<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 3, 2000
REGISTRATION NO. 333-95619
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
WEBSENSE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 7373 51-0380839
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
10240 SORRENTO VALLEY ROAD
SAN DIEGO, CALIFORNIA 92121
(858) 320-8000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
JOHN B. CARRINGTON
PRESIDENT, CHIEF EXECUTIVE OFFICER AND CHAIRMAN OF THE BOARD
WEBSENSE, INC.
10240 SORRENTO VALLEY ROAD
SAN DIEGO, CALIFORNIA 92121
(858) 320-8000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
RICHARD A. FINK, ESQ. MARGARET H. KAVALARIS, ESQ.
MICHAEL S. KAGNOFF, ESQ. SCOTT M. STANTON, ESQ.
JEFFREY C. THACKER, ESQ. MARTY B. LORENZO, ESQ.
BROBECK, PHLEGER & HARRISON LLP GRAY CARY WARE FREIDENRICH LLP
38 TECHNOLOGY DRIVE 4365 EXECUTIVE DRIVE, SUITE 1600
IRVINE, CALIFORNIA 92618 SAN DIEGO, CALIFORNIA 92121
(949) 790-6408 (858) 677-1400
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
------------------------
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, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<S> <C> <C> <C> <C>
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PROPOSED
TITLE OF EACH CLASS NUMBER OF MAXIMUM PRICE MAXIMUM AGGREGATE AMOUNT OF
OF SECURITIES TO BE REGISTERED SHARES(1) PER SHARE(2) OFFERING PRICE(2) REGISTRATION FEE
- -----------------------------------------------------------------------------------------------------------------------
Common stock, $.01 par value.... 4,600,000 $14.00 $64,400,000 $17,002(3)
- -----------------------------------------------------------------------------------------------------------------------
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</TABLE>
(1) Includes 600,000 shares subject to an option in favor of the underwriters to
cover over allotment, if any.
(2) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(a) under the Securities Act of 1933, as amended.
(3) Of this amount $15,840 was previously paid.
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 AS AMENDED OR UNTIL THE REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION
8(a), MAY DETERMINE.
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- --------------------------------------------------------------------------------
<PAGE> 2
The information in this prospectus is not complete and may be changed.
Underwriters may not confirm sales of 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 an offer to buy these securities, in any state
where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED MARCH 3, 2000
PRELIMINARY PROSPECTUS
4,000,000 SHARES
WEBSENSE LOGO
COMMON STOCK
This is an initial public offering of common stock by Websense, Inc. We
estimate the initial public offering price will be between $12.00 and $14.00 per
share.
------------------
Prior to this offering, there has been no public market for our common
stock. We have applied to have our common stock approved for quotation on the
Nasdaq National Market under the symbol WBSN.
------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- -------
<S> <C> <C>
Initial public offering price............................... $ $
Underwriting discounts and commissions...................... $ $
Proceeds to Websense, Inc., before expenses................. $ $
</TABLE>
Two of our stockholders have granted the underwriters an option for a
period of 30 days to purchase up to 600,000 additional shares of common stock.
We will not receive any proceeds from the sale of common stock by the selling
stockholders.
------------------
INVESTING IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 8.
------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
CHASE H&Q
SG COWEN
WIT SOUNDVIEW
, 2000
<PAGE> 3
INSIDE FRONT COVER:
A circle divided into four sections with our logo in the center. The
sections are labelled "Markets," "Customers," "Channels" and "Network
Infrastructure," and respectively list the markets in which we sell our
products, a representative segment of our customers, the mediums through which
we sell our products and the infrastructure components with which our products
integrate.
FRONT GATEFOLD:
A pictorial chart depicting the applications of our main product. The chart
shows our product in the center and depicts links between our product and the
Internet, our database, our customers and our customers' employees.
INSIDE BACK COVER:
A circle with our logo in the center. Around the top of the circle is the
word "Problem," and around the bottom of the circle is the word "Opportunity."
Below the word "Problem," the following question is posed: "Are your employees
spending too much time using the Internet for non-business related activities?"
Above the word "Opportunity" is the following list of benefits of our product:
"Improve employee productivity; conserve corporate bandwidth; mitigate potential
legal liability."
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.......................................... 4
Risk Factors................................................ 8
Special Note Regarding Forward-Looking Statements........... 21
Use of Proceeds............................................. 22
Dividend Policy............................................. 22
Capitalization.............................................. 23
Dilution.................................................... 24
Selected Financial Data..................................... 25
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 26
Business.................................................... 34
Management.................................................. 46
Principal and Selling Stockholders.......................... 58
Transactions with Related Parties........................... 61
Description of Capital Stock................................ 63
Shares Eligible for Future Sale............................. 67
Underwriting................................................ 69
Legal Matters............................................... 71
Experts..................................................... 71
Where You Can Find More Information......................... 71
Index to Financial Statements............................... F-1
</TABLE>
------------------------
We own or have rights to trademarks on tradenames that we use in
conjunction with the sale of our products and services. Websense is a registered
trademark that we own. Websense Enterprise, AfterWork and AfterWork.com are
trademarks that we own. This prospectus also contains trademarks and tradenames
of other companies.
------------------------
We use market data and industry forecasts in this prospectus, which we have
obtained from internal surveys, market research, publicly available information
and industry publications. Industry publications generally state that the
information they provide has been obtained from sources believed to be reliable,
but that the accuracy and completeness of such information is not guaranteed.
3
<PAGE> 5
PROSPECTUS SUMMARY
This summary highlights selected information contained elsewhere in this
prospectus. This summary may not contain all of the information that you should
consider before investing in the common stock. You should read the entire
prospectus carefully, including "Risk Factors" and the financial statements and
notes thereto, before making an investment decision.
WEBSENSE, INC.
We are a leading provider of employee Internet management products that
enable businesses to monitor, report and manage how their employees use the
Internet. We believe we have the largest market share and revenues among
providers of employee Internet management solutions to large businesses. Our
Websense Enterprise software and database solution gives managers the ability to
implement Internet access policies for different users and groups within their
businesses, and supports their efforts to improve employee productivity,
conserve network bandwidth and mitigate potential legal liability. Websense
Enterprise is sold on a subscription basis and consists of a software
application that references our proprietary database of Web site addresses. As
of January 31, 2000, our products were in use by more than 7,500 organizations
in over 50 countries, including more than 200 of the Fortune 500. Significant
users of Websense Enterprise include American Express Company, AT&T Wireless
Services, Compaq Computer Corporation, Conoco, Inc., Department of the Army, IBM
Corp., J.C. Penney Company, Inc., Japan Ministry of Education, Merrill Lynch &
Co., Inc., Morgan Stanley Dean Witter & Co., Proctor & Gamble Co., Saudi Aramco,
Travelers Indemnity Company and Unilever Technology Development Specialists.
The Internet has emerged as an important communications and commerce
platform for enterprises around the world. Many companies are using the Internet
to streamline business processes and enable business applications that are
accessed over the corporate network. These companies are making substantial
investments in Internet connectivity and are providing high-speed Internet
access to large numbers of their employees. The Internet has also become a
highly popular consumer medium for entertainment, information and commerce.
International Data Corporation, a market research firm, projects that the number
of Internet users worldwide will reach 316 million by 2002. Because Internet
access in the workplace is fast, convenient and essentially free to employees,
employees tend to use their employers' Internet connections for personal or
recreational purposes during work hours. We believe that a substantial amount of
employee Internet activity in the workplace is non-work-related, and that a
significant portion of non-business-related e-commerce is conducted through an
Internet connection at work. Employees' personal use of company Internet access
during business hours can result in lost employee productivity, increased
network bandwidth consumption and potential legal liability.
Given the Internet's increasingly important role as a business tool and its
continuing adoption as a consumer medium for entertainment, information and
commerce, management of employee Internet access is increasingly becoming a
priority for businesses worldwide. Our products enable businesses to rapidly
implement and configure Internet access policies for specific groups, user types
and individuals within an organization. Our flexible and easy-to-use software
applications operate in conjunction with our proprietary database, which
categorizes Web sites by their content. These software applications, which make
up our Websense Enterprise product, provide managers with various reporting
features and policy options such as blocking Web sites completely or partially,
setting time periods for access, allowing access but generating an exception
report or postponing access until after work hours. Our software enforces these
management policies by comparing Web site requests with the Web site addresses
we have categorized in our database. Our database, which is downloaded to a
customer's network, is organized in 54 categories and encompasses more than
900,000 Web sites representing approximately 95 million Web page addresses. We
add approximately 2,000 newly categorized Web sites to our database each
business
4
<PAGE> 6
day using a proprietary process of automated content assessment and
classification with manual verification, and we make these updates available to
our customers for incremental daily downloads. Websense Enterprise is easy to
deploy and use, and has minimal impact on an organization's information
technology department. In addition, our products require no additional hardware,
can grow with our customers as they expand and support a broad range of network
platforms, including leading proxy servers, firewalls and other network
appliances and software.
Our primary strategic objective is to maintain and strengthen our position
as a leading provider of employee Internet management products. We plan to
achieve this objective by acquiring new customers and pursuing subscription
renewals and enterprise-wide deployment of our software within existing
customers. We also believe that our installed base of large, established
companies provides our software application with market credibility, and that we
can use these customers as reference accounts to attract new customers and
deepen our market penetration. We also intend to expand our global network of
more than 450 value-added resellers and distributors which include Alps System
Integrated Co., Ltd., AT&T Corporation, Unipalm and VeriSign, Inc. We plan to
leverage our relationships with original equipment manufacturers and technology
providers such as CacheFlow Inc., Check Point Software Technologies Ltd., Cisco
Systems, Inc., Inktomi Corporation and Nokia Corporation. We also plan to expand
the functionality of Websense Enterprise, further develop our database-building
technologies and capitalize on incremental revenue opportunities through the
introduction of new products and databases.
Our business faces numerous risks. We operate in a highly competitive
market and have a history of significant net losses. We have incurred net losses
in each of the last 12 fiscal quarters. Our net losses totaled approximately
$1.5 million, $5.6 million and $9.3 million for the fiscal years 1997, 1998 and
1999, respectively. We anticipate that we will experience significant losses and
negative operating cash flow for the foreseeable future. As of December 31,
1999, we had an accumulated deficit of $14.9 million.
Our business was founded in 1994 as NetPartners Internet Solutions, a
reseller of computer network security solutions. In 1996, we released Websense
Internet Screening System, our first product as a software developer, and, in
1999, we changed our name to Websense, Inc.
We maintain a Web site at www.websense.com. Information contained on our
Web site does not constitute part of this prospectus. Our principal executive
offices are located at 10240 Sorrento Valley Road, San Diego, California 92121,
and our telephone number is (858) 320-8000.
5
<PAGE> 7
THE OFFERING
Common stock offered by us ................. 4,000,000 shares
Common stock to be outstanding after this
offering.................................... 19,394,698 shares
Use of proceeds............................. Selling and marketing, research
and development, working capital
and general corporate purposes.
See "Use of Proceeds."
Proposed Nasdaq National Market Symbol...... WBSN
- -------------------------
This table is based upon shares outstanding as of December 31, 1999, and
excludes the following shares:
- 3,161,551 shares of common stock issuable upon exercise of outstanding
options at a weighted average exercise price $0.83 per share;
- 112,500 shares of common stock issuable upon exercise of outstanding
warrants at a weighted average exercise price of $1.69 per share; and
- 336,328 shares available for future grant as of December 31, 1999 under
our 1998 stock plan, and an additional approximately 1,000,000 shares
available for future grant under our stock plans to become effective at
the close of this offering.
Except as otherwise indicated, all information in this prospectus is based
on the following assumptions:
- the conversion of each outstanding share of preferred stock into one
share of common stock upon completion of this offering;
- no exercise of the underwriters' overallotment option; and
- amendments to our certificate of incorporation and bylaws to be effective
upon completion of this offering.
6
<PAGE> 8
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table sets forth summary financial data for our company. You
should read this information together with the financial statements and the
notes to those statements appearing elsewhere in this prospectus and the
information under "Selected Financial Data" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------
1995 1996 1997 1998 1999
---- ------ ------- ------- -------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Subscriptions...................................... $ -- $ 14 $ 637 $ 2,503 $ 7,141
Other products and services........................ 882 2,576 4,383 4,416 1,506
---- ------ ------- ------- -------
Total revenues................................ 882 2,590 5,020 6,919 8,647
---- ------ ------- ------- -------
Gross margin......................................... 403 1,021 1,588 2,459 6,372
Income (loss) from operations........................ 276 31 (1,427) (5,642) (9,479)
Net income (loss).................................... 276 27 (1,462) (5,609) (9,254)
Historical net income (loss) per share(1):
Basic and diluted.................................. -- $ 0.00 $ (0.21) $ (0.80) $ (1.25)
==== ====== ======= ======= =======
Weighted average shares -- basic and diluted....... -- 7,000 7,000 7,000 7,403
==== ====== ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
------------------------
PRO FORMA
ACTUAL AS ADJUSTED
-------- ------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $10,735 $ 58,140
Working capital............................................. 5,222 52,627
Total assets................................................ 16,756 64,161
Deferred revenue............................................ 11,593 11,593
Long-term debt.............................................. 1,497 1,497
Total stockholders' equity.................................. 1,642 49,047
</TABLE>
The pro forma as adjusted column in the balance sheet data reflects:
- the conversion of all of our outstanding preferred stock into common
stock upon completion of this offering; and
- our sale of 4,000,000 shares of common stock at an assumed initial public
offering price of $13.00 per share, after deducting estimated
underwriting discounts and commissions and estimated offering expenses
that we will pay.
- ---------------
(1) See Note 1 of "Notes to Financial Statements" for a description of the
computation of per share information. We have not presented share and per
share data for 1995 because we operated as a sole proprietorship during that
period.
7
<PAGE> 9
RISK FACTORS
You should carefully consider the following risk factors in addition to
other information in this prospectus before purchasing our common stock. The
risks and uncertainties described below are those that we currently deem to be
material and that we believe are specific to our company, our industry and this
offering. If any of these or other risks actually occur, the trading price of
our common stock could decline, and you may lose all or part of your investment.
RISKS RELATED TO OUR BUSINESS
WE HAVE A HISTORY OF LOSSES AND, BECAUSE WE EXPECT OUR OPERATING EXPENSES TO
INCREASE IN THE FUTURE, WE MAY NEVER BECOME PROFITABLE.
We have experienced net losses in each of the last 12 fiscal quarters, and
as of December 31, 1999, we had an accumulated deficit of $14.9 million. We
incurred net losses of $1.5 million for the year ended December 31, 1997, $5.6
million for the year ended December 31, 1998 and $9.3 million for the year ended
December 31, 1999. We expect to continue to incur significant net losses for the
foreseeable future. While we are unable to predict accurately our future
operating expenses, we currently expect these expenses to increase
substantially, as we, among other things:
- expand our domestic and international selling and marketing activities;
- increase our research and development efforts to upgrade our existing
products and develop new products and technologies;
- develop and expand our proprietary database and systems;
- upgrade our operational and financial systems, procedures and controls;
- hire additional personnel, including additional engineers and other
technical staff; and
- assume the responsibilities of being a public company.
We will need to significantly increase our revenues to achieve and maintain
profitability. If we fail to increase revenues from subscription fees to
Websense Enterprise, we will continue to experience losses indefinitely. We may
not be able to achieve or maintain profitability. We also may fail to accurately
estimate and assess our increased operating expenses as we grow. If our
operating expenses exceed our expectations, our financial performance will be
adversely affected, which could cause the price of our common stock to decline.
WE ARE AN EARLY-STAGE COMPANY WITH AN UNPROVEN BUSINESS MODEL, WHICH MAKES IT
DIFFICULT TO EVALUATE OUR CURRENT BUSINESS AND FUTURE PROSPECTS.
We have only a limited operating history upon which to base an evaluation
of our current business and future prospects. We began offering our employee
Internet management software in September 1996, but only since May 1998, when we
released our first version of Websense Enterprise as a significant enhancement
to our original product, have we directed a majority of our focus on this
market. We introduced the most recent version of Websense Enterprise in December
1999. The revenue and income potential of our business and our market are
unproven. Due to the relatively short amount of time that we have been focused
on selling Websense Enterprise, we have very limited historical data with
respect to subscription renewals. In addition, because of our limited operating
history and because the market for employee Internet management solutions is
relatively new and rapidly evolving, we have limited insight into trends that
may emerge and affect our business. We may make errors in predicting and
reacting to relevant business trends, which could harm our business. Before
investing, you should consider an investment in our stock in light
8
<PAGE> 10
of the risks, uncertainties and difficulties frequently encountered by
early-stage companies in new and rapidly evolving markets such as ours. We may
not be able to successfully address any or all of these risks. Failure to
adequately do so could cause our business, results of operations and financial
condition to suffer.
BECAUSE WE EXPECT TO DERIVE SUBSTANTIALLY ALL OF OUR FUTURE REVENUE FROM
SUBSCRIPTION FEES FOR WEBSENSE ENTERPRISE, ANY FAILURE OF THIS PRODUCT TO
SATISFY CUSTOMER DEMANDS OR TO ACHIEVE MORE WIDESPREAD MARKET ACCEPTANCE WILL
SERIOUSLY HARM OUR BUSINESS.
Substantially all of our revenues come from subscriptions for Websense
Enterprise, and we expect this trend will continue for the foreseeable future.
Subscription revenues accounted for approximately 83% of our total revenues in
1999 and approximately 36% in 1998. As a result, if for any reason revenues from
Websense Enterprise decline or do not grow as rapidly as we anticipate, our
operating results and our business will be significantly impaired. If Websense
Enterprise fails to meet the needs of our target customers, or if it does not
compare favorably in price and performance to competing solutions, our growth
will be limited. We cannot assure you that Websense Enterprise will achieve
continued market acceptance. Our future financial performance also will depend,
in part, on our ability to diversify our offerings by successfully developing,
introducing and gaining customer acceptance of new solutions and enhanced
versions of Websense Enterprise. We cannot assure you, however, that we will be
successful in achieving market acceptance of any new solutions that we develop
or of enhanced versions of Websense Enterprise. Any failure or delay in
diversifying our existing offerings could harm our business, results of
operations and financial condition.
THE MARKET FOR EMPLOYEE INTERNET MANAGEMENT SOLUTIONS IS EMERGING, AND IF WE ARE
NOT SUCCESSFUL IN PROMOTING AWARENESS OF THE NEED FOR WEBSENSE ENTERPRISE AND
OF OUR WEBSENSE BRAND, OUR GROWTH MAY BE LIMITED.
Based on our experience with potential customers, we believe that many
corporations are unaware of the existence or scope of problems caused by
employee misuse of the Internet. In addition, there may be a time-limited
opportunity to achieve and maintain a significant share of the market for
employee Internet management solutions due in part to the emerging nature of
this market and the substantial resources available to our existing and
potential competitors. We intend to commit substantially all of our marketing
communications resources in 2000 to promote awareness of the problems caused by
employee misuse of Internet access in the workplace, but we cannot assure you
that we will be successful in this effort. If employers do not recognize or
acknowledge these problems, then the market for Websense Enterprise may develop
more slowly than we expect, which could adversely affect our operating results.
Developing and maintaining awareness of our Websense brand is critical to
achieving widespread acceptance of our existing and future employee Internet
management solutions. Furthermore, we believe that the importance of brand
recognition will increase as competition in our market develops. Successful
promotion of our Websense brand will depend largely on the effectiveness of our
marketing efforts and on our ability to develop reliable and useful products at
competitive prices. If we fail to successfully promote our Websense brand, or if
our expenses to promote and maintain our Websense brand are greater than
anticipated, our results of operations and financial condition could suffer.
WE MUST DEVELOP AND EXPAND OUR INDIRECT SALES CHANNELS TO INCREASE REVENUE AND
IMPROVE OUR OPERATING RESULTS.
We currently sell our products both indirectly and directly; however, we
intend to rely increasingly on our indirect sales channels. We depend on our
indirect sales channels, including
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<PAGE> 11
value-added resellers, distributors, original equipment manufacturers and
Internet service providers, to offer Websense Enterprise to a larger customer
base than we can reach through our direct sales efforts. We will need to expand
our existing relationships and enter into new relationships to increase our
current and future market share and revenue. We cannot assure you that we will
be able to maintain and expand our existing relationships or enter into new
relationships, or that any new relationships will be available on commercially
reasonable terms. If we are unable to maintain and expand our existing
relationships or enter into new relationships, we would lose customer
introductions and co-marketing benefits and our operating results could suffer.
OUR RELIANCE ON INDIRECT SALES CHANNELS COULD RESULT IN REDUCED REVENUE GROWTH
BECAUSE WE HAVE LITTLE CONTROL OVER OUR VALUE-ADDED RESELLERS, DISTRIBUTORS
AND ORIGINAL EQUIPMENT MANUFACTURERS.
Our indirect sales channels accounted for approximately 70% of our total
revenues in 1999. We anticipate that sales from our various indirect sales
channels, including value-added resellers, distributors, original equipment
manufacturers, Internet service providers and others, will account for an
increasing percentage of our total revenues in future periods. None of these
parties is obligated to continue selling our products or to make any purchases
from us. Our ability to generate increased revenue depends significantly upon
the ability and willingness of our indirect sales channels to market and sell
our products to organizations worldwide. If they are unsuccessful in their
efforts, our operating results will suffer. We cannot control the level of
effort these parties expend or the extent to which any of them will be
successful in marketing and selling our products. Many of our indirect sales
channels also market and sell products that compete with Websense Enterprise. We
may not be able to prevent these parties from devoting greater resources to
support our competitors' products.
WE FACE INCREASING COMPETITION FROM BETTER ESTABLISHED COMPANIES THAT MAY HAVE
SIGNIFICANTLY GREATER RESOURCES, WHICH COULD PREVENT US FROM INCREASING
REVENUE OR ACHIEVING PROFITABILITY.
The market for our products is intensely competitive and is likely to
become even more so in the future. Increased competition could result in pricing
pressures, reduced sales, reduced margins or the failure of Websense Enterprise
to achieve or maintain more widespread market acceptance, any of which would
have a material adverse effect on our business, results of operations and
financial condition. Our current principal competitors include:
- companies offering network filtering products, such as JSB Software
Technologies plc., N2H2 Incorporated, Secure Computing Corporation and
Symantec Corporation;
- companies offering network reporting products, such as Telemate Net
Software, Inc. and WebTrends Corporation; and
- companies offering client-based software filtering products, such as The
Learning Company and Log-On Data Corporation.
We also face current and potential competition from vendors of Internet
servers, operating systems and networking hardware, many of which now, or may in
the future, develop and/or bundle employee Internet management solutions with
their products. We also compete against, and expect increased competition from,
traditional network management software developers and Web management service
providers. Many of our current and potential competitors enjoy substantial
competitive advantages, such as:
- greater name recognition and larger marketing budgets and resources;
- established marketing relationships and access to larger customer bases;
and
10
<PAGE> 12
- substantially greater financial, technical and other resources.
As a result, they may be able to respond more quickly and effectively than we
can to new or changing opportunities, technologies, standards or customer
requirements. For all of the foregoing reasons, we may not be able to compete
successfully against our current and future competitors.
OUR FUTURE GROWTH DEPENDS ON OUR EXISTING CUSTOMERS RENEWING AND PURCHASING
ADDITIONAL SUBSCRIPTIONS TO WEBSENSE ENTERPRISE.
Our future success depends on achieving substantial revenue from customer
renewals for subscriptions to Websense Enterprise. Subscriptions for Websense
Enterprise typically have a duration of 12, 24 or 36 months. Our customers have
no obligation to renew their subscriptions upon expiration. We cannot assure you
that we will generate significant revenue from renewals. In order to maintain
our revenues we must continue to sell renewal subscriptions.
Our future success also depends on our ability to sell subscriptions to
existing customers for additional employees within their respective
organizations. We believe that initial orders from large customers often cover
only one or two internal departments. As a result, to increase our revenues we
must sell our existing customers additional subscriptions for Websense
Enterprise to get greater coverage of their workforces. This may require
increasingly sophisticated sales efforts targeting senior management and other
management personnel associated with our customers' Internet infrastructure.
OUR DATABASE CATEGORIES AND OUR PROCESS FOR CLASSIFYING WEB SITES WITHIN THOSE
CATEGORIES ARE SUBJECTIVE, AND WE MAY NOT BE ABLE TO CATEGORIZE WEB SITES IN
ACCORDANCE WITH OUR CUSTOMERS' EXPECTATIONS.
We may not succeed in accurately categorizing Internet content to meet our
customers' expectations. We rely upon a combination of automated filtering
technology and human review to categorize Web sites in our proprietary database.
Our customers may not agree with our determinations that particular Web sites
should be included or not included in specific categories of our database. In
addition, it is possible that our filtering processes may place objectionable
material in categories that are generally unrestricted by our users' Internet
access policies, which could result in employees having access to such material
in the workplace. Any miscategorization could result in customer dissatisfaction
and harm our reputation. Furthermore, we select our categories based on Web site
content we believe employers want to manage. We may not now, or in the future,
succeed in properly identifying the categories of Web site content that
employers want to manage. Any failure to effectively categorize and filter Web
sites according to our customers' expectations will impair the growth of our
business and our efforts to increase brand acceptance.
OUR DATABASE MAY FAIL TO KEEP PACE WITH THE RAPID GROWTH AND TECHNOLOGICAL
CHANGE OF THE INTERNET.
The success of Websense Enterprise depends on the breadth and accuracy of
our database. Although our database currently catalogs more than 900,000 Web
sites, it contains only a fraction of the material available on the Internet. In
addition, the total number of Web sites is growing rapidly, and we expect this
rapid growth rate to continue in the future. We cannot assure you that our
database and database technologies will be able to keep pace with the growth in
the number of Web sites, especially the growing number of Web sites containing
foreign languages. Further, the ongoing evolution of the Internet will require
us to continually improve the functionality, features and reliability of our
database. Because Websense Enterprise can only manage access to Web sites
included in our database, if our database does not contain a meaningful portion
of relevant Web
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sites, the effectiveness of Websense Enterprise will be significantly
diminished. Any failure of our database to keep pace with the rapid growth and
technological change of the Internet will impair the market acceptance of
Websense Enterprise, which in turn will harm our business, results of operations
and financial condition.
OUR RECENT GROWTH HAS STRAINED OUR EXISTING PERSONNEL AND INFRASTRUCTURE
RESOURCES, AND IF WE ARE UNABLE TO IMPLEMENT APPROPRIATE CONTROLS AND
PROCEDURES TO MANAGE OUR GROWTH, WE MAY NOT BE ABLE TO SUCCESSFULLY IMPLEMENT
OUR BUSINESS PLAN.
We are currently experiencing a period of rapid growth in our operations,
which has placed, and will continue to place, a significant strain on our
management, administrative, operational and financial infrastructure. Our future
success will depend in part upon the ability of our senior management to manage
growth effectively. This will require us to hire and train additional personnel
to manage our expanding operations. In addition, we will be required to continue
to improve our operational, financial and management controls and our reporting
systems and procedures. If we fail to successfully manage our growth, we will be
unable to execute our business plan.
IF WE ACQUIRE ANY COMPANIES OR TECHNOLOGIES IN THE FUTURE, THEY COULD PROVE
DIFFICULT TO INTEGRATE, DISRUPT OUR BUSINESS, DILUTE STOCKHOLDER VALUE AND
ADVERSELY AFFECT OUR OPERATING RESULTS.
We may acquire or make investments in complementary companies, services and
technologies in the future. We have not made any acquisitions or investments to
date, and therefore our ability as an organization to make acquisitions or
investments is unproven.
Acquisitions and investments involve numerous risks, including:
- difficulties in integrating operations, technologies, services and
personnel;
- diversion of financial and management resources from existing operations;
- risk of entering new markets;
- potential loss of key employees; and
- inability to generate sufficient revenues to offset acquisition or
investment costs.
In addition, if we finance acquisitions by issuing convertible debt or
equity securities, our existing stockholders may be diluted which could affect
the market price of our stock. As a result, if we fail to properly evaluate and
execute acquisitions or investments, our business and prospects may be seriously
harmed.
WE ARE DEPENDENT ON OUR MANAGEMENT TEAM, AND THE LOSS OF ANY KEY MEMBER OF THIS
TEAM MAY PREVENT US FROM IMPLEMENTING OUR BUSINESS PLAN IN A TIMELY MANNER.
Our success depends largely upon the continued services of our executive
officers and other key management and development personnel. In particular, we
rely on John B. Carrington, our President, Chief Executive Officer and Chairman.
We are also substantially dependent on the continued service of our existing
engineering personnel because of the complexity of our products and
technologies. We do not have employment agreements with a majority of our
executive officers, key management or development personnel and, therefore, they
could terminate their employment with us at any time without penalty. We do not
maintain key person life insurance policies on any of our employees. The loss of
one or more of our key employees could seriously
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harm our business, results of operations and financial condition. We cannot
assure you that in such an event we would be able to recruit personnel to
replace these individuals in a timely manner, or at all, on acceptable terms.
OUR MANAGEMENT TEAM WAS ONLY RECENTLY FORMED, AND OUR SUCCESS DEPENDS ON ITS
ABILITY TO WORK TOGETHER EFFECTIVELY.
We hired Mr. Carrington in May 1999 and Douglas C. Wride, our Chief
Financial Officer, in June 1999. In addition, a majority of our management team
has joined us in the last 18 months. Our future success depends on the
integration of this management team and its ability to work together
effectively. If our management team fails to work together effectively, our
business could be harmed.
BECAUSE COMPETITION FOR OUR TARGET EMPLOYEES IS INTENSE, WE MAY NOT BE ABLE TO
ATTRACT AND RETAIN THE HIGHLY SKILLED EMPLOYEES WE NEED TO SUPPORT OUR PLANNED
GROWTH.
To execute our growth plan, we must attract and retain highly qualified
personnel. We need to hire additional personnel in virtually all operational
areas, including selling and marketing, research and development, operations and
technical support, customer service and administration. Competition for these
personnel is intense, especially for engineers with high levels of experience in
designing and developing software and Internet-related products. We cannot
assure you that we will be successful in attracting and retaining qualified
personnel. We have from time to time in the past experienced, and we expect to
continue to experience in the future, difficulty in hiring and retaining highly
skilled employees with appropriate qualifications. Many of the companies with
which we compete for experienced personnel have greater resources than we have.
If we fail to attract new personnel or retain and motivate our current
personnel, our business and future growth prospects could be severely harmed.
SALES TO CUSTOMERS OUTSIDE THE UNITED STATES HAVE ACCOUNTED FOR A SIGNIFICANT
PORTION OF OUR REVENUE, AND WE EXPECT THIS TREND TO CONTINUE, WHICH EXPOSES US
TO RISKS INHERENT IN INTERNATIONAL SALES.
We market and sell our products outside the United States through
value-added resellers, distributors and other resellers. International sales
represented approximately 21% of our revenue in the year ended 1999. As a key
component of our business strategy, we intend to expand our international sales.
In addition to the risks associated with our domestic sales, our international
sales are subject to the following risks:
- dependence on foreign distributors and their sales channels;
- the ability of our Websense Enterprise products to properly categorize
and filter Web sites containing foreign languages;
- laws and business practices favoring foreign competitors;
- compliance with multiple, conflicting and changing governmental laws and
regulations, including tax laws and regulations;
- longer accounts receivable payment cycles and other collection
difficulties; and
- regional economic and political conditions.
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Such factors could have a material adverse effect on our future international
sales. Any reduction in international sales, or our failure to further develop
our international distribution channels, could have a material adverse effect on
our business, results of operations and financial condition. Our international
revenue is currently denominated in U.S. dollars. As a result, fluctuations in
the value of the U.S. dollar and foreign currencies may make Websense Enterprise
more expensive for international customers, which could harm our business. We do
not currently engage in currency hedging activities to limit the risk of
exchange rate fluctuation.
OUR QUARTERLY OPERATING RESULTS MAY FLUCTUATE SIGNIFICANTLY, AND THESE
FLUCTUATIONS MAY CAUSE OUR STOCK PRICE TO FALL.
Our quarterly operating results have varied significantly in the past, and
will likely vary in the future as the result of fluctuations in our operating
expenses. For example, our net loss decreased to $1.5 million for the quarter
ended March 31, 1999 from $1.9 million for the quarter ended December 31, 1998
and then increased to $2.4 million for the quarter ended June 30, 1999. We
expect that our operating expenses will increase substantially in the future as
we expand our selling and marketing activities, increase our research and
development efforts and hire additional personnel. In addition, our operating
expenses historically have fluctuated, and may continue to fluctuate in the
future, as the result of the factors described below and elsewhere in this
prospectus:
- a concentration of marketing expenses for activities such as trade shows
and advertising campaigns;
- a concentration of general and administrative expenses, such as
recruiting expenses and professional services fees; and
- a concentration of research and development costs.
As a result, it is possible that in some future periods, our results of
operations may be below the expectations of current or potential investors. If
this occurs, the price of our common stock may decline.
BECAUSE WE RECOGNIZE REVENUE FROM SUBSCRIPTIONS FOR WEBSENSE ENTERPRISE RATABLY
OVER THE TERM OF THE SUBSCRIPTION, DOWNTURNS IN SALES MAY NOT BE IMMEDIATELY
REFLECTED IN OUR REVENUES.
We expect that a substantial majority of our future revenues will come from
subscriptions to Websense Enterprise. Upon execution of a subscription
agreement, we invoice our customers for the full term of the subscription
agreement. We then recognize revenue from customers over the terms of their
subscription agreements which generally have a duration of 12, 24 or 36 months.
As a result, a majority of revenues we report in each quarter is deferred
revenue from subscription agreements entered into and paid for during previous
quarters. Because of this deferred revenue, the revenues we report in any
quarter or series of quarters may mask significant downturns in sales and the
market acceptance of Websense Enterprise.
ANY FAILURE TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS COULD IMPAIR OUR ABILITY
TO PROTECT OUR PROPRIETARY TECHNOLOGY AND ESTABLISH OUR WEBSENSE BRAND.
Intellectual property is critical to our success, and we rely upon
trademark, copyright and trade secret laws in the United States and other
jurisdictions as well as confidentiality procedures and contractual provisions
to protect our proprietary technology and our Websense brand. Any of our
trademarks may be challenged by others or invalidated through administrative
process or litigation.
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We currently have no issued patents and may be unable to obtain patent
protection in the future. In addition, any issued patents may not provide us
with any competitive advantages, or may be challenged by third parties.
Furthermore, legal standards relating to the validity, enforceability and scope
of protection of intellectual property rights are uncertain. Effective patent,
trademark, copyright and trade secret protection may not be available to us in
every country in which our products are available. The laws of some foreign
countries may not be as protective of intellectual property rights as United
States laws, and mechanisms for enforcement of intellectual property rights may
be inadequate. As a result, we cannot assure you that our means of protecting
our proprietary technology and brands will be adequate. Furthermore, despite our
efforts, we may be unable to prevent third parties from infringing upon or
misappropriating our intellectual property. Any such infringement or
misappropriation could have a material adverse effect on our business, results
of operations and financial condition.
WE MAY BE SUED BY THIRD PARTIES FOR ALLEGED INFRINGEMENT OF THEIR PROPRIETARY
RIGHTS.
The software and Internet industries are characterized by the existence of
a large number of patents, trademarks and copyrights and by frequent litigation
based on allegations of patent infringement or other violations of intellectual
property rights. As the number of entrants into our market increases, the
possibility of an intellectual property claim against us grows. Our technologies
and products may not be able to withstand any third-party claims or rights
against their use. Any intellectual property claims, with or without merit,
could be time-consuming and expensive to litigate or settle, and could divert
management attention from executing our business plan.
WE MAY NOT BE ABLE TO DEVELOP ACCEPTABLE NEW SOLUTIONS OR ENHANCEMENTS TO OUR
EXISTING PRODUCTS AT A RATE REQUIRED BY OUR RAPIDLY CHANGING MARKET.
Our future success depends on our ability to develop new solutions or
enhancements to our existing products that keep pace with rapid technological
developments and that address the changing needs of our customers. Although
Websense Enterprise is designed to operate with a variety of network hardware
and software platforms, we will need to continuously modify and enhance Websense
Enterprise to keep pace with changes in Internet-related hardware, software,
communication, browser and database technologies. We may not be successful in
either developing such solutions or timely introducing them to the market. In
addition, uncertainties about the timing and nature of new network platforms or
technologies, or modifications to existing platforms or technologies, could
increase our research and development expenses. The failure of our products to
operate effectively with the existing and future network platforms and
technologies will limit or reduce the market for our products, result in
customer dissatisfaction and seriously harm our business, results of operations
and financial condition.
OTHER VENDORS MAY DEVELOP PRODUCTS SIMILAR TO OURS FOR INCORPORATION INTO THEIR
HARDWARE OR SOFTWARE, AND THEREBY REDUCE DEMAND FOR WEBSENSE ENTERPRISE.
In the future, vendors of Internet-related hardware and software may
enhance their products or develop separate products that include functions that
are currently provided by Websense Enterprise. If employee Internet management
functions become standard features of Internet-related hardware or software, the
demand for Websense Enterprise will decrease. Furthermore, even if Websense
Enterprise provides greater functionality and is more effective than the
products offered by vendors of Internet-related hardware or software, potential
customers might accept this limited functionality in lieu of purchasing our
Websense Enterprise.
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OUR SYSTEMS MAY BE VULNERABLE TO SECURITY RISKS OR SERVICE DISRUPTIONS THAT
COULD HARM OUR BUSINESS.
Our servers are vulnerable to physical or electronic break-ins and service
disruptions, which could lead to interruptions, delays, loss of data or the
inability to process customer requests. Such events could be very expensive to
remedy, could damage our reputation and could discourage existing and potential
customers from using our products. Although we have not experienced attempts at
electronic break-ins, we may experience break-ins in the future. Any such events
could substantially harm our business, results of operations and financial
condition.
BECAUSE OUR PRODUCTS ARE COMPLEX AND ARE DEPLOYED IN A WIDE VARIETY OF COMPLEX
NETWORK ENVIRONMENTS, THEY MAY HAVE ERRORS OR DEFECTS THAT USERS IDENTIFY
AFTER DEPLOYMENT, WHICH COULD HARM OUR REPUTATION AND OUR BUSINESS.
Products as complex as ours frequently contain undetected errors when first
introduced or when new versions or enhancements are released. We have from time
to time found errors in versions of Websense Enterprise, and we may find such
errors in the future. The occurrence of errors could adversely affect sales of
our products, divert the attention of engineering personnel from our product
development efforts and cause significant customer relations problems.
RISKS RELATED TO OUR INDUSTRY
EVOLVING REGULATION OF THE INTERNET MAY AFFECT US ADVERSELY.
As Internet commerce continues to evolve, increasing regulation by federal,
state or foreign agencies becomes more likely. Such regulation is likely in the
areas of user privacy, pricing, content and quality of products and services.
Taxation of Internet use or other charges imposed by government agencies or by
private organizations for accessing the Internet may also be imposed. Laws and
regulations applying to the solicitation, collection or processing of personal
or consumer information could affect our activities. Furthermore, any regulation
imposing fees for Internet use could result in a decline in the use of the
Internet and the viability of Internet commerce, which could have a material
adverse effect on our business, results of operations and financial condition.
THE SUCCESS OF OUR BUSINESS DEPENDS ON THE CONTINUED GROWTH AND ACCEPTANCE OF
THE INTERNET AS A BUSINESS TOOL.
Expansion in the sales of Websense Enterprise depends on the continued
acceptance of the Internet as a communications and commerce platform for
enterprises. The Internet may not prove to be a viable commercial medium due to
inadequate development of the necessary infrastructure, such as a reliable
network backbone, or timely development of complementary products, such as
high-speed modems. Additionally, the Internet could lose its viability as a
business tool due to delays in the development or adoption of new standards and
protocols to handle increased demands of Internet activity, security,
reliability, cost, ease-of-use, accessibility, and quality-of-service. If the
Internet does not continue to become a widespread communications medium and
commercial platform, the demand for Websense Enterprise could be significantly
reduced, which could have a material adverse effect on our business, results of
operations and financial condition.
OUR PRODUCTS CREATE RISKS OF POTENTIAL NEGATIVE PUBLICITY AND LEGAL LIABILITY.
Because customers rely on Websense Enterprise to provide employee Internet
management, any significant defects or errors in our products may result in
negative publicity or legal claims.
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Negative publicity or legal claims could seriously harm our business, results of
operations and financial condition. In addition, Websense Enterprise's
capability to report Internet data retrieval requests and the workstations from
which they originated may result in negative publicity or legal claims based on
potential privacy violations.
WE OR OUR CUSTOMERS AND VENDORS MAY HAVE BEEN ADVERSELY AFFECTED BY THE
TRANSITION TO THE YEAR 2000 IN A MANNER THAT IS NOT YET APPARENT.
Although the date is now past January 1, 2000, and we have not experienced
immediate adverse impact from the transition to the Year 2000, we cannot provide
assurances that we, our customers or our vendors have not been affected in a
manner that is not yet apparent. As a result, we will continue to monitor our
Year 2000 compliance and the Year 2000 compliance of our customers and vendors.
Due to the general uncertainty inherent in the Year 2000 problem, especially the
uncertainty regarding the Year 2000 compliance of our customers and vendors, we
are unable to determine at this time whether the Year 2000 problem will have a
material adverse effect on our business, results of operations and financial
condition.
RISKS RELATED TO THIS OFFERING
OUR SENIOR MANAGEMENT TEAM HAS BROAD DISCRETION OVER THE USE OF THE PROCEEDS
FROM THIS OFFERING.
Our senior management team will have broad discretion with respect to the
use of the proceeds of this offering, and may use the proceeds for corporate
purposes that do not increase our profitability or our market value, or in ways
with which our stockholders may not agree. Presently, anticipated uses of the
proceeds of this offering and our existing cash balances include:
- domestic and international selling and marketing;
- research and development;
- development and expansion of our database technologies and systems;
- infrastructure and support improvements;
- development of new business and potential acquisitions; and
- operating losses and general working capital purposes.
We have not yet determined how we will use the proceeds of this offering or our
existing cash balance. Pending determination of how the proceeds and our
existing cash balance will be used, the proceeds of the offering will be
invested in short term, investment grade, interest-bearing securities that may
lose value. See "Use of Proceeds" for more information regarding our use of the
proceeds of this offering.
OUR EXECUTIVE OFFICERS, DIRECTORS AND PRINCIPAL STOCKHOLDERS OWN A LARGE
PERCENTAGE OF OUR VOTING STOCK AND COULD DELAY OR PREVENT A CHANGE IN OUR
CORPORATE CONTROL OR OTHER MATTERS REQUIRING STOCKHOLDER APPROVAL, EVEN IF
FAVORED BY OUR OTHER STOCKHOLDERS.
Immediately after this offering, our executive officers, directors and
principal stockholders, and their respective affiliates, will beneficially own
approximately 75% of our outstanding common stock. These stockholders, if acting
together, would be able to control substantially all matters requiring approval
by our stockholders, including the election of all directors and approval of
significant corporate transactions.
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BECAUSE OUR OPERATING EXPENSES EXCEED OUR CASH FLOW FROM OPERATIONS, WE MAY NEED
TO RAISE ADDITIONAL FUNDS IN THE FUTURE, WHICH FUNDS MAY NOT BE AVAILABLE ON
ACCEPTABLE TERMS OR AT ALL.
We expect that our operating expenses will increase substantially over at
least the next 12 months. In addition, we may experience a material decrease in
liquidity due to unforeseen capital requirements or other events and
uncertainties. As a result, we may need to raise additional funds, and such
funds may not be available on favorable terms, if at all. If we cannot raise
funds on acceptable terms, we may not be able to develop or enhance our software
applications or database, execute on our business plan, take advantage of future
opportunities or respond to competitive pressures or unanticipated requirements.
This may seriously harm our business, results of operations and financial
condition.
WE MAY SEEK TO RAISE ADDITIONAL FUNDS, AND ADDITIONAL FUNDING MAY BE DILUTIVE TO
STOCKHOLDERS OR IMPOSE OPERATIONAL RESTRICTIONS.
An additional equity financing may be dilutive to our stockholders and debt
financing, if available, may involve restrictive covenants, which may limit our
operating flexibility. If additional funds are raised through the issuance of
equity securities, the percentage ownership of our stockholders will be reduced.
These stockholders may experience additional dilution in net book value per
share and any additional equity securities may have rights, preferences and
privileges senior to those of the holders of our common stock.
NEW INVESTORS WILL SUFFER IMMEDIATE AND SUBSTANTIAL DILUTION IN THE TANGIBLE NET
BOOK VALUE OF THEIR SHARES.
We expect that the initial public offering price of our common stock will
significantly exceed the net tangible book value of our common stock. The net
tangible book value of one share of our common stock purchased at the assumed
initial public offering price of $13.00 per share will be only $2.53. As a
result, investors purchasing common stock in this offering will incur dilution
of $10.47 per share. In addition, we have issued options and warrants to acquire
common stock at prices significantly below the assumed initial public offering
price, the exercise of which will likely result in additional dilution when and
if they are exercised.
THERE HAS BEEN NO PRIOR PUBLIC MARKET FOR OUR COMMON STOCK, AND WE EXPECT THAT
ITS PRICE WILL BE VOLATILE.
Prior to this offering, there has been no public market for our common
stock, and we cannot assure you that an active public market for our common
stock will develop or be sustained after this offering. The initial public
offering price of our common stock will be determined by negotiation among us
and the representatives of the several underwriters based upon a number of
factors. As a result, the initial public offering price of our common stock may
not be indicative of the market price of our common stock following the
offering. The market price of our common stock is likely to be highly volatile
and could be subject to wide fluctuations in response to a number of factors,
some of which are beyond our control, including:
- announcements of technological innovations or new products or services by
us or our competitors;
- demand for Websense Enterprise, including fluctuations in subscription
renewals;
- fluctuations in revenues from our indirect sales channels;
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- changes in our pricing policies or the pricing policies of our
competitors;
- quarterly variations in operating results;
- our technological capabilities to accommodate any future growth in our
operations or customers;
- changes in government regulations; and
- changes in financial estimates by securities analysts or our failure to
meet or exceed analyst estimates.
In addition, the stock market has experienced significant price and volume
fluctuations that have particularly affected the market price of the stock of
many Internet-related companies, and that often have been unrelated or
disproportionate to the operating performance of these companies. A number of
publicly traded Internet-related companies have current market prices below
their initial public offering prices. Market fluctuations such as these may
seriously harm the market price of our common stock. In the past, securities
class action suits have been filed following periods of market volatility in the
price of a company's securities. If such an action was instituted, we would
incur substantial costs and a diversion of management attention and resources,
which would seriously harm our business, results of operations and financial
condition.
IT MAY BE DIFFICULT FOR A THIRD PARTY TO ACQUIRE US, EVEN IF DOING SO WOULD BE
BENEFICIAL TO OUR STOCKHOLDERS.
