivable; and (e) Portland has
conducted its business only in the ordinary course consistent with past
practice.
Section 4.7 Contracts and Commitments.
(a) Portland is not a party or subject to:
(i) Any union contract or collective bargaining agreement
or any employment contract or arrangement, written or oral, providing for future
compensation with any officer, consultant, director or employee that is not
terminable by it on two weeks' notice or less without penalty or obligation to
make payments related to such termination, other than (A) (in the case of
employees other than executive officers) such severance agreements as are not
different from standard arrangements offered to employees generally in the
ordinary course of business consistent with Portland's past practices, a
description of which is set forth in the Portland Disclosure Schedule and (B)
such agreements as may be imposed or implied by law;
(ii) Any plans, contracts or arrangements, written or oral,
which collectively require aggregate payments by Portland in excess of $25,000
for bonuses, pensions, deferred compensation, severance pay or benefits,
retirement payments, profit-sharing, or the like;
(iii) Any joint marketing, joint development or joint
venture contract or arrangement or any other agreement that has involved or is
expected to involve a sharing of profits or royalties with other persons;
(iv) Any existing license agreement, OEM agreement,
distribution agreement, volume purchase agreement, or other similar agreement
pursuant to which Portland has granted or received most favored customer
provisions or exclusive marketing rights related to any product, group of
products or territory;
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(v) Any lease for real or personal property pursuant to
which the amount of payments which Portland is required to make on an annual
basis exceeds $25,000;
(vi) Any agreement, contract, mortgage, indenture, lease,
instrument, license, franchise, permit, concession, arrangement, commitment or
authorization that may be, by its terms, terminated or breached by reason of the
execution of this Agreement or the Portland Merger Agreement or the closing of
the Mergers, or the consummation of the transactions contemplated hereby or
thereby;
(vii) Except for trade indebtedness incurred in the ordinary
course of business, any instrument evidencing or related in any way to
indebtedness in excess of $25,000 incurred in the acquisition of companies or
other entities or indebtedness in excess of $25,000 for borrowed money by way of
direct loan, sale of debt securities, purchase money obligation, conditional
sale, guarantee, indemnification or otherwise;
(viii) Any license agreement, either as licensor or licensee
(excluding nonexclusive object code software licenses granted to end-users in
the ordinary course of business that permit use of software products without a
right to modify, distribute or sublicense the same ("End-User Licenses"));
(ix) Any contract containing covenants purporting to limit
Portland's freedom to compete in any line of business or in any geographic area
or with any third party;
(x) Any agreement, contract or commitment relating to
capital expenditures and involving future obligations in excess of $25,000; or
(xi) Any other agreement, contract or commitment that is
material to Portland.
(b) Each agreement, contract, mortgage, indenture, plan, lease,
instrument, permit, concession, franchise, arrangement, license and commitment
listed in the Portland Disclosure Schedule pursuant to this Section 4.7 is valid
and binding on Portland and is in full force and effect, and neither Portland,
nor to the knowledge of Portland any other party thereto, has breached in any
material respect any provision of, or is in default in any material respect
under the terms of, any such agreement, contract, mortgage, indenture, plan,
lease, instrument, permit, concession, franchise, arrangement, license or
commitment.
(c) There is no agreement, judgment, injunction, order or decree
binding upon Portland which has or could reasonably be expected to have the
effect of prohibiting or materially impairing any material current business
practice of Portland, any acquisition of material property by Portland or the
conduct of business by Portland as currently conducted or as proposed to be
conducted.
Section 4.8 Legal Proceedings. Portland is not in violation of, and has
not received any notice of any violation of: (a) any applicable statute, law,
regulation, ordinance, writ, injunction, order, judgment or decree, the effect
of which violation could, individually or in the
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aggregate, reasonably be expected to have a Material Adverse Effect on Portland;
or (b) any provision of the Portland Charter Documents. There is no order, writ,
injunction, judgment or decree outstanding, and no legal, administrative,
arbitration or other proceeding, action, suit or governmental investigation or
inquiry by or against Portland, its assets or business or its employees,
officers or directors in such capacities ("Portland Legal Proceedings") pending
or, to the knowledge of Portland, threatened. To the knowledge of Portland,
there are no claims against Portland, its assets or business or its employees,
officers or directors in such capacities, that could, individually or in the
aggregate, have a Material Adverse Effect on Portland. There is no Portland
Legal Proceeding that in any manner challenges or seeks to prevent, enjoin,
alter or delay any of the transactions contemplated hereby. There are no
existing agreements to provide indemnification for liabilities of its officers
and directors for acts or omissions by such persons.
Section 4.9 Information Supplied. The information supplied or to be
supplied by Portland or its Subsidiaries for inclusion in (i) the Hearing
Documents will not, either at the time filed with the California Department of
Corporations or at the time mailed to the shareholders, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading or
(ii) the Disclosure Document, including any amendments and supplements thereto,
will not, either at the date mailed to shareholders or at the time of the
meeting of shareholders (or action by written consent of shareholders in lieu
thereof) of Preview and Portland to be held in connection with the transactions
contemplated by this Agreement and the Merger Agreements, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading, except by Preview
with respect to information supplied by Preview for inclusion therein.
Section 4.10 Employee Matters.
(a) Portland is in compliance in all material respects with all
currently applicable laws and regulations respecting employment, discrimination
in employment, terms and conditions of employment and wages and hours and
occupational safety and health and employment practices, and is not engaged in
any unfair labor practice. Portland has not received any notice from any
governmental entity, and to the knowledge of Portland, there has not been
asserted before any governmental entity, any claim action or proceeding to which
Portland is a party, and there is neither pending nor, to the knowledge of
Portland, threatened any investigation or hearing concerning Portland arising
out of or based upon any such laws, regulations or practices. There are no
pending claims against Portland under any workers compensation plan or policy
for any long-term disability, and to the knowledge of Portland, there is no
basis for any such claim. Portland has complied in all material aspects with all
applicable provisions of the Consolidated Omnibus Budget Reconciliation Act of
1985 ("COBRA") and has no material obligations with respect to any former
employees or qualifying beneficiaries thereunder.
(b) Portland has disclosed in Section 4.10 of the Portland
Disclosure Schedule a list of all material employee welfare benefit plans (as
defined in Section 3(1) of the Employee
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Retirement Income Security Act of 1974, as amended ("ERISA")), employee pension
benefit plans (as defined in Section 3(2) of ERISA) and all other bonus, stock
option, stock purchase, benefit, profit sharing, savings, retirement,
disability, insurance, incentive, deferred compensation and other similar fringe
or employee benefit plans, programs or arrangements for the benefit of, or
relating to, any employee of, or independent contractor or consultant to,
Portland or any of its subsidiaries (together, the "Portland Employee Plans").
(c) Portland has made available to Preview true and complete copies
of all Portland Employee Plans, as in effect, together with all amendments
thereto that will become effective at a later date, as well as the latest
Internal Revenue Service determination letters obtained with respect to any
Portland Employee Plan qualified under Section 401(a) or 501(a) of the Code.
Also with respect to each Portland Employee Plan, true and complete copies of
the (i) three most recent annual actuarial valuation reports, if any, (ii) three
last filed Forms 5500 together with Schedule A or B thereto or both, (iii)
summary plan description (as defined in ERISA), if any, and all modifications
thereto communicated to employees, and (iv) three most recent annual and
periodic accountings of related plan assets, if any, have been, or will be, made
available to Preview and are, or will be, correct in all material respects.
(d) Neither Portland nor any of its directors, officers, employees
or agents, nor, to the knowledge of Portland, any "party in interest" or
"disqualified person", as such terms are defined in Section 3 of ERISA and
Section 4975 of the Code has, with respect to any Portland Employee Plan,
engaged in or been a party to any "prohibited transaction", as such term is
defined in Section 4975 of the Code or Section 406 of ERISA, which could result
in the imposition of either a penalty assessed pursuant to Section 502(i) of
ERISA or a tax imposed by Section 4975 of the Code, in each case applicable to
Portland, any of its subsidiaries or any Portland Employee Plan.
(e) All Portland Employee Plans are in compliance in all material
respects with the currently applicable requirements prescribed by all statutes,
orders, or governmental rules or regulations currently in effect with respect to
such Portland Employee Plans, including, but not limited to, ERISA and the Code
and, to the best knowledge of Portland, there are no pending or threatened
claims, lawsuits or arbitrations (other than routine claims for benefits) which
have been asserted or instituted against Portland, any of its subsidiaries, any
Portland Employee Plan or the assets of any trust for any Portland Employee
Plan. Each Portland Employee Plan which is a group health plan (within the
meaning of Section 5000(b)(i) of the Code) complies with and has been maintained
and operated in accordance with each of the requirements of Section 162(k) of
the Code as in effect for years beginning prior to 1989, Section 4980B of the
Code for years beginning after December 31, 1988 and Part 6 of Subtitle B of
Title I of ERISA.
(f) Each Portland Employee Plan intended to qualify under Section
401(a) of the Code does so qualify, and the trusts created thereunder are exempt
from tax under the provisions of Section 501(a) of the Code. Each Portland
Employee Plan that has been terminated by Portland or any of its subsidiaries
which was intended to qualify under Section 401(a) of the Code has received a
final determination of such qualification from the Internal Revenue Service.
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(g) All contributions or payments required to be made or accrued
before the Effective Time under the terms of any Portland Employee Plan will
have been made or accrued by Portland or by its subsidiaries, as applicable, by
the Effective Time.
(h) Portland has no Employee Plan subject to Section 412 of the
Code and no "multiemployer plan" (as defined in Section 3(37) of ERISA).
(i) There have been no changes in the operation or
interpretation of any of the Portland Employee Plans since the most recent
annual report or actuarial report that would have any material effect on the
cost of operating or maintaining such Portland Employee Plans.
(j) No amounts payable under any Portland Employee Plan as a
result of the transactions contemplated by this Agreement will fail to be
deductible for Federal income tax purposes by virtue of Section 280G of the
Code.
(k) The consummation of the transaction contemplated by this
Agreement will not (i) entitle any current or former employee or officer of
Portland to severance pay or other payment except as expressly provided in this
Agreement; or (ii) accelerate the time of payment or vesting or increase the
amount of compensation due any sick employee or officer.
Section 4.11 Affiliate Agreements. Except for this Agreement and except
as set forth in the Portland Disclosure Schedule, as of the date of this
Agreement neither Portland nor any of its Subsidiaries is a party to any oral or
written agreement with any of its Affiliates, other than with any of its
Subsidiaries.
Section 4.12 Taxes.
(a) For purposes of this Agreement, the following definitions
shall apply:
(i) The term "Taxes" shall mean all taxes, however
denominated, including any interest, penalties or other additions to tax that
may become payable in respect thereof, (A) imposed by any Federal, territorial,
state, local or foreign government or any agency or political subdivision of any
such government, which taxes shall include, without limiting the generality of
the foregoing, all income or profits taxes (including but not limited to,
Federal income taxes and state income taxes), payroll and employee withholding
taxes, unemployment insurance contributions, social security taxes, sales and
use taxes, ad valorem taxes, excise taxes, franchise taxes, gross receipts
taxes, business license taxes, occupation taxes, real and personal property
taxes, stamp taxes, environmental taxes, hazardous waste fees, transfer taxes,
workers' compensation, Pension Benefit Guaranty Corporation premiums and other
governmental charges, and other obligations of the same or of a similar nature
to any of the foregoing, that are required to be paid, withheld or collected,
(B) any liability for the payment of amounts referred to in (A) as a result of
being a member of any affiliated, consolidated, combined or unitary group, or
(C) any liability for amounts referred to in (A) or (B) as a result of any
obligations to indemnify another person.
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(ii) The term "Returns" shall mean all reports,
estimates, declarations of estimated tax, information statements and returns
relating to, or required to be filed in connection with, any Taxes, including
information returns or reports with respect to backup withholding and other
payments to third parties.
(b) All Returns required to be filed by or on behalf of Portland
have been duly filed on a timely basis and such Returns are true, complete and
correct in all material respects. All Taxes shown to be payable on the Returns
or on subsequent assessments with respect thereto, and all payments of estimated
Taxes required to be made by or on behalf of Portland under Section 6655 of the
Code or comparable provisions of state, local or foreign law, have been paid in
full on a timely basis or have been accrued on the Portland Financial Statements
in accordance with GAAP, and no other Taxes are payable by Portland with respect
to items or periods covered by such Returns (whether or not shown on or
reportable on such Returns) or with respect to any other period prior to the
date hereof. Portland has withheld and paid over all Taxes required to have been
withheld and paid over, and complied with all information reporting and backup
withholding requirements, including maintenance of required records with respect
thereto, in connection with amounts paid or owing to any employee, creditor,
independent contractor, or other third party. There are no liens on any of the
assets of Portland with respect to Taxes, other than liens for Taxes not yet due
and payable or for Taxes that Portland is contesting in good faith through
appropriate proceedings and for which appropriate reserves have been established
in accordance with GAAP. Portland has not at any time been (i) a member of an
affiliated group of corporations filing consolidated, combined or unitary income
or franchise tax returns, or (ii) a member of any partnership or joint venture
for a period for which the statue of limitations for any Tax potentially
applicable as a result of such membership has not expired.
(c) The amount of Portland's liability for unpaid Taxes (whether
actual or accrued) for all periods through the date of the Portland Financial
Statements does not, in the aggregate, exceed the amount of the current
liability accruals for Taxes (excluding reserves for deferred Taxes) reflected
on such Portland Financial Statements, and the Financial Statements properly
accrue in accordance with GAAP all liabilities for Taxes of Portland payable
after the date of the Portland Financial Statements attributable to transactions
and events occurring prior to such date. No liability for Taxes of Portland has
been incurred (or prior to the Effective Time will be incurred) since such date
other than in the ordinary course of business.
(d) Preview has been furnished by Portland with true and
complete copies of (i) relevant portions of income tax audit reports, statements
of deficiencies, closing or other agreements received by or on behalf of
Portland relating to Taxes, (ii) all material Federal and state income or
franchise tax Returns and state sales, use and property tax Returns for Portland
for all periods since inception, and (iii) any material elections relating to
Taxes which are not reflected in the Returns described in (ii).
(e) The Returns of Portland have never been audited by a
government or taxing authority, nor to the knowledge of Portland is any such
audit in process threatened or pending (either in writing or orally, formally or
informally). No deficiencies exist or have been asserted (either in writing or
orally, formally or informally) or, to the knowledge of Portland, will
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in the future be asserted with respect to Taxes of Portland, and Portland has
not received notice (either in writing or orally, formally or informally) nor,
to the knowledge of Portland, will in the future receive notice that it has not
filed a Return or paid Taxes required to be filed or paid by it. Portland is
neither a party to any action or proceeding for assessment or collection of
Taxes, nor has such event been asserted or threatened (either in writing or
orally, formally or informally) against Portland or any of its assets. No waiver
or extension of any statute of limitations is in effect with respect to Taxes or
Returns of Portland. Portland has disclosed on its Federal income tax returns
all positions taken therein that could give rise to a substantial understatement
penalty within the meaning of Section 6662 of the Code.
(f) Portland is not and has never been a party to any tax
sharing agreement.
(g) Portland is not a party to any safe harbor lease within the
meaning of Section 168(f)(8) of the Code, as in effect prior to amendment by the
Tax Equity and Fiscal Responsibility Act of 1982. Portland is not, nor has it
been, a United States real property holding corporation within the meaning of
Section 897(c)(2) of the Code during the applicable period specified in Section
897(c)(1)(A)(ii) of the Code, and Newco is not required to withhold tax on the
acquisition of the stock of Portland by reason of Section 1445 of the Code.
Portland is not a "consenting corporation" under Section 341(f) of the Code.
Portland has not participated in an international boycott as defined in Section
999 of the Code. Portland has not agreed to, and is not required to make, any
adjustment under Section 481(a) of the Code by reason of a change in accounting
method, and Portland does not otherwise have any income reportable for a period
ending after the Effective Time attributable to a transaction or other event
(e.g., an installment sale) occurring prior to the Effective Time involving in
excess of $10,000. Portland is not and has not been a "reporting corporation"
subject to the information reporting and record maintenance requirements of
Section 6038A of the Code and the regulations thereunder.
Section 4.13 Intellectual Property.
(a) Portland owns or has the exclusive right to use, make, sell,
license, or sublicense and bring actions for infringement of all Portland
Products (as defined below) and Portland Intellectual Property Rights (as
defined below) developed by or for Portland or that are used in the business of
Portland as currently conducted. All of the Portland Products and Portland
Intellectual Property Rights are owned by Portland free and clear of any rights
or claims of any current or former employees, consultants, officers and
directors of Portland. The source code for the Portland Products constitutes a
trade secret of Portland, and is not part of the public knowledge or literature,
and Portland has taken reasonable action to protect such source code as a trade
secret. All taxes and fees, including, without limitation, patent and trademark
registration and prosecution fees and all professional fees in connection
therewith pertaining to the Portland Intellectual Property Rights, due and
payable on or before the date hereof, have been paid by Portland.
(b) Portland's current products and products under development
are listed on the Portland Disclosure Schedule (collectively, the "Portland
Products"). No person has a license to use or the right to acquire a license to
use any future version of any Portland Product,
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and no agreement to which Portland is a party will restrict Newco from charging
customers for any such new version. No agreement for the support or maintenance
of Portland Products obligates Portland, or would obligate Newco after the
Effective Time to provide any improvement, enhancement, change in functionality
or other alteration in the performance of the Portland Products.
(c) No person has a right to receive a royalty or similar
payment in respect of any Portland Product or Portland Intellectual Property
Rights or, to the knowledge of Portland, other Intellectual Property Right
licensed to Portland whether or not pursuant to any contractual arrangements
entered into by Portland. Except for End-User Licenses, Portland has no licenses
granted, sold or otherwise transferred by or to it nor other agreements to which
it is a party, relating in whole or in part to any Portland Product or Portland
Intellectual Property Rights.
(d) The execution, delivery and performance of this Agreement
and the Portland Merger Agreements, the consummation of the Mergers and the
consummation of the other transactions contemplated hereby and thereby
(including without limitation the continued conduct by Newco after the Mergers
of Portland's business as presently conducted and the incorporation of any
Portland Product or Portland Intellectual Property Right in any product of
Newco) will not breach, violate or conflict with any instrument or agreement
governing any such Portland Product or Portland Intellectual Property Right
necessary or required for the conduct of the business of Portland as presently
conducted, and will not cause the forfeiture or termination or give rise to a
right of forfeiture or termination of any such Portland Product or Portland
Intellectual Property Right or in any way impair the right of Newco or any of
its subsidiaries to use, sell, license or dispose of, either as part or all of a
Portland Product or subsequent to the Effective Time as part or all of a product
of Newco, or to bring any action for the infringement of, any such Portland
Product or Portland Intellectual Property Right or portion thereof.
(e) Neither the development, manufacture, marketing, license,
sale or intended use of any Portland Product violates or could reasonably be
expected to violate any license or agreement to which Portland is a party or
infringes or could reasonably be expected to infringe any Intellectual Property
Right of any other party, provided, that with respect to patent rights, rights
with respect to marks, names or designations and moral rights, such
representation is made only to Portland's knowledge; there is no pending or, to
the knowledge of Portland, threatened claim or litigation contesting the
validity, ownership or right to use, sell, license or dispose of any Portland
Intellectual Property Right necessary or required for, or used in, the conduct
of the business of Portland as presently conducted nor, to the knowledge of
Portland, is there any basis for any such claim, nor has Portland received any
notice asserting that any such Intellectual Property Right or the proposed use,
sale, license or disposition thereof conflicts or will conflict with the rights
of any other party, nor, to the knowledge of Portland, is there any basis for
any such assertion. To Portland's knowledge, there is no infringement on the
part of any third party of Portland's Intellectual Property Rights.
(f) Portland has taken reasonable and practicable steps
(including, without limitation, entering into confidentiality and non-disclosure
agreements with all officers and employees of and consultants to Portland with
access to or knowledge of Portland's Intellectual
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Property Rights) to maintain the secrecy and confidentiality of, and its
proprietary rights in, all Portland Intellectual Property Rights necessary or
required for the conduct of Portland's business. All employees, consultants,
officers, directors and shareholders of Portland that have had access to any
material portion of the Portland Intellectual Property Rights are parties to a
written agreement under which each such person or entity (i) is obligated to
disclose and transfer to Portland, without the receipt by such person of any
additional value therefor (other than normal salary or fees for consulting
services), all inventions, developments and discoveries which, during the period
of employment (for employees) with or performance of services for, he makes or
conceives of either solely or jointly with others, that relate to any subject
matter with which his or her work for Portland may be concerned, or relate to or
are connected with the business, products or projects of Portland, or involve
the use of the time, material or facilities of Portland, and (ii) is obligated
to maintain the confidentiality of proprietary information of Portland. To
Portland's knowledge, none of Portland's employees, consultants, officers or
directors is obligated under any contract (including licenses, covenants or
commitments of any nature) or other agreement, or subject to any judgment,
decree or order of any court or administrative agency, that would conflict with
their obligation to promote the interests of Portland in the Portland business
or that would conflict with the Portland business. To Portland's knowledge, it
is currently not necessary, nor will it be necessary for Portland to utilize in
the Portland business nor has Portland utilized in the Portland business any
inventions of any of such persons or entities (or people it currently intends to
hire) made or owned prior to his or her employment by or affiliation with
Portland that Portland has not already licensed or acquired, nor is it or will
it be necessary to utilize any other assets or rights of any such persons or
entities (or people it currently intends to hire) made or owned prior to their
employment with or engagement by Portland that Portland has not already licensed
or acquired, in violation of any registered patents, trade names, trademarks or
copyrights or any other limitations or restrictions to which any such person or
entity is a party or to which any of such assets or rights may be subject,
except to the extent that such utilization would not have a material adverse
effect on the Portland business. To Portland's knowledge, none of Portland's
employees, consultants, officers, directors or stockholders that has had
knowledge or access to information relating to Portland's business has taken,
removed or made use of any proprietary documentation, manuals, products,
materials, or any other tangible item from his or her previous employer relating
to the business as conducted of such previous employer which has resulted in
Portland's access to or use of such proprietary items in Portland's business,
and Portland will not gain access to or make use of any such proprietary items
in Portland's business, except to the extent that any such activities would not
have a Material Adverse Effect on Portland.
(g) The Portland Disclosure Schedule also sets forth a complete
list of all licenses, sublicenses and other agreements as to which Portland is a
party and pursuant to which Portland or any other person is authorized to use,
license, sublicense, sell or distribute any Intellectual Property Right
(excluding End-User Licenses). Portland is not in violation of any license,
sublicense or agreement described on such list except such violations as do not
materially impair Portland's rights under such license, sublicense or agreement.
The Portland Disclosure Schedule separately identifies each exclusive
arrangement between Portland and any third party to use, license, sublicense,
sell or distribute any Portland Intellectual Property Right or any Portland
Product.
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(h) The Portland Disclosure Schedule contains a complete and
accurate list of all applications, filings and other formal actions made or
taken pursuant to Federal, state, local and foreign laws by Portland to perfect
or protect its interest in Portland Intellectual Property Rights, including,
without limitation, all patents, patent applications, trademark registrations,
trademark applications, service mark registrations and copyright registrations.
As used herein, the term "Intellectual Property Rights" means all intellectual
property rights, including, without limitation, domestic and foreign patents,
patent applications, patent rights, trademarks, trademark registrations,
trademark applications, trade names, service marks, service mark applications,
copyrights, copyright applications, licenses, know-how, trade secrets, trade
rights, proprietary processes and formulae, inventions, development tools,
designs, plans, specifications, technical information and other proprietary
rights, whether or not registered, and all documentation and media relating to
the above, and the term "Portland Intellectual Property Right" shall mean
Intellectual Property Rights owned by or granted exclusively or nonexclusively
to Portland.
Section 4.14 Environmental Matter. Except for failures which will not
have a Material Adverse Effect on Portland, Portland has met, and continues to
meet, all applicable local, state, Federal and national environmental
regulations and has disposed of its waste products and effluents and/or has
caused others to dispose of such waste products and effluents, in accordance
with all applicable state, local, Federal and national environmental
regulations.
Section 4.15 Interests of Officers and Directors. No officer or director
of Portland or any "affiliate" or "associate" (as those terms are defined in
Rule 405 promulgated under the Securities Act) of any such person has, either
directly or indirectly, a material interest in: (a) any person or entity that
purchases from or sells, licenses or furnishes to Portland any goods, property,
technology or intellectual or other property rights or services; (b) any
contract or agreement to which Portland is a party or by which it may be bound;
or (c) any property, real or personal, tangible or intangible, used in or
pertaining to Portland's business, including any interest in the Portland
Intellectual Property Rights.
Section 4.16 Title to Properties; Absence of Liens and Encumbrances.
The Portland Disclosure Schedule lists all facilities occupied by Portland since
Portland's incorporation, and indicates the nature of Portland's interest in
such facilities. Portland has good and valid title to, or, in the case of leased
properties and assets, valid leasehold interests in, all of their tangible
properties and assets, real, personal and mixed, used in their business, free
and clear of any liens, charges, pledges, security interests or other
encumbrances, except as reflected in the Portland Financial Statements or except
for such imperfections of title and encumbrances, if any, that are not
substantial in character, amount or extent, and which do not materially detract
from the value, or interfere with the present use, of the property subject
thereto or affected thereby.
Section 4.17 Governmental Authorizations and Licenses. Portland holds all
licenses, authorizations, permits, concessions, certificates and other
franchises of any Governmental Entity (collectively, the "Licenses") required to
operate its business, except as would not have a Material Adverse Effect on
Portland. The Licenses are in full force and effect and Portland is in
compliance in all material respects with the terms of the Licenses.
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Section 4.18 Insurance. The Portland Disclosure Schedule contains a
complete and accurate list of all policies or binders of fire, liability, title,
worker's compensation, product liability and other forms of insurance maintained
by Portland. Portland is not in default under any of such policies or binders,
and has not failed to give any notice or to present any claim under any such
policy or binder in a due and timely fashion. There are no outstanding unpaid
claims under any such policies or binders. All policies and binders provide
sufficient coverage for the risks insured against, are in full force and effect
on the date hereof and shall be kept in full force and effect through the
Effective Time.
Section 4.19 Brokers. No broker, finder or investment banker is entitled
to any brokerage, finder's or other fee or commission in connection with the
transactions contemplated by this Agreement.
Section 4.20 Bank Accounts. The Portland Disclosure Schedule sets forth
the names and locations of all banks, trusts, companies, savings and loan
associations, and other financial institutions at which Portland maintains
accounts of any nature and the names of all persons authorized to draw thereon
or make withdrawals.
Section 4.21 Disclosure. No representation or warranty made by Portland
in this Agreement, nor any document, written information, statement, financial
statement, certificate, schedule or exhibit prepared and furnished by Portland
or its representatives pursuant hereto or in connection with the transactions
contemplated hereby, contains or will contain any untrue statement of a material
fact, or omits or will omit to state a material fact necessary to make the
statements or facts contained herein or therein not misleading in light of the
circumstances under which they were furnished. To the knowledge of Portland
after reasonable inquiry, there is no event, fact or condition particular to
Portland's business that is not generally known to the public that has resulted
in, or could reasonably be expected to result in, a Material Adverse Effect on
Portland that has not been set forth in this Agreement or in the Portland
Disclosure Schedule. Portland has complied in all material respects with the due
diligence request of Preview dated March 17, 1998.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PREVIEW
Preview represents and warrants to Portland, except as otherwise set forth
in the Preview Disclosure Schedule (the "Preview Disclosure Schedule") as
follows:
Section 5.1 Organization and Qualification. Each of Preview and its
Significant Subsidiaries is a corporation duly organized, validly existing and
in good standing under the laws of its jurisdiction of incorporation and has the
requisite power and authority to own, lease and operate its properties and to
carry on its business as it is now being conducted, and is duly qualified to do
business and in good standing in each jurisdiction in which the properties
owned, leased or operated by it or the nature of the business conducted by it
makes such qualification necessary, except where the failure to so qualify or be
in good standing would not have a Material Adverse Effect on Preview. True and
complete copies of the articles of incorporation
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and bylaws of Preview (the "Preview Charter Documents") as in effect on the date
hereof, including all amendments thereto, have heretofore been delivered to
Portland. The copy of the minute books of Preview provided to Portland's counsel
contains minutes of all meetings of directors and shareholders and all actions
by written consent without a meeting by the directors and shareholders since the
date of incorporation and reflects all actions by the directors (and any
committee of directors) and shareholders with respect to all transactions
referred to in such minutes accurately in all material respects.
Section 5.2 Capitalization. The authorized capital of Preview consists,
or will consist, immediately prior to the Effective Time, of:
(a) 5,011,990 shares of Preview Preferred Stock, of which
602,802 shares have been designated Series D Preview Preferred Stock, 598,802 of
which are issued and outstanding immediately prior to the Effective Time,
2,557,188 shares have been designated Preview Series C Preferred Stock,
2,500,000 of which are issued and outstanding, 705,000 shares have been
designated Preview Series B Preferred Stock, all of which are issued and
outstanding, 1,147,000 Shares of Preview Series A Preferred Stock all of which
are issued and outstanding. The rights, privileges and preferences of the
Preview Preferred Stock are as stated in the Preview Charter Documents.
(b) 10,000,000 shares of Preview Common Stock, 1,444,022
shares of which are issued and outstanding immediately prior to the Effective
Time. All of the outstanding shares of Preview Common Stock have been duly
authorized, fully paid and are nonassessable and issued in compliance with all
applicable Federal and state securities laws. Preview has reserved 5,011,990
shares of Preview Common Stock for issuance upon conversion of the Preview
Preferred Stock.
(c) Preview has issued and outstanding options to acquire
399,625 shares of Preview Common Stock to officers, directors, employees and
consultants of Preview pursuant to a subsequently terminated stock plan (the
"Preview Old Plan"). Under a new stock option plan (the "Preview New Plan" and,
collectively with the Preview Old Plan, the "Preview Plans"), Preview has issued
and outstanding options to purchase 597,200 shares of Preview Common Stock and
388,800 shares of such reserved shares of Preview Common Stock remain available
for issuance to officers, directors, employees and consultants. Preview has
granted options to acquire 70,000 shares of Preview Common Stock outside the
Preview Plans.
(d) Preview (i) has issued warrants to acquire 50,860 shares
of Preview Series C Preferred Stock and (ii) anticipates issuing, in connection
with an equipment leaseline transaction, warrants to purchase up to 4,000 shares
of Preview Series D Preferred Stock (collectively, the "Preview Warrants").
(e) Except for outstanding options as set forth in the
preceding paragraph, there are no outstanding options, warrants, rights
(including conversion or preemptive rights and rights of first refusal or
similar rights) or agreements, orally or in writing, for the purchase or
acquisition from Preview of any shares of its capital stock (other than as set
forth in
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the Second Amended and Restated Rights Agreement dated April 21, 1998 by and
among Preview and the parties listed therein).
(f) All issued and outstanding shares of Preview Preferred
Stock and Preview Common Stock have been duly authorized and validly issued and
are fully paid and nonassessable and free of any preemptive or similar rights
contained in Preview Charter Document. All outstanding shares of Preview's
capital stock have been issued in compliance with applicable state and Federal
securities laws.
Section 5.3 Authority. Preview has all requisite corporate power and
authority to execute and deliver this Agreement and the Preview Merger Agreement
and, subject to approval of this Agreement and the Preview Merger Agreement by
the shareholders of Preview, to consummate the transactions contemplated hereby
and thereby. The execution and delivery of this Agreement and the Preview Merger
Agreement, and the consummation by Preview of the transactions contemplated
hereby and thereby, have been duly authorized by Preview's board of directors
and no other corporate proceedings on the part of Preview are necessary to
authorize the execution and delivery of this Agreement and the Preview Merger
Agreement and the consummation by Preview of the transactions contemplated
hereby and thereby, except for the approval of this Agreement and the Preview
Merger Agreement by the shareholders of Preview. This Agreement has been, and as
of the Effective Time, the Preview Merger Agreement will be, duly and validly
executed and delivered by Preview and, assuming the due authorization, execution
and delivery hereof and thereof by Newco, Preview Sub, Portland Sub and
Portland, constitute or will constitute, as the case may be, valid and binding
agreements of Preview, enforceable against Preview in accordance with their
terms, except that such enforceability may be subject to (i) bankruptcy,
insolvency, reorganization, moratorium or other similar laws now or hereafter in
effect relating to or affecting creditors' rights generally and (ii) general
principles of equity (regardless of whether enforcement is sought in a
proceeding in equity or at law).
Section 5.4 Consents and Approvals; No Violation. None of the execution
and delivery by Preview of this Agreement and the Preview Merger Agreement, the
consummation by Preview of the transactions contemplated hereby and thereby or
compliance by Preview with any of the provisions of this Agreement will (i)
conflict with or result in a breach of any provision of the respective charters
or bylaws (or similar governing documents) of Preview or any of its
Subsidiaries, (ii) require any consent, approval, authorization or permit of, or
filing with or notification to, any Governmental Entity, except (A) pursuant to
Section 3(a)(10) of the Securities Act, certain state securities statutes, and
(B) for filing the Articles of Merger with respect to the Preview Merger
pursuant to the CGCL, (iii) except as set forth in the Preview Disclosure
Schedule, result in a default (or an event which with notice or lapse of time or
both would become a default) or give to any third party any right of
termination, cancellation, amendment or acceleration under, or result in the
creation of a lien or encumbrance on any of the assets of Preview or any of its
Subsidiaries pursuant to any note, license, agreement or other instrument or
obligation to which Preview or any of its Subsidiaries is a party or by which
Preview or any of its Subsidiaries or any of their respective assets may be
bound or affected, or (iv) violate or conflict with any order, writ, injunction,
decree, statute, rule or regulation applicable to Preview or any of its
Subsidiaries or any of their respective properties or assets,
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other than (A) such defaults, rights of termination, cancellation, amendment or
acceleration, liens and encumbrances, violations and conflicts set forth
pursuant to (iii) and (iv) above, and (B) such consents, approvals,
authorizations, permits or filings, as set forth pursuant to (ii) above that are
not obtained, which, in the aggregate, would not have a Material Adverse Effect
on Preview and would not materially impair Preview's ability to consummate the
transactions contemplated by this Agreement and the Preview Merger Agreement.
Section 5.5 Financial Statements; Absence of Undisclosed Liabilities.
(a) Preview has furnished Portland with the audited balance sheet of
Preview as of December 31, 1997, and the related audited statements of
operations, cash flows and changes in stockholders' equity for the year ended
December 31, 1997, and the unaudited balance sheet of Preview as of March 31,
1998, and the related statements of operations, cash flows and changes in
stockholders' equity for the three-month period ended March 31, 1998 (the
"Preview Financial Statements"). All of such financial statements, including the
notes thereto, (i) are in accordance with the respective books of Preview; (ii)
have been prepared in accordance with GAAP consistently applied throughout the
periods involved except that the unaudited financial statements do not contain
footnotes; (iii) present fairly the financial position of Preview as of the
respective dates thereof and the results of operations and cash flows of Preview
for the respective periods indicated; and (iv) do not reflect any material items
of nonrecurring income except as stated therein.
(b) Preview has no liabilities of any nature, whether accrued,
absolute, contingent or otherwise, and whether due or to become due, that would
be required to be reflected in a balance sheet, or in the notes thereto,
prepared in accordance with GAAP that were not disclosed or provided for in the
Preview Financial Statements or the notes thereto other than liabilities
incurred since March 31, 1998, which were incurred in the ordinary course of
business and are not individually or in the aggregate, material to Preview's
business. All reserves set forth on the Preview Financial Statements or the
notes thereto are adequate. There are no material loss contingencies (as such
term is used in Statement of Financial Accounting Standards No. 5) that are not
adequately provided for in the Preview Financial Statements or reflected in the
notes thereto.
Section 5.6 Absence of Changes. Since March 31, 1998: (a) there has been
no Material Adverse Effect in Preview's business or any development particular
to Preview's business and not generally known to the public that reasonably
could be expected to cause a material adverse change in Preview's business; (b)
there has been no damage, destruction or loss (whether or not covered by
insurance) which has had a Material Adverse Effect on any assets material to
Preview's business; (c) there has been no change by Preview in accounting
principles or methods except insofar as may be required by a change in generally
accepted accounting principles; (d) there has been no revaluation by Preview of
any of its assets, including, without limitation, writing down the value of
inventory or writing off notes or accounts receivable; and (e) Preview has
conducted its business only in the ordinary course consistent with past
practice.
Section 5.7 Contracts and Commitments.
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(a) Preview is not a party or subject to:
(i) Any union contract or collective bargaining agreement or
any employment contract or arrangement, written or oral, providing for future
compensation with any officer, consultant, director or employee that is not
terminable by it on two weeks' notice or less without penalty or obligation to
make payments related to such termination, other than (A) (in the case of
employees other than executive officers) such severance agreements as are not
different from standard arrangements offered to employees generally in the
ordinary course of business consistent with Preview's past practices, a
description of which is set forth in the Preview Disclosure Schedule and (B)
such agreements as may be imposed or implied by law;
(ii) Any plans, contracts or arrangements, written or oral,
which collectively require aggregate payments by Preview in excess of $25,000
for bonuses, pensions, deferred compensation, severance pay or benefits,
retirement payments, profit-sharing, or the like;
(iii) Any joint marketing, joint development or joint venture
contract or arrangement or any other agreement that has involved or is expected
to involve a sharing of profits or royalties with other persons;
(iv) Any existing license agreement, OEM agreement,
distribution agreement, volume purchase agreement, or other similar agreement
pursuant to which Preview has granted or received most favored customer
provisions or exclusive marketing rights related to any product, group of
products or territory;
(v) Any lease for real or personal property pursuant to which
the amount of payments which Preview is required to make on an annual basis
exceeds $25,000;
(vi) Any agreement, contract, mortgage, indenture, lease,
instrument, license, franchise, permit, concession, arrangement, commitment or
authorization that may be, by its terms, terminated or breached by reason of the
execution of this Agreement or the Preview Merger Agreement, the closing of the
Mergers, or the consummation of the transactions contemplated hereby or thereby;
(vii) Except for trade indebtedness incurred in the ordinary
course of business, any instrument evidencing or related in any way to
indebtedness in excess of $25,000 incurred in the acquisition of companies or
other entities or indebtedness in excess of $25,000 for borrowed money by way of
direct loan, sale of debt securities, purchase money obligation, conditional
sale, guarantee, indemnification or otherwise;
(viii) Any license agreement, either as licensor or licensee
(excluding End-User Licenses);
(ix) Any contract containing covenants purporting to limit
Preview's freedom to compete in any line of business or in any geographic area
or with any third party;
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(x) Any agreement, contract or commitment relating to capital
expenditures and involving future obligations in excess of $25,000; or
(xi) Any other agreement, contract or commitment that is material
to Preview.
(b) Each agreement, contract, mortgage, indenture, plan, lease,
instrument, permit, concession, franchise, arrangement, license and commitment
listed in the Preview Disclosure Schedule is valid and binding on Preview and is
in full force and effect, and neither Preview, nor to the knowledge of Preview
any other party thereto, has breached in any material respect any provision of,
or is in default in any material respect under the terms of, any such agreement,
contract, mortgage, indenture, plan, lease, instrument, permit, concession,
franchise, arrangement, license or commitment.
(c) There is no agreement, judgment, injunction, order or decree
binding upon Preview which has or could reasonably be expected to have the
effect of prohibiting or materially impairing any material current business
practice of Preview, any acquisition of material property by Preview or the
conduct of business by Preview as currently conducted or as proposed to be
conducted.
Section 5.8 Legal Proceedings. Preview is not in violation of, and has not
received any notice of any violation of: (a) any applicable statute, law,
regulation, ordinance, writ, injunction, order, judgment or decree, the effect
of which violation could, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect on Preview's business; or (b) any
provision of the Preview Charter Documents. There is no order, writ, injunction,
judgment or decree outstanding, and no legal, administrative, arbitration or
other proceeding, action, suit or governmental investigation or inquiry against
Preview, its assets, business or its employees, officers or directors in such
capacities ("Preview Legal Proceedings") pending or, to the knowledge of
Preview, threatened. To the knowledge of Preview, there are no claims by or
against Preview, its assets or business or its employees, officers or directors
in such capacities, that could, individually or in the aggregate, have a
Material Adverse Effect on Preview. There is no Preview Legal Proceeding that in
any manner challenges or seeks to prevent, enjoin, alter or delay any of the
transactions contemplated hereby. There are no existing agreements to provide
indemnification for liabilities of its officers and directors for acts or
omissions by such persons.
Section 5.9 Information Supplied. The information supplied or to be
supplied by Preview or its Subsidiaries for inclusion in (i) the Hearing
Documents will not, either at the time filed with the California Department of
Corporations or at the time mailed to the shareholders, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading or
(ii) the Disclosure Document, including any amendments and supplements thereto,
will not, either at the date mailed to shareholders or at the time of the
meeting of shareholders (or action by written consent of shareholders in lieu
thereof) of Portland and Preview to be held in connection with the transactions
contemplated by this Agreement and the Merger Agreements, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or
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necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading except by Portland with respect to
information supplied by Portland for inclusion therein.
Section 5.10 Employee Matters.
(a) Preview is in compliance in all material respects with all
currently applicable laws and regulations respecting employment, discrimination
in employment, terms and conditions of employment and wages and hours and
occupational safety and health and employment practices, and is not engaged in
any unfair labor practice. Preview has not received any notice from any
governmental entity, and to the knowledge of Preview, there has not been
asserted before any governmental entity, any claim action or proceeding to which
Preview is a party, and there is neither pending nor, to the knowledge of
Preview, threatened any investigation or hearing concerning Preview arising out
of or based upon any such laws, regulations or practices. There are no pending
claims against Preview under any workers compensation plan or policy for any
long-term disability and, to the knowledge of Preview, there is no basis for any
such claim. Preview has complied in all material aspects with COBRA and has no
material obligations with respect to any former employees or qualifying
beneficiaries thereunder.
(b) Preview has disclosed in Section 5.11 of the Preview Disclosure
Schedule a list of all material employee welfare benefit plans (as defined in
Section 3(1) of ERISA), employee pension benefit plans (as defined in Section
3(2) of ERISA) and all other bonus, stock option, stock purchase, benefit,
profit sharing, savings, retirement, disability, insurance, incentive, deferred
compensation and other similar fringe or employee benefit plans, programs or
arrangements for the benefit of, or relating to, any employee of, or independent
contractor or consultant to, Preview or any of its subsidiaries (together, the
"Preview Employee Plans").
(c) Preview has made available to Portland true and complete copies
of all Preview Employee Plans, as in effect, together with all amendments
thereto that will become effective at a later date, as well as the latest
Internal Revenue Service determination letters obtained with respect to any
Preview Employee Plan qualified under Section 401(a) or 501(a) of the Code. Also
with respect to each Preview Employee Plan, true and complete copies of the (i)
three most recent annual actuarial valuation reports, if any, (ii) three last
filed Forms 5500 together with Schedule A or B thereto or both, (iii) summary
plan description (as defined in ERISA), if any, and all modifications thereto
communicated to employees, and (iv) three most recent annual and periodic
accountings of related plan assets, if any, have been, or will be, made
available to Portland and are, or will be, correct in all material respects.
(d) Neither Preview nor any of its directors, officers, employees or
agents, nor, to the best knowledge of Preview, any "party in interest" or
"disqualified person", as such terms are defined in Section 3 of ERISA and
Section 4975 of the Code has, with respect to any Preview Employee Plan, engaged
in or been a party to any "prohibited transaction", as such term is defined in
Section 4975 of the Code or Section 406 of ERISA, which could result in the
imposition of either a penalty assessed pursuant to Section 502(i) of ERISA or a
tax imposed by
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Section 4975 of the Code, in each case applicable to Preview, any of its
subsidiaries or any Preview Employee Plan.
(e) All Preview Employee Plans are in compliance in all material
respects with the currently applicable requirements prescribed by all statutes,
orders, or governmental rules or regulations currently in effect with respect to
such Preview Employee Plans, including, but not limited to, ERISA and the Code
and, to the best knowledge of Preview, there are no pending or threatened
claims, lawsuits or arbitrations (other than routine claims for benefits) which
have been asserted or instituted against Preview, any of its subsidiaries, any
Preview Employee Plan or the assets of any trust for any Preview Employee Plan.
Each Preview Employee Plan which is a group health plan (within the meaning of
Section 5000(b)(i) of the Code) complies with and has been maintained and
operated in accordance with each of the requirements of Section 162(k) of the
Code as in effect for years beginning prior to 1989, Section 4980B of the Code
for years beginning after December 31, 1988 and Part 6 of Subtitle B of Title I
of ERISA.
(f) Each Preview Employee Plan intended to qualify under Section
401(a) of the Code does so qualify, and the trusts created thereunder are exempt
from tax under the provisions of Section 501(a) of the Code. Each Preview
Employee Plan that has been terminated by Preview or any of its subsidiaries
which was intended to qualify under Section 401(a) of the Code has received a
final determination of such qualification from the Internal Revenue Service.
(g) All contributions or payments required to be made or accrued
before the Effective Time under the terms of any Preview Employee Plan will have
been made or accrued by Preview or by its subsidiaries, as applicable, by the
Effective Time.
(h) Preview has no Employee Plan subject to Section 412 of the Code
and no "multiemployer plan" (as defined in Section 3(37) of ERISA).
(i) There have been no changes in the operation or interpretation of
any of the Preview Employee Plans since the most recent annual report or
actuarial report that would have any material effect on the cost of operating or
maintaining such Preview Employee Plans.
(j) No amounts payable under any Preview Employee Plan as a result of
the transactions contemplated by this Agreement will fail to be deductible for
Federal income tax purposes by virtue of Section 280G of the Code.
(k) The consummation of the transaction contemplated by this
Agreement will not (i) entitle any current or former employee or officer of
Preview to severance pay or other payment except as expressly provided in this
Agreement; or (ii) accelerate the time of payment or vesting or increase the
amount of compensation due any sick employee or officer.
Section 5.11 Affiliate Agreements. Except for this Agreement and except
as set forth in the Preview Disclosure Schedule, as of the date of this
Agreement neither Preview nor any of its Subsidiaries is a party to any oral or
written agreement with any of its Affiliates, other than with any of its
Subsidiaries.
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Section 5.12 Taxes.
(a) All Returns required to be filed by or on behalf of Preview have
been duly filed on a timely basis and such Returns are true, complete and
correct in all material respects. All Taxes shown to be payable on the Returns
or on subsequent assessments with respect thereto, and all payments of estimated
Taxes required to be made by or on behalf of Preview under Section 6655 of the
Code or comparable provisions of state, local or foreign law, have been paid in
full on a timely basis or have been accrued on the Preview Financial Statements
in accordance with GAAP, and no other Taxes are payable by Preview with respect
to items or periods covered by such Returns (whether or not shown on or
reportable on such Returns) or with respect to any other period prior to the
date hereof. Preview has withheld and paid over all Taxes required to have been
withheld and paid over, and complied with all information reporting and backup
withholding requirements, including maintenance of required records with respect
thereto, in connection with amounts paid or owing to any employee, creditor,
independent contractor, or other third party. There are no liens on any of the
assets of Preview with respect to Taxes, other than liens for Taxes not yet due
and payable or for Taxes that Preview is contesting in good faith through
appropriate proceedings and for which appropriate reserves have been established
in accordance with GAAP. Preview has not at any time been (i) a member of an
affiliated group of corporations filing consolidated, combined or unitary income
or franchise tax returns, or (ii) a member of any partnership or joint venture
for a period for which the statue of limitations for any Tax potentially
applicable as a result of such membership has not expired.
(b) The amount of Preview's liability for unpaid Taxes (whether
actual or accrued) for all periods through the date of the Preview Financial
Statements does not, in the aggregate, exceed the amount of the current
liability accruals for Taxes (excluding reserves for deferred Taxes) reflected
on such Preview Financial Statements, and the Financial Statements properly
accrue in accordance with GAAP all liabilities for Taxes of Preview payable
after the date of the Preview Financial Statements attributable to transactions
and events occurring prior to such date. No liability for Taxes of Preview has
been incurred (or prior to the Effective Time will be incurred) since such date
other than in the ordinary course of business.
(c) Portland has been furnished by Preview with true and complete
copies of (i) relevant portions of income tax audit reports, statements of
deficiencies, closing or other agreements received by or on behalf of Preview
relating to Taxes, (ii) all material Federal and state income or franchise tax
Returns and state sales, use and property tax Returns for Preview for all
periods since inception, and (iii) any material elections relating to Taxes
which are not reflected in the Returns described in (ii).
(d) The Returns of Preview have never been audited by a government or
taxing authority, nor to the knowledge of Preview is any such audit in process
threatened or pending (either in writing or orally, formally or informally). No
deficiencies exist or have been asserted (either in writing or orally, formally
or informally) or, to the knowledge of Preview, will in the future be asserted
with respect to Taxes of Preview, and Preview has not received notice (either in
writing or orally, formally or informally) nor, to the knowledge of Preview,
will in the future receive notice that it has not filed a Return or paid Taxes
required to be filed or paid by it.
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Preview is neither a party to any action or proceeding for assessment or
collection of Taxes, nor has such event been asserted or threatened (either in
writing or orally, formally or informally) against Preview or any of its assets.
No waiver or extension of any statute of limitations is in effect with respect
to Taxes or Returns of Preview. Preview has disclosed on its Federal income tax
returns all positions taken therein that could give rise to a substantial
understatement penalty within the meaning of Section 6662 of the Code.
(e) Preview is not and has never been a party to any tax sharing
agreement.
(f) Preview is not a party to any safe harbor lease within the
meaning of Section 168(f)(8) of the Code, as in effect prior to amendment by the
Tax Equity and Fiscal Responsibility Act of 1982. Preview is not, nor has it
been, a United States real property holding corporation within the meaning of
Section 897(c)(2) of the Code during the applicable period specified in Section
897(c)(1)(A)(ii) of the Code, and Newco is not required to withhold tax on the
acquisition of the stock of Preview by reason of Section 1445 of the Code.
Preview is not a "consenting corporation" under Section 341(f) of the Code.
Preview has not participated in an international boycott as defined in Section
999 of the Code. Preview has not agreed to, and is not required to make, any
adjustment under Section 481(a) of the Code by reason of a change in accounting
method, and Preview does not otherwise have any income reportable for a period
ending after the Effective Time attributable to a transaction or other event
(e.g., an installment sale) occurring prior to the Effective Time involving in
excess of $10,000. Preview is not and has not been a "reporting corporation"
subject to the information reporting and record maintenance requirements of
Section 6038A of the Code and the regulations thereunder.
Section 5.13 Intellectual Property.
(a) Preview owns or has the exclusive right to use, make, sell,
license, or sublicense and bring actions for infringement of all Preview
Products (as defined below) and Preview Intellectual Property Rights (as defined
below) developed by or for Preview or that are used in the business of Preview
as currently conducted. All of the Preview Products and Preview Intellectual
Property Rights are owned by Preview free and clear of any rights or claims of
any current or former employees, consultants, officers and directors of Preview.
The source code for the Preview Products constitutes a trade secret of Preview,
and is not part of the public knowledge or literature, and Preview has taken
reasonable action to protect such source code as a trade secret. All taxes and
fees, including, without limitation, patent and trademark registration and
prosecution fees and all professional fees in connection therewith pertaining to
the Preview Intellectual Property Rights, due and payable on or before the date
hereof, have been paid by Preview.
(b) Preview's current products and products under development are
listed on the Preview Disclosure Schedule (collectively, the "Preview
Products"). No person has a license to use or the right to acquire a license to
use any future version of any Preview Product or any Preview Product that is
under development, and no agreement to which Preview is a party will restrict
Newco from charging customers for any such new version. No agreement for the
support or maintenance of Preview Products obligates Preview, or would obligate
Newco after
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the Effective Time to provide any improvement, enhancement, change in
functionality or other alteration in the performance of the Preview Products.
(c) No person has a right to receive a royalty or similar payment in
respect of any Preview Product or Preview Intellectual Property Rights, to the
knowledge of Preview, or other Intellectual Property Right licensed to Preview
whether or not pursuant to any contractual arrangements entered into by Preview.
Except for End-User Licenses, Preview has no licenses granted, sold or otherwise
transferred by or to it nor other agreements to which it is a party, relating in
whole or in part to any Preview Product or Preview Intellectual Property Rights.
(d) The execution, delivery and performance of this Agreement and the
Preview Merger Agreement the consummation of the Mergers and the consummation of
the other transactions contemplated hereby and thereby (including without
limitation the continued conduct by Newco after the Preview Merger of Preview's
business as presently conducted and the incorporation of any Preview Product or
Preview Intellectual Property Right in any product of Newco) will not breach,
violate or conflict with any instrument or agreement governing any such Preview
Product or Preview Intellectual Property Right necessary or required for the
conduct of the business of Preview as presently conducted will not cause the
forfeiture or termination or give rise to a right of forfeiture or termination
of any such Preview Product or Preview Intellectual Property Right or in any way
impair the right of Newco or any of its subsidiaries to use, sell, license or
dispose of, either as part or all of a Preview Product or subsequent to the
Effective Time as part or all of a product of Newco, or to bring any action for
the infringement of, any such Preview Product or Preview Intellectual Property
Right or portion thereof.
(e) Neither the development, manufacture, marketing, license, sale or
intended use of any Preview Product violates or could reasonably be expected to
violate any license or agreement to which Preview is a party or infringes or
could reasonably be expected to infringe any Intellectual Property Right of any
other party, provided, that with respect to patent rights, rights with respect
to marks, names or designations and moral rights, such representation is made
only to Preview's knowledge; there is no pending or, to the knowledge of
Preview, threatened claim or litigation contesting the validity, ownership or
right to use, sell, license or dispose of any Preview Intellectual Property
Right necessary or required for, or used in, the conduct of the business of
Preview as presently conducted nor, to the knowledge of Preview, is there any
basis for any such claim, nor has Preview received any notice asserting that any
such Intellectual Property Right or the proposed use, sale, license or
disposition thereof conflicts or will conflict with the rights of any other
party, nor, to the knowledge of Preview, is there any basis for any such
assertion. To Preview's knowledge, there is no infringement on the part of any
third party of Preview's Intellectual Property Rights.
(f) Preview has taken reasonable and practicable steps (including,
without limitation, entering into confidentiality and non-disclosure agreements
with all officers and employees of and consultants to Preview with access to or
knowledge of Preview's Intellectual Property Rights) to maintain the secrecy and
confidentiality of, and its proprietary rights in, all Preview Intellectual
Property Rights necessary or required for the conduct of Preview's business.
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All employees, consultants, officers, directors and shareholders of Preview that
have had access to any material portion of the Preview Intellectual Property
Rights are parties to a written agreement under which each such person or entity
(i) is obligated to disclose and transfer to Preview, without the receipt by
such person of any additional value therefor (other than normal salary or fees
for consulting services), all inventions, developments and discoveries which,
during the period of employment (for employees) with or performance of services
for, he makes or conceives of either solely or jointly with others, that relate
to any subject matter with which his or her work for Preview may be concerned,
or relate to or are connected with the business, products or projects of
Preview, or involve the use of the time, material or facilities of Preview, and
(ii) is obligated to maintain the confidentiality of proprietary information of
Preview. To Preview's knowledge, none of Preview's employees, consultants,
officers or directors is obligated under any contract (including licenses,
covenants or commitments of any nature) or other agreement, or subject to any
judgment, decree or order of any court or administrative agency, that would
conflict with their obligation to promote the interests of Preview in the
Preview business or that would conflict with the Preview business. To Preview's
knowledge, it is currently not necessary, nor will it be necessary for Preview
to utilize in the Preview business nor has Preview utilized in the Preview
business any inventions of any of such persons or entities (or people it
currently intends to hire) made or owned prior to his or her employment by or
affiliation with Preview that Preview has not already licensed or acquired, nor
is it or will it be necessary to utilize any other assets or rights of any such
persons or entities (or people it currently intends to hire) made or owned prior
to their employment with or engagement by Preview, that Preview has not already
licensed or acquired in violation of any registered patents, trade names,
trademarks or copyrights or any other limitations or restrictions to which any
such person or entity is a party or to which any of such assets or rights may be
subject, except to the extent that such utilization would not have a material
adverse effect on the Preview business. To Preview's knowledge, none of
Preview's employees, consultants, officers, directors or shareholders that has
had knowledge or access to information relating to Preview's business has taken,
removed or made use of any proprietary documentation, manuals, products,
materials, or any other tangible item from his or her previous employer relating
to the business as conducted of such previous employer which has resulted in
Preview's access to or use of such proprietary items in Preview's business, and
Preview will not gain access to or make use of any such proprietary items in
Preview's business, except to the extent that any such activities would not have
a Material Adverse Effect on Preview.
(g) The Preview Disclosure Schedule also sets forth a complete list
of all licenses, sublicenses and other agreements as to which Preview is a party
and pursuant to which Preview or any other person is authorized to use, license,
sublicense, sell or distribute any Intellectual Property Right (excluding End-
User Licenses). Preview is not in violation of any license, sublicense or
agreement described on such list except such violations as do not materially
impair Preview's rights under such license, sublicense or agreement. The Preview
Disclosure Schedule separately identifies each exclusive arrangement between
Preview and any third party to use, license, sublicense, sell or distribute any
Preview Intellectual Property Right or any Preview Product.
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(h) The Preview Disclosure Schedule contains a complete and accurate
list of all applications, filings and other formal actions made or taken
pursuant to Federal, state, local and foreign laws by Preview to perfect or
protect its interest in Preview Intellectual Property Rights, including, without
limitation, all patents, patent applications, trademark registrations, trademark
applications, service mark registrations and copyright registrations. As used
herein, the term "Preview Intellectual Property Right" shall mean Intellectual
Property Rights owned by or granted exclusively or nonexclusively to Preview.
Section 5.14 Environmental Matters. Except for failures which will not
have a Material Adverse Effect on Preview, Preview has met, and continues to
meet, all applicable local, state, Federal and national environmental
regulations and has disposed of its waste products and effluents and/or has
caused others to dispose of such waste products and effluents, in accordance
with all applicable state, local, Federal and national environmental
regulations.
Section 5.15 Interests of Officers and Directors. No officer or director
of Preview or any "affiliate" or "associate" (as those terms are defined in Rule
405 promulgated under the Securities Act) of any such person has, either
directly or indirectly, a material interest in: (a) any person or entity that
purchases from or sells, licenses or furnishes to Preview any goods, property,
technology or intellectual or other property rights or services; (b) any
contract or agreement to which Preview is a party or by which it may be bound;
or (c) any property, real or personal, tangible or intangible, used in or
pertaining to Preview's business, including any interest in the Preview
Intellectual Property Rights.
Section 5.16 Title to Properties; Absence of Liens and Encumbrances.
The Preview Disclosure Schedule lists all facilities occupied by Preview since
Preview's incorporation, and indicates the nature of Preview's interest in such
facilities. Preview has good and valid title to, or, in the case of leased
properties and assets, valid leasehold interests in, all of their tangible
properties and assets, real, personal and mixed, used in their business, free
and clear of any liens, charges, pledges, security interests or other
encumbrances, except as reflected in the Preview Financial Statements or except
for such imperfections of title and encumbrances, if any, that are not
substantial in character, amount or extent, and which do not materially detract
from the value, or interfere with the present use, of the property subject
thereto or affected thereby.
Section 5.17 Governmental Authorizations and Licenses. Preview holds all
Licenses required to operate its business, except as would not have a Material
Adverse Effect on Preview. The Licenses are in full force and effect and Preview
is in compliance in all material respects with the terms of the Licenses.
Section 5.18 Insurance. The Preview Disclosure Schedule contains a
complete and accurate list of all policies or binders of fire, liability, title,
worker's compensation, product liability and other forms of insurance maintained
by Preview. Preview is not in default under any of such policies or binders, and
has not failed to give any notice or to present any claim under any such policy
or binder in a due and timely fashion. There are no outstanding unpaid claims
under any such policies or binders. All policies and binders provide sufficient
coverage for the
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risks insured against, are in full force and effect on the date hereof and shall
be kept in full force and effect through the Effective Time.
Section 5.19 Brokers. No broker, finder or investment banker is entitled
to any brokerage, finder's or other fee or commission in connection with the
transactions contemplated by this Agreement.
Section 5.20 Bank Accounts. The Preview Disclosure Schedule sets forth
the names and locations of all banks, trusts, companies, savings and loan
associations, and other financial institutions at which Preview maintains
accounts of any nature and the names of all persons authorized to draw thereon
or make withdrawals.
Section 5.21 Disclosure. No representation or warranty made by Preview in
this Agreement, nor any document, written information, statement, financial
statement, certificate, schedule or exhibit prepared and furnished by Preview or
its representatives pursuant hereto or in connection with the transactions
contemplated hereby, contains or will contain any untrue statement of a material
fact, or omits or will omit to state a material fact necessary to make the
statements or facts contained herein or therein not misleading in light of the
circumstances under which they were furnished. To the knowledge of Preview after
reasonable inquiry, there is no event, fact or condition particular to Preview's
business that is not generally known to the public that has resulted in, or
could reasonably be expected to result in, a Material Adverse Effect on Preview
that has not been set forth in this Agreement or in the Preview Disclosure
Schedule. Preview has complied in all material respects with the due diligence
request of Portland dated March 17, 1998.
ARTICLE VI
COVENANTS RELATING TO CONDUCT OF BUSINESS
Section 6.1 Conduct of Business of Portland Pending the Effective Time.
Except as expressly permitted or contemplated by this Agreement or the Merger
Agreements or as shall be consented to by Preview (which consent shall not be
unreasonably withheld), until the Effective Time, Portland shall, and shall
cause each of its Subsidiaries to, conduct its operations in the ordinary and
usual course of business consistent with past practice and use its best efforts
(in the ordinary course of business consistent with past practice) to preserve
intact their respective business organizations' goodwill, keep available the
services of their respective present officers and key employees, and preserve
the goodwill and business relationships with licensors, licensees, suppliers,
distributors, customers and others having business relationships with them.
Without limiting the generality of the foregoing, and except as otherwise
permitted by this Agreement, prior to the Effective Time, without the consent of
Preview, which consent shall not be unreasonably withheld, Portland will not,
and will cause each of its Subsidiaries not to:
(a) amend or propose to amend their respective charters or bylaws
(other than as contemplated by this Agreement); or split, combine or reclassify
their outstanding capital stock or declare, set aside or pay any dividend or
distribution in respect of any capital stock (other than the payment to Portland
or any of its Subsidiaries of any such dividend or
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distribution) or issue or authorize or propose the issuance of any other
securities in respect of, in lieu of or in substitution for shares of its
capital stock;
(b) (i) issue or authorize or propose the issuance of, sell, pledge
or dispose of, or agree to issue or authorize or propose the issuance of, sell,
pledge or dispose of, any additional shares of, or any options, warrants or
rights of any kind to acquire any shares of, their capital stock of any class or
any debt or equity securities convertible into or exchangeable for such capital
stock, other than any such issuance (x) pursuant to the exercise of options,
warrants, rights or convertible securities outstanding as of the date hereof in
accordance with their terms or (y) to employees or consultants of Portland in
the ordinary course of business and consistent with past practice; (ii) acquire
or agree to acquire by merging or consolidating with, or by purchasing a
substantial equity interest in or a substantial portion of the assets of, or by
any other manner, any business or any corporation, partnership, association or
other business organization division thereof or otherwise acquire or agree to
acquire any assets in each case which are material, individually or in the
aggregate, to Portland and its Subsidiaries taken as a whole, (iii) sell
(including by sale-leaseback), lease, pledge, dispose of or encumber any assets
or interests therein, which are material, individually or in the aggregate, to
Portland and its Subsidiaries taken as a whole, other than in the ordinary
course of business and consistent with past practice; (iv) except as set forth
in the Portland Disclosure Schedule, incur or become contingently liable with
respect to any material indebtedness for borrowed money or guarantee any such
indebtedness or issue any debt securities or otherwise incur any material
obligation or liability (absolute or contingent) other than short-term
indebtedness in the ordinary course of business and consistent with past
practice; (v) redeem, purchase, acquire or offer to purchase or acquire any
shares of its capital stock or long-term debt, other than as required by the
governing instruments relating thereto;
(c) enter into or amend any employment, severance, special pay
arrangement with respect to termination of employment or other arrangements or
agreements with any directors, officers or key employees other than pursuant to
Section 7.7 hereof;
(d) adopt, enter into or amend any, or become obligated under any new,
bonus, profit sharing, compensation, stock option, pension, retirement, deferred
compensation, health care, employment or other employee benefit plan, agreement,
trust, fund or arrangement for the benefit or welfare of any employee or
retiree, except as required to comply with changes in applicable law occurring
after the date hereof and except, with respect to all plans other than bonus
plans, in the ordinary course of business and consistent with past practice; or
(e) take any action that would, or is reasonably likely to, result in
any of its representations and warranties set forth in this Agreement becoming
untrue, or in any of the conditions to the Mergers set forth in Article VIII not
being satisfied.