Some provisions of our certificate of incorporation and bylaws, as well as
some provisions of Delaware law, may discourage, delay or prevent third parties
from acquiring us, even if doing so would be beneficial to our stockholders. For
example, our certificate of incorporation provides for a classified board, with
each board member serving a staggered three-year term. It also provides that
stockholders may not fill board vacancies, call stockholder meetings or act by
written consent. Our bylaws further provide that advance written notice is
required prior to stockholder proposals. Each of these provisions make it more
difficult for stockholders to obtain control of our board or initiate actions
that are opposed by the then current board. Additionally, we have authorized
preferred stock that is undesignated, making it possible for the board to issue
preferred stock with voting or other rights and preferences that could impede
the success of any attempted change of control. Delaware law also could make it
more difficult for a third party to acquire us. Section 203 of the Delaware
General Corporation Law may have an anti-takeover effect with respect to
transactions not approved in advance by our board, including discouraging
attempts that might result in a premium over the market price of the shares of
common stock held by our stockholders. See "Description of Capital
Stock -- Anti-Takeover Effects of Certain Provisions of Delaware Law and Our
Certificate of Incorporation and Bylaws" for information regarding when and how
these provisions apply.
FUTURE SALES OF OUR COMMON STOCK MAY CAUSE OUR STOCK PRICE TO DECLINE.
Sales of a large number of shares of our common stock in the market after
this offering, or the belief that these sales could occur, could cause a drop in
the market price of our common stock. Based on the 15,394,698 shares we had
outstanding as of December 31, 1999, and the 4,000,000 million shares to be sold
in this offering, we will have outstanding 19,394,698 shares of common stock
upon completion of this offering. Of these shares, the 4,000,000 shares sold in
this offering will be freely tradable without restriction or further
registration under the Securities Act, unless the shares are purchased by our
"affiliates."
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The remaining 15,394,698 shares of common stock outstanding upon completion
of this offering will be "restricted securities," as that term is defined under
Rule 144 of the Securities Act. All of our directors, executive officers and
other stockholders are subject to lock-up agreements or market stand-off
provisions that limit their ability to sell common stock. These stockholders
have agreed not to sell or otherwise dispose of any shares of our common stock
prior to 180 days after the date of this offering. Chase Securities Inc. has the
sole discretion to determine the timing and extent of any release from the
lock-up agreements to which it is a party and may grant such release without
providing any prior notice. When the lock-up agreements or market stand-off
provisions expire, these shares and shares underlying outstanding stock options
and warrants will become eligible for sale, in some cases only subject to the
volume, manner of sale and notice requirements of Rule 144.
The 15,394,698 shares of our common stock will become eligible for public
sale as follows:
- 0 shares as of the effective date;
- 0 shares as of 90 days after the effective date;
- 14,154,698 shares as of 180 days after the effective date;
- 1,240,000 shares more than 181 days after the effective date.
WE DO NOT INTEND TO PAY DIVIDENDS.
Since we terminated our election to be treated as an "S" corporation in
January 1998, we have not declared or paid any cash dividends on our common
stock. We currently intend to retain any future earnings to fund growth and,
therefore, do not expect to pay any dividends in the foreseeable future. See
"Dividend Policy" for additional information regarding our dividend policy.
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements we make in this prospectus are forward-looking
statements. In some cases, you can identify forward-looking statements by
terminology such as "may," "will," "should," "could," "expects," "plans,"
"intends," "anticipates," "believes," "estimates," "predicts," "potential" or
"continue" or similar terminology. These statements involve known and unknown
risks and uncertainties that may cause our actual results, levels of activity,
performance or achievements to differ materially from any expected results,
levels of activity, performance or achievements expressed or implied by such
forward-looking statements. These factors include, among other things, those
listed under "Risk Factors" and in other sections of this prospectus. We cannot
guarantee any future results, levels of activity, performance or achievements.
Moreover, neither we nor anyone else assumes responsibility for the accuracy and
completeness of any forward-looking statements.
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USE OF PROCEEDS
We estimate that the net proceeds of this offering will be approximately
$47.4 million, based on an assumed initial public offering price of $13.00 per
share and after deducting estimated underwriting discounts and commissions and
estimated offering expenses payable by us. We will not receive any proceeds from
the sale of common stock by the selling stockholders who have granted the
underwriters the option to purchase up to 600,000 shares of common stock to
cover over-allotments, if any.
We plan to use the net proceeds of this offering, along with our existing
cash balance, for working capital and general corporate purposes. We cannot
specify with certainty the particular uses of the net proceeds, but such uses
will include expenditures for domestic and international selling and marketing,
product research and development, development and expansion of our database
technologies and systems, infrastructure and support improvements and operating
losses. We may also use a portion of the net proceeds for acquisitions of
businesses, products and technologies or the establishment of new business
opportunities that are complementary to our current and future business.
Although we have not identified any specific businesses, products or
technologies that we may acquire, and there are no current agreements or
understandings with respect to any such transactions, we may from time to time
evaluate such opportunities. The amounts actually used for such working capital
purposes may vary significantly and will depend on a number of factors,
including the amount of our future revenue and the other factors described under
"Risk Factors." Accordingly, we will retain broad discretion in the allocation
of the net proceeds of this offering. Pending the above described uses, we will
invest the net proceeds of this offering in interest-bearing, investment-grade
securities.
DIVIDEND POLICY
Since we terminated our election to be treated as an "S" corporation for
federal income tax purposes in January 1998, we have not declared or paid cash
dividends on shares of our capital stock. We currently intend to retain any
earnings to develop and expand our business, and do not anticipate paying cash
dividends in the foreseeable future. Any future determination with respect to
the payment of dividends will be at the discretion of our board of directors and
will depend upon, among other things, our operating results, financial condition
and capital requirements, the terms of then-existing indebtedness, general
business conditions and other factors our board of directors deems relevant.
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CAPITALIZATION
The following table summarizes our capitalization as of December 31, 1999:
- on an actual basis, and
- on a pro forma as adjusted basis to reflect:
- the conversion of all of our outstanding preferred stock into common
stock upon completion of this offering;
- an amendment to our certificate of incorporation to be effective upon
completion of this offering, that will, among other things, increase our
authorized shares of common stock and authorize a class of undesignated
preferred stock; and
- our sale of 4,000,000 shares of common stock at an assumed initial
public offering price of $13.00 per share, after deducting estimated
underwriting discounts and commissions and estimated offering expenses
that we will pay.
You should read this table together with our financial statements and
related notes appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1999
-----------------------
PRO FORMA
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
Long-term debt.............................................. $ 1,497 $ 1,497
======== ========
Stockholders' equity:
Convertible preferred stock, par value $0.01: 7,038,340
shares authorized and 7,037,036 shares issued and
outstanding, actual; 5,000,000 shares authorized and no
shares issued and outstanding, pro forma as adjusted... 70 --
Common stock, $0.01 par value: 92,961,660 shares
authorized and 8,357,662 issued and outstanding,
actual; 100,000,000 shares authorized and 19,394,698
shares issued and outstanding, pro forma as adjusted... 84 194
Additional paid-in capital................................ 18,936 66,301
Deferred compensation..................................... (2,585) (2,585)
Accumulated deficit....................................... (14,863) (14,863)
-------- --------
Total stockholders' equity........................... 1,642 49,047
-------- --------
Total capitalization.............................. $ 3,139 $ 50,544
======== ========
</TABLE>
- -------------------------
This table is based upon shares outstanding as of December 31, 1999 and excludes
the following shares:
- 3,161,551 shares of common stock issuable upon exercise of outstanding
options at a weighted average exercise price $0.83 per share;
- 112,500 shares of common stock issuable upon exercise of outstanding
warrants at a weighted average exercise price of $1.69 per share; and
- 336,328 shares available for future grant as of December 31, 1999 under
our 1998 stock plan, and an additional approximately 1,000,000 shares
available for future grant under our stock plans to become effective at
the close of this offering.
23
<PAGE> 25
DILUTION
Our pro forma net tangible book value as of December 31, 1999 was
approximately $1.6 million, or $0.11 per share of common stock. Pro forma net
tangible book value per share is determined by dividing the amount of our total
tangible assets less our total liabilities by the pro forma number of shares of
common stock outstanding, after giving effect to the conversion of our
outstanding preferred stock. After giving effect to our sale of shares of common
stock at an assumed initial public offering price of $13.00 per share and after
deducting estimated underwriting discounts and commissions and estimated
offering expenses that we will pay, our adjusted pro forma net tangible book
value as of December 31, 1999 would have been $49.0 million, or $2.53 per share.
This amount represents an immediate increase in pro forma net tangible book
value to our existing stockholders of $2.42 per share and an immediate dilution
to new investors of $10.47 per share. The following table illustrates this per
share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $13.00
Pro forma net tangible book value per share as of December
31, 1999............................................... $ 0.11
Increase per share attributable to new investors.......... 2.42
------
Adjusted pro forma net tangible book value per share after
this offering............................................. 2.53
------
Dilution per share to new investors......................... $10.47
======
</TABLE>
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
---------------------- ---------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
----------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders......... 15,394,698 79.4% $16,685,674 24.3% $ 1.08
New investors................. 4,000,000 20.6 52,000,000 75.7 $13.00
----------- ----- ----------- -----
Total......................... 19,394,698 100.0% $68,685,674 100.0%
=========== ===== =========== =====
</TABLE>
The preceding discussion and tables assume no exercise of any stock options
or warrants outstanding as of December 31, 1999. As of December 31, 1999, there
were outstanding options to purchase a total of 3,161,551 shares of common stock
at a weighted average exercise price of $0.83 per share and outstanding warrants
to purchase a total of 112,500 shares of common stock at a weighted average
exercise price of $1.69 per share. To the extent any of these options or
warrants are exercised, there will be further dilution to our stockholders.
24
<PAGE> 26
SELECTED FINANCIAL DATA
You should read the following selected financial data in conjunction with
our financial statements and related notes and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" appearing elsewhere
in this prospectus. We derived the statement of operations data for the years
ended December 31, 1997, 1998 and 1999 and the balance sheet data as of December
31, 1998 and 1999 from our financial statements audited by Ernst & Young LLP,
which appear elsewhere in this prospectus. We derived the balance sheet data as
of December 31, 1997 from our financial statements audited by Ernst & Young LLP,
which are not included in this prospectus. We derived the statement of
operations data for the years ended December 31, 1995 and 1996 and the balance
sheet data as of December 31, 1995 and 1996 from our unaudited financial
statements that are not included in this prospectus. We have prepared our
unaudited financial statements on the same basis as our audited financial
statements. In the opinion of our management, our unaudited financial statements
include all adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of the information in those statements. Our
historical results are not necessarily indicative of operating results to be
expected in the future.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------
1995 1996 1997 1998 1999
---- ------ ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Subscriptions............................................. $ -- $ 14 $ 637 $ 2,503 $ 7,141
Other products and services............................... 882 2,576 4,383 4,416 1,506
---- ------ ------- ------- -------
Total revenues..................................... 882 2,590 5,020 6,919 8,647
Cost of revenues:
Subscriptions............................................. -- 73 218 736 1,084
Other products and services............................... 479 1,496 3,214 3,724 1,191
---- ------ ------- ------- -------
Total cost of revenues............................. 479 1,569 3,432 4,460 2,275
---- ------ ------- ------- -------
Gross margin................................................ 403 1,021 1,588 2,459 6,372
Operating expenses:
Selling and marketing (exclusive of $230 reported below as
amortization of stock-based compensation)............... 64 438 1,720 4,597 6,311
Research and development (exclusive of $256 reported below
as amortization of stock-based compensation)............ 14 146 528 1,789 3,913
General and administrative (exclusive of $1,336 reported
below as amortization of stock-based compensation)...... 49 406 767 1,715 3,805
Amortization of stock-based compensation.................. -- -- -- -- 1,822
---- ------ ------- ------- -------
Total operating expenses........................... 127 990 3,015 8,101 15,851
---- ------ ------- ------- -------
Income (loss) from operations............................... 276 31 (1,427) (5,642) (9,479)
Interest income (expense)................................... -- (4) (35) 33 225
---- ------ ------- ------- -------
Net income (loss)........................................... $276 $ 27 $(1,462) $(5,609) $(9,254)
==== ====== ======= ======= =======
Historical net income (loss) per share(1):
Basic and diluted......................................... $ -- $ 0.00 $ (0.21) $ (0.80) $ (1.25)
==== ====== ======= ======= =======
Weighted average shares -- basic and diluted.............. -- 7,000 7,000 7,000 7,403
==== ====== ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-----------------------------------------------
1995 1996 1997 1998 1999
---- ------ ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ -- $ 41 $ 123 $ 1,753 $10,735
Working capital (deficit)................................... 189 87 (1,350) (377) 5,222
Total assets................................................ 242 837 1,625 4,355 16,756
Deferred revenue............................................ -- 77 1,132 4,236 11,593
Long-term debt.............................................. -- -- -- 496 1,497
Total stockholders' equity (deficit)........................ 207 242 (1,340) (1,217) 1,642
</TABLE>
- ---------------
(1) See Note 1 of "Notes to Financial Statements" for a description of the
computation of per share information. We have not presented share and per
share data for 1995 because we operated as a sole proprietorship during that
period.
25
<PAGE> 27
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
"Selected Financial Data" and our financial statements and the related notes
included elsewhere in this prospectus. This discussion contains forward-looking
statements that involve risks and uncertainties. Our actual results could differ
materially from those anticipated in the forward-looking statements as a result
of certain factors including the risks discussed in "Risk Factors" and elsewhere
in this prospectus.
OVERVIEW
We provide employee Internet management products that enable businesses to
monitor, report and manage how their employees use the Internet. Our primary
product is Websense Enterprise, a software application that operates in
conjunction with our proprietary database of Web sites categorized by their
content. This software and database package supports an organization's efforts
to improve employee productivity, conserve network bandwidth and mitigate
potential legal liability. Our business was founded in 1994 as NetPartners
Internet Solutions, a reseller of computer network security solutions and
related services. In 1996, we released our first software product, Websense
Internet Screening System. Since that time, we have refocused our business on
developing and selling employee Internet management products, and no longer
focus on our software reselling and services business. In 1999 we changed our
name to Websense, Inc. and completed our change in business strategy. In the
same year, we expanded our senior management team, raised approximately $9.8
million in a private round of financing and further strengthened our indirect
sales channels and business relationships. In December 1999, we released an
enhanced and redesigned version of Websense Enterprise. We currently derive a
substantial majority of our revenues from subscriptions to this product and
expect this trend to continue for the foreseeable future.
Our business has grown since inception, with total revenues reaching $5.0
million in 1997, $6.9 million in 1998 and $8.6 million in 1999. During that
period, subscription revenue grew from 13% of total revenues in 1997, to 36% in
1998 and 83% in 1999 due to our change in strategy and investment in developing
and marketing Websense Enterprise. We have experienced net losses in each of the
last three fiscal years, and as of December 31, 1999, we had an accumulated
deficit of $14.9 million.
We offer Websense Enterprise on a subscription basis. When a purchase
decision is made, customers enter into a subscription agreement, which is
generally 12, 24 or 36 months in duration and for a fixed number of users. Upon
entering into the subscription agreement, we promptly invoice customers for
their subscriptions. Generally, payment is due for the full term of the
subscription within 30 days of invoice. We recognize revenue on a straight-line
basis over the term of the subscription agreement. We record amounts billed to
customers in excess of recognizable revenue as deferred revenue on our balance
sheet. As of December 31, 1999, we had $11.6 million of deferred revenue. Upon
expiration of the subscription, customers must resubscribe at our then current
rates to continue using Websense Enterprise. Our revenues are significantly
influenced by subscription renewals, and a decrease in subscription renewals
could negatively impact our revenues.
We also derive revenues from professional services and from resale of
computers and firewall software. We recognize revenues for these services and
products upon their completion or delivery. These revenues declined
significantly in 1999 due to our shift in business strategy. We expect these
revenues to remain relatively constant in dollar volume and to continue to
decline as a percent of total revenues for the foreseeable future.
26
<PAGE> 28
In 1999 we derived 21% of our revenues from international sales. We plan to
hire sales personnel in international locations and enhance our international
indirect distribution channels, particularly in selected countries in the
European and Asia Pacific markets, because we believe international markets
represent a significant growth opportunity. Our international revenues are
denominated in U.S. dollars. Fluctuation in the value of the U.S. dollar and
foreign currencies may make our products more expensive, and this could harm our
business. We do not currently engage in currency hedging activities to limit the
risk of exchange rate fluctuation.
We currently sell Websense Enterprise through indirect and direct channels;
however, our strategy is to increasingly rely on our indirect sales channels.
Our indirect sales channels accounted for approximately 70% of our subscription
revenue in 1999 and we expect that this percentage will increase in the future.
Domestically, we sell Websense Enterprise through more than 350 value-added
resellers and through our direct sales force. Internationally, we distribute
Websense Enterprise through more than 100 distributors and resellers in over 50
countries who resell Websense Enterprise through value-added resellers. In
addition, we leverage the sales and marketing capabilities of our original
equipment manufacturers and other key providers of complementary hardware and
software products.
Because we derive our revenues from subscription fees, we do not recognize
the entire amount of subscription fees received in the quarter the subscription
agreements are executed. However, we recognize our operating expenses as they
are incurred. Our operating expenses have increased more rapidly than our
revenues in recent periods due to expanded selling and marketing efforts and
investments in administrative infrastructure to support subscription sales that
we will recognize as revenue in subsequent periods. We anticipate that this
trend will continue and that our operating expenses, particularly selling and
marketing and general and administrative expenses, will grow at a faster rate
than our revenues in the near term.
In connection with the grant of stock options in 1999, we recorded an
aggregate of $4.4 million in deferred stock-based compensation within
stockholders' equity. These options were considered compensatory because the
deemed fair value was greater than the exercise prices determined by the board
of directors on the date of grant. We are amortizing the deferred compensation
on an accelerated basis in accordance with Financial Accounting Standards Board,
or FASB, Interpretation No. 28 over the vesting period of the related options,
which is generally four years. As of December 31, 1999, we had an aggregate of
$2.6 million of deferred stock-based compensation remaining to be amortized.
This deferred compensation balance will be amortized as follows: $1.5 million
during 2000; $741,000 during 2001; $302,000 during 2002; and $33,000 during
2003. We anticipate that we will record additional stock-based compensation
expense related to options granted in the first quarter of 2000. The amount of
stock-based compensation amortization actually recognized in future periods
could decrease if options for which accrued but unvested compensation has been
recorded are forfeited.
27
<PAGE> 29
RESULTS OF OPERATIONS
The following table summarizes our operating results as a percentage of
total revenues for each of the periods shown.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Revenues:
Subscriptions............................................. 13% 36% 83%
Other products and services............................... 87 64 17
--- --- ----
Total revenues.................................... 100 100 100
Cost of revenues:
Subscriptions............................................. 4 11 13
Other products and services............................... 64 53 14
--- --- ----
Total cost of revenues............................ 68 64 27
Gross margin................................................ 32 36 73
Operating expenses:
Sales and marketing....................................... 34 66 73
Research and development.................................. 11 26 45
General and administrative................................ 15 25 44
Amortization of stock-based compensation.................. -- -- 21
--- --- ----
Total operating expenses.......................... 60 117 183
--- --- ----
Income (loss) from operations............................... (28) (81) (110)
Interest income (expense), net.............................. (1) -- 3
--- --- ----
Net income (loss)........................................... (29)% (81)% (107)%
=== === ====
</TABLE>
COMPARISON OF YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
Revenues
Subscriptions. Subscription revenue increased $4.6 million, or 185%, to
$7.1 million in 1999 from $2.5 million in 1998. Subscription revenue increased
$1.9 million, or 293%, in 1998 from $637,000 in 1997. Subscription revenue
accounted for 83% of total revenues in 1999 compared to 36% in 1998 and 13% in
1997. The increases in our subscription revenue in 1999 and 1998 were due
primarily to subscriptions from new customers. In addition, we experienced
increased market acceptance of our Websense Enterprise products which
contributed to the increases in subscription revenues from new customers.
Other products and services. Other products and services revenue decreased
$2.9 million, or 66%, to $1.5 million in 1999 from $4.4 million in 1998
representing a decrease as a percentage of total revenues from 64% to 17%. Other
products and services revenue increased by $33,000, or 1%, in 1998 as compared
to 1997, but decreased as a percentage of total revenues from 87% to 64%. For
both years the decrease as a percentage of total revenues was primarily due to
our decision to transition from a services organization and reseller of software
to a provider of subscription-based employee Internet management products.
Cost of Revenues
Cost of subscriptions. Cost of subscriptions consists of the costs of Web
site review, technical support and infrastructure associated with maintaining
our database. Cost of subscriptions increased $348,000, or 47%, to $1.1 million
in 1999 from $736,000 in 1998. Cost of subscriptions increased $519,000, or
238%, in 1998 from $218,000 in 1997 to support the growth in subscriptions. Cost
of
28
<PAGE> 30
subscriptions as a percentage of subscription revenue decreased to 15% in 1999
from 29% in 1998 and 34% in 1997. These decreases in costs of subscription
revenue as a percentage of subscription revenue for both years were due to
increased revenue.
Cost of other products and services. Cost of other products and services
consists primarily of the firewall software and computers that we resell and the
salaries and benefits of our professional services personnel. Cost of other
products and services decreased $2.5 million, or 68%, to $1.2 million in 1999
from $3.7 million in 1998 due to our shift in focus away from reselling hardware
and software. Cost of other products and services increased $509,000, or 16%, in
1998 from $3.2 million in 1997 due to increased costs of the firewall software
and computers that we resold. Cost of other products and services as a
percentage of products and services revenue decreased to 79% in 1999 from 84% in
1998 due to decreased sales of low-margin hardware products. Cost of other
products and services as a percentage of other products and services revenue
increased to 84% in 1998 from 73% in 1997 primarily due to higher acquisition
costs and increased pricing pressure on the firewall software and computers that
we resold.
Operating Expenses
Selling and marketing. Selling and marketing expenses consist primarily of
salaries, commissions and benefits related to personnel engaged in selling,
marketing and customer support functions, along with costs related to public
relations, advertising, promotions and travel. Selling and marketing expenses
increased $1.7 million, or 37%, to $6.3 million in 1999 from $4.6 million in
1998. Selling and marketing expenses increased $2.9 million, or 167%, in 1998
from $1.7 million in 1997. The increase in selling and marketing expenses in
1999 was primarily due to increases in headcount of $1.3 million and promotional
expenses of $748,000, and were partially offset by a decrease in advertising
expenses of $483,000. The increase in selling and marketing expenses in 1998 was
primarily due to increased spending in advertising of $859,000 and headcount of
$1.5 million. We expect our selling and marketing expenses to increase as we add
personnel to support our expanding selling and marketing efforts.
Research and development. Research and development expenses consist
primarily of salaries and benefits for software developers, contract
programmers, facilities costs and equipment depreciation. Research and
development expenses increased $2.1 million, or 116%, to $3.9 million in 1999
from $1.8 million in 1998. Research and development expenses increased $1.3
million, or 239%, in 1998 from $528,000 in 1997. The increase in research and
development expenses in 1999 was primarily a result of increased development
efforts and enhancements to Websense Enterprise. The increase in research and
development expenses in 1998 was due to the expansion of our development efforts
beginning in May 1998 relating to the Websense Enterprise software application
and database.
General and administrative. General and administrative expenses consist
primarily of salaries, benefits and related expenses for our executive, finance,
human resources, information technology and administrative personnel, third
party professional service fees and allocated facilities and depreciation
expenses. General and administrative expenses increased $2.1 million, or 122%,
to $3.8 million in 1999 from $1.7 million in 1998. The increase in our general
and administrative expenses in 1999 was primarily due to significant investments
in increased headcount of $1.0 million, facilities of $268,000 and information
technology of $327,000 to support an expansion in the scope of our business.
General and administrative expenses increased $948,000, or 124%, in 1998 from
$767,000 in 1997. The increase in our general and administrative expenses in
1998 was primarily due to significant investments in increased headcount of
$640,000 and facilities of $211,000. We expect general and administrative
expenses to increase in the future, reflecting growth in our operations and
increased expenses associated with being a public company.
29
<PAGE> 31
Amortization of stock-based compensation. We recognized $1.8 million in
stock-based compensation expense for 1999 relating to the amortization of
deferred compensation. There was no amortization of stock-based compensation in
periods prior to 1999.
Interest Income (Expense), Net
Net interest income (expense) increased $192,000 to $225,000 in 1999 from
$33,000 in 1998. Net interest income (expense) increased $68,000 in 1998 from
$(35,000) in 1997. These increases are primarily due to interest income from the
investment of proceeds from our financings in 1999 and 1998.
Income Taxes
In January 1998, we terminated our election to be treated as an "S"
corporation for federal income tax purposes, and as a result we became subject
to income tax at the corporate level to the extent we generate taxable income.
We have not recorded an income tax benefit arising from our historical losses
because we have recorded a full valuation allowance against any deferred tax
assets available to us for use in future periods. Realization of these assets is
primarily dependent on generating taxable net income in the future.
QUARTERLY FINANCIAL DATA
The following tables set forth unaudited quarterly operating information
and financial data for each of the eight quarters in the period ending December
31, 1999. This data has been prepared on the same basis as the audited financial
statements contained elsewhere in this prospectus and, in the opinion of
management, includes all adjustments necessary for the fair presentation of the
information for the periods presented. This information should be read in
conjunction with the financial statements and notes thereto. The operating
results and financial data in any quarter are not necessarily indicative of the
results that may be expected for any future period.
During the first quarter of 1999, we sharply curtailed marketing activities
as part of a management transition in that quarter. This resulted in a
significant decrease in our selling and marketing expenses. We resumed our
selling and marketing activities in the second quarter of 1999, which led to a
significant increase in these expenses. Additionally, in the first quarter of
1999, we increased our reserves for doubtful accounts, which, together with
increased state franchise taxes and expenses recognized in connection with the
issuance of a warrant, resulted in a significant increase in our general and
administrative expenses for the period. We believe that future operating results
will be subject to quarterly fluctuations, and, as a result, we believe that
results of operations for interim periods should not be relied upon as any
indication of the results to be
30
<PAGE> 32
expected in any future period. We have incurred operating losses during 1999,
1998 and 1997, and we cannot be certain that we will achieve profitability on a
quarterly or annual basis in the future.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
1998 1998 1998 1998 1999 1999 1999 1999
-------- -------- --------- -------- -------- -------- --------- --------
STATEMENT OF OPERATIONS DATA: (IN THOUSANDS)
Revenues:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Subscriptions........................ $ 471 $ 553 $ 689 $ 790 $ 1,198 $ 1,542 $ 1,987 $ 2,414
Other products and services.......... 1,293 1,633 893 597 469 392 343 302
------ ------- ------- ------- ------- ------- ------- -------
Total revenues..................... 1,764 2,186 1,582 1,387 1,667 1,934 2,330 2,716
Cost of revenues:
Subscriptions........................ 126 181 182 247 172 221 309 382
Other products and services.......... 1,044 1,325 775 580 351 306 258 275
------ ------- ------- ------- ------- ------- ------- -------
Total cost of revenues............. 1,170 1,506 957 827 523 527 567 657
------ ------- ------- ------- ------- ------- ------- -------
Gross margin........................... 594 680 625 560 1,144 1,407 1,763 2,059
Operating expenses:
Selling and marketing................ 712 1,458 1,164 1,263 933 1,614 1,574 2,190
Research and development............. 190 394 570 636 678 748 1,109 1,378
General and administrative........... 329 281 527 577 1,016 835 937 1,017
Amortization of stock-based
compensation....................... -- -- -- -- 43 523 647 609
------ ------- ------- ------- ------- ------- ------- -------
Total operating expenses........... 1,231 2,133 2,261 2,476 2,670 3,720 4,267 5,194
------ ------- ------- ------- ------- ------- ------- -------
Income (loss) from operations.......... (637) (1,453) (1,636) (1,916) (1,526) (2,313) (2,504) (3,135)
Interest income (expense), net......... (12) (6) 37 14 16 (82) 174 117
------ ------- ------- ------- ------- ------- ------- -------
Net income (loss)...................... $ (649) $(1,459) $(1,599) $(1,902) $(1,510) $(2,395) $(2,330) $(3,018)
====== ======= ======= ======= ======= ======= ======= =======
FINANCIAL DATA:
Deferred revenue at end of period...... $1,968 $ 2,348 $ 3,092 $ 4,236 $ 6,169 $ 7,452 $ 9,157 $11,593
====== ======= ======= ======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
1998 1998 1998 1998 1999 1999 1999 1999
STATEMENT OF OPERATIONS DATA: -------- -------- --------- -------- -------- -------- --------- --------
(AS A PERCENTAGE OF TOTAL REVENUES)
Revenues:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Subscriptions........................ 27% 25% 44% 57% 72% 80% 85% 89%
Other products and services.......... 73 75 56 43 28 20 15 11
--- --- ---- ---- --- ---- ---- ----
Total revenues..................... 100 100 100 100 100 100 100 100
Cost of revenues:
Subscriptions........................ 7 8 11 18 10 11 13 14
Other products and services.......... 59 61 49 42 21 16 11 10
--- --- ---- ---- --- ---- ---- ----
Total cost of revenues............. 66 69 60 60 31 27 24 24
--- --- ---- ---- --- ---- ---- ----
Gross margin........................... 34 31 40 40 69 73 76 76
Operating expenses:
Selling and marketing................ 40 67 74 91 56 83 68 81
Research and development............. 11 18 36 46 41 39 47 50
General and administrative........... 19 13 33 41 61 43 40 37
Amortization of stock-based
compensation....................... 0 0 0 0 3 27 28 22
--- --- ---- ---- --- ---- ---- ----
Total operating expenses........... 70 98 143 178 161 192 183 190
--- --- ---- ---- --- ---- ---- ----
Income (loss) from operations.......... (36) (67) (103) (138) (92) (119) (107) (114)
Interest income (expense), net......... (1) 0 2 1 1 (4) 7 4
--- --- ---- ---- --- ---- ---- ----
Net income (loss)...................... (37)% (67)% (101)% (137)% (91)% (123)% (100)% (110)%
=== === ==== ==== === ==== ==== ====
</TABLE>
31
<PAGE> 33
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have funded our operations primarily through private
sales of equity securities and the use of short- and long-term debt. As of
December 31, 1999, we had cash and cash equivalents of $10.7 million, an
accumulated deficit of $14.9 million and $1.5 million of long-term debt, of
which $504,000 is current.
Net cash used in operating activities was $403,000 in 1999 as compared to
$3.1 million in 1998 and $129,000 in 1997. In 1999, the cash used in operations
reflects a net loss before depreciation and amortization of $6.8 million and an
increase in accounts receivable of $2.2 million attributable to the increase in
deferred revenue, partially offset by an increase in deferred revenue of $7.4
million, as well as increases in accounts payable and accrued liabilities. In
1998 and 1997, cash used in operations was primarily the result of our net
losses, partially offset by increases in deferred revenue.
Net cash used in investing activities was $1.7 million in 1999, $937,000 in
1998 and $179,000 in 1997. Net cash used in investing activities consisted
primarily of capital expenditures, related to our investments in computer
equipment and facilities, which were required to support our business expansion.
Net cash provided by financing activities was $11.1 million in 1999 as
compared to $5.6 million in 1998 and $352,000 in 1997. In 1999, cash provided by
financing activities consisted primarily of $9.8 million received from the sale
of Series B Convertible Preferred Stock, $360,000 received from the exercise of
stock options and $1.3 million in proceeds from borrowings, reduced by $297,000
of repayments of notes payable. In 1998, cash provided by financing activities
consisted primarily of $5.7 million received from the sale of Series A
Convertible Preferred Stock and $467,000 in proceeds from borrowings, reduced by
$558,000 of repayments of notes payable. For 1997, cash provided by financing
activities consisted primarily of $590,000 in proceeds from borrowings, reduced
by $114,000 of repayments of notes payable.
We have term notes to Silicon Valley Bank which accrue interest at the
bank's floating prime rate plus 0.5% (9.00% at December 31, 1999) and which had
$553,000 outstanding at December 31, 1999. We are required to make monthly
payments of principal and interest through February 2002. At the present
interest rate our monthly principal and interest payments are $28,000.
In May 1999, we established a line of credit with Silicon Valley Bank for
working capital advances, or borrowings, and stand-by letters of credit for up
to $1.0 million. Borrowings accrue interest at the bank's floating prime rate
plus 0.25% (8.75% at December 31, 1999). As of December 31, 1999, we had open
letters of credit under the line of $496,000. Any outstanding borrowings on the
line mature in May 2000. As of December 31, 1999, we had no borrowings
outstanding against the line.
In October 1999, we modified our May 1999 agreement to provide an
additional $1.0 million line of credit from Silicon Valley Bank to be used for
equipment and furniture purchases through April 2000. In October 1999, we drew
down $925,000 of the available line, which will be converted to a term note in
April 2000. There are no compensating cash requirements on the line, and
advances accrue interest at the bank's floating prime rate plus 1.0% (9.5% at
December 31, 1999). Currently we are required to make monthly interest payments
of $7,000. Beginning in April 2000, we are required to make monthly payments of
principal and interest through April 2003.
All borrowings under our agreements with Silicon Valley Bank are
collateralized by substantially all our assets, and are subject to financial and
restrictive covenants. Under the terms of the line of credit, we are required to
maintain specified financial ratios and meet pre-determined profitability
requirements. We also agreed not to enter into material business combinations or
to take actions that could diminish the value of our assets.
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We believe that our existing cash and cash equivalents will be sufficient
to meet our anticipated cash needs through the next 12 months and that the net
proceeds from this offering may enable us to meet our anticipated cash needs
beyond that time. If cash generated from operations is insufficient to satisfy
our liquidity requirements, we may seek to sell additional equity or debt
securities or to obtain a larger credit facility. The sale of additional equity
or convertible debt securities would result in additional dilution to our
shareholders. Additional debt would result in increased expenses and could
result in covenants that would restrict our operations. We have not made
arrangements to obtain additional financing and there is no assurance that
financing, if required, will be available in amounts or on terms acceptable to
us, if at all.
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1 "Accounting for Costs of Computer Software
Developed or Obtained for Internal Use" (SOP 98-1). This standard requires
companies to capitalize qualifying computer software costs that are incurred
during the application development stage and amortize them over the software's
estimated useful life. We adopted SOP 98-1 effective January 1, 1999 with no
material effect on the financial statements.
In June 1998, the Financial Accounting Standards Board, or FASB, issued
SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities,
which establishes accounting and reporting standards for derivative instruments
and hedging activities. The Statement will require the recognition of all
derivatives on our balance sheet at fair value. The FASB has subsequently
delayed implementation of the standard for the financial years beginning after
June 15, 2000. We expect to adopt the new Statement effective January 1, 2001.
The impact on our financial statements is not expected to be material.
In December 1999, the Securities and Exchange Commission Staff released
Staff Accounting Bulletin (SAB) No. 101, Revenue Recognition in Financial
Statements. The adoption of SAB No. 101 did not have any impact on our revenue
recognition.
INTEREST RATE RISK
We are exposed to changes in interest rates primarily from our long-term
debt arrangements and, secondarily, our investments in cash equivalents. Under
our current policies, we do not use interest rate derivative instruments to
manage exposure to interest rate changes. A hypothetical 100 basis point adverse
move in interest rates along the entire interest rate yield curve would not
materially affect the fair value of our interest sensitive financial instruments
at December 31, 1999.
YEAR 2000 IMPACT
The Year 2000 Issue
The year 2000 issue refers to the potential for disruption for business
activities caused by system failures or miscalculations which are triggered by
advancement of data records past the year 1999. Our business has not been
affected by year 2000 issues. However, we cannot assure you that we will not
experience any disruption related to year 2000 issues in the future. We are not
currently aware of any unresolved year 2000 problems relating to any of our
internal systems, nor do we believe that we have any significant systems that
are not year 2000 compliant. Based on our assessment to date, we do not expect
the total cost of year 2000 remediation to be material to our business. To date,
our preparation and remediation costs have been less than $100,000 and future
expenditures will not be significant.
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BUSINESS
COMPANY OVERVIEW
Websense is a leading provider of employee Internet management products
that enable businesses to monitor, report and manage how their employees use the
Internet. Our primary product, Websense Enterprise, gives businesses the ability
to rapidly implement and configure Internet access policies in support of their
efforts to improve employee productivity, conserve network bandwidth and
mitigate potential legal liability. Our flexible and easy-to-use software
applications operate in conjunction with our proprietary database, which is
available for daily incremental downloads. This database is organized into 54
categories and encompasses more than 900,000 Web sites representing
approximately 95 million Web page addresses. Our database is updated with
approximately 2,000 newly categorized Web sites each business day using a
proprietary process of automated site content assessment and classification with
manual verification. Websense Enterprise is easy to deploy and use, and has
minimal impact on an organization's information technology department. Our
products require no additional hardware, can grow with our customers as they
expand and support a broad range of network platforms, including leading proxy
servers, firewalls and other network appliances and software.
INDUSTRY BACKGROUND
The Internet has emerged as a critical business tool and an important
communications and commerce platform for enterprises worldwide. As part of their
overall business strategies, many organizations are using the Internet to enable
business applications that are accessed over their corporate networks. Companies
utilize the Internet to optimize their extended supply chains, automate their
sales forces, track shipments and communicate with employees, customers,
partners and suppliers. Due to the efficiencies, cost-savings and competitive
advantages that can be gained by leveraging the Internet, many businesses are
spending aggressively to build out their computer networks and information
technology infrastructure. According to International Data Corporation business
spending on basic Internet access alone is expected to reach $12.2 billion by
2002. In order to accommodate a significant number of simultaneous users and the
increasing volume of data transfer associated with enterprise Internet use, many
organizations are making substantial investments in high bandwidth connections
such as dedicated T-1 lines, enabling high speed Internet access.
The Internet has also become a highly popular consumer medium for
entertainment, information and commerce. International Data Corporation has
projected that the number of Internet users worldwide will grow from 103 million
in 1998 to 316 million in 2002. This rapid adoption of the Internet has been
accompanied by remarkable growth in the number of consumer-oriented content and
commerce Web sites and by an ever-expanding assortment of Web-based consumer
services. Internet users today communicate regularly through e-mail, retrieve
news and information from numerous Internet sources, make online purchases of
goods and services ranging from books to airline tickets to groceries, and
otherwise access a broad range of non-business-related content and commerce Web
sites. As the rapid evolution of Web content and technology continues, the
amount of data, types of data and size of files traveling across the Internet
have also grown. Consumers now access and download large, complex files such as
streaming audio and video, MP3 music files, multi-player games and a variety of
other rich media, all of which consume large amounts of network bandwidth.
Similarly, online banner advertising and marketing campaigns targeting consumer
Internet users continue to evolve, consuming more bandwidth, particularly as
Web-based advertising increasingly incorporates multimedia and streaming
technologies.
Internet access at work is fast, convenient and essentially free to
employees. In general, employees enjoy unsupervised and unrestricted Internet
access from their desktop computers. As a
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result, employees tend to use their employers' Internet connections for
recreational "surfing" or personal matters during business hours. Non-business
use of company Internet access by employees can result in lost employee
productivity, increased network bandwidth consumption and potential legal
liability. These factors in turn contribute to higher costs for companies that
use the Internet.
Recent research and news reports regularly document the hidden costs of
open Internet access in the workplace. We believe that a substantial amount of
employee Internet activity in the workplace is non-business-related, and that a
significant portion of non-business-related e-commerce is conducted through an
Internet connection at work. This non-business use of the Internet can consume
large portions of expensive network bandwidth. According to a Saratoga Institute
study that we commissioned, more than 60% of mid- to large-sized companies
surveyed had disciplined employees for Internet misuse, and more than 30% of
those companies had terminated employees for inappropriate Internet activity.
For example, in October 1999, Xerox Corporation fired 40 employees for
inappropriate use of the Internet in the workplace. In addition, a company may
be exposed to legal liability if online content accessed at the workplace is
deemed to have created a hostile work environment for other employees.
Businesses are increasingly recognizing the problem of personal Internet
use in the workplace, and traditionally have attempted to manage or modify
employee behavior through written policies. These policies are easily ignored
and difficult to enforce. In order to monitor compliance with policy, managers
may require their information technology professionals to review the log files
generated by company servers of Web pages visited. This method of employee
Internet management is generally cumbersome and time consuming, and often does
not provide the company with useful information regarding the actual content or
category of Web sites visited. Because this method does not proactively curtail
undesirable Internet activity, employers are forced to discipline employee
violations after the fact. As a result, some managers have lost a significant
level of control over both their employees' productivity and the use of their
information technology infrastructures.
To address the problems associated with improper Internet use in the
workplace, many businesses have sought solutions that enable them to proactively
manage their employees' Internet access. Early Internet filtering software for
the enterprise was largely derived from products that were originally developed
to help parents prevent their children from accessing adult content at home, and
used keyword matching to block content. These, and other more recent solutions,
lack the ability to meet the needs of growing organizations, cannot operate on
multiple network platforms, do not provide the flexibility required by
management and can be labor-intensive to deploy, consuming valuable information
technology resources. In addition, these applications generally do not operate
in conjunction with a comprehensive database that is consistently refreshed.
Moreover, many of these products' databases have typically focused on only a few
categories such as sex, violence and inappropriate language, and do not have
sufficiently broad coverage to address the wider range of non-business-related
content accessible through the Internet.
Workplace management of non-business-related Internet access is an
increasingly important priority because of its impact on employee productivity,
network bandwidth consumption and potential legal liability. Given the necessity
of corporate Internet access and consumers' continuing adoption of the Web as a
mass entertainment, information and commerce medium, we believe there is a
significant opportunity for an employee Internet management solution that
effectively addresses the needs of businesses.
SOLUTION
We provide employee Internet management products that enable businesses to
monitor, report and manage how their employees use the Internet. Our primary
product is Websense Enterprise, a
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software and database package that gives business managers the ability to
implement customized Internet access policies for different users and groups
within the business, and supports an organization's efforts to improve employee
productivity, conserve network bandwidth and mitigate potential legal liability.
The software component of Websense Enterprise allows managers the flexibility to
select the types of Internet content they wish to manage based on the database
categories we have defined. Our software enforces these managerial selections by
comparing Web site requests with the Web site addresses we have categorized in
our database. Websense Enterprise is sold on a subscription basis. The principal
benefits of our solution include:
Increased Employee Productivity. Websense Enterprise gives businesses the
ability to more effectively monitor, report and manage employee Internet access,
thereby reducing non-productive Internet use. Our software enables organizations
to identify the pattern and scope of Internet use and to manage access to
non-business related content or particular categories of Internet content chosen
by an organization. In addition, our software allows managers to permit or deny
Internet access based on the employee, type of user, time of day and type of
content being accessed. Websense Enterprise may also be configured to defer
access until after work hours, limiting workplace distractions but allowing
appropriate use of the organization's high-speed Internet connection.
Reduced Bandwidth Consumption. We believe Websense Enterprise allows
organizations to reduce bandwidth consumption by managing personal Internet use
and access to Web sites, in particular those which may contain
bandwidth-intensive content, such as streaming audio and video, MP3 music files,
multi-player games and other rich media. Reducing the bandwidth consumed by
non-business-related Internet traffic allows an organization to use its network
more efficiently and effectively in performing important business tasks, and to
avoid costs arising from the need to buy additional telecommunications services
and networking equipment.
Reduced Exposure to Potential Legal Liabilities. Websense Enterprise
supports organizations' efforts to reduce exposure to legal liability resulting
from the improper use of the Internet in the workplace. By implementing our
solution in conjunction with an overall corporate Internet usage policy,
organizations can proactively curtail access to objectionable Internet content
such as adult entertainment, illegal activities and racism.
In addition to the benefits above, our solution provides these key
features:
Access to the Most Comprehensive Database. We provide access to a
proprietary database of over 900,000 Web sites, representing approximately 95
million unique Web page addresses. Our database is cataloged into 54 different
categories to enable organizations to determine the types of Internet content
that are appropriate for their workplace culture. We add approximately 2,000
newly categorized Web sites each business day to our database and make these
updates available to our customers for daily incremental downloads.
Ability to Customize Employee Internet Access. Websense Enterprise allows
organizations to configure specific Internet access policies for various groups,
user types or individuals. Through our easy-to-use browser interface, we enable
managers to implement Internet access policy with limited impact on information
technology resources and personnel. Organizations may choose Internet access
options which include blocking Web sites completely or partially, setting time
periods for access, allowing access but generating an exception report, or
deferring access until after work hours.
Ability to Scale and Operate on a Variety of Network Platforms. Our
software is designed to have minimal impact on network performance and can be
implemented without the purchase of additional hardware. Websense Enterprise is
available on a broad range of network platforms, and existing implementations
currently support up to 50,000 users on a single server. Our software works with
popular proxy servers, firewalls and cache engines offered by leading Internet
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infrastructure providers such as CacheFlow, Check Point, Cisco, Inktomi,
Microsoft Corp., Nokia and others.
STRATEGY
Our objective is to maintain and strengthen our position as a leading
provider of employee Internet management solutions. Key components of our
strategy include:
Increase Sales to Existing Customers. Many of our customers are large
businesses that have thousands of Internet-enabled employees. In most cases,
these customers initially deploy the Websense Enterprise application in one or
two internal departments and pay subscription fees based only on the number of
Internet users in those departments. We believe that there is a large
opportunity to sell our existing customers subscriptions for additional Internet
users within their organizations. We intend to aggressively pursue renewals of
existing subscription agreements and enterprise-wide deployment of Websense
Enterprise within our existing customer base.
Aggressively Leverage Indirect Sales Channels. We currently have 350
value-added resellers that focus on the U.S. market and over 100 international
distributors and resellers primarily in Europe and Asia Pacific. Our indirect
sales channels accounted for approximately 70% of our subscription revenue in
1999. We intend to increase our resources focused on developing these channels
and, as a result, expect that the percentage of our total sales derived from our
indirect channels will increase in the future. In addition, we plan to improve
the productivity of our existing value-added resellers through lead development,
marketing support, sales assistance and training. We intend to aggressively
leverage and expand our indirect sales channels in both the domestic and
international markets through recruiting programs and an ongoing sharing of
subscription renewal fees.
Expand our Customer Base. Our products have been deployed in more than
7,500 organizations worldwide, including 4,600 businesses, of which more than
200 are Fortune 500 companies. We believe our large installed base of customers
provides our products with market credibility, and we intend to leverage this
credibility to further our market penetration. We currently have over 100
international distributors and resellers covering more than 50 countries. To
address this growing opportunity, we will continue to increase the number of
international resellers and expand our database coverage beyond the English,
French, German, Japanese and Spanish Web sites currently categorized. We believe
that given the higher costs of Internet access in many foreign markets, the need
to manage employee Internet use will be cost-driven. We also currently have
2,900 educational institutions with 590,000 workstations using Websense
Enterprise to manage student Internet access.
Expand the Websense Product Offering. We intend to continuously develop and
update our software and database in order to keep current with the evolution of
Internet content and technology. We plan to offer our customers enhanced
reporting and management applications for Websense Enterprise as an incremental
revenue opportunity. We also believe that our granular filtering and
categorization of Internet content will enable us to sell subscriptions to
subsets of our database on an incremental per-user basis. We also intend to
provide additional software features which address worker productivity and
enterprise bandwidth consumption. For example, we plan to offer our customers
the ability to block all banner ads from entering the network by dynamically
stripping them from visited Web sites. In addition, we recognize the need of
many small businesses to manage employee Internet access, and we are currently
developing Websense for Small Businesses to target this market.