Section 6.2 Conduct of Business of Preview Pending the Effective Time.
Except as expressly permitted or contemplated by this Agreement or the Merger
Agreements or as shall be consented to by Portland (which consent will not
unreasonably be withheld), until the Effective Time, Preview shall, and shall
cause each of its Subsidiaries to, conduct its operations in the
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ordinary and usual course of business consistent with past practice and use
their best efforts to preserve intact their respective business organizations'
goodwill, keep available the services of their respective present officers and
key employees, and preserve the goodwill and business relationships with
licensors, licensees, suppliers, distributors, customers and others having
business relationships with them. Without limiting the generality of the
foregoing, and except as otherwise permitted by this Agreement, prior to the
Effective Time, without the consent of Portland, which consent shall not be
unreasonably withheld, Preview will not, and will cause each of its Subsidiaries
not to:
(a) amend or propose to amend their respective charters or bylaws
(other than as contemplated by this Agreement); or split, combine or reclassify
their outstanding capital stock or declare, set aside or pay any dividend or
distribution in respect of any capital stock (other than the payment to Preview
or any of its Subsidiaries of any such dividend or distribution) or issue or
authorize or propose the issuance of any other securities in respect of, in lieu
of or in substitution for shares of its capital stock;
(b) (i) issue or authorize or propose the issuance of, sell, pledge
or dispose of, or agree to issue or authorize or propose the issuance of, sell,
pledge or dispose of, any additional shares of, or any options, warrants or
rights of any kind to acquire any shares of, their capital stock of any class or
any debt or equity securities convertible into or exchangeable for such capital
stock, other than any such issuance (x) pursuant to the exercise of options,
warrants, rights or convertible securities outstanding as of the date hereof in
accordance with their terms or (y) to employees or consultants of Preview in the
ordinary course of business and consistent with past practice; (ii) acquire or
agree to acquire by merging or consolidating with, or by purchasing a
substantial equity interest in or a substantial portion of the assets of; or by
any other manner, any business or any corporation, partnership, association or
other business organization or division thereof or otherwise acquire or agree to
acquire any assets in each case which are material, individually or in the
aggregate, to Preview and its Subsidiaries taken as a whole; (iii) sell
(including by sale-leaseback), lease, pledge, dispose of or encumber any assets
or interests therein, which are material, individually or in the aggregate, to
Preview and its Subsidiaries taken as a whole, other than in the ordinary course
of business and consistent with past practice; (iv) except as set forth in the
Preview Disclosure Schedule, incur or become contingently liable with respect to
any material indebtedness for borrowed money or guarantee any such indebtedness
or issue any debt securities or otherwise incur any material obligation or
liability (absolute or contingent) other than short-term indebtedness in the
ordinary course of business and consistent with past practice; (v) redeem,
purchase, acquire or offer to purchase or acquire any shares of its capital
stock or long-term debt, other than as required by the governing instruments
relating thereto;
(c) enter into or amend any, employment, severance, special pay
arrangement with respect to termination of employment or other arrangements or
agreements with any directors, officers or key employees other than pursuant to
Section 7.7 hereof;
(d) adopt, enter into or amend any, or become obligated under any
new, bonus, profit sharing, compensation, stock option, pension, retirement,
deferred compensation,
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health care, employment or other employee benefit plan, agreement, trust, fund
or arrangement for the benefit or welfare of any employee or retiree, except as
required to comply with changes in applicable law occurring after the date
hereof and except, with respect to all plans other than bonus plans, in the
ordinary course of business and consistent with past practice; or
(e) take any action that would, or is reasonably likely to, result in
any of its representations and warranties set forth in this Agreement becoming
untrue, or in any of the conditions to the Mergers set forth in Article VIII not
being satisfied.
Section 6.3 Cooperation. Subject to compliance with applicable law, from
the date hereof until the Effective Time, each of Portland and Preview shall
confer on a regular and frequent basis with one or more representatives of the
other party to report operational matters of materiality and the general status
of ongoing operations and shall promptly provide the other party or its counsel
with copies of all filings made by such party with any Governmental Entity in
connection with this Agreement, the Merger Agreements and the transactions
contemplated hereby and thereby.
ARTICLE VII
ADDITIONAL COVENANTS AND AGREEMENTS
Section 7.1 No Solicitation.
(a) Without the prior written consent of Preview, Portland and its
Subsidiaries will not, and will use their best efforts to cause their respective
officers, directors, employees, consultants, and agents not to, initiate or
solicit, directly or indirectly, any inquiries or the making of any proposal
with respect to or engage in negotiations concerning, provide any confidential
information or data to or have any discussions with, any Third Party, other than
Preview or any Affiliate of Preview, relating to, any acquisition, business
combination or purchase of all or any significant portion of the assets of, or
any equity interest in, Portland or any of its Subsidiaries. Portland will
immediately cease and cause to be terminated any existing activities,
discussions or negotiations with any parties conducted heretofore with respect
to any of the foregoing. Portland shall immediately notify Preview if any such
negotiations, or providing of confidential information or data or discussions
are entered into or made or any such inquiries are received in respect thereof,
and shall provide details with respect thereto.
(b) Without the prior written consent of Portland, Preview and its
Subsidiaries will not, and will use their best efforts to cause their respective
officers, directors, employees, consultants, and agents not to, initiate or
solicit, directly or indirectly, any inquiries or the making of any proposal
with respect to or engage in negotiations concerning, provide any confidential
information or data to, or have any discussions with, any Third Party, other
than Portland or any Affiliate of Portland relating to, any acquisition,
business combination or purchase of all or any significant portion of the assets
of, or any equity interest in, Preview or any of its Subsidiaries. Preview will
immediately cease and cause to be terminated any existing activities,
discussions or negotiations with any parties conducted heretofore with respect
to any of the foregoing. Preview shall immediately notify Portland if any such
negotiations, or
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providing of confidential information or data or discussions are entered into or
made or any such inquiries are received in respect thereof, and shall provide
details with respect thereto.
Section 7.2 Access to Information.
(a) Subject to compliance with applicable law, upon reasonable notice
Preview and Portland shall each (and shall cause each of their respective
Subsidiaries to) afford to the other and the officers, employees, accountants,
counsel, financial advisors and other representatives of the other, access
throughout the period prior to the Effective Time to all of its properties,
books, contracts, commitments and records and, during such period, each of
Preview and Portland shall (and shall cause each of their respective
Subsidiaries to) furnish promptly to the other (a) a copy of each report,
schedule, registration statement and other document filed or received by it
during such period pursuant to the requirements of applicable state or Federal
securities laws, and (b) all other information concerning its businesses,
properties and personnel as such other party may reasonably request.
(b) The parties shall comply with the provisions of the
Confidentiality Agreement dated April 6, 1998 between Portland and Preview.
Section 7.3 Taxes; Consent. Each party shall prepare and timely file all
Returns and amendments thereto required to be filed by it on or before the
Effective Time. Each party shall have a reasonable opportunity to review all
material Returns and amendments thereto of the other party and to approve such
Returns within seven days of receipt thereof (which approval shall not be
unreasonably withheld). Each party shall pay and discharge all Taxes,
assessments and governmental charges upon or against it or any of its properties
or assets, and all liabilities at any time existing, before the same shall
become delinquent and before penalties accrue thereon, except to the extent and
as long as: (a) the same are being contested in good faith and by appropriate
proceedings pursued diligently and in such a manner as not to cause any Material
Adverse Effect on such party; and (b) such party shall have set aside on its
books adequate reserves for such Taxes.
Section 7.4 Shareholder Approval. Each of Preview and Portland, as
promptly as practicable (but no earlier than permitted under applicable law)
will solicit written consents from its shareholders, or hold a shareholders'
meeting, for the purpose of seeking the approval of this Agreement, the Preview
Merger or the Portland Merger (as applicable) and related transactions
contemplated in this Agreement. The respective boards of directors of Portland
and Preview shall recommend to their respective shareholders approval of such
matters. Portland and Preview shall coordinate and cooperate with respect to the
timing of such meetings and shall use their best efforts to hold any such
meetings or to obtain written consults in lieu thereof as soon as practicable
after the date of the Fairness Hearing. Each of Preview and Portland shall
authorize and cause one of its officers to vote its shares of Newco Common Stock
for adoption and approval of this Agreement, the Merger Agreements and the
transactions contemplated hereby and to take all additional actions as the
shareholders of Newco necessary to adopt and approve this Agreement, the Merger
Agreements and the transactions contemplated hereby and thereby.
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Section 7.5 Lockups. Preview and Portland shall each cause each person
acquiring its capital stock from such entity (or the right to acquire such
shares) after the date first written above, to deliver to Preview and Portland
on or prior to the Effective Time a written agreement (to the extent such
persons have not already done so pursuant to agreements which will be binding
with respect to Newco capital stock) which provides that, in connection with the
initial public offering of Newco's securities and upon request of Newco or the
underwriters managing any underwritten offering of Newco's securities, such
holder agrees not to sell, make any short sale of, loan, grant any option for
the purchase of, or otherwise dispose of any Newco securities (other than those,
if any, included in the registration) without the prior written consent of Newco
or such underwriters, as the case may be, for such period of time (not to exceed
180 days) from the effective date of such registration as may be requested by
Newco or such managing underwriters and to execute an agreement reflecting the
foregoing as may be requested by the underwriters at the time of the public
offering.
Section 7.6 Agreement to Cooperate; Further Assurances. Subject to the
terms and conditions of this Agreement, each of the parties to this Agreement
shall use all reasonable efforts to take, or cause to be taken, all action and
to do, or cause to be done, all things necessary, proper or advisable under
applicable laws and regulations to consummate and make effective the
transactions contemplated by this Agreement and the Merger Agreements, subject
to the appropriate vote of shareholders of Portland and Preview described in
Section 8.1(a) hereof, including providing information and using reasonable
efforts to obtain all necessary or appropriate waivers, consents and approvals,
and effecting all necessary registrations and filings; provided, that nothing
herein shall require Newco, Preview or Portland to hold, manage or operate any
assets separately in order to obtain any such consent or approval or to enter
into any sale or divestiture of assets. In case at any time after the Effective
Time any further action is necessary or desirable to carry out the purposes of
this Agreement and the Merger Agreements, the proper officers and directors of
each party to this Agreement shall take all necessary actions to the extent not
inconsistent with their other duties and obligations or applicable law.
Section 7.7 Stock Options; Warrants.
(a) To the extent that acceleration of the exercisability of (or lapse
of repurchase right by Portland or its successor with respect to) any
outstanding Portland Option, Portland Warrant or other Portland security is
permitted or required by the applicable governing instrument as a result of the
Mergers or related transactions, then Portland shall take all necessary action
to cause such acceleration not to occur. Notwithstanding the foregoing, if any
employee waiving any such acceleration of vesting contained in existing written
agreements is terminated by Newco, Portland or Preview (other than a termination
by Preview or Portland of an employee so that such employee may become a Newco
employee) prior to 90 days following the Effective Time for other than Cause,
the employee shall remain entitled to receive the benefit of such acceleration.
For these purposes, "Cause" shall constitute conviction of any felony, the
commission of any act of fraud, embezzlement or dishonesty with respect to Newco
or its Subsidiaries (including Portland and Preview), any unauthorized use or
disclosure of confidential information or trade secrets of Newco or its
Subsidiaries (including Portland and Preview) any other intentional misconduct
adversely affecting the business or affairs of Newco or its Subsidiaries
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(including Portland and Preview) in a material manner or repeated unexcused
absence from Newco or its Subsidiaries.
(b) To the extent that acceleration of the exercisability of (or
lapse of repurchase right by Preview or its successor with respect to) any
outstanding Preview Option, Preview Warrant or other Preview security is
permitted or required by the applicable governing instrument as a result of the
Mergers or related transactions, then Preview shall take all necessary action to
cause such acceleration not to occur. Notwithstanding the foregoing, if any
employee waiving any such acceleration of vesting contained in existing written
agreements is terminated by Newco, Preview or Portland (other than a termination
by Preview or Portland of an employee so that such employee may become an
employee of Newco) prior to 90 days following the Effective Time for other than
Cause, the employee shall receive the benefit of such acceleration.
Section 7.8 Public Statements. The parties shall consult with each other
prior to issuing any public announcement or statement with respect to this
Agreement, the Merger Agreements or the transactions contemplated hereby or
thereby and shall not issue any such public announcement or statement prior to
such consultation, except as may be required by law, including, without
limitation, in connection with the Fairness Hearing.
Section 7.9 Rights Agreement; Co-Sale Agreement. Each of Newco, Preview
and Portland shall cause Newco to adopt an investor rights agreement, stock
option plan (the "Newco Stock Option Plan") and co-sale agreement in form and
substance reasonably satisfactory to the parties.
Section 7.10 Expenses. All costs and expenses incurred in connection
with this Agreement and the Merger Agreements and the transactions contemplated
hereby and thereby shall be paid by the party incurring such expenses, except
that the filing fee incurred in connection with filing the Hearing Documentation
with the California Department of Corporations in connection with the Fairness
Hearing shall be shared equally by Preview, on the one hand, and Portland, on
the other hand.
Section 7.11 Newco Activities. Until the Effective Time except in
connection with or furtherance of the transactions contemplated by this
Agreement and the Merger Agreements, Newco will incur no obligations or
liabilities nor engage in any business or activities of any type or kind
whatsoever or enter into any agreements or arrangements with any person or
entity.
Section 7.12 Noncompete Agreements. Preview and Portland will use their
good faith efforts to obtain, with respect to the persons listed on Schedule
7.12, noncompetition agreements, in a form agreed to by the parties, pursuant to
which the subject employee/shareholder agrees not to compete with Newco or its
Subsidiaries with respect to the business of Newco for a period of the shorter
of three years after the Effective Time or one year after termination of such
employee's employment with Newco, its Subsidiaries or its successors.
Section 7.13 Dissenters. Neither Portland with respect to Portland
Dissenting Shares (as defined below) nor Preview with respect to Preview
Dissenting Shares (as defined below) will, without the consent of the other,
voluntarily make any payment with respect to any
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demands for purchase or offer to settle any such demands in respect of
Dissenting Shares. Each of Portland, Preview and Newco will cooperate with the
other in any negotiations or proceedings with respect to demands for purchase of
Dissenting Shares pursuant to applicable state law.
Section 7.14 Carve Out From Covenants. Each of Preview and Portland
shall have the right to consummate any or all of the transactions described in
Schedule 7.14, hereto on the terms specified therein, as such terms may be
modified by Preview or Portland and Newco, provided that such modifications are
not material and adverse to the other party and such transactions shall be
exempt from the covenants of this Agreement to the extent specified on Schedule
7.14.
ARTICLE VIII
CONDITIONS
Section 8.1 Conditions to Each Party's Obligation to Effect the Mergers.
The respective obligations of each party to effect the Mergers shall be subject
to the fulfillment at or prior to the Effective Time of the following
conditions:
(a) This Agreement, the Merger Agreements and the transactions
contemplated hereby and thereby shall have been approved and adopted by the
affirmative vote of the requisite number of outstanding shares of Preview
capital stock and Portland capital stock entitled to vote with respect to such
matters;
(b) No temporary restraining order, preliminary or permanent
injunction or other order or decree by any court of competent jurisdiction which
prevents the consummation of the Mergers or imposes material conditions with
respect thereto shall have been issued and remain in effect (each party agreeing
to use its reasonable best efforts to have any such injunction, order or decree
lifted);
(c) No action shall have been taken, and no statute, rule or
regulation shall have been enacted, by any Governmental Entity which would
prevent the consummation of the Mergers or impose material conditions with
respect thereto;
(d) All governmental consents and approvals legally required for the
consummation of the Mergers and the transactions contemplated hereby shall have
been obtained and be in effect at the Effective Time, including all Federal,
state securities or blue sky registrations, permits and other authorizations (or
exemptions therefrom) necessary to issue the Newco securities pursuant to this
Agreement and the Merger Agreements and as contemplated by Section 7.6 hereof
(each party agrees to use its reasonable best efforts to obtain such consents
and approvals) except those for which failure to obtain such consents and
approvals would not, individually or in the aggregate, have a Material Adverse
Effect on Newco, or upon the consummation of the transactions contemplated
hereby.
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Section 8.2 Condition to Obligation of Portland to Effect the Portland
Merger. The obligation of Portland to effect the Portland Merger shall be
subject to the fulfillment at or prior to the Effective Time of the following
additional conditions:
(a) Preview shall have performed in all material respects its
agreements contained in this Agreement and the Merger Agreements required to be
performed on or prior to the Effective Time and the representations and
warranties of Preview contained in this Agreement and the Merger Agreements
shall be true and correct in all material respects on and as of the date of this
Agreement, except as contemplated or permitted by this Agreement and the Merger
Agreements and Portland shall have received a certificate of the Chief Executive
Officer, President, Chief Financial Officer or Executive Vice President of
Preview to that effect;
(b) Preview shall have obtained the consent or approval of each person
whose consent or approval shall be required in connection with the transactions
contemplated hereby under any loan or credit agreement, note, mortgage,
indenture, lease, license or other agreement or instrument, except those set
forth on Schedule 8.2(b) and those for which failure to obtain such consents and
approvals would not, individually or in the aggregate, have a Material Adverse
Effect on Preview, or upon the consummation of the transactions contemplated
hereby;
(c) Portland and Newco shall have received an opinion of Venture Law
Group, A Professional Corporation or other outside counsel to Preview acceptable
to Portland, in substantially the form set forth as Exhibit E hereto;
(d) Portland and Newco shall have received an opinion from Ater Wynne
Hewitt Dodson & Skerritt, LLP or other outside counsel to Portland substantially
to the effect that the Portland Merger shall be treated for federal income tax
purposes as a reorganization within the meaning of Section 368(a) of the Code
for Newco, Portland and the shareholders of Portland who receive Newco Common
Stock or Newco Preferred Stock in the Portland Merger. In rendering such
opinion, counsel may rely on, among other things, reasonable assumptions as well
as representations of Newco, Portland, Preview, Portland Sub, Preview Sub and
their respective shareholders.
(e) Dissenting Shares. The aggregate number of Preview Dissenting
Shares for which demands for payment are filed or may still be filed shall not
be equal to or exceed 1% of the outstanding shares of Preview voting stock
immediately prior to the Effective Time. "Dissenting Shares" means shares of
capital stock which are dissenting shares (as defined in the CGCL or OBCA, as
applicable), or which remain eligible at the Effective Time to become dissenting
shares.
(f) Fairness Hearing and Permit. The hearing on the fairness of the
Mergers pursuant to Section 25142 of the CGCL shall have occurred, and Newco
shall have received a permit relating to the issuance of the Newco securities
(including options and warrants) pursuant to the Mergers and the other
transactions contemplated by this Agreement, from the Department of Corporations
of the State of California pursuant to its Application for Qualification of
Securities by permit under Section 25121 of the CGCL.
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(g) Preview Rights Agreement. The Preview Rights Agreement shall
terminate at or prior to the Effective Time.
Section 8.3 Conditions to Obligations of Preview to Effect the Preview
Merger. The obligations of Preview to effect the Preview Merger shall be
subject to the fulfillment at or prior to the Effective Time of the additional
following conditions:
(a) Portland shall have performed in all material respects its
agreements contained in this Agreement and the Merger Agreements required to be
performed on or prior to the Effective Time and the representations and
warranties of Portland contained in this Agreement and the Merger Agreements
shall be true and correct in all material respects on and as of the date of this
Agreement, except as contemplated by this Agreement and the Merger Agreements,
and Preview shall have received a Certificate of the Chief Executive Officer,
President, Chief Financial Officer or Executive Vice President of Portland to
that effect;
(b) Portland shall have obtained the consent or approval of each
person whose consent or approval shall be required in connection with the
transaction contemplated hereby under any loan or credit agreement, note,
mortgage, indenture, lease, license or other agreement or instrument, except
those set forth in Schedule 8.3(b) and those for which failure to obtain such
consents and approvals would not, individually or in the aggregate, have a
Material Adverse Effect on Portland, or upon the consummation of the
transactions contemplated hereby;
(c) Preview and Newco shall have received an opinion of Ater Wynne
Hewitt Dodson & Skerritt, LLP or other outside counsel to Portland acceptable to
Preview, in substantially the form set forth as Exhibit F hereto;
(d) Preview and Newco shall have received an opinion from Venture Law
Group, A Professional Corporation or other outside counsel to Preview
substantially to the effect that the Preview Merger shall be treated for federal
income tax purposes as a reorganization within the meaning of Section 368(a) of
the Code for Newco, Preview and the shareholders of Preview who receive Newco
Common Stock or Newco Preferred Stock in the Preview Merger. In rendering such
opinion, counsel may rely on, among other things, reasonable assumptions as well
as representations of Newco, Portland, Preview, Portland Sub, Preview Sub and
their respective shareholders.
(e) Dissenting Shares. The aggregate number of Portland Dissenting
Shares for which demands for payment are filed or may still be filed shall not
be equal to or exceed 1% of the outstanding shares of Portland voting stock
immediately prior to the Effective Time.
(f) Fairness Hearing and Permit. The hearing on the fairness of the
Mergers pursuant to Section 25142 of the CGCL shall have occurred, and Newco
shall have received a permit relating to the issuance of the Newco Securities
pursuant to the Mergers and the other transactions contemplated by this
Agreement, from the Department of Corporations of the State of California
pursuant to its Application for Qualification of Securities by permit under
Section 25121 of the CGCL.
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(g) Portland Rights Agreement. The Portland Rights Agreement shall
terminate at or prior to the Effective Time.
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ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
Section 9.1 Termination. This Agreement may be terminated at any time
prior to the Effective Time, whether before or after approval by the
shareholders of Preview or Portland:
(a) by the mutual written consent of Preview and Portland;
(b) by either Preview or Portland if (i) the Mergers shall not have
been consummated on or before September 30, 1998 (or such later date as shall
have been agreed to in writing by the parties acting through their respective
Boards of Directors) (the "Termination Date"); (ii) any Governmental Entity, the
consent of which is a condition to the obligations of Preview and Portland to
consummate the transactions contemplated hereby or by the Merger Agreements,
shall have determined not to grant its consent and all appeals of such
determination shall have been taken and have been unsuccessful; or (iii) any
court of competent jurisdiction in the United States or any State shall have
issued an order, judgment or decree (other than a temporary restraining order)
restraining, enjoining or otherwise prohibiting either of the Mergers and such
order, judgment or decree shall have become final and nonappealable;
(c) by Portland if (i) the Preview Merger shall have been voted on by
holders of Preview capital stock at a meeting duly convened therefor, and the
votes shall not have been sufficient to satisfy the condition set forth in
Section 8.1(a) hereof; (ii) there has been an intentional misrepresentation by
Preview with respect to facts, circumstances, events or developments relating
to, having or resulting in a Material Adverse Effect on Preview, or a material
breach by Preview of a covenant or agreement set forth in this Agreement or the
Preview Merger Agreement, which breach has not been cured within 15 business
days following receipt by the breaching party of notice of such breach; (iii)
the Board of Directors of Preview should fail to recommend to its shareholders
approval of the transactions contemplated by this Agreement and the Preview
Merger Agreement or such recommendation shall have been made and subsequently
withdrawn; or (iv) except as provided in Schedule 7.14 following the execution
of this Agreement, Preview shall have engaged in negotiations concerning,
provided any confidential information or data to, or had any discussions with,
any Third Party other than Portland or any of its Affiliates relating to, any
acquisition, business combination or purchase of all or any significant portion
of the assets of, or equity interest in, Preview or any of its Subsidiaries;
(d) by Portland if this Agreement, the Merger Agreements and the
transactions contemplated hereby and thereby have not been approved and adopted
by the affirmative vote of the requisite number of outstanding shares of
Portland capital stock entitled to vote with respect to such matters.
(e) by Preview if (i) the Portland Merger shall have been voted on by
holders of Portland capital stock at a meeting duly convened therefor and the
votes shall not have been
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sufficient to satisfy the condition set forth in Section 8.1(a); (ii) there has
been an intentional misrepresentation by Portland with respect to facts,
circumstances, events or developments relating to, having or resulting in a
Material Adverse Effect on Portland, or a material breach by Portland of a
covenant or agreement set forth in this Agreement or the Portland Merger
Agreement, which breach has not been cured within 15 business days following
receipt by the breaching party of notice of such breach; (iii) the Board of
Directors of Portland should fail to recommend to its shareholders approval of
the transactions contemplated by this Agreement and the Portland Merger
Agreement or such recommendation shall have been made and subsequently
withdrawn; or (iv) except as provided in Schedule 7.14 following the execution
of this Agreement, Portland shall have engaged in negotiations concerning,
provided any confidential information or data to, or had any discussions with,
any Third Party other than Preview or any of its Affiliates relating to, any
acquisition, business combination or purchase of all or any significant portion
of, the assets of, or equity interest in, Portland or any of its Subsidiaries.
(f) by Preview if this Agreement, the Merger Agreements and the
transactions contemplated hereby and thereby have not been approved and adopted
by the affirmative vote of the requisite number of outstanding shares of Preview
capital stock entitled to vote with respect to such matters.
Notwithstanding the foregoing, the right to terminate this Agreement (i)
under Section 9.1(b)(i) hereof shall not be available to any party whose failure
to fulfill any obligation under this Agreement has been the cause of, or
resulted in, the failure of the Effective Time to occur on or before such date
and (ii) under Section 9.1(c) and (e) hereof shall not be available to any party
who at such time has intentionally made a misrepresentation with respect to
facts, circumstances, events or developments relating to, having or resulting in
a Material Adverse Effect or is in material breach of any covenant or agreement
set forth in this Agreement or the Merger Agreements.
Section 9.2 Effect of Termination. In the event of termination of this
Agreement by either Preview or Portland as provided in Section 9.1 hereof; this
Agreement shall forthwith become void (except as set forth in this Section 9.2,
in Sections 7.2(b), 7.10, 9.5 and in Sections 10.2 through 10.8 hereof which
shall survive the termination of this Agreement) and there shall be no liability
on the part of Newco, Preview or Portland or their respective officers or
directors except for any breach of any of its obligations under this Section
9.2, and Sections 7.2, 7.10, 9.5 and Sections 10.2 through 10.8 hereof.
Notwithstanding the foregoing, no party hereto shall be relieved from liability
for any willful, material breach of this Agreement.
Section 9.3 Amendment. This Agreement and the Merger Agreement may be
amended by the parties hereto at any time before or after approval hereof by the
shareholders of Preview or Portland, provided that after any such approval, no
amendment shall be made which (a) changes the method for calculating the ratios
at which shares are to be converted into shares of Newco capital stock pursuant
to the Merger Agreements hereof; (b) in any way that has a Material Adverse
Effect on the rights of holders of shares of Preview capital stock or Portland
capital stock or (c) changes any of the principal terms of this Agreement or the
Merger Agreements, in each case without the further approval of such
shareholders. This Agreement and the Merger
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Agreements may not be amended except by an instrument in writing signed on
behalf of Newco, Portland and Preview.
Section 9.4 Waiver. At any time prior to the Effective Time, the parties
hereto may (a) extend the time for the performance of any of the obligations or
other acts of the other parties hereto, (b) waive any inaccuracies in the
representations and warranties contained herein or in any document delivered
pursuant hereto and (c) waive compliance with any of the agreements or
conditions contained in this Agreement. Any agreement on the part of a party to
this Agreement to any such extension or waiver shall be valid if set forth in an
instrument in writing signed on behalf of such party.
Section 9.5 Break-Up Arrangements.
(a) If this Agreement is terminated pursuant to any subsection of
Section 9.1(c) or pursuant to Section 9.1(f) hereof and if Preview is not
entitled to terminate this Agreement by reason of Section 9.1(e) hereof; then,
in addition to any other rights or remedies that may be available, Preview shall
promptly (and in any event within two days of receipt by Preview of written
notice from Portland) pay to Portland (by wire transfer of immediately available
funds to an account designated by Portland) a termination fee of $2,000,000, and
shall reimburse Portland for all out-of-pocket expenses (including all fees and
expenses of its counsel, advisors, accountants and consultants) incurred by
Portland or on its behalf in connection with the transactions contemplated by
this Agreement, provided, however, that no termination fee or out-of-pocket
expenses shall be payable by Preview pursuant to this Section 9.5(a) if one or
more members of the Board of Directors of Preview dies or becomes incapacitated
and the number of shares owned by such director or an entity under the control
of such director voted against the Preview Merger by the estate, successor or
assignee of such director (including any successor in control of an entity
controlled by such director prior to death or incapacity) equals or exceeds the
number of votes by which the Preview Merger failed to satisfy the condition set
forth in Section 8.1(a).
(b) If this Agreement is terminated pursuant to Section 9.1(d) or
pursuant to any subsection of Section 9.1(e) hereof and if Portland is not
entitled to terminate this Agreement by reason of Section 9.1(c) hereof; then,
in addition to any other rights or remedies that may be available, Portland
shall promptly (and in any event within two days of receipt by Portland of
written notice from Preview) pay to Preview (by wire transfer of immediately
available funds to an account designated by Preview) a termination fee of
$2,000,000, and shall reimburse Preview for all out-of-pocket expenses
(including all fees and expenses of its counsel, advisors, accountants and
consultants) incurred by them or on their behalf in connection with the
transactions contemplated by this Agreement; provided, however, that no
termination fee or out-of-pocket expenses shall be payable by Portland pursuant
to this Section 9.5(b) if one or more members of the Board of Directors of
Portland dies or becomes incapacitated and the number of shares owned by such
director or an entity under the control of such director voted against the
Portland Merger by the estate, successor or assignee of such director (including
any successor in control of an entity controlled by such director prior to death
or incapacity) equals or exceeds the
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number of votes by which the Portland Merger failed to satisfy the condition set
forth in Section 8.1(a).
ARTICLE X
GENERAL PROVISIONS
Section 10.1 Non-Survival of Representations and Warranties. None of the
representations and warranties in this Agreement shall survive the Effective
Time.
Section 10.2 Notices. Any notices or other communications required or
permitted hereunder shall be in writing and shall be deemed duly given upon (a)
transmitter's confirmation of a receipt of a facsimile transmission, (b)
confirmed delivery by a standard overnight carrier or when delivered by hand or
(c) the expiration of three business days after the day when mailed by certified
or registered mail, postage prepaid, addressed at the following addresses (or at
such other address as the parties hereto shall specify by like notice):
If to Preview, to:
Preview Software, Inc.
1601 S. De Anza Blvd., Ste. 100
Cupertino, CA 95014
Phone: 408/873-3450
Fax: 408/873-3460
Attention: Vincent Pluvinage
Chief Executive Officer, President
with a copy to:
Venture Law Group
2800 Sand Hill Road
Menlo Park, CA 94025
Phone: 650/854-4488
Fax: 650/854-1121
Attention: Elias J. Blawie
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If to Portland, to:
Portland Software, Inc.
1000 SW Broadway
Suite 1850
Portland OR 97205
Phone: 503/220-2300
Fax: 503/525-6802
Attention: Edward Wholihan
Chief Financial Officer
with a copy to:
Ater Wynne Hewitt Dodson & Skerritt, LLP
222 S.W. Columbia Street, Suite 1800
Portland, OR 97201
Phone: 503/226-1191
Fax: 503/226-0079
Attention: Stephen Going
Section 10.3 Interpretation. The headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Whenever the words "include," "includes" or
"including" are used in this Agreement, they shall be deemed to be followed by
the words "without limitation."