Work Closely with Leading Internet Infrastructure Providers. We intend to
continue to work closely with leading Internet infrastructure providers such as
CacheFlow, Check Point, Cisco, Inktomi and Nokia. We have modified our software
to integrate with each of these companies' products, and we intend to continue
to work with these companies to migrate our software
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applications deeper into the network infrastructure, from proxy servers,
firewalls and cache engines, to network routers. In addition, we plan to
continue to sponsor co-marketing programs with these companies to associate our
product with their established brands and enhance our market position.
Develop and Maintain Leading Processes and Technologies. We intend to
continue developing proprietary processes and technologies that, we believe,
give us a distinct competitive advantage because they enable us to rapidly
increase the size and effectiveness of our database. In the development and
maintenance of our databases, we utilize a process of automated content
assessment and classification with manual verification that we believe maximizes
coverage and accuracy. In addition, we intend to continue to develop software
and technology that will facilitate the integration of our products with the
systems of our customers and business partners.
Further Develop and Market AfterWork.com. We intend to leverage the large
and growing user base of Websense Enterprise to develop additional revenue
opportunities through AfterWork.com. Working in conjunction with Websense
Enterprise, this portal site provides employers with the option to defer
employee's non-business related Internet activities to specified non-working
hours. AfterWork.com features a repository for bookmarked Web sites which
employees can access after work through a personalized AfterWork.com Web page.
This allows employees to pursue personal activities such as e-commerce, research
and chat, and to access news and information using their employers' high-speed
Internet connections. Personalized AfterWork.com Web pages can also be accessed
from remote locations, such as the employee's home, to provide a gateway to
useful and often-visited Web sites. We believe that AfterWork.com may provide us
with revenue opportunities through Internet advertising, sponsorships and
e-commerce.
PRODUCTS AND SERVICES
We develop and market a comprehensive and flexible software and database
application for managing employee access to the Internet. Our solution consists
of customizable software that references our proprietary database. Our database
of Web page addresses is organized into 54 categories which are regularly
updated and available for incremental daily downloads. In addition to our
current offerings, we plan to introduce and market new products and services,
such as our new AfterWork.com offering, that will provide enterprises with
additional flexibility in managing employee Internet access.
WEBSENSE ARCHITECTURE
[websense graphic]
<TABLE>
<S> <C> <C> <C> <C> <C>
Advertising e-Commerce Monitoring Functions Router
High Legal 54 Categories Reporting Functions Appliance AfterWork.com
Bandwidth Liability Management Functions Proxy Server
Free e-Mail Others Firewall
- ----------- ---------- --------------- -------------------------- ----------------- -------------
Anticipated Websense Websense Websense Customer Websense
Database Offerings Master Database Core Software Applications Network Platforms e-Commerce
</TABLE>
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Websense Enterprise. Websense Enterprise is the foundation of our software
offerings. Websense Enterprise integrates with an organization's network server,
proxy server or firewall and is designed to work in networks of virtually any
size and configuration without compromising security. The table below describes
the platforms for which we currently offer our Websense Enterprise solution.
<TABLE>
<CAPTION>
PROXY SERVERS FIREWALLS CACHE ENGINES APPLIANCE/OTHER
------------- --------- ------------- ---------------
<S> <C> <C> <C>
- Microsoft Proxy - Check Point - Inktomi - Team Internet
- Netscape Proxy - Cisco - CacheFlow - Nokia
- Websense Proxy - Novell - OpenServer Partners
- MimeSweeper - SecurIT
- Netscreen-Conclave
- Netopia-Conclave
- GnatBox
</TABLE>
We sell Websense Enterprise as a subscription based on the number of
Internet users to be managed. Additional users, additional features and enhanced
technical support are priced separately.
Content Management. Websense Enterprise enables employers to proactively
manage employee Internet access based on the content of the requested Web site.
Our software application gives managers the ability to customize, implement and
modify Internet access policies for various groups, user types and individuals.
An easy-to-use graphical interface enables business managers to define the
categories of Web sites to which access will be managed during particular time
periods of the day. The filtering software examines each Internet access
request, determines the category of the requested Web site and applies the
policies that have been defined by the company. There are several possible
results for each request:
- Allow. The request is allowed to proceed, because the organization has
chosen not to restrict access to the category applicable to the Web site
or because the requested Web site does not fall into any of our
categories.
- Block. The requested Web site is in a category that is not allowed to be
accessed according to the policy in effect.
- Defer and Save. The user can bookmark the requested Web site to a
personalized AfterWork.com Web page for access at a later time when the
organization's access policy is less restrictive. This Web page can also
be accessed from alternative locations, such as from the employee's home.
- Continue with Exception Report. The user is reminded about the
organization's Internet usage policy, but can choose to access the
requested Web site. Alternatively, the user can save the Web site as
described above.
The Websense Database. We offer an extensive and regularly updated database
of Web sites. Our database currently catalogs more than 900,000 Web sites
representing approximately 95 million Web page addresses cataloged into 54
categories. We add approximately 2,000 newly categorized Web sites per business
day to our database and make these updates available for incremental daily
downloads.
The breadth and specificity of Web site categories we have defined provide
the enterprise flexibility in selecting which types of material should be
allowed, blocked, deferred or reported. We define the categories, based on input
we have received from our customers, to identify the types of
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materials that we believe employers would deem to be unacceptable, inappropriate
or undesirable in a work environment. Categories in our database include the
following:
<TABLE>
<S> <C> <C>
- Abortion Advocacy - Health - Sex
- Abused Medications - Illegal & Questionable - Shopping
- Activist Groups - Information Technology - Society & Lifestyles
- Adult Content - Job Search - Special Events
- Adult Entertainment - Militancy & Extremist - Sports
- Alcohol & Tobacco - Military - Streaming Media &
- Alternative Journals - MP3 Broadcasting Channels
- Arts & Humanities - News & Media - Supplements
- Business & Economy - Nudity - Tasteless
- Cult & New Age - Online Games - Traditional Religions
- Drugs - Personals & Dating - Travel
- Education - Political Groups - URL Translation Sites
- Entertainment - Prescribed Medications - Vehicles
- Financial Data & - Proxy Avoidance - Violence
Services - Racism & Hate - Weapons
- Gambling - Religion - Web Chat
- Games - Restaurants and Dining - Web Hosting
- Gay and Lesbian Issues - Search Engines & Portals - Web-Based Email
- Government
- Hacking
</TABLE>
Reporter. Websense Reporter is a software application that is offered with
Websense Enterprise. This application assists managers in analyzing Internet use
within their organizations. Websense Reporter generates a wide variety of
tabular and graphical reports on an organization's Internet usage. It analyzes
information from Internet monitoring logs and builds visual charts in a variety
of formats for easy distribution to and interpretation by managers. Websense
Reporter enables managers to identify useful information, including summaries of
categories of Web sites visited, requests to all destinations and details
regarding individual destination requests.
Professional Services. Our professional services group provides technical
support, training and consulting services. This group provides pre-sales and
technical support for Websense Enterprise, sells services and resells
third-party computers and firewall software.
Websense for Schools. Websense for Schools is a limited offering that is
tailored for use in the K-12 educational setting. This product has limited
functionality and is initially offered at no charge to qualifying schools. This
software application uses a subset of the Websense Enterprise database and
offers school administrators the ability to manage, monitor and report on
Internet usage in their schools. Websense for Schools is compatible with the
Microsoft Proxy Platform and has features specific to school implementation
requirements. We offer this limited-use product free of charge to provide us
with an opportunity to sell our full feature Websense Enterprise software to
schools. Currently, approximately 99% of our school customers subscribe as
paying customers to Websense Enterprise.
AfterWork.com. AfterWork.com is our hosted Web site that allows employees
to bookmark and later access Web sites where management policies do not allow
access during work hours. After work hours, when the organization's Internet
access policies may be less restrictive, employees can use their employers'
Internet connection to return to AfterWork.com to access Web sites which they
previously bookmarked. In addition, because AfterWork.com resides on the
Internet, employees can access the site through any Internet connection without
restriction.
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CUSTOMERS
We currently have over 4,600 subscription agreements covering approximately
3.8 million Internet-enabled employees and 2,900 subscription agreements with
schools covering 590,000 workstations. Our customers range from Fortune 500
companies to government and educational organizations. No customer accounted for
more than 5% of our total revenues in 1998 or 1999. The following is a partial
list of the top 100 users of Websense Enterprise based on subscription fees
since January 1, 1999:
BUSINESS -- NORTH AMERICA
ABB Business Services U.S.
Alcan Aluminum Limited
Alliance Data System Corporation
American Express Company
American Honda Motor Co., Inc.
Battelle Pacific Northwest Law
Bell Atlantic Yellow Pages Co.
Bergen Brunswig Corporation
Bowater Incorporated
Bristol-Myers Squibb Company
CB Richard Ellis
Chubb Corporation
Cigna Corporation
Compaq Computer Corporation
Conoco Inc.
Eveready Battery Company, Inc.
FileNet Corporation
Freightliner Corporation
Gateway, Inc.
Goodyear Tire & Rubber Company
IBM Corp.
IKON Office Solutions
J.C. Penney Company, Inc.
Marconi Communications North America
Marriott International, Inc.
Merrill Lynch & Co., Inc.
Metropolitan Life Insurance Company
Morgan Stanley Dean Witter & Co.
Navistar
Niagara Mohawk Power Corporation
Paramount Pictures
PPG Industries, Inc.
Proctor & Gamble Co.
Public Service Electric & Gas Company
Reliant Energy
Royal Bank of Canada
Shell Services International
Staples, Inc.
Travelers Indemnity Company
Underwriter's Laboratories Inc.
Unigraphics Solutions Inc.
Unilever Technology Development Specialists
Unocal Corporation
Western Digital Corporation
Weyerhaeuser Company
INTERNATIONAL
BP/Amoco
Frankfurter Sparkasse
Internet Smartsec
Japan Ministry of Education
Norsk Hydro (Norway)
Norwegian State Railway
OTSU City Education
Royal Bank of Scotland
Saudi Aramco
Sheffield City Council
EDUCATIONAL
Atlanta Public Schools
Austrian School System
Ball State University
Birdville Independent School
Multnomah ESD
Portland Public Schools
Santa Barbara County Education Office
GOVERNMENT
Centers for Disease Control
Contra Costa County
County of Riverside
Department of the Army
Department of Veteran Affairs
Washington State Department of
Transportation
INTERNET SERVICE PROVIDERS
AT&T Corporation
Internet Initiative Japan (IIJ)
Sprint Communications Company, L.P.
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SALES, MARKETING AND DISTRIBUTION
Sales. We sell our products and services through both indirect and direct
channels. For 1999, indirect channel sales comprised approximately 70% of total
revenues, while direct sales to end-users accounted for the remainder of our
revenues. We expect that indirect sales will account for an increased percentage
of our revenues over the next several years.
Our indirect channels include:
Value-Added Resellers. We currently have more than 350 domestic
value-added resellers that sell our products in the United States,
including AT&T Corporation and VeriSign, Inc.
Distributors. Internationally, we sell our products through a network
of more than 100 distributors and resellers in over 50 countries, including
distributors such as Alps System Information Co., Ltd. and Unipalm.
Original Equipment Manufacturers. Our product integrates into products
manufactured by original equipment manufacturers. A number of these
parties, including CacheFlow, eSoft, Inc. and Nokia, have provided us
worldwide access to customers through their existing sales channels.
Our direct sales efforts are coordinated worldwide through a sales team of
approximately 20 individuals. The typical end-users buying directly from us are
large organizations.
In 1999 we generated approximately 21% of our total revenue from customers
outside of North America. We expect international markets to provide increased
opportunities for our products in the future. Our current international efforts
are focused on expanding our indirect sales channels in France and Germany,
entering China, strengthening the Asia/Pacific channels and establishing a
presence in Latin America.
Marketing. Our marketing strategy is to generate qualified sales leads,
build our brand and raise corporate awareness of Websense as a leading provider
of employee Internet management products. Our marketing efforts are targeted
toward operational executives and decision makers within businesses, including
information technology professionals, chief executives, upper level management
and human resource personnel. We actively manage our public relations,
communicating directly with technology analysts and the media, in an effort to
promote greater awareness of the growing problem caused by employee misuse of
the Internet at work. Our additional marketing initiatives include:
- advertising in high-technology trade magazines, management journals and
other business oriented periodicals;
- participation in and sponsorship of trade shows and industry events;
- direct mail campaigns;
- cooperative marketing efforts with Internet infrastructure vendors,
including Web link exchanges, joint press announcements, joint trade show
activities, channel marketing campaigns, road shows and seminars; and
- use of our Web site to communicate with our indirect sales channels,
allow free trials and purchases of our products and provide product and
company information to interested parties.
CUSTOMER SERVICE, TRAINING AND SUPPORT
We believe that superior customer support is critical to retaining and
expanding our customer base. Our technical support group provides dependable and
timely resolution of customer technical inquiries and is available to customers
by telephone, e-mail and over the Web. Our training services
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<PAGE> 44
group delivers education, training and pre-sales support to our customers. We
also offer online training to our customers and resellers to provide them with
the knowledge and skills to successfully deploy, use and maintain our products.
Our customer service team is responsible for handling general customer
inquiries, answering questions about the ordering process, investigating the
status of orders and payments, as well as processing customer orders. In
addition, our customer service team uses our e-mail system to proactively update
customers on a variety of topics, including release dates of new products and
updates to existing products.
RESEARCH AND DEVELOPMENT
We have invested significant time and resources in creating a structured
process for undertaking product and database development projects. The research
and development department is divided into several groups which include database
production, software development, quality assurance and documentation.
Individuals are grouped along product lines and work as part of
cross-disciplined teams designed to provide a framework for defining and
addressing the activities required to bring product concepts and development
projects to market successfully. Our research and development expenses totaled
approximately $3.9 million for the year ended December 31, 1999, $1.8 million
for the year ended December 31, 1998 and $528,000 for the year ended December
31, 1997. We expect that we will continue to commit significant resources to
research and development in the future.
TECHNOLOGY
Software Architecture. Websense Enterprise is a server-based system
designed to function without compromising security in networks of virtually any
size and configuration. Websense Enterprise is composed of an integrated system
of monitoring, reporting and management applications. It is designed to
accommodate network growth without impairing performance or requiring major
overhauls and can scale to support networks of up to 50,000 users on a single
server. Websense integrates with major firewalls, proxy servers and caching
engines. We have designed our products to run on multiple network platforms and
in multiple locations.
Database Content Analysis and Updating. We use a process of automated
content assessment and classification with manual verification to gather and
classify new Web sites for our database. Our automated search technology uses
Java-based tools and proprietary pattern recognition systems to automatically
search the Internet to identify and catalog Web sites into one of our 54
database categories.
COMPETITION
The market for Internet-filtering software and related services is
immature, fragmented, highly competitive, quickly evolving and subject to rapid
technological change. We expect that competition will intensify. Increased
competition may result in reduced market acceptance of our products, price
reductions and reduced gross margins, any of which could seriously harm our
business. Competitors vary in size and in the scope and breadth of the products
and services they offer. Our current principal competitors include:
- companies offering network filtering products, such as JSB, N2H2, Secure
Computing and Symantec;
- companies offering network reporting products, such as WebTrends and
Telemate; and
- companies offering client-based software filtering products, such as The
Learning Company and Log-On Data.
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<PAGE> 45
We also face current and potential competition from vendors of Internet
servers, operating systems and networking hardware, many of which now, or may in
the future, develop and/or bundle employee Internet management solutions with
their products. We also compete against and expect increased competition from
traditional network management software developers and Web management service
providers. Many of our current and potential competitors have longer operating
histories and significantly greater financial, technical, marketing or other
resources than we do. They may have significantly greater name recognition,
established marketing relationship and access to a larger installed base of
customers. In addition, current and potential competitors have established or
may establish cooperative relationships among themselves or with third parties
to increase the functionality of their products to address customer needs.
Accordingly, new competitors or alliances among competitors may emerge and
rapidly acquire significant market share.
We believe that the principal competitive factors in the market for our
products include:
- a product's ability to scale and support the requirements of complex
networks;
- use of a large and professionally maintained category database;
- breadth of product line, giving customers a number of implementation
choices;
- depth of monitoring, reporting and analysis capabilities;
- capacity to integrate with key network providers;
- quality of customer support; and
- price and payment methods.
INTELLECTUAL PROPERTY RIGHTS
Our intellectual property rights are important to our business. We rely on
a combination of trademark, copyright and trade secret laws in the United States
and other jurisdictions as well as confidentiality procedures and contractual
provisions to protect our proprietary technology and Websense brand. We have
registered our Websense trademark in the United States. We also have applied for
United States trademark registrations for AfterWork and AfterWork.com. Effective
trademark protection may not be available in every country where our products
are available.
We currently have two patent applications pending in the United States and
two pending international patent applications that seek to protect our
proprietary database and filtering technologies. We do not have any issued
patents and our pending patent applications may not result in issued patents.
Our policy is to enter into confidentiality and invention assignment
agreements with all employees and consultants, and nondisclosure agreements with
all potential business partners. These protections, however, may not be adequate
to protect our intellectual property rights.
EMPLOYEES
As of December 31, 1999, we had 119 employees, including 51 in research and
development, 31 in selling and marketing and 37 in general and administrative.
None of our employees is represented by a labor union, and we have never
experienced a work stoppage. We believe that our relations with our employees
are good.
FACILITIES
Our corporate headquarters and principal offices are located in San Diego,
California, where we lease approximately 47,000 square feet. This lease expires
in 2002, with an option to extend the lease for an additional three years. We
also have a right of first refusal to lease an additional
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<PAGE> 46
13,000 square feet at our current location. We believe that our current space
along with the additional space we have a right to lease are adequate for our
current and identified future needs.
LEGAL PROCEEDINGS
We have no pending legal proceedings. We may, however, become subject to
lawsuits from time to time in the course of our business.
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<PAGE> 47
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
Our executive officers and directors and their ages as of December 31, 1999
are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
---- --- -----------
<S> <C> <C>
John B. Carrington........................ 55 Chairman of the Board, President and Chief
Executive Officer
Douglas C. Wride.......................... 46 Chief Financial Officer
Harold M. Kester.......................... 52 Chief Technology Officer
Ronald B. Hegli........................... 39 Vice President of Engineering
Carrie E. Carlander....................... 29 Vice President of Finance and
Administration
J. Cleve Adams............................ 44 Vice President of Sales
Andrew Meyer.............................. 41 Vice President of Marketing
Robert J. Loarie.......................... 57 Director
Bruce T. Coleman.......................... 59 Director
John C. Stiska............................ 57 Director
Donald B. Milder.......................... 47 Director
Gary E. Sutton............................ 57 Director
</TABLE>
John B. Carrington has served as our President and Chief Executive Officer
since May 1999 and has served as our Chairman since June 1999. Prior to joining
Websense, Mr. Carrington was Chairman, President and Chief Executive Officer of
Artios, Inc., a provider of hardware and software design solutions to companies
in the packaging industry, from August 1996 until it was acquired by BARCO n.a.
in December 1998. From September 1991 to October 1995, Mr. Carrington was
President and Chief Executive Officer of Digitalk, Inc., a software development
tools company, which has since merged to form ParcPlace-Digitalk, Inc. Mr.
Carrington currently serves on the boards of directors for SalesLogix Corp, a
sales automation and e-commerce provider, and Digital Lava, Inc., a provider of
video publishing and management tools. He received his B.S. in Business
Administration from the University of Texas.
Douglas C. Wride has served as our Chief Financial Officer since June 1999.
From March 1997 to December 1998, Mr. Wride served as Chief Financial Officer of
Artios, Inc. Mr. Wride also served as Chief Operating Officer of Artios from
July 1997 to December 1998. From April 1996 to March 1997, Mr. Wride served as
Chief Operating Officer and Chief Financial Officer of NetCount, LLC, a provider
of Internet measurement and research services. From February 1992 to January
1996, Mr. Wride was Chief Financial Officer at Digitalk, Inc. Mr. Wride has also
held senior-level positions with SSD Management, Inc., a developer of network
communications software for wide area networks and Accountants Overload Group,
an accounting, finance, bookkeeping and data processing job placement company,
and spent 11 years in the entrepreneurial technology group at Price Waterhouse &
Co. Mr. Wride received his B.S. in Business/Accounting from the University of
Southern California.
Harold M. Kester has served as our Chief Technology Officer since June
1999. Prior to joining us, from August 1993 to June 1999, Mr. Kester served as
Vice President of Encyclopedia Britannica, a provider of general reference
materials on a multitude of subjects, and General Manager and Chief Scientist of
its La Jolla Research Laboratory. Prior to his employment with Encyclopedia
Britannica, Mr. Kester founded The Del Mar Group, a provider of information
retrieval software products. Mr. Kester received his B.A. in Mathematics from
California State University, Long Beach.
Ronald B. Hegli has served as our Vice President of Engineering since March
1999. Prior to joining us, from August 1998 to March 1999, Mr. Hegli served as
Director of Product Development
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<PAGE> 48
for Nuera Communications, an Internet protocol telephony vendor. From March 1994
to April 1998, Mr. Hegli served as Vice President of Engineering with TriTeal
Corp., a graphical user interface software developer. Mr. Hegli received his
B.S. in Nuclear Engineering from Oregon State University and an M.S. in
Mechanical Engineering from the University of California, Berkeley.
Carrie E. Carlander has served as our Vice President of Finance and
Administration since January 1999. Ms. Carlander previously served as our
Director of Finance and Human Resources from December 1996 to January 1999.
Previously, from November 1995 to November 1996, Ms. Carlander served as a
financial analyst at QUALCOMM Incorporated, a developer of digital wireless
communications products and services. From October 1993 to October 1995, she
served as an analyst at the San Diego Unified Port District. Ms. Carlander
received her B.A. in Political Science from the University of California, San
Diego, and an M.B.A. from San Diego State University.
J. Cleve Adams has served as our Vice President of Sales since September
1997. From January 1996 to August 1997, Mr. Adams served as Executive Vice
President of Sequel Technology, Inc., an Internet applications company. From
June 1994 to October 1995, Mr. Adams served as Vice President of Sales for
Acusoft, a client-server start-up. Mr. Adams has also held sales positions with
Novell and Texas Instruments. He received his B.S. in Education from the
University of LaVerne.
Andrew Meyer has served as our Vice President of Marketing since August
1999. From November 1997 to August 1999, Mr. Meyer served as Vice President of
Marketing for Epicor Software (formerly Platinum Software), a provider of
enterprise resource planning software. From September 1993 to November 1997, Mr.
Meyer was Director of Marketing for Scientific-Atlanta, a cable television and
telecommunications manufacturer. Mr. Meyer received his bachelor's degree in
Mechanical Engineering from Georgia Tech and an M.B.A. from the University of
New Orleans.
Robert J. Loarie has served as a Director since May 1998. Since August
1992, Mr. Loarie has been a Principal of, and since December 1997, a Managing
Director of Morgan Stanley Dean Witter & Co. Incorporated, an investment banking
company. Mr. Loarie is currently a managing member of Morgan Stanley Venture
Partners III, L.L.C. and Morgan Stanley Dean Witter Venture Partners IV, L.L.C.
Mr. Loarie also serves as a director of Realnames Corporation, an Internet
addressing system developer; Adaptec, a computer peripherals company; and
Evolving Systems, a telecommunications software and services company. Mr. Loarie
received a B.S. in Electrical Engineering from the Illinois Institute of
Technology and an M.B.A. from Harvard Business School.
Bruce T. Coleman served as our interim Chief Executive Officer from
November 1998 to May 1999, and continues to be a Director. Mr. Coleman has
served as the Chief Executive Officer of El Salto Advisors, an executive
consulting firm, since November 1991. He is currently the interim Chief
Executive Officer of Rogue Wave Software, an enterprise systems software
provider. From July 1997 to June 1998, Mr. Coleman served as Chief Executive
Officer of Open Horizon, Inc., a provider of Java-based software, and from
December 1995 to July 1996, he served as Chief Executive Officer of Computer
Network Technology, Inc., a provider of networking hardware and software. From
September 1994 to May 1995, Mr. Coleman also served as Chief Executive officer
of Fischer International, a provider of e-mail and security software. He
received a B.A. in Economics from Trinity College and an M.B.A. from Harvard
Business School.
John C. Stiska has served as a Director since March 1999. Mr. Stiska
currently is Chairman of Commercial Bridge Capital, LLC., a venture capital
firm, and serves as of-counsel to the law firm of Latham & Watkins. From
February 1996 to February 1998, he served as Corporate Senior Vice President and
General Manager of the Technology Applications Division of QUALCOMM
Incorporated, a developer of digital wireless communications products and
services. From 1990 to 1996, Mr. Stiska was President and then Chairman and
Chief Executive Officer of Triton Group Ltd., now known as Alarmguard Holdings,
Inc., a seller and installer of burglar and fire alarms. During that time, he
also served on the board of directors of Triton's subsidiaries, two of which
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<PAGE> 49
were publicly traded: Mission West Properties and Ridgewood Properties, Inc. Mr.
Stiska serves on the boards of directors of several private companies. In
addition, he is a Director of Laser Power Corporation, a producer of
microlasers, and FirstWorld Communications, Inc., a provider of Internet data
and communications services. Mr. Stiska received a B.B.A. and J.D. from the
University of Wisconsin.
Donald B. Milder has served as a Director since June 1999. Since 1989, Mr.
Milder has been a general partner with Crosspoint Venture Partners, a venture
capital investor in early-stage technology companies. Mr. Milder serves on the
boards of 10 privately held companies. Mr. Milder received a B.A. from Union
College and an M.B.A. from Harvard Business School.
Gary E. Sutton has served as a Director since June 1999. Since January
1996, Mr. Sutton has served as the President, Chief Executive Officer and
Chairman of Skydesk, Inc., an online data protection service. From 1990 to 1995,
Mr. Sutton was chairman of Knight Protective Industries, a security systems
provider. Mr. Sutton is also a co-founder of Teledesic, Inc., a low-earth orbit
telecommunications service. Mr. Sutton has authored the book "Profit Secrets of
a No-Nonsense CEO" and several other titles. He received his B.S. from Iowa
State University.
Our executive officers are appointed by the board of directors and serve
until their successors are elected or appointed.
There are no family relationships among any of our directors or executive
officers.
CLASSIFIED BOARD
Our board currently has six members. Under our bylaws, beginning at our
next annual meeting of stockholders, our board will be divided into three
classes of directors serving staggered three-year terms, with one class of
directors to be elected at each annual meeting of stockholders. The term of the
first class of directors will expire in 2002. The term of the second class of
directors will expire in 2003. The term of the third class of directors will
expire in 2004.
BOARD COMMITTEES
Audit Committee. The audit committee of the board of directors reviews,
acts on and reports to the board of directors with respect to various auditing
and accounting matters, including the recommendation of our auditors, the scope
of the annual audits, fees to be paid to the auditors, the performance of our
independent auditors and our accounting practices. The members of the audit
committee are Mr. Loarie, Mr. Sutton and Mr. Milder.
Compensation Committee. The compensation committee of the board of
directors recommends, reviews and oversees the salaries, benefits and stock
option plans for our employees, consultants, directors and other individuals
compensated by us. The compensation committee also administers our compensation
plans. The members of the compensation committee are Mr. Loarie, Mr. Coleman,
Mr. Sutton and Mr. Stiska.
DIRECTOR COMPENSATION
Directors do not receive cash compensation for their service on our board
of directors. Non-employee directors are reimbursed for reasonable expenses
incurred in connection with serving as a director. Since November 1998, we have
granted non-qualified stock options to purchase an aggregate of 130,000 shares
of common stock to Bruce Coleman, a non-employee director, in part for his
services as interim Chief Executive Officer. In June 1999, we granted a
non-qualified stock option to purchase 50,000 shares of common stock to Mr.
Sutton, a non-employee director. Each individual who first becomes a
non-employee member of the board of directors at any time after
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<PAGE> 50
the offering will receive an option to purchase 50,000 shares of common stock on
the date such individual joins the board of directors, provided such individual
has not previously been employed by us or any parent or subsidiary corporation.
In addition, on the date of each annual stockholders meeting beginning in 2001,
each non-employee member of the board of directors will automatically be granted
an option to purchase 2,500 shares of common stock provided such individual has
served as a non-employee member prior to such meeting.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Our compensation committee currently consists of Mr. Loarie, Mr. Coleman,
Mr. Stiska and Mr. Sutton. Except for Mr. Coleman, who served as our interim
Chief Executive Officer from November 1998 to May 1999, no member of the
compensation committee has been an officer or employee of us at any time. Mr.
Stiska is a party to a business representation contract, pursuant to which he is
to serve on our Board of Directors on behalf of Philip G. Trubey and Janet A.
McVeigh, our founders. None of our executive officers serves as a member of the
board of directors or compensation committee of any other company that has one
or more executive officers serving as a member of our board of directors or
compensation committee.
EXECUTIVE COMPENSATION
The following table sets forth all compensation received during fiscal 1999
by our Chief Executive Officer, our former Chief Executive Officer, and the
three other executive officers whose salary and bonus exceeded $100,000 in such
fiscal year. Perquisites and other personal benefits paid to officers are less
than the minimum reporting thresholds.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
------------
ANNUAL COMPENSATION SECURITIES
-------------------- UNDERLYING
NAME AND PRINCIPAL POSITION SALARY BONUS OPTIONS
--------------------------- -------- -------- ------------
<S> <C> <C> <C>
John B. Carrington...................................... $130,771 $ 94,212 1,300,000
Chief Executive Officer, President and Director
Bruce T. Coleman(1)..................................... 67,500 -- 130,000
Former Chief Executive Officer and Director
J. Cleve Adams.......................................... 120,000 166,671 80,000
Vice President of Sales
Ronald B. Hegli......................................... 109,038 22,327 150,000
Vice President of Engineering
Carrie E. Carlander..................................... 92,308 20,000 40,000
Vice President of Finance
</TABLE>
- -------------------------
(1) Mr. Coleman served as our interim Chief Executive Officer from November 1998
to May 1999.
STOCK OPTION INFORMATION
The following table sets forth information regarding options granted to the
executive officers listed in the Summary Compensation Table during fiscal 1999.
We have not granted any stock appreciation rights.
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<PAGE> 51
Each option represents the right to purchase one share of common stock.
Except as set forth in the footnotes below, the options vest on the following
schedule: 25% of the options vest after the completion of one year of service
from the grant date and the remainder of the options vest in equal monthly
installments over the next 36 months of service. To the extent not already
exercisable, these options may also accelerate and become exercisable, in the
event of a merger in which we are not the surviving corporation or upon the sale
of substantially all of our assets. In the year ended December 31, 1999, we
granted options to purchase an aggregate of 3,060,500 shares of common stock.
The potential realizable value at assumed annual rates of stock price
appreciation for the option term represents hypothetical gains that could be
achieved for the respective options if exercised at the end of the option term.
The 5% and 10% assumed annual rates of compounded stock price appreciation are
mandated by rules of the SEC and do not represent our estimate or projection of
our future common stock prices. These amounts represent assumed rates of
appreciation in the value of our common stock from the fair market value on the
date of grant. Actual gains, if any, on stock option exercises are dependent on
the future performance of the common stock and overall stock market conditions.
The amounts in the table may not necessarily be achieved.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
INDIVIDUAL GRANTS ANNUAL RATE OF
-------------------------------------------- STOCK PRICE
NUMBER % OF TOTAL APPRECIATION FOR
OF SECURITIES OPTIONS GRANTED OPTION TERM(3)
UNDERLYING TO EMPLOYEES EXERCISE EXPIRATION ---------------------
NAME OPTIONS GRANTED IN 1999 PRICE DATE 5% 10%
---- --------------- --------------- -------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
John B. Carrington..... 975,000 31.8% $0.50 5/11/09 $306,586 $776,949
John B.
Carrington(1)........ 325,000 10.6 0.50 5/11/09 102,195 258,983
Bruce T. Coleman(2).... 15,000 0.5 0.20 11/30/08 1,887 4,781
Bruce T. Coleman(2).... 15,000 0.5 0.20 12/31/08 1,887 4,781
Bruce T. Coleman(2).... 15,000 0.5 0.20 1/29/09 1,887 4,781
Bruce T. Coleman(2).... 15,000 0.5 0.20 2/26/09 1,887 4,781
Bruce T. Coleman....... 40,000 1.3 0.50 3/30/09 12,578 31,875
Bruce T. Coleman(2).... 15,000 0.5 0.20 3/31/09 1,887 4,781
Bruce T. Coleman(2).... 15,000 0.5 0.20 4/30/09 1,887 4,781
J. Cleve Adams......... 80,000 2.6 0.75 3/30/09 37,734 95,625
Ronald B. Hegli........ 150,000 4.9 0.50 3/08/09 47,167 119,531
Carrie E. Carlander.... 40,000 1.3 0.20 1/22/09 5,031 12,750
</TABLE>
- -------------------------
(1) Such option vests in equal monthly installments over Mr. Carrington's first
12 months of service.
(2) Such options vested immediately upon grant.
(3) Potential Realizable Value is based upon fair market value of our common
stock on the grant date of the option, which is substantially less than the
initial public offering price. If the Potential Realizable Value were
calculated over the ten-year term of the options, based on the initial
public offering price, the resulting stock price at the end of the term
would be significantly higher.
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AGGREGATED OPTION EXERCISES IN THE YEAR ENDED DECEMBER 31, 1999 AND YEAR-END
OPTION VALUES
The following table sets forth information concerning the number and value
of unexercised options held by each of the executive officers listed in the
Summary Compensation Table at December 31, 1999.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
SHARES OPTIONS AT FISCAL 1999 OPTIONS AT FISCAL 1999(2)
ACQUIRED VALUE --------------------------- ---------------------------
NAME ON EXERCISE REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
John B. Carrington........ 325,000 -- -- 975,000 -- $6,337,500
Bruce T. Coleman.......... 90,000 $27,000 -- 40,000 -- 260,000
J. Cleve Adams............ -- -- 95,625 154,375 $650,250 1,049,750
Ronald B. Hegli........... -- -- -- 150,000 -- 975,000
Carrie E. Carlander....... 41,250 55,505 -- 58,750 -- 399,500
</TABLE>
- -------------------------
(1) Amount based on the difference between the fair market value of our common
stock on the date of exercise, as determined by our board of directors, and
the exercise price of the option.
(2) Amount based on the fair market value of our common stock on December 31,
1999, as determined by our board of directors, less the exercise price of
the option.
EMPLOYMENT AGREEMENTS
Employment Agreement of John B. Carrington. In May 1999, upon his initial
employment with us, we entered into an employment agreement with Mr. Carrington
to serve as our President and Chief Executive Officer. This agreement provides
for an initial term of two years which term shall be automatically extended for
successive one-year periods unless terminated by us prior to April 30 of any
year. Under this agreement, Mr. Carrington was paid an annualized base salary of
$200,004 and a bonus of up to $100,000 in 1999. After 1999, the amount of his
salary and bonus will be determined by our Board of Directors; however, his
annual base salary will not be decreased. Under his employment agreement, Mr.
Carrington was granted an option to purchase 975,000 shares of our common stock,
which will vest over a four-year period, with 25% vesting upon the completion of
one year of service and the remainder vesting in equal monthly installments over
the next 36 months of service. Mr. Carrington was also granted an option to
purchase 325,000 shares of our common stock which will vest in equal monthly
installments over a one-year period. If Mr. Carrington's employment is
terminated before all of his options vest, we will have the right to repurchase
any unvested shares for which he may have exercised such options at cost. Upon a
change in control, all of Mr. Carrington's option shares that remain unvested
will vest in full.
If Mr. Carrington's employment is terminated by us other than for cause, or
is terminated by Mr. Carrington upon our breach of his employment agreement, he
is entitled to receive, as severance, a lump sum payment equal to 50% of his
base salary and 50% of his average annual bonus earned under this agreement.
Notwithstanding the foregoing, if within two years following a change of
control, Mr. Carrington's employment is terminated by us other than for cause,
is terminated by Mr. Carrington upon our breach of his employment agreement, or
is constructively terminated, he is entitled to receive, as severance, a lump
sum payment equal to 150% of his base salary and 150% of his average annual
bonus earned under this agreement.
Employment Agreement of Douglas C. Wride. In June 1999, we entered into an
employment agreement with Mr. Wride to serve as our Chief Financial Officer.
This agreement provides that Mr. Wride will be employed "at will" and paid an
annual base salary of at least $150,000. In addition, Mr. Wride will be eligible
to receive a bonus of up to 20% of his annual base salary. Under his employment
agreement, Mr. Wride was granted an option to purchase 300,000 shares of our
common stock, which will vest in equal monthly installments over a four-year
period. If
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<PAGE> 53
Mr. Wride's employment is terminated before all of his options vest, we will
have the right to repurchase any unvested shares for which he may have exercised
such options at cost.
If Mr. Wride's employment is terminated by us other than for cause he is
entitled to receive, as severance, six months of continuation of his base salary
and he will also be entitled to vest in the number of shares of our common stock
that would have become vested under his options if his employment had continued
for an additional six months. Notwithstanding the foregoing, if within one year
following a change of control, Mr. Wride is terminated other than for cause, he
is entitled to receive, as severance, one year of continuation of his base
salary and he will also be immediately vested in all of his option shares.
BENEFIT PLANS
2000 STOCK INCENTIVE PLAN
Introduction. Our 2000 Stock Incentive Plan is intended to serve as the
successor equity incentive program to our 1998 Equity Incentive Plan. Our 2000
plan was adopted by our board on February 11, 2000 and approved by the
stockholders in February 2000. Our 2000 plan will become effective on the date
the underwriting agreement for this offering stock is signed. At that time, all
outstanding options under the predecessor 1998 plan will be transferred to our
2000 plan, and no further option grants will be made under that predecessor
plan. The transferred options will continue to be governed by their existing
terms, unless our compensation committee elects to extend one or more features
of our 2000 plan to those options. Except as otherwise noted below, the
transferred options will have substantially the same terms as in effect for
grants made under the discretionary option grant program of our 2000 plan.
Share Reserve. 4,500,000 shares of common stock has been authorized for
issuance under our 2000 plan. Such share reserve consists of the number of
shares we estimate will be carried over from our 1998 plan, including the shares
subject to outstanding options thereunder, plus an additional increase of
approximately 1,000,000 shares. The number of shares of common stock reserved
for issuance under our 2000 plan will automatically increase on the first
trading day in January each calendar year, beginning in calendar year 2001, by
an amount equal to 4% of the total number of shares of common stock outstanding
on the last trading day in December of the preceding calendar year, but in no
event will any such annual increase exceed 1,500,000 shares. In addition, no
participant in our 2000 plan may be granted stock options, separately
exercisable stock appreciation rights and direct stock issuances for more than
750,000 shares of common stock per calendar year.
Equity Incentive Programs. Our 2000 plan is divided into five separate
components:
- the discretionary option grant program, under which eligible individuals
in our employ or service may be granted options to purchase shares of
common stock at an exercise price not less than 100% of the fair market
value of those shares on the grant date;
- the stock issuance program, under which such individuals may be issued
shares of common stock directly, through the purchase of such shares at a
price not less than 100% of their fair market value at the time of
issuance or as a bonus tied to the attainment of performance milestones
or the completion of a specified period of service;
- the salary investment option grant program, under which our executive
officers and other highly compensated employees may be given the
opportunity to apply a portion of their base salary to the acquisition of
special below-market stock option grants;
- the automatic option grant program, under which option grants will
automatically be made at periodic intervals to our non-employee board
members to purchase shares of common stock
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<PAGE> 54
at an exercise price equal to 100% of the fair market value of those
shares on the grant date; and
- the director fee option grant program, under which our non-employee board
members may be given the opportunity to apply a portion of the annual
retainer fee otherwise payable to them in cash each year to the
acquisition of special below-market option grants.
Eligibility. The individuals eligible to participate in our 2000 plan
include our officers and other employees, our non-employee board members and any
consultants we hire.
Administration. The discretionary option grant program and the stock
issuance program will be administered by the compensation committee. This
committee will determine which eligible individuals are to receive option grants
or stock issuances under those programs, the time or times when such option
grants or stock issuances are to be made, the number of shares subject to each
such grant or issuance, the status of any granted option as either an incentive
stock option or a non-statutory stock option under the federal tax laws, the
vesting schedule to be in effect for the option grant or stock issuance and the
maximum term for which any granted option is to remain outstanding. The
compensation committee will also have the exclusive authority to select the
executive officers and other highly compensated employees who may participate in
the salary investment option grant program in the event that program is
activated for one or more calendar years.
Plan Features. Our 2000 plan will include the following features:
- The exercise price for the shares of common stock subject to option
grants made under our 2000 plan may be paid in cash or in shares of
common stock valued at fair market value on the exercise date. The option
may also be exercised through a same-day sale program without any cash
outlay by the optionee. In addition, the plan administrator may provide
financial assistance to one or more optionees in the exercise of their
outstanding options or the purchase of their unvested shares by allowing
such individuals to deliver a full-recourse, interest-bearing promissory
note in payment of the exercise price and any associated withholding
taxes incurred in connection with such exercise or purchase.
- The compensation committee will have the authority to cancel outstanding
options under the discretionary option grant program, including options
transferred from the 1998 plan, in return for the grant of new options
for the same or a different number of option shares with an exercise
price per share based upon the fair market value of our common stock on
the new grant date. We anticipate that a cancellation would only occur
when the compensation committee determines that the exercise price of the
outstanding options is so far above the then fair market value of the
underlying stock that retention of employees is in jeopardy. No
cancellation would occur without the consent of the affected employees,
and new replacement options for substantially the same number of shares
would be issued in replacement of the cancelled options.
- Stock appreciation rights are authorized for issuance under the
discretionary option grant program. Such rights will provide the holders
with the election to surrender their outstanding options for an
appreciation distribution from us equal to the fair market value of the
vested shares of common stock subject to the surrendered option, less the
aggregate exercise price payable for those shares. Such appreciation
distribution may be made in cash or in shares of common stock. None of
the outstanding options under our 1998 plan contain any stock
appreciation rights.
- In the event that we are acquired by merger or asset sale, each
outstanding option under the discretionary option grant program which is
not to be assumed by the successor corporation will automatically
accelerate in full, and all unvested shares under the discretionary
option
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<PAGE> 55
grant and stock issuance programs will immediately vest, except to the
extent our repurchase rights with respect to those shares are to be
assigned to the successor corporation. The compensation committee will
have complete discretion to structure one or more options under the
discretionary option grant program so those options will vest as to all
the option shares in the event those options are assumed in the
acquisition but the optionee's service with us or the acquiring entity is
subsequently terminated. The vesting of outstanding shares under the
stock issuance program may be accelerated upon similar terms and
conditions. The compensation committee will also have the authority to
grant options which will immediately vest in the event we are acquired,
whether or not those options are assumed by the successor corporation.
- The compensation committee may grant options and structure repurchase
rights so that the shares subject to those options or repurchase rights
will immediately vest in connection with a successful tender offer for
more than 50% of our outstanding voting stock or a change in the majority
of our board through one or more contested elections for board
membership. Such accelerated vesting may occur either at the time of such
transaction or upon the subsequent termination of the individual's
service.
- The options currently outstanding under our 1998 plan will immediately
vest in the event we are acquired by merger or sale of substantially all
our assets or more than 50% of our outstanding voting stock, unless those
options are assumed or continued in effect by the acquiring entity or our
repurchase rights with respect to any unvested shares subject to those
options are assigned to such entity. However, those options also contain
a special acceleration provision pursuant to which those options will
immediately vest upon an involuntary termination of the optionee's
employment within 24 months following an acquisition in which those
options are assumed, provided the optionee has been employed by us for at
least one year prior to the acquisition.
Salary Investment Option Grant Program. In the event the compensation
committee elects to activate the salary investment option grant program for one
or more calendar years, each of our executive officers and other highly
compensated employees selected for participation may elect, prior to the start
of the calendar year, to reduce his or her base salary for that calendar year by
a specified dollar amount not less than $10,000 nor more than $50,000. Each
selected individual who files such a timely election will automatically be
granted, on the first trading day in January of the calendar year for which his
or her salary reduction is to be in effect, an option to purchase that number of
shares of common stock determined by dividing the salary reduction amount by
two-thirds of the fair market value per share of our common stock on the grant
date. The option will be exercisable at a price per share equal to one-third of
the fair market value of the option shares on the grant date. As a result, the
option will be structured so that the fair market value of the option shares on
the grant date less the exercise price payable for those shares will be equal to
the amount by which the optionee's salary is reduced under the program. The
option will become exercisable in a series of 12 equal monthly installments over
the calendar year for which the salary reduction is to be in effect.
Automatic Option Grant Program. Under the automatic option grant program,
each individual who first becomes a non-employee board member at any time after
the completion of this offering will automatically receive an option grant for
50,000 shares on the date such individual joins the board, provided such
individual has not been in our prior employment. In addition, on the date of
each annual stockholders meeting held after the completion of this offering,
each non-employee board member who is to continue to serve as a non-employee
board member, including each of our current non-employee board members, will
automatically be granted an option to purchase 2,500 shares of common stock,
provided such individual has served on our board for at least six months.
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<PAGE> 56
Each automatic grant will have an exercise price per share equal to the
fair market value per share of our common stock on the grant date and will have
a term of 10 years, subject to earlier termination following the optionee's
cessation of board service. The option will be immediately exercisable for all
of the option shares; however, we may repurchase, at the exercise price paid per
share, any shares purchased under the option which are not vested at the time of
the optionee's cessation of board service. The shares subject to each initial
50,000-share automatic option grant will vest in a series of 4 successive annual
installments upon the optionee's completion of each year of board service over
the 4-year period measured from the grant date. The shares subject to each
annual 2,500-share automatic option grant will vest upon the optionee's
completion of one year of board service measured from the grant date. However,
the shares will immediately vest in full upon certain changes in control or
ownership or upon the optionee's death or disability of a board member.
Director Fee Option Grant Program. Should the director fee option grant
program be activated in the future, each non-employee board member will have the
opportunity to apply all or a portion of any cash retainer fee for the year to
the acquisition of a below-market option grant. The option grant will
automatically be made on the first trading day in January in the year for which
the retainer fee would otherwise be payable in cash. The option will have an
exercise price per share equal to one-third of the fair market value of the
option shares on the grant date, and the number of shares subject to the option
will be determined by dividing the amount of the retainer fee applied to the
program by two-thirds of the fair market value per share of our common stock on
the grant date. As a result, the option will be structured so that the fair
market value of the option shares on the grant date less the exercise price
payable for those shares will be equal to the portion of the retainer fee
applied to that option. The option will become exercisable in a series of 12
equal monthly installments over the calendar year for which the election is to
be in effect. However, the option will become immediately exercisable for all
the option shares upon the optionee's death or disability while serving as a
board member.
Our 2000 plan will also have the following features:
- Outstanding options under the salary investment and director fee option
grant programs will immediately vest if we are acquired by a merger or
asset sale or if there is a successful tender offer for more than 50% of
our outstanding voting stock or a change in the majority of our board
through one or more contested elections.
- Limited stock appreciation rights will automatically be included as part
of each grant made under the salary investment option grant program and
the automatic and director fee option grant programs, and these rights
may also be granted to one or more officers as part of their option
grants under the discretionary option grant program. Options with this
feature may be surrendered to us upon the successful completion of a
hostile tender offer for more than 50% of our outstanding voting stock.
In return for the surrendered option, the optionee will be entitled to a
cash distribution from us in an amount per surrendered option share based
upon the highest price per share of our common stock paid in that tender
offer.
- The board may amend or modify the 2000 plan at any time, subject to any
required stockholder approval. The 2000 plan will terminate no later than
January 31, 2010.
2000 EMPLOYEE STOCK PURCHASE PLAN.
Introduction. Our 2000 Employee Stock Purchase Plan was adopted by the
board on February 11, 2000 and approved by the stockholders in February 2000.
The plan will become effective immediately upon the signing of the underwriting
agreement for this offering. The plan is designed to allow our eligible
employees and the eligible employees of our participating subsidiaries
55
<PAGE> 57
to purchase shares of common stock, at semi-annual intervals, with their
accumulated payroll deductions.
Share Reserve. 250,000 shares of our common stock will initially be
reserved for issuance. The reserve will automatically increase on the first
trading day in January each calendar year, beginning in calendar year 2001, by
an amount equal to 1% of the total number of outstanding shares of our common
stock on the last trading day in December in the prior calendar year. In no
event will any such annual increase exceed 375,000 shares.
Offering Periods. The plan will have a series of successive offering
periods, each with a maximum duration of 24 months. However, the initial
offering period may have a duration in excess of 24 months and will start on the
date the underwriting agreement for the offering is signed, and will end on the
last business day in April 2002. The next offering period will start on the
first business day in May 2002, and subsequent offering periods will be set by
our compensation committee.
Eligible Employees. Individuals scheduled to work more than 20 hours per
week for more than 5 calendar months per year may join an offering period on the
start date or any semi-annual entry date within that period. Semi-annual entry
dates will occur on the first business day of May and November each year.
Individuals who become eligible employees after the start date of an offering
period may join the plan on any subsequent semi-annual entry date within that
offering period.
Payroll Deductions. A participant may contribute up to 15% of his or her
cash earnings through payroll deductions, and the accumulated deductions will be
applied to the purchase of shares on each semi-annual purchase date. The
purchase price per share will be equal to 85% of the fair market value per share
on the participant's entry date into the offering period or, if lower, 85% of
the fair market value per share on the semi-annual purchase date. Semi-annual
purchase dates will occur on the last business day of April and October each
year. However, a participant may not purchase more than 1,250 shares on any
purchase date, and not more than 150,000 shares may be purchased in total by all
participants on any purchase date. Our compensation committee will have the
authority to change these limitations for any subsequent offering period.
Reset Feature. If the fair market value per share of our common stock on
any purchase date is less than the fair market value per share on the start date
of the two-year offering period, then that offering period will automatically
terminate, and a new two-year offering period will begin on the next business
day. All participants in the terminated offering will be transferred to the new
offering period.
Change in Control. Should we be acquired by merger or sale of substantially
all of our assets or more than fifty percent of our voting securities, then all
outstanding purchase rights will automatically be exercised immediately prior to
the effective date of the acquisition. The purchase price will be equal to 85%
of the market value per share on the participant's entry date into the offering
period in which an acquisition occurs or, if lower, 85% of the fair market value
per share immediately prior to the acquisition.
Plan Provisions. The following provisions will also be in effect under the
plan:
- The plan will terminate no later than the last business day of April
2010.
- The board may at any time amend, suspend or discontinue the plan.
However, certain amendments may require stockholder approval.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
Our certificate of incorporation limits the liability of directors to the
maximum extent permitted by Delaware law. Delaware law provides that directors
of a corporation will not be
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<PAGE> 58
personally liable for monetary damages for breach of their fiduciary duties as
directors, except liability for:
- any breach of their duty of loyalty to the corporation or its
stockholders;
- acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
- unlawful payments of dividends or unlawful stock repurchases or
redemptions; or
- any transaction from which the director derived an improper personal
benefit.
Such limitation of liability does not apply to liabilities arising under
the federal securities laws and does not affect the availability of equitable
remedies such as injunctive relief or rescission. Our certificate of
incorporation and bylaws provide that we shall indemnify our directors and
executive officers and may indemnify our other officers and employees and other
agents to the fullest extent permitted by law. We believe that indemnification
under our bylaws covers at least negligence and gross negligence on the part of
the indemnified parties. Our bylaws also permit us to secure insurance on behalf
of any officer, director, employee or other agent for any liability arising out
of his or her actions in such capacity, regardless of whether the bylaws would
permit indemnification.
We have entered into agreements to indemnify our directors and executive
officers in addition to indemnification provided for in our bylaws. These
agreements, among other things, provide for indemnification of our directors and
executive officers for expenses specified in the agreements, including
attorneys' fees, judgments, fines and settlement amounts incurred by any such
person in any action or proceeding arising out of such person's services as a
director or executive officer of Websense, any subsidiary of Websense or any
other entity to which the person provides services at our request. In addition,
we maintain directors' and officers' insurance. We believe that these provisions
and agreements are necessary to attract and retain qualified persons as
directors and executive officers.
At present, we are not aware of any pending or threatened litigation or
proceeding involving a director, officer, employee or agent in which
indemnification would be required or permitted. We are not aware of any
threatened litigation or proceeding that might result in a claim for such
indemnification.
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<PAGE> 59
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth information known to us regarding the
beneficial ownership of our common stock as of December 31, 1999, as adjusted to
reflect the sale of common stock offered in this offering, by:
- each person, or group of affiliated persons, known by us to own
beneficially more than 5% of our outstanding common stock;
- each director;
- each of our directors and our executive officers named in the Summary
Compensation Table; and
- all of our directors and executive officers as a group.
Except as otherwise noted, the address of each person listed in the table
is c/o Websense, Inc., 10240 Sorrento Valley Road, San Diego, California 92121.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and includes voting and investment power with
respect to shares. To our knowledge, except under applicable community property
laws or as otherwise indicated, the persons named in the table have sole voting
and sole investment control with respect to all shares shown as beneficially
owned. The applicable percentage of ownership for each stockholder is based on
15,394,698 shares of common stock outstanding as of December 31, 1999 and
19,394,698 shares outstanding after the completion of this offering, in each
case together with applicable options for that stockholder. Shares of common
stock issuable upon exercise of options and other rights beneficially owned that
are exercisable on or before February 29, 2000 are deemed outstanding for the
purpose of computing the percentage ownership of the person holding those
options and other rights but are not deemed outstanding for computing the
percentage ownership of any other person. A portion of the shares issued to
officers or issuable upon exercise of options by officers is subject to
repurchase by us at the original exercise price in the event of termination of
that officers' employment, which repurchase right lapses over time. Philip G.
Trubey and Janet A. McVeigh, two of our principal stockholders, have granted the
underwriters an option to purchase up to 600,000 shares of our common stock in
this offering to cover over-allotments, if any.
<TABLE>
<CAPTION>
PERCENT
BENEFICIALLY OWNED
--------------------
TOTAL NUMBER BEFORE AFTER
NAME AND ADDRESS OF SHARES OFFERING OFFERING
---------------- ------------ -------- --------
<S> <C> <C> <C>
NAMED EXECUTIVE OFFICERS AND DIRECTORS:
John B. Carrington(1)...................................... 315,000 2.0% 1.6%
Bruce T. Coleman........................................... 90,000 0.6 0.5
J. Cleve Adams(2).......................................... 102,708 0.7 0.5
Ronald B. Hegli............................................ -- * *
Carrie E. Carlander(3)..................................... 54,583 0.3 0.3
Robert J. Loarie(4)........................................ 3,753,088 24.4 19.4
c/o Morgan Stanley Dean Witter Venture Partners
3000 Sand Hill Road
Building Four, Suite 250
Menlo Park, California 94025
John C. Stiska............................................. 240,000 1.6 1.2
Donald B. Milder(5)........................................ 2,287,398 14.9 11.8
18552 MacArthur Blvd., Suite 400
Irvine, California 92612
Gary E. Sutton............................................. -- * *
</TABLE>
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<PAGE> 60
<TABLE>
<CAPTION>
PERCENT
BENEFICIALLY OWNED
--------------------
TOTAL NUMBER BEFORE AFTER
NAME AND ADDRESS OF SHARES OFFERING OFFERING
---------------- ------------ -------- --------
<S> <C> <C> <C>
OTHER 5% STOCKHOLDERS:
Entities affiliated with Morgan Stanley Venture
Partners III, LLC(6)..................................... 3,753,088 24.4 19.4
3000 Sand Hill Road
Building Four, Suite 250
Menlo Park, California 94025
Crosspoint Venture Partners 1999, L.P...................... 2,287,398 14.9 11.8
18552 MacArthur Blvd., Suite 400
Irvine, California 92612
Edelson IV, L.P. .......................................... 1,053,950 6.8 5.4
Persons and entities affiliated with Nippon Investment &
Finance Co., Ltd.(7)..................................... 806,377 5.2 4.2
Philip G. Trubey(8)........................................ 5,760,000 37.4 29.7
3272 Lahitte Court
San Diego, California 92122
Janet A. McVeigh(9)........................................ 5,760,000 37.4 29.7
3272 Lahitte Court
San Diego, California 92122
All of our officers and directors as a group (12
persons)(10)............................................. 887,291 5.8 4.6
</TABLE>
- -------------------------
* Represents beneficial ownership of less than one percent of the outstanding
shares of our common stock.
(1) Upon exercise of stock options, Mr. Carrington acquired 325,000 shares of
common stock, 10,000 shares of which he subsequently transferred. Mr.
Carrington disclaims beneficial ownership of these 10,000 shares.
(2) Consists of 102,708 shares of common stock issuable upon exercise of stock
options exercisable within 60 days of December 31, 1999.
(3) Includes 13,333 shares issuable upon exercise of stock options exercisable
within 60 days of December 31, 1999.
(4) Includes 3,293,356 shares held by Morgan Stanley Venture Partners III,
L.P.; 316,209 shares held by Morgan Stanley Venture Investors III, L.P. and
143,523 shares held by The Morgan Stanley Venture Partners Entrepreneur
Fund, L.P. Morgan Stanley Venture Partners III, LLC is the general partner
of each of these entities and is therefore deemed to exercise voting and
investment power over all of the shares. Mr. Loarie, a managing member of
each of these entities, disclaims beneficial ownership in such shares,
except to the extent of his pecuniary interest in each of the limited
partnerships.
(5) Consists of 2,287,398 shares held by Crosspoint Venture Partners 1999, L.P.
Mr. Milder, as a general partner of this limited partnership, may be deemed
to have voting and investment power over these shares. Mr. Milder disclaims
beneficial ownership in such shares, except to the extent of his pecuniary
interest in the limited partnership.
(6) Includes 3,293,356 shares held by Morgan Stanley Venture Partners III,
L.P.; 316,209 shares held by Morgan Stanley Venture Investors III, L.P. and
143,523 shares held by The Morgan Stanley Venture Partners Entrepreneur
Fund, L.P.
(7) Includes 392,500 shares held by Investment Enterprise Partnership "New
Technology Fund 98;" 140,500 shares held by Investment Enterprises
Partnership "NIF 11;" 174,239 shares held by Nippon Investment & Finance
Co., Ltd.; 45,577 shares held by Investment Enterprise Partnership New
Technology Fund 99-A; 45,577 shares held by Investment Enterprise
Partnership New Technology Fund 99-B; and 7,984 shares held by Jim Timmins,
a partner of NIF Ventures USA, Inc.
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<PAGE> 61
(8) Includes 2,880,000 shares held by Mr. Trubey and 2,880,000 shares held by
Janet A. McVeigh, Mr. Trubey's spouse. Mr. Trubey has granted to the
underwriters an option to purchase up to 300,000 shares of common stock
solely to cover over-allotments, if any. In the event that the underwriters
exercise their over-allotment option in full, Mr. Trubey would hold
2,580,000 shares, which would represent approximately 13% of the common
stock outstanding immediately following the offering.
(9) Includes 2,880,000 shares held by Ms. McVeigh and 2,880,000 shares held by
Philip G. Trubey, Ms. McVeigh's spouse. Ms. McVeigh has granted to the
underwriters an option to purchase up to 300,000 shares of common stock
solely to cover over-allotments, if any. In the event that the underwriters
exercise their over-allotment option in full, Ms. McVeigh would hold
2,580,000 shares, which would represent approximately 13% of the common
stock outstanding immediately following the offering.
(10) Includes 116,041 shares issuable upon exercise of stock options exercisable
within 60 days of December 31, 1999.
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<PAGE> 62
TRANSACTIONS WITH RELATED PARTIES
Since inception we have issued shares of our convertible preferred stock to
investors in private placement transactions as follows: a total of 3,703,704
shares of Series A preferred stock at a price of $1.62 per share in May 1998,
and a total of 3,333,332 shares of Series B preferred stock at a price of $3.00
per share between June and September 1999. The following table summarizes the
shares of preferred stock purchased by our executive officers, directors, and 5%
stockholders and persons and entities associated with them in these private
placement transactions. All shares of our preferred stock will convert into
common stock on a 1-for-1 basis upon completion of this offering. Shares held by
affiliated persons and entities have been aggregated. See "Principal
Stockholders." In connection with the above transactions, we entered into an
agreement with the investors providing for registration rights with respect to
these shares.
<TABLE>
<CAPTION>
SERIES A SERIES B TOTAL
PREFERRED STOCK PREFERRED STOCK CONSIDERATION
--------------- --------------- -------------
<S> <C> <C> <C>
Entities affiliated with Morgan Stanley Venture
Partners III LLC(1)............................ 3,086,420 333,334 $6,000,000
Entities affiliated with Crosspoint Venture
Partners....................................... -- 1,910,000 5,730,000
Edelson IV, L.P.................................. 617,284 66,667 1,201,001
A person and entities affiliated with Nippon
Finance & Investment Co., Ltd.(2).............. -- 673,333 2,019,999
</TABLE>
- -------------------------
(1) Morgan Stanley Venture Partners III, LLC is the general partner of Morgan
Stanley Venture Partners III, L.P.; Morgan Stanley Venture Investors III,
L.P.; and Morgan Stanley Venture Partners Entrepreneur Fund, L.P.; and
therefore is deemed to exercise voting and investment power over all shares
owned by such entities.
(2) Nippon Investment & Finance Co., Ltd. is the general partner of Investment
Enterprise Partnership "New Technology Fund 98," Investment Enterprise
Partnership "NIF 11," Investment Enterprise Partnership New Technology Fund
99-A, and Investment Enterprise Partnership New Technology Fund 99-B, and
therefore is deemed to exercise voting and investment power over all shares
owned by such entities.
In May 1999, John B. Carrington acquired 325,000 shares upon exercise of an
option at an exercise price of $0.50 per share and Bruce T. Coleman acquired
90,000 shares upon exercise of options at an exercise price of $0.20 per share.
In September 1999, Douglas C. Wride acquired 75,000 shares upon exercise of an
option at an exercise price of $0.75 per share. In July and December 1999,
Carrie E. Carlander acquired a total of 41,250 shares upon exercise of options
at $0.20 per share.
Stock option grants to our directors are described under the caption
"Management -- Board Compensation."
On March 29, 1999, Philip G. Trubey and Janet A. McVeigh, our founders, and
each a greater than 5% stockholder, entered into an agreement with John Stiska
pursuant to which Mr. Stiska agreed to serve as a member of our Board of
Directors on behalf of Mr. Trubey and Ms. McVeigh. Under this agreement, Mr.
Stiska agreed to represent the interests of Mr. Trubey and Ms. McVeigh as they
relate to us. In exchange, Mr. Trubey and Ms. McVeigh each transferred to Mr.
Stiska 140,000 shares of our common stock held by them. On August 25, 1999, we
entered into a Transfer Agreement with Mr. Trubey, Ms. McVeigh and Mr. Stiska in
order to effect the transfer of our shares described above.
We believe that all of our transactions with affiliates were entered into
on terms and conditions no less favorable to us than those that could have been
obtained from unaffiliated third parties. In
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<PAGE> 63
addition, transactions with our affiliates are approved by a majority of our
board of directors, including a majority of our independent and disinterested
directors.
We have entered into indemnification agreements with all of our officers
and directors. Some of our stockholders are entitled to have their shares
registered by us for resale.
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<PAGE> 64
DESCRIPTION OF CAPITAL STOCK
The following information describes our common stock and preferred stock
and provisions of our certificate of incorporation and our bylaws as in effect
upon the closing of this offering. This description is only a summary. You
should also refer to the certificate of incorporation and bylaws which have been
filed with the SEC as exhibits to our registration statement, of which this
prospectus forms a part. The descriptions of the common stock and preferred
stock reflect changes to our capital structure that will occur upon the receipt
of the requisite board and stockholder approvals and upon the closing of this
offering in accordance with the terms of the certificate of incorporation.
Upon the completion of the offering our authorized capital stock will
consist of 100,000,000 shares of common stock, par value $0.01 per share, and 5
million shares of preferred stock, par value $0.01 per share.
COMMON STOCK
Assuming conversion of the convertible preferred stock as described below,
as of December 31, 1999, there were 15,394,698 shares of common stock
outstanding and held of record by 54 stockholders. Based upon the number of
shares outstanding as of December 31, 1999 and giving effect to (1) the
automatic conversion of each share of our preferred stock into one share of our
common stock upon the closing of this offering and (2) the issuance of the
4,000,000 shares of common stock offered hereby, there will be 19,394,698 shares
of common stock outstanding upon the closing of this offering.
Holders of common stock are entitled to one vote for each share held on all
matters submitted to a vote of stockholders and do not have cumulative voting
rights. Accordingly, holders of a majority of the shares of common stock
entitled to vote in any election of directors may elect all of the directors
standing for election. Holders of common stock are entitled to receive ratably
such dividends, if any, as may be declared by the board of directors out of
funds legally available for that purpose, subject to any preferential dividend
rights of any outstanding preferred stock. Holders of common stock have no
preemptive, subscription, redemption or conversion rights. The outstanding
shares of common stock are, and the shares offered by us in this offering will
be, when issued in consideration for payment thereof, fully paid and
nonassessable. The rights, preferences and privileges of holders of common stock
are subject to, and may be adversely affected by, the rights of the holders of
shares of any series of preferred stock which we may designate and issue in the
future. Upon the closing of this offering, there will be no shares of preferred
stock outstanding.
PREFERRED STOCK
As of December 31, 1999, there were 7,037,036 shares of convertible
preferred stock outstanding. All outstanding shares of convertible preferred
stock will be converted into an aggregate of 7,037,036 shares of common stock
upon the closing of this offering and such shares of convertible preferred stock
will no longer be authorized, issued or outstanding.
Upon the closing of this offering, the board of directors will be
authorized, without further stockholder approval, to issue from time to time up
to an aggregate of 5 million shares of preferred stock in one or more series and
to fix or alter the designations, powers, preferences, rights and any
qualifications, limitations or restrictions of the shares of each such series
thereof, including the dividend rights, dividend rates, conversion rights,
voting rights, terms of redemption (including sinking fund provisions),
redemption price or prices, liquidation preferences and the number of shares
constituting any series or designations of such series. We have no present plans
to issue any shares of preferred stock.
63
<PAGE> 65
OPTIONS
As of December 31, 1999, options to purchase a total of 3,161,551 shares of
common stock were outstanding, all of which are subject to market stand-off
provisions under the terms of the option agreements governing such options.
Options to purchase a total of 1,338,449 shares of common stock remain available
for grant under the 2000 Stock Incentive Plan.
COMMON STOCK WARRANTS
As of December 31, 1999, we had outstanding warrants to purchase an
aggregate of 112,500 shares of common stock, at a weighted average exercise
price of $1.69 per share. These warrants were issued to Alps System Integration
Co., Ltd.; Adam Button, Inc.; Paul Hardy; Pan Pacific Partners; and Global
Alliance, Ltd. The warrants issued to Alps System Integration Co., Ltd. expire
on April 15, 2004. The remaining warrants expire on July 30, 2004.
REGISTRATION RIGHTS
Stockholders holding approximately 7,037,036 shares of common stock have
the right, subject to various conditions and limitations, to include their
shares in registration statements relating to our securities. The holders of 50%
of the aggregate number of shares issued on conversion of our Series A and
Series B preferred securities have the right to demand that we register their
shares under the Securities Act of 1933 subject to limitations. We are not
required to effect more than 2 registrations pursuant to such demand
registration rights. In addition, after the closing of this offering these
holders will be entitled to piggyback registration rights with respect to the
registration of such shares of common stock under the Securities Act of 1933. In
the event that we propose to register any shares of common stock under the
Securities Act of 1933 either for our account or for the account of other
security holders, the holders of shares having piggyback registration rights are
entitled to receive notice of such registration and to include their shares in
any such registration, subject to limitations. Further, at any time after we
become eligible to file a registration statement on Form S-3, the holders of
registration rights may require us to file registration statements under the
Securities Act on Form S-3 with respect to their shares of common stock having
an aggregate offering price of at least $500,000. These registration rights are
subject to conditions and limitations, among them the right of the underwriters
of an offering to limit the number of shares of common stock held by such
security holders to be included in such registration. We are generally required
to bear all of the expenses of all such registrations, including the reasonable
fees of a single counsel acting on behalf of all selling holders, except
underwriting discounts and selling commissions. Registration of any of the
shares of common stock held by security holders with registration rights would
result in such shares becoming freely tradable without restriction under the
Securities Act immediately upon effectiveness of such registration.
ANTI-TAKEOVER EFFECTS OF DELAWARE LAW AND OUR CERTIFICATE OF INCORPORATION AND
BYLAWS
General. Provisions of Delaware law and our certificate of incorporation
and bylaws could have the effect of making it more difficult for a third party
to acquire, or of discouraging a third party from acquiring, control of us. Such
provisions could limit the price that investors might be willing to pay in the
future for shares of our common stock. These provisions of Delaware law and the
certificate of incorporation and bylaws may also have the effect of discouraging
or preventing transactions involving an actual or threatened change of control
of us, including unsolicited takeover attempts, even though such a transaction
may offer our stockholders the opportunity to sell their stock at a price above
the prevailing market price.
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<PAGE> 66
Delaware Takeover Statute. We are subject to the "business combination"
provisions of Section 203 of the Delaware General Corporation Law. Subject to
exceptions, Section 203 prohibits a publicly-held Delaware corporation from
engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which the person
became an interested stockholder, unless:
- the transaction is approved by the board of directors prior to the date
the interested stockholder obtained interested stockholder status;
- upon consummation of the transaction that resulted in the stockholders
becoming an interested stockholder, the interested stockholder owned at
least 85% of our voting stock outstanding at the time the transaction
commenced, excluding for purposes of determining the number of shares
outstanding those shares owned by (a) persons who are directors and also
officers and(b) employee stock plans in which employee participants do
not have the right to determine confidentially whether shares held
subject to the plan will be tendered in a tender or exchange offer; or
- on or subsequent to the date the business combination is approved by the
board of directors and authorized at an annual or special meeting of
stockholders by the affirmative vote of at least two-thirds of the
outstanding voting stock that is not owned by the interested stockholder.
A "business combination" includes mergers, asset sales and other
transactions resulting in a financial benefit to the interested stockholder.
Subject to exceptions, an "interested stockholder" is a person who, together
with affiliates and associates, owns, or within three years did own, 15% or more
of the corporation's voting stock. This statute could prohibit or delay the
accomplishment of mergers or other takeover or change in control attempts with
respect to us and, accordingly, may discourage attempts to acquire us.
Charter and Bylaw Provisions. In addition, our certificate of incorporation
and bylaws summarized in the following paragraphs may be deemed to have an
anti-takeover effect and may delay, defer or prevent a tender offer or takeover
attempt that a stockholder might consider in its best interest, including those
attempts that might result in a premium over the market price for the shares
held by stockholders.
Classified Board of Directors; Removal; Filling Vacancies and
Amendment. The certificate of incorporation and bylaws provide that the board
shall be divided into three classes of directors serving staggered, three-year
terms. The classification of the board has the effect of requiring at least two
annual stockholder meetings, instead of one, to replace a majority of members of
the board. Subject to the rights of the holders of any outstanding series of
preferred stock, the certificate of incorporation authorizes only the board to
fill vacancies, including newly created directorships. Accordingly, this
provision could prevent a stockholder from obtaining majority representation on
the board by enlarging the board of directors and filling the new directorships
with its own nominees. The certificate of incorporation also provides that
directors may be removed by stockholders only for cause and only by the
affirmative vote of holders of two-thirds of the outstanding shares of voting
stock.
Stockholder Action; Special Meeting of Stockholders. The certificate of
incorporation provides that stockholders may not take action by written consent,
but may only take action at duly called annual or special meetings of
stockholders. The certificate of incorporation further provides that special
meetings of our stockholders may be called only by the chairman of the board of
directors or a majority of the board of directors. This limitation on the right
of stockholders to call a special meeting could make it more difficult for
stockholders to initiate actions that are opposed by the board of directors.
These actions could include the removal of an incumbent director or the election
of a stockholder nominee as a director. They could also include the
implementation of a
65
<PAGE> 67
rule requiring stockholder ratification of specific defensive strategies that
have been adopted by the board of directors with respect to unsolicited takeover
bids. In addition, the limited ability of the stockholders to call a special
meeting of stockholders may make it more difficult to change the existing board
and management.
Advance Notice Requirements for Stockholder Proposals and Director
Nomination. The bylaws provide that stockholders seeking to bring business
before an annual meeting of stockholders, or to nominate candidates for election
as directors at an annual meeting of stockholders, must provide timely notice
thereof in writing. To be timely, a stockholder's notice must be delivered to or
mailed and received at our principal executive offices not less than 120 days
prior to the date of our annual meeting. The bylaws also specify requirements as
to the form and content of a stockholder's notice. These provisions may preclude
stockholders from bringing matters before an annual meeting of stockholders or
from making nominations for directors at an annual meeting of stockholders.
Authorized but Unissued Shares. The authorized but unissued shares of
common stock and preferred stock are available for future issuance without
stockholder approval. These additional shares may be utilized for a variety of
corporate purposes, including future public offerings to raise additional
capital, corporate acquisitions and employee benefit plans. The existence of
authorized but unissued shares of common stock and preferred stock could render
more difficult or discourage an attempt to obtain control of us by means of a
proxy contest, tender offer, merger or otherwise.
Supermajority Vote to Amend Charter and Bylaws. The Delaware General
Corporation Law provides generally that the affirmative vote of a majority of
the shares entitled to vote on any matter is required to amend a corporation's
certificate of incorporation or bylaws, unless a corporation's certificate of
incorporation or bylaws, as the case may be, requires a greater percentage.
Following the completion of this offering, our present directors, and executive
officers and principal stockholders will beneficially own approximately 75% of
our common stock. This gives them veto power with respect to any stockholder
action or approval requiring either a two-thirds vote or a simple majority.
NASDAQ NATIONAL MARKET
We have applied to list our common stock on the Nasdaq National Market
under the trading symbol "WBSN."
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock is U.S. Stock
Transfer Corporation, Glendale, California.
66
<PAGE> 68
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of our common stock in the public market after
the offering could adversely affect the market price of our common stock and our
ability to raise equity capital in the future on terms favorable to us.
Based upon the 15,394,698 shares we had outstanding as of December 31,
1999, and the 4,000,000 shares to be sold pursuant to this offering, we will
have outstanding 19,394,698 shares of our common stock upon completion of this
offering, assuming that the underwriters do not exercise the over-allotment
option. Of these shares, all of the 4,000,000 shares sold in this offering will
be freely tradable without restriction or further registration under the
Securities Act, unless these shares are purchased by "affiliates" as that term
is defined in Rule 144 under the Securities Act. The remaining shares of common
stock held by existing stockholders are "restricted securities" as that term is
defined in Rule 144 under the Securities Act. Restricted securities may be sold
in the public market only if registered or if they qualify for an exemption from
registration under Rules 144 or 701 under the Securities Act, which rules are
summarized below.
The following table shows approximately when the shares of our common stock
that are not being sold in this offering but which will be outstanding when this
offering is complete will be eligible for sale in the public market:
ELIGIBILITY OF RESTRICTED SHARES FOR SALE IN THE PUBLIC MARKET
<TABLE>
<CAPTION>
NUMBER OF
SHARES ELIGIBLE
FOR FUTURE
RELEVANT DATES SALE COMMENT
-------------- --------------- --------------------------------------
<S> <C> <C>
On effective date..................... -- Shares eligible for sale under Rule
144(k)
90 days after effective date.......... -- Additional shares eligible for sale
under Rules 144 and 701
180 days after effective date......... 14,154,698 All shares subject to lock-up
agreements and market standoff
provisions released; additional shares
eligible for sale under Rules 144 and
701.
More than 181 days after effective 1,240,000 Additional shares becoming eligible
date................................ for sale under Rule 144 more than 180
days after the effective date
</TABLE>
Resale of most of the restricted shares that will become available for sale
in the public market starting 180 days after the effective date will be limited
by volume and other resale restrictions under Rule 144 because the holders are
our affiliates.
RULE 144
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person who has beneficially owned shares of our
common stock for at least one year is entitled to sell, within any three-month
period, a number of shares that is not more than the greater of:
- 1% of the number of shares of common stock then outstanding, which will
equal approximately 194,000 shares immediately after this offering; or
- the average weekly trading volume of the common stock on the Nasdaq
National Market during the four calendar weeks before a notice of the
sale on Form 144 is filed.
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<PAGE> 69
Sales under Rule 144 must also comply with manner of sale provisions and
notice requirements and are subject to the availability of current public
information about us.
Rule 144(k)
Under Rule 144(k), a person who has not been one of our affiliates at any
time during the 90 days before a sale, and who has beneficially owned the
restricted shares for at least two years, is entitled to sell the shares without
complying with the manner of sale, public information, volume limitation or
notice provisions of Rule 144.
Rule 701
In general, under Rule 701 of the Securities Act as currently in effect,
any of our employees, consultants or advisors who purchase shares from us under
a stock option plan or other written agreement can resell those shares 90 days
after the effective date of this offering in reliance on Rule 144, but without
complying with some of the restrictions, including the holding period, contained
in Rule 144.
LOCK-UP AGREEMENTS AND MARKET STAND-OFF PROVISIONS
All of our executive officers, directors and security holders are subject
to lock-up agreements or market stand-off provisions under which they have
agreed not to transfer or dispose of, directly or indirectly, any shares of
common stock or any securities convertible into or exercisable or exchangeable
for shares of common stock, for a period of 180 days after the date of this
prospectus. Chase Securities Inc. may, however, in its sole discretion, at any
time, without notice, release all or any portion of the shares subject to
lock-up agreements to which it is a party.
STOCK PLANS
Following 90 days after the date of this prospectus, shares issued upon
exercise of options that we granted prior to the date of this offering will also
be available for sale in the public market pursuant to Rule 701 under the
Securities Act of 1933. Rule 701 permits resales of such shares in reliance upon
Rule 144 under the Securities Act of 1933 but without compliance with the
restrictions, including the holding-period requirement, imposed under Rule 144.
As of December 31, 1999, options to purchase a total of 3,161,551 shares of
common stock were outstanding. Each option grant is subject to a market
stand-off provision, which allows the Company to restrict the sale of shares
obtained through the exercise of options for up to 180 days from the date of
this offering. Of these 3,161,551 shares, 1,790,012 shares may be eligible for
sale in the public market beginning 180 days from the date of this prospectus.
We intend to file a registration statement to register for resale the
5,000,000 shares of common stock reserved for issuance under our stock option
plans. This registration statement will become effective immediately upon
filing. Shares issued upon the exercise of stock options granted under our stock
option plans will be eligible for resale in the public market from time to time
subject to vesting and, in the case of certain options, the expiration of the
market stand-off provisions referred to above.
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<PAGE> 70
UNDERWRITING
Subject to the terms and conditions of the underwriting agreement, the
underwriters named below, through their representatives, Chase Securities Inc.,
SG Cowen Securities Corporation and SoundView Technology Group, Inc., have
severally agreed to purchase from us the following numbers of shares of common
stock:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
----------- ---------
<S> <C>
Chase Securities Inc. ......................................
SG Cowen Securities Corporation.............................
SoundView Technology Group, Inc. ...........................
--------
Total.............................................
========
</TABLE>
The underwriting agreement provides that the obligations of the
underwriters are conditioned on the absence of any material adverse change in
our business and the receipt of certificates, opinions and letters from us, the
selling stockholders, our counsel and our independent auditors. The underwriters
are committed to purchase all shares of common stock offered in this prospectus
if any shares are purchased.
The underwriters propose to offer the shares of common stock directly to
the public at the public offering price set forth on the cover page of this
prospectus and to dealers at the public offering price less a concession not in
excess of $ per share. The underwriters may allow and the dealers may
reallow a concession not in excess of $ per share to other dealers. After
the public offering of the shares, the underwriters may change the offering
price and other selling terms. The representatives of the underwriters have
informed us that the underwriters do not intend to confirm discretionary sales
in excess of 5% of the shares of common stock offered by this prospectus.
Two of our stockholders have granted to the underwriters an option,
exercisable no later than 30 days after the date of this prospectus, to purchase
up to 600,000 additional shares of common stock at the public offering price,
less the underwriting discount set forth on the cover page of this prospectus.
To the extent that the underwriters exercise this option, each underwriter will
have a firm commitment to purchase a number of shares that approximately
reflects the same percentage of total shares the underwriter purchased in the
above table. The selling stockholders will be obligated to sell shares to the
underwriters to the extent the option is exercised. The underwriters may
exercise this option only to cover over-allotments made in connection with the
sale of common stock offered in this prospectus.
The following table shows the per share and total underwriting discounts
and commissions to be paid to the underwriters by us and the selling
stockholders. The underwriting discount, which we currently estimate will be
seven percent of the public offering price, will be determined based on an arms'
length negotiation between the representatives of the underwriters, Websense and
the selling stockholders. These amounts are shown assuming both no exercise and
full exercise of the underwriters' over-allotment option to purchase additional
shares.
<TABLE>
<CAPTION>
PAID BY THE
PAID BY WEBSENSE SELLING STOCKHOLDERS
---------------------------- ----------------------------
NO EXERCISE FULL EXERCISE NO EXERCISE FULL EXERCISE
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Per share........................ $ $ $ $
Total............................ $ $ $ $
</TABLE>
We estimate that our share of the total expenses of the offering, excluding
underwriting discounts and commissions, will be approximately $955,000. The
offering of the shares is made for delivery when, as and if accepted by the
underwriters and subject to prior sale and to withdrawal, cancellation or
modification of the offering without notice. The underwriters reserve the right
to reject an order for the purchase of shares in whole or in part.
69
<PAGE> 71
We and the selling stockholders have agreed to indemnify the underwriters
against liabilities, including liabilities under the Securities Act, and to
contribute to payments the underwriters may be required to make in respect of
those liabilities.
All of our stockholders, including the selling stockholders, all of our
executive officers and directors have agreed, pursuant to lock-up agreements or
market stand-off provisions to which they are subject, that they will not,
offer, sell or otherwise dispose of any shares of common stock, options or
warrants to acquire shares of common stock or securities exchangeable for or
convertible into shares of common stock owned by them during the 180-day period
following the date of this prospectus. Chase Securities Inc. has the sole
discretion to determine the timing and extent of any release from the lock-up
agreements to which it is a party and may grant such release without providing
any prior notice. We have agreed that we will not, without the prior written
consent of Chase Securities Inc., offer, sell or otherwise dispose of any shares
of common stock, options or warrants to acquire shares of common stock or
securities exchangeable for or convertible into shares of common stock during
the 180-day period following the date of this prospectus, except that we may
issue shares upon the exercise of options granted prior to the date of this
prospectus and may grant additional options under our stock plans.
At our request, the underwriters have reserved up to 200,000 shares of
common stock to be sold in the offering and offered for sale, at the public
offering price, to our customers and other persons with whom we have business
relationships, and associates and family members of our officers and directors.
The number of shares available for sale to the general public in the offering
will be reduced to the extent these persons purchase the reserved shares. Any
reserved shares not so purchased will be offered to the general public on the
same basis as other shares offered by this prospectus.
Persons participating in this offering may over-allot or effect
transactions that stabilize, maintain or otherwise affect the market price of
the common stock at levels above those that might otherwise prevail in the open
market, including by entering stabilizing bids, effecting syndicate covering
transactions or imposing penalty bids. A stabilizing bid means the placing of
any bid or the effecting of any purchase for the purpose of pegging, fixing or
maintaining the price of the common stock. A syndicate covering transaction
means the placing of any bid on behalf of the underwriting syndicate or the
effecting of any purchase to reduce a short position created in connection with
the offering. A penalty bid means an arrangement that permits the underwriters
to reclaim a selling concession from a syndicate member in connection with the
offering when shares of common stock sold by the syndicate member are purchased
in syndicate covering transactions. These transactions may be effected on the
Nasdaq National Market, in the over-the-counter market or otherwise.
Stabilizing, if commenced, may be discontinued at any time.
Before this offering, there was no public market for the common stock. The
initial public offering price for the common stock will be determined by
negotiations between ourselves, the selling stockholders and the
representatives. Among the factors to be considered in determining the initial
public offering price will be prevailing market and economic conditions, our
revenues and earnings, market valuations of other companies engaged in
activities similar to ours, estimates of our business potential and prospects,
the present state of our business operations, our management and other factors
deemed relevant.
A prospectus in electronic format is being made available on an Internet
Web site maintained by Wit SoundView's affiliate, Wit Capital Corporation. In
addition, other dealers purchasing shares from Wit SoundView in this offering
have agreed to make a prospectus in electronic format available on Web sites
maintained by each of these dealers. Other than the prospectus in electronic
format, the information on any Web site maintained by Wit SoundView or any of
its affiliates is not part of the prospectus or the registration statement of
which this prospectus forms a part, has not been approved and/or endorsed by
Websense or any underwriter in its capacity as underwriter and should not be
relied upon by investors.
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<PAGE> 72
LEGAL MATTERS
The validity of the common stock offered in this offering will be passed
upon for us by Brobeck, Phleger & Harrison LLP, San Diego, California. As of the
date of this prospectus, members of that firm own 19,959 shares of our common
stock. Legal matters will be passed upon for the underwriters by Gray Cary Ware
& Freidenrich LLP, San Diego, California.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our financial
statements at December 31, 1999 and 1998, and for each of the three years in the
period ended December 31, 1999, as set forth in their report. We have included
our financial statements in the prospectus and elsewhere in the registration
statement in reliance on Ernst & Young LLP's report, given on their authority as
experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed a registration statement on Form S-1 with the SEC for our
common stock offered hereby. This prospectus does not contain all of the
information set forth in the registration statement. You should refer to the
registration statement and its exhibits for additional information. Whenever we
make reference in this prospectus to any of our contracts, agreements or other
documents, the references are not necessarily complete and you should refer to
the exhibits attached to the registration statement for the copies of the actual
contract, agreement or other document. When we complete this offering, we will
also be required to file annual, quarterly and special reports, proxy statements
and other information with the SEC.
You can read our SEC filings, including the registration statement, over
the Internet at the SEC's web site at http://www.sec.gov. You may also read and
copy any document we file with the SEC at its public reference facilities at
Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549;
Suite 1400, 500 West Madison Street, Chicago, Illinois 60661 and 7 World Trade
Center, Thirteenth Floor, New York, New York 10048. You may also obtain copies
of the documents at prescribed rates by writing to the Public Reference Section
of the SEC at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the
operation of the public reference facilities.
71
<PAGE> 73
WEBSENSE, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Ernst & Young LLP, Independent Auditors........... F-2
Balance Sheets as of December 31, 1998 and 1999............. F-3
Statements of Operations for the years ended December 31,
1997, 1998 and 1999....................................... F-4
Statements of Stockholders' Equity (Deficit) for the years
ended December 31, 1997, 1998 and 1999.................... F-5
Statements of Cash Flows for the years ended December 31,
1997, 1998 and 1999....................................... F-6
Notes to Financial Statements............................... F-7
</TABLE>
F-1
<PAGE> 74
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Websense, Inc.
We have audited the accompanying balance sheets of Websense, Inc. (the
"Company") as of December 31, 1998 and 1999 and the related statements of
operations, stockholders' equity (deficit), and cash flows for each of the three
years in the period ended December 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. 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 Websense, Inc. at December
31, 1998 and 1999, and the results of its operations and its cash flows for each
of the three years in the period ended December 31, 1999, in conformity with
accounting principles generally accepted in the United States.
ERNST & YOUNG LLP
San Diego, California
January 14, 2000
F-2
<PAGE> 75
WEBSENSE, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
PRO FORMA
DECEMBER 31, STOCKHOLDERS'
--------------------------- EQUITY AT DECEMBER 31,
1998 1999 1999
----------- ------------ ----------------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............................. $ 1,753,405 $ 10,734,601
Accounts receivable, net of allowance for
doubtful accounts of $27,154 at December 31,
1998 and $252,880 at December 31, 1999............... 1,551,235 3,448,878
Accounts receivable from a related party............... 39,158 126,772
Other current assets................................... 57,461 328,990
----------- ------------
Total current assets............................ 3,401,259 14,639,241
Property and equipment, net.............................. 781,269 1,947,032
Deposits and other assets................................ 172,400 87,256
Accrued offering costs................................... -- 82,574
----------- ------------
Total Assets............................................. $ 4,354,928 $ 16,756,103
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable....................................... $ 328,406 $ 566,972
Accounts payable to a related party.................... 8,575 6,327
Accrued payroll and related benefits................... 308,728 894,457
Other accrued expenses................................. 194,015 556,767
Current portion of deferred revenue.................... 2,755,964 6,888,562
Long-term debt, current portion........................ 182,359 503,795
----------- ------------
Total current liabilities....................... 3,778,047 9,416,880
Long-term debt, less current portion..................... 313,963 993,103
Deferred revenue, less current portion................... 1,480,378 4,703,960
Commitments
Stockholders' equity (deficit):
Convertible preferred Series A -- par value $0.01;
3,705,000 shares authorized at December 31, 1998 and
1999, 3,703,704 shares issued and outstanding at
December 31, 1998 and 1999, liquidation preference of
$6,000,000 at December 31, 1998 and 1999. None
outstanding pro forma................................ 37,037 37,037 $ --
Convertible preferred Series B -- par value $0.01; none
and 3,333,340 shares authorized at December 31, 1998
and 1999, respectively, none and 3,333,332 issued and
outstanding at December 31, 1998 and 1999,
respectively, liquidation preference of $0 and
$9,999,996 at December 31, 1998 and 1999,
respectively. None outstanding pro forma............. -- 33,333 --
Common stock -- par value of $0.01; 92,961,660 shares
authorized, 7,000,000 and 8,357,662 shares issued and
outstanding at December 31, 1998 and 1999,
respectively, 15,394,698 shares outstanding pro
forma................................................ 70,000 83,577 153,947
Additional paid in capital............................. 4,284,381 18,936,165 18,936,165
Deferred compensation.................................. -- (2,585,372) (2,585,372)
Accumulated deficit.................................... (5,608,878) (14,862,580) (14,862,580)
----------- ------------ ------------
Total stockholders' equity (deficit)..................... (1,217,460) 1,642,160 $ 1,642,160
----------- ------------ ============
Total liabilities and stockholders' equity (deficit)..... $ 4,354,928 $ 16,756,103
=========== ============
</TABLE>
See accompanying notes.
F-3
<PAGE> 76
WEBSENSE, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Subscriptions..................................... $ 637,292 $ 2,503,057 $ 7,140,645
Other products and services....................... 4,382,571 4,415,979 1,506,056
----------- ----------- -----------
Total revenues................................. 5,019,863 6,919,036 8,646,701
Cost of revenues:
Subscriptions..................................... 217,697 736,471 1,083,932
Other products and services....................... 3,213,667 3,723,098 1,190,346
----------- ----------- -----------
Total cost of revenues......................... 3,431,364 4,459,569 2,274,278
----------- ----------- -----------
Gross margin........................................ 1,588,499 2,459,467 6,372,423
Operating expenses:
Selling and marketing (exclusive of $229,791
reported below as amortization of stock-based
compensation).................................. 1,720,564 4,597,274 6,311,131
Research and development (exclusive of $255,962
reported below as amortization of stock-based
compensation).................................. 527,666 1,789,499 3,912,712
General and administrative (exclusive of
$1,335,885 reported below as amortization of
stock-based compensation)...................... 767,385 1,714,572 3,805,344
Amortization of stock-based compensation.......... -- -- 1,821,638
----------- ----------- -----------
Total operating expenses....................... 3,015,615 8,101,345 15,850,825
----------- ----------- -----------
Loss from operations................................ (1,427,116) (5,641,878) (9,478,402)
Interest income (expense), net...................... (35,165) 33,000 224,700
----------- ----------- -----------
Net loss.......................................... $(1,462,281) $(5,608,878) $(9,253,702)
=========== =========== ===========
Historical net loss per share:
Basic and diluted................................. $ (0.21) $ (0.80) $ (1.25)
=========== =========== ===========
Weighted average shares -- basic and diluted...... 7,000,000 7,000,000 7,403,000
=========== =========== ===========
Pro forma net loss per share:
Basic and diluted................................. $ (0.71)
===========
Weighted average shares -- basic and diluted...... 12,979,000
===========
</TABLE>
See accompanying notes.