Section 10.4 Miscellaneous. This Agreement (including the documents and
instruments referred to this Agreement or attached to it) (a) together with the
Confidentiality Agreement dated April 6, 1998 and the Merger Agreements
constitute the entire agreement and supersede all other prior agreements and
understandings, both written and oral, among the parties, or any of them, with
respect to the subject matter hereof, including, without limitation, the letter
of intent dated April 6, 1998 between Preview and Portland; (b) is not intended
to confer upon any other person any rights or remedies hereunder; (c) shall not
be assigned by operation of law or otherwise without the prior written consent
of the other parties hereto; and (d) shall be governed in all respects,
including validity, interpretation and effect, by the laws of the State of
California (without giving effect to the provisions thereof relating to
conflicts of law). The parties hereby acknowledge that, except as hereinafter
agreed to in writing, no party shall have the right to acquire or shall be
deemed to have acquired shares of common stock of the other party pursuant to
the Mergers until consummation thereof.
Section 10.5 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same agreement. Signatures to this Agreement are
deemed acceptable by facsimile transmission.
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Section 10.6 Parties in Interest. Subject to the provisions of Section
10.4(c) of this Agreement, this Agreement shall be binding upon and inure to the
benefit of and be enforceable by the parties hereto and their respective
successors and assigns and, except as set forth in Section 10.4 of this
Agreement, nothing in this Agreement, express or implied, is intended to confer
upon any other person any rights or remedies of any nature whatsoever under or
by reason of this Agreement.
Section 10.7 Severability. Any term or provision of this Agreement which
is invalid or unenforceable in any jurisdiction shall, as to that jurisdiction,
be ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of
this Agreement is so broad as to be unenforceable, the provision shall be
interpreted to be only so broad as is enforceable.
Section 10.8 Attorneys' Fees. If any action at law or equity, including
an action for declaratory relief; is brought to enforce or interpret any
provision of this Agreement, the prevailing party shall be entitled to recover
reasonable attorneys' fees and expenses from the other party, which fees and
expenses shall be in addition to any other relief which may be awarded.
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IN WITNESS WHEREOF, Newco, Preview and Portland have caused this Agreement
to be signed by their respective officers thereunto duly authorized as of the
date first written above.
PREVIEW SYSTEMS, INC.
By /s/ Vincent Pluvinage
-----------------------
Vincent Pluvinage
Chief Executive Officer, President
PORTLAND SOFTWARE, INC.
By /s/ Edward Wholihan
---------------------
Edward Wholihan
Chief Financial Officer
PREVIEW SOFTWARE, INC.
By /s/ Vincent Pluvinage
-----------------------
Vincent Pluvinage
Chief Executive Officer, President
PREVIEW ACQUISITION CORP.
By /s/ Vincent Pluvinage
-----------------------
Vincent Pluvinage
Chief Executive Officer, President
PORTLAND ACQUISITION CORP.
By /s/ Ed Wholihan
-----------------
Ed Wholihan
Chief Financial Officer
<PAGE>
EXHIBIT 10.17
PREVIEW SYSTEMS, INC.
SERIES G PREFERRED STOCK PURCHASE AGREEMENT
-------------------------------------------
This Series G Preferred Stock Purchase Agreement (the "Agreement") is
---------
made as of the 2nd day of July 1999 by and among Preview Systems, Inc., a
Delaware corporation (the "Company"), and the investors listed on Exhibit A
------- ---------
attached hereto (each a "Purchaser" and together the "Purchasers").
--------- ----------
The parties hereby agree as follows:
1. Purchase and Sale of Preferred Stock.
------------------------------------
1.1 Sale and Issuance of Series G Preferred Stock.
---------------------------------------------
(a) The Company shall adopt and file with the Secretary of
State of the State of Delaware on or before the Closing (as defined below) the
Third Amended and Restated Certificate of Incorporation in the form attached
hereto as Exhibit B (the "Restated Certificate").
--------- --------------------
(b) Subject to the terms and conditions of this Agreement,
each Purchaser agrees to purchase from the Company at the Closing and the
Company agrees to sell and issue to each Purchaser at the Closing that number of
shares of Series G Preferred Stock set forth opposite each such Purchaser's name
on Exhibit A attached hereto at a purchase price of $3.36 per share. The shares
---------
of Series G Preferred Stock issued to the Purchaser pursuant to this Agreement
shall be hereinafter referred to as the "Stock."
-----
1.2 Closing; Delivery.
-----------------
(a) The Initial Closing. The initial purchase and sale of the
-------------------
Stock will take place at the offices of Venture Law Group, 2800 Sand Hill Road,
Menlo Park, California, at 10:00 a.m. Pacific Time, on July 2, 1999 or at such
other time and place as the Company and Purchasers who have agreed to purchase a
majority of the Stock at the Initial Closing listed on Exhibit A mutually agree
---------
upon (which time and place are referred to in this Agreement as the "Initial
-------
Closing"). The Initial Closing, and each Additional Closing under this
- -------
Agreement shall constitute a Closing as referred to in this Agreement.
(b) Additional Closing(s).
---------------------
(i) Conditions of Additional Closing(s). At any time
-----------------------------------
and from time to time during the 45-day period immediately following the Initial
Closing (the "Additional Closing Period"), the Company may, at one or more
-------------------------
additional closings (each an "Additional Closing"), without obtaining the
------------------
signature, consent or permission of any of the Purchasers, offer and sell to
other investors ("Additional Purchasers") shares of the Company's Series G
---------------------
Preferred Stock at a price of $3.36 per share. Additional Purchasers may include
persons or entities who are already Purchasers under this Agreement.
<PAGE>
(ii) Amendments. The Company and the Additional
----------
Purchasers purchasing Series G Stock at each Additional Closing will execute
counterpart signature pages to this Agreement, the Rights Agreement (as defined
in Section 2.2(d)), and the Co-Sale Agreement (as defined in Section 2.2(d)),
and such Additional Purchasers will, upon delivery to the Company of such
signature pages, become parties to, and be bound by, this Agreement, the Rights
Agreement and the Co-Sale Agreement, each to the same extent as if they had been
Purchasers at the Initial Closing. Immediately after each Additional Closing,
Exhibit A to this Agreement will be amended to list the Additional Purchasers
purchasing shares of Series G Stock hereunder at each such Additional Closing.
(iii) Status of New Purchasers. Upon the completion of
------------------------
each Additional Closing as provided in this Section 2, each Additional Purchaser
will be deemed to be a "Purchaser" for all purposes of this Agreement and an
"Investor" for all purposes under the Rights Agreement and Co-Sale Agreement.
2. Representations and Warranties of the Company. The Company hereby
---------------------------------------------
represents and warrants to each Purchaser that, except as set forth on a
Schedule of Exceptions attached hereto as Exhibit C, which exceptions shall be
---------
deemed to be representations and warranties as if made hereunder:
2.1 Organization, Good Standing and Qualification. The Company is a
---------------------------------------------
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has all requisite corporate power and authority to
carry on its business as now conducted and as proposed to be conducted. The
Company is duly qualified to transact business and is in good standing in each
jurisdiction in which the failure so to qualify would have a material adverse
effect on its business or properties.
2.2 Capitalization. The authorized capital of the Company consists,
--------------
or will consist, immediately prior to the Closing, of:
(a) 19,136,615 shares of Preferred Stock, of which 8,630,953
shares have been designated Series G Preferred Stock, none of which is issued
and outstanding immediately prior to the Closing, 3,200,000 shares have been
designated Series F Preferred Stock, 2,325,037 of which are issued and
outstanding immediately prior to the Closing, 2,300,000 shares have been
designated Series E Preferred Stock, 1,675,811 of which are issued and
outstanding, 602,802 shares have been designated Series D Preferred Stock,
598,802 of which are issued and outstanding, 2,550,860 shares have been
designated Series C Preferred Stock, 2,500,000 of which are issued and
outstanding, 705,000 shares have been designated Series B Preferred Stock, all
of which are issued and outstanding, and 1,147,000 Shares of Series A Preferred
Stock, all of which are issued and outstanding. In addition, there are
outstanding warrants to purchase an aggregate of 50,860 shares of Series C
Preferred Stock, and 434,467 shares of Series E Preferred Stock and 5,400 shares
of Series F Preferred Stock. The rights, privileges and preferences of the
Preferred Stock are as stated in the Restated Certificate.
(b) 35,000,000 shares of Common Stock, 5,450,198 shares of
which are issued and outstanding immediately prior to the Closing. All of the
outstanding shares of
-2-
<PAGE>
Common Stock have been duly authorized, fully paid and are nonassessable and
issued in compliance with all applicable federal and state securities laws. The
Company has reserved 19,136,615 shares of Common Stock for issuance upon
conversion of the Preferred Stock.
(c) There are outstanding options to purchase 1,711,550 Shares
of Common Stock issued pursuant to subsequently terminated stock plans (the "Old
---
Plans"). Under a new 1998 Stock Option Plan (the "New Plan" and, collectively
- ----- --------
with the Old Plans, the "Plans"), the Company has reserved 2,700,000 shares of
-----
Common Stock for issuance to officers, directors, employees and consultants of
the Company. Of such reserved shares of Common Stock under the New Plan, there
are outstanding options to purchase 2,661,721 shares of Common Stock and 25,880
shares of such reserved shares of Common Stock remain available for issuance to
officers, directors, employees and consultants. There are outstanding options
to acquire 104,681 shares of Common Stock and warrants to acquire 346,705 shares
of Common Stock outside the Plans.
(d) Except for outstanding options and warrants as set forth in
the preceding paragraphs of this Section 2.2, there are no outstanding options,
warrants, rights (including conversion or preemptive rights and rights of first
refusal or similar rights) or agreements, orally or in writing, for the purchase
or acquisition from the Company of any shares of its capital stock, as defined
below (other than as set forth in the Third Amended and Restated Rights
Agreement in the form attached hereto as Exhibit D the ("Rights Agreement")).
--------- ----------------
(e) All issued and outstanding shares of Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock, Series E Preferred Stock, Series F Preferred Stock and Common Stock have
been duly authorized and validly issued and are fully paid and nonassessable and
free of any preemptive or similar rights contained in the Certificate of
Incorporation or bylaws of the Company. All outstanding shares of the Company's
Common Stock and the Stock issued or to be issued under the Agreement have been
or will be issued in compliance with applicable state and federal securities
laws. The Common Stock issuable upon conversion of the Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock,
Series E Preferred Stock, Series F Preferred Stock and Series G Preferred Stock
has been duly and validly reserved and, when issued in accordance with the
Company's Certificate of Incorporation, will be validly issued, fully paid and
nonassessable.
2.3 Subsidiaries. The Company does not currently own or control,
------------
directly or indirectly, any interest in any other corporation, association, or
other business entity.
2.4 Authorization. All corporate action on the part of the Company,
-------------
its officers, directors and stockholders necessary for the authorization,
execution and delivery of this Agreement, the Rights Agreement, the Amended and
Second Amended and Restated Co-Sale Agreement in the form attached hereto as
Exhibit E (the "Co-Sale Agreement", and collectively with this Agreement and the
- --------- -----------------
Rights Agreement, the "Agreements") by the Company, the performance of all
----------
obligations of the Company hereunder and thereunder and the authorization,
issuance and delivery of the Stock and the Common Stock issuable upon conversion
of the Stock (together, the "Securities") has been taken or will be taken prior
----------
to the Closing, and the
-3-
<PAGE>
Agreements, when executed and delivered by the Company, shall constitute valid
and legally binding obligations of the Company, enforceable against the Company
in accordance with their terms except (i) as limited by applicable bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance, and other laws of
general application affecting enforcement of creditors' rights generally, as
limited by laws relating to the availability of specific performance, injunctive
relief, or other equitable remedies, or (ii) to the extent the indemnification
provisions contained in the Rights Agreement may be limited by applicable
federal or state securities laws.
2.5 Valid Issuance of Securities. The Stock that is being issued to
----------------------------
the Purchasers hereunder, when issued, sold and delivered in accordance with the
terms hereof for the consideration expressed herein, will be duly and validly
issued, fully paid and nonassessable and free of restrictions on transfer other
than restrictions on transfer under this Agreement, the Rights Agreement and
applicable state and federal securities laws. Based in part upon the
representations of the Purchasers in this Agreement and subject to the
provisions of Section 2.6 below, the Stock will be issued in compliance with all
applicable federal and state securities laws. The Common Stock issuable upon
conversion of the Stock has been duly and validly reserved for issuance, and
upon issuance in accordance with the terms of the Restated Certificate, shall be
duly and validly issued, fully paid and nonassessable and free of restrictions
on transfer other than restrictions on transfer under this Agreement, the Rights
Agreement and applicable federal and state securities laws and will be issued in
compliance with all applicable federal and state securities laws.
2.6 Governmental Consents. No consent, approval, order or
---------------------
authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state or local governmental authority on the part of
the Company is required in connection with the consummation of the transactions
contemplated by this Agreement, except for filings pursuant to Section 25102(f)
of the California Corporate Securities Law of 1968, as amended, and the rules
promulgated thereunder, other applicable state securities laws and Regulation D
of the Securities Act of 1933, as amended (the "Securities Act").
--------------
2.7 Litigation. There is no action, suit, proceeding or
----------
investigation pending or, to the Company's knowledge, currently threatened
against the Company or any of its subsidiaries that questions the validity of
the Agreements or the right of the Company to enter into them, or to consummate
the transactions contemplated hereby or thereby, or that might result, either
individually or in the aggregate, in any material adverse changes in the assets,
condition or affairs of the Company, financially or otherwise, or any change in
the current equity ownership of the Company, nor is the Company aware that there
is any basis for the foregoing. Neither the Company nor any of its subsidiaries
is a party or subject to the provisions of any order, writ, injunction, judgment
or decree of any court or government agency or instrumentality. There is no
action, suit, proceeding or investigation by the Company or any of its
subsidiaries currently pending or which the Company or any of its subsidiaries
intends to initiate.
2.8 Patents and Trademarks. The Company owns or possesses sufficient
----------------------
legal rights to all patents, trademarks, service marks, tradenames, copyrights,
trade secrets, licenses, information and proprietary rights and processes
necessary for its business as now
-4-
<PAGE>
conducted with no known infringement of or conflict with the rights of others.
The Company has not received any communications alleging that the Company has
violated or, by conducting its business as proposed, would violate any of the
patents, trademarks, service marks, tradenames, copyrights, trade secrets or
other proprietary rights or processes of any other person or entity. The Company
is not aware that any of its employees is obligated under any contract
(including licenses, covenants or commitments of any nature) or other agreement,
or subject to any judgment, decree or order of any court or administrative
agency, that would interfere with the use of such employee's best efforts to
promote the interest of the Company or that would conflict with the Company's
business as proposed to be conducted. Neither the execution or delivery of this
Agreement, nor the carrying on of the Company's business by the employees of the
Company, nor the conduct of the Company's business as proposed, will, to the
best of the Company's knowledge, conflict with or result in a breach of the
terms, conditions, or provisions of, or constitute a default under, any
contract, covenant or instrument under which any such employee is now obligated.
The Company does not believe it is or will be necessary to use any inventions of
any of its employees (or persons it currently intends to hire) made prior to
their employment by the Company, which have not been fully assigned to the
Company.
2.9 Compliance with Other Instruments.
---------------------------------
(a) The Company is not in violation or default of any
provisions of its Restated Certificate or Bylaws or of any instrument, judgment,
order, writ, decree or contract to which it is a party or by which it is bound
or, of any provision of federal or state statute, rule or regulation applicable
to the Company. The execution, delivery and performance of the Agreements and
the consummation of the transactions contemplated hereby or thereby will not
result in any such violation or be in conflict with or constitute, with or
without the passage of time and giving of notice, either a default under any
such provision, instrument, judgment, order, writ, decree or contract or an
event which results in the creation of any lien, charge or encumbrance upon any
assets of the Company.
(b) The Company has avoided every condition, and has not
performed any act, the occurrence of which would result in the Company's loss of
any right granted under any license, distribution agreement or other agreement.
2.10 Agreements; Action.
------------------
(a) There are no agreements, understandings or proposed
transactions between the Company and any of its officers, directors, affiliates,
or any affiliate thereof.
(b) Except for agreements explicitly contemplated by the
Agreements, there are no agreements, understandings, instruments, contracts or
proposed transactions to which the Company or any of its subsidiaries is a party
or by which it is bound that involve (i) obligations (contingent or otherwise)
of, or payments to, the Company or any of its subsidiaries in excess of,
$50,000, (ii) the license of any patent, copyright, trade secret or other
proprietary right to or from the Company or any of its subsidiaries, (iii) the
grant of rights to manufacture, produce, assemble, license, market, or sell its
products to any other person or affect the Company's exclusive right to develop,
manufacture, assemble, distribute, market or sell its
-5-
<PAGE>
products or (iv) indemnification by the Company with respect to infringements of
proprietary rights (other than indemnification obligations arising from purchase
or sale or license agreements executed in the normal course of business).
(c) Neither the Company nor any of its subsidiaries has (i)
declared or paid any dividends, or authorized or made any distribution upon or
with respect to any class or series of its capital stock, (ii) incurred any
indebtedness for money borrowed or incurred any other liabilities individually
in excess of $50,000 or in excess of $100,000 in the aggregate, (iii) made any
loans or advances to any person, other than ordinary advances for travel
expenses, or (iv) sold, exchanged or otherwise disposed of any of its assets or
rights, other than the sale of its products in the ordinary course of business.
(d) The Company is not a party to and is not bound by any
contract, agreement or instrument, or subject to any restriction under its
Restated Certificate or Bylaws, that adversely affects its business as now
conducted or as proposed to be conducted, its properties or its financial
condition.
(e) The Company is not currently, and has not engaged in the
past three months in any discussion (i) with any representative of any
corporation or corporations regarding the merger of the Company with or into any
such corporation or corporations, (ii) with any representative of any
corporation, partnership, association or other business entity or any individual
regarding the sale, conveyance or disposition of all or substantially all of the
assets of the Company or a transaction or series of related transactions in
which more than 50% of the voting power of the Company would be disposed of, or
(iii) regarding any other form of liquidation, dissolution or winding up of the
Company.
2.11 Disclosure. No representation or warranty of the Company
----------
contained in that certain Private Placement Memorandum dated April 28, 1999, by
the Company offering shares of its Series G Preferred Stock (as updated or
supplemented by the Schedule of Exceptions), this Agreement and the exhibits
attached hereto or any certificate furnished or to be furnished to Purchasers at
the Closing, when read together, contains any untrue statement of a material
fact or omits to state a material fact necessary in order to make the statements
contained herein or therein not misleading in light of the circumstances under
which they were made.
2.12 No Conflict of Interest. The Company is not indebted, directly
-----------------------
or indirectly, to any of its officers or directors or to their respective
spouses or children, in any amount whatsoever other than in connection with
expenses or advances of expenses incurred in the ordinary course of business or
relocation expenses of employees. None of the Company's officers or directors,
or any members of their immediate families, are, directly or indirectly,
indebted to the Company (other than in connection with purchases of the
Company's stock) or have any direct or indirect ownership interest in any firm
or corporation with which the Company is affiliated or with which the Company
has a business relationship, or any firm or corporation which competes with the
Company except that officers, directors and/or stockholders of the Company may
own stock in (but not exceeding two percent of the outstanding capital stock of)
any publicly traded company that may compete with the Company. None of the
-6-
<PAGE>
Company's officers or directors or any members of their immediate families are,
directly or indirectly, interested in any material contract with the Company.
The Company is not a guarantor or indemnitor of any indebtedness of any other
person, firm or corporation.
2.13 Rights of Registration and Voting Rights. Except as contemplated
----------------------------------------
in the Rights Agreement, the Company has not granted or agreed to grant any
registration rights, including piggyback rights, to any person or entity. To the
Company's knowledge, no stockholders of the Company have entered into any
agreements with respect to the voting of capital shares of the Company.
2.14 Private Placement. Subject in part to the truth and accuracy of
-----------------
the Purchasers' representations set forth in this Agreement, the offer, sale and
issuance of the Securities as contemplated by this Agreement are exempt from the
registration requirements of the Securities Act, and neither the Company nor any
authorized agent acting on its behalf will take any action hereafter that would
cause the loss of such exemption.
2.15 Title to Property and Assets. The Company owns its property and
----------------------------
assets free and clear of all mortgages, liens, loans and encumbrances, except
such encumbrances and liens which arise in the ordinary course of business and
do not materially impair the Company's ownership or use of such property or
assets. With respect to the property and assets it leases, the Company is in
compliance with such leases and, to the best of its knowledge, holds a valid
leasehold interest free of any liens, claims or encumbrances.
2.16 Financial Statements. The Company has made available to each
--------------------
Purchaser its audited balance sheet as of December 31, 1998, its audited
statement of operations for the 12-month period then ended, its unaudited
statement of operations for the period commencing January 1, 1999 and ending
April 30, 1999, and its unaudited balance sheet as of April 30, 1999
(collectively, the "Financial Statements"). The Financial Statements have been
--------------------
prepared in accordance with generally accepted accounting principles applied on
a consistent basis throughout the periods indicated, except that the unaudited
Financial Statements do not contain any footnotes required by generally accepted
accounting principles. The Financial Statements fairly present the financial
condition and operating results of the Company as of the dates, and for the
periods, indicated therein. Except as set forth in the Financial Statements,
the Company has no material liabilities, contingent or otherwise, other than (i)
liabilities incurred in the ordinary course of business subsequent to April 30,
1999 and (ii) obligations under contracts and commitments incurred in the
ordinary course of business and not required under generally accepted accounting
principles to be reflected in the Financial Statements, which, in both cases,
individually or in the aggregate are not material to the financial condition or
operating results of the Company. Except as disclosed in the Financial
Statements, the Company is not a guarantor or indemnity of any indebtedness of
any other person, firm or corporation. The Company maintains and will continue
to maintain a standard system of accounting established and administered in
accordance with generally accepted accounting principles.
-7-
<PAGE>
2.17 Changes. Since April 30, 1999, there has not been:
-------
(a) any change in the assets, liabilities, financial condition
or operating results of the Company from that reflected in the Financial
Statements, except changes in the ordinary course of business that have not
been, in the aggregate, materially adverse;
(b) any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the business, properties,
prospects, or financial condition of the Company (as such business is presently
conducted and as it is proposed to be conducted);
(c) any waiver or compromise by the Company of a valuable right
or of a material debt owed to it;
(d) any satisfaction or discharge of any lien, claim, or
encumbrance or payment of any obligation by the Company, except in the ordinary
course of business and that is not material to the business, properties,
prospects or financial condition of the Company (as such business is presently
conducted and as it is proposed to be conducted);
(e) any material change to a material contract or agreement by
which the Company or any of its assets is bound or subject;
(f) any material change in any compensation arrangement or
agreement with any employee, officer, director or stockholder;
(g) any sale, assignment or transfer of any patents,
trademarks, copyrights, trade secrets or other intangible assets;
(h) any resignation or termination of employment of any officer
or key employee of the Company; and the Company, to the best of its knowledge,
does not know of any impending resignation or termination of employment of any
such officer or key employee;
(i) receipt of notice that there has been a loss of, or
material order cancellation by, any major customer of the Company;
(j) any mortgage, pledge, transfer of a security interest in or
lien created by the Company with respect to any of its material properties or
assets, except liens for taxes not yet due or payable;
(k) any loans or guarantees made by the Company to or for the
benefit of its employees, officers or directors, or any members of their
immediate families, other than travel advances and other advances made in the
ordinary course of its business;
(l) any declaration, setting aside or payment or other
distribution in respect to any of the Company's capital stock, or any direct or
indirect redemption, purchase, or other acquisition of any of such stock by the
Company;
-8-
<PAGE>
(m) to the best of the Company's knowledge, any other event or
condition of any character that might materially and adversely affect the
business, properties, prospects or financial condition of the Company (as such
business is presently conducted and as it is proposed to be conducted); or
(n) any arrangement or commitment by the Company to do any of the
things described in this Section 2.17.
2.18 Employee Benefit Plans. The Company does not have any Employee
----------------------
Benefit Plan as defined in the Employee Retirement Income Security Act of 1974.
2.19 Tax Returns and Payments. The Company has filed all tax returns
------------------------
and reports as required by law. These returns and reports are true and correct
in all material respects. The Company has paid all taxes and other assessments
due.
2.20 Insurance. The Company has in full force and effect fire and
---------
casualty insurance policies, with extended coverage, sufficient in amount
(subject to reasonable deductibles) to allow it to replace any of its properties
that might be damaged or destroyed.
2.21 Labor Agreements and Actions. The Company is not bound by or
----------------------------
subject to (and none of its assets or properties is bound by or subject to) any
written or oral, express or implied, contract, commitment or arrangement with
any labor union, and no labor union has requested or, to the knowledge of the
Company, has sought to represent any of the employees, representatives or agents
of the Company. There is no strike or other labor dispute involving the Company
pending, or to the knowledge of the Company threatened, which could have a
material adverse effect on the assets, properties, financial condition,
operating results, or business of the Company (as such business is presently
conducted and as it is proposed to be conducted), nor is the Company aware of
any labor organization activity involving its employees. The employment of each
officer and employee of the Company is terminable at the will of the Company.
The Company has complied in all material respects with all applicable state and
federal equal employment opportunity laws and with other laws related to
employment.
2.22 Proprietary Information and Inventions Agreements. Each
-------------------------------------------------
employee, consultant and officer of the Company has executed an agreement with
the Company regarding confidentiality and proprietary information substantially
in the form or forms delivered to the counsel for the Purchasers. The Company,
after reasonable investigation, is not aware that any of its employees or
consultants is in violation thereof, and the Company will use its best efforts
to prevent any such violation. All consultants to or vendors of the Company
with access to confidential information of the Company are parties to a written
agreement substantially in the form or forms provided to counsel for the
Purchasers under which, among other things, each such consultant or vendor is
obligated to maintain the confidentiality of confidential information of the
Company. The Company, after reasonable investigation, is not aware that any of
its consultants or vendors are in violation thereof, and the Company will use
its best efforts to prevent any such violation.
-9-
<PAGE>
2.23 Compliance With Laws; Permits. The Company is not in violation
-----------------------------
of any applicable statute, regulation, order or restriction of any domestic or
foreign government which would materially adversely affect the Company. The
Company and each of its subsidiaries has all franchises, permits, licenses and
any similar authority necessary for the conduct of its business as now being
conducted by it, the lack of which could materially and adversely affect the
business, properties, prospects, or financial condition of the Company and
believes that it can obtain, without undue burden or expense, any similar
authority for the conduct of its business as planned to be conducted. The
Company is not in default in any material respect under any of such franchises,
permits, licenses or other similar authority.
2.24 Corporate Documents. The Restated Certificate and Bylaws of the
-------------------
Company are in the form provided to counsel for the Purchasers. The copy of the
minute books of the Company provided to the Purchasers' counsel contains minutes
of all meetings of directors and stockholders and all actions by written consent
without a meeting by the directors and stockholders since the date of
incorporation and reflects all actions by the directors (and any committee of
directors) and stockholders with respect to all transactions referred to in such
minutes accurately in all material respects.
2.25 Qualified Small Business Stock. The Company represents and
------------------------------
warrants to the Purchasers that, to the best of its knowledge, the Stock should
qualify as "Qualified Small Business Stock" as defined in Section 1202(c) of the
------------------------------
Internal Revenue Code of 1986, as amended as of the date hereof.
2.26 Intellectual Property and Products. The Company represents and
----------------------------------
warrants to the Purchasers that, at such time as Dynasoft Publishing Corporation
("Dynasoft") transferred pursuant to the Stock Purchase Agreement (the
--------
"Agreement"), dated October 1996, those assets described on Exhibit A to the
----------
Agreement (the "Assets"), Dynasoft owned all right, title and interest in, or
------
had the right to use, all worldwide industrial and intellectual property rights,
including, without limitation, patent applications, patents, patent rights,
trademark applications, trademarks, service marks, trade names, service mark
applications, trade dress, moral rights, copyright applications, copyrights,
licenses, inventions, trade secrets, know-how, customer lists, proprietary
processes and formulae, software source and object code, algorithms,
architecture, structure, display screens, layouts, development tools, all
documentation and media constituting, describing or relating to the above,
without limitation, manuals, memoranda and records and other intellectual
property and proprietary rights used in or reasonably necessary to the conduct
of its business as presently conducted and the business of the development,
production, marketing, licensing and sale of commercial products using such
intellectual property and proprietary rights ("Dynasoft Intellectual Property").
------------------------------
The Company represents and warrants to the Purchasers that all Dynasoft
Intellectual Property developed by Karl Hirsch and Dynasoft's employees was
developed by such persons in the course of Dynasoft's business and not by them
in their individual capacity and such individuals do not have any interest in or
rights to any Dynasoft Intellectual Property. The
-10-
<PAGE>
Company represents and warrants to the Purchasers that all Dynasoft Intellectual
Property developed by Hirsch prior to the incorporation of Dynasoft was properly
assigned by Hirsch at the time of, or following, the incorporation and neither
Hirsch nor any other party has any interest in or rights to any Dynasoft
Intellectual Property. The Company represents and warrants to the Purchasers
that during the period in which Hirsch was developing the Dynasoft Intellectual
Property, he was either not employed by any third party or involved in any
consulting relationship with any third party or, if such an employment or
consulting relationship did exist, the nature of Hirsch's employment was not
related in any way to the Dynasoft Intellectual Property. The Company represents
and warrants to the Purchasers that Hirsch and Dynasoft were not aware, and are
not presently aware, of any infringement of any Dynasoft Intellectual Property
by any third party. The Company represents and warrants to the Purchasers that
neither Hirsch nor Dynasoft have received any written or oral claim or notice of
infringement or potential infringement of the intellectual property of any other
person which could be expected to have a material adverse effect on Dynasoft's
or Preview's business.
3. Representations and Warranties of the Purchasers. Each Purchaser
------------------------------------------------
hereby severally represents and warrants to the Company that:
3.1 Authorization. The Agreements, when executed and delivered by
-------------
the Purchaser, will constitute valid and legally binding obligations of the
Purchaser, enforceable in accordance with their terms, except (a) as limited by
applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance, and any other laws of general application affecting enforcement of
creditors' rights generally, and as limited by laws relating to the availability
of a specific performance, injunctive relief, or other equitable remedies, or
(b) to the extent the indemnification provisions contained in the Rights
Agreement may be limited by applicable federal or state securities laws.
3.2 Purchase Entirely for Own Account. This Agreement is made with
---------------------------------
the Purchaser in reliance upon the Purchaser's representation to the Company,
which by the Purchaser's execution of this Agreement, the Purchaser hereby
confirms, that the Securities to be acquired by the Purchaser will be acquired
for investment for the Purchaser's own account, not as a nominee or agent, and
not with a view to the resale or distribution of any part thereof, and that the
Purchaser has no present intention of selling, granting any participation in, or
otherwise distributing the same. By executing this Agreement, the Purchaser
further represents that the Purchaser does not presently have any contract,
undertaking, agreement or arrangement with any person to sell, transfer or grant
participations to such person or to any third person, with respect to any of the
Securities. The Purchaser represents that it has full power and authority to
enter into this Agreement. The Purchaser has not been formed for the specific
purpose of acquiring the Securities.
3.3 Disclosure of Information. The Purchaser has had an opportunity
-------------------------
to discuss the Company's business, management, financial affairs and the terms
and conditions of the offering of the Stock with the Company's management and
has had an opportunity to review the Company's facilities. The Purchaser
understands that such discussions, as well as the written information issued by
the Company, were intended to describe the aspects of the Company's business
which it believes to be material.
3.4 Restricted Securities. The Purchaser understands that the
---------------------
Securities have not been, and will not be, registered under the Securities Act,
by reason of a specific exemption
-11-
<PAGE>
from the registration provisions of the Securities Act which depends upon, among
other things, the bona fide nature of the investment intent and the accuracy of
the Purchaser's representations as expressed herein. The Purchaser understands
that the Securities are "restricted securities" under applicable U.S. federal
and state securities laws and that, pursuant to these laws, the Purchaser must
hold the Securities indefinitely unless they are registered with the Securities
and Exchange Commission and qualified by state authorities, or an exemption from
such registration and qualification requirements is available. The Purchaser
acknowledges that the Company has no obligation to register or qualify the
Securities for resale except as set forth in the Rights Agreement. The Purchaser
further acknowledges that if an exemption from registration or qualification is
available, it may be conditioned on various requirements including, but not
limited to, the time and manner of sale, the holding period for the Securities,
and on requirements relating to the Company which are outside of the Purchaser's
control, and which the Company is under no obligation and may not be able to
satisfy.
3.5 No Public Market. The Purchaser understands that no public
----------------
market now exists for any of the securities issued by the Company, and that the
Company has made no assurances that a public market will ever exist for the
Securities.
3.6 Legends. The Purchaser understands that the Securities, and any
-------
securities issued in respect of or exchange for the Securities, may bear one or
all of the following legends:
(a) "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AND HAVE BEEN ACQUIRED FOR
INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR
DISTRIBUTION THEREOF. NO SUCH SALE OR DISPOSITION MAY BE EFFECTED WITHOUT
AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF
COUNSEL IN A FORM SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT
REQUIRED UNDER THE SECURITIES ACT OF 1933."
(b) "THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE
TRANSFERRED ONLY IN ACCORDANCE WITH THE TERMS OF AN AGREEMENT BETWEEN THE
COMPANY AND THE STOCKHOLDER, A COPY OF WHICH IS ON FILE WITH THE SECRETARY
OF THE COMPANY."
(c) Any legend required by the Blue Sky laws of any state to the
extent such laws are applicable to the shares represented by the certificate so
legended.
3.7 Accredited Investor. The Purchaser is an accredited investor as
-------------------
defined in Rule 501(a) of Regulation D promulgated under the Securities Act.
3.8 Foreign Investors. If the Purchaser is not a United States
-----------------
person (as defined by Section 7701(a)(30) of the Internal Revenue Code of 1986,
as amended), such Purchaser hereby represents that it has satisfied itself as to
the full observance of the laws of its
-12-
<PAGE>
jurisdiction in connection with any invitation to subscribe for the Stock or any
use of this Agreement, including (i) the legal requirements within its
jurisdiction for the purchase of the Stock, (ii) any foreign exchange
restrictions applicable to such purchase, (iii) any governmental or other
consents that may need to be obtained, and (iv) the income tax and other tax
consequences, if any, that may be relevant to the purchase, holding, redemption,
sale, or transfer of the Stock. Such Purchaser's subscription and payment for
and continued beneficial ownership of the Stock, will not violate any applicable
securities or other laws of the Purchaser's jurisdiction.
4. Conditions of the Purchasers' Obligations at Closing. The obligations
----------------------------------------------------
of each Purchaser to the Company under this Agreement are subject to the
fulfillment, on or before the Closing, of each of the following conditions,
unless otherwise waived:
4.1 Representations and Warranties. The representations and
------------------------------
warranties of the Company contained in Section 2 shall be true and correct in
all material respects on and as of the Closing with the same effect as though
such representations and warranties had been made on and as of the date of the
Closing.
4.2 Performance. The Company shall have performed and complied with
-----------
all covenants, agreements, obligations and conditions contained in this
Agreement that are required to be performed or complied with by it on or before
the Closing.
4.3 Compliance Certificate. The Chief Executive Officer or Chief
----------------------
Financial Officer of the Company shall deliver to the Purchasers at the Closing
a certificate certifying that the conditions specified in Sections 4.1 and 4.2
have been fulfilled.
4.4 Qualifications. All authorizations, approvals or permits, if
--------------
any, of any governmental authority or regulatory body of the United States or of
any state that are required in connection with the lawful issuance and sale of
the Stock pursuant to this Agreement shall be obtained and effective as of the
Closing.
4.5 Opinion of Company Counsel. The Purchasers shall have received
--------------------------
from Venture Law Group, counsel for the Company, an opinion, dated as of the
Closing, in substantially the form of Exhibit F.
---------
4.6 Board of Directors. As of the Closing, the Board of Directors of
------------------
the Company shall be comprised of Bruce Bourbon, Gerard Langeler, Donald L.
Lucas, Vincent Pluvinage, R. Douglas Rivers, Heidi Roizen and Gary Rieschel. As
of the Closing, the Compensation Committee of the Board of Directors shall
consist of Bruce Bourbon, Gerard Langeler and Heidi Roizen. As of the Closing,
the Audit Committee of the Board of Directors shall consist of Donald L. Lucas,
R. Douglas Rivers, and Gary Rieschel.
4.7 Rights Agreement. The Company and each Purchaser shall have
----------------
executed and delivered the Rights Agreement in substantially the form attached
as Exhibit D.
---------
-13-
<PAGE>
4.8 Co-Sale Agreement. The Company, each Purchaser, Karl Hirsch,
-----------------
Vincent Pluvinage, Charles Jennings and Frank Tycksen shall have executed and
delivered the Co-Sale Agreement in substantially the form attached as Exhibit E.
---------
4.9 Restated Certificate. The Company shall have filed the Restated
--------------------
Certificate with the Secretary of State of Delaware on or prior to the Closing,
which shall continue to be in full force and effect as of the Closing.
5. Conditions of the Company's Obligations at Closing. The obligations
--------------------------------------------------
of the Company to each Purchaser under this Agreement are subject to the
fulfillment, on or before the Closing, of each of the following conditions,
unless otherwise waived:
5.1 Representations and Warranties. The representations and
------------------------------
warranties of each Purchaser contained in Section 3 shall be true and correct in
all material respects on and as of the Closing with the same effect as though
such representations and warranties had been made on and as of the Closing.
5.2 Performance. All covenants, agreements and conditions contained
-----------
in this Agreement to be performed by the Purchasers on or prior to the Closing
shall have been performed or complied with in all material respects.
5.3 Qualifications. All authorizations, approvals or permits, if
--------------
any, of any governmental authority or regulatory body of the United States or of
any state that are required in connection with the lawful issuance and sale of
the Stock pursuant to this Agreement shall be obtained and effective as of the
Closing.
6. Affirmative Covenants of the Company.
------------------------------------
The Company hereby covenants and agrees as follows:
6.1 Financial Information. The Company will deliver the following
---------------------
reports to each Purchaser for so long as such Purchaser is a holder of not less
than 595,238 shares of Stock (or an equivalent number of shares consisting of
the Stock or Common Stock issued upon conversion of the Stock, or a combination
thereof), as adjusted for recapitalizations, stock splits, stock dividends and
the like:
(a) As soon as practicable after the end of each fiscal year, and
in any event within 90 days thereafter, consolidated balance sheets of the
Company and its subsidiaries, if any, as of the end of such fiscal year, and
consolidated statements of income and consolidated statements of stockholders'
equity and cash flows of the Company and its subsidiaries, if any, for such
year, prepared in accordance with generally accepted accounting principles and
setting forth in each case in comparative form the figures for the previous
fiscal year, all in reasonable detail and audited by the Company's independent
public accountants, which accountants shall be of national recognition and
selected by the Board of Directors of the Company.
-14-
<PAGE>
(b) As soon as practicable after the end of each fiscal quarter,
and in any event within 45 days thereafter, unaudited consolidated balance
sheets of the Company and its subsidiaries, if any, as of the end of such fiscal
quarter, and unaudited consolidated statements of income and consolidated
statements of stockholders' equity and cash flows of the Company and its
subsidiaries, if any, for such quarter, prepared in accordance with generally
accepted accounting principles and setting forth in each case in comparative
form the figures for the comparable quarter in the previous fiscal year.
(c) Contemporaneously with delivery to holders of Common Stock, a
copy of each report, proxy statement or other document of the Company delivered
to holders of the Company's Common Stock.
6.2 Additional Information. As long as a Purchaser (together with
----------------------
any affiliate of such Purchaser) holds not less than 595,238 shares of Stock (or
an equivalent number of shares consisting of the Stock or Common Stock issued
upon conversion of the Stock, or a combination thereof), as adjusted for
recapitalizations, stock splits, stock dividends and the like, the Company will
mail the following reports to such Purchaser:
(a) As soon as practicable after the end of each fiscal month,
and in any event within 30 days thereafter, an unaudited consolidated balance
sheet of the Company as of the end of such month, and unaudited consolidated
statements of income and unaudited consolidated statements of cash flow for such
month and for the current fiscal year to date (collectively, the "Financial
---------
Statements"). Such Financial Statements shall be prepared in accordance with
- ----------
generally accepted accounting principles consistently applied (other than
accompanying notes and subject to year-end adjustments), all in reasonable
detail and all shall include both actual and forecast financial information and
all shall be compared against the operating plan of the Company.
(b) As soon as practicable, but at least 30 days prior to the end
of each fiscal year, a budget and operating plan for the next fiscal year,
including balance sheets and sources and applications of funds statements and,
as soon as prepared, any other budgets, revised budgets, operating plan or
revised operating plan prepared by the Company.
(c) The Company will permit such Purchaser and any of its
partners, officers or employees, or any outside representatives designated by
such Purchaser and reasonably satisfactory to the Company, to visit and inspect
at such Purchaser's expense any of the properties of the Company or its
subsidiaries (if any), including their books and records, and to discuss their
affairs, finances, and accounts with their officers, lawyers and accountants,
all to such reasonable extent and at such reasonable times and intervals as such
Purchaser may reasonably request in writing; provided, however, that the Company
shall not be obligated to provide any information that it reasonably considers
to be a trade secret or to contain confidential information.
6.3 Transfer of Information Rights. The information rights set forth
------------------------------
in Sections 6.1 and 6.2 may be transferred in any nonpublic transfer of the
Stock (or shares of Common Stock issued upon conversion of the Stock), provided
that the Company is given
-15-
<PAGE>
written notice of such transfer, and provided further that the right to receive
the information set forth in Section 6.2 may only be transferred to a holder of,
or affiliated holders who in the aggregate hold, at least 595,238 shares of
Stock (or an equivalent number of shares consisting of the Stock or Common Stock
issued upon conversion of the Stock, as appropriately adjusted for stock splits
and the like). In the event that the Company reasonably determines that
provision of information to a transferee pursuant to this Section 6.3 would
materially adversely affect its proprietary position, such information may be
edited in the manner necessary to avoid such effect.
6.4 Termination of Covenants. The covenants set forth in Sections
------------------------
6.1, 6.2 6.3, 6.5 and 6.6 shall terminate on and be of no further force or
effect upon the earlier of (i) the consummation of the Company's sale of its
Common Stock in an underwritten public offering pursuant to an effective
registration statement filed under the Securities Act, or (ii) the registration
by the Company of a class of its equity securities under Section 12(b) or 12(g)
of the Exchange Act.
6.5 Directors' Meetings. The Board of Directors shall hold meetings
-------------------
on a monthly basis until the Company achieves profitability or the Board
otherwise agrees.
6.6 Member of Pricing Committee. If the Board of Directors
---------------------------
establishes a Pricing Committee, the Company shall use its best efforts to
ensure that either Heidi Roizen, Gary Rieschel or some other designee of
SOFTBANK Technology Ventures IV, L.P. reasonably acceptable to the Chief
Executive Officer of the Company, is appointed to such Pricing Committee.
7. Voting Agreement.
----------------
7.1 Election and Removal of Directors.
---------------------------------
(a) Board Representation. At each annual meeting of the
--------------------
stockholders of the Company, or at any meeting of the stockholders of the
Company at which members of the Board of Directors of the Company are to be
elected, or whenever members of the Board of Directors are to be elected by
written consent, the Purchasers agree to vote or act with respect to their
shares so as to elect two members (with such number decreasing to one after the
consummation of the Company's sale of its Common Stock in an underwritten public
offering pursuant to an effective registration statement filed under the
Securities Act) of the Company's Board of Directors designated by SOFTBANK
Technology Ventures IV, L.P. or its affiliates ("SOFTBANK") reasonably
--------
acceptable to the Chief Executive Officer of the Company so long as SOFTBANK
owns at least 1,000,000 shares of the Company's capital stock.
(b) Appointment of Directors. In the event of the resignation,
------------------------
death, removal or disqualification of a director selected by SOFTBANK, SOFTBANK
shall promptly nominate a new director who shall be reasonably acceptable to the
Chief Executive Officer of the Company, and, after written notice of the
nomination has been given by SOFTBANK to the other parties, each Purchaser shall
vote its shares of capital stock of the Company to elect such
-16-
<PAGE>
nominee to the Board of Directors so long as SOFTBANK owns at least 1,000,000
shares of the Company's capital stock.
(c) Removal. SOFTBANK may remove its designated director at any
-------
time and from time to time, with or without cause (subject to the Bylaws of the
Company as in effect from time to time and any requirements of law), in its sole
discretion, and after written notice to each of the parties hereto of the new
nominee to replace such director (who shall be reasonably acceptable to the
Chief Executive Officer of the Company), each Purchaser shall promptly vote its
shares of capital stock of the Company to elect such nominee to the Board of
Directors so long as SOFTBANK owns at least 1,000,000 shares of the Company's
capital stock.
7.2 Legends. Each certificate representing shares of the Company's
-------
capital stock held by the Purchasers or any assignee of the Purchasers shall
bear the following legend:
"THE SHARES EVIDENCED HEREBY ARE SUBJECT TO A VOTING AGREEMENT BY AND
AMONG THE COMPANY AND CERTAIN STOCKHOLDERS OF THE COMPANY (A COPY OF
WHICH MAY BE OBTAINED FROM THE COMPANY), AND BY ACCEPTING ANY INTEREST
IN SUCH SHARES THE PERSON ACCEPTING SUCH INTEREST SHALL BE DEEMED TO
AGREE TO AND SHALL BECOME BOUND BY ALL THE PROVISIONS OF SAID VOTING
AGREEMENT."
7.3 Termination Events. This provisions of this Section 7 shall
------------------
terminate upon the earlier of:
(a) the consummation of the Company's sale of its Common Stock
in an underwritten public offering pursuant to an effective registration
statement filed under the Securities Act;
(b) the registration by the Company of a class of its equity
securities under Section 12(b) or 12(g) of the Exchange Act; or
(c) the sale, conveyance or disposal of all or substantially all
of the Company's property or business or if the Company effects any other
transaction or series of related transactions in which more than fifty percent
(50%) of the voting power of the Company is disposed of, provided that this
--------
Section shall not apply to a merger effected exclusively for the purpose of
changing the domicile of the Company.
8. Miscellaneous.
-------------
8.1 Survival of Warranties. Unless otherwise set forth in this
----------------------
Agreement, the warranties, representations and covenants of the Company and the
Purchasers contained in or made pursuant to this Agreement shall survive the
execution and delivery of this Agreement.
8.2 Transfer; Successors and Assigns. The terms and conditions of
--------------------------------
this Agreement shall inure to the benefit of and be binding upon the respective
successors and assigns
-17-
<PAGE>
of the parties. 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.
8.3 Governing Law. This Agreement and all acts and transactions
-------------
pursuant hereto and the rights and obligations of the parties hereto shall be
governed, construed and interpreted in accordance with the laws of the State of
California, without giving effect to principles of conflicts of law.
8.4 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original and all of which
together shall constitute one and the same instrument.
8.5 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.
8.6 Notices. Any notice required or permitted by this Agreement
-------
shall be in writing and shall be deemed sufficient upon delivery, when delivered
personally or by overnight courier or sent by telegram or fax, or 48 hours after
being deposited in the U.S. mail, as certified or registered mail, with postage
prepaid, addressed to the party to be notified at such party's address as set
forth below or on Exhibit A hereto, or as subsequently modified by written
---------
notice, and, if to the Company, with a copy to Venture Law Group, A Professional
Corporation 2800 Sand Hill Road, Menlo Park, CA 94025, Attn: Elias J. Blawie.
8.7 Finder's Fee. Pursuant to an agreement between BancBoston
------------
Robertson Stephens Inc. ("BancBoston") and the Company, the Company is obligated
----------
to (a) pay BancBoston a commission calculated as a percentage of the gross
proceeds received by the Company upon sale of the Stock, (b) reimburse
BancBoston for its out-of-pocket expenses related to the sale and marketing of
the Stock, including legal fees, and (c) issue a warrant to BancBoston to
purchase up to 2% of the number of shares of Stock sold hereunder with an
exercise price of $3.36 per share (collectively, the "BancBoston Fees"). Each
---------------
party represents that, other than the BancBoston Fees, it neither is nor will be
obligated for any finder's fee or commission in connection with this
transaction. Each Purchaser agrees to indemnify and to hold harmless the
Company from any liability for any commission or compensation in the nature of a
finder's fee (and the costs and expenses of defending against such liability or
asserted liability) for which each Purchaser or any of its officers, employees,
or representatives is responsible. The Company agrees to indemnify and hold
harmless each Purchaser from any liability for any commission or compensation in
the nature of a finder's fee (and the costs and expenses of defending against
such liability or asserted liability) for which the Company or any of its
officers, employees or representatives is responsible, other than the BancBoston
Fees.
8.8 Attorney's Fees. If any action at law or in equity (including
---------------
arbitration) is necessary to enforce or interpret the terms of any of the
Agreements, the prevailing party shall be
-18-
<PAGE>
entitled to reasonable attorney's fees, costs and necessary disbursements in
addition to any other relief to which such party may be entitled.
8.9 Fees and Expenses. The Company shall pay the reasonable fees and
-----------------
expenses of Cooley Godward LLP, the counsel for the Purchasers, incurred with
respect to this Agreement, the documents referred to herein and the transactions
contemplated hereby and thereby, provided such fees and expenses do not exceed
$25,000.
8.10 Amendments and Waivers. Any term of this Agreement may be
----------------------
amended with the written consent of the Company and the holders of at least two-
thirds of the Common Stock issued or issuable upon conversion of the Stock. Any
amendment or waiver effected in accordance with this Section 8.10 shall be
binding upon the Purchasers and each transferee of the Stock (or the Common
Stock issuable upon conversion thereof), each future holder of all such
securities, and the Company. Furthermore, the Company agrees that should it
issue additional shares of its Series G Preferred Stock pursuant to a purchase
agreement with terms more favorable that those in this Agreement, the Company
will amend this Agreement to reflect such favorable terms unless the Company
receives the unanimous consent of the Board of Directors. Notwithstanding the
foregoing sentence, the Company may issue warrants to purchase Series G
Preferred Stock to financial institutions or lessors in connection with
commercial credit arrangements, equipment financings or similar transactions
with the unanimous consent of the Board of Directors.
8.11 Severability. If one or more provisions of this Agreement are
------------
held to be unenforceable under applicable law, the parties agree to renegotiate
such provision in good faith. In the event that the parties cannot reach a
mutually agreeable and enforceable replacement for such provision, then (a) such
provision shall be excluded from this Agreement, (b) the balance of the
Agreement shall be interpreted as if such provision were so excluded and (c) the
balance of the Agreement shall be enforceable in accordance with its terms.
8.12 Delays or Omissions. No delay or omission to exercise any right,
-------------------
power or remedy accruing to any holder of any of the Stock, upon any breach or
default of the Company under this Agreement, shall impair any such right, power
or remedy of such holder nor shall it be construed to be a waiver of any such
breach or default, or an acquiescence therein, or of or in any similar breach or
default thereafter occurring; nor shall any waiver of any single breach or
default be deemed a waiver of any other breach or default theretofore or
thereafter occurring. Any waiver, permit, consent or approval of any kind or
character on the part of any holder of any breach or default under this
Agreement, or any waiver on the part of any holder of any provisions or
conditions of this Agreement, must be in writing and shall be effective only to
the extent specifically set forth in such writing. All remedies, either under
this Agreement or by law or otherwise afforded to any holder, shall be
cumulative and not alternative.
8.13 Entire Agreement. This Agreement, and the documents referred to
----------------
herein constitute the entire agreement between the parties hereto pertaining to
the subject matter hereof, and any and all other written or oral agreements
existing between the parties hereto are expressly canceled.
-19-
<PAGE>
8.14 Corporate Securities Law. THE SALE OF THE SECURITIES WHICH ARE
------------------------
THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF
CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF THE SECURITIES OR
THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO THE
QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT FROM THE
QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA CORPORATIONS
CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED
UPON THE QUALIFICATION BEING OBTAINED UNLESS THE SALE IS SO EXEMPT.
8.15 Confidentiality. Each party hereto agrees that, except with the
---------------
prior written permission of the other party, it shall at all times keep
confidential and not divulge, furnish or make accessible to anyone any
confidential information, knowledge or data concerning or relating to the
business or financial affairs of the other parties to which such party has been
or shall become privy by reason of this Agreement, discussions or negotiations
relating to this Agreement, the performance of its obligations hereunder or the
ownership of Stock purchased hereunder. The provisions of this Section 8.15
shall be in addition to, and not in substitution for, the provisions of any
separate nondisclosure agreement executed by the parties hereto with respect to
the transactions contemplated hereby.
8.16 Exculpation Among Purchasers. Each Purchaser acknowledges that
----------------------------
it is not relying upon any person, firm or corporation, other than the Company
and its officers and directors, in making its investment or decision to invest
in the Company. Each Purchaser agrees that no Purchaser nor the respective
controlling persons, officers, directors, partners, agents, or employees of any
Purchaser shall be liable for any action heretofore or hereafter taken or
omitted to be taken by any of them in connection with the Stock.
8.17 Waiver of Conflicts. Each party to this Agreement acknowledges
-------------------
that Venture Law Group, counsel for the Company, has in the past performed and
may continue to perform legal services for certain of the Purchasers in matters
unrelated to the transactions described in this Agreement, including the
representation of such Purchasers in venture capital financings and other
matters. Accordingly, each party to this Agreement hereby (a) acknowledges that
they have had an opportunity to ask for information relevant to this disclosure;
and (b) gives its informed consent to Venture Law Group's representation of
certain of the Purchasers in such unrelated matters and to Venture Law Group's
representation of the Company in connection with this Agreement and the
transactions contemplated hereby.
[Signature Pages Follow]
-20-
<PAGE>
The parties have executed this Series G Preferred Stock Purchase Agreement
as of the date first written above.
COMPANY:
PREVIEW SYSTEMS, INC.
By: /s/ Vincent Pluvinage
----------------------------------------
Name: Vincent Pluvinage
----------------------------------------
(print)
Title: President and Chief Executive Officer
---------------------------------------
Address:
1601 S. De Anza Blvd., Suite 100
Cupertino, CA 95014
PURCHASERS:
Each Purchaser listed on Exhibit A
---------------------------------------------
(Print Name of Purchaser)
By: /s/ Each Purchaser listed on Exhibit A
------------------------------------------
(Signature)
Name: Each Purchaser listed on Exhibit A
----------------------------------------
(Print Name of Person Signing)
Title:_______________________________________
(Print Title, If Applicable)
E-mail Address:
Address:
PLEASE RETURN THIS SIGNATURE PAGE VIA FACSIMILE TO
THE ATTENTION OF LYNNE MATHENY AT VENTURE LAW GROUP AT 650/233-8386
SIGNATURE PAGE TO PREVIEW SYSTEMS, INC. SERIES G PREFERRED STOCK
PURCHASE AGREEMENT
-21-
<PAGE>
EXHIBIT 10.18
PREVIEW SYSTEMS, INC.
SERIES F PREFERRED STOCK PURCHASE AGREEMENT
-------------------------------------------
This Series F Preferred Stock Purchase Agreement (the "Agreement") is made
---------
as of the 15th day of September 1998 by and among Preview Systems, Inc., a
Delaware corporation (the "Company"), and the investors listed on Exhibit A
------- ---------
attached hereto (each a "Purchaser" and together the "Purchasers").
--------- ----------
The parties hereby agree as follows:
1. Purchase and Sale of Preferred Stock.
------------------------------------
1.1 Sale and Issuance of Series F Preferred Stock.
---------------------------------------------
(a) The Company shall adopt and file with the Secretary of State
of the State of Delaware on or before the Closing (as defined below) the Second
Amended and Restated Certificate of Incorporation in the form attached hereto as
Exhibit B (the "Restated Certificate").
- --------- --------------------
(b) Subject to the terms and conditions of this Agreement, each
Purchaser agrees to purchase from the Company at the Closing and the Company
agrees to sell and issue to each Purchaser at the Closing that number of shares
of Series F Preferred Stock set forth opposite each such Purchaser's name on
Exhibit A attached hereto at a purchase price of $2.50 per share. The shares of
- ---------
Series F Preferred Stock issued to the Purchaser pursuant to this Agreement
shall be hereinafter referred to as the "Stock."
-----
1.2 Closing; Delivery.
-----------------
(a) The Initial Closing. The initial purchase and sale of the
-------------------
Stock will take place at the offices of Venture Law Group, 2800 Sand Hill Road,
Menlo Park, California, at 10:00 a.m. Pacific Time, on September 15, 1998 or at
such other time and place as the Company and Purchasers who have agreed to
purchase a majority of the Stock at the Initial Closing listed on Exhibit A
---------
mutually agree upon (which time and place are referred to in this Agreement as
the "Initial Closing"). The Initial Closing, and each Additional Closing under
---------------
this Agreement shall constitute a Closing as referred to in this Agreement.
(b) Additional Closing(s)
---------------------
(i) Conditions of Additional Closing(s). At any time and
-----------------------------------
from time to time during the 45-day period immediately following the Initial
Closing (the "Additional Closing Period"), the Company may, at one or more
-------------------------
additional closings (each an "Additional Closing"), without obtaining the
------------------
signature, consent or permission of any of the Purchasers, offer and sell to
other investors ("Additional Purchasers") shares of the Company's Series F
---------------------
Preferred Stock at a price of $2.50 per share. Additional Purchasers may include
persons or entities who are already Purchasers under this Agreement.
<PAGE>
(ii) Amendments. The Company and the Additional Purchasers
----------
purchasing Series F Stock at each Additional Closing will execute counterpart
signature pages to this Agreement, the Rights Agreement (as defined in Section
2.2(d)), and the Co-Sale Agreement (as defined in Section 2.2(d)), and such
Additional Purchasers will, upon delivery to the Company of such signature
pages, become parties to, and be bound by, this Agreement, the Rights Agreement
and the Co-Sale Agreement, each to the same extent as if they had been
Purchasers at the Initial Closing. Immediately after each Additional Closing,
Exhibit A to this Agreement will be amended to list the Additional Purchasers
- ---------
purchasing shares of Series F Stock hereunder at each such Additional Closing.
(iii) Status of New Purchasers. Upon the completion of each
------------------------
Additional Closing as provided in this Section 2, each Additional Purchaser will
be deemed to be an "Purchaser" for all purposes of this Agreement and an
"Investor" for all purposes under the Rights Agreement and Co-Sale Agreement.
2. Representations and Warranties of the Company. The Company hereby
---------------------------------------------
represents and warrants to each Purchaser that, except as set forth on a
Schedule of Exceptions attached hereto as Exhibit C, which exceptions shall be
---------
deemed to be representations and warranties as if made hereunder:
2.1 Organization, Good Standing and Qualification. The Company is a
---------------------------------------------
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has all requisite corporate power and authority to
carry on its business as now conducted and as proposed to be conducted. The
Company is duly qualified to transact business and is in good standing in each
jurisdiction in which the failure so to qualify would have a material adverse
effect on its business or properties.
2.2 Capitalization. The authorized capital of the Company consists,
--------------
or will consist, immediately prior to the Closing, of:
(a) 10,510,000 shares of Preferred Stock, of which 3,200,000
shares have been designated Series F Preferred Stock, none of which are issued
and outstanding immediately prior to the Closing, 2,300,000 shares have been
designated Series E Preferred Stock, 1,675,811 of which are issued and
outstanding, 602,802 shares have been designated Series D Preferred Stock,
598,802 of which are issued and outstanding, 2,550,860 shares have been
designated Series C Preferred Stock, 2,500,000 of which are issued and
outstanding, 705,000 shares have been designated Series B Preferred Stock, all
of which are issued and outstanding, and 1,147,000 Shares of Series A Preferred
Stock, all of which are issued and outstanding. In addition, there are
outstanding warrants to purchase an aggregate of 50,860 shares of Series C
Preferred Stock and 434,473 shares of Series E Preferred Stock. The rights,
privileges and preferences of the Preferred Stock are as stated in the Restated
Certificate.
(b) 21,120,000 shares of Common Stock, 5,349,502 shares of which
are issued and outstanding immediately prior to the Closing. All of the
outstanding shares of Common Stock have been duly authorized, fully paid and are
nonassessable and issued in
-2-
<PAGE>
compliance with all applicable federal and state securities laws. The Company
has reserved 10,510,000 shares of Common Stock for issuance upon conversion of
the Preferred Stock.
(c) There are outstanding options to purchase 2,142,024 Shares of
Common Stock issued pursuant to subsequently terminated stock plans (the "Old
Plans"). Under a new 1998 Stock Option Plan (the "New Plan" and, collectively
with the Old Plans, the "Plans"), the Company has reserved 2,700,000 shares of
Common Stock for issuance to officers, directors, employees and consultants of
the Company. Of such reserved shares of Common Stock under the New Plan, the
Company has granted options to purchase 1,334,570 shares of Common Stock and
1,365,430 shares of such reserved shares of Common Stock remain available for
issuance to officers, directors, employees and consultants. The Company has
granted options to acquire 70,000 shares of Common Stock and warrants to acquire
349,310 shares of Common Stock outside the Plans.
(d) Except for outstanding options and warrants as set forth in
the preceding paragraphs of this Section 2.2, there are no outstanding options,
warrants, rights (including conversion or preemptive rights and rights of first
refusal or similar rights) or agreements, orally or in writing, for the purchase
or acquisition from the Company of any shares of its capital stock, as defined
below (other than as set forth in the First Amended and Restated Rights
Agreement in the form attached hereto as Exhibit D the ("Rights Agreement")).
--------- ----------------
(e) All issued and outstanding shares of Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock, Series E Preferred Stock and Common Stock have been duly authorized and
validly issued and are fully paid and nonassessable and free of any preemptive
or similar rights contained in the Certificate of Incorporation or bylaws of the
Company. All outstanding shares of the Company's Common Stock and the Stock
issued or to be issued under the Agreement have been or will be issued in
compliance with applicable state and federal securities laws. The Common Stock
issuable upon conversion of the Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock, Series D Preferred Stock, Series E Preferred
Stock and Series F Preferred Stock has been duly and validly reserved and, when
issued in accordance with the Company's Certificate of Incorporation, will be
validly issued, fully paid and nonassessable.
2.3 Subsidiaries. The Company does not currently own or control,
------------
directly or indirectly, any interest in any other corporation, association, or
other business entity.
2.4 Authorization. All corporate action on the part of the Company,
-------------
its officers, directors and stockholders necessary for the authorization,
execution and delivery of this Agreement, the Rights Agreement, the Amended and
First Amended and Restated Co-Sale Agreement in the form attached hereto as
Exhibit E (the "Co-Sale Agreement", and collectively with this Agreement and the
- --------- -----------------
Rights Agreement, the "Agreements") by the Company, the performance of all
----------
obligations of the Company hereunder and thereunder and the authorization,
issuance and delivery of the Stock and the Common Stock issuable upon conversion
of the Stock (together, the "Securities") has been taken or will be taken prior
----------
to the Closing, and the Agreements, when executed and delivered by the Company,
shall constitute valid and legally
-3-
<PAGE>
binding obligations of the Company, enforceable against the Company in
accordance with their terms except (i) as limited by applicable bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance, and other laws of
general application affecting enforcement of creditors' rights generally, as
limited by laws relating to the availability of specific performance, injunctive
relief, or other equitable remedies, or (ii) to the extent the indemnification
provisions contained in the Rights Agreement may be limited by applicable
federal or state securities laws.
2.5 Valid Issuance of Securities. The Stock that is being issued to
----------------------------
the Purchasers hereunder, when issued, sold and delivered in accordance with the
terms hereof for the consideration expressed herein, will be duly and validly
issued, fully paid and nonassessable and free of restrictions on transfer other
than restrictions on transfer under this Agreement, the Rights Agreement and
applicable state and federal securities laws. Based in part upon the
representations of the Purchasers in this Agreement and subject to the
provisions of Section 2.6 below, the Stock will be issued in compliance with all
applicable federal and state securities laws. The Common Stock issuable upon
conversion of the Stock has been duly and validly reserved for issuance, and
upon issuance in accordance with the terms of the Restated Certificate, shall be
duly and validly issued, fully paid and nonassessable and free of restrictions
on transfer other than restrictions on transfer under this Agreement, the Rights
Agreement and applicable federal and state securities laws and will be issued in
compliance with all applicable federal and state securities laws.