F-4
<PAGE> 77
WEBSENSE, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
CONVERTIBLE CONVERTIBLE
PREFERRED PREFERRED
SERIES A SERIES B COMMON STOCK
------------------- ------------------- ------------------- DEFERRED
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT COMPENSATION
--------- ------- --------- ------- --------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996.............. -- $ -- -- $ -- 7,000,000 $70,000 $ --
Distribution paid to shareholders....... -- -- -- -- -- -- --
Net loss................................ -- -- -- -- -- -- --
--------- ------- --------- ------- --------- ------- -----------
Balance at December 31, 1997.............. -- -- -- -- 7,000,000 70,000 --
Transfer of accumulated deficit to
additional paid-in capital upon
conversion from S corporation to C
corporation........................... -- -- -- -- -- -- --
Preferred stock issued for cash, net of
offering costs of $269,072............ 3,703,704 37,037 -- -- -- -- --
Net loss................................ -- -- -- -- -- -- --
--------- ------- --------- ------- --------- ------- -----------
Balance at December 31, 1998.............. 3,703,704 37,037 -- -- 7,000,000 70,000 --
Preferred stock issued for cash, net of
offering costs of $185,065............ -- -- 3,333,332 33,333 --
Issuance of common stock upon exercise
of options............................ -- -- -- -- 1,090,455 10,905 --
Issuance of common stock upon exercise
of warrant............................ -- -- -- -- 250,000 2,500 --
Issuance of warrant in connection with
the termination of an exclusive
distributor agreement................. -- -- -- -- -- -- --
Issuance of common stock for services... -- -- -- -- 17,207 172 --
Issuance of common stock options for
services.............................. -- -- -- -- -- -- --
Deferred compensation................... -- -- -- -- -- (4,407,010)
Amortization of deferred compensation... -- -- -- -- -- -- 1,821,638
Net loss................................ -- -- -- -- -- -- --
--------- ------- --------- ------- --------- ------- -----------
Balance at December 31, 1999.............. 3,703,704 $37,037 3,333,332 $33,333 8,357,662 $83,577 $(2,585,372)
========= ======= ========= ======= ========= ======= ===========
<CAPTION>
RETAINED
EARNINGS TOTAL
ADDITIONAL (ACCUMULATED STOCKHOLDERS'
PAID-IN CAPITAL DEFICIT) EQUITY (DEFICIT)
--------------- ------------ ----------------
<S> <C> <C> <C>
Balance at December 31, 1996.............. $ 138,925 $ 38,160 $ 247,085
Distribution paid to shareholders....... -- (124,314) (124,314)
Net loss................................ -- (1,462,281) (1,462,281)
----------- ------------ -----------
Balance at December 31, 1997.............. 138,925 (1,548,435) (1,339,510)
Transfer of accumulated deficit to
additional paid-in capital upon
conversion from S corporation to C
corporation........................... (1,548,435) 1,548,435 --
Preferred stock issued for cash, net of
offering costs of $269,072............ 5,693,891 -- 5,730,928
Net loss................................ -- (5,608,878) (5,608,878)
----------- ------------ -----------
Balance at December 31, 1998.............. 4,284,381 (5,608,878) (1,217,460)
Preferred stock issued for cash, net of
offering costs of $185,065............ 9,781,598 -- 9,814,931
Issuance of common stock upon exercise
of options............................ 349,223 -- 360,128
Issuance of common stock upon exercise
of warrant............................ -- -- 2,500
Issuance of warrant in connection with
the termination of an exclusive
distributor agreement................. 37,500 -- 37,500
Issuance of common stock for services... 27,703 -- 27,875
Issuance of common stock options for
services.............................. 48,750 -- 48,750
Deferred compensation................... 4,407,010 -- --
Amortization of deferred compensation... -- -- 1,821,638
Net loss................................ -- (9,253,702) (9,253,702)
----------- ------------ -----------
Balance at December 31, 1999.............. $18,936,165 $(14,862,580) $ 1,642,160
=========== ============ ===========
</TABLE>
See accompanying notes.
F-5
<PAGE> 78
WEBSENSE, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss............................................ $(1,462,281) $(5,608,878) $(9,253,702)
Adjustments to reconcile net loss to cash used in
operating activities:
Depreciation...................................... 77,154 350,835 601,030
Issuance of common stock options and warrant for
services....................................... -- -- 114,125
Loss on disposal of fixed assets.................. 29,979 -- 21,330
Deferred revenue.................................. 1,053,985 3,105,109 7,356,180
Provision for doubtful accounts................... 25,000 72,274 235,924
Amortization of deferred compensation............. -- -- 1,821,638
Changes in operating assets and liabilities:
Accounts receivable............................ (697,329) (570,481) (2,213,137)
Other current assets........................... 4,365 32,652 (271,529)
Accounts payable............................... 371,749 (446,648) 236,318
Accrued payroll and related benefits........... 225,305 41,767 585,729
Other accrued expenses......................... 242,580 (49,899) 362,752
----------- ----------- -----------
Cash used in operating activities................... (129,493) (3,073,269) (403,342)
INVESTING ACTIVITIES:
Purchase of equipment............................... (178,611) (801,860) (1,779,349)
Proceeds from sale of equipment..................... -- -- 16,050
Deposits............................................ -- (134,833) 85,144
----------- ----------- -----------
Cash used in investing activities................... (178,611) (936,693) (1,678,155)
FINANCING ACTIVITIES:
Repayments on notes payable......................... (113,694) (557,546) (296,526)
Proceeds from issuance of note payable.............. 589,592 467,111 1,264,234
Proceeds from issuance of Series B preferred
stock............................................. -- -- 9,814,931
Proceeds from issuance of Series A preferred
stock............................................. -- 5,730,928 --
Proceeds from exercise of stock options............. -- -- 360,128
Proceeds from exercise of warrant................... -- -- 2,500
Accrued offering costs.............................. -- -- (82,574)
Distributions paid to shareholders.................. (124,314) -- --
----------- ----------- -----------
Net cash provided by financing activities........... 351,584 5,640,493 11,062,693
----------- ----------- -----------
Increase in cash and cash equivalents............... 43,480 1,630,531 8,981,196
Cash and cash equivalents at beginning of year...... 79,394 122,874 1,753,405
----------- ----------- -----------
Cash and cash equivalents at end of year............ $ 122,874 $ 1,753,405 $10,734,601
=========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid....................................... $ 31,109 $ 30,126 $ 66,839
=========== =========== ===========
Income taxes paid................................... $ 800 $ 800 $ 29,446
=========== =========== ===========
</TABLE>
See accompanying notes.
F-6
<PAGE> 79
WEBSENSE, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Websense, Inc. ("Websense" or the "Company") was founded in 1994 as
NetPartners Internet Solutions, a reseller of computer network security
solutions and related services. Today the Company provides employee Internet
management solutions that enable businesses to monitor, report and manage how
their employees use the Internet. The Company's Websense Enterprise solution
supports an organization's efforts to improve employee productivity, conserve
network bandwidth and mitigate potential legal liability.
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 revenues and expenses during the
reporting period. Actual results could differ from those estimates.
PRO FORMA STOCKHOLDERS' EQUITY
If an initial public offering contemplated by this Prospectus is
consummated under the terms presently anticipated, all outstanding shares of
convertible preferred stock at December 31, 1999 will automatically convert into
7,037,036 common shares. Unaudited pro forma stockholders' equity at December
31, 1999, adjusted for the conversion of the convertible preferred stock is
disclosed in the accompanying balance sheet.
REVENUE RECOGNITION
In January 1998, the Company adopted American Institute of Certified Public
Accountants Statement of Position No. 97-2, Software Revenue Recognition (SOP
97-2). This statement provides guidance for recognizing revenue related to sales
by software vendors. The adoption of SOP 97-2 did not have a significant impact
on the Company's revenue recognition policies or practices.
The Company sells Websense Enterprise on a subscription basis. A
subscription agreement is generally 12, 24 or 36 months in duration and for a
fixed number of users. Upon entering into the subscription agreement, the
Company invoices customers. Generally, payment is due for the full term of the
subscription within 30 days of invoicing. The Company recognizes revenue on a
straight-line basis over the term of the subscription agreement. The Company
records amounts billed to customers in excess of recognizable revenue as
deferred revenue in the accompanying balance sheets.
The Company also derives revenue from professional services and from resale
of software and hardware. The Company recognizes revenue for these services and
products upon their completion or delivery.
F-7
<PAGE> 80
WEBSENSE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of
three months or less to be cash equivalents.
CONCENTRATION OF CREDIT RISK
The Company sells its products to customers primarily in the United States,
Canada, Europe and Asia. The Company maintains a reserve for potential credit
losses and historically such losses have been within management's estimates.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and are depreciated using the
straight-line method over their estimated useful lives, which range from three
to five years.
COMPUTER SOFTWARE COSTS
In accordance with Statement of Financial Accounting Standards ("SFAS") No.
86, Accounting for the Costs of Computer Software to be Sold, Leased, or
Otherwise Marketed, when significant the Company capitalizes costs incurred in
the development of specific computer software products after establishment of
technological feasibility and marketability. There have been no such costs
capitalized to date as the costs incurred during the period between
technological feasibility to general release have not been significant.
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1 "Accounting for Costs of Computer Software
Developed or Obtained for Internal Use" (SOP 98-1). This standard requires
companies to capitalize qualifying computer software costs, which are incurred
during the application development stage and amortize them over the software's
estimated useful life. The Company adopted SOP 98-1 effective January 1, 1999
with no material effect on the financial statements.
ADVERTISING EXPENSES
Advertising costs are expensed as incurred. Total advertising costs for the
years ended December 31, 1997, 1998 and 1999 were $628,831, $1,481,063 and
$998,324, respectively.
STOCK-BASED COMPENSATION
The Company has elected to follow Accounting Principles Board Opinion No.
25, Accounting for Stock Issued to Employees ("APB 25"), and related
interpretations in accounting for its employee stock options because the
alternative fair value accounting provided for under SFAS No. 123, Accounting
for Stock-Based Compensation, requires the use of option valuation models that
were not developed for use in valuing employee stock options. Under APB 25, when
the exercise price of the Company's employee stock options, is not less than the
deemed fair value for the underlying stock on the date of grant, no compensation
expense is recognized. At the time stock options were granted, the Company
believed that the exercise price was at a price not less than the fair value of
F-8
<PAGE> 81
WEBSENSE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
the underlying common stock. In conjunction with the Company's initial public
offering contemplated by this prospectus and other events which occurred in
1999, the Company reviewed its exercise prices and arrived at the deemed fair
value for each option grant during 1999. With respect to the 2,891,000 options
granted during 1999, the Company has recorded deferred compensation of
$4,407,010 for the difference between the exercise price per share determined by
the board of directors and the deemed fair value per share at the grant date.
The approximate weighted-average exercise price per share and the approximate
weighted-average deemed fair value per share for the 2,891,000 options was $0.89
and $2.42, respectively. Deferred stock compensation is recognized and amortized
on an accelerated basis in accordance with Financial Accounting Standards Board
Interpretation No. 28 over the vesting period of the related options, generally
four years.
Deferred compensation for options and warrants granted to non-employees has
been determined at the grant date in accordance with SFAS No. 123 and EITF No.
96-18, Accounting for Equity Instruments That are Issued to Other Than Employees
for Acquiring, or in Conjunction with Selling Goods or Services, and has been
recorded at the fair value of the consideration received or the fair value of
the equity instruments issued, whichever is more reliably measured. Such
deferred compensation is recognized over the period the related services are
rendered.
COMPREHENSIVE INCOME
The Company has adopted SFAS No. 130, Reporting Comprehensive Income, which
requires that all components of comprehensive income, including net income, be
reported in the financial statements in the period in which they are recognized.
Comprehensive income is defined as the change in equity during a period from
transactions and other events and circumstances from non-owner sources. Net
income (loss) and other comprehensive income, including foreign currency
translation adjustments, and unrealized gains and losses on investments, shall
be reported, net of their related tax effect, to arrive at comprehensive income
(loss). Comprehensive income (loss) for the years ended December 31, 1997, 1998
and 1999 did not differ from reported net income (loss).
NET LOSS PER SHARE
Websense computes net loss per share in accordance with SFAS No. 128,
Earnings Per Share, and SEC Staff Accounting Bulletin (or SAB) No. 98. Under the
provisions of SFAS No. 128, basic net income (loss) per share is computed by
dividing the net income (loss) for the period by the weighted average number of
common shares outstanding during the period. Diluted net income (loss) per share
is computed by dividing the net income (loss) for the period by the weighted
average number of common and common equivalent shares outstanding during the
period.
Under the provisions of SAB No. 98, common shares issued for nominal
consideration, if any, would be included in the per share calculations as if
they were outstanding for all periods presented. No common shares have been
issued for nominal consideration.
PRO FORMA NET LOSS PER SHARE
Pro forma net loss per share has been computed as described above and also
gives effect to common equivalent shares arising from preferred stock that will
automatically convert upon the
F-9
<PAGE> 82
WEBSENSE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
closing of the initial public offering contemplated by this prospectus (using
the as-if converted method as of January 1, 1999 or the date of issuance, if
later).
A reconciliation of shares used in the calculation of historical and pro
forma basic and diluted net loss per share for the year ended December 31, 1999
is as follows:
<TABLE>
<S> <C>
Weighted average shares outstanding......................... 7,403,000
Adjustment to reflect the assumed conversion of outstanding
preferred stock........................................... 5,576,000
----------
Shares used in computing pro forma basic and diluted net
loss per common share..................................... 12,979,000
==========
</TABLE>
Dilutive securities include options, warrants, preferred stock as if
converted and restricted stock subject to vesting. Potentially dilutive
securities totaling 864,000, 3,392,000 and 4,908,000 for the years ended
December 31, 1997, 1998 and 1999, respectively, were excluded from historical
basic and diluted earnings per share because of their anti-dilutive effect.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, which establishes accounting and reporting
standards for derivative instruments and hedging activities. The Statement will
require the recognition of all derivatives on the Company's balance sheet at
fair value. The Financing Accounting Standards Board has subsequently delayed
implementation of the standard for the financial years beginning after June 15,
2000. The Company expects to adopt the new Statement effective January 1, 2001.
The impact on the Company's financial statements is not expected to be material.
2. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
ESTIMATED DECEMBER 31,
USEFUL -------------------------
LIVES 1998 1999
--------- ---------- -----------
<S> <C> <C> <C>
Computer hardware and software............... 3 years $ 964,110 $ 2,147,308
Office furniture and equipment............... 5 years 255,934 781,257
Vehicles and other equipment................. 5 years 45,506 60,036
---------- -----------
1,265,550 2,988,601
Accumulated depreciation................................ (484,281) (1,041,569)
---------- -----------
$ 781,269 $ 1,947,032
========== ===========
</TABLE>
3. DEBT
In June 1998, the Company entered into a loan and security agreement with
Silicon Valley Bank for a $1,000,000 line of credit. Borrowings under the line
accrue interest at the bank's floating prime rate plus 0.50% (9.00% at December
31, 1999). At December 31, 1999, $552,758 is outstanding, and the Company is
required to make monthly payments of principal and interest through February
2002.
F-10
<PAGE> 83
WEBSENSE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
3. DEBT (CONTINUED)
In May 1999, the Company established a line of credit with the same bank
for working capital advances ("borrowings") and stand-by letters of credit up to
$1,000,000. As of December 31, 1999, the Company had open letters of credit
under the line of $496,465 leaving available $503,535 for additional letters of
credit or borrowings. Borrowings accrue interest at the bank's floating prime
rate plus .25% (8.75% at December 31, 1999). Any outstanding balances on the
line mature in May 2000 and, at December 31, 1999, the Company had no borrowings
outstanding against the line.
In October 1999, the Company modified its May 1999 agreement to provide an
additional $1,000,000 line of credit from the same bank to be used for equipment
and furniture purchases through April 2000. In October 1999, the Company drew
down $924,967 of the available line, which will be converted to a term note in
April 2000. There are no compensating cash requirements and advances accrue
interest at the bank's floating prime rate plus 1.0% (9.5% at December 31,
1999). Through December 31, 1999, the Company has made interest-only payments
related to this note. Beginning in April 2000, the Company will be required to
make monthly payments of principal and interest through April 2003. Principal
maturities on the above notes are as follows for the years ended December 31:
<TABLE>
<S> <C>
2000..................................................... $ 503,795
2001..................................................... 561,445
2002..................................................... 328,884
2003..................................................... 102,774
----------
$1,496,898
==========
</TABLE>
All borrowings under the agreements with Silicon Valley Bank are
cross-collateralized by substantially all of the Company's assets, and are
subject to certain financial and restrictive covenants.
4. GEOGRAPHIC INFORMATION
The following illustrates revenues attributed to customers located in the
Company's country of domicile (the United States) and those attributed to
foreign customers:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
------------------------
1998 1999
---------- ----------
<S> <C> <C>
United States............................................... $6,398,581 $6,833,521
Europe...................................................... 275,722 1,155,942
Asia/Pacific................................................ 200,278 493,502
Latin America............................................... 44,455 163,736
---------- ----------
$6,919,036 $8,646,701
========== ==========
</TABLE>
Revenues attributed to foreign customers were not significant for the year
ended December 31, 1997.
F-11
<PAGE> 84
WEBSENSE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
5. DEFERRED REVENUE
The Company records deferred revenue for contracts with terms greater than
one year. The Company will recognize revenues related to contracts in existence
as of December 31, 1999 as follows:
<TABLE>
<S> <C>
2000........................................................ $ 6,888,562
2001........................................................ 2,993,561
2002........................................................ 1,471,546
2003........................................................ 175,090
2004........................................................ 63,763
-----------
$11,592,522
===========
</TABLE>
6. LEASE COMMITMENTS
The Company leases its facilities and certain equipment under
non-cancellable operating leases, expiring at various dates through March 2002.
Future minimum annual lease payments under non-cancellable operating leases
at December 31, 1999 are as follows:
<TABLE>
<S> <C>
2000........................................................ $ 662,256
2001........................................................ 688,744
2002........................................................ 471,248
2003........................................................ --
2004........................................................ --
----------
$1,822,248
==========
</TABLE>
Rent expense totaled $132,524, $516,265 and $689,750 for the years ended
December 31, 1997, 1998 and 1999, respectively.
7. STOCKHOLDERS' EQUITY (DEFICIT)
In May 1998, the Company reincorporated in Delaware which was accomplished
through a merger of the existing California corporation into a new Delaware
corporation. The ratio of exchange was one share of the California corporation
to one share of the Delaware corporation. In October 1999, the Company increased
the number of authorized shares to 100,000,000 consisting of 92,961,660 shares
of common stock and 7,038,340 shares of preferred stock.
CONVERTIBLE PREFERRED STOCK
In May 1998, the Company issued 3,703,704 shares of Series A convertible
preferred stock at $1.62 per share for total consideration of $5,730,928, net of
offering costs. In June and September of 1999, the Company completed a Series B
convertible preferred stock offering. A total of 3,333,332 shares were issued at
$3.00 per share, for net proceeds of $9,814,931.
Holders of Series A and Series B convertible preferred shares are entitled
to noncumulative cash dividends at a rate to be determined by the board of
directors, if and when such dividends are declared by the board of directors. No
dividends have been declared to date. The liquidation
F-12
<PAGE> 85
WEBSENSE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
7. STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
preference for the Series A and Series B convertible preferred shares is $1.62
and $3.00 per share, respectively.
At the option of the holder, the Series A and Series B preferred shares are
convertible into common stock on a one-for-one basis, subject to adjustment for
antidilution, and will automatically convert into common stock concurrent with
the closing of an underwritten public offering of common stock under the
Securities Act of 1933 in which the Company receives at least $20,000,000 in
gross proceeds and the price per share is at least $6.00 (subject to adjustment
for antidilution).
The preferred stockholders have voting rights equal to the number of common
shares they would own upon conversion.
The Company reserved 7,037,036 shares of common stock for issuance upon
conversion of Series A and Series B convertible preferred stock.
WARRANTS
The Company issued a warrant to purchase 250,000 shares of common stock at
$0.01 per share in conjunction with bridge note financing consummated in March
1998. The warrant was exercised in June 1999.
In connection with the termination of an exclusive distributor agreement,
the Company issued a warrant to a distributor to purchase up to 50,000 shares of
common stock for $.05 per share in March 1999. The warrants are exercisable in
whole or in part at any time prior to the earlier of the consummation of a
public offering by the Company or March 2009. The Company has reserved 50,000
shares of common stock for issuance upon exercise of the warrant. The Company
recorded expense of $37,500 related to this issuance based on the estimated fair
value of the warrant. This distributor accounted for $170,914 and $417,870 of
the Company's revenues for the years ended December 31, 1998 and 1999,
respectively.
In connection with the Series B convertible preferred stock offering, the
Company issued a warrant to purchase 62,500 shares of common stock for $3.00 per
share to financial consultants. The warrants are exercisable in whole or in part
at any time and from time to time until their expiration in June 2004. The
Company has reserved 62,500 shares of common stock for issuance upon exercise of
the warrant.
STOCK OPTION PLAN
In May 1998, the Board of Directors elected to replace the 1997 Stock
Option/Stock Issuance plan with the 1998 Stock Option/Stock Issuance Plan (the
"1998 Stock Plan") under which 4,600,000 shares of the Company's common stock
are authorized for future issuance, and reserved for purchase upon exercise of
options granted. The 1998 Stock Plan provides for the grant of incentive and
non-statutory options and issuances of common stock to employees, directors and
consultants.
The exercise price of incentive stock options must equal at least the fair
value on the date of grant and the exercise price of non-statutory stock options
and the issuance price of common stock under the stock issuance program may be
no less than 85% of the fair value on the date of grant or issuance. The options
are exercisable for a period of up to ten years after the date of grant and
F-13
<PAGE> 86
WEBSENSE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
7. STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
generally vest over four years. Unvested common shares obtained through early
exercise of options are subject to repurchase by the Company at the original
issue price.
The following table summarizes stock option activity under the 1998 Stock
Plan and related information through December 31, 1999:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
OPTIONS EXERCISE PRICE
---------- ----------------
<S> <C> <C>
Granted and outstanding January 1, 1996................ -- --
Granted.............................................. 1,381,000 $.20
Exercised............................................ (11,666) $.20
Repurchased.......................................... (11,666) $.20
Cancelled............................................ (518,334) $.20
---------- ----
Balance at December 31, 1997........................... 839,334 $.20
Granted.............................................. 976,435 $.20
Cancelled............................................ (124,334) $.20
---------- ----
Balance at December 31, 1998........................... 1,691,435 $.20
Granted.............................................. 3,060,500 $.91
Exercised............................................ (1,090,455) $.33
Cancelled............................................ (499,929) $.25
---------- ----
Balance at December 31, 1999........................... 3,161,551 $.83
========== ====
</TABLE>
As of December 31, 1997, 1998 and 1999 there were 87,205, 561,473, and
331,326 options exercisable, respectively, at weighted average prices of $.20
per share. As of December 31, 1999 there were 172,919 shares subject to
repurchase.
The following table summarizes all options outstanding and exercisable by
price range as of December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
-------------------------------------------
WEIGHTED OPTIONS EXERCISABLE
AVERAGE ----------------------------
REMAINING WEIGHTED WEIGHTED
NUMBER CONTRACTUAL AVERAGE NUMBER AVERAGE
EXERCISE PRICES OUTSTANDING LIFE EXERCISE PRICE OUTSTANDING EXERCISE PRICE
--------------- ----------- ------------ -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$ .20 - $ .50..................... 2,143,551 8.84 $ .40 331,326 $.20
$ .75............................. 468,000 9.46 $ .75 -- --
$1.50 - $3.00..................... 496,000 9.75 $2.22 -- --
$6.00 - $7.00..................... 54,000 9.97 $6.09 -- --
--------- ----- ------- ----
3,161,551 $0.83 331,326 $.20
========= ===== ======= ====
</TABLE>
The Company has repurchased 11,666 shares exercised under the 1998 Stock
Plan through December 31, 1999 and recognized $1,750 of related expense for the
difference between the fair value and the price paid on the date repurchased.
Pro forma information regarding net loss is required by SFAS 123 and has
been determined as if the Company has accounted for its employee stock options
and stock purchase plan under the
F-14
<PAGE> 87
WEBSENSE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
7. STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
fair value method of SFAS 123. The fair value for these options was estimated at
the date of grant using the "Minimum Value" option pricing model with the
following weighted-average assumptions for 1997, 1998 and 1999: risk-free
interest rate of 6.0%; dividend yield of 0%; and a weighted average expected
life of the options of five years. For purposes of pro forma disclosures, the
estimated fair value of the options are amortized to expense over the vesting
period. The Company's adjusted pro forma information is as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Pro forma net loss.................................. $(1,466,399) $(5,633,842) $(9,467,044)
Pro forma basic and diluted net loss per share...... $ (.21) $ (.80) $ (1.28)
</TABLE>
The weighted average fair value of options granted during 1997, 1998 and
1999 was $.04, $.04 and $1.20 per share, respectively.
The pro forma effect on net loss for 1997, 1998 and 1999 is not likely to
be representative of the pro forma effect on reported net income or loss in
future years because these amounts reflect less than four years of vesting.
SHARES RESERVED FOR FUTURE ISSUANCE
The following shares of common stock are reserved for future issuance:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1998 1999
--------- ---------
<S> <C> <C>
Stock options:
Granted and outstanding................................... 1,691,435 3,161,551
Reserved for future grants................................ 308,565 336,328
--------- ---------
2,000,000 3,497,879
Warrants.................................................. 250,000 112,500
--------- ---------
2,250,000 3,610,379
========= =========
</TABLE>
8. INCOME TAXES
The Company changed its previous "S" corporation status to a "C"
corporation as of January 1, 1998. With the change in status, the Company became
responsible for income tax liabilities, if any. Previously, income taxes were
the responsibility of the shareholders.
At December 31, 1999, the Company has federal and California net operating
loss carryforwards of approximately $5,183,000 and $2,818,000, respectively. The
federal and California net operating loss carryforwards will begin to expire in
2018 and 2003, respectively, unless previously utilized. At December 31, 1999,
the Company had federal and California research and development credit
carryforwards of approximately $397,000 and $225,000, respectively, which will
begin to expire in 2013 unless previously utilized.
Pursuant to Sections 382 and 383 of the Internal Revenue Code, annual use
of the Company's net operating loss and credit carryforwards may be limited in
the event of a cumulative change in ownership of more than 50% occurs within a
three year testing period.
F-15
<PAGE> 88
WEBSENSE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
8. INCOME TAXES (CONTINUED)
The components of the Company's deferred tax assets as of December 31, 1998
and 1999 are shown below. A valuation allowance has been recognized to offset
the deferred tax assets as realization of such assets is uncertain.
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1998 1999
----------- -----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards.......................... $ 887,000 $ 1,976,000
Research tax credit carryforwards......................... 156,000 543,000
Capitalized research and development...................... 368,000 576,000
Deferred revenue.......................................... 640,000 2,786,000
Deferred compensation..................................... -- 352,000
Other..................................................... 758,000 272,000
----------- -----------
Total deferred tax assets............................... 2,809,000 6,505,000
Valuation allowance for deferred tax assets............... (2,809,000) (6,505,000)
----------- -----------
Net deferred tax assets................................. $ -- $ --
=========== ===========
</TABLE>
9. EMPLOYEE RETIREMENT PLAN
Effective May 1, 1997, the Company established a 401(k) defined
contribution retirement plan (the "401(k) Plan") covering substantially all
employees. The 401(k) Plan provides for voluntary employee contributions from 1%
to 20% of annual compensation, as defined, and does not currently provide for
matching contributions from the Company.
F-16
<PAGE> 89
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
4,000,000 SHARES
[WEBSENSE LOGO]
COMMON STOCK
----------------------
PROSPECTUS
----------------------
CHASE H&Q
SG COWEN
WIT SOUNDVIEW
----------------------
, 2000
----------------------
YOU SHOULD RELY ONLY UPON INFORMATION CONTAINED IN THIS PROSPECTUS. WE HAVE
NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM THAT
CONTAINED IN THIS PROSPECTUS. WE ARE OFFERING TO SELL, AND SEEKING OFFERS TO
BUY, SHARES OF COMMON STOCK ONLY IN JURISDICTIONS WHERE OFFERS AND SALES ARE
PERMITTED. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS ACCURATE ONLY AS OF
THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF DELIVERY OF THIS
PROSPECTUS OR OF ANY SALE OF OUR COMMON STOCK.
NO ACTION IS BEING TAKEN IN ANY JURISDICTION OUTSIDE THE UNITED STATES TO
PERMIT A PUBLIC OFFERING OF OUR COMMON STOCK OR POSSESSION OR DISTRIBUTION OF
THIS PROSPECTUS IN THAT JURISDICTION. PERSONS WHO COME INTO POSSESSION OF THIS
PROSPECTUS IN JURISDICTIONS OUTSIDE THE UNITED STATES ARE REQUIRED TO INFORM
THEMSELVES ABOUT AND TO OBSERVE ANY RESTRICTIONS AS TO THIS OFFERING AND THE
DISTRIBUTION OF THIS PROSPECTUS APPLICABLE TO THAT JURISDICTION.
UNTIL , 2000, ALL DEALERS THAT BUY, SELL OR TRADE IN OUR COMMON
STOCK, WHETHER OR NOT PARTICIPATING IN THIS OFFERING MAY BE REQUIRED TO DELIVER
A PROSPECTUS. THIS IS IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 90
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, payable by the Registrant in connection with the offer
and sale of the common stock being registered. All amounts are estimates except
the registration fee, the NASD filing fee and the Nasdaq National Market entry
fee.
<TABLE>
<S> <C>
SEC Registration fee........................................ $ 17,002
NASD filing fee............................................. 6,940
Blue Sky fees and expenses (including legal fees)........... 5,000
Nasdaq National Market entry fee............................ 95,000
Accounting fees and expenses................................ 200,000
Other legal fees and expenses............................... 400,000
Transfer agent and registrar fee............................ 10,850
Printing and engraving...................................... 125,000
Miscellaneous............................................... 95,208
--------
Total............................................. $955,000
========
</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 (the "Securities
Act"). As permitted by the Delaware General Corporation Law, the Registrant's
Amended and Restated Certificate of Incorporation includes a provision that
eliminates the personal liability of its directors for monetary damages for
breach of fiduciary duty as a director, except for liability (i) for any breach
of the director's duty of loyalty to the Registrant or its stockholders, (ii)
for acts or omissions not in good faith or that involve intentional misconduct
or a knowing violation of law, (iii) under section 174 of the Delaware General
Corporation Law (regarding unlawful dividends and stock purchases) or (iv) for
any transaction from which the director derived an improper personal benefit. As
permitted by the Delaware General Corporation Law, the Bylaws of the Registrant
provide that (i) the Registrant is required to indemnify its directors and
officers to the fullest extent permitted by the Delaware General Corporation
Law, subject to very limited exceptions, (ii) the Registrant may indemnify its
other employees and agents as set forth in the Delaware General Corporation Law,
(iii) the Registrant is required to advance expenses, as incurred, to its
directors and executive officers in connection with a legal proceeding to the
fullest extent permitted by the Delaware General Corporation Law, subject to
very limited exceptions and (iv) the rights conferred in the Bylaws are not
exclusive. At present, there is no pending litigation or proceeding involving a
director, officer or employee of the Registrant regarding which indemnification
is sought, nor is the Registrant aware of any threatened litigation that may
result in claims for indemnification. Reference is also made to Section 7 of the
Underwriting Agreement, which provides for the indemnification of officers,
directors and controlling persons of the Registrant against liabilities. In
addition, intercompany agreements provide for the indemnification of officers,
directors and controlling persons of the Registrant against liabilities. The
indemnification provisions in the Registrant's Restated Certificate of
Incorporation and in its Bylaws may be sufficiently broad to permit
indemnification of the Registrant's directors and executive officers for
liabilities arising under the Securities Act. The Registrant, with approval by
the Registrant's Board of Directors, expects to obtain directors' and officers'
liability insurance. Reference is made to the following documents filed as
II-1
<PAGE> 91
exhibits to this registration statement regarding relevant indemnification
provisions described above and elsewhere herein:
<TABLE>
<CAPTION>
EXHIBIT
DOCUMENT NUMBER
-------- -------
<S> <C>
Form of Underwriting Agreement.............................. 1.1
Form of Restated Certificate of Incorporation of
Registrant................................................ 3.2
Form of Bylaws of Registrant................................ 3.3
Form of Indemnification Agreement between Websense, Inc. and
its directors............................................. 10.14
Form of Indemnification Agreement between Websense, Inc. and
its officers.............................................. 10.15
</TABLE>
The Company has entered into indemnification agreements with each of the
Company's directors, a form of which is attached as an exhibit hereto and is
incorporated herein by reference.
The Registrant may obtain insurance for the protection of its directors and
officers against any liability asserted against them in their official
capacities. The rights of indemnification described above are not exclusive of
any other rights of indemnification to which the persons indemnified may be
entitled under any bylaw, agreement, vote of stockholders or directors or
otherwise.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since December 31, 1996, we have issued unregistered securities to a
limited number of persons as described below:
(a) From December 23, 1997 through December 31, 1999, we sold an
aggregate of 1,102,121 shares of our common stock at exercise prices
ranging from $0.20 to $0.75 per share to employees, consultants, directors
and other service providers pursuant to our 1998 Equity Incentive Plan.
(b) On May 20, 1998, we sold 3,703,704 shares of Series A preferred
stock at a price of $1.62 per share, to a group of private investors for an
aggregate purchase price of $6,000,000. These investors were Edelson IV,
L.P. and entities affiliated with Morgan Stanley Dean Witter Venture
Partners.
(c) On June 11, June 14, July 26 and September 20, 1999, we sold an
aggregate of 3,333,332 shares of Series B preferred stock at a price of
$3.00 per share to a group of private investors for an aggregate purchase
price of $9,999,996. These investors were Edelson IV, L.P.; Crosspoint
Venture Partners; entities affiliated with Morgan Stanley Dean Witter
Venture Partners; entities affiliated with Nippon Investment & Finance Co.,
Ltd.; Alps System Integration Co., Ltd.; Forval Creative; and Brobeck &
Phleger Harrison, LLP.
(d) On April 15, 1999 we issued a warrant to purchase 50,000 shares of
common stock to Alps System Integration Co., Ltd. On July 30, 1999 we
issued warrants to purchase 62,500 shares of common stock to entities
affiliated with Global Alliance, Ltd.
For additional information concerning these equity investment transactions,
reference is made to the information contained under the caption "Transactions
with Related Parties" in the form of prospectus included herein. The sales of
securities described in subsection (a) above were deemed to be exempt from
registration in reliance on Rule 701 promulgated under Section 3(b) under the
Securities Act as transactions pursuant to a compensatory benefit plan or a
written contract relating to compensation. The sales of securities described in
subsections (b), (c) and (d) above were deemed to be exempt from registration in
reliance on Section 4(2) of the Securities Act or Regulation D promulgated
thereunder as transactions by an issuer not involving any public offering. The
recipients of securities in each such transaction represented their intention to
acquire the securities for investment only and not with a view to or for sale in
connection with any distribution thereof and appropriate legends were affixed to
the share certificates and other instruments issued in such transactions. All
recipients either received adequate information about Websense or had access,
through employment or other relationships, to such information.
II-2
<PAGE> 92
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
a. EXHIBITS
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement.
+3.1 Amended and Restated Certificate of Incorporation, as
amended.
3.2 Form of Amended and Restated Certificate of Incorporation to
be filed and become effective upon the closing of this
offering.
+3.3 Bylaws.
3.4 Form of Bylaws to become effective prior to effectiveness of
this Registration Statement.
*4.1 Specimen Stock Certificate of Websense, Inc.
5.1 Opinion of Brobeck Phleger & Harrison, LLP.
+10.1 Amended and Restated Registration Rights Agreement dated
June 9, 1999.
+10.2 Form of Subscription Agreement regarding Series B Preferred
Stock.
10.3 Warrant to Purchase Common Stock between Websense, Inc. and
Alps System Integration Co., Ltd, dated April 15, 1999.
10.4 Form of Warrant to Purchase Common Stock between Websense,
Inc. and entities listed on Schedule A attached thereto,
dated July 30, 1999.
10.5 Employment Agreement by and between Websense, Inc. and John
B. Carrington, dated May 10, 1999.
10.6 Employment Agreement by and between Websense, Inc. and
Douglas C. Wride, dated June 11, 1999.
10.7 Lease Agreement between Websense, Inc. and Legacy-RECP
Sorrento OPCO, LLC, dated June 21, 1999, as amended.
10.8 1998 Equity Incentive Plan.
10.9 Standard Terms and Conditions Relating to Incentive Stock
Option Under the 1998 Equity Incentive Plan.
10.10 2000 Stock Incentive Plan.
10.11 2000 Stock Incentive Plan, Notice of Grant of Stock Option.
10.12 2000 Stock Incentive Plan, Form of Incentive Stock Option
Agreement.
10.13 2000 Employee Stock Purchase Plan.
10.14 Form of Indemnification Agreement between Websense, Inc. and
its directors.
10.15 Form of Indemnification Agreement between Websense, Inc. and
its officers.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
23.2 Consent of Brobeck Phleger & Harrison LLP (included in
Exhibit 5.1).
+24.1 Power of Attorney (included on signature page).
+27.1 Financial Data Schedule.
99.1 Business Representation Contract between Janet A. McVeigh,
Philip G. Trubey and John C. Stiska, dated March 29, 1999.
99.2 Consent of Saratoga Institute.
</TABLE>
- -------------------------
* To be filed by amendment.
+ Previously filed.
b. FINANCIAL STATEMENT SCHEDULES
Schedule II -- Valuation and Qualifying Accounts
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.
II-3
<PAGE> 93
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described in Item 14, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by 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 of whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes 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.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-4
<PAGE> 94
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to this Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of San
Diego, State of California, on March 3, 2000.
WEBSENSE, INC.
By: /s/ DOUGLAS C. WRIDE
------------------------------------
Douglas C. Wride
Chief Financial Officer
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>
* Chairman of the Board, President March 3, 2000
- --------------------------------------------- and Chief Executive Officer
John B. Carrington (principal executive officer)
/s/ DOUGLAS C. WRIDE Chief Financial Officer (principal March 3, 2000
- --------------------------------------------- financial and accounting officer)
Douglas Wride
* Director March 3, 2000
- ---------------------------------------------
Robert J. Loarie
* Director March 3, 2000
- ---------------------------------------------
Bruce T. Coleman
* Director March 3, 2000
- ---------------------------------------------
John C. Stiska
* Director March 3, 2000
- ---------------------------------------------
Donald B. Milder
* Director March 3, 2000
- ---------------------------------------------
Gary E. Sutton
*By: /s/ DOUGLAS C. WRIDE
- --------------------------------------------
Douglas Wride
Attorney in fact
</TABLE>
II-5
<PAGE> 95
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
WEBSENSE, INC.
<TABLE>
<CAPTION>
A B C D E
BALANCE AT CHARGED TO COSTS CHARGED TO OTHER DEDUCTION -- BALANCE AT END
DESCRIPTION BEGINNING OF PERIOD AND EXPENSES ACCOUNTS DESCRIBE OF PERIOD
----------- ------------------- ---------------- ---------------- ------------ --------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1997
Reserves and allowances
deducted from asset accounts:
Allowance for doubtful
accounts................... $ -- $ 25,000 $ -- $ -- $ 25,000
YEAR ENDED DECEMBER 31, 1998
Reserves and allowances
deducted from asset accounts:
Allowance for doubtful
accounts................... $25,000 $ 72,274 $ -- $70,120(1) $ 27,154
YEAR ENDED DECEMBER 31, 1999
Reserves and allowances
deducted from asset accounts:
Allowance for doubtful
accounts................... $27,154 $235,924 $ -- $10,198(1) $252,880
</TABLE>
- -------------------------
(1) Uncollectible accounts written off, net of recoveries.
S-1
<PAGE> 96
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <S>
1.1 Form of Underwriting Agreement.
+3.1 Amended and Restated Certificate of Incorporation, as
amended.
3.2 Form of Amended and Restated Certificate of Incorporation to
be filed and become effective upon the closing of this
offering.
+3.3 Bylaws.
3.4 Form of Bylaws to become effective prior to effectiveness of
this Registration Statement.
*4.1 Specimen Stock Certificate of Websense, Inc.
5.1 Opinion of Brobeck Phleger & Harrison, LLP.
+10.1 Amended and Restated Registration Rights Agreement dated
June 9, 1999.
+10.2 Form of Subscription Agreement regarding Series B Preferred
Stock.
10.3 Warrant to Purchase Common Stock between Websense, Inc. and
Alps System Integration Co., Ltd, dated April 15, 1999.
10.4 Form of Warrant to Purchase Common Stock between Websense,
Inc. and entities listed on Schedule A attached thereto,
dated July 30, 1999.
10.5 Employment Agreement by and between Websense, Inc. and John
B. Carrington, dated May 10, 1999.
10.6 Employment Agreement by and between Websense, Inc. and
Douglas C. Wride, dated June 11, 1999.
10.7 Lease Agreement between Websense, Inc. and Legacy-RECP
Sorrento OPCO, LLC, dated June 21, 1999, as amended.
10.8 1998 Equity Incentive Plan.
10.9 Standard Terms and Conditions Relating to Incentive Stock
Option Under the 1998 Equity Incentive Plan.
10.10 2000 Stock Incentive Plan.
10.11 2000 Stock Incentive Plan, Notice of Grant of Stock Option.
10.12 2000 Stock Incentive Plan, Form of Incentive Stock Option
Agreement.
10.13 2000 Employee Stock Purchase Plan.
10.14 Form of Indemnification Agreement between Websense, Inc. and
its directors.
10.15 Form of Indemnification Agreement between Websense, Inc. and
its officers.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
23.2 Consent of Brobeck Phleger & Harrison LLP (included in
Exhibit 5.1).
+24.1 Power of Attorney (included on signature page).
+27.1 Financial Data Schedule.
99.1 Business Representation Contract between Janet A. McVeigh,
Philip G. Trubey and John C. Stiska, dated March 29, 1999.
99.2 Consent of Saratoga Institute.
</TABLE>
- -------------------------
* To be filed by amendment.
+ Previously filed.
<PAGE> 1
EXHIBIT 1.1
WEBSENSE, INC.
[ ] SHARES(1)
COMMON STOCK
UNDERWRITING AGREEMENT
March , 2000
-------
CHASE SECURITIES INC.
SG Cowen Securities Corporation
SoundView Technology Group, Inc.
As Representatives of the Several Underwriters
One Bush Street
San Francisco, CA 94104
Ladies and Gentlemen:
Websense, Inc., a Delaware corporation (herein called the Company),
proposes to issue and sell _______ shares of its authorized but unissued Common
Stock, $0.01 par value (herein called the Common Stock) (said _______ shares of
Common Stock being herein called the Underwritten Stock), and the stockholders
of the Company named in Schedule II hereto (herein collectively called the
Selling Securityholders) propose to grant to the Underwriters (as hereinafter
defined) an option to purchase up to _______ additional shares of Common Stock
(herein called the Option Stock and with the Underwritten Stock herein
collectively called the Stock). The Common Stock is more fully described in the
Registration Statement and the Prospectus hereinafter mentioned.
The Company and the Selling Securityholders severally hereby confirm the
agreements made with respect to the purchase of the Stock by the several
underwriters, for whom you are acting, named in Schedule I hereto (herein
collectively called the Underwriters, which term shall also include any
underwriter purchasing Stock pursuant to Section 3(b) hereof). You represent and
warrant that you have been authorized by each of the other Underwriters to enter
into this Agreement on its behalf and to act for it in the manner herein
provided.
1. REGISTRATION STATEMENT. The Company has filed with the Securities and
Exchange Commission (herein called the Commission) a registration statement on
Form S-1 (No. 33-95619), including the related preliminary prospectus, for the
registration under the Securities Act of 1933, as amended (herein called the
Securities Act) of the Stock. Copies of such registration statement and of each
amendment thereto, if any, including the related preliminary prospectus (meeting
the requirements of Rule 430A of the rules and regulations of the Commission)
heretofore filed by the Company with the Commission have been delivered to you.
The term Registration Statement as used in this agreement shall mean
such registration statement, all exhibits and financial statements, all
information omitted therefrom in reliance upon Rule 430A and contained in the
Prospectus referred to below, in the form in which it became effective, and any
registration statement filed pursuant to Rule 462(b) of the rules and
regulations of the Commission with respect to the Stock (herein called a Rule
462(b) registration statement), and, in the event of any amendment thereto after
the effective date of such registration statement (herein called the Effective
Date), shall also mean (from and after the effectiveness of such amendment) such
registration statement as so amended (including any Rule 462(b) registration
statement). The term Prospectus as used in this Agreement shall mean the
prospectus relating to the Stock first filed with the Commission pursuant to
Rule 424(b) and Rule 430A (or if no such filing is required, as included in the
Registration Statement) and, in the event of any supplement or amendment to such
prospectus after the Effective Date, shall also mean (from and after the filing
with the Commission of such supplement or the effectiveness of
- ----------
(1) Plus an option to purchase from the Selling Shareholders up to (_____)
additional shares to cover over-allotments.
1
<PAGE> 2
such amendment) such prospectus as so supplemented or amended. The term
Preliminary Prospectus as used in this Agreement shall mean each preliminary
prospectus included in such registration statement prior to the time it becomes
effective.
The Registration Statement has been declared effective under the
Securities Act, and no post-effective amendment to the Registration Statement
has been filed as of the date of this Agreement. The Company has caused to be
delivered to you copies of each Preliminary Prospectus and has consented to the
use of such copies for the purposes permitted by the Securities Act.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SELLING
SECURITYHOLDERS.
(a) Each of the Company and the Selling Securityholders hereby
represents and warrants as follows:
(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws
of the jurisdiction of its incorporation, has full
corporate power and authority to own or lease its
properties and conduct its business as described in the
Registration Statement and the Prospectus and as being
conducted, and is duly qualified as a foreign corporation
and in good standing in all jurisdictions in which the
character of the property owned or leased or the nature of
the business transacted by it makes qualification
necessary (except where the failure to be so qualified
would not have a material adverse effect on the business,
properties, financial condition or results of operations
of the Company and its subsidiaries, taken as a whole).
(ii) The Company has full legal right, power and authority
to enter into this Agreement and perform the transactions
contemplated hereby. This Agreement has been duly
authorized, executed and delivered by the Company and is a
valid and binding agreement on the part of the Company,
enforceable in accordance with its terms, except as rights
to indemnification hereunder may be limited by applicable
law and except as the enforcement hereof may be limited by
applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting
creditors' rights generally or by general equitable
principles; the performance of this Agreement and the
consummation of the transactions herein contemplated will
not result in a material breach or violation of any of the
terms and provisions of, or constitute a default under,
(i) any bond, debenture, note or other evidence of
indebtedness, or under any lease, contract, indenture,
mortgage, deed of trust, loan agreement, joint venture or
other agreement or instrument to which the Company is a
party or by which it or any of its properties may be
bound, (ii) the charter or bylaws of the Company, or (iii)
any law, order, rule, regulation, writ, injunction,
judgment or decree of any court, government or
governmental agency or body, domestic or foreign, having
jurisdiction over the Company or over its properties. No
consent, approval, authorization or order of or
qualification with any court, government of governmental
agency or body, domestic of foreign, having jurisdiction
over the Company or any of its properties is required to
be obtained by the Company for the execution and delivery
of this Agreement and the consummation by the Company of
the transactions of this Agreement and the consummation by
the Company of the transactions herein contemplated,
except such as may be required under the Securities Act,
the Securities Exchange Act of 1934, as amended (the
"Exchange Act") or under state or other securities or Blue
Sky laws, all of which requirements have been satisfied in
all material respects.
(iii) Since the respective dates as of which information
is given in the Registration Statement and the Prospectus,
there has not been any materially adverse change in the
business, properties, financial condition or results of
operations of the Company, whether or not arising from
transactions in the ordinary course of business, other
than
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<PAGE> 3
as set forth in the Registration Statement and the
Prospectus, and since such dates, except in the ordinary
course of business, the Company has not entered into any
material transaction not referred to in the Registration
Statement and the Prospectus.
(iv) The Registration Statement and the Prospectus comply,
and on the Closing Date (as hereinafter defined) and any
later date on which Option Stock is to be purchased, the
Prospectus will comply, in all material respects, with the
provisions of the Securities Act and the rules and
regulations of the Commission thereunder; on the Effective
Date, the Registration Statement did not contain any
untrue statement of a material fact and did not omit to
state any material fact required to be stated therein or
necessary in order to make the statements therein not
misleading; and, on the Effective Date the Prospectus did
not and, on the Closing Date and any later date on which
Option Stock is to be purchased, will not contain any
untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements
therein, in the light of the circumstances under which
they were made, not misleading; provided, however, that
none of the representations and warranties in this
subparagraph (iii) shall apply to statements in, or
omissions from, the Registration Statement or the
Prospectus made in reliance upon and in conformity with
information herein or otherwise furnished in writing to
the Company by or on behalf of the Underwriters for use in
the Registration Statement or the Prospectus.
(v) The Stock is duly and validly authorized, is (or, in
the case of shares of the Stock to be sold by the Company,
will be, when issued and sold to the Underwriters as
provided herein) duly and validly issued, fully paid and
nonassessable and conforms to the description thereof in
the Prospectus. No further approval or authority of the
stockholders or the Board of Directors of the Company will
be required for the transfer and sale of the Stock to be
sold by the Selling Securityholders or the issuance and
sale of the Stock as contemplated herein.
(vi) The Stock to be sold by the Selling Securityholders
is listed and duly admitted to trading on the Nasdaq
National Market, and prior to the Closing Date the Stock
to be issued and sold by the Company will be authorized
for listing by the Nasdaq National Market upon official
notice of issuance.
(vii) The Company is not infringing or otherwise violating
any copyrights, trade secrets, trademarks, service marks
or other proprietary information or materials, of others
that could affect materially the use thereof by the
Company, nor is the Company aware of any infringements by
others of any of the Company's copyrights, trade secrets,
trademarks, service marks or other proprietary information
or materials that could affect materially the use thereof
by the Company.
(viii) The Company owns, possesses sufficient licenses to
use, or otherwise has the right to use, all copyrights,
trade secrets, trademarks, service marks or other
proprietary information or materials necessary to conduct
the business now being or proposed to be conducted by the
Company as described in the Prospectus.
(ix) Each holder of options to purchase Common Stock of
the Company (or Common Stock issued upon the exercise of
such options) has entered into a stock restriction
agreement, whereby he or she has agreed that he or she
will not sell, make any short sale of, loan, grant any
option for the purchase of, or otherwise dispose of any
shares of Common Stock of the Company (or securities
exchangeable for or convertible into Common Stock) for a
period of up to 180 days from the effective date of the
Registration Statement without the prior approval of the
Company. The Company will enforce all such restrictions on
disposition as set forth in such agreements and shall
impose or cause to be imposed stop-transfer restrictions
on the certificates representing such shares of Common
Stock.
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<PAGE> 4
(b) Each of the Selling Securityholders hereby represents and
warrants as follows:
(i) Such Selling Securityholder now has and on the Closing
Date and on any later date which Option Shares are to be
purchased, will have good and marketable title to all
the shares of Stock to be sold by such Selling
Securityholder hereunder, free and clear of all liens,
encumbrances, equities, security interests and claims
whatsoever, with full right and authority to deliver the
same hereunder, subject, in the case of each Selling
Securityholder, to the rights of ________, as Custodian
(herein called the Custodian), and that upon the delivery
of and payment for such shares of the Stock hereunder, the
several Underwriters will receive good and marketable
title thereto, free and clear of all liens, encumbrances,
equities, security interests and claims whatsoever.
(ii) Certificates in negotiable form for the shares of the
Stock to be sold by such Selling Securityholder have been
placed in custody under a Custody Agreement for delivery
under this Agreement with the Custodian; such Selling
Securityholder specifically agrees that the shares of the
Stock represented by the certificates so held in custody
for such Selling Securityholder are subject to the
interests of the several Underwriters and the Company,
that the arrangements made by such Selling Securityholder
for such custody, including the Power of Attorney provided
for in such Custody Agreement (appointing certain
individuals as such Selling Securityholder's
attorneys-in-fact (the "Attorneys") to the extent set
forth therein), are to that extent irrevocable, and that
the obligations of such Selling Securityholder shall not
be terminated by any act of such Selling Securityholder or
by operation of law, whether by the death or incapacity of
such Selling Securityholder (or, in the case of a Selling
Securityholder that is not an individual, the dissolution
or liquidation of such Selling Securityholder) or the
occurrence of any other event; if any such death,
incapacity, dissolution, liquidation or other such event
should occur before the delivery of such shares of the
Stock hereunder, certificates for such shares of the Stock
shall be delivered by the Custodian in accordance with the
terms and conditions of this Agreement as if such death,
incapacity, dissolution, liquidation or other event had
not occurred, regardless of whether the Custodian shall
have received notice of such death, incapacity,
dissolution, liquidation or other event.
(iii) Each of the Custody Agreement and the Power of
Attorney provided for in such Custody Agreement constitute
a valid and binding agreement on the part of such Selling
Securityholder, enforceable in accordance with its terms,
except as the enforcement thereof may be limited by
applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting
creditors' rights generally or by general equitable
principles; and each of such Selling Securityholder's
Attorneys, acting alone, is authorized to execute and
deliver this Agreement and the certificate referred to in
Section 9(k) hereof on behalf of such Selling
Securityholder, to determine the purchase price to be paid
by the several Underwriters to such Selling Securityholder
as provided in Section 3 hereof, to authorize the delivery
of the Selling Securityholder Shares under this Agreement
and to duly endorse (in blank or otherwise) the
certificate or certificates representing such Shares or a
stock power or powers with respect thereto, to accept
payment therefor, and otherwise to act on behalf of such
Selling Securityholder in connection with this Agreement.
(iv) All consents, approvals, authorizations and orders
required for the execution and delivery by such Selling
Securityholder of the Power of Attorney and the Custody
Agreement, the execution and delivery by or on behalf of
such Selling Securityholder of this Agreement and the sale
and delivery of the Selling Securityholder Shares under
this Agreement (other than, at the time of the execution
hereof (if the Registration Statement has not yet been
declared effective by the Commission), the issuance of the
order of the Commission declaring the Registration
Statement effective and such
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<PAGE> 5
consents, approvals, authorizations or orders as may be
necessary under state or other securities or Blue Sky
laws) have been obtained and are in full force and effect;
such Selling Securityholder, if other than a natural
person, has been duly organized and is validly existing in
good standing under the laws of the jurisdiction of its
organization as the type of entity that it purports to be;
and such Selling Securityholder has full legal right,
power and authority to enter into and perform its
obligations under this Agreement and such Power of
Attorney and Custody Agreement, and to sell, assign,
transfer and deliver the Shares to be sold by such Selling
Securityholder under this Agreement.
(v) This Agreement has been duly authorized by each
Selling Securityholder that is not a natural person and
has been duly executed and delivered by or on behalf of
such Selling Securityholder and is a valid and binding
agreement of such Selling Securityholder, enforceable in
accordance with its terms, except as rights to
indemnification hereunder may be limited by applicable law
and except as the enforcement hereof may be limited by
bankruptcy, insolvency, reorganization, moratorium or
other similar laws relating to or affecting creditors'
rights generally or by general equitable principles; and
the performance of this Agreement and the consummation of
the transactions herein contemplated will not result in a
breach or violation of any of the terms and provisions of
or constitute a default under any material bond,
debenture, note or other evidence of indebtedness, or
under any material lease, contract, indenture, mortgage,
deed of trust, loan agreement, joint venture or other
agreement or instrument to which such Selling
Securityholder is a party or by which such Selling
Securityholder, or any of such Selling Securityholders'
Selling Securityholder Shares hereunder, may be bound or,
to the best of such Selling Securityholders' knowledge,
result in any violation of any material law, order, rule,
regulation, writ, injunction, judgment or decree of any
court, government or governmental agency or body, domestic
or foreign, having jurisdiction over such Selling
Securityholder or over the properties of such Selling
Securityholder, or, if such Selling Securityholder is
other than a natural person, result in any violation of
any provisions of the charter, bylaws or other
organizational documents of such Selling Securityholder.
(vi) Such Selling Securityholder has not taken and will
not take, directly or indirectly, any action designed to
or that might reasonably be expected to cause or result in
stabilization or manipulation of the price of the Common
Stock to facilitate the sale or resale of the Shares.
(vii) Such Selling Securityholder has not distributed and
will not distribute any prospectus or other offering
material other than the Preliminary Prospectus, the
Prospectus and other materials permitted by the Act in
connection with the offering and sale of the Shares.
(viii) All information furnished by or on behalf of such
Selling Securityholder relating to such Selling
Securityholder set forth in the Registration Statement or
Prospectus is, and at the time the Registration Statement
became or becomes, as the case may be, effective and at
all times subsequent thereto up to and on the Closing
Date, and on any later date on which Option Shares are to
be purchased, was or will be, true and correct and does
not, and, at the time the Registration Statement became or
becomes, as the case may be, effective and, at all times
subsequent thereto up to and on the Closing Date, and on
any later date on which Option Shares are to be purchased,
will not contain any untrue statement of a material fact
or omit to state a material fact required to be stated
therein or necessary to make such information not
misleading.
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<PAGE> 6
(ix) Such Selling Securityholder does not have, or has
waive prior to the date hereof, any preemptive right,
co-sale right or right of first refusal or other similar
right to purchase any of the Shares that are to be sold by
the Company or any of the other Selling Securityholders to
the Underwriters pursuant to this Agreement; such Selling
Securityholder does not have, or has waived prior to the
date hereof, any registration right or other similar right
to participate in the offering made by the Prospectus,
other than such rights of participation as have been
satisfied by the participation of such Selling
Securityholder in the transactions to which this Agreement
relates in accordance with the terms of this Agreement;
and such Selling Securityholder does not own any warrants,
options or similar rights to acquire, and does not have
any right or arrangement to acquire, any capital stock,
rights, warrants, options or other securities from the
Company, other than those described in the Registration
Statement and the Prospectus.
(x) Each Selling Securityholder, severally and not
jointly, represents and warrants to and agrees with each
Underwriter and the Company that such Selling
Securityholder is not aware, without performing any
independent investigation, that the Registration Statement
or the Prospectus contain any untrue statement of a
material fact or omit to state a material fact necessary
to make the statements therein in light of the
circumstances under which they were made, not misleading.
(xi) Such Selling Securityholder has reviewed the
Registration Statement and Prospectus and, although such
Selling Securityholder has not independently verified the
accuracy or completeness of all the information contained
therein, nothing has come to the attention of such Selling
Securityholder that would lead such Selling Securityholder
to believe that on the Effective Date, the Registration
Statement contained any untrue statement of a material
fact or omitted to state any material fact required to be
stated therein or necessary in order to make the
statements therein not misleading; and, on the Effective
Date the Prospectus contained and, on the Closing Date and
any later date on which Option Stock is to be purchased,
contains any untrue statement of a material fact or
omitted or omits to state any material fact necessary in
order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
3. PURCHASE OF THE STOCK BY THE UNDERWRITERS.
(a) On the basis of the representations and warranties and
subject to the terms and conditions herein set forth, the Company agrees to
issue and sell _______ shares of the Underwritten Stock to the several
Underwriters, and each of the Underwriters agrees to purchase from the Company
the respective aggregate number of shares of Underwritten Stock set forth
opposite its name in Schedule I. The price at which such shares of Underwritten
Stock shall be sold by the Company and purchased by the several Underwriters
shall be $___ per share. In making this Agreement, each Underwriter is
contracting severally and not jointly; except as provided in paragraphs (b) and
(c) of this Section 3, the agreement of each Underwriter is to purchase only the
respective number of shares of the Underwritten Stock specified in Schedule I.
(b) If for any reason one or more of the Underwriters shall fail
or refuse (otherwise than for a reason sufficient to justify the termination of
this Agreement under the provisions of Section 8 or 9 hereof) to purchase and
pay for the number of shares of the Stock agreed to be purchased by such
Underwriter or Underwriters, the Company or the Selling Securityholders shall
immediately give notice thereof to you, and the non-defaulting Underwriters
shall have the right within 24 hours after the receipt by you of such notice to
purchase, or procure one or more other Underwriters to purchase, in such
proportions as may be agreed upon between you and such purchasing Underwriter or
Underwriters and upon the terms herein set forth, all or any part of the shares
of the Stock which such defaulting Underwriter or Underwriters agreed to
purchase. If the non-defaulting Underwriters fail so to make such arrangements
with respect to all such shares and portion, the number of shares of the Stock
which each non-defaulting Underwriter is otherwise obligated to purchase under
this Agreement shall be automatically increased on a pro rata basis to absorb
the remaining shares and portion
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<PAGE> 7
which the defaulting Underwriter or Underwriters agreed to purchase; provided,
however, that the non-defaulting Underwriters shall not be obligated to purchase
the shares and portion which the defaulting Underwriter or Underwriters agreed
to purchase if the aggregate number of such shares of the Stock exceeds 10% of
the total number of shares of the Stock which all Underwriters agreed to
purchase hereunder. If the total number of shares of the Stock which the
defaulting Underwriter or Underwriters agreed to purchase shall not be purchased
or absorbed in accordance with the two preceding sentences, the Company and the
Selling Securityholders shall have the right, within 24 hours next succeeding
the 24-hour period above referred to, to make arrangements with other
underwriters or purchasers satisfactory to you for purchase of such shares and
portion on the terms herein set forth. In any such case, either you or the
Company and the Selling Securityholders shall have the right to postpone the
Closing Date determined as provided in Section 5 hereof for not more than seven
business days after the date originally fixed as the Closing Date pursuant to
said Section 5 in order that any necessary changes in the Registration
Statement, the Prospectus or any other documents or arrangements may be made. If
neither the non-defaulting Underwriters nor the Company and the Selling
Securityholders shall make arrangements within the 24-hour periods stated above
for the purchase of all the shares of the Stock which the defaulting Underwriter
or Underwriters agreed to purchase hereunder, this Agreement shall be terminated
without further act or deed and without any liability on the part of the Company
or the Selling Securityholders to any non-defaulting Underwriter and without any
liability on the part of any non-defaulting Underwriter to the Company or the
Selling Securityholders. Nothing in this paragraph (b), and no action taken
hereunder, shall relieve any defaulting Underwriter from liability in respect of
any default of such Underwriter under this Agreement.
(c) On the basis of the representations, warranties and covenants
herein contained, and subject to the terms and conditions herein set forth, the
Selling Securityholders grant an option to the several Underwriters to purchase,
severally and not jointly, up to shares in the aggregate of the Option
Stock from the Selling Securityholders at the same price per share as the
Underwriters shall pay for the Underwritten Stock. Said option may be exercised
only to cover over-allotments in the sale of the Underwritten Stock by the
Underwriters and may be exercised in whole or in part at any time (but not more
than once) on or before the thirtieth day after the date of this Agreement upon
written or telegraphic notice by you to the Company setting forth the aggregate
number of shares of the Option Stock as to which the several Underwriters are
exercising the option. Delivery of certificates for the shares of Option Stock,
and payment therefor, shall be made as provided in Section 5 hereof. The number
of shares of the Option Stock to be purchased by each Underwriter shall be the
same percentage of the total number of shares of the Option Stock to be
purchased by the several Underwriters as such Underwriter is purchasing of the
Underwritten Stock, as adjusted by you in such manner as you deem advisable to
avoid fractional shares.
4. OFFERING BY UNDERWRITERS.
(a) The terms of the initial public offering by the Underwriters
of the Stock to be purchased by them shall be as set forth in the Prospectus.
The Underwriters may from time to time change the public offering price after
the closing of the initial public offering and increase or decrease the
concessions and discounts to dealers as they may determine.
(b) The information set forth in the last paragraph on the front
cover page and under "Underwriting" in the Registration Statement, any
Preliminary Prospectus and the Prospectus relating to the Stock filed by the
Company (insofar as such information relates to the Underwriters) constitutes
the only information furnished by the Underwriters to the Company for inclusion
in the Registration Statement, any Preliminary Prospectus, and the Prospectus,
and you on behalf of the respective Underwriters represent and warrant to the
Company that the statements made therein are correct.
5. DELIVERY OF AND PAYMENT FOR THE STOCK.
(a) Delivery of certificates for the shares of the Underwritten
Stock and the Option Stock (if the option granted by Section 3(c) hereof shall
have been exercised not later than 7:00 a.m., San Diego time, on the date two
business days preceding the Closing Date), and payment therefor, shall be made
at the office of Gray Cary Ware & Freidenrich LLP, 4365 Executive Drive, Suite
1600, San Diego, CA 92121-2189 at 7:00 a.m., San Diego time, on the fourth
business day after the date of this Agreement, or at such time on such other
day, not later than seven full business days after such fourth business day, as
shall be agreed upon in writing by the
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<PAGE> 8
Company, the Selling Securityholders and you. The date and hour of such delivery
and payment (which may be postponed as provided in Section 3(b) hereof) are
herein called the Closing Date.
(b) If the option granted by Section 3(c) hereof shall be
exercised after 7:00 a.m., San Diego time, on the date two business days
preceding the Closing Date, delivery of certificates for the shares of Option
Stock, and payment therefor, shall be made at the office of Gray Cary Ware &
Freidenrich LLP, 4365 Executive Drive, Suite 1600, San Diego, CA 92121-2189 at
7:00 a.m., San Diego time, on the third business day after the exercise of such
option.
(c) Payment for the Stock purchased from the Company shall be
made to the Company or its order, and payment for the Stock purchased from the
Selling Securityholders shall be made to the Custodian, for the account of the
Selling Securityholders, in each case by one or more certified or official bank
check or checks in same day funds. Such payment shall be made upon delivery of
certificates for the Stock to you for the respective accounts of the several
Underwriters against receipt therefor signed by you. Certificates for the Stock
to be delivered to you shall be registered in such name or names and shall be in
such denominations as you may request at least one business day before the
Closing Date, in the case of Underwritten Stock, and at least one business day
prior to the purchase thereof, in the case of the Option Stock. Such
certificates will be made available to the Underwriters for inspection, checking
and packaging at the offices of Lewco Securities Corporation, 2 Broadway, New
York, New York 10004 on the business day prior to the Closing Date or, in the
case of the Option Stock, by 3:00 p.m., New York time, on the business day
preceding the date of purchase.
It is understood that you, individually and not on behalf of the
Underwriters, may (but shall not be obligated to) make payment to the Company
and the Selling Securityholders for shares to be purchased by any Underwriter
whose check shall not have been received by you on the Closing Date or any later
date on which Option Stock is purchased for the account of such Underwriter. Any
such payment by you shall not relieve such Underwriter from any of its
obligations hereunder.
6. FURTHER AGREEMENTS OF THE COMPANY AND THE SELLING SECURITYHOLDERS.
Each of the Company and the Selling Securityholders respectively covenants and
agrees as follows:
(a) The Company will (i) prepare and timely file with the
Commission under Rule 424(b) a Prospectus containing information previously
omitted at the time of effectiveness of the Registration Statement in reliance
on Rule 430A and (ii) not file any amendment to the Registration Statement or
supplement to the Prospectus of which you shall not previously have been advised
and furnished with a copy or to which you shall have reasonably objected in
writing or which is not in compliance with the Securities Act or the rules and
regulations of the Commission.
(b) The Company will promptly notify each Underwriter in the
event of (i) the request by the Commission for amendment of the Registration
Statement or for supplement to the Prospectus or for any additional information,
(ii) the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement, (iii) the institution or notice of
intended institution of any action or proceeding for that purpose, (iv) the
receipt by the Company of any notification with respect to the suspension of the
qualification of the Stock for sale in any jurisdiction, or (v) the receipt by
it of notice of the initiation or threatening of any proceeding for such
purpose. The Company and the Selling Securityholders will make every reasonable
effort to prevent the issuance of such a stop order and, if such an order shall
at any time be issued, to obtain the withdrawal thereof at the earliest possible
moment.
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<PAGE> 9
(c) The Company will (i) on or before the Closing Date, deliver
to you a signed copy of the Registration Statement as originally filed and of
each amendment thereto filed prior to the time the Registration Statement
becomes effective and, promptly upon the filing thereof, a signed copy of each
post-effective amendment, if any, to the Registration Statement (together with,
in each case, all exhibits thereto unless previously furnished to you) and will
also deliver to you, for distribution to the Underwriters, a sufficient number
of additional conformed copies of each of the foregoing (but without exhibits)
so that one copy of each may be distributed to each Underwriter, (ii) as
promptly as possible deliver to you and send to the several Underwriters, at
such office or offices as you may designate, as many copies of the Prospectus as
you may reasonably request, and (iii) thereafter from time to time during the
period in which a prospectus is required by law to be delivered by an
Underwriter or dealer, likewise send to the Underwriters as many additional
copies of the Prospectus and as many copies of any supplement to the Prospectus
and of any amended prospectus, filed by the Company with the Commission, as you
may reasonably request for the purposes contemplated by the Securities Act.
(d) If at any time during the period in which a prospectus is
required by law to be delivered by an Underwriter or dealer any event relating
to or affecting the Company, or of which the Company shall be advised in writing
by you, shall occur as a result of which it is necessary, in the opinion of
counsel for the Company or of counsel for the Underwriters, to supplement or
amend the Prospectus in order to make the Prospectus not misleading in the light
of the circumstances existing at the time it is delivered to a purchaser of the
Stock, the Company will forthwith prepare and file with the Commission a
supplement to the Prospectus or an amended prospectus so that the Prospectus as
so supplemented or amended will not contain any untrue statement of a material
fact or omit to state any material fact necessary in order to make the
statements therein, in the light of the circumstances existing at the time such
Prospectus is delivered to such purchaser, not misleading. If, after the initial
public offering of the Stock by the Underwriters and during such period, the
Underwriters shall propose to vary the terms of offering thereof by reason of
changes in general market conditions or otherwise, you will advise the Company
in writing of the proposed variation, and, if in the opinion either of counsel
for the Company or of counsel for the Underwriters such proposed variation
requires that the Prospectus be supplemented or amended, the Company will
forthwith prepare and file with the Commission a supplement to the Prospectus or
an amended prospectus setting forth such variation. The Company authorizes the
Underwriters and all dealers to whom any of the Stock may be sold by the several
Underwriters to use the Prospectus, as from time to time amended or
supplemented, in connection with the sale of the Stock in accordance with the
applicable provisions of the Securities Act and the applicable rules and
regulations thereunder for such period.
(e) Prior to the filing thereof with the Commission, the Company
will submit to you, for your information, a copy of any post-effective amendment
to the Registration Statement and any supplement to the Prospectus or any
amended prospectus proposed to be filed.
(f) The Company will cooperate, when and as requested by you, in
the qualification of the Stock for offer and sale under the securities or blue
sky laws of such jurisdictions as you may designate and, during the period in
which a prospectus is required by law to be delivered by an Underwriter or
dealer, in keeping such qualifications in good standing under said securities or
blue sky laws; provided, however, that the Company shall not be obligated to
file any general consent to service of process or to qualify as a foreign
corporation in any jurisdiction in which it is not so qualified. The Company
will, from time to time, prepare and file such statements, reports, and other
documents as are or may be required to continue such qualifications in effect
for so long a period as you may reasonably request for distribution of the
Stock.
(g) During a period of five years commencing with the date
hereof, the Company will furnish to each Underwriter who may so request in
writing, copies of all periodic and special reports furnished to stockholders of
the Company and of all information, documents and reports filed with the
Commission.
(h) Not later than the 45th day following the end of the fiscal
quarter first occurring after the first anniversary of the Effective Date, the
Company will make generally available to its security holders an earnings
statement in accordance with Section 11(a) of the Securities Act and Rule 158
thereunder.
(i) The Company and the Selling Securityholders jointly and
severally agree to pay all costs and expenses incident to the performance of
their obligations under this Agreement, including all costs and expenses
incident to (i) the preparation, printing and filing with the Commission and the
National Association of
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<PAGE> 10
Securities Dealers, Inc. ("NASD") of the Registration Statement, any Preliminary
Prospectus and the Prospectus, (ii) the furnishing to the Underwriters of copies
of any Preliminary Prospectus and of the several documents required by paragraph
(c) of this Section 6 to be so furnished, (iii) the printing of this Agreement
and related documents delivered to the Underwriters, (iv) the preparation,
printing and filing of all supplements and amendments to the Prospectus referred
to in paragraph (d) of this Section 6, (v) the furnishing to you and the
Underwriters of the reports and information referred to in paragraph (g) of this
Section 6 and (vi) the printing and issuance of stock certificates, including
the transfer agent's fees. The Selling Securityholders will pay any transfer
taxes incident to the transfer to the Underwriters of the shares the Stock being
sold by the Selling Securityholders.
(j) The Company and the Selling Securityholders jointly and
severally agree to reimburse you, for the account of the several Underwriters,
for blue sky fees and related disbursements (including counsel fees and
disbursements and cost of printing memoranda for the Underwriters) paid by or
for the account of the Underwriters or their counsel in qualifying the Stock
under state securities or blue sky laws and in the review of the offering by the
NASD.
(k) The provisions of paragraphs (i) and (j) of this Section are
intended to relieve the Underwriters from the payment of the expenses and costs
which the Company and the Selling Securityholders hereby agree to pay and shall
not affect any agreement which the Company and the Selling Securityholders may
make, or may have made, for the sharing of any such expenses and costs.
(l) The Company and each of the Selling Securityholders hereby
agrees that, without the prior written consent of Chase Securities Inc. on
behalf of the Underwriters, the Company or such Selling Securityholder, as the
case may be, will not, for a period of 180 days following the commencement of
the public offering of the Stock by the Underwriters, directly or indirectly,
(i) sell, offer, contract to sell, make any short sale, pledge, sell any option
or contract to purchase, purchase any option or contract to sell, grant any
option, right or warrant to purchase or otherwise transfer or dispose of any
shares of Common Stock or any securities convertible into or exchangeable or
exercisable for or any rights to purchase or acquire Common Stock or (ii) enter
into any swap or other agreement that transfers, in whole or in part, any of the
economic consequences or ownership of Common Stock, whether any such transaction
described in clause (i) or (ii) above is to be settled by delivery of Common
Stock or such other securities, in cash or otherwise. The foregoing sentence
shall not apply to (A) the Stock to be sold to the Underwriters pursuant to this
Agreement, (B) shares of Common Stock issued by the Company upon the exercise of
options granted under the stock option plans of the Company (the "Option Plans")
all as described in the Preliminary Prospectus, and (C) options to purchase
Common Stock granted under the Option Plans.
(m) The Company agrees to enforce all restrictions on disposition
as set forth in stock restriction agreements entered into by each holder of (i)
options to purchase Common Stock of the Company or (ii) Common Stock issued upon
the exercise of such options, whereby such holder has agreed that he or she will
not sell, make any short sale of, loan, grant any option for the purchase of, or
otherwise dispose of any shares of Common Stock of the Company (or securities
exchangeable for or convertible into Common Stock) for a period of up to 180
days from the effective date of the Registration Statement without the prior
approval of the Company. The Company further agrees that it will and shall
impose or cause to be imposed stop-transfer restrictions on the certificates
representing such shares of Common Stock.
(n) If at any time during the 25-day period after the
Registration Statement becomes effective any rumor, publication or event
relating to or affecting the Company shall occur as a result of which in your
opinion the market price for the Stock has been or is likely to be materially
affected (regardless of whether such rumor, publication or event necessitates a
supplement to or amendment of the Prospectus), the Company will, after written
notice from you advising the Company to the effect set forth above, forthwith
prepare, consult with you concerning the substance of, and disseminate a press
release or other public statement, reasonably satisfactory to you, responding to
or commenting on such rumor, publication or event.
7. INDEMNIFICATION AND CONTRIBUTION.
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(a) The Company and the Selling Securityholders jointly and
severally agree to indemnify and hold harmless each Underwriter and each person
(including each partner or officer thereof) who controls any Underwriter within
the meaning of Section 15 of the Securities Act from and against any and all
losses, claims, damages or liabilities, joint or several, to which such
indemnified parties or any of them may become subject under the Securities Act,
Exchange Act, or the common law or otherwise, and the Company and the Selling
Securityholders jointly and severally agree to reimburse each such Underwriter
and controlling person for any legal or other expenses (including, except as
otherwise hereinafter provided, reasonable fees and disbursements of counsel)
incurred by the respective indemnified parties in connection with defending
against any such losses, claims, damages or liabilities or in connection with
any investigation or inquiry of, or other proceeding which may be brought
against, the respective indemnified parties, in each case arising out of or
based upon (i) any untrue statement or alleged untrue statement of a material
fact contained in the Registration Statement (including the Prospectus as part
thereof and any Rule 462(b) registration statement) or any post-effective
amendment thereto (including any Rule 462(b) registration statement), or the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, (ii)
any untrue statement or alleged untrue statement of a material fact contained in
any Preliminary Prospectus or the Prospectus (as amended or as supplemented if
the Company shall have filed with the Commission any amendment thereof or
supplement thereto) or the omission or alleged omission to state therein a
material fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading, or (iii) any
untrue statement or alleged untrue statement of a material fact contained in any
materials or information provided to investors by, or with the approval of the
Company in connection with the marketing or the offering of the Stock (herein
called Marketing Materials), including any roadshow or investor presentations
made to investors by the Company (regardless of the medium by which such
information is transmitted, whether in person, telephonically, via facsimile or
by other electronic means) or the omission or alleged omission to state in the
Marketing Materials a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; provided, however, that (1) the indemnity agreements of the Company
and the Selling Securityholders contained in this paragraph (a) shall not apply
to any such losses, claims, damages, liabilities or expenses if such statement
or omission was made in reliance upon and in conformity with information
furnished as herein stated or otherwise furnished in writing to the Company by
or on behalf of any Underwriter for use in any Preliminary Prospectus or the
Registration Statement or the Prospectus or any such amendment thereof or
supplement thereto, (2) the indemnity agreement contained in this paragraph (a)
with respect to any Preliminary Prospectus shall not inure to the benefit of any
Underwriter from whom the person asserting any such losses, claims, damages,
liabilities or expenses purchased the Stock which is the subject thereof (or to
the benefit of any person controlling such Underwriter) if at or prior to the
written confirmation of the sale of such Stock a copy of the Prospectus (or the
Prospectus as amended or supplemented) was not sent or delivered to such person
and the untrue statement or omission of a material fact contained in such
Preliminary Prospectus was corrected in the Prospectus (or the Prospectus as
amended or supplemented) unless the failure is the result of noncompliance by
the Company with paragraph (c) of Section 6 hereof, and (3) each Selling
Securityholder shall only be liable under this paragraph with respect to (A)
information pertaining to such Selling Securityholder furnished on behalf of
such Selling Securityholder expressly for use in any Preliminary Prospectus or
the Registration Statement or the Prospectus or any such amendment thereof or
supplement thereto or (B) facts that would constitute a breach of any
representation or warranty of such Selling Securityholder set forth in Section
2(b) hereof. The indemnity agreements of the Company and the Selling
Securityholders contained in this paragraph (a) and the representations and
warranties of the Company and the Selling Securityholders contained in Section 2
hereof shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of any indemnified party and shall survive
the delivery of and payment for the Stock.
(b) Each Underwriter severally agrees to indemnify and hold
harmless the Company, each of its officers who signs the Registration Statement
on his own behalf or pursuant to a power of attorney, each of its directors,
each other Underwriter and each person (including each partner or officer
thereof) who controls the Company or any such other Underwriter within the
meaning of Section 15 of the Securities Act, and the Selling Securityholders
from and against any and all losses, claims, damages or liabilities, joint or
several, to which such indemnified parties or any of them may become subject
under the Securities Act, the Exchange Act, or the common law or otherwise and
to reimburse each of them for any legal or other expenses (including, except as
otherwise hereinafter provided, reasonable fees and disbursements of counsel)
incurred by the respective indemnified parties in connection with defending
against any such losses, claims, damages or liabilities or in
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connection with any investigation or inquiry of, or other proceeding which may
be brought against, the respective indemnified parties, in each case arising out
of or based upon (i) any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement (including the Prospectus
as part thereof and any Rule 462(b) registration statement) or any
post-effective amendment thereto (including any Rule 462(b) registration
statement) or the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading or (ii) any untrue statement or alleged untrue statement of a
material fact contained in the Prospectus (as amended or as supplemented if the
Company shall have filed with the Commission any amendment thereof or supplement
thereto) or the omission or alleged omission to state therein a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading, if such statement or
omission was made in reliance upon and in conformity with information furnished
as herein stated or otherwise furnished in writing to the Company by or on
behalf of such indemnifying Underwriter for use in the Registration Statement or
the Prospectus or any such amendment thereof or supplement thereto. The
indemnity agreement of each Underwriter contained in this paragraph (b) shall
remain operative and in full force and effect regardless of any investigation
made by or on behalf of any indemnified party and shall survive the delivery of
and payment for the Stock.
(c) Each party indemnified under the provision of paragraphs (a)
and (b) of this Section 7 agrees that, upon the service of a summons or other
initial legal process upon it in any action or suit instituted against it or
upon its receipt of written notification of the commencement of any
investigation or inquiry of, or proceeding against, it in respect of which
indemnity may be sought on account of any indemnity agreement contained in such
paragraphs, it will promptly give written notice (herein called the Notice) of
such service or notification to the party or parties from whom indemnification
may be sought hereunder. No indemnification provided for in such paragraphs
shall be available to any party who shall fail so to give the Notice if the
party to whom such Notice was not given was unaware of the action, suit,
investigation, inquiry or proceeding to which the Notice would have related and
was prejudiced by the failure to give the Notice, but the omission so to notify
such indemnifying party or parties of any such service or notification shall not
relieve such indemnifying party or parties from any liability which it or they
may have to the indemnified party for contribution or otherwise than on account
of such indemnity agreement. Any indemnifying party shall be entitled at its own
expense to participate in the defense of any action, suit or proceeding against,
or investigation or inquiry of, an indemnified party. Any indemnifying party
shall be entitled, if it so elects within a reasonable time after receipt of the
Notice by giving written notice (herein called the Notice of Defense) to the
indemnified party, to assume (alone or in conjunction with any other
indemnifying party or parties) the entire defense of such action, suit,
investigation, inquiry or proceeding, in which event such defense shall be
conducted, at the expense of the indemnifying party or parties, by counsel
chosen by such indemnifying party or parties and reasonably satisfactory to the
indemnified party or parties; provided, however, that (i) if the indemnified
party or parties reasonably determine that there may be a conflict between the
positions of the indemnifying party or parties and of the indemnified party or
parties in conducting the defense of such action, suit, investigation, inquiry
or proceeding or that there may be legal defenses available to such indemnified
party or parties different from or in addition to those available to the
indemnifying party or parties, then counsel for the indemnified party or parties
shall be entitled to conduct the defense to the extent reasonably determined by
such counsel to be necessary to protect the interests of the indemnified party
or parties and (ii) in any event, the indemnified party or parties shall be
entitled to have counsel chosen by such indemnified party or parties participate
in, but not conduct, the defense. If, within a reasonable time after receipt of
the Notice, an indemnifying party gives a Notice of Defense and the counsel
chosen by the indemnifying party or parties is reasonably satisfactory to the
indemnified party or parties, the indemnifying party or parties will not be
liable under paragraphs (a) through (c) of this Section 7 for any legal or other
expenses subsequently incurred by the indemnified party or parties in connection
with the defense of the action, suit, investigation, inquiry or proceeding,
except that (A) the indemnifying party or parties shall bear the legal and other
expenses incurred in connection with the conduct of the defense as referred to
in clause (i) of the proviso to the preceding sentence and (B) the indemnifying
party or parties shall bear such other expenses as it or they have authorized to
be incurred by the indemnified party or parties. If, within a reasonable time
after receipt of the Notice, no Notice of Defense has been given, the
indemnifying party or parties shall be responsible for any legal or other
expenses incurred by the indemnified party or parties in connection with the
defense of the action, suit, investigation, inquiry or proceeding.
(d) If the indemnification provided for in this Section 7 is
unavailable or insufficient to hold harmless an indemnified party under
paragraph (a) or (b) of this Section 7, then each indemnifying party, in
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<PAGE> 13
lieu of indemnifying such indemnified party, shall contribute to the amount paid
or payable by such indemnified party as a result of the losses, claims, damages
or liabilities referred to in paragraph (a) or (b) of this Section 7 (i) in such
proportion as is appropriate to reflect the relative benefits received by each
indemnifying party from the offering of the Stock or (ii) if the allocation
provided by clause (i) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to in clause (i) above but also the relative fault of each indemnifying party in
connection with the statements or omissions that resulted in such losses,
claims, damages or liabilities, or actions in respect thereof, as well as any
other relevant equitable considerations. The relative benefits received by the
Company and the Selling Securityholders on the one hand and the Underwriters on
the other shall be deemed to be in the same respective proportions as the total
net proceeds from the offering of the Stock received by the Company and the
Selling Securityholders and the total underwriting discount received by the
Underwriters, as set forth in the table on the cover page of the Prospectus,
bear to the aggregate public offering price of the Stock. Relative fault shall
be determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by each indemnifying party and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such untrue statement or omission.
The parties agree that it would not be just and equitable if
contributions pursuant to this paragraph (d) were to be determined by pro rata
allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take into account
the equitable considerations referred to in the first sentence of this paragraph
(d). The amount paid by an indemnified party as a result of the losses, claims,
damages or liabilities, or actions in respect thereof, referred to in the first
sentence of this paragraph (d) shall be deemed to include any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigation, preparing to defend or defending against any action or claim
which is the subject of this paragraph (d). Notwithstanding the provisions of
this paragraph (d), no Underwriter shall be required to contribute any amount in
excess of the underwriting discount applicable to the Stock purchased by such
Underwriter. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations in this paragraph (d) to
contribute are several in proportion to their respective underwriting
obligations and not joint.
Each party entitled to contribution agrees that upon the service of a
summons or other initial legal process upon it in any action instituted against
it in respect of which contribution may be sought, it will promptly give written
notice of such service to the party or parties from whom contribution may be
sought, but the omission so to notify such party or parties of any such service
shall not relieve the party from whom contribution may be sought from any
obligation it may have hereunder or otherwise (except as specifically provided
in paragraph (c) of this Section 7).
(e) Neither the Company nor the Selling Securityholders will,
without the prior written consent of each Underwriter, settle or compromise or
consent to the entry of any judgment in any pending or threatened claim, action,
suit or proceeding in respect of which indemnification may be sought hereunder
(whether or not such Underwriter or any person who controls such Underwriter
within the meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act is a party to such claim, action, suit or proceeding) unless such
settlement, compromise or consent includes an unconditional release of such
Underwriter and each such controlling person from all liability arising out of
such claim, action, suit or proceeding.
8. TERMINATION. This Agreement may be terminated by you at any time
prior to the Closing Date by giving written notice to the Company and the
Selling Securityholders if after the date of this Agreement trading in the
Common Stock shall have been suspended, or if there shall have occurred (i) the
engagement in hostilities or an escalation of major hostilities by the United
States or the declaration of war or a national emergency by the United States on
or after the date hereof, (ii) any outbreak of hostilities or other national or
international calamity or crisis or change in economic or political conditions
if the effect of such outbreak, calamity, crisis or change in economic or
political conditions in the financial markets of the United States would, in the
Underwriters' reasonable judgment, make the offering or delivery of the Stock
impracticable, (iii) suspension of trading in securities generally or a material
adverse decline in value of securities generally on the New York Stock Exchange,
the American Stock Exchange, or The Nasdaq Stock Market, or limitations on
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<PAGE> 14
prices (other than limitations on hours or numbers of days of trading) for
securities on either such exchange or system, (iv) the enactment, publication,
decree or other promulgation of any federal or state statute, regulation, rule
or order of, or commencement of any proceeding or investigation by, any court,
legislative body, agency or other governmental authority which in the
Underwriters' reasonable opinion materially and adversely affects or will
materially or adversely affect the business or operations of the Company, (v)
declaration of a banking moratorium by either federal or New York State
authorities or (vi) the taking of any action by any federal, state or local
government or agency in respect of its monetary or fiscal affairs which in the
Underwriters' reasonable opinion has a material adverse effect on the securities
markets in the United States. If this Agreement shall be terminated pursuant to
this Section 8, there shall be no liability of the Company or the Selling
Securityholders to the Underwriters and no liability of the Underwriters to the
Company or the Selling Securityholders; provided, however, that in the event of
any such termination the Company and the Selling Securityholders agree to
indemnify and hold harmless the Underwriters from all costs or expenses incident
to the performance of the obligations of the Company and the Selling
Securityholders under this Agreement, including all costs and expenses referred
to in paragraphs (i) and (j) of Section 6 hereof.
9. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The obligations of the
several Underwriters to purchase and pay for the Stock shall be subject to the
performance by the Company and by the Selling Securityholders of all their
respective obligations to be performed hereunder at or prior to the Closing Date
or any later date on which Option Stock is to be purchased, as the case may be,
and to the following further conditions:
(a) The Registration Statement shall have become effective; and
no stop order suspending the effectiveness thereof shall have been issued and no
proceedings therefor shall be pending or threatened by the Commission.
(b) The legality and sufficiency of the sale of the Stock
hereunder and the validity and form of the certificates representing the Stock,
all corporate proceedings and other legal matters incident to the foregoing, and
the form of the Registration Statement and of the Prospectus (except as to the
financial statements contained therein), shall have been approved at or prior to
the Closing Date by Gray Cary Ware & Freidenrich LLP, counsel for the
Underwriters.
(c) You shall have received from Brobeck Phleger & Harrison LLP,
counsel for the Company and Sheppard Mullin, LLP, counsel for the Selling
Securityholders, opinions, addressed to the Underwriters and dated the Closing
Date, covering the matters set forth in Annex A hereto, and if Option Stock is
purchased at any date after the Closing Date, additional opinions from each such
counsel, addressed to the Underwriters and dated such later date, confirming
that the statements expressed as of the Closing Date in such opinions remain
valid as of such later date.
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(d) You shall be satisfied that (i) as of the Effective Date, the
statements made in the Registration Statement and the Prospectus were true and
correct and neither the Registration Statement nor the Prospectus omitted to
state any material fact required to be stated therein or necessary in order to
make the statements therein, respectively, not misleading, (ii) since the
Effective Date, no event has occurred which should have been set forth in a
supplement or amendment to the Prospectus which has not been set forth in such a
supplement or amendment, (iii) since the respective dates as of which
information is given in the Registration Statement in the form in which it
originally became effective and the Prospectus contained therein, there has not
been any material adverse change or any development involving a prospective
material adverse change in or affecting the business, properties, financial
condition or results of operations of the Company, whether or not arising from
transactions in the ordinary course of business, and, since such dates, except
in the ordinary course of business, the Company has not entered into any
material transaction not referred to in the Registration Statement in the form
in which it originally became effective and the Prospectus contained therein,
(iv) the Company does not have any material contingent obligations which are not
disclosed in the Registration Statement and the Prospectus, (v) there are not
any pending or known threatened legal proceedings to which the Company is a
party or of which property of the Company or any of its subsidiaries is the
subject which are material and which are not disclosed in the Registration
Statement and the Prospectus, (vi) there are not any franchises, contracts,
leases or other documents which are required to be filed as exhibits to the
Registration Statement which have not been filed as required, (vii) the
representations and warranties of the Company herein are true and correct in all
material respects as of the Closing Date or any later date on which Option Stock
is to be purchased, as the case may be, and (viii) there has not been any
material adverse change in the market for securities in general or in political,
financial or economic conditions from those reasonably foreseeable as to render
it impracticable in your reasonable judgment to make a public offering of the
Stock, or a material adverse change in market levels for securities in general
(or those of companies in particular) or financial or economic conditions which
render it inadvisable to proceed.
(e) You shall have received on the Closing Date and on any later
date on which Option Stock is purchased a certificate, dated the Closing Date or
such later date, as the case may be, and signed by the President and the Chief
Financial Officer of the Company, stating that the respective signers of said
certificate have carefully examined the Registration Statement in the form in
which it originally became effective and the Prospectus contained therein and
any supplements or amendments thereto, and that the statements included in
clauses (i) through (vii) of paragraph (d) of this Section 9 are true and
correct.
(f) You shall have received from Ernst & Young LLP, a letter or
letters, addressed to the Underwriters and dated the Closing Date and any later
date on which Option Stock is purchased, confirming that they are independent
public accountants with respect to the Company within the meaning of the
Securities Act and the applicable published rules and regulations thereunder and
based upon the procedures described in their letter delivered to you
concurrently with the execution of this Agreement (herein called the Original
Letter), but carried out to a date not more than three business days prior to
the Closing Date or such later date on which Option Stock is purchased (i)
confirming, to the extent true, that the statements and conclusions set forth in
the Original Letter are accurate as of the Closing Date or such later date, as
the case may be, and (ii) setting forth any revisions and additions to the
statements and conclusions set forth in the Original Letter which are necessary
to reflect any changes in the facts described in the Original Letter since the
date of the Original Letter or to reflect the availability of more recent
financial statements, data or information. The letters shall not disclose any
material change, or any development involving a prospective change, in or
affecting the business or properties of the Company which, in your reasonable
judgment, makes it impractical or inadvisable to proceed with the public
offering of the Stock or the purchase of the Option Stock as contemplated by the
Prospectus.
(g) You shall have received from Ernst & Young LLP a letter
stating that their review of the Company's system of internal accounting
controls, to the extent they deemed necessary in establishing the scope of their
examination of the Company's financial statements as at ________, 19 ________,
did not disclose any weakness in internal controls that they considered to be
material weaknesses.
(h) You shall have been furnished evidence in usual written or
telegraphic form from the appropriate authorities of the several jurisdictions,
or other evidence satisfactory to you, of the qualification referred to in
paragraph (f) of Section 6 hereof.
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(i) Prior to the Closing Date, the Stock to be issued and sold by
the Company shall have been duly authorized for listing by the Nasdaq National
Market upon official notice of issuance.
(j) On or prior to the Closing Date, you shall have received from
all directors, officers, and beneficial holders of more than 5% of the
outstanding Common Stock stockholders agreements, in form reasonably
satisfactory to Chase Securities Inc., stating that without the prior written
consent of Chase Securities Inc. on behalf of the Underwriters, such person or
entity will not, for a period of 180 days following the commencement of the
public offering of the Stock by the Underwriters, directly or indirectly, (i)
sell, offer, contract to sell, make any short sale, pledge, sell any option or
contract to purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase or otherwise transfer or dispose of any shares of
Common Stock or any securities convertible into or exchangeable or exercisable
for or any rights to purchase or acquire Common Stock or (ii) enter into any
swap or other agreement that transfers, in whole or in part, any of the economic
consequences or ownership of Common Stock, whether any such transaction
described in clause (i) or (ii) above is to be settled by delivery of Common
Stock or such other securities, in cash or otherwise.
(k) You shall have received a certificate, dated the Closing
Date, and on any later date which Option Shares are to be purchase, from the
Attorneys for each Selling Securityholder to the effect that, as of Closing
Date, and on any later date which Option Shares are to be purchased, they have
not been informed that:
(i) The representations and warranties made by such
Selling Securityholder herein are not true or correct in
any material respect on the Closing Date, or any later
date in which Option Shares are to be purchased, as the
case may be; or
(ii) Such Selling Securityholder has not complied with any
obligation or satisfied any condition which is required to
be performed or satisfied on the part of such Selling
Securityholder at or prior to the Closing Date, or any
later date in which Option Shares are to be purchased, as
the case may be.
All the agreements, opinions, certificates and letters mentioned above
or elsewhere in this Agreement shall be deemed to be in compliance with the
provisions hereof only if Gray Cary Ware & Freidenrich LLP, counsel for the
Underwriters, shall be satisfied that they comply in form and scope.