2.6 Governmental Consents. No consent, approval, order or
---------------------
authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state or local governmental authority on the part of
the Company is required in connection with the consummation of the transactions
contemplated by this Agreement, except for filings pursuant to Section 25102(f)
of the California Corporate Securities Law of 1968, as amended, and the rules
promulgated thereunder, other applicable state securities laws and Regulation D
of the Securities Act of 1933, as amended (the "Securities Act").
--------------
2.7 Litigation. There is no action, suit, proceeding or
----------
investigation pending or, to the Company's knowledge, currently threatened
against the Company or any of its subsidiaries that questions the validity of
the Agreements or the right of the Company to enter into them, or to consummate
the transactions contemplated hereby or thereby, or that might result, either
individually or in the aggregate, in any material adverse changes in the assets,
condition or affairs of the Company, financially or otherwise, or any change in
the current equity ownership of the Company, nor is the Company aware that there
is any basis for the foregoing. Neither the Company nor any of its subsidiaries
is a party or subject to the provisions of any order, writ, injunction, judgment
or decree of any court or government agency or instrumentality. There is no
action, suit, proceeding or investigation by the Company or any of its
subsidiaries currently pending or which the Company or any of its subsidiaries
intends to initiate.
2.8 Patents and Trademarks. The Company owns or possesses sufficient
----------------------
legal rights to all patents, trademarks, service marks, tradenames, copyrights,
trade secrets, licenses, information and proprietary rights and processes
necessary for its business as now conducted with no known infringement of or
conflict with the rights of others. The Company
-4-
<PAGE>
has not received any communications alleging that the Company has violated or,
by conducting its business as proposed, would violate any of the patents,
trademarks, service marks, tradenames, copyrights, trade secrets or other
proprietary rights or processes of any other person or entity. The Company is
not aware that any of its employees is obligated under any contract (including
licenses, covenants or commitments of any nature) or other agreement, or subject
to any judgment, decree or order of any court or administrative agency, that
would interfere with the use of such employee's best efforts to promote the
interest of the Company or that would conflict with the Company's business as
proposed to be conducted. Neither the execution or delivery of this Agreement,
nor the carrying on of the Company's business by the employees of the Company,
nor the conduct of the Company's business as proposed, will, to the best of the
Company's knowledge, conflict with or result in a breach of the terms,
conditions, or provisions of, or constitute a default under, any contract,
covenant or instrument under which any such employee is now obligated. The
Company does not believe it is or will be necessary to use any inventions of any
of its employees (or persons it currently intends to hire) made prior to their
employment by the Company, which have not been fully assigned to the Company.
2.9 Compliance with Other Instruments.
---------------------------------
(a) The Company is not in violation or default of any provisions
of its Restated Certificate or Bylaws or of any instrument, judgment, order,
writ, decree or contract to which it is a party or by which it is bound or, of
any provision of federal or state statute, rule or regulation applicable to the
Company. The execution, delivery and performance of the Agreements and the
consummation of the transactions contemplated hereby or thereby will not result
in any such violation or be in conflict with or constitute, with or without the
passage of time and giving of notice, either a default under any such provision,
instrument, judgment, order, writ, decree or contract or an event which results
in the creation of any lien, charge or encumbrance upon any assets of the
Company.
(b) The Company has avoided every condition, and has not
performed any act, the occurrence of which would result in the Company's loss of
any right granted under any license, distribution agreement or other agreement.
2.10 Agreements; Action.
------------------
(a) There are no agreements, understandings or proposed
transactions between the Company and any of its officers, directors, affiliates,
or any affiliate thereof.
(b) Except for agreements explicitly contemplated by the
Agreements, there are no agreements, understandings, instruments, contracts or
proposed transactions to which the Company or any of its subsidiaries is a party
or by which it is bound that involve (i) obligations (contingent or otherwise)
of, or payments to, the Company or any of its subsidiaries in excess of,
$50,000, (ii) the license of any patent, copyright, trade secret or other
proprietary right to or from the Company or any of its subsidiaries, or (iii)
the grant of rights to manufacture, produce, assemble, license, market, or sell
its products to any other person or affect the Company's exclusive right to
develop, manufacture, assemble, distribute, market or sell its products.
-5-
<PAGE>
(c) Neither the Company nor any of its subsidiaries has (i)
declared or paid any dividends, or authorized or made any distribution upon or
with respect to any class or series of its capital stock, (ii) incurred any
indebtedness for money borrowed or incurred any other liabilities individually
in excess of $50,000 or in excess of $100,000 in the aggregate, (iii) made any
loans or advances to any person, other than ordinary advances for travel
expenses, or (iv) sold, exchanged or otherwise disposed of any of its assets or
rights, other than the sale of its products in the ordinary course of business.
(d) The Company is not a party to and is not bound by any
contract, agreement or instrument, or subject to any restriction under its
Restated Certificate or Bylaws, that adversely affects its business as now
conducted or as proposed to be conducted, its properties or its financial
condition.
(e) The Company has not engaged in the past three months in any
discussion (i) with any representative of any corporation or corporations
regarding the merger of the Company with or into any such corporation or
corporations, (ii) with any representative of any corporation, partnership,
association or other business entity or any individual regarding the sale,
conveyance or disposition of all or substantially all of the assets of the
Company or a transaction or series of related transactions in which more than
50% of the voting power of the Company would be disposed of, or (iii) regarding
any other form of liquidation, dissolution or winding up of the Company.
2.11 Disclosure. No representation or warranty of the Company
----------
contained in this Agreement and the exhibits attached hereto or any certificate
furnished or to be furnished to Purchasers at the Closing, when read together,
contains any untrue statement of a material fact or omits to state a material
fact necessary in order to make the statements contained herein or therein not
misleading in light of the circumstances under which they were made.
2.12 No Conflict of Interest. The Company is not indebted, directly
-----------------------
or indirectly, to any of its officers or directors or to their respective
spouses or children, in any amount whatsoever other than in connection with
expenses or advances of expenses incurred in the ordinary course of business or
relocation expenses of employees. To the best of the Company's knowledge, none
of the Company's officers or directors, or any members of their immediate
families, are, directly or indirectly, indebted to the Company (other than in
connection with purchases of the Company's stock) or have any direct or indirect
ownership interest in any firm or corporation with which the Company is
affiliated or with which the Company has a business relationship, or any firm or
corporation which competes with the Company except that officers, directors
and/or stockholders of the Company may own stock in (but not exceeding two
percent of the outstanding capital stock of) any publicly traded company that
may compete with the Company. To the best of the Company's knowledge, none of
the Company's officers or directors or any members of their immediate families
are, directly or indirectly, interested in any material contract with the
Company. The Company is not a guarantor or indemnitor of any indebtedness of
any other person, firm or corporation.
-6-
<PAGE>
2.13 Rights of Registration and Voting Rights. Except as contemplated
----------------------------------------
in the Rights Agreement, the Company has not granted or agreed to grant any
registration rights, including piggyback rights, to any person or entity. To
the Company's knowledge, no stockholders of the Company have entered into any
agreements with respect to the voting of capital shares of the Company.
2.14 Private Placement. Subject in part to the truth and accuracy of
-----------------
the Purchasers' representations set forth in this Agreement, the offer, sale and
issuance of the Securities as contemplated by this Agreement are exempt from the
registration requirements of the Securities Act, and neither the Company nor any
authorized agent acting on its behalf will take any action hereafter that would
cause the loss of such exemption.
2.15 Title to Property and Assets. The Company owns its property and
----------------------------
assets free and clear of all mortgages, liens, loans and encumbrances, except
such encumbrances and liens which arise in the ordinary course of business and
do not materially impair the Company's ownership or use of such property or
assets. With respect to the property and assets it leases, the Company is in
compliance with such leases and, to the best of its knowledge, holds a valid
leasehold interest free of any liens, claims or encumbrances.
2.16 Financial Statements. The Company has made available to each
--------------------
Purchaser its unaudited income statement for the period commencing January 1,
1997 and ending December 31, 1997, its unaudited income statement for the period
commencing January 1, 1998 and ending June 30, 1998, and its unaudited balance
sheet as of June 30, 1998 (collectively, the "Financial Statements"). The
--------------------
Financial Statements have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis throughout the periods
indicated, except that the unaudited Financial Statements do not contain any
footnotes required by generally accepted accounting principles. The Financial
Statements fairly present the financial condition and operating results of the
Company as of the dates, and for the periods, indicated therein. Except as set
forth in the Financial Statements, the Company has no material liabilities,
contingent or otherwise, other than (i) liabilities incurred in the ordinary
course of business subsequent to June 30, 1998 and (ii) obligations under
contracts and commitments incurred in the ordinary course of business and not
required under generally accepted accounting principles to be reflected in the
Financial Statements, which, in both cases, individually or in the aggregate are
not material to the financial condition or operating results of the Company.
Except as disclosed in the Financial Statements, the Company is not a guarantor
or indemnity of any indebtedness of any other person, firm or corporation. The
Company maintains and will continue to maintain a standard system of accounting
established and administered in accordance with generally accepted accounting
principles.
2.17 Changes. Since June 30, 1998, there has not been:
-------
(a) any change in the assets, liabilities, financial condition or
operating results of the Company from that reflected in the Financial
Statements, except changes in the ordinary course of business that have not
been, in the aggregate, materially adverse;
-7-
<PAGE>
(b) any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the business, properties,
prospects, or financial condition of the Company (as such business is presently
conducted and as it is proposed to be conducted);
(c) any waiver or compromise by the Company of a valuable right
or of a material debt owed to it;
(d) any satisfaction or discharge of any lien, claim, or
encumbrance or payment of any obligation by the Company, except in the ordinary
course of business and that is not material to the business, properties,
prospects or financial condition of the Company (as such business is presently
conducted and as it is proposed to be conducted);
(e) any material change to a material contract or agreement by
which the Company or any of its assets is bound or subject;
(f) any material change in any compensation arrangement or
agreement with any employee, officer, director or stockholder;
(g) any sale, assignment or transfer of any patents, trademarks,
copyrights, trade secrets or other intangible assets;
(h) any resignation or termination of employment of any officer
or key employee of the Company; and the Company, to the best of its knowledge,
does not know of any impending resignation or termination of employment of any
such officer or key employee;
(i) receipt of notice that there has been a loss of, or material
order cancellation by, any major customer of the Company;
(j) any mortgage, pledge, transfer of a security interest in or
lien created by the Company with respect to any of its material properties or
assets, except liens for taxes not yet due or payable;
(k) any loans or guarantees made by the Company to or for the
benefit of its employees, officers or directors, or any members of their
immediate families, other than travel advances and other advances made in the
ordinary course of its business;
(l) any declaration, setting aside or payment or other
distribution in respect to any of the Company's capital stock, or any direct or
indirect redemption, purchase, or other acquisition of any of such stock by the
Company;
(m) to the best of the Company's knowledge, any other event or
condition of any character that might materially and adversely affect the
business, properties, prospects or financial condition of the Company (as such
business is presently conducted and as it is proposed to be conducted); or
-8-
<PAGE>
(n) any arrangement or commitment by the Company to do any of the
things described in this Section 2.17.
2.18 Employee Benefit Plans. The Company does not have any Employee
----------------------
Benefit Plan as defined in the Employee Retirement Income Security Act of 1974.
2.19 Tax Returns and Payments. The Company has filed all tax returns
------------------------
and reports as required by law. These returns and reports are true and correct
in all material respects. The Company has paid all taxes and other assessments
due.
2.20 Insurance. The Company has in full force and effect fire and
---------
casualty insurance policies, with extended coverage, sufficient in amount
(subject to reasonable deductibles) to allow it to replace any of its properties
that might be damaged or destroyed.
2.21 Labor Agreements and Actions. The Company is not bound by or
----------------------------
subject to (and none of its assets or properties is bound by or subject to) any
written or oral, express or implied, contract, commitment or arrangement with
any labor union, and no labor union has requested or, to the knowledge of the
Company, has sought to represent any of the employees, representatives or agents
of the Company. There is no strike or other labor dispute involving the Company
pending, or to the knowledge of the Company threatened, which could have a
material adverse effect on the assets, properties, financial condition,
operating results, or business of the Company (as such business is presently
conducted and as it is proposed to be conducted), nor is the Company aware of
any labor organization activity involving its employees. The employment of each
officer and employee of the Company is terminable at the will of the Company.
The Company has complied in all material respects with all applicable state and
federal equal employment opportunity laws and with other laws related to
employment.
2.22 Proprietary Information and Inventions Agreements. Each
-------------------------------------------------
employee, consultant and officer of the Company has executed an agreement with
the Company regarding confidentiality and proprietary information substantially
in the form or forms delivered to the counsel for the Purchasers. The Company,
after reasonable investigation, is not aware that any of its employees or
consultants is in violation thereof, and the Company will use its best efforts
to prevent any such violation. All consultants to or vendors of the Company
with access to confidential information of the Company are parties to a written
agreement substantially in the form or forms provided to counsel for the
Purchasers under which, among other things, each such consultant or vendor is
obligated to maintain the confidentiality of confidential information of the
Company. The Company, after reasonable investigation, is not aware that any of
its consultants or vendors are in violation thereof, and the Company will use
its best efforts to prevent any such violation.
2.23 Permits. The Company and each of its subsidiaries has all
-------
franchises, permits, licenses and any similar authority necessary for the
conduct of its business as now being conducted by it, the lack of which could
materially and adversely affect the business, properties, prospects, or
financial condition of the Company and believes that it can obtain, without
undue burden or expense, any similar authority for the conduct of its business
as planned to be
-9-
<PAGE>
conducted. The Company is not in default in any material respect under any of
such franchises, permits, licenses or other similar authority.
2.24 Corporate Documents. The Restated Certificate and Bylaws of the
-------------------
Company are in the form provided to counsel for the Purchasers. The copy of the
minute books of the Company provided to the Purchasers' counsel contains minutes
of all meetings of directors and stockholders and all actions by written consent
without a meeting by the directors and stockholders since the date of
incorporation and reflects all actions by the directors (and any committee of
directors) and stockholders with respect to all transactions referred to in such
minutes accurately in all material respects.
2.25 Qualified Small Business Stock. The Company represents and
------------------------------
warrants to the Purchasers that, to the best of its knowledge, the Stock should
qualify as "Qualified Small Business Stock" as defined in Section 1202(c) of the
------------------------------
Internal Revenue Code of 1986, as amended as of the date hereof.
2.26 Intellectual Property and Products. The Company represents and
----------------------------------
warrants to the Purchasers that, at such time as Dynasoft Publishing Corporation
("Dynasoft") transferred pursuant to the Stock Purchase Agreement (the
--------
"Agreement"), dated October 1996, those assets described on Exhibit A to the
----------
Agreement (the "Assets"), Dynasoft owned all right, title and interest in, or
------
had the right to use, all worldwide industrial and intellectual property rights,
including, without limitation, patent applications, patents, patent rights,
trademark applications, trademarks, service marks, trade names, service mark
applications, trade dress, moral rights, copyright applications, copyrights,
licenses, inventions, trade secrets, know-how, customer lists, proprietary
processes and formulae, software source and object code, algorithms,
architecture, structure, display screens, layouts, development tools, all
documentation and media constituting, describing or relating to the above,
without limitation, manuals, memoranda and records and other intellectual
property and proprietary rights used in or reasonably necessary to the conduct
of its business as presently conducted and the business of the development,
production, marketing, licensing and sale of commercial products using such
intellectual property and proprietary rights ("Dynasoft Intellectual Property").
------------------------------
The Company represents and warrants to the Purchasers that all Dynasoft
Intellectual Property developed by Karl Hirsch and Dynasoft's employees was
developed by such persons in the course of Dynasoft's business and not by them
in their individual capacity and such individuals do not have any interest in or
rights to any Dynasoft Intellectual Property. The Company represents and
warrants to the Purchasers that all Dynasoft Intellectual Property developed by
Hirsch prior to the incorporation of Dynasoft was properly assigned by Hirsch at
the time of, or following, the incorporation and neither Hirsch nor any other
party has any interest in or rights to any Dynasoft Intellectual Property. The
Company represents and warrants to the Purchasers that during the period in
which Hirsch was developing the Dynasoft Intellectual Property, he was either
not employed by any third party or involved in any consulting relationship with
any third party or, if such an employment or consulting relationship did exist,
the nature of Hirsch's employment was not related in any way to the Dynasoft
Intellectual Property. The Company represents and warrants to the
-10-
<PAGE>
Purchasers that Hirsch and Dynasoft were not aware, and are not presently aware,
of any infringement of any Dynasoft Intellectual Property by any third party.
The Company represents and warrants to the Purchasers that neither Hirsch nor
Dynasoft have received any written or oral claim or notice of infringement or
potential infringement of the intellectual property of any other person which
could be expected to have a material adverse effect on Dynasoft's or Preview's
business.
3. Representations and Warranties of the Purchasers. Each Purchaser
------------------------------------------------
hereby severally represents and warrants to the Company that:
3.1 Authorization. The Agreements, when executed and delivered by
-------------
the Purchaser, will constitute valid and legally binding obligations of the
Purchaser, enforceable in accordance with their terms, except (a) as limited by
applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance, and any other laws of general application affecting enforcement of
creditors' rights generally, and as limited by laws relating to the availability
of a specific performance, injunctive relief, or other equitable remedies, or
(b) to the extent the indemnification provisions contained in the Rights
Agreement may be limited by applicable federal or state securities laws.
3.2 Purchase Entirely for Own Account. This Agreement is made with
---------------------------------
the Purchaser in reliance upon the Purchaser's representation to the Company,
which by the Purchaser's execution of this Agreement, the Purchaser hereby
confirms, that the Securities to be acquired by the Purchaser will be acquired
for investment for the Purchaser's own account, not as a nominee or agent, and
not with a view to the resale or distribution of any part thereof, and that the
Purchaser has no present intention of selling, granting any participation in, or
otherwise distributing the same. By executing this Agreement, the Purchaser
further represents that the Purchaser does not presently have any contract,
undertaking, agreement or arrangement with any person to sell, transfer or grant
participations to such person or to any third person, with respect to any of the
Securities. The Purchaser represents that it has full power and authority to
enter into this Agreement. The Purchaser has not been formed for the specific
purpose of acquiring the Securities.
3.3 Disclosure of Information. The Purchaser has had an opportunity
-------------------------
to discuss the Company's business, management, financial affairs and the terms
and conditions of the offering of the Stock with the Company's management and
has had an opportunity to review the Company's facilities. The Purchaser
understands that such discussions, as well as the written information issued by
the Company, were intended to describe the aspects of the Company's business
which it believes to be material.
3.4 Restricted Securities. The Purchaser understands that the
---------------------
Securities have not been, and will not be, registered under the Securities Act,
by reason of a specific exemption from the registration provisions of the
Securities Act which depends upon, among other things, the bona fide nature of
the investment intent and the accuracy of the Purchaser's representations as
expressed herein. The Purchaser understands that the Securities are "restricted
securities" under applicable U.S. federal and state securities laws and that,
pursuant to these laws, the Purchaser must hold the Securities indefinitely
unless they are registered with the Securities and Exchange Commission and
qualified by state authorities, or an exemption from such registration and
qualification requirements is available. The Purchaser acknowledges that the
Company has
-11-
<PAGE>
no obligation to register or qualify the Securities for resale except as set
forth in the Rights Agreement. The Purchaser further acknowledges that if an
exemption from registration or qualification is available, it may be conditioned
on various requirements including, but not limited to, the time and manner of
sale, the holding period for the Securities, and on requirements relating to the
Company which are outside of the Purchaser's control, and which the Company is
under no obligation and may not be able to satisfy.
3.5 No Public Market. The Purchaser understands that no public
----------------
market now exists for any of the securities issued by the Company, and that the
Company has made no assurances that a public market will ever exist for the
Securities.
3.6 Legends. The Purchaser understands that the Securities, and any
-------
securities issued in respect of or exchange for the Securities, may bear one or
all of the following legends:
(a) "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AND HAVE BEEN ACQUIRED FOR
INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR
DISTRIBUTION THEREOF. NO SUCH SALE OR DISPOSITION MAY BE EFFECTED WITHOUT
AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF
COUNSEL IN A FORM SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT
REQUIRED UNDER THE SECURITIES ACT OF 1933."
(b) "THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE
TRANSFERRED ONLY IN ACCORDANCE WITH THE TERMS OF AN AGREEMENT BETWEEN THE
COMPANY AND THE STOCKHOLDER, A COPY OF WHICH IS ON FILE WITH THE SECRETARY
OF THE COMPANY."
(c) Any legend required by the Blue Sky laws of any state to the
extent such laws are applicable to the shares represented by the certificate so
legended.
3.7 Accredited Investor. The Purchaser is an accredited investor as
-------------------
defined in Rule 501(a) of Regulation D promulgated under the Securities Act.
3.8 Foreign Investors. If the Purchaser is not a United States
-----------------
person (as defined by Section 7701(a)(30) of the Internal Revenue Code of 1986,
as amended), such Purchaser hereby represents that it has satisfied itself as to
the full observance of the laws of its jurisdiction in connection with any
invitation to subscribe for the Stock or any use of this Agreement, including
(i) the legal requirements within its jurisdiction for the purchase of the
Stock, (ii) any foreign exchange restrictions applicable to such purchase, (iii)
any governmental or other consents that may need to be obtained, and (iv) the
income tax and other tax consequences, if any, that may be relevant to the
purchase, holding, redemption, sale, or transfer of the Stock. Such Purchaser's
subscription and payment for and continued beneficial ownership
-12-
<PAGE>
of the Stock, will not violate any applicable securities or other laws of the
Purchaser's jurisdiction.
4. Conditions of the Purchasers' Obligations at Closing. The obligations
----------------------------------------------------
of each Purchaser to the Company under this Agreement are subject to the
fulfillment, on or before the Closing, of each of the following conditions,
unless otherwise waived:
4.1 Representations and Warranties. The representations and
------------------------------
warranties of the Company contained in Section 2 shall be true and correct in
all material respects on and as of the Closing with the same effect as though
such representations and warranties had been made on and as of the date of the
Closing.
4.2 Performance. The Company shall have performed and complied with
-----------
all covenants, agreements, obligations and conditions contained in this
Agreement that are required to be performed or complied with by it on or before
the Closing.
4.3 Compliance Certificate. The Chief Executive Officer of the
----------------------
Company shall deliver to the Purchasers at the Closing a certificate certifying
that the conditions specified in Sections 4.1 and 4.2 have been fulfilled.
4.4 Qualifications. All authorizations, approvals or permits, if
--------------
any, of any governmental authority or regulatory body of the United States or of
any state that are required in connection with the lawful issuance and sale of
the Stock pursuant to this Agreement shall be obtained and effective as of the
Closing.
4.5 Opinion of Company Counsel. The Purchasers shall have received
--------------------------
from Venture Law Group, counsel for the Company, an opinion, dated as of the
Closing, in substantially the form of Exhibit F.
---------
4.6 Board of Directors. As of the Closing, the Board of Directors of
------------------
the Company shall be comprised of Bruce Bourbon, Charles Jennings, Gerald
Langeler, Donald L. Lucas, Vincent Pluvinage, R. Douglas Rivers, and Heidi
Roizen.
4.7 Rights Agreement. The Company and each Purchaser shall have
----------------
executed and delivered the Rights Agreement in substantially the form attached
as Exhibit D.
---------
4.8 Co-Sale Agreement. The Company, each Purchaser, Karl Hirsch,
-----------------
Vincent Pluvinage, Charles Jennings and Frank Tycksen shall have executed and
delivered the Co-Sale Agreement in substantially the form attached as Exhibit E.
---------
4.9 Restated Certificate. The Company shall have filed the Restated
--------------------
Certificate with the Secretary of State of Delaware on or prior to the Closing,
which shall continue to be in full force and effect as of the Closing.
-13-
<PAGE>
5. Conditions of the Company's Obligations at Closing. The obligations
--------------------------------------------------
of the Company to each Purchaser under this Agreement are subject to the
fulfillment, on or before the Closing, of each of the following conditions,
unless otherwise waived:
5.1 Representations and Warranties. The representations and
------------------------------
warranties of each Purchaser contained in Section 3 shall be true and correct in
all material respects on and as of the Closing with the same effect as though
such representations and warranties had been made on and as of the Closing.
5.2 Performance. All covenants, agreements and conditions contained
-----------
in this Agreement to be performed by the Purchasers on or prior to the Closing
shall have been performed or complied with in all material respects.
5.3 Qualifications. All authorizations, approvals or permits, if
--------------
any, of any governmental authority or regulatory body of the United States or of
any state that are required in connection with the lawful issuance and sale of
the Stock pursuant to this Agreement shall be obtained and effective as of the
Closing.
6. Affirmative Covenants of the Company.
------------------------------------
The Company hereby covenants and agrees as follows:
6.1 Financial Information. The Company will mail the following
---------------------
reports to each Purchaser for so long as such Purchaser is a holder of any Stock
purchased by such person pursuant to this Agreement (or Common Stock issued upon
conversion of the Stock):
(a) As soon as practicable after the end of each fiscal year, and
in any event within 90 days thereafter, consolidated balance sheets of the
Company and its subsidiaries, if any, as of the end of such fiscal year, and
consolidated statements of income and consolidated statements of stockholders'
equity and cash flows of the Company and its subsidiaries, if any, for such
year, prepared in accordance with generally accepted accounting principles and
setting forth in each case in comparative form the figures for the previous
fiscal year, all in reasonable detail and audited by the Company's independent
public accountants.
(b) As soon as practicable after the end of each fiscal quarter,
and in any event within 45 days thereafter, unaudited consolidated balance
sheets of the Company and its subsidiaries, if any, as of the end of such fiscal
quarter, and unaudited consolidated statements of income and consolidated
statements of stockholders' equity and cash flows of the Company and its
subsidiaries, if any, for such quarter, prepared in accordance with generally
accepted accounting principles and setting forth in each case in comparative
form the figures for the comparable quarter in the previous fiscal year.
(c) Contemporaneously with delivery to holders of Common Stock, a
copy of each report, proxy statement or other document of the Company delivered
to holders of the Company's Common Stock.
-14-
<PAGE>
6.2 Additional Information. As long as a Purchaser (together with
----------------------
any affiliate of such Purchaser) holds not less than 200,000 shares of Stock (or
an equivalent number of shares consisting of the Stock or Common Stock issued
upon conversion of the Stock, or a combination thereof), as adjusted for
recapitalizations, stock splits, stock dividends and the like, the Company will
mail the following reports to such Purchaser:
(a) As soon as practicable after the end of each fiscal month,
and in any event within 30 days thereafter, an unaudited consolidated balance
sheet of the Company as of the end of such month, and unaudited consolidated
statements of income and unaudited consolidated statements of cash flow for such
month and for the current fiscal year to date (collectively, the "Financial
---------
Statements"). Such Financial Statements shall be prepared in accordance with
- ----------
generally accepted accounting principles consistently applied (other than
accompanying notes and subject to year-end adjustments), all in reasonable
detail and all shall include both actual and forecast financial information and
all shall be compared against the operating plan of the Company.
(b) As soon as practicable, but at least 30 days prior to the end
of each fiscal year, a budget and operating plan for the next fiscal year,
including balance sheets and sources and applications of funds statements and,
as soon as prepared, any other budgets, revised budgets, operating plan or
revised operating plan prepared by the Company.
(c) The Company will permit such Purchaser and any of its
partners, officers or employees, or any outside representatives designated by
such Purchaser and reasonably satisfactory to the Company, to visit and inspect
at such Purchaser's expense any of the properties of the Company or its
subsidiaries (if any), including their books and records, and to discuss their
affairs, finances, and accounts with their officers, lawyers and accountants,
all to such reasonable extent and at such reasonable times and intervals as such
Purchaser may reasonably request; provided, however, that the Company shall not
be obligated to provide any information that it reasonably considers to be a
trade secret or to contain confidential information.
6.3 Transfer of Information Rights. The information rights set forth
------------------------------
in Sections 6.1 and 6.2 may be transferred in any nonpublic transfer of the
Stock (or shares of Common Stock issued upon conversion of the Stock), provided
that the Company is given written notice of such transfer, and provided further
that the right to receive the information set forth in Section 6.2 may only be
transferred to a holder of, or affiliated holders who in the aggregate hold, at
least 200,000 shares of Stock (or an equivalent number of shares consisting of
the Stock or Common Stock issued upon conversion of the Stock, as appropriately
adjusted for stock splits and the like). In the event that the Company
reasonably determines that provision of information to a transferee pursuant to
this Section 6.3 would materially adversely affect its proprietary position,
such information may be edited in the manner necessary to avoid such effect.
6.4 Termination of Covenants. The covenants set forth in Sections
------------------------
6.1, 6.2 and 6.3 shall terminate on and be of no further force or effect upon
the earlier of (i) the
-15-
<PAGE>
consummation of the Company's sale of its Common Stock in an underwritten public
offering pursuant to an effective registration statement filed under the
Securities Act, or (ii) the registration by the Company of a class of its equity
securities under Section 12(b) or 12(g) of the Exchange Act.
6.5 Directors' Meetings. The Board of Directors shall hold meetings
-------------------
on a monthly basis until the Company achieves profitability or the Board
otherwise agrees.
7. Miscellaneous.
-------------
7.1 Survival of Warranties. Unless otherwise set forth in this
----------------------
Agreement, the warranties, representations and covenants of the Company and the
Purchasers contained in or made pursuant to this Agreement shall survive the
execution and delivery of this Agreement.
7.2 Transfer; Successors and Assigns. 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. 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.
7.3 Governing Law. This Agreement and all acts and transactions
-------------
pursuant hereto and the rights and obligations of the parties hereto shall be
governed, construed and interpreted in accordance with the laws of the State of
California, without giving effect to principles of conflicts of law.
7.4 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original and all of which
together shall constitute one and the same instrument.
7.5 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.
7.6 Notices. Any notice required or permitted by this Agreement
-------
shall be in writing and shall be deemed sufficient upon delivery, when delivered
personally or by overnight courier or sent by telegram or fax, or 48 hours after
being deposited in the U.S. mail, as certified or registered mail, with postage
prepaid, addressed to the party to be notified at such party's address as set
forth below or on Exhibit A hereto, or as subsequently modified by written
---------
notice, and, if to the Company, with a copy to Venture Law Group, A Professional
Corporation 2800 Sand Hill Road, Menlo Park, CA 94025, Attn: Elias J. Blawie.
7.7 Finder's Fee. Each party represents that it neither is nor will
------------
be obligated for any finder's fee or commission in connection with this
transaction. Each Purchaser agrees to indemnify and to hold harmless the
Company from any liability for any commission or compensation in the nature of a
finder's fee (and the costs and expenses of defending against
-16-
<PAGE>
such liability or asserted liability) for which each Purchaser or any of its
officers, employees, or representatives is responsible. The Company agrees to
indemnify and hold harmless each Purchaser from any liability for any commission
or compensation in the nature of a finder's fee (and the costs and expenses of
defending against such liability or asserted liability) for which the Company or
any of its officers, employees or representatives is responsible.
7.8 Attorney's Fees. If any action at law or in equity (including
---------------
arbitration) is necessary to enforce or interpret the terms of any of the
Agreements, the prevailing party shall be entitled to reasonable attorney's
fees, costs and necessary disbursements in addition to any other relief to which
such party may be entitled.
7.9 Amendments and Waivers. Any term of this Agreement may be
----------------------
amended with the written consent of the Company and the holders of at least two-
thirds of the Common Stock issued or issuable upon conversion of the Stock. Any
amendment or waiver effected in accordance with this Section 7.9 shall be
binding upon the Purchasers and each transferee of the Stock (or the Common
Stock issuable upon conversion thereof), each future holder of all such
securities, and the Company.
7.10 Severability. If one or more provisions of this Agreement are
------------
held to be unenforceable under applicable law, the parties agree to renegotiate
such provision in good faith. In the event that the parties cannot reach a
mutually agreeable and enforceable replacement for such provision, then (a) such
provision shall be excluded from this Agreement, (b) the balance of the
Agreement shall be interpreted as if such provision were so excluded and (c) the
balance of the Agreement shall be enforceable in accordance with its terms.
7.11 Delays or Omissions. No delay or omission to exercise any right,
-------------------
power or remedy accruing to any holder of any of the Stock, upon any breach or
default of the Company under this Agreement, shall impair any such right, power
or remedy of such holder nor shall it be construed to be a waiver of any such
breach or default, or an acquiescence therein, or of or in any similar breach or
default thereafter occurring; nor shall any waiver of any single breach or
default be deemed a waiver of any other breach or default theretofore or
thereafter occurring. Any waiver, permit, consent or approval of any kind or
character on the part of any holder of any breach or default under this
Agreement, or any waiver on the part of any holder of any provisions or
conditions of this Agreement, must be in writing and shall be effective only to
the extent specifically set forth in such writing. All remedies, either under
this Agreement or by law or otherwise afforded to any holder, shall be
cumulative and not alternative.
7.12 Entire Agreement. This Agreement, and the documents referred to
----------------
herein constitute the entire agreement between the parties hereto pertaining to
the subject matter hereof, and any and all other written or oral agreements
existing between the parties hereto are expressly canceled.
7.13 Corporate Securities Law. THE SALE OF THE SECURITIES WHICH ARE
------------------------
THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF
CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF THE SECURITIES OR
THE PAYMENT OR RECEIPT OF ANY PART OF
-17-
<PAGE>
THE CONSIDERATION THEREFOR PRIOR TO THE QUALIFICATION IS UNLAWFUL, UNLESS THE
SALE OF SECURITIES IS EXEMPT FROM THE QUALIFICATION BY SECTION 25100, 25102 OR
25105 OF THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS
AGREEMENT ARE EXPRESSLY CONDITIONED UPON THE QUALIFICATION BEING OBTAINED UNLESS
THE SALE IS SO EXEMPT.
7.14 Confidentiality. Each party hereto agrees that, except with the
---------------
prior written permission of the other party, it shall at all times keep
confidential and not divulge, furnish or make accessible to anyone any
confidential information, knowledge or data concerning or relating to the
business or financial affairs of the other parties to which such party has been
or shall become privy by reason of this Agreement, discussions or negotiations
relating to this Agreement, the performance of its obligations hereunder or the
ownership of Stock purchased hereunder. The provisions of this Section 7.15
shall be in addition to, and not in substitution for, the provisions of any
separate nondisclosure agreement executed by the parties hereto with respect to
the transactions contemplated hereby.
7.15 Exculpation Among Purchasers. Each Purchaser acknowledges that
----------------------------
it is not relying upon any person, firm or corporation, other than the Company
and its officers and directors, in making its investment or decision to invest
in the Company. Each Purchaser agrees that no Purchaser nor the respective
controlling persons, officers, directors, partners, agents, or employees of any
Purchaser shall be liable for any action heretofore or hereafter taken or
omitted to be taken by any of them in connection with the Stock.
7.16 Waiver of Conflicts. Each party to this Agreement acknowledges
-------------------
that Venture Law Group, counsel for the Company, has in the past performed and
may continue to perform legal services for certain of the Purchasers in matters
unrelated to the transactions described in this Agreement, including the
representation of such Purchasers in venture capital financings and other
matters. Accordingly, each party to this Agreement hereby (a) acknowledges that
they have had an opportunity to ask for information relevant to this disclosure;
and (b) gives its informed consent to Venture Law Group's representation of
certain of the Purchasers in such unrelated matters and to Venture Law Group's
representation of the Company in connection with this Agreement and the
transactions contemplated hereby.
[Signature Pages Follow]
-18-
<PAGE>
The parties have executed this Series F Preferred Stock Purchase Agreement
as of the date first written above.
COMPANY:
PREVIEW SYSTEMS, INC.
By: /s/ Vincent Pluvinage
--------------------------------------------
Name: Vincent Pluvinage
------------------------------------------
(print)
Title:President and Chief Executive Officer
-----------------------------------------
Address:
1601 S. De Anza Blvd., Suite 100
Cupertino, CA 95014
PURCHASERS:
Each Purchaser listed on Exhibit A
-----------------------------------------------
(Print Name of Purchaser)
By: /s/ Each Purchaser listed on Exhibit A
--------------------------------------------
Name: Each Purchaser listed on Exhibit A
------------------------------------------
(print)
Title:________________________________________
Address:
SIGNATURE PAGE TO PURCHASE AGREEMENT
<PAGE>
EXHIBIT 10.19
PREVIEW SOFTWARE, INC.
SERIES D PREFERRED STOCK PURCHASE AGREEMENT
-------------------------------------------
This Series D Preferred Stock Purchase Agreement (the "Agreement") is
---------
made as of the 21/st/ day of April 1998 by and between Preview Software, Inc., a
California corporation (the "Company"), and the investors listed on Exhibit A
------- ---------
attached hereto (each a "Purchaser" and together the "Purchasers").
--------- ----------
The parties hereby agree as follows:
1. Purchase and Sale of Preferred Stock.
------------------------------------
1.1 Sale and Issuance of Series D Preferred Stock.
---------------------------------------------
(a) The Company shall adopt and file with the Secretary of
State of the State of California on or before the Closing (as defined below) the
Amended and Restated Articles of Incorporation in the form attached hereto as
Exhibit B (the "Restated Articles").
- --------- -----------------
(b) Subject to the terms and conditions of this Agreement,
each Purchaser agrees to purchase from the Company at the Closing and the
Company agrees to sell and issue to each Purchaser at the Closing that number of
shares of Series D Preferred Stock set forth opposite each such Purchaser's name
on Exhibit A attached hereto at a purchase price of $3.34 per share. The shares
---------
of Series D Preferred Stock issued to the Purchaser pursuant to this Agreement
shall be hereinafter referred to as the "Stock."
-----
1.2 Closing; Delivery.
-----------------
(a) The purchase and sale of the Stock shall take place at
the offices of Venture Law Group, A Professional Corporation, 2800 Sand Hill
Road, Menlo Park, California, at 3:00 p.m., on April 21, 1998, or at such other
time and place as the Company and the Purchasers mutually agree upon, orally or
in writing (which time and place are designated as the "Closing").
-------
(b) At the Closing, the Company shall deliver to each
Purchaser a certificate representing the Stock being purchased thereby against
payment of the purchase price therefor by check or by wire transfer to the
Company's bank account.
2. Representations and Warranties of the Company. The Company hereby
---------------------------------------------
represents and warrants to each Purchaser that, except as set forth on a
Schedule of Exceptions attached hereto as Exhibit C, which exceptions shall be
---------
deemed to be representations and warranties as if made hereunder:
2.1 Organization, Good Standing and Qualification. The Company is a
---------------------------------------------
corporation duly organized, validly existing and in good standing under the laws
of the State of
<PAGE>
California and has all requisite corporate power and authority to carry on its
business as now conducted and as proposed to be conducted. The Company is duly
qualified to transact business and is in good standing in each jurisdiction in
which the failure so to qualify would have a material adverse effect on its
business or properties.
2.2 Capitalization. The authorized capital of the Company consists,
--------------
or will consist, immediately prior to the Closing, of:
(a) 5,011,990 shares of Preferred Stock, of which 602,802 shares
have been designated Series D Preferred Stock, none of which are issued and
outstanding immediately prior to the Closing, 2,557,188 shares have been
designated Series C Preferred Stock, 2,500,000 of which are issued and
outstanding, 705,000 shares have been designated Series B Preferred Stock, all
of which are issued and outstanding, and 1,147,000 Shares of Series A Preferred
Stock, all of which are issued and outstanding. The rights, privileges and
preferences of the Preferred Stock are as stated in the Restated Articles.
(b) 10,000,000 shares of Common Stock, 1,333,000 shares of which
are issued and outstanding immediately prior to the Closing. All of the
outstanding shares of Common Stock have been duly authorized, fully paid and are
nonassessable and issued in compliance with all applicable federal and state
securities laws. The Company has reserved 5,011,990 shares of Common Stock for
issuance upon conversion of the Preferred Stock.
(c) The Company has issued 962,000 Shares of Common Stock to
officers, directors, employees and consultants of the Company pursuant to a
subsequently terminated Stock Plan (the "Old Plan"). Of such Option Shares
granted pursuant to the Old Plan, 62,375 shares have been canceled and 500,000
shares have been exercised. Under a new Stock Option Plan (the "New Plan" and,
collectively with the Old Plan, the "Plans"), the Company has reserved 986,000
shares of Common Stock for issuance to officers, directors, employees and
consultants of the Company. Of such reserved shares of Common Stock under the
New Plan, the Company has granted options to purchase 597,200 shares of Common
Stock and 388,800 shares of such reserved shares of Common Stock remain
available for issuance to officers, directors, employees and consultants. The
Company has granted options to acquire 70,000 shares of Common Stock outside the
Plans.
(d) Except for outstanding options as set forth in the preceding
paragraph, there are no outstanding options, warrants, rights (including
conversion or preemptive rights and rights of first refusal or similar rights)
or agreements, orally or in writing, for the purchase or acquisition from the
Company of any shares of its capital stock, as defined below (other than as set
forth in the Second Amended and Restated Rights Agreement in the form attached
hereto as Exhibit D the ("Rights Agreement")).
--------- ----------------
(e) All issued and outstanding shares of Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock and Common Stock have
been duly authorized and validly issued and are fully paid and nonassessable and
free of any preemptive or similar rights contained in the Articles of
Incorporation or bylaws of the Company. All outstanding shares of the Company's
Common Stock and the Stock issued or to be issued under
-2-
<PAGE>
the Agreement have been or will be issued in compliance with applicable state
and federal securities laws. The Common Stock issuable upon conversion of the
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and
Series D Preferred Stock has been duly and validly reserved and, when issued in
accordance with the Company's Articles of Incorporation, will be validly issued,
fully paid and nonassessable.
2.3 Subsidiaries. The Company does not currently own or control,
------------
directly or indirectly, any interest in any other corporation, association, or
other business entity.
2.4 Authorization. All corporate action on the part of the Company,
-------------
its officers, directors and shareholders necessary for the authorization,
execution and delivery of this Agreement, the Rights Agreement, the Amended and
First Amended and Restated Co-Sale Agreement in the form attached hereto as
Exhibit E (the "Co-Sale Agreement", and collectively with this Agreement and the
- --------- -----------------
Rights Agreement, the "Agreements") by the Company, the performance of all
----------
obligations of the Company hereunder and thereunder and the authorization,
issuance and delivery of the Stock and the Common Stock issuable upon conversion
of the Stock (together, the "Securities") has been taken or will be taken prior
----------
to the Closing, and the Agreements, when executed and delivered by the Company,
shall constitute valid and legally binding obligations of the Company,
enforceable against the Company in accordance with their terms except (i) as
limited by applicable bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance, and other laws of general application affecting
enforcement of creditors' rights generally, as limited by laws relating to the
availability of specific performance, injunctive relief, or other equitable
remedies, or (ii) to the extent the indemnification provisions contained in the
Rights Agreement may be limited by applicable federal or state securities laws.
2.5 Valid Issuance of Securities. The Stock that is being issued to
----------------------------
the Purchasers hereunder, when issued, sold and delivered in accordance with the
terms hereof for the consideration expressed herein, will be duly and validly
issued, fully paid and nonassessable and free of restrictions on transfer other
than restrictions on transfer under this Agreement, the Rights Agreement and
applicable state and federal securities laws. Based in part upon the
representations of the Purchasers in this Agreement and subject to the
provisions of Section 2.6 below, the Stock will be issued in compliance with all
applicable federal and state securities laws. The Common Stock issuable upon
conversion of the Stock has been duly and validly reserved for issuance, and
upon issuance in accordance with the terms of the Restated Articles, shall be
duly and validly issued, fully paid and nonassessable and free of restrictions
on transfer other than restrictions on transfer under this Agreement, the Rights
Agreement and applicable federal and state securities laws and will be issued in
compliance with all applicable federal and state securities laws.
2.6 Governmental Consents. No consent, approval, order or authorization
---------------------
of, or registration, qualification, designation, declaration or filing with, any
federal, state or local governmental authority on the part of the Company is
required in connection with the consummation of the transactions contemplated by
this Agreement, except for filings pursuant to Section 25102(f) of the
California Corporate Securities Law of 1968, as amended, and the rules
-3-
<PAGE>
promulgated thereunder, other applicable state securities laws and Regulation D
of the Securities Act of 1933, as amended (the "Securities Act").
--------------
2.7 Litigation. There is no action, suit, proceeding or investigation
----------
pending or, to the Company's knowledge, currently threatened against the Company
or any of its subsidiaries that questions the validity of the Agreements or the
right of the Company to enter into them, or to consummate the transactions
contemplated hereby or thereby, or that might result, either individually or in
the aggregate, in any material adverse changes in the assets, condition or
affairs of the Company, financially or otherwise, or any change in the current
equity ownership of the Company, nor is the Company aware that there is any
basis for the foregoing. Neither the Company nor any of its subsidiaries is a
party or subject to the provisions of any order, writ, injunction, judgment or
decree of any court or government agency or instrumentality. There is no action,
suit, proceeding or investigation by the Company or any of its subsidiaries
currently pending or which the Company or any of its subsidiaries intends to
initiate.
2.8 Patents and Trademarks. The Company owns or possesses
----------------------
sufficient legal rights to all patents, trademarks, service marks, tradenames,
copyrights, trade secrets, licenses, information and proprietary rights and
processes necessary for its business as now conducted with no known infringement
of or conflict with the rights of others. The Company has not received any
communications alleging that the Company has violated or, by conducting its
business as proposed, would violate any of the patents, trademarks, service
marks, tradenames, copyrights, trade secrets or other proprietary rights or
processes of any other person or entity. The Company is not aware that any of
its employees is obligated under any contract (including licenses, covenants or
commitments of any nature) or other agreement, or subject to any judgment,
decree or order of any court or administrative agency, that would interfere with
the use of such employee's best efforts to promote the interest of the Company
or that would conflict with the Company's business as proposed to be conducted.
Neither the execution or delivery of this Agreement, nor the carrying on of the
Company's business by the employees of the Company, nor the conduct of the
Company's business as proposed, will, to the best of the Company's knowledge,
conflict with or result in a breach of the terms, conditions, or provisions of,
or constitute a default under, any contract, covenant or instrument under which
any such employee is now obligated. The Company does not believe it is or will
be necessary to use any inventions of any of its employees (or persons it
currently intends to hire) made prior to their employment by the Company, which
have not been fully assigned to the Company.
2.9 Compliance with Other Instruments.
---------------------------------
(a) The Company is not in violation or default of any provisions
of its Restated Articles or Bylaws or of any instrument, judgment, order, writ,
decree or contract to which it is a party or by which it is bound or, of any
provision of federal or state statute, rule or regulation applicable to the
Company. The execution, delivery and performance of the Agreements and the
consummation of the transactions contemplated hereby or thereby will not result
in any such violation or be in conflict with or constitute, with or without the
passage of time and giving of notice, either a default under any such provision,
instrument, judgment, order,
-4-
<PAGE>
writ, decree or contract or an event which results in the creation of any lien,
charge or encumbrance upon any assets of the Company.
(b) The Company has avoided every condition, and has not
performed any act, the occurrence of which would result in the Company's loss of
any right granted under any license, distribution agreement or other agreement.
2.10 Agreements; Action.
------------------
(a) There are no agreements, understandings or proposed
transactions between the Company and any of its officers, directors, affiliates,
or any affiliate thereof.
(b) Except for agreements explicitly contemplated by the
Agreements, there are no agreements, understandings, instruments, contracts or
proposed transactions to which the Company or any of its subsidiaries is a party
or by which it is bound that involve (i) obligations (contingent or otherwise)
of, or payments to, the Company or any of its subsidiaries in excess of,
$50,000, (ii) the license of any patent, copyright, trade secret or other
proprietary right to or from the Company or any of its subsidiaries, or (iii)
the grant of rights to manufacture, produce, assemble, license, market, or sell
its products to any other person or affect the Company's exclusive right to
develop, manufacture, assemble, distribute, market or sell its products.
(c) Neither the Company nor any of its subsidiaries has (i)
declared or paid any dividends, or authorized or made any distribution upon or
with respect to any class or series of its capital stock, (ii) incurred any
indebtedness for money borrowed or incurred any other liabilities individually
in excess of $50,000 or in excess of $100,000 in the aggregate, (iii) made any
loans or advances to any person, other than ordinary advances for travel
expenses, or (iv) sold, exchanged or otherwise disposed of any of its assets or
rights, other than the sale of its products in the ordinary course of business.
(d) The Company is not a party to and is not bound by any
contract, agreement or instrument, or subject to any restriction under its
Restated Articles or Bylaws, that adversely affects its business as now
conducted or as proposed to be conducted, its properties or its financial
condition.
(e) The Company has not engaged in the past three months in any
discussion (i) with any representative of any corporation or corporations
regarding the merger of the Company with or into any such corporation or
corporations, (ii) with any representative of any corporation, partnership,
association or other business entity or any individual regarding the sale,
conveyance or disposition of all or substantially all of the assets of the
Company or a transaction or series of related transactions in which more than
50% of the voting power of the Company would be disposed of, or (iii) regarding
any other form of liquidation, dissolution or winding up of the Company.
2.11 Disclosure. No representation or warranty of the Company
----------
contained in this Agreement and the exhibits attached hereto or any certificate
furnished or to be furnished to
-5-
<PAGE>
Purchasers at the Closing, when read together, contains any untrue statement of
a material fact or omits to state a material fact necessary in order to make the
statements contained herein or therein not misleading in light of the
circumstances under which they were made.
2.12 No Conflict of Interest. The Company is not indebted, directly
-----------------------
or indirectly, to any of its officers or directors or to their respective
spouses or children, in any amount whatsoever other than in connection with
expenses or advances of expenses incurred in the ordinary course of business or
relocation expenses of employees. To the best of the Company's knowledge, none
of the Company's officers or directors, or any members of their immediate
families, are, directly or indirectly, indebted to the Company (other than in
connection with purchases of the Company's stock) or have any direct or indirect
ownership interest in any firm or corporation with which the Company is
affiliated or with which the Company has a business relationship, or any firm or
corporation which competes with the Company except that officers, directors
and/or shareholders of the Company may own stock in (but not exceeding two
percent of the outstanding capital stock of) any publicly traded company that
may compete with the Company. To the best of the Company's knowledge, none of
the Company's officers or directors or any members of their immediate families
are, directly or indirectly, interested in any material contract with the
Company. The Company is not a guarantor or indemnitor of any indebtedness of any
other person, firm or corporation.
2.13 Rights of Registration and Voting Rights. Except as
----------------------------------------
contemplated in the Rights Agreement, the Company has not granted or agreed to
grant any registration rights, including piggyback rights, to any person or
entity. To the Company's knowledge, no shareholders of the Company have entered
into any agreements with respect to the voting of capital shares of the Company.
2.14 Private Placement. Subject in part to the truth and accuracy of
-----------------
the Purchasers' representations set forth in this Agreement, the offer, sale and
issuance of the Securities as contemplated by this Agreement are exempt from the
registration requirements of the Securities Act, and neither the Company nor any
authorized agent acting on its behalf will take any action hereafter that would
cause the loss of such exemption.
2.15 Title to Property and Assets. The Company owns its property and
----------------------------
assets free and clear of all mortgages, liens, loans and encumbrances, except
such encumbrances and liens which arise in the ordinary course of business and
do not materially impair the Company's ownership or use of such property or
assets. With respect to the property and assets it leases, the Company is in
compliance with such leases and, to the best of its knowledge, holds a valid
leasehold interest free of any liens, claims or encumbrances.
2.16 Financial Statements. The Company has made available to each
--------------------
Purchaser its unaudited income statement for the period commencing January 1,
1997 and ending December 31, 1997, its unaudited income statement for the period
commencing January 1, 1998 and ending February 28, 1998, and its unaudited
balance sheet as of February 28, 1998 (collectively, the "Financial
---------
Statements"). The Financial Statements have been prepared in accordance with
- ----------
generally accepted accounting principles applied on a consistent basis
-6-
<PAGE>
throughout the periods indicated, except that the unaudited Financial Statements
do not contain any footnotes required by generally accepted accounting
principles. The Financial Statements fairly present the financial condition and
operating results of the Company as of the dates, and for the periods, indicated
therein. Except as set forth in the Financial Statements, the Company has no
material liabilities, contingent or otherwise, other than (i) liabilities
incurred in the ordinary course of business subsequent to February 28, 1998 and
(ii) obligations under contracts and commitments incurred in the ordinary course
of business and not required under generally accepted accounting principles to
be reflected in the Financial Statements, which, in both cases, individually or
in the aggregate are not material to the financial condition or operating
results of the Company. Except as disclosed in the Financial Statements, the
Company is not a guarantor or indemnity of any indebtedness of any other person,
firm or corporation. The Company maintains and will continue to maintain a
standard system of accounting established and administered in accordance with
generally accepted accounting principles.
2.17 Changes. Since February 28, 1998 there has not been:
-------
(a) any change in the assets, liabilities, financial condition
or operating results of the Company from that reflected in the Financial
Statements, except changes in the ordinary course of business that have not
been, in the aggregate, materially adverse;
(b) any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the business, properties,
prospects, or financial condition of the Company (as such business is presently
conducted and as it is proposed to be conducted);
(c) any waiver or compromise by the Company of a valuable right
or of a material debt owed to it;
(d) any satisfaction or discharge of any lien, claim, or
encumbrance or payment of any obligation by the Company, except in the ordinary
course of business and that is not material to the business, properties,
prospects or financial condition of the Company (as such business is presently
conducted and as it is proposed to be conducted);
(e) any material change to a material contract or agreement by
which the Company or any of its assets is bound or subject;
(f) any material change in any compensation arrangement or
agreement with any employee, officer, director or shareholder;
(g) any sale, assignment or transfer of any patents,
trademarks, copyrights, trade secrets or other intangible assets;
(h) any resignation or termination of employment of any officer
or key employee of the Company; and the Company, to the best of its knowledge,
does not know of any impending resignation or termination of employment of any
such officer or key employee;
-7-
<PAGE>
(i) receipt of notice that there has been a loss of, or
material order cancellation by, any major customer of the Company;
(j) any mortgage, pledge, transfer of a security interest in or
lien created by the Company with respect to any of its material properties or
assets, except liens for taxes not yet due or payable;
(k) any loans or guarantees made by the Company to or for the
benefit of its employees, officers or directors, or any members of their
immediate families, other than travel advances and other advances made in the
ordinary course of its business;
(l) any declaration, setting aside or payment or other
distribution in respect to any of the Company's capital stock, or any direct or
indirect redemption, purchase, or other acquisition of any of such stock by the
Company;
(m) to the best of the Company's knowledge, any other event or
condition of any character that might materially and adversely affect the
business, properties, prospects or financial condition of the Company (as such
business is presently conducted and as it is proposed to be conducted); or
(n) any arrangement or commitment by the Company to do any of
the things described in this Section 2.17.
2.18 Employee Benefit Plans. The Company does not have any Employee
----------------------
Benefit Plan as defined in the Employee Retirement Income Security Act of 1974.
2.19 Tax Returns and Payments. The Company has filed all tax returns
------------------------
and reports as required by law. These returns and reports are true and correct
in all material respects. The Company has paid all taxes and other assessments
due.
2.20 Insurance. The Company has in full force and effect fire and
---------
casualty insurance policies, with extended coverage, sufficient in amount
(subject to reasonable deductibles) to allow it to replace any of its properties
that might be damaged or destroyed.
2.21 Labor Agreements and Actions. The Company is not bound by or
----------------------------
subject to (and none of its assets or properties is bound by or subject to) any
written or oral, express or implied, contract, commitment or arrangement with
any labor union, and no labor union has requested or, to the knowledge of the
Company, has sought to represent any of the employees, representatives or agents
of the Company. There is no strike or other labor dispute involving the Company
pending, or to the knowledge of the Company threatened, which could have a
material adverse effect on the assets, properties, financial condition,
operating results, or business of the Company (as such business is presently
conducted and as it is proposed to be conducted), nor is the Company aware of
any labor organization activity involving its employees. The employment of each
officer and employee of the Company is terminable at the will of the Company.
The Company has complied in all material respects with all applicable state and
federal equal employment opportunity laws and with other laws related to
employment.
-8-
<PAGE>
2.22 Proprietary Information and Inventions Agreements. Each employee,
-------------------------------------------------
consultant and officer of the Company has executed an agreement with the Company
regarding confidentiality and proprietary information substantially in the form
or forms delivered to the counsel for the Purchasers. The Company, after
reasonable investigation, is not aware that any of its employees or consultants
is in violation thereof, and the Company will use its best efforts to prevent
any such violation. All consultants to or vendors of the Company with access to
confidential information of the Company are parties to a written agreement
substantially in the form or forms provided to counsel for the Purchasers under
which, among other things, each such consultant or vendor is obligated to
maintain the confidentiality of confidential information of the Company. The
Company, after reasonable investigation, is not aware that any of its
consultants or vendors are in violation thereof, and the Company will use its
best efforts to prevent any such violation.
2.23 Permits. The Company and each of its subsidiaries has all
-------
franchises, permits, licenses and any similar authority necessary for the
conduct of its business as now being conducted by it, the lack of which could
materially and adversely affect the business, properties, prospects, or
financial condition of the Company and believes that it can obtain, without
undue burden or expense, any similar authority for the conduct of its business
as planned to be conducted. The Company is not in default in any material
respect under any of such franchises, permits, licenses or other similar
authority.
2.24 Corporate Documents. The Restated Articles and Bylaws of the
-------------------
Company are in the form provided to counsel for the Purchasers. The copy of the
minute books of the Company provided to the Purchasers' counsel contains minutes
of all meetings of directors and shareholders and all actions by written consent
without a meeting by the directors and shareholders since the date of
incorporation and reflects all actions by the directors (and any committee of
directors) and shareholders with respect to all transactions referred to in such
minutes accurately in all material respects.
2.25 Qualified Small Business Stock. The Company represents and
------------------------------
warrants to the Purchasers that, to the best of its knowledge, the Stock should
qualify as "Qualified Small Business Stock" as defined in Section 1202(c) of the
------------------------------
Internal Revenue Code of 1986, as amended as of the date hereof.
2.26 Intellectual Property and Products. At such time as Dynasoft
----------------------------------
Publishing Corporation ("Dynasoft") transferred pursuant to the Stock Purchase
--------
Agreement (the "Agreement"), dated October 1996, those assets described on
---------
Exhibit A to the Agreement (the "Assets"), Dynasoft owned all right, title and
------
interest in, or had the right to use, all worldwide industrial and intellectual
property rights, including, without limitation, patent applications, patents,
patent rights, trademark applications, trademarks, service marks, trade names,
service mark applications, trade dress, moral rights, copyright applications,
copyrights, licenses, inventions, trade secrets, know-how, customer lists,
proprietary processes and formulae, software source and object code, algorithms,
architecture, structure, display screens, layouts, development tools, all
documentation and media constituting, describing or relating to the above,
without limitation, manuals, memoranda and records and other intellectual
property and proprietary
-9-
<PAGE>
rights used in or reasonably necessary to the conduct of its business as
presently conducted and the business of the development, production, marketing,
licensing and sale of commercial products using such intellectual property and
proprietary rights ("Dynasoft Intellectual Property"). All Dynasoft Intellectual
------------------------------
Property developed by Karl Hirsch and Dynasoft's employees was developed by such
persons in the course of Dynasoft's business and not by them in their individual
capacity and such individuals do not have any interest in or rights to any
Dynasoft Intellectual Property. All Dynasoft Intellectual Property developed by
Hirsch prior to the incorporation of Dynasoft was properly assigned by Hirsch at
the time of, or following, the incorporation and neither Hirsch nor any other
party has any interest in or rights to any Dynasoft Intellectual Property.
During the period in which Hirsch was developing the Dynasoft Intellectual
Property, he was either not employed by any third party or involved in any
consulting relationship with any third party or, if such an employment or
consulting relationship did exist, the nature of Hirsch's employment was not
related in any way to the Dynasoft Intellectual Property. Hirsch and Dynasoft
were not aware, and are not presently aware, of any infringement of any Dynasoft
Intellectual Property by any third party. Neither Hirsch nor Dynasoft have
received any written or oral claim or notice of infringement or potential
infringement of the intellectual property of any other person which could be
expected to have a material adverse effect on Dynasoft's or Preview's business.
3. Representations and Warranties of the Purchasers. Each Purchaser
------------------------------------------------
hereby severally represents and warrants to the Company that:
3.1 Authorization. The Agreements, when executed and delivered
-------------
by the Purchaser, will constitute valid and legally binding obligations of the
Purchaser, enforceable in accordance with their terms, except (a) as limited by
applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance, and any other laws of general application affecting enforcement of
creditors' rights generally, and as limited by laws relating to the availability
of a specific performance, injunctive relief, or other equitable remedies, or
(b) to the extent the indemnification provisions contained in the Rights
Agreement may be limited by applicable federal or state securities laws.
3.2 Purchase Entirely for Own Account. This Agreement is made with
---------------------------------
the Purchaser in reliance upon the Purchaser's representation to the Company,
which by the Purchaser's execution of this Agreement, the Purchaser hereby
confirms, that the Securities to be acquired by the Purchaser will be acquired
for investment for the Purchaser's own account, not as a nominee or agent, and
not with a view to the resale or distribution of any part thereof, and that the
Purchaser has no present intention of selling, granting any participation in, or
otherwise distributing the same. By executing this Agreement, the Purchaser
further represents that the Purchaser does not presently have any contract,
undertaking, agreement or arrangement with any person to sell, transfer or grant
participations to such person or to any third person, with respect to any of the
Securities. The Purchaser represents that it has full power and authority to
enter into this Agreement. The Purchaser has not been formed for the specific
purpose of acquiring the Securities.
-10-
<PAGE>
3.3 Disclosure of Information. The Purchaser has had an opportunity
-------------------------
to discuss the Company's business, management, financial affairs and the terms
and conditions of the offering of the Stock with the Company's management and
has had an opportunity to review the Company's facilities. The Purchaser
understands that such discussions, as well as the written information issued by
the Company, were intended to describe the aspects of the Company's business
which it believes to be material.
3.4 Restricted Securities. The Purchaser understands that the
---------------------
Securities have not been, and will not be, registered under the Securities Act,
by reason of a specific exemption from the registration provisions of the
Securities Act which depends upon, among other things, the bona fide nature of
the investment intent and the accuracy of the Purchaser's representations as
expressed herein. The Purchaser understands that the Securities are "restricted
securities" under applicable U.S. federal and state securities laws and that,
pursuant to these laws, the Purchaser must hold the Securities indefinitely
unless they are registered with the Securities and Exchange Commission and
qualified by state authorities, or an exemption from such registration and
qualification requirements is available. The Purchaser acknowledges that the
Company has no obligation to register or qualify the Securities for resale
except as set forth in the Rights Agreement. The Purchaser further acknowledges
that if an exemption from registration or qualification is available, it may be
conditioned on various requirements including, but not limited to, the time and
manner of sale, the holding period for the Securities, and on requirements
relating to the Company which are outside of the Purchaser's control, and which
the Company is under no obligation and may not be able to satisfy.
3.5 No Public Market. The Purchaser understands that no public
----------------
market now exists for any of the securities issued by the Company, and that the
Company has made no assurances that a public market will ever exist for the
Securities.
3.6 Legends. The Purchaser understands that the Securities, and any
-------
securities issued in respect of or exchange for the Securities, may bear one or
all of the following legends:
(a) "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AND HAVE BEEN ACQUIRED FOR
INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR
DISTRIBUTION THEREOF. NO SUCH SALE OR DISPOSITION MAY BE EFFECTED WITHOUT
AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF
COUNSEL IN A FORM SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT
REQUIRED UNDER THE SECURITIES ACT OF 1933."
(b) "THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE
TRANSFERRED ONLY IN ACCORDANCE WITH THE TERMS OF AN AGREEMENT BETWEEN THE
COMPANY AND THE SHAREHOLDER, A COPY OF WHICH IS ON FILE WITH THE SECRETARY
OF THE COMPANY."
-11-
<PAGE>
(c) Any legend required by the Blue Sky laws of any state to
the extent such laws are applicable to the shares represented by the certificate
so legended.
3.7 Accredited Investor. The Purchaser is an accredited investor as
-------------------
defined in Rule 501(a) of Regulation D promulgated under the Securities Act.