In case any of the conditions specified in this Section 9 shall not be
fulfilled, this Agreement may be terminated by you by giving notice to the
Company and to the Selling Securityholders. Any such termination shall be
without liability of the Company or the Selling Securityholders to the
Underwriters and without liability of the Underwriters to the Company or the
Selling Securityholders; provided, however, that (i) in the event of such
termination, the Company and the Selling Securityholders agree to indemnify and
hold harmless the Underwriters from all costs or expenses incident to the
performance of the obligations of the Company and the Selling Securityholders
under this Agreement, including all costs and expenses referred to in paragraphs
(i) and (j) of Section 6 hereof, and (ii) if this Agreement is terminated by you
because of any refusal, inability or failure on the part of the Company or the
Selling Securityholders to perform any agreement herein, to fulfill any of the
conditions herein, or to comply with any provision hereof other than by reason
of a default by any of the Underwriters, the Company will reimburse the
Underwriters severally upon demand for all out-of-pocket expenses (including
reasonable fees and disbursements of counsel) that shall have been incurred by
them in connection with the transactions contemplated hereby.
10. CONDITIONS OF THE OBLIGATION OF THE COMPANY AND THE SELLING
SECURITYHOLDERS. The obligation of the Company and the Selling Securityholders
to deliver the Stock shall be subject to the conditions that (a) the
Registration Statement shall have become effective and (b) no stop order
suspending the effectiveness thereof shall be in effect and no proceedings
therefor shall be pending or threatened by the Commission.
In case either of the conditions specified in this Section 10 shall not
be fulfilled, this Agreement may be terminated by the Company and the Selling
Securityholders by giving notice to you. Any such termination shall be without
liability of the Company and the Selling Securityholders to the Underwriters and
without liability of the Underwriters to the Company or the Selling
Securityholders; provided, however, that in the event of any such
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<PAGE> 17
termination the Company and the Selling Securityholders jointly and severally
agree to indemnify and hold harmless the Underwriters from all costs or expenses
incident to the performance of the obligations of the Company and the Selling
Securityholders under this Agreement, including all costs and expenses referred
to in paragraphs (i) and (j) of Section 6 hereof.
11.REIMBURSEMENT OF CERTAIN EXPENSES. In addition to their other
obligations under Section 7 of this Agreement, the Company and the Selling
Securityholders hereby jointly and severally agree to reimburse on a quarterly
basis the Underwriters for all reasonable legal and other expenses incurred in
connection with investigating or defending any claim, action, investigation,
inquiry or other proceeding arising out of or based upon any statement or
omission, or any alleged statement or omission, described in paragraph (a) of
Section 7 of this Agreement, notwithstanding the absence of a judicial
determination as to the propriety and enforceability of the obligations under
this Section 11 and the possibility that such payments might later be held to be
improper; provided, however, that (i) to the extent any such payment is
ultimately held to be improper, the persons receiving such payments shall
promptly refund them and (ii) such persons shall provide to the Company, upon
request, reasonable assurances of their ability to effect any refund, when and
if due.
12. PERSONS ENTITLED TO BENEFIT OF AGREEMENT. This Agreement shall inure
to the benefit of the Company, the Selling Securityholders and the several
Underwriters and, with respect to the provisions of Section 7 hereof, the
several parties (in addition to the Company, the Selling Securityholders and the
several Underwriters) indemnified under the provisions of said Section 7, and
their respective personal representatives, successors and assigns. Nothing in
this Agreement is intended or shall be construed to give to any other person,
firm or corporation any legal or equitable remedy or claim under or in respect
of this Agreement or any provision herein contained. The term "successors and
assigns" as herein used shall not include any purchaser, as such purchaser, of
any of the Stock from any of the several Underwriters.
13. NOTICES. Except as otherwise provided herein, all communications
hereunder shall be in writing or by telegraph and, if to the Underwriters, shall
be mailed, telegraphed or delivered to Chase Securities Inc., One Bush Street,
San Francisco, California 94104, with a copy to Gray Cary Ware & Freidenrich
LLP, 4365 Executive Drive, Suite 1600, San Diego, CA 92121-2189, Attention:
Scott M. Stanton; and if to the Company, shall be mailed, telegraphed or
delivered to it at its office, 10240 Sorrento Valley Road, San Diego, California
92121, Attention: CEO; and if to the Selling Securityholders, shall be mailed,
telegraphed or delivered to the Selling Securityholders in care
of________at________ . All notices given by telegraph shall be promptly
confirmed by letter.
14. MISCELLANEOUS. The reimbursement, indemnification and contribution
agreements contained in this Agreement and the representations, warranties and
covenants in this Agreement shall remain in full force and effect regardless of
(a) any termination of this Agreement, (b) any investigation made by or on
behalf of any Underwriter or controlling person thereof, or by or on behalf of
the Company or the Selling Securityholders or their respective directors or
officers, and (c) delivery and payment for the Stock under this Agreement;
provided, however, that if this Agreement is terminated prior to the Closing
Date, the provisions of paragraphs (l), (m) and (n) of Section 6 hereof shall be
of no further force or effect.
17
<PAGE> 18
This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
This Agreement shall be governed by, and construed in accordance with,
the laws of the State of California.
Please sign and return to the Company and to the Selling Securityholders
in care of the Company the enclosed duplicates of this letter, whereupon this
letter will become a binding agreement among the Company, the Selling
Securityholders and the several Underwriters in accordance with its terms.
Very truly yours,
WEBSENSE, INC.
By:
---------------------------------------
John Carrington
Chief Executive Office and
President
SELLING SECURITYHOLDERS:
[List Names]
By:
---------------------------------------
[Attorney-in-Fact]
The foregoing Agreement is hereby confirmed
and accepted as of the date first above written.
CHASE SECURITIES INC.
SG Cowen Securities Corporation
SoundView Technology Group, Inc.
By Chase Securities Inc.
By
----------------------------------
Managing Director
Acting on behalf of the several Underwriters,
including themselves, named in Schedule I hereto.
18
<PAGE> 19
SCHEDULE I
UNDERWRITERS
<TABLE>
<CAPTION>
Shares to be
Underwriters Purchased
- ------------ ------------
<S> <C>
Chase Securities Inc.
SG Cowen Securities Corporation
SoundView Technology Group, Inc.
Total:
</TABLE>
19
<PAGE> 20
SCHEDULE II
SELLING SECURITYHOLDERS
<TABLE>
<CAPTION>
Name and Address of Selling Securityholders Number of Shares to be Sold
- ------------------------------------------- ---------------------------
<S> <C>
Janet McVeigh
Philip Trubey
Total:
</TABLE>
20
<PAGE> 21
ANNEX A
MATTERS TO BE COVERED IN THE OPINION OF BROBECK PHLEGER & HARRISON LLP
COUNSEL FOR THE COMPANY
(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, is duly qualified as a foreign
corporation and in good standing in each state of the United States of
America in which its ownership or leasing of property requires such
qualification, and has full corporate power and authority to own or
lease its properties and conduct its business as described in the
Registration Statement;
(ii) the authorized capital stock of the Company consists of
degrees shares of degrees Stock, of which there are outstanding degrees
shares, and degrees shares of Common Stock, $ degrees par value, of
which there are outstanding degrees shares (including the Underwritten
Stock plus the number of shares of Option Stock issued on the date
hereof); proper corporate proceedings have been taken validly to
authorize such authorized capital stock; all of the outstanding shares
of such capital stock (including the Underwritten Stock and the shares
of Option Stock issued, if any) have been duly and validly issued and
are fully paid and nonassessable; any Option Stock purchased after the
Closing Date, when issued and delivered to and paid for by the
Underwriters as provided in the Underwriting Agreement, will have been
duly and validly issued and be fully paid and nonassessable; and no
preemptive rights of, or rights of refusal in favor of, stockholders
exist with respect to the Stock, or the issue and sale thereof, pursuant
to the Certificate of Incorporation or Bylaws of the Company and, to the
knowledge of such counsel, there are no contractual preemptive rights
that have not been waived, rights of first refusal or rights of co-sale
which exist with respect to the Stock being sold by the Selling
Securityholders or the issue and sale of the Stock;
(iii) the Registration Statement has become effective under the
Securities Act and, to the best of such counsel's knowledge, no stop
order suspending the effectiveness of the Registration Statement or
suspending or preventing the use of the Prospectus is in effect and no
proceedings for that purpose have been instituted or are pending or
contemplated by the Commission;
(iv) the Registration Statement and the Prospectus (except as to
the financial statements and schedules and other financial data
contained therein, as to which such counsel need express no opinion)
comply as to form in all material respects with the requirements of the
Securities Act, the Exchange Act and with the rules and regulations of
the Commission thereunder;
(v) such counsel have no reason to believe that the Registration
Statement (except as to the financial statements and schedules and other
financial and statistical data contained or incorporated by reference
therein, as to which such counsel need not express any opinion or
belief) at the Effective Date contained any untrue statement of a
material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein not misleading, or
that the Prospectus (except as to the financial statements and schedules
and other financial and statistical data contained or incorporated by
reference therein, as to which such counsel need not express any opinion
or belief) as of its date or at the Closing Date (or any later date on
which Option Stock is purchased), contained or contains any untrue
statement of a material fact or omitted or omits to state a material
fact necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading;
(vi) the information required to be set forth in the Registration
Statement in answer to Items 9, 10 (insofar as it relates to such
counsel) and 11(c) of Form S-1 is to the best of such counsel's
knowledge accurately and adequately set forth therein in all material
respects or no response is required with respect to such Items, the
description of the Company's stock option plans and the options granted
and which may be granted thereunder and the options granted otherwise
than under such plans set forth in the Prospectus accurately and fairly
presents the information required to be shown with respect to said
21
<PAGE> 22
plans and options to the extent required by the Securities Act and the
rules and regulations of the Commission thereunder;
(vii) such counsel do not know of any franchises, contracts,
leases, documents or legal proceedings, pending or threatened, which in
the opinion of such counsel are of a character required to be described
in the Registration Statement or the Prospectus or to be filed as
exhibits to the Registration Statement, which are not described and
filed as required;
(viii) the Underwriting Agreement has been duly authorized,
executed and delivered by the Company;
(ix) the Underwriting Agreement has been duly executed and
delivered by or on behalf of the Selling Securityholders and the Custody
Agreement between the Selling Securityholders and degrees , as
Custodian, and the Power of Attorney referred to in such Custody
Agreement have been duly executed and delivered by the several Selling
Securityholders;
(x) the issue and sale by the Company of the shares of Stock sold
by the Company as contemplated by the Underwriting Agreement will not
conflict with, or result in a breach of, the Certificate of
Incorporation or Bylaws of the Company or any agreement or instrument
known to such counsel to which the Company is a party or any applicable
law or regulation, or so far as is known to such counsel, any order,
writ, injunction or decree, of any jurisdiction, court or governmental
instrumentality;
(xi) all holders of securities of the Company having rights to
the registration of shares of Common Stock, or other securities, because
of the filing of the Registration Statement by the Company have waived
such rights or such rights have expired by reason of lapse of time
following notification of the Company's intent to file the Registration
Statement; and
(xii) no consent, approval, authorization or order of any court
or governmental agency or body is required for the consummation of the
transactions contemplated in the Underwriting Agreement, except such as
have been obtained under the Securities Act and such as may be required
under state securities or blue sky laws in connection with the purchase
and distribution of the Stock by the Underwriters.
------------------------------------
Counsel rendering the foregoing opinion may rely as to questions of law
not involving the laws of the United States or of the State of California, upon
opinions of local counsel satisfactory in form and scope to counsel for the
Underwriters. Copies of any opinions so relied upon shall be delivered to the
Representatives and to counsel for the Underwriters and the foregoing opinion
shall also state that counsel knows of no reason the Underwriters are not
entitled to rely upon the opinions of such local counsel.
22
<PAGE> 23
ANNEX B
MATTERS TO BE COVERED IN THE OPINION OF SHEPPARD MULLIN, LLP
COUNSEL FOR THE SELLING SECURITYHOLDERS
(i) The Registration Statement has become effective under the
Securities Act and, to the best of such counsel's knowledge, no stop
order suspending the effectiveness of the Registration Statement or
suspending or preventing the use of the Prospectus is in effect and no
proceedings for that purpose have been instituted or are pending or
contemplated by the Commission;
(ii) the Registration Statement and the Prospectus (except as to
the financial statements and schedules and other financial data
contained therein, as to which such counsel need express no opinion)
comply as to form in all material respects with the requirements of the
Securities Act, the Exchange Act and with the rules and regulations of
the Commission thereunder;
(iii) such counsel have no reason to believe that the
Registration Statement (except as to the financial statements and
schedules and other financial and statistical data contained or
incorporated by reference therein, as to which such counsel need not
express any opinion or belief) at the Effective Date contained any
untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading, or that the Prospectus (except as to the
financial statements and schedules and other financial and statistical
data contained or incorporated by reference therein, as to which such
counsel need not express any opinion or belief) as of its date or at the
Closing Date (or any later date on which Option Stock is purchased),
contained or contains any untrue statement of a material fact or omitted
or omits to state a material fact necessary in order to make the
statements therein, in light of the circumstances under which they were
made, not misleading;
(iv) the Selling Securityholders have full legal right, power and
authority, and all authorization and approval required by law, to enter
into this Agreement and the Custody Agreement and the Power of Attorney
of such Selling Securityholder provided for in such Custody Agreement
and to sell, assign, transfer and deliver the Shares to be sold by such
Selling Securityholder in the manner provided herein and therein;
(v) the Power of Attorney of the Selling Securityholder has been
duly authorized, executed and delivered by such Selling Securityholder
and is a valid and binding instrument of such Selling Securityholder,
enforceable in accordance with its terms, and, pursuant to the Power of
Attorney provided for in the Custody Agreement, such Selling
Securityholder has, among other things, authorized the Attorneys, or any
one of them, to execute and deliver on such Selling Securityholder's
behalf this Agreement and any other document they, or any one of them,
may deem necessary or desirable in connection with the transactions
contemplated hereby and thereby and to deliver the Shares to be sold by
such Selling Securityholder pursuant to this Agreement;
(vi) the execution, delivery and performance of this Agreement
and the Custody Agreement and Power of Attorney provided for in such
Custody Agreement by such Selling Securityholder, the compliance by such
Selling Securityholder with all the provisions hereof and thereof and
the consummation of the transactions contemplated hereby and thereby
will not (A) require any consent, approval, authorization or other order
of, or qualification with, any court or governmental body or agency
(except such as have been obtained under federal securities laws, or
such as may be required under the securities or Blue Sky laws of the
various states), (B) conflict with or constitute a breach of any of the
terms or provisions of, or a default under, the organizational documents
of such Selling Securityholder, if such Selling Securityholder is not an
individual, or nay indenture, loan agreement, mortgage, lease or other
agreement or instrument to which such Selling Securityholder is a party
or by which any property of such Selling Securityholder is bound or (C)
violate or conflict with any applicable law or any rule, regulation or,
to such counsel's knowledge, judgment, order or decree of any court or
23
<PAGE> 24
any governmental body or agency having jurisdiction over such Selling
Securityholder or any property of such Selling Securityholder.
(vii) the Underwriting Agreement has been duly authorized,
executed and delivered by the Company;
(viii) the Underwriting Agreement has been duly executed and
delivered by or on behalf of the Selling Securityholders and the Custody
Agreement between the Selling Securityholders and degrees , as
Custodian, and the Power of Attorney referred to in such Custody
Agreement have been duly executed and delivered by the several Selling
Securityholders;
(ix) good and marketable title to the shares of Stock sold by the
Selling Securityholders under the Underwriting Agreement, free and clear
of all liens, encumbrances, equities, security interests and claims, has
been transferred to the Underwriters who have severally purchased such
shares of Stock under the Underwriting Agreement, assuming for the
purpose of this opinion that the Underwriters purchased the same in good
faith without notice of any adverse claims; and
(x) no consent, approval, authorization or order of any court or
governmental agency or body is required for the consummation of the
transactions contemplated in the Underwriting Agreement, except such as
have been obtained under the Securities Act and such as may be required
under state securities or blue sky laws in connection with the purchase
and distribution of the Stock by the Underwriters.
------------------------------------
Counsel rendering the foregoing opinion may rely as to questions of law
not involving the laws of the United States or of the State of California, upon
opinions of local counsel satisfactory in form and scope to counsel for the
Underwriters. Copies of any opinions so relied upon shall be delivered to the
Representatives and to counsel for the Underwriters and the foregoing opinion
shall also state that counsel knows of no reason the Underwriters are not
entitled to rely upon the opinions of such local counsel.
24
<PAGE> 1
EXHIBIT 3.2
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF WEBSENSE, INC.,
A DELAWARE CORPORATION
WEBSENSE, INC., a corporation organized and existing under the laws of the
State of Delaware, hereby certifies as follows:
1. The name of the corporation is WEBSENSE, INC. The original Certificate
of Incorporation of the corporation was filed with the Secretary of State of the
State of Delaware on April 16, 1998 and was amended pursuant to an Amended and
Restated Certificate of Incorporation filed with the Secretary of State of the
State of Delaware on May 20, 1998, a Certificate of Amendment to the Amended and
Restated Certificate of Incorporation filed with the Secretary of State of the
State of Delaware on June 10, 1999, and a Certificate of Amendment of the
Amended and Restated Certificate of Incorporation filed with the Secretary of
State of the State of Delaware on June 28, 1999.
2. Pursuant to Sections 242 and 245 of the General Corporation Law of the
State of Delaware, this Second Restated Certificate of Incorporation was adopted
by the corporation's Board of Directors and stockholders.
3. The text of the Certificate of Incorporation as heretofore amended or
supplemented is hereby restated and further amended to read in its entirety as
follows:
ARTICLE I
The name of this corporation is WEBSENSE, INC.
ARTICLE II
The address of this corporation's registered office in the State of
Delaware is 30 Old Rudnick Lane, Dover, Delaware 19901. The name of its
registered agent at such address is CorpAmerica, Inc.
ARTICLE III
The purpose of this corporation is to engage in any lawful act or activity
for which a corporation may now or hereafter be organized under the Delaware
General Corporation Law.
ARTICLE IV
(A) Classes of Stock. This corporation is authorized to issue two classes
of stock, denominated Common Stock and Preferred Stock. The Common Stock shall
have a par value of $0.01 per share and the Preferred Stock shall have a par
value of $0.01 per share. The total number of shares of Common Stock which the
Corporation is authorized to issue is one hundred million (100,000,000), and the
total number of shares of Preferred Stock which the Corporation
<PAGE> 2
is authorized to issue is five million (5,000,000), which shares of Preferred
Stock shall be undesignated as to series.
(B) Issuance of Preferred Stock. The Preferred Stock may be issued from
time to time in one or more series. The Board of Directors is hereby authorized,
by filing one or more certificates pursuant to the Delaware General Corporation
Law (each, a "Preferred Stock Designation"), to fix or alter from time to time
the designations, powers, preferences and rights of each such series of
Preferred Stock and the qualifications, limitations or restrictions thereof,
including without limitation the dividend rights, dividend rate, conversion
rights, voting rights, rights and terms of redemption (including sinking fund
provisions), redemption price or prices, and the liquidation preferences of any
wholly-unissued series of Preferred Stock, and to establish from time to time
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 of any
series shall be decreased in accordance with the foregoing sentence, the shares
constituting such decrease shall resume the status that they had prior to the
adoption of the resolution originally fixing the number of shares of such
series.
(C) Rights, Preferences, Privileges and Restrictions of Common Stock.
1. Dividend Rights. Subject to the prior or equal rights of holders of
all classes of stock at the time outstanding having prior or equal rights as to
dividends, the holders of the Common Stock shall be entitled to receive, when
and as 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. Redemption. The Common Stock is not redeemable upon demand of any
holder thereof or upon demand of this corporation.
3. 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 this corporation, and shall be entitled
to vote upon such matters and in such manner as may be provided by law.
ARTICLE V
(A) Exculpation. 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, except for liability (i) for any breach of the
director's duty of loyalty to the corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the Delaware General
Corporation Law or (iv) for any transaction from which the director derived any
improper personal benefit. If the Delaware General Corporation Law is hereafter
amended to further reduce or to authorize, with the approval of the
corporation's stockholders, further reductions in the liability of the
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 Delaware General Corporation Law as so amended.
2
<PAGE> 3
(B) Indemnification. To the extent permitted by applicable law, this
corporation is also authorized to provide indemnification of (and advancement of
expenses to) such agents (and any other persons to which Delaware law permits
this 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 Delaware General
Corporation Law, subject only to limits created by applicable Delaware law
(statutory or non-statutory), with respect to actions for breach of duty to the
corporation, its stockholders and others.
(C) Effect of Repeal or Modification. Any repeal or modification of any of
the foregoing provisions of this Article V shall be prospective and 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 occurring
prior to, such repeal or modification.
ARTICLE VI
Elections of directors need not be by written ballot except and to the
extent provided in the Bylaws of the corporation. At the next Annual Meeting of
Stockholders, the Directors shall be classified into three classes, as nearly
equal in number as possible as determined by the Board of Directors, with the
term of office of the first class to expire at the second Annual Meeting of
Stockholders, the term of office of the second class to expire at the third
Annual Meeting of Stockholders and the term of the third class to expire at the
fourth Annual Meeting of Stockholders. At each Annual Meeting of Stockholders
following such initial classification and election, Directors elected to succeed
those Directors whose terms expire shall be elected for a term of office to
expire at the third succeeding Annual Meeting of Stockholders after their
election. Additional directorships resulting from an increase in the number of
Directors shall be apportioned among the classes as equally as possible as
determined by the Board of Directors.
ARTICLE VII
No holder of shares of stock of the corporation shall have any preemptive
or other right, except as such rights are expressly provided by contract, to
purchase or subscribe for or receive any shares of any class, or series thereof,
of stock of the corporation, whether now or hereafter authorized, or any
warrants, options, bonds, debentures or other securities convertible into,
exchangeable for or carrying any right to purchase any share of any class, or
series thereof, of stock; but such additional shares of stock and such warrants,
options, bonds, debentures or other securities convertible into, exchangeable
for or carrying any right to purchase any shares of any class, or series
thereof, of stock may be issued or disposed of by the Board of Directors to such
persons, and on such terms and for such lawful consideration as in its
discretion it shall deem advisable or as the corporation shall have by contract
agreed.
ARTICLE VIII
The corporation is to have a perpetual existence.
3
<PAGE> 4
ARTICLE IX
The corporation reserves the right to repeal, alter, amend or rescind any
provision contained in this Amended and Restated Certificate of Incorporation
and/or any provision contained in any amendment to or restatement of this
Amended and Restated Certificate of Incorporation, in the manner now or
hereafter prescribed by statute, and all rights conferred on stockholders herein
are granted subject to this reservation.
ARTICLE X
The Board of Directors may from time to time make, amend, supplement or
repeal the Bylaws by the requisite affirmative vote of Directors as set forth in
the Bylaws; provided, however, that the stockholders may change or repeal any
bylaw adopted by the Board of Directors by the requisite affirmative vote of
stockholders as set forth in the Bylaws; and, provided further, that no
amendment or supplement to the Bylaws adopted by the Board of Directors shall
vary or conflict with any amendment or supplement thus adopted by the
stockholders.
ARTICLE XI
No action shall be taken by the stockholders of the corporation except at
an annual or special meeting of stockholders called in accordance with the
Bylaws, and no action shall be taken by the stockholders by written consent.
ARTICLE XII
Advance notice of stockholder nominations for the election of directors and
of business to be brought by stockholders before any meeting of the stockholders
of the corporation shall be given in the manner provided in the Bylaws of the
corporation.
ARTICLE XIII
This certificate shall be effective as of ___________ __, 2000 at 9:00 a.m.
eastern daylight savings time.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
4
<PAGE> 5
IN WITNESS WHEREOF, this Amended and Restated Certificate of Incorporation
has been signed under the seal of the corporation as of this ____ day of
________, 2000.
WEBSENSE, INC.,
a Delaware corporation
By:
------------------------------------
John B. Carrington,
President and Chief Executive Officer
[SIGNATURE PAGE TO AMENDED AND RESTATED CERTIFICATE OF
INCORPORATION OF WEBSENSE, INC.]
<PAGE> 1
EXHIBIT 3.4
RESTATED BYLAWS
OF
WEBSENSE, INC.
ARTICLE I
OFFICES
Section 1. Registered Office. The registered office shall be in the City of
Dover, County of Kent, State of Delaware.
Section 2. Other Offices. The corporation may also have offices at such
other places both within and without the State of Delaware as the Board of
Directors may from time to time determine or the business of the corporation may
require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. Place of Meetings. All meetings of the stockholders for the
election of Directors shall be held in the City of San Diego, State of
California, at such place as may be fixed from time to time by the Board of
Directors, or at such other place either within or without the State of
California as shall be designated from time to time by the Board of Directors
and stated in the notice of the meeting. Meetings of stockholders for any other
purpose may be held at such time and place, within or without the State of
California, as shall be stated in the notice of the meeting or in a duly
executed waiver of notice thereof.
Section 2. Annual Meeting.
(a) The annual meeting of the stockholders of the corporation, for the
purpose of election of Directors and for such other business as may lawfully
come before it, shall be held on such date and at such time as may be designated
from time to time by the Board of Directors.
(b) At an annual meeting of the stockholders, only such business shall
be conducted as shall have been properly brought before the meeting. To be
properly brought before an annual meeting, business must be: (A) specified in
the notice of meeting (or any supplement thereto) given by or at the direction
of the Board of Directors, (B) otherwise properly brought before the meeting by
or at the direction of the Board of Directors, or (C) otherwise properly brought
before the meeting by a stockholder. For business to be properly brought before
an annual meeting by a stockholder, the stockholder must have given timely
notice thereof in writing to the Secretary of the corporation. To be timely, a
stockholder's notice must be delivered to or mailed and received at the
principal executive offices of the corporation no later than the date specified
in the corporation's proxy statement released to stockholders in connection with
the previous year's annual meeting of stockholders, which date shall be not less
than one hundred twenty (120) calendar days in advance of the date of such proxy
statement;
<PAGE> 2
provided, however, that in the event that no annual meeting was held in the
previous year or the date of the annual meeting has been changed by more than
thirty (30) days from the date contemplated at the time of the previous year's
proxy statement, notice by the stockholder to be timely must be so received a
reasonable time before the solicitation is made. A stockholder's notice to the
Secretary shall set forth as to each matter the stockholder proposes to bring
before the annual meeting: (i) a brief description of the business desired to be
brought before the annual meeting and the reasons for conducting such business
at the annual meeting, (ii) the name and address, as they appear on the
corporation's books, of the stockholder proposing such business, (iii) the class
and number of shares of the corporation which are beneficially owned by the
stockholder, (iv) any material interest of the stockholder in such business and
(v) any other information that is required to be provided by the stockholder
pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended
(the "1934 Act"), in his capacity as a proponent to a stockholder proposal. In
addition to the foregoing, in order to include information with respect to a
stockholder proposal in the proxy statement and form of proxy for a
stockholder's meeting, stockholders must provide notice as required by the
regulations promulgated under the 1934 Act to the extent such regulations
require notice that is different from the notice required above. Notwithstanding
anything in these Bylaws to the contrary, no business shall be conducted at any
annual meeting except in accordance with the procedures set forth in this
paragraph (b) of this Section 2. The chairman of the annual meeting shall, if
the facts warrant, determine and declare at the meeting that business was not
properly brought before the meeting and in accordance with the provisions of
this paragraph (b), and, if he should so determine, he shall so declare at the
meeting that any such business not properly brought before the meeting shall not
be transacted.
(c) Only persons who are nominated in accordance with the procedures
set forth in this paragraph (c) shall be eligible for election as Directors.
Nominations of persons for election to the Board of Directors of the corporation
may be made at a meeting of stockholders by or at the direction of the Board of
Directors or by any stockholder of the corporation entitled to vote in the
election of Directors at the meeting who complies with the notice procedures set
forth in this paragraph (c). Such nominations, other than those made by or at
the direction of the Board of Directors, shall be made pursuant to timely notice
in writing to the Secretary of the corporation in accordance with the provisions
of paragraph (b) of this Section 2. Such stockholder's notice shall set forth
(i) as to each person, if any, whom the stockholder proposes to nominate for
election or re-election as a Director: (A) the name, age, business address and
residence address of such person, (B) the principal occupation or employment of
such person, (C) the class and number of shares of the corporation that are
beneficially owned by such person, (D) a description of all arrangements or
understandings between the stockholder and each nominee and any other person or
persons (naming such person or persons) pursuant to which the nominations are to
be made by the stockholder, and (E) any other information relating to such
person that is required to be disclosed in solicitations of proxies for election
of Directors, or is otherwise required, in each case pursuant to Regulation 14A
under the 1934 Act (including without limitation such person's written consent
to being named in the proxy statement, if any, as a nominee and to serving as a
Director if elected); and (ii) as to such stockholder giving notice, the
information required to be provided pursuant to subitems (ii), (iii) and (iv) of
paragraph (b) of this Section 2. At the request of the Board of Directors, any
person nominated by a stockholder for election as a Director shall furnish to
the
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Secretary of the corporation that information required to be set forth in the
stockholder's notice of nomination which pertains to the nominee. No person
shall be eligible for election as a Director of the corporation unless nominated
in accordance with the procedures set forth in this paragraph (c). The chairman
of the meeting shall, if the facts warrant, determine and declare at the meeting
that a nomination was not made in accordance with the procedures prescribed by
these Bylaws, and if he should so determine, he shall so declare at the meeting,
and the defective nomination shall be disregarded.
Section 3. Notice of Annual Meeting. Written notice of the annual meeting
stating the place, date and hour of the meeting shall be given to each
stockholder entitled to vote at such meeting not less than ten (10) nor more
than sixty (60) days before the date of the meeting.
Section 4. Voting List. The officer who has charge of the stock ledger of
the corporation shall prepare and make, or have prepared and made, at least ten
(10) days before every meeting of stockholders, a complete list of the
stockholders entitled to vote at the meeting, arranged in alphabetical order,
and showing the address of each stockholder and the number of shares registered
in the name of each stockholder. Such list shall be open to the examination of
any stockholder, for any purpose germane to the meeting, during ordinary
business hours, for a period of at least ten (10) days prior to the meeting,
either at a place within the city where the meeting is to be held, which place
shall be specified in the notice of the meeting, or, if not so specified, at the
place where the meeting is to be held. The list shall also be produced and kept
at the time and place of the meeting during the whole time thereof, and may be
inspected by any stockholder who is present.
Section 5. Special Meetings. Special meetings of the stockholders, for any
purpose or purposes, unless otherwise prescribed by statute or by the
Certificate of Incorporation, as amended from time to time, may only be called
as provided in this Section 5 by the President, Chief Executive Officer or
Chairman of the Board and shall be called by the President or Secretary at the
request in writing of a majority of the Board of Directors. Such request shall
state the purpose or purposes of the proposed meeting. The place, date and time
of any special meeting shall be determined by the Board of Directors. Such
determination shall include the record date for determining the stockholders
having the right of and to vote at such meeting.
Section 6. Notice of Special Meeting. Written notice of a special meeting
stating the place, date and hour of the meeting and the purpose or purposes for
which the meeting is called shall be given 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.
Section 7. Action at Special Meeting. Business transacted at any special
meeting of stockholders shall be limited to the purposes stated in the notice.
Section 8. Quorum and Adjournments.
(a) 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, as amended from time to time. If, however, such
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quorum shall not be present or represented at any meeting of the stockholders,
the stockholders entitled to vote thereat, present in person or represented by
proxy, shall have the power to adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum shall be present
or represented. At such adjourned meeting at which a quorum shall be present or
represented, any business may be transacted which might have been transacted at
the meeting as originally notified. 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.
(b) When a quorum is present at any meeting, the vote of the holders
of a majority of the stock having voting power present in person or represented
by proxy shall decide any question brought before such meeting, unless the
question is one upon which by express provision of statutes or of the
Certificate of Incorporation, as amended from time to time, a different vote is
required, in which case such express provision shall govern and control the
decision of such question.
Section 9. Voting Rights. Unless otherwise provided in the Certificate of
Incorporation, as amended from time to time, each stockholder shall at every
meeting of the stockholders be entitled to one (1) vote in person or by proxy
for each share of the capital stock having voting power held by such
stockholder, but no proxy shall be voted on after three (3) years from its date,
unless the proxy provides for a longer period.
Section 10. Action Without Meeting. No action shall be taken by the
stockholders of the corporation except at an annual or special meeting of
stockholders called in accordance with these Bylaws, and no action shall be
taken by the stockholders by written consent.
ARTICLE III
DIRECTORS
Section 1. Classes, Number, Term of Office and Qualification. At the next
annual meeting of stockholders following the adoption of these Bylaws, the
Directors shall be classified into three classes, as nearly equal in number as
possible as determined by the Board of Directors, with the term of office of the
first class to expire at the 2002 Annual Meeting of Stockholders, the term of
office of the second class to expire at the 2003 Annual Meeting of Stockholders
and the term of office of the third class to expire at the 2004 Annual Meeting
of Stockholders. At each Annual Meeting of Stockholders, Directors elected to
succeed those Directors whose terms expire shall be elected for a term of office
to expire at the third succeeding Annual Meeting of Stockholders after their
election. Additional directorships resulting from an increase in the number of
Directors shall be apportioned among the classes as equally as possible as
determined by the Board of Directors. The number of Directors which shall
constitute the whole Board shall not be less than six (6) nor more than ten (10)
Directors, and the exact number shall be fixed by resolution of sixty-six and
two-thirds percent (66-2/3%) of the Directors then in office or by sixty-six and
two-thirds percent (66-2/3%) of the stockholders at the annual meeting of the
stockholders, with the number initially fixed at six (6). Each Director elected
shall hold office until his successor is elected and qualified. Directors need
not be stockholders.
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Section 2. Vacancies. Vacancies may be filled only by a majority of the
Directors then in office, though less than a quorum, or by a sole remaining
Director. Each Director so chosen shall hold office until a successor is duly
elected and shall qualify or until his earlier death, resignation or removal. If
there are no Directors in office, then an election of Directors may be held in
the manner provided by statute. If, at the time of filling any vacancy, the
Directors then in office shall constitute less than a majority of the whole
Board (as constituted immediately prior to any such increase), the Court of
Chancery may, upon application of any stockholder or stockholders holding at
least ten 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 to replace the Directors chosen by the
Directors then in office.
Section 3. Powers. The business of the corporation shall be managed by or
under the direction of its Board of Directors which may exercise all such powers
of the corporation and do all such lawful acts and things as are not by statute
or by the Certificate of Incorporation, as amended from time to time, or by
these Bylaws directed or required to be exercised or done by the stockholders.
Section 4. Regular and Special Meetings. The Board of Directors of the
corporation may hold meetings, both regular and special, either within or
without the State of California.
Section 5. Annual Meeting. The annual meeting of each newly elected Board
of Directors shall be held without notice other than this Bylaw immediately
after, and at the same place as, the annual meeting of stockholders. In the
event the annual meeting of any newly elected Board of Directors shall not be
held immediately after, and at the same place as, the annual meeting of
stockholders, the meeting may be held at such time and place as shall be
specified in a notice given as hereinafter provided for special meetings of the
Board of Directors.
Section 6. Notice of 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.
Section 7. Notice of Special Meetings. Special meetings of the Board may be
called by the Chief Executive Officer or President on no less than forty-eight
(48) hours notice to each Director either personally, or by telephone, mail,
telegram or facsimile; special meetings shall be called by the Chief Executive
Officer, President or Secretary in like manner and on like notice on the written
request of two Directors unless the Board consists of only one Director, in
which case special meetings shall be called by the Chief Executive Officer,
President or Secretary in like manner and on like notice on the written request
of the sole Director. A written waiver of notice, signed by the person entitled
thereto, whether before or after the time of the meeting stated therein, shall
be deemed equivalent to notice.
Section 8. Quorum. At all meetings of the Board a majority of the 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, as
amended from time to time. If a quorum shall not be present at any meeting of
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the Board of Directors, the Directors present thereat may adjourn the meeting
from time to time, without notice other than announcement at the meeting, until
a quorum shall be present.
Section 9. Action Without Meeting. Unless otherwise restricted by the
Certificate of Incorporation, as amended from time to time, 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.
Section 10. Meetings by Telephone Conference Calls. Unless otherwise
restricted by the Certificate of Incorporation, as amended from time to time, 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.
Section 11. Committees. The Board of Directors may, by resolution passed by
a majority of the whole Board, designate one or more committees, each committee
to consist of one or more of the Directors of the corporation. The Board may
designate one or more Directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee.
In the absence of disqualification of a member of a committee, the member
or members thereof present at any meeting and not disqualified from voting,
whether or not he or they constitute a quorum, may unanimously appoint another
member of the Board of Directors to act at the meeting in the place of any such
absent or disqualified member.
Any such committee, to the extent provided in the resolution of the Board
of Directors, 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 amending the Certificate of Incorporation, as amended
from time to time, adopting an agreement of merger or consolidation,
recommending to the stockholders the sale, lease or exchange of all or
substantially all of the corporation's property and assets, recommending to the
stockholders a dissolution of the corporation or a revocation of a dissolution,
or amending the Bylaws of the corporation; and, unless the resolution or the
Certificate of Incorporation, as amended from time to time, expressly so
provide, no such committee shall have the power or authority to declare a
dividend or to authorize the issuance of stock. Such committee or committees
shall have such name or names as may be determined from time to time by
resolution adopted by the Board of Directors.
Each committee shall keep regular minutes of its meetings and report the
same to the Board of Directors when required.
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Section 12. Fees and Compensation. Unless otherwise restricted by the
Certificate of Incorporation, as amended from time to time, or these Bylaws, the
Board of Directors shall have the authority to fix the compensation of
Directors. The Directors may be paid their expenses, if any, of attendance at
each meeting of the Board of Directors and may be paid a fixed sum for
attendance at each meeting of the Board of Directors or a stated salary as
Director. No such payment shall preclude any Director from serving the
corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allowed like compensation for attending
committee meetings.
Section 13. Removal. Subject to any limitations imposed by law or the
Certificate of Incorporation, as amended from time to time, the Board of
Directors, or any individual Director, may be removed from office at any time
only with cause by the affirmative vote of the holders of at least a majority of
shares entitled to vote at an election of Directors.
ARTICLE IV
NOTICES
Section 1. Notice. Whenever, under the provisions of the statutes or of the
Certificate of Incorporation, as amended from time to time, or of these Bylaws,
notice is required to be given to any Director or stockholder, it shall not be
construed to mean personal notice, but such notice may be given in writing, by
mail, addressed to such Director or stockholder, at his address as it appears on
the records of the corporation, with postage thereon prepaid, and such notice
shall be deemed to be given at the time when the same shall be deposited in the
United States mail. Notice to Directors may also be given personally, by
telephone, including a voice messaging system or other system or technology
designed to record and communicate messages, telegram, facsimile, electronic
mail or other electronic means.
Section 2. Waiver of Notice. Whenever any notice is required to be given
under the provisions of the statutes or of the Certificate of Incorporation, as
amended from time to time, or of these Bylaws, a waiver thereof in writing,
signed by the person or persons entitled to said notice, whether before or after
the time stated therein, shall be deemed equivalent thereto.
ARTICLE V
OFFICERS
Section 1. Enumeration. The officers of the corporation shall be chosen by
the Board of Directors and shall be a Chief Executive Officer, a Chief Financial
Officer and a Secretary. The Board of Directors may elect from among its members
a Chairman of the Board and a Vice Chairman of the Board. The Board of Directors
may also choose a President, one or more Vice Presidents and one or more
Assistant Secretaries. Any number of offices may be held by the same person,
unless the Certificate of Incorporation, as amended from time to time, or these
Bylaws otherwise provide.
The compensation of all officers and agents of the corporation shall be
fixed by the Board of Directors, and no officer shall be prevented from
receiving such compensation by virtue of his also being a Director of the
corporation.
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Section 2. Election or Appointment. The Board of Directors at its first
meeting after each annual meeting of stockholders shall choose a Chief Executive
Officer, Chief Financial Officer and a Secretary and may choose a President, one
or more Vice Presidents and one or more Assistant Secretaries.
The Board of Directors may appoint such other officers and agents as it
shall deem necessary who shall hold their offices for such terms and shall
exercise such powers and perform such duties as shall be determined from time to
time by the Board.
Section 3. Tenure, Removal and Vacancies. The officers of the corporation
shall hold office until their successors are chosen and qualified. Any officer
elected or appointed by the Board of Directors may be removed at any time by the
affirmative vote of a majority of the Board of Directors. Any vacancy occurring
in any office of the corporation shall be filled by the Board of Directors.
Section 4. Chairman of the Board. The Chairman of the Board, if any, shall
preside at all meetings of the Board of Directors and of the stockholders at
which he shall be present. The Chairman of the Board shall have and may exercise
such powers as are, from time to time, assigned by the Board and as may be
provided by law.
Section 5. Vice Chairman of the Board. In the absence of the Chairman of
the Board, the Vice Chairman of the Board, if any, shall preside at all meetings
of the Board of Directors and of the stockholders at which he shall be present.
The Vice Chairman of the Board shall have and may exercise such powers as are,
from time to time, assigned by the Board and as may be provided by law.
Section 6. Chief Executive Officer. The Chief Executive Officer of the
corporation shall, subject to the control of the Board of Directors, have
general supervision, direction and control of the business and the officers of
the corporation. The Chief Executive Officer shall preside at all meetings of
the stockholders and, in the absence or nonexistence of a Chairman or Vice
Chairman of the Board at all meetings of the Board of Directors. The Chief
Executive Officer shall have the general powers and duties of management usually
vested in the Chief Executive Officer of a corporation, including general
supervision, direction and control of the business and supervision of other
officers of the corporation, and shall have such other powers and duties as may
be prescribed by the Board of Directors or these Bylaws.
The Chief Executive Officer shall, without limitation, have the authority
to execute bonds, mortgages and other contracts requiring a seal, under the seal
of the corporation, except where required or permitted by law to be otherwise
signed and executed and except where the signing and execution thereof shall be
expressly delegated by the Board of Directors to some other officer or agent of
the corporation.
Section 7. President. Subject to such supervisory powers as may be given by
these Bylaws or the Board of Directors to the Chairman of the Board or the Chief
Executive Officer, if there be such officers, the President shall have general
supervision, direction and control of the business and supervision of other
officers of the corporation, and shall have such other powers
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and duties as may be prescribed by the Board of Directors or these Bylaws. In
the event a Chief Executive Officer shall not be appointed, the President shall
have the duties of such office.
Section 8. Vice Presidents. The Vice President, or if there shall be more
than one, the Vice Presidents in the order determined by the Board of Directors,
shall, in the absence or disability of the President, act with all of the powers
and be subject to all the restrictions of the President. The Vice Presidents
shall also perform such other duties and have such other powers as the Board of
Directors, the President or these Bylaws may, from time to time, prescribe.
Section 9. Secretary. The Secretary shall attend all meetings of the Board
of Directors, all meetings of the committees thereof and all meetings of the
stockholders and record all the proceedings of the meetings in a book or books
to be kept for that purpose. Under the Chief Executive Officer's or President's
supervision, the Secretary shall give, or cause to be given, all notices
required to be given by these Bylaws or by law; shall have such powers and
perform such duties as the Board of Directors, the Chief Executive Officer, the
President or these Bylaws may, from time to time, prescribe; and shall have
custody of the seal of the corporation. The Secretary, or an Assistant
Secretary, shall have authority to affix the seal of the corporation to any
instrument requiring it and when so affixed, it may be attested by his or her
signature or by the signature of such Assistant Secretary. The Board of
Directors may give general authority to any other officer to affix the seal of
the corporation and to attest the affixing by his or her signature.
Section 10. Assistant Secretary. The Assistant Secretary, if any, or if
there be more than one, the Assistant Secretaries in the order determined by the
Board of Directors, shall, in the absence, disability or refusal to act of the
Secretary, perform the duties and exercise the powers of the Secretary and shall
perform such other duties and have such other powers as the Board of Directors,
the Chief Executive Officer, the President, the Secretary or these Bylaws may,
from time to time, prescribe.
Section 11. Chief Financial Officer. The Chief Financial Officer shall act
as Treasurer and shall have the custody of the corporate funds and securities
and shall keep full and accurate accounts of receipts and disbursements in books
belonging to the corporation and shall deposit all moneys and other valuable
effects in the name and to the credit of the corporation in such depositories as
may be designated by the Board of Directors.
The Chief Financial Officer shall disburse the funds of the corporation as
may be ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the President and the Board of Directors, at
its regular meetings, or when the Board of Directors so requires, an account of
all his or her transactions as Treasurer and of the financial condition of the
corporation.
If required by the Board of Directors, the Chief Financial Officer shall
give the corporation a bond (which shall be renewed every six years) in such sum
and with such surety or sureties as shall be satisfactory to the Board of
Directors for the faithful performance of the duties of his office and for the
restoration to the corporation, in case of his death, resignation, retirement or
removal from office, of all books, papers, vouchers, money and other property of
whatever kind in his possession or under his control belonging to the
corporation.
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Section 12. Other Officers, Assistant Officers and Agents. Officers,
assistant officers and agents, if any, other than those whose duties are
provided for in these Bylaws, shall have such authority and perform such duties
as may from time to time be prescribed by the Board of Directors, the Chief
Executive Officer or the President.
Section 13. Absence or Disability of Officers. In the case of the absence
or disability of any officer of the corporation and of any person hereby
authorized to act in such officer's place during such officer's absence or
disability, the Board of Directors may delegate the powers and duties of such
officer to any officer or to any Director, or to any other person who it may
select.
ARTICLE VI
CERTIFICATES OF STOCK
Section 1. Certificates of Stock. Every holder of stock in the corporation
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 a Vice President and the Chief Financial Officer or an Assistant
Chief Financial Officer, or the Secretary or an Assistant Secretary of the
corporation, certifying the number of shares owned by him in the corporation.
Certificates may be issued for partly paid shares and in such case upon the
face or back of the certificates issued to represent any such partly paid
shares, the total amount of the consideration to be paid therefor, and the
amount paid thereon shall be specified.
If the corporation shall be authorized to issue more than one class of
stock or more than one series of any class, the powers, designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate which the corporation shall
issue to represent such class or series of stock, provided 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 which 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, designations, preferences and
relative, participating, optional or other special rights of each class of stock
or series thereof and the qualifications, limitations or restrictions of such
preferences and/or rights.
Section 2. Execution of Certificates. Any or all of the signatures on the
certificate may be facsimile. In case any officer, transfer agent or registrar
who has signed or whose facsimile signature has been placed upon a certificate
shall have 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 were such officer, transfer agent or registrar at the date of issue.
Section 3. Lost Certificates. The Board of Directors may direct a new
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the corporation alleged to have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost, stolen or destroyed. When
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authorizing such issue of a new certificate or certificates, the Board of
Directors may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed certificate or
certificates, or his legal representative, to advertise the same in such manner
as it shall require and/or to give the corporation a bond in such sum as it may
direct as indemnity against any claim that may be made against the corporation
with respect to the certificate alleged to have been lost, stolen or destroyed.
Section 4. 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 upon its books.