3.8 Foreign Investors. If the Purchaser is not a United States
-----------------
person (as defined by Section 7701(a)(30) of the Internal Revenue Code of 1986,
as amended), such Purchaser hereby represents that it has satisfied itself as to
the full observance of the laws of its jurisdiction in connection with any
invitation to subscribe for the Stock or any use of this Agreement, including
(i) the legal requirements within its jurisdiction for the purchase of the
Stock, (ii) any foreign exchange restrictions applicable to such purchase, (iii)
any governmental or other consents that may need to be obtained, and (iv) the
income tax and other tax consequences, if any, that may be relevant to the
purchase, holding, redemption, sale, or transfer of the Stock. Such Purchaser's
subscription and payment for and continued beneficial ownership of the Stock,
will not violate any applicable securities or other laws of the Purchaser's
jurisdiction.
4. Conditions of the Purchasers' Obligations at Closing. The obligations
----------------------------------------------------
of each Purchaser to the Company under this Agreement are subject to the
fulfillment, on or before the Closing, of each of the following conditions,
unless otherwise waived:
4.1 Representations and Warranties. The representations and
------------------------------
warranties of the Company contained in Section 2 shall be true and correct in
all material respects on and as of the Closing with the same effect as though
such representations and warranties had been made on and as of the date of the
Closing.
4.2 Performance. The Company shall have performed and complied
-----------
with all covenants, agreements, obligations and conditions contained in this
Agreement that are required to be performed or complied with by it on or before
the Closing.
4.3 Compliance Certificate. The Chief Executive Officer of the
----------------------
Company shall deliver to the Purchasers at the Closing a certificate certifying
that the conditions specified in Sections 4.1 and 4.2 have been fulfilled.
4.4 Qualifications. All authorizations, approvals or permits, if
--------------
any, of any governmental authority or regulatory body of the United States or of
any state that are required in connection with the lawful issuance and sale of
the Stock pursuant to this Agreement shall be obtained and effective as of the
Closing.
4.5 Opinion of Company Counsel. The Purchasers shall have
--------------------------
received from Venture Law Group, counsel for the Company, an opinion, dated as
of the Closing, in substantially the form of Exhibit F.
---------
-12-
<PAGE>
4.6 Board of Directors. As of the Closing, the Board of Directors of
------------------
the Company shall be comprised of Bruce Bourbon, Donald L. Lucas, Vincent
Pluvinage, R. Douglas Rivers, Karl Hirsch and Heidi Roizen.
4.7 Rights Agreement. The Company and each Purchaser shall have
----------------
executed and delivered the Rights Agreement in substantially the form attached
as Exhibit D.
---------
4.8 Co-Sale Agreement. The Company, each Purchaser, Karl Hirsch and
-----------------
Vincent Pluvinage shall have executed and delivered the Co-Sale Agreement in
substantially the form attached as Exhibit E.
---------
4.9 Restated Articles. The Company shall have filed the Restated
-----------------
Articles with the Secretary of State of California on or prior to the Closing,
which shall continue to be in full force and effect as of the Closing.
5. Conditions of the Company's Obligations at Closing. The obligations of
--------------------------------------------------
the Company to each Purchaser under this Agreement are subject to the
fulfillment, on or before the Closing, of each of the following conditions,
unless otherwise waived:
5.1 Representations and Warranties. The representations and
------------------------------
warranties of each Purchaser contained in Section 3 shall be true and correct in
all material respects on and as of the Closing with the same effect as though
such representations and warranties had been made on and as of the Closing.
5.2 Performance. All covenants, agreements and conditions contained
-----------
in this Agreement to be performed by the Purchasers on or prior to the Closing
shall have been performed or complied with in all material respects.
5.3 Qualifications. All authorizations, approvals or permits, if any,
--------------
of any governmental authority or regulatory body of the United States or of any
state that are required in connection with the lawful issuance and sale of the
Stock pursuant to this Agreement shall be obtained and effective as of the
Closing.
6. Affirmative Covenants of the Company.
------------------------------------
The Company hereby covenants and agrees as follows:
6.1 Financial Information. The Company will mail the following
---------------------
reports to each Purchaser for so long as such Purchaser is a holder of any Stock
purchased by such person pursuant to this Agreement (or Common Stock issued upon
conversion of the Stock):
(a) As soon as practicable after the end of each fiscal year,
and in any event within 90 days thereafter, consolidated balance sheets of the
Company and its subsidiaries, if any, as of the end of such fiscal year, and
consolidated statements of income and consolidated statements of shareholders'
equity and cash flows of the Company and its subsidiaries, if any, for such
year, prepared in accordance with generally accepted accounting principles and
setting forth
-13-
<PAGE>
in each case in comparative form the figures for the previous fiscal year, all
in reasonable detail and audited by the Company's independent public
accountants.
(b) As soon as practicable after the end of each fiscal
quarter, and in any event within 45 days thereafter, unaudited consolidated
balance sheets of the Company and its subsidiaries, if any, as of the end of
such fiscal quarter, and unaudited consolidated statements of income and
consolidated statements of shareholders' equity and cash flows of the Company
and its subsidiaries, if any, for such quarter, prepared in accordance with
generally accepted accounting principles and setting forth in each case in
comparative form the figures for the comparable quarter in the previous fiscal
year.
(c) Contemporaneously with delivery to holders of Common
Stock, a copy of each report, proxy statement or other document of the Company
delivered to holders of the Company's Common Stock.
6.2 Additional Information. As long as a Purchaser (together
----------------------
with any affiliate of such Purchaser) holds not less than 200,000 shares of
Stock (or an equivalent number of shares consisting of the Stock or Common Stock
issued upon conversion of the Stock, or a combination thereof), as adjusted for
recapitalizations, stock splits, stock dividends and the like, the Company will
mail the following reports to such Purchaser:
(a) As soon as practicable after the end of each fiscal
month, and in any event within 30 days thereafter, an unaudited consolidated
balance sheet of the Company as of the end of such month, and unaudited
consolidated statements of income and unaudited consolidated statements of cash
flow for such month and for the current fiscal year to date (collectively, the
"Financial Statements"). Such Financial Statements shall be prepared in
--------------------
accordance with generally accepted accounting principles consistently applied
(other than accompanying notes and subject to year-end adjustments), all in
reasonable detail and all shall include both actual and forecast financial
information and all shall be compared against the operating plan of the Company.
(b) As soon as practicable, but at least 30 days prior to
the end of each fiscal year, a budget and operating plan for the next fiscal
year, including balance sheets and sources and applications of funds statements
and, as soon as prepared, any other budgets, revised budgets, operating plan or
revised operating plan prepared by the Company.
(c) The Company will permit such Purchaser and any of its
partners, officers or employees, or any outside representatives designated by
such Purchaser and reasonably satisfactory to the Company, to visit and inspect
at such Purchaser's expense any of the properties of the Company or its
subsidiaries (if any), including their books and records, and to discuss their
affairs, finances, and accounts with their officers, lawyers and accountants,
all to such reasonable extent and at such reasonable times and intervals as such
Purchaser may reasonably request; provided, however, that the Company shall not
be obligated to provide any information that it reasonably considers to be a
trade secret or to contain confidential information.
-14-
<PAGE>
6.3 Transfer of Information Rights. The information rights set forth
------------------------------
in Sections 6.1 and 6.2 may be transferred in any nonpublic transfer of the
Stock (or shares of Common Stock issued upon conversion of the Stock), provided
that the Company is given written notice of such transfer, and provided further
that the right to receive the information set forth in Section 6.2 may only be
transferred to a holder of, or affiliated holders who in the aggregate hold, at
least 200,000 shares of Stock (or an equivalent number of shares consisting of
the Stock or Common Stock issued upon conversion of the Stock, as appropriately
adjusted for stock splits and the like). In the event that the Company
reasonably determines that provision of information to a transferee pursuant to
this Section 6.3 would materially adversely affect its proprietary position,
such information may be edited in the manner necessary to avoid such effect.
6.4 Termination of Covenants. The covenants set forth in Sections
------------------------
6.1, 6.2 and 6.3 shall terminate on and be of no further force or effect upon
the earlier of (i) the consummation of the Company's sale of its Common Stock in
an underwritten public offering pursuant to an effective registration statement
filed under the Securities Act, or (ii) the registration by the Company of a
class of its equity securities under Section 12(b) or 12(g) of the Exchange Act.
6.5 Directors' Meetings. The Board of Directors shall hold meetings
-------------------
on a monthly basis until the Company achieves profitability or the Board
otherwise agrees.
7. Miscellaneous.
-------------
7.1 Survival of Warranties. Unless otherwise set forth in this
----------------------
Agreement, the warranties, representations and covenants of the Company and the
Purchasers contained in or made pursuant to this Agreement shall survive the
execution and delivery of this Agreement.
7.2 Transfer; Successors and Assigns. 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. 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.
7.3 Governing Law. This Agreement and all acts and transactions
-------------
pursuant hereto and the rights and obligations of the parties hereto shall be
governed, construed and interpreted in accordance with the laws of the State of
California, without giving effect to principles of conflicts of law.
7.4 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original and all of which
together shall constitute one and the same instrument.
-15-
<PAGE>
7.5 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.
7.6 Notices. Any notice required or permitted by this Agreement shall
-------
be in writing and shall be deemed sufficient upon delivery, when delivered
personally or by overnight courier or sent by telegram or fax, or 48 hours after
being deposited in the U.S. mail, as certified or registered mail, with postage
prepaid, addressed to the party to be notified at such party's address as set
forth below or on Exhibit A hereto, or as subsequently modified by written
---------
notice, and, (a) if to the Company, with a copy to Venture Law Group, A
Professional Corporation 2800 Sand Hill Road, Menlo Park, CA 94025, Attn: Elias
J. Blawie, or (b) if to the Purchasers, with a copy to Wilson Sonsini Goodrich &
Rosati, 650 Page Mill Road, Palo Alto, CA 94304, Attn: Neil Wolff.
7.7 Finder's Fee. Each party represents that it neither is nor will
------------
be obligated for any finder's fee or commission in connection with this
transaction. Each Purchaser agrees to indemnify and to hold harmless the Company
from any liability for any commission or compensation in the nature of a
finder's fee (and the costs and expenses of defending against such liability or
asserted liability) for which each Purchaser or any of its officers, employees,
or representatives is responsible. The Company agrees to indemnify and hold
harmless each Purchaser from any liability for any commission or compensation in
the nature of a finder's fee (and the costs and expenses of defending against
such liability or asserted liability) for which the Company or any of its
officers, employees or representatives is responsible.
7.8 Fees and Expenses. The Company shall pay the reasonable fees and
-----------------
expenses of Wilson Sonsini Goodrich & Rosati, the counsel for the Purchasers,
incurred with respect to this Agreement, the documents referred to herein and
the transactions contemplated hereby and thereby, provided the closing shall
have occurred and such fees and expenses do not exceed $7,500.
7.9 Attorney's Fees. If any action at law or in equity (including
---------------
arbitration) is necessary to enforce or interpret the terms of any of the
Agreements, the prevailing party shall be entitled to reasonable attorney's
fees, costs and necessary disbursements in addition to any other relief to which
such party may be entitled.
7.10 Amendments and Waivers. Any term of this Agreement may be amended
----------------------
with the written consent of the Company and the holders of at least two-thirds
of the Common Stock issued or issuable upon conversion of the Stock. Any
amendment or waiver effected in accordance with this Section 7.10 shall be
binding upon the Purchasers and each transferee of the Stock (or the Common
Stock issuable upon conversion thereof), each future holder of all such
securities, and the Company.
7.11 Severability. If one or more provisions of this Agreement are
------------
held to be unenforceable under applicable law, the parties agree to renegotiate
such provision in good faith. In the event that the parties cannot reach a
mutually agreeable and enforceable replacement for such provision, then (a) such
provision shall be excluded from this Agreement, (b) the balance of
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<PAGE>
the Agreement shall be interpreted as if such provision were so excluded and (c)
the balance of the Agreement shall be enforceable in accordance with its terms.
7.12 Delays or Omissions. No delay or omission to exercise any right,
-------------------
power or remedy accruing to any holder of any of the Stock, upon any breach or
default of the Company under this Agreement, shall impair any such right, power
or remedy of such holder nor shall it be construed to be a waiver of any such
breach or default, or an acquiescence therein, or of or in any similar breach or
default thereafter occurring; nor shall any waiver of any single breach or
default be deemed a waiver of any other breach or default theretofore or
thereafter occurring. Any waiver, permit, consent or approval of any kind or
character on the part of any holder of any breach or default under this
Agreement, or any waiver on the part of any holder of any provisions or
conditions of this Agreement, must be in writing and shall be effective only to
the extent specifically set forth in such writing. All remedies, either under
this Agreement or by law or otherwise afforded to any holder, shall be
cumulative and not alternative.
7.13 Entire Agreement. This Agreement, and the documents referred to
----------------
herein constitute the entire agreement between the parties hereto pertaining to
the subject matter hereof, and any and all other written or oral agreements
existing between the parties hereto are expressly canceled.
7.14 Corporate Securities Law. THE SALE OF THE SECURITIES WHICH ARE
------------------------
THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF
CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF THE SECURITIES OR
THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO THE
QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT FROM THE
QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA CORPORATIONS
CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON
THE QUALIFICATION BEING OBTAINED UNLESS THE SALE IS SO EXEMPT.
7.15 Confidentiality. Each party hereto agrees that, except with the
---------------
prior written permission of the other party, it shall at all times keep
confidential and not divulge, furnish or make accessible to anyone any
confidential information, knowledge or data concerning or relating to the
business or financial affairs of the other parties to which such party has been
or shall become privy by reason of this Agreement, discussions or negotiations
relating to this Agreement, the performance of its obligations hereunder or the
ownership of Stock purchased hereunder. The provisions of this Section 7.15
shall be in addition to, and not in substitution for, the provisions of any
separate nondisclosure agreement executed by the parties hereto with respect to
the transactions contemplated hereby.
7.16 Exculpation Among Purchasers. Each Purchaser acknowledges that
----------------------------
it is not relying upon any person, firm or corporation, other than the Company
and its officers and directors, in making its investment or decision to invest
in the Company. Each Purchaser agrees that no Purchaser nor the respective
controlling persons, officers, directors, partners, agents, or
-17-
<PAGE>
employees of any Purchaser shall be liable for any action heretofore or
hereafter taken or omitted to be taken by any of them in connection with the
Stock.
7.17 Waiver of Conflicts. Each party to this Agreement acknowledges
-------------------
that Venture Law Group, counsel for the Company, has in the past performed and
may continue to perform legal services for certain of the Purchasers in matters
unrelated to the transactions described in this Agreement, including the
representation of such Purchasers in venture capital financings and other
matters. Accordingly, each party to this Agreement hereby (a) acknowledges that
they have had an opportunity to ask for information relevant to this disclosure;
and (b) gives its informed consent to Venture Law Group's representation of
certain of the Purchasers in such unrelated matters and to Venture Law Group's
representation of the Company in connection with this Agreement and the
transactions contemplated hereby.
[Signature Pages Follow]
-18-
<PAGE>
The parties have executed this Series D Preferred Stock Purchase Agreement
as of the date first written above.
COMPANY:
PREVIEW SOFTWARE, INC.
By: /s/ Vincent Pluvinage
-----------------------------------------
Name: Vincent Pluvinage
---------------------------------------
(print)
Title: President and Chief Executive Officer
--------------------------------------
Address:
1601 S. De Anza Blvd., Suite 100
Cupertino, CA 95014
PURCHASERS:
Each Purchaser listed on Exhibit A
--------------------------------------------
(Print Name of Purchaser)
By: /s/ Each Purchaser listed on Exhibit A
-----------------------------------------
Name: Each Purchaser listed on Exhibit A
---------------------------------------
(print)
Title:______________________________________
Address:
SIGNATURE PAGE TO PURCHASE AGREEMENT
<PAGE>
EXHIBIT 10.20
PLEDGE AGREEMENT
----------------
This Pledge Agreement (the "Agreement") is made as of September 14, 1998 by
---------
and between Vincent Pluvinage, ("Pledgor") and Preview Systems, Inc. (the
-------
"Company").
-------
BACKGROUND
Silicon Valley Bank (the "Bank") has lent Pledgor $300,000 pursuant to a
----
Promissory Note issued by Pledgor to the Bank dated on or about September 14,
1998, (the "Promissory Note"). To induce the Bank to loan money to Pledgor
---------------
pursuant to the Promissory Note, the Company has pledged a $300,000 certificate
of deposit to the Bank pursuant to an Assignment of Deposit Account (the
"Assignment Agreement") by and between the Bank and the Company dated on or
- ---------------------
about September 14, 1998. In return for the pledge by the Company pursuant to
the Assignment Agreement, Pledgor has agreed to make the pledge described below.
AGREEMENT
In consideration of the foregoing and other good and valuable
consideration, receipt of which Pledgor acknowledges, it is hereby agreed as
follows:
1. Pledge; No Further Issuances; Agreement to Pledge.
-------------------------------------------------
1.1 Pledge of Securities to Secure Obligations. Pledgor hereby
------------------------------------------
pledges, assigns, hypothecates and sets over to the Company for its benefit all
of his vested shares of the Company's capital stock (such securities, together
with any certificate, option or right issued as an addition to, in substitution
for or in exchange for any of such securities, and all proceeds thereof, and any
other property required to be pledged hereunder pursuant to section 1.4, are
hereinafter collectively called the "Pledged Securities"), and hereby grants to
------------------
the Company for its benefit a security interest in all the Pledged Securities
and in the proceeds thereof.
1.2 Deposit of Certificates. Certificates representing the Pledged
-----------------------
Securities will be delivered by Pledgor duly endorsed in blank or accompanied by
blank stock powers duly signed by Pledgor to the Company, to be held by the
Company on the terms and conditions in this Agreement.
1.3 Obligations Secured. The obligations (the "Obligations") secured
------------------- -----------
by the security interest granted herein are the amounts, if any, owed or payable
by the Company to the Bank, either directly or by offset of collateral pledged
by the Company to the Bank, pursuant to the Assignment Agreement.
1.4 Additional Property to be Pledged. If Pledgor shall at any time
---------------------------------
or times become entitled to receive, or shall receive (a) any sums paid as
liquidating dividends or as a return of capital with respect to the Pledged
Securities or (b) any stock certificates (including, without limitation, any
certificates representing a stock dividend, stock split or a distribution in
<PAGE>
connection with any reclassification, increase or reduction of capital), options
or rights, whether in respect of, as an addition to, in substitution for or in
exchange for any of the Pledged Securities, or otherwise, or (c) any property
distributed on or with respect to Pledged Securities pursuant to a
recapitalization or reclassification of capital or pursuant to a reorganization
thereof, Pledgor agrees to accept the same as the Company's agent and to hold
the same in trust for the benefit of the Company and to deliver the same
forthwith to the Company in the exact form received, with Pledgor's endorsement
when necessary or appropriate or with stock powers duly executed in blank with
Pledgor's signature, to be held by the Company subject to the terms hereof as
further security for the Obligations. All sums, certificates and property
required to be pledged under this section 1.4 shall be held, applied and
disposed of as part of the Pledged Securities.
2. Representations and Warranties of Pledgor and the Company. Pledgor
---------------------------------------------------------
hereby represents, warrants and agrees as follows:
2.1 Ownership of Pledged Securities. Pledgor is the record and
-------------------------------
beneficial owner of all the Pledged Securities as of the date of the delivery of
the Pledged Securities to the Company. The Pledged Securities have been duly
and validly issued and are fully paid and nonassessable.
2.2 No Liens, Etc. The Pledged Securities are owned by Pledgor free
--------------
and clear of any pledge, mortgage, hypothecation, lien, charge or encumbrance,
or any security interest therein or in the proceeds thereof, except the security
interest granted by this Agreement for the benefit of the Company.
2.3 Priority of Lien. This Agreement constitutes a valid first lien
----------------
on and perfected security interest in the Pledged Securities and the proceeds
thereof, subject to no prior pledge, mortgage, hypothecation, security interest,
lien, charge, encumbrance or agreement purporting to grant to any third party a
security interest therein.
2.4 Maintain Pledge. As long as any Obligation is outstanding and
---------------
unpaid or unperformed (or has the potential of becoming outstanding), as a whole
or in part, Pledgor will not sell, convey, or otherwise dispose of any of the
Pledged Securities, or create, incur or permit to exist any pledge, mortgage,
lien, charge, encumbrance or security interest with respect to any of the
Pledged Securities or the proceeds thereof other than that created hereby.
2.5 Defend Title. Pledgor warrants and will defend the Company's
------------
right, title, property and security interest in and to the Pledged Securities
and the proceeds thereof and any other property pledged hereunder against the
claims of any persons or entities.
-2-
<PAGE>
3. Pledgor's Rights While No Event of Default.
------------------------------------------
3.1 Registration of Pledged Securities. Unless and until an Event of
----------------------------------
Default shall have occurred and be continuing, the Pledged Securities shall
remain registered in the name of Pledgor.
3.2 Exercise of Voting and Other Rights. Unless and until an Event
-----------------------------------
of Default shall have occurred and be continuing, Pledgor shall be entitled to
exercise all voting rights and all rights to consent, ratification and waiver
pertaining to the Pledged Securities and to receive any and all ordinary cash
dividends (other than any dividend or distribution in liquidation) paid thereon;
provided that no vote shall be cast or consent, waiver or ratification given or
action taken that would violate or be inconsistent with any of the terms of this
Agreement or that would have the effect of impairing the position or interests
of the Company.
4. Events of Default; Remedies. An Event of Default under the Promissory
---------------------------
Note shall constitute an Event of Default under this Agreement. After the
occurrence of an Event of Default and so long as such Event of Default
continues:
4.1 Exercise of Voting and Other Rights. The Company shall have the
-----------------------------------
right to require that all cash dividends payable with respect to any of the
Pledged Securities be paid to it to be held by it until applied as herein
provided, and the Company or its nominee may, without notice, exercise all
voting and other rights pertaining to the Pledged Securities (and Pledgor hereby
irrevocably constitutes and appoints the Company as its proxy and attorney-in-
fact, with full power of substitution and resubstitution, to do so) and may
exercise any and all rights of conversion, exchange, subscription or any other
rights, privileges or options pertaining to any of the Pledged Securities as if
the Company or its nominee were the absolute owner thereof, including, without
limitation, the right to exchange, at the Company's or its nominee's discretion,
any and all of the Pledged Securities on a merger, consolidation,
reorganization, recapitalization or other readjustment or on the exercise by the
Company of any right, privilege or option pertaining to any of the Pledged
Securities, and, in connection therewith, to deposit and deliver any and all of
the Pledged Securities with any committee, depositary, transfer agent, registrar
or other designated agency on such terms and conditions as the Company may
determine.
4.2 Sale or Retention of Pledged Securities. The Company shall have
---------------------------------------
all of the rights and remedies with respect to the Pledged Securities of a
secured party provided by the California Uniform Commercial Code, as well as
other applicable law, including the right to sell, assign and deliver the whole
or from time to time any part of the Pledged Securities or any interest in the
whole or any part thereof, at any private sale or at public auction, with or
(except as provided below) without demand, advertisement or notice of the time
or place of sale or adjournment thereof or otherwise (all of which are hereby
waived by Pledgor, except such notice as is required by applicable law and
cannot be waived), for cash, on credit or for other property, for immediate or
future delivery, and for such price or prices and on such terms as the Company
in its uncontrolled discretion may reasonably determine, Pledgor hereby waiving
and releasing
-3-
<PAGE>
any and all right or equity of redemption whether before or after sale
hereunder, provided however, that the Company shall sell only that number of
-------- -------
Pledged Securities that the Company reasonably believes is necessary to satisfy
the then outstanding Obligations and, provided, further, that the Company may
sell such Pledged Securities only in compliance with applicable securities laws.
Pledgor acknowledges that if no public market for the Pledged Securities exists
on the date of any proposed sale of the Pledged Securities hereunder by the
Company, the securities laws affecting the sale of the Pledged Securities may
make the public sale of the Pledged Securities impracticable.
5. Application of Proceeds. The proceeds of any sale or sales of the
-----------------------
Pledged Securities, together with all dividends or other moneys received by the
Company hereunder and with any other additional collateral security pledged
hereunder, shall be received and applied: First, to the cost and expenses of
every kind incurred in connection with the collection, recovery, receipt,
appropriation, realization or sale, or incidental to the care, safekeeping or
otherwise, of any and all Pledged Securities, other moneys and other property
pledged or received hereunder or in any way relating to the rights and remedies
of the Company hereunder, including reasonable attorneys' fees and expenses;
second, to all proper costs incurred (and not reimbursed by Pledgor) by the
Company reasonably attributable to any registration, qualification or compliance
with respect thereto under any Federal or state securities law or laws effected
at the request of the Company; and third, to the payment of amounts due in
respect of the Obligations after which the Company shall account to Pledgor for
the surplus proceeds, if any; and provided however that any Pledged Securities
-------- -------
remaining in the possession of the Company after satisfaction in full of the
Obligations shall be promptly returned to Pledgor and the Company shall take all
steps to transfer and assign such remaining Pledged Securities to Pledgor.
6. Further Assurances. Pledgor agrees that at any time and from time to
------------------
time, on written request of the Company, Pledgor will execute and deliver such
further documents and do such further acts and things as the Company reasonably
requests to effect the purposes of this Agreement.
7. Remedies Cumulative. Pledgor agrees that the rights, powers and
-------------------
remedies given to the Company by this Agreement are cumulative and concurrent
and not exclusive of any herein or of any other powers, rights or remedies
available to the Company, whether existing at law or in equity or by statute or
otherwise and shall be in addition to every other right, power or remedy
provided in this Agreement or now or hereafter existing or in equity or by
statute or otherwise, and the exercise or beginning of the exercise by the
Company of any one or more of such rights, powers and remedies shall not
preclude the simultaneous or later exercise by the Company of any or all such
other rights, powers and remedies. No failure on the part of the Company to
exercise any right, power or remedy shall operate as a waiver thereof.
8. The Pledgor's Obligations Absolute, Etc. The obligations of the
----------------------------------------
Company and Pledgor under this Agreement shall be absolute and unconditional and
shall remain in full force and effect without regard to, and shall not be
released, suspended, discharged, terminated or otherwise affected by, any
circumstance or occurrence whatsoever, including, without limitation:
-4-
<PAGE>
(a) any renewal, extension, amendment or modification of the Promissory Note or
any or the Obligations, or any assignment or transfer of any thereof; (b) any
waiver, consent, extension, indulgence or other action or inaction under or in
respect of any such instrument or any exercise or nonexercise of any right,
remedy, power or privilege under or in respect of any such instrument or this
Agreement; (c) any furnishing of any additional security to the Company or any
acceptance thereof or any release of any security by the Company; or (d) any
bankruptcy, insolvency, reorganization, composition, adjustment, dissolution,
liquidation or other like proceeding relating to Pledgor, or any action taken
with respect to this Agreement by any trustee or receiver or by any court in any
such proceeding; whether or not Pledgor shall have notice or knowledge of any of
the foregoing.
9. Termination. Upon the termination of the Company's obligations to the
-----------
Bank pursuant to the Assignment Agreement, this Agreement shall terminate, and
Pledgor shall be entitled to the return of such of the Pledged Securities as are
owned by Pledgor and are held by the Company, together with any moneys at the
time held by the Company hereunder in respect of such Pledged Securities.
10. Notices. Any notice, consent, demand or other communication required
-------
or permitted to be given hereunder shall be in writing and shall be deemed duly
given and received when delivered personally, when transmitted by facsimile with
receipt acknowledged by the addressee, three days after being deposited as first
class mail with the United States Postal Service, or one day after being
deposited for next-day delivery with Federal Express or other nationally
recognized overnight delivery service, all charges or first class postage
prepaid, properly addressed, as follows:
If to the Company, to:
Preview Systems, Inc.
1601 S. De Anza Blvd., Ste. 100
Cupertino, CA 95014
Attn: Chief Financial Officer
With a copy to:
Venture Law Group
2800 Sand Hill Road
Menlo Park, CA 94025
Attention: Elias J. Blawie
If to Pledgor, to:
Vincent Pluvinage
-5-
<PAGE>
Preview Systems, Inc.
1601 S. De Anza Blvd., Ste. 100
Cupertino, CA 95014
Any of the above addresses may be changed by the appropriate party giving notice
of such change to the other parties hereto.
11. Miscellaneous. This Agreement shall be governed by and construed and
-------------
interpreted accordance with the laws of the State of California, shall bind and
inure to the benefit of Pledgor and the Company and their respective successors,
assigns, heirs, legatees, executors, administrators and legal representatives,
and may not be terminated or modified orally but only in writing making specific
reference hereto, supported by new consideration and signed by all the parties
hereto. Headings in this Agreement are for convenience of reference only and
shall not limit or otherwise affect the meaning hereof. This Agreement may be
executed in any number of counterparts, each of which shall be an original, but
all of which together shall constitute one agreement.
-6-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have each duly and delivered this
Pledge Agreement as of the date first above written.
PLEDGOR:
/s/ Vincent Pluvinage
-----------------------
Vincent Pluvinage
I, Margaret G. Farrell, spouse of Vincent Pluvinage, have read and
hereby approve the foregoing Agreement. In consideration of the pledge by the
Company pursuant to the Assignment Agreement, I hereby agree to be bound
irrevocably by the Agreement and further agree that any community property or
similar interest that I may have in the Pledged Securities shall hereby be
similarly bound by the Agreement. I hereby appoint my spouse as my attorney-in-
fact with respect to any amendment or exercise of any rights under the
Agreement.
/s/ Margaret G. Farrell
---------------------------
Spouse of Vincent Pluvinage
THE COMPANY: PREVIEW SYSTEMS, INC.
By /s/ Edward Wholihan
------------------------------------------
Edward Wholihan, Chief Financial Officer
[SIGNATURE PAGE TO PLEDGE AGREEMENT]
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF PREVIEW SYSTEMS, INC.
Preview Software, Inc., a California corporation
Portland Software, Inc., an Oregon corporation
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report dated April 2, 1999 of Preview Systems, Inc. (and to all references to
our firm) included in or made part of this registration statement.
/s/ ARTHUR ANDERSEN LLP
Portland, Oregon
September 14, 1999
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Portland Software, Inc.:
We consent to the inclusion of our report dated February 20, 1998 with
respect to the balance sheets of Portland Software, Inc. as of December 31,
1996 and 1997 and related statements of operations, shareholders' equity, and
cash flows for the years then ended, which report appears in the Form S-1 of
Preview Systems, Inc. dated on or about September 13, 1999, and to the
reference to our firm under the heading "Experts".
/s/ KPMG LLP
Portland, Oregon
September 10, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 4,886
<SECURITIES> 0
<RECEIVABLES> 152
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5,453
<PP&E> 1,461
<DEPRECIATION> 641
<TOTAL-ASSETS> 12,490
<CURRENT-LIABILITIES> 2,432
<BONDS> 776
0
0
<COMMON> 0
<OTHER-SE> 8,006
<TOTAL-LIABILITY-AND-EQUITY> 12,490
<SALES> 0
<TOTAL-REVENUES> 610
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 11,977
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 37
<INCOME-PRETAX> (11,276)
<INCOME-TAX> 0
<INCOME-CONTINUING> (11,276)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (11,276)
<EPS-BASIC> (7.55)
<EPS-DILUTED> (7.55)
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 427
<SECURITIES> 0
<RECEIVABLES> 1,231
<ALLOWANCES> 75
<INVENTORY> 0
<CURRENT-ASSETS> 2,165
<PP&E> 1,372
<DEPRECIATION> 489
<TOTAL-ASSETS> 8,150
<CURRENT-LIABILITIES> 5,690
<BONDS> 1,974
0
0
<COMMON> 0
<OTHER-SE> 767
<TOTAL-LIABILITY-AND-EQUITY> 8,150
<SALES> 0
<TOTAL-REVENUES> 1,221
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 8,660
<LOSS-PROVISION> 75
<INTEREST-EXPENSE> 64
<INCOME-PRETAX> (7,436)
<INCOME-TAX> 0
<INCOME-CONTINUING> (7,436)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,436)
<EPS-BASIC> (2.75)
<EPS-DILUTED> (2.75)
</TABLE>