Section 5. Fixing Record Date. In order that the corporation may determine
the stockholders entitled to notice of or to vote at any meeting of stockholder
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 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. 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.
Section 6. 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, and to hold liable
for calls and assessments a 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 any other person, whether or not
it shall have express or other notice thereof, except as otherwise provided by
the laws of Delaware.
ARTICLE VII
INDEMNIFICATION
Section 1. Indemnification of Directors and Executive Officers. The
corporation shall indemnify its Directors and executive officers to the fullest
extent not prohibited by the Delaware General Corporation Law; provided,
however, that the corporation may limit the extent of such indemnification by
individual contracts with its Directors and executive officers; and, provided,
further, that the corporation shall not be required to indemnify any Director or
executive officer in connection with any proceeding (or part thereof) initiated
by such person or any proceeding by such person against the corporation or its
Directors, officers, employees or other agents unless (i) such indemnification
is expressly required to be made by law, (ii) the proceeding was authorized by
the Board of Directors of the corporation, and (iii) such indemnification is
provided by the corporation, in its sole discretion, pursuant to the powers
vested in the corporation under the Delaware General Corporation Law.
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Section 2. Indemnification of Other Officers, Employees and Other Agents.
The corporation shall have power to indemnify its other officers, employees and
other agents as set forth in the Delaware General Corporation Law.
Section 3. Good Faith.
(a) For purposes of any determination under this Bylaw, a Director or
officer shall be deemed to have acted in good faith and in a manner reasonably
believed to be in or not opposed to the best interests of the corporation, and,
with respect to any criminal action or proceeding, to have had no reasonable
cause to believe that any conduct was unlawful, if such Director's or officer's
action is based on information, opinions, reports and statements, including
financial statements and other financial data, in each case prepared or
presented by:
(1) one or more officers or employees of the corporation whom the
Director or executive officer believed to be reliable and competent in
the matters presented;
(2) counsel, independent accountants or other persons as to
matters which the Director or executive officer believed to be within
such person's professional competence; and
(3) with respect to a Director, a committee of the Board upon
which such Director does not serve, as to matters within such
Committee's designated authority, which committee the Director
believes to merit confidence; so long as, in each case, the Director
or executive officer acts without knowledge that would cause such
reliance to be unwarranted.
(b) The termination of any proceeding by judgment, order, settlement,
conviction or upon a plea of nolo contendere or its equivalent shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which was reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal proceeding, that
the person had reasonable cause to believe that his or her consent was unlawful.
(c) The provisions of this Section 3 shall not be deemed to be
exclusive or to limit in any way the circumstances in which a person may be
deemed to have met the applicable standard of conduct set forth by the Delaware
General Corporation Law.
Section 4. Expenses. The corporation shall advance, prior to the final
disposition of any proceeding, promptly following request therefor, all expenses
incurred by any Director or officer in connection with such proceeding upon
receipt of an undertaking by or on behalf of such person to repay said amounts
if it should be determined ultimately that such person is not entitled to be
indemnified under this Bylaw or otherwise.
Notwithstanding the foregoing, unless otherwise determined pursuant to
Section 4 of this Bylaw, no advance shall be made by the corporation if a
determination is reasonably and promptly made (i) by the Board of Directors by a
majority vote of a quorum consisting of
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Directors who were not parties to the proceeding, or (ii) if such quorum is not
obtainable, or, even if obtainable, a quorum of disinterested Directors so
directs, by independent legal counsel in a written opinion, that the facts known
to the decision-making party at the time such determination is made demonstrate
clearly and convincingly that such person acted in bad faith or in a manner that
such person did not believe to be in or not opposed to the best interests of the
corporation.
Section 5. Enforcement. Without the necessity of entering into an express
contract, all rights to indemnification and advances to Directors and officers
under this Bylaw shall be deemed to be contractual rights and be effective to
the same extent and as if provided for in a contract between the corporation and
the Director or officer. Any right to indemnification or advances granted by
this Bylaw to a Director or officer shall be enforceable by or on behalf of the
person holding such right in any court of competent jurisdiction if (i) the
claim for indemnification or advances is denied, in whole or in part, or (ii) no
disposition of such claim is made within ninety (90) days of request therefor.
The claimant in such enforcement action, if successful in whole or in part,
shall be entitled to be paid also the expense of prosecuting his or her claim.
The corporation shall be entitled to raise as a defense to any such action that
the claimant has not met the standards of conduct that make it permissible under
the Delaware General Corporation Law for the corporation to indemnify the
claimant for the amount claimed. Neither the failure of the corporation
(including its Board of Directors, independent legal counsel or its
stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because he or she has met the applicable standard of conduct set forth in the
Delaware General Corporation Law, nor an actual determination by the corporation
(including its Board of Directors, independent legal counsel or its
stock-holders) that the claimant has not met such applicable standard of
conduct, shall be a defense to the action or create a presumption that the
claimant has not met the applicable standard of conduct.
Section 6. Non-Exclusivity of Rights. The rights conferred on any person by
this Bylaw shall not be exclusive of any other right which such person may have
or hereafter acquire under any statute, provision of the Certificate of
Incorporation, as amended from time to time, Bylaws, agreement, vote of
stockholders or disinterested Directors or otherwise, both as to action in his
official capacity and as to action in another capacity while holding office. The
corporation is specifically authorized to enter into individual contracts with
any or all of its Directors, officers, employees or agents respecting
indemnification and advances, to the fullest extent not prohibited by the
Delaware General Corporation Law.
Section 7. Survival of Rights. The rights conferred on any person by this
Bylaw shall continue as to a person who has ceased to be a Director, officer,
employee or other agent and shall inure to the benefit of the heirs, executors
and administrators of such a person.
Section 8. Insurance. To the fullest extent permitted by the Delaware
General Corporation Law, the corporation, upon approval by the Board of
Directors, may purchase insurance on behalf of any person required or permitted
to be indemnified pursuant to this Bylaw.
13
<PAGE> 14
Section 9. Amendments. Any repeal or modification of this Bylaw shall only
be prospective and shall not affect the rights under this Bylaw in effect at the
time of the alleged occurrence of any action or omission to act that is the
cause of any proceeding against any agent of the corporation.
Section 10. Saving Clause. If this Bylaw or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
corporation shall nevertheless indemnify each Director and officer to the full
extent not prohibited by any applicable portion of this Bylaw that shall not
have been invalidated, or by any other applicable law.
Section 11. Certain Definitions. For the purposes of this Bylaw, the
following definitions shall apply:
(a) The term "proceeding" shall be broadly construed and shall
include, without limitation, the investigation, preparation, prosecution,
defense, settlement, arbitration and appeal of, and the giving of the testimony
in, any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative.
(b) The term "expenses" shall be broadly construed and shall include,
without limitation, court costs, attorneys' fees, witness fees, fines, amounts
paid in settlement or judgment and any other costs and expenses of any nature or
kind incurred in connection with any proceeding.
(c) The term the "corporation" shall include, in addition to the
resulting corporation, any constituent corporation (including any constituent of
a constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
Directors, officers, and employees or agents, so that any person who is 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, shall stand in the same position under the provisions
of this Bylaw with respect to the resulting or surviving corporation as he would
have with respect to such constituent corporation if its separate existence had
continued.
(d) References to a "Director," "officer," "employee," or "agent" of
the corporation shall include, without limitation, situations where such person
is serving at the request of the corporation as a Director, officer, employee,
trustee or agent of another corporation, partnership, joint venture, trust or
other enterprise.
(e) References to "other enterprises" shall include employee benefit
plans; references to "fines" shall include any excise taxes assessed on a person
with respect to an employee benefit plan; and references to "serving at the
request of the corporation" shall include any service as a Director, officer,
employee or agent of the corporation which imposes duties on, or involves
services by, such Director, officer, employee, or agent with respect to an
employee benefit plan, its participants, or beneficiaries; and a person who
acted in good faith and in a manner he reasonably believed to be in the interest
of the participants and beneficiaries of an
14
<PAGE> 15
employee benefit plan shall be deemed to have acted in a manner "not opposed to
the best interests of the corporation" as referred to in this Bylaw.
ARTICLE VIII
LOANS TO OFFICERS
Section 1. Loans to Officers. The corporation may lend money to, or
guarantee any obligation of, or otherwise assist any officer or other employee
of the corporation or of its subsidiaries, including any officer or employee who
is a Director of the Corporation or its subsidiaries, whenever, in the judgment
of the Board of Directors, such loan, guarantee or assistance may reasonably be
expected to benefit the corporation. The loan, guarantee or other assistance may
be with or without interest and may be unsecured, or secured in such manner as
the Board of Directors shall approve, including, without limitation, a pledge of
shares of stock of the corporation. Nothing in this Bylaw shall be deemed to
deny, limit or restrict the powers of guaranty or warranty of the corporation at
common law or under any statute.
ARTICLE IX
GENERAL PROVISIONS
Section 1. Declaration of Dividends. Dividends upon the capital stock of
the corporation, subject to the provisions of the Certificate of Incorporation,
as amended from time to time, if any, may be declared by the Board of Directors
at any regular or special meeting, pursuant to law. Dividends may be paid in
cash, in property, or in shares of the capital stock, subject to the provisions
of the Certificate of Incorporation, as amended from time to time.
Section 2. Dividend Reserve. Before payment of any dividend, there may be
set aside out of any funds of the corporation available for dividends such sum
or sums as the Directors from time to time, in their absolute discretion, think
proper as a reserve or reserves to meet contingencies, or for equalizing
dividends, or for repairing or maintaining any property of the corporation, or
for such other purposes as the Directors shall think conducive to the interest
of the corporation, and the Directors may modify or abolish any such reserve in
the manner in which it was created.
Section 3. Execution of Corporate Instruments. All checks or demands for
money and notes of the corporation shall be signed by such officer or officers
or such other person or persons as the Board of Directors may from time to time
designate.
Section 4. Fiscal Year. The fiscal year of the corporation shall be fixed
by resolution of the Board of Directors.
Section 5. Corporate Seal. The Board of Directors may adopt a corporate
seal having inscribed thereon the name of the corporation, the year of its
organization and the words "Corporate Seal, Delaware." The seal may be used by
causing it or a facsimile thereof to be impressed or affixed or reproduced or
otherwise.
15
<PAGE> 16
ARTICLE X
AMENDMENTS
Section 1. Amendments.
(a) Except as otherwise set forth in Section 9 of Article VII of these
Bylaws, the Bylaws may be altered or amended or new Bylaws adopted by the
affirmative vote of a majority of the voting power of all of the
then-outstanding shares of capital stock of the corporation entitled to vote
generally in the election of Directors (the "Voting Stock"). The Board of
Directors shall also have the power, if such power is conferred upon the Board
of Directors by the Certificate of Incorporation, as amended from time to time,
to adopt, amend or repeal Bylaws by a vote of the majority of the Board of
Directors unless a greater or different vote is required pursuant to the
provisions of the Bylaws, the Certificate of Incorporation or any applicable
provision of law.
(b) Notwithstanding any other provisions of these Bylaws or any
provision of law which might otherwise permit a lesser vote or no vote, but in
addition to any affirmative vote of the holders of any particular class or
series of the Voting Stock required by law, the Certificate of Incorporation, as
amended from time to time, or any Preferred Stock Designation (as the term is
defined in the Certificate of Incorporation, as amended), the affirmative vote
of the holders of at least sixty-six and two-thirds percent (66-2/3%) of the
voting power of all of the then-outstanding shares of the Voting Stock, voting
together as a single class, shall be required to alter, amend or repeal this
paragraph (b) or Section 2, Section 5 or Section 10 of Article II or Section 1,
Section 2 or Section 13 of Article III of these Bylaws.
(c) Notwithstanding any other provisions of these Bylaws or any
provision of law which might otherwise permit a lesser vote or no vote, but in
addition to any affirmative vote of the holders of any particular class or
series of the Voting Stock required by law, the Certificate of Incorporation, as
amended from time to time, or any Preferred Stock Designation (as the term is
defined in the Certificate of Incorporation, as amended from time to time), the
affirmative vote of at least sixty-six and two-thirds percent (66-2/3%) of the
Directors, shall be required to alter, amend or repeal this paragraph (c) or
Section 2, Section 5 or Section 10 of Article II or Section 1, Section 2 or
Section 13 of Article III of these Bylaws.
16
<PAGE> 17
CERTIFICATE OF SECRETARY
The undersigned, being the Secretary of Websense, Inc., a Delaware
corporation, does hereby certify the foregoing to be the Bylaws of said
Corporation, as adopted by the requisite vote or votes of the stockholders and
Directors of the Corporation and which remain in full force and effect as of the
date hereof.
Executed at San Diego, California effective as of __________ __, 2000.
----------------------------------------
Carrie Carlander
<PAGE> 1
EXHIBIT 5.1
TELEPHONE: (619) 234-1966 550 WEST C STREET
FACSIMILE: (619) 234-3848 (12TH FLOOR) SUITE 1300
SAN DIEGO
CA 92101-3532
www.brobeck.com
___________ __, 2000
Websense, Inc.
10240 Sorrento Valley Road
San Diego, CA 92121
Re: Websense, Inc. Registration Statement on Form S-1
for 4,600,000 Shares of Common Stock
Ladies and Gentlemen:
We have acted as counsel to Websense, Inc., a Delaware
corporation (the "Company"), in connection with the proposed issuance and sale
by the Company of up to 4,600,000 shares of the Company's Common Stock (the
"Shares"), including 600,000 Shares which the underwriters have the option to
purchase from selling stockholders to cover overallotments, if any, pursuant to
the Company's Registration Statement on Form S-1 (the "Registration Statement")
filed with the Securities and Exchange Commission under the Securities Act of
1933, as amended (the "Act").
This opinion is being furnished in accordance with the
requirements of Item 16(a) of Form S-1 and Item 601(b)(5)(i) of Regulation S-K.
We have reviewed the Company's charter documents and the
corporate proceedings taken by the Company in connection with the issuance and
sale of the Shares. Based on such review, we are of the opinion that the Shares
have been duly authorized, and if, as and when issued in accordance with the
Registration Statement and the related prospectus (as amended and supplemented
through the date of issuance) will be legally issued, fully paid and
nonassessable.
We consent to the filing of this opinion letter as Exhibit 5.1 to
the Registration Statement and to the reference to this firm under the caption
"Legal Matters" in the prospectus which is part of the Registration Statement.
In giving this consent, we do not thereby admit that we are within the category
of persons whose consent is required under Section 7 of the Act, the rules and
regulations of the Securities and Exchange Commission promulgated thereunder, or
Item 509 of Regulation S-K.
<PAGE> 2
Websense, Inc.
Page 2
Our opinion is expressly limited to the matters set forth above
and we render no opinion, whether by implication or otherwise, as to any other
matters relating to the Company or the Shares.
Very truly yours,
BROBECK, PHLEGER & HARRISON LLP
<PAGE> 1
EXHIBIT 10.3
THIS WARRANT AND THE UNDERLYING SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THEY MAY NOT BE SOLD, OFFERING
FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT AS TO SUCH SECURITIES UNDER THE ACT OR AN OPINION OF COUNSEL
SATISFACTORY TO THE CORPORATION THAT SUCH REGISTRATION IS NOT REQUIRED.
WEBSENSE, INC.
WARRANT TO PURCHASE COMMON STOCK
NO. CW-2 APRIL 15, 1999
VOID AFTER APRIL 15, 2002
THIS CERTIFIES THAT, for value received, Alps System Integration Co., Ltd.,
with its principal office at 1-7 Yukigaya - Otsuka - Cho, Ota - Ku, Tokyo,
145-0067 Japan, or assigns (the "Holder"), is entitled to subscribe for and
purchase at the Exercise Price (defined below) from WebSENSE, INC., a Delaware
corporation, with its principal office at 10240 Sorrento Valley Road, San Diego,
California (the "Corporation") up to fifty thousand (50,000) shares of the
Common Stock of the Corporation (the "Common Stock").
1. DEFINITIONS. As used herein, the following terms shall have the
following respective meanings:
(a) "Exercise Period" shall mean the period commencing with the date
hereof and ending three years from the date hereof, unless sooner terminated as
provided below.
(b) "Exercise Price" shall mean $0.05 per share, subject to adjustment
pursuant to Section 5 below.
(c) "Exercise Shares" shall mean the shares of the Corporation's
Common Stock upon exercise of this Warrant.
2. EXERCISE OF WARRANT. The rights represented by this Warrant may be
exercised in whole or in part at any time during the Exercise Period, by
delivery of the following to the Corporation at its address set forth above (or
at such other address as it may designate by notice in writing to the Holder):
(a) An executed Notice of Exercise in the form attached hereto;
(b) Payment of the Exercise Price either (i) in cash or by check, or
(ii) by cancellation of indebtedness; and
<PAGE> 2
(c) This Warrant.
Upon the exercise of the rights represented by this Warrant, a certificate
or certificates for the Exercise Shares so purchased, registered in the name of
the Holder or persons affiliated with the Holder, if the Holder so designates,
shall be issued and delivered to the Holder within a reasonable time after the
rights represented by this Warrant shall have been so exercised.
The person in whose name any certificate or certificates for Exercise
Shares are to be issued upon exercise of this Warrant shall be deemed to have
become the holder of record of such shares on the date on which this Warrant was
surrendered and payment of the Exercise Price was made, irrespective of the date
of delivery of such certificate or certificates, except that, if the date of
such surrender and payment is a date when the stock transfer books of the
Corporation are closed, such person shall be deemed to have become the holder of
such shares at the close of business on the next succeeding date on which the
stock transfer books are open.
2.1 NET EXERCISE. Notwithstanding any provisions herein to the contrary, if
the fair market value of one share of the Corporation's Common Stock is greater
than the Exercise Price (at the date of calculation as set forth below), in lieu
of exercising this Warrant by payment of cash, the Holder may elect to receive
shares equal to the value (as determined below) of this Warrant (or the portion
thereof being canceled) by surrender of this Warrant at the principal office of
the Company together with the properly served endorsed Notice of Exercise in
which event the Company shall issue to the Holder a number of shares of Common
Stock computed using the following formula.
X = Y (A-B)
-------
A
Where X = the number of shares of Common Stock to be issued to Holder
Y = the number of shares of Common Stock purchasable under
the Warrant or, if only a portion of the Warrant is being
exercised, the portion of the Warrant being canceled (at
the date of such calculation)
A = the fair market value of one share of the Corporation's
Common Stock (at the date of such calculation)
B = Exercise Price (as adjusted to the date of such calculation)
For purposes of the above calculation, the fair market value of one share
of Common Stock shall be determined by the Company's Board of Directors in good
faith; provided, however, that in the event that this Warrant is exercised
pursuant to this Section 2.1 in connection with the Company's initial public
offering of its Common Stock, the fair market value per share shall be the per
share offering price to the public of the Company's initial public offering.
2
<PAGE> 3
3. COVENANTS OF THE CORPORATION.
3.1 COVENANTS AS TO EXERCISE SHARES. The Corporation covenants and agrees
that all Exercise Shares that may be issued upon the exercise of the rights
represented by this Warrant will, upon issuance, be validly issued and
outstanding, fully paid and nonassessable, and free from all taxes, liens and
charges with respect to the issuance thereof. The Corporation further covenants
and agrees that the Corporation will at all times during the Exercise Period,
have authorized and reserved, free from preemptive rights, a sufficient number
of shares of its Common Stock to provide for the exercise of rights represented
by this Warrant. If at any time during the Exercise Period the number of
authorized but unissued shares of Common Stock shall not be sufficient to permit
exercise of this Warrant, the Corporation will take such corporate action as
may, in the opinion of 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.
3.2 NO IMPAIRMENT. Except and the extent as waived or consented to by the
Holder, the Corporation will not, by amendment of its Certificate of
Incorporation or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed hereunder by the Corporation, but will at all times in
good faith assist in the carrying out of all the provisions of this Warrant and
in the taking of all such action as may be necessary or appropriate in order to
protect the exercise rights of the Holder against impairment.
3.3 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 which is the same as cash dividends paid in previous
quarters) or other distribution, the Corporation shall mail to the Holder, at
least ten (10) days prior to the date specified herein, a notice specifying the
date on which any such record is to be taken for the purpose of such dividend or
distribution.
4. REPRESENTATIONS OF HOLDER.
4.1 ACQUISITION OF WARRANT FOR PERSONAL ACCOUNT. The Holder represents and
warrants that it is acquiring the Warrant solely for its account for investment
and not with a view to or for sale or distribution of said Warrant or any part
thereof. The Holder also represents that the entire legal and beneficial
interests of the Warrant and Exercise Shares the Holder is acquiring is being
acquired for, and will be held for, its account only.
4.2 SECURITIES ARE NOT REGISTERED.
(a) The Holder understands that the Warrant and the Exercise Shares
have not been registered under the Securities Act of 1933, as amended (the
"Act") on the basis that no distribution or public offering of the stock of
the Corporation is to be effected. The Holder realizes that the basis for
the exemption may not be present if, notwithstanding its representations,
the Holder has a present intention of acquiring the securities for a fixed
or determinable period in the future, selling (in connection with a
distribution or
3
<PAGE> 4
otherwise), granting any participation in, or otherwise distributing the
securities. The Holder has no such present intention.
(b) The Holder recognizes that the Warrant and the Exercise Shares
must be held indefinitely unless they are subsequently registered under the
Act or an exemption from such registration is available. The Holder
recognizes that the Corporation has no obligation to register the Warrant
or the Exercise Shares of the Corporation, or to comply with any exemption
from such registration.
(c) The Holder is aware that neither the Warrant nor the Exercise
Shares may be sold pursuant to Rule 144 adopted under the Act unless
certain conditions are met, including, among other things, the existence of
a public market for the shares, the availability of certain current public
information about the Company, the resale following the required holding
period under Rule 144 and the number of shares being sold during any three
month period not exceeding specified limitations. Holder is aware that the
conditions for resale set forth in Rule 144 have not been satisfied and
that the Corporation presently has no plans to satisfy these conditions in
the foreseeable future.
4.3 DISPOSITION OF WARRANT AND EXERCISE SHARES.
(a) The Holder further agrees not to make any disposition of all or
any part of the Warrant or Exercise Shares in any event unless and until:
(i) The Corporation shall have received a letter secured by the
Holder from the Securities and Exchange Commission stating that no
action will be recommended to Commission with respect to the proposed
disposition; or
(ii) There is then in effect a registration statement under the
Act covering such proposed disposition and such disposition is made in
accordance with said registration statement; or
(iii) The Holder shall have notified the Corporation of the
proposed disposition and shall have furnished the Corporation with a
detailed statement of the circumstances surrounding the proposed
disposition, and if reasonably requested by the Company, the Holder
shall have furnished the Corporation with an opinion of counsel,
reasonably satisfactory to the Company, for the Holder to the effect
that such disposition will not require registration of such Warrant or
Exercise Shares under the Act or any applicable state securities laws.
(b) The Holder understands and agrees that all certificates evidencing
the shares to be issued to the Holder may bear the following legend:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"). THEY MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER THE
ACT OR AN OPINION OF
4
<PAGE> 5
COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT
REQUIRED.
(c) The Holder hereby agrees not to sell or otherwise transfer or
dispose of all or any part of this Warrant or the Exercise Shares during a
period specified by the representative of the underwriters of Common Stock
(not to exceed one hundred eighty (180) days) following the effective date
of the registration statement of the Corporation filed under the Act.
Holder further agrees that the Corporation may impose stop-transfer
instructions with respect to securities subject to the foregoing
restrictions until the end of such period.
5. ADJUSTMENT OF EXERCISE PRICE. In the event of changes in the outstanding
Common Stock of the Corporation by reason of stock dividends, split-ups,
recapitalizations, reclassifications, combinations or exchanges of shares,
separations, reorganizations, liquidations, or the like, the number and class of
shares available under the Warrant in the aggregate and the Exercise Price shall
be correspondingly adjusted to give the Holder of the Warrant, on exercise for
the same aggregate Exercise Price, the total number, class, and kind of shares
as the Holder would have owned had the Warrant been exercised prior to the event
and had the Holder continued to hold such shares until after the event requiring
adjustment; provided, however, that such adjustment shall not be made with
respect to, and this Warrant shall terminate if not exercised prior to, the
events set forth in Section 7 below. The form of this Warrant need not be
changed because of any adjustment in the number of Exercise Shares subject to
this Warrant.
6. FRACTIONAL SHARES. No fractional shares shall be issued upon the
exercise of this Warrant as a consequence of any adjustment pursuant hereto. All
Exercise Shares (including fractions) issuable upon exercise of this Warrant may
be aggregated for purposes of determining whether the exercise would result in
the issuance of any fractional share. If, after aggregation, the exercise would
result in the issuance of a fractional share, the Corporation shall, in lieu of
issuance of any fractional share, pay the Holder otherwise entitled to such
fraction a sum in cash equal to the product resulting from multiplying the then
current fair market value of an Exercise Share by such fraction.
7. EARLY TERMINATION. In the event of, at any time during the Exercise
Period, an initial public offering of securities of the Corporation registered
under the Act, or any capital reorganization, or any reclassification of the
capital stock of the Corporation (other than a change in par value or from par
value to no par value or no par value to par value or as a result of a stock
dividend or subdivision, split-up or combination of shares), or the
consolidation or merger of the Corporation with or into another corporation
(other than a merger solely to effect a reincorporation of the Corporation into
another state), or the sale or other disposition of all or substantially all the
properties and assets of the Corporation in its entirety to any other person,
the Corporation shall provide to the Holder twenty (20) days advance written
notice of such public offering, reorganization, reclassification, consolidation,
merger or sale or other disposition of the Corporation's assets, and this
Warrant shall terminate unless exercised prior to the date such public offering
is closed or the occurrence of such reorganization, reclassification,
consolidation, merger or sale or other disposition of the Corporation's assets.
5
<PAGE> 6
8. NO STOCKHOLDER RIGHTS. This Warrant in and of itself shall not entitle
the Holder to any voting rights or other rights as a stockholder of the
Corporation.
9. TRANSFER OF WARRANT. Subject to applicable laws, the restriction on
transfer set forth on the first page of this Warrant, this Warrant and all
rights hereunder are transferable, by the Holder in person or by duly authorized
attorney, upon delivery of this Warrant and the form of assignment attached
hereto to any transferee designated by Holder. The transferee shall sign an
investment letter in form and substance satisfactory to the Corporation.
10. LOST, STOLEN, MUTILATED OR DESTROYED WARRANT. If this Warrant is lost,
stolen, mutilated or destroyed, the Corporation may, on such terms as to
indemnify or otherwise as it may reasonably impose (which shall, in the case of
a mutilated Warrant, include the surrender thereof), issue a new Warrant of like
denomination and tenor as the Warrant so lost, stolen, mutilated or destroyed.
Any such new Warrant shall constitute an original contractual obligation of the
Corporation, whether or not the allegedly lost, stolen, mutilated or destroyed
Warrant shall be at any time enforceable by anyone.
11. NOTICES, ETC. All notices and other communications required or
permitted hereunder shall be in writing and shall be sent by telex, telegram,
express mail or other form of rapid communications, if possible, and if not then
such notice or communication shall be mailed by first-class mail, postage
prepaid, addressed in each case to the party entitled thereto at the following
addresses: (a) if to the Corporation, to WebSENSE, INC., Attention: Chief
Executive Officer, 10240 Sorrento Valley Road, San Diego, CA 92123, and (b) if
to the Holder, to Alps System Integration Co., Ltd., Attention: President, 1-7
Yukigaya -- Otsuka -- Cho, Ota -- Ku, Tokyo, 145-0067, Japan, or at such other
address as one party may furnish to the other in writing. Notice shall be deemed
effective on the date dispatched if by personal delivery, telecopy, telex or
telegram, two days after mailing if by express mail, or three days after mailing
if by first-class mail.
12. ACCEPTANCE. Receipt of this Warrant by the Holder shall constitute
acceptance of and agreement to all of the terms and conditions contained herein.
13. GOVERNING LAW. This Warrant and all rights, obligations and liabilities
hereunder shall be governed by the laws of the State of California.
6
<PAGE> 7
IN WITNESS WHEREOF, the Corporation has caused this Warrant to be executed
by its duly authorized officer effective as of April 15, 1999.
WEBSENSE, INC.
By /s/ John B. Carrington
-------------------------------------
Its Chairman & CEO
------------------------------------
ATTEST:
Carrie Carlander
- ----------------------------------------
Secretary
<PAGE> 8
NOTICE OF EXERCISE
TO: WEBSENSE, INC.
1. [ ] The undersigned hereby elects to purchase ______ shares of the
Common Stock of WebSENSE, INC. (the "Company") pursuant to the terms of the
attached Warrant, and tenders herewith payment of the exercise price in full,
together with all applicable transfer taxes, if any.
[ ] The undersigned hereby elects to purchase ______ shares of the
Common Stock of WebSENSE, INC. (the "Company") pursuant to the terms of the net
exercise provisions set forth in Section 2.1 of the attached Warrant, and shall
tender payment of all applicable transfer taxes, if any.
2. Please issue a certificate or certificates representing said shares of
Common Stock in the name of the undersigned or in such other name as is
specified below:
--------------------------
(Name)
--------------------------
--------------------------
(Address)
3. The undersigned represents that (i) the aforesaid shares of Common Stock
are being acquired for the account of the undersigned for investment and not
with a view to, or for resale in connection with, the distribution thereof and
that the undersigned has no present intention of distributing or reselling such
shares; (ii) the undersigned 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 regarding its investment in the
Company; (iii) the undersigned is experienced in making investments of this type
and has such knowledge and background in financial and business matters that the
undersigned is capable of evaluating the merits and risks of this investment and
protecting the undersigned's own interest; (iv) the undersigned understands that
the shares of Common Stock issuable upon exercise of this Warrant have not been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
by reason of a specific exemption from the registration provisions of the
Securities Act, which exemption depends upon, among other things, the bona fide
nature of the investment intent as expressed herein, and, because such
securities have not been registered under the Securities Act, they must be held
indefinitely unless subsequently registered under the Securities Act or an
exemption from such registration is available; (v) the undersigned is aware that
the aforesaid shares of Common Stock may not be sold pursuant to Rule 144
adopted under the Securities Act unless certain conditions are met and until the
undersigned has held the shares for the number of years prescribed by Rule 144,
that among the conditions for use of the Rule is the availability of current
information to the public about the Company and the Company has not made such
information available and has no present plans to do so; and (vi) the
undersigned agrees not to make any disposition of all or any part of the
aforesaid shares of Common Stock unless and until there is then in effect a
registration statement under the Securities Act covering
<PAGE> 9
such proposed disposition and such disposition is made in accordance with said
registration statement, or the undersigned has provided the Company with an
opinion of counsel satisfactory to the Company, stating that such registration
is not required.
- ------------------------- ----------------------------------------
Date (Signature)
----------------------------------------
(Print Name)
2
<PAGE> 10
ASSIGNMENT FORM
(To assign the foregoing Warrant, execute this form and
supply required information. Do not use this form to
purchase shares.)
FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby
are hereby assigned to
Name:
--------------------------------------------------------------------------
(Please Print)
Address:
-----------------------------------------------------------------------
(Please Print)
Dated:
----------------------
Holder's
Signature:
-----------------------------
Holder's
Address:
------------------------------
NOTE: The signature to this Assignment Form must correspond with the name as it
appears on the face of the Warrant, without alteration or enlargement or any
change whatever. Officers of corporations and those acting in a fiduciary or
other representative capacity should file proper evidence of authority to assign
the foregoing Warrant.
<PAGE> 1
EXHIBIT 10.4
THIS WARRANT AND THE SECURITIES ISSUABLE UPON THE EXERCISE HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), NOR
QUALIFIED UNDER THE SECURITIES LAWS OF ANY STATE, AND MAY NOT BE SOLD, ASSIGNED,
TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND QUALIFICATION UNDER
APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL SATISFACTORY IN FORM
AND SUBSTANCE TO THE COMPANY TO THE EFFECT THAT SUCH REGISTRATION AND
QUALIFICATION ARE NOT REQUIRED UNLESS SOLD PURSUANT TO RULE 144 UNDER THE ACT.
Date of Issuance: July 30, 1999
CW-
---
WEBSENSE, INC.
COMMON STOCK PURCHASE WARRANT
This certifies that, for value received, _____________ (the "Holder") or
permitted assigns is entitled, upon the terms and subject to the conditions
hereinafter set forth, at any time or from time to time, prior to 5:00 p.m.
Pacific Time on July 30, 2004, to subscribe for and purchase from WebSENSE,
INC., a Delaware corporation (the "Company"), _______________ fully paid and
non-assessable shares of the Company's Common Stock. Hereinafter, the Common
Stock of the Company, together with any other equity securities which may be
issued by the Company in substitution or exchange therefor, is referred to as
the "Common Stock," (i) the shares of the Common Stock purchasable hereunder are
referred to as the "Warrant Shares," (ii) the aggregate exercise price payable
for all of the Warrant Shares is referred to as the "Aggregate Exercise Price,"
and (iii) the price payable hereunder for each of the Warrant Shares is referred
to as the "Per Share Exercise Price," as set forth in Section 1.1 hereof. The
Per Share Exercise Price and the number of Warrant Shares are subject to
adjustment as provided herein.
1. Exercisability.
1.1 Exercise of Warrant. This Warrant may be exercised at a Per Share
Exercise Price of $3.00 per share in whole at any time or in part from time to
time immediately after the issuance hereof and prior to 5:00 p.m. Pacific Time
on July 30, 2004 (subject to earlier termination as hereinafter provided), by
the Holder by the surrender of this Warrant (with the subscription form at the
end hereof duly executed) at the principal office of the Company, which is
currently located at 10240 Sorrento Valley Road, San Diego, California 92123 or
at such other office of the Company as it may designate by notice in writing to
the Holder at the address of the Holder appearing on the books of the Company,
together with proper payment of the Per Share Exercise Price for each of the
Warrant Shares as to which the Warrant is being exercised.
<PAGE> 2
Payment for Warrant Shares shall be made by certified or bank cashier's check,
payable to the order of the Company.
If this Warrant is exercised in part, this Warrant must be exercised for a
number of whole shares of the Common Stock and the Holder shall be entitled to
receive a new Warrant covering the number of Warrant Shares with respect to
which this Warrant has not been exercised. This Warrant shall be deemed to have
been exercised immediately prior to the close of business on the date of its
surrender for exercise as provided above, together with payment of the Per Share
Exercise Price for the number of Warrant Shares being purchased, and the Holder
shall be treated for all purposes as the holder of record of such shares as of
the close of business on such date. Upon the surrender of this Warrant, together
with the subscription form at the end hereof duly executed and proper payment of
the Per Share Exercise Price for each of the Warrant Shares as to which the
Warrant is being exercised, the Company will, as promptly as practicable on or
after such date and in any event within ten (10) business days thereafter, at
its expense, (i) issue, or cause the Company's transfer agent to issue, a
certificate or certificates in the name of the Holder for the largest number of
whole shares of the Common Stock to which the Holder shall be entitled and, if
this Warrant is exercised in whole, in lieu of any fractional share of the
Common Stock to which the Holder shall be entitled, cash equal to the fair
market value of such fractional share (as calculated in accordance with Section
1.2 below), and (ii) deliver the other securities and properties receivable upon
the exercise of this Warrant, if any, or the proportionate part thereof if this
Warrant is exercised in part, pursuant to the provisions of this Warrant.
1.2 Net Issue Election. The Holder may elect to receive, without the
payment by the Holder of any additional consideration, shares equal to the value
(as determined below) of this Warrant or any portion hereof by the surrender of
this Warrant or such portion to the Company, with the net issue election notice
annexed hereto duly executed, at the office of the Company. Thereupon, the
Company shall issue to the Holder such number of fully paid and nonassessable
shares of Common Stock as is computed using the following formula:
X = Y (A-B)
-------
A
where:
X = the number of shares of Common Stock to be issued to the Holder
pursuant to this Section 1.2.
Y = the number of shares of Common Stock purchasable by this Warrant in
respect of which the net issue election is made pursuant to this Section 1.2.
A = the fair market value of one share of Common Stock, as determined in
accordance with the provisions of this Section 1.2.
B = the Per Share Exercise Price in effect under this Warrant at the time
the net issue election is made pursuant to this Section 1.2.
For purposes of this Section 1.2, the "fair market value" per share of the
Company's Common Stock shall be valued as follows:
2
<PAGE> 3
(a) If traded on a national securities exchange or through the NASDAQ
National Market, the value shall be deemed to be the average of the last
reported sale or closing prices of the securities on such exchange or market
over the five trading days immediately prior to the effective date of exercise
of the net issuance election;
(b) If there is no active public market, the value shall be the fair market
value thereof, as determined in good faith by the Company's Board of Directors.
2. Reservation of Warrant Shares. The Company agrees that, during the term
this Warrant is exercisable, the Company will at all times have authorized in
reserve, and will keep available, solely for issuance or delivery upon the
exercise of this Warrant, the shares of the Common Stock and other securities
and properties as from time to time shall be receivable upon the exercise of
this Warrant. The Company further covenants that all shares that may be issued
upon the exercise of rights represented by this Warrant and payment of the
Aggregate Exercise Price, all as set forth herein, will be free from all liens
and preemptive rights in respect of the issue thereof.
3. Adjustments.
3.1 Distribution With Respect to Common Stock. If, at any time or from
time to time after the date of this Warrant, the Company shall distribute to the
holders of the Common Stock, without payment therefor, (i) securities, other
than shares of the Common Stock, or (ii) property, other than cash, with respect
to the Common Stock, then, and in each such case, subject to Section 3.4 below,
the Holder, upon the exercise of this Warrant, shall be entitled to receive the
securities and properties which the Holder would hold on the date of such
exercise if, on the date of such distribution, the Holder had been the holder of
record of the number of shares of the Common Stock subscribed for upon such
exercise and, during the period from the date of such distribution to and
including the date of such exercise, had retained such shares and the securities
and properties receivable by the Holder during such period.
3.2 Stock Splits, Etc. If, at any time or from time to time after the
date of this Warrant, the Company shall issue to the holders of the Common Stock
shares of the Common Stock by way of a stock dividend or stock split, then, and
in each such case, the Per Share Exercise Price shall be adjusted, or further
adjusted, to a price (to the nearest whole cent) determined by dividing (i) an
amount equal to the number of shares of the Common Stock outstanding immediately
prior to such issuance multiplied by the Per Share Exercise Price as it existed
immediately prior to such issuance by (ii) the total number of shares of the
Common Stock outstanding immediately after such issuance. Upon each such
adjustment in the Per Share Exercise Price, the number of Warrant Shares shall
be adjusted by dividing the Aggregate Exercise Price by the Per Share Exercise
Price in effect immediately after such adjustment.
3.3 Reverse Splits, Etc. If, at any time or from time to time after
the date of this Warrant, the number of shares of Common Stock outstanding is
decreased by way of combination of shares or reserve split, then, and in each
such case, the Per Share Exercise Price shall be adjusted, or further adjusted,
to a price (to the nearest whole cent) determined by dividing (i) an amount
equal to the number of shares of the Common Stock outstanding
3
<PAGE> 4
immediately prior to such event multiplied by the Per Share Exercise Price as it
existed immediately prior to such event by (ii) the total number of shares of
the Common Stock outstanding immediately after such event. Upon each such
adjustment in the Per Share Exercise Price, the number of Warrant Shares shall
be adjusted by dividing the Aggregate Exercise Price by the Per Share Exercise
Price in effect immediately after such adjustment.
3.4 Adjustment for Reorganization, Consolidation, Merger, etc.
a. Reorganization, Consolidation, Merger, etc. In case at any
time or from time to time, the Company shall (i) effect a reorganization (other
than a combination, reclassification, exchange or subdivision of shares, as
otherwise provided for herein), (ii) consolidate with or merge into any other
entity or person, or (iii) transfer all or substantially all of its properties
or assets to any other entity or person including under any plan or arrangement
contemplating the dissolution of the Company, then, in each such case, then, as
a part of such reorganization, merger, consolidation, sale or transfer, lawful
provision shall be made so that the Holder, on the exercise hereof as provided
in Section 1 at any time after the consummation of such reorganization,
consolidation, merger, sale or transfer or the effective date of such
reorganization, consolidation, merger, sale or transfer, as the case may be,
shall be entitled to receive, in lieu of the Common Stock (or other securities)
issuable on such exercise prior to such consummation or such effective date, the
stock and other securities and property (including cash) to which the Holder
would have been entitled upon such consummation or in connection with such
dissolution, as the case may be, if the Holder had so exercised this Warrant,
immediately prior thereto, all subject to further adjustment thereafter as
provided in this Section 3.
b. Continuation of Terms. Upon any reorganization, consolidation,
merger, sale or transfer (and any dissolution following any sale or transfer)
referred to in this Section 3.4 (collectively, a "Corporate Transaction"), this
Warrant shall, immediately after such Corporate Transaction, be appropriately
adjusted to apply and pertain to the number and class of securities which would
have been issued to the Holder in the consummation of such Corporate Transaction
had the option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments shall also be made to the Exercise Price payable per
share, provided the Aggregate Exercise Price payable hereunder shall remain the
same.
c. Notice. The Company shall provide advance notice to the Holder
of any Corporate Transaction as soon as practicable, but in no event less than
20 days prior to the consummation of any such transaction.
3.5 Reclassifications. If the Company, at any time while this Warrant
or any portion hereof, remains outstanding and unexpired, by reclassification of
securities or otherwise, shall change the Common Stock into the same or a
different number of securities of any other class or classes, this Warrant shall
thereafter represent the right to acquire such number and kind of securities as
would have been issuable as the result of such change with respect to the Common
Stock that was subject to the purchase rights under this Warrant immediately
prior to such reclassification or other change and the Per Share Exercise Price
therefor shall be appropriately adjusted, all subject to further adjustment as
provided in this Section 3.
4
<PAGE> 5
4. Fully Paid Stock; Taxes. The Company agrees that the shares of the
Common Stock represented by each and every certificate for Warrant Shares
delivered on the exercise of this Warrant shall, at the time of such delivery,
be validly issued and outstanding, fully paid and non-assessable. The Company
further covenants and agrees that it will pay, when due and payable, any and all
federal and state stamp, original issue or similar taxes which may be payable in
respect of the issue of any Warrant Share or certificate therefor; provided,
however, that the Company shall not be required to pay any tax which may be
payable in respect of any transfer involved in the issuance of any certificate
for Warrant Shares in a name other than that of the Holder upon any exercise of
this Warrant.
5. Restrictions on Transferability of Securities; Compliance with
Securities Act.
5.1 Restrictions on Transferability. The transferability of this
Warrant and the Warrant Shares (as well as any other securities issued in
respect of the Warrant Shares upon any stock split, stock dividend,
recapitalization, merger, consolidation or similar event) shall be subject to
the conditions specified in this Section 5. The Holder, and any transferee of
this Warrant or the Warrant Shares, by its acceptance hereof or thereof, agrees
that this Warrant and the Warrant Shares will be taken and held subject to the
provisions and upon the conditions specified in this Section 5.
5.2 Restrictive Legend. This Warrant and each certificate representing
(i) the Warrant Shares or (ii) any other securities issued in respect of the
Warrant Shares upon any stock split, stock dividend, recapitalization, merger,
consolidation or similar event, shall (unless otherwise permitted or unless the
securities evidenced by such certificate shall have been registered under the
Securities Act of 1933 (the "Act")) be stamped or otherwise imprinted with a
legend substantially in the following form (in addition to any legend required
under applicable state securities laws), and shall be subject to the provisions
thereof:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, (THE "ACT"), OR QUALIFIED UNDER THE
SECURITIES LAWS OF ANY STATE, AND MAY NOT BE SOLD, ASSIGNED, TRANSFERRED,
PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT AND QUALIFICATION UNDER APPLICABLE STATE
SECURITIES LAWS, OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY TO THE
EFFECT THAT SUCH REGISTRATION AND QUALIFICATION ARE NOT REQUIRED UNLESS SOLD
PURSUANT TO RULE 144 UNDER THE ACT.
5.3 "Market Stand-Off" Agreement. Each Holder hereby agrees that,
during the period of duration specified by the Company and an underwriter of
Common Stock or other securities of the Company, it shall not, to the extent
requested by the Company and such underwriter, directly or indirectly sell,
offer to sell, contract to sell (including, without limitation, any short sale),
grant any option to purchase or otherwise transfer or dispose of (other than to
donees who agree to be similarly bound) any securities of the Company held by it
at any time during such period except Common Stock included in such
registration; provided, however, that:
a. such market stand-off time period shall not exceed 180 days;
5
<PAGE> 6
b. all officers and directors of the Company and all other persons
with registration rights enter into similar agreements.
In order to enforce the foregoing covenant, the Company may impose
stop-transfer instructions with respect to any securities of the Company held by
the Holder until the end of such period. If requested to do so by the Company,
each Holder shall execute an underwriter's letter in the customary form prior to
the registration of the Company's initial public offering.
Notwithstanding the foregoing, the obligations described in this
Section 5.3 shall not apply to a registration relating solely to employee
benefit plans on Form S-l or Form S-8 or similar forms which may be promulgated
in the future, or a registration relating solely to a Commission Rule 145
transaction on Form S-4 or similar forms which may be promulgated in the future.
5.4 Assignability. This Warrant may not be transferred or assigned, in
whole or in part, by Holder except (i) where Holder has provided the Company
with written notice of its intent to assign or transfer the Warrant and the
Company has consented to such assignment or transfer in writing, or (ii) to any
Affiliate of the Holder.
6. Warrant Register. This Warrant is transferable only upon the books of
the Company which it shall cause to be maintained for such purpose. The Company
may treat the registered holder of this Warrant as he, she or it appears on the
Company's books at any time as the Holder for all purposes; provided, however,
that upon receipt of notice of an assignment pursuant to Section 5.4, the
Company shall revise its books to reflect such new holder(s).
7. Loss, Etc., of Warrant. Upon receipt of evidence satisfactory to the
Company of the loss, theft, destruction or mutilation of this Warrant, and of
indemnity reasonably satisfactory to the Company, if lost, stolen or destroyed,
and upon surrender and cancellation of this Warrant if mutilated, the Company
shall execute and deliver to the Holder a new Warrant of like date, tenor and
denomination.
8. Warrant Holder Has No Stockholder Rights. This Warrant does not confer
upon the Holder any right to vote or to consent or to receive notice as a
stockholder of the Company, as such, with respect to any matters whatsoever, or
any other rights or liabilities as a stockholder, prior to the exercise thereof.
9. Representations and Warranties of the Holder. Holder hereby represents
and warrants that:
9.1 Authorization. Holder has full power and authority to accept and
purchase this Warrant to purchase and any Warrant Shares for which it may be
exercised.
9.2 Purchase Entirely for Own Account. This Warrant is sold in
reliance upon Holder's representation to the Company which, by Holder's
execution of this Warrant, Holder hereby confirms, that the Warrant to be
received by Holder and the Warrant Shares issuable upon
6
<PAGE> 7
the exercise thereof (collectively, the "Securities") will be acquired for
investment for Holder'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 Holder has no
present intention of selling, granting any participation in, or otherwise
distributing the same. By executing this Warrant, Holder further represents that
Holder does not have any contract, undertaking, agreement or arrangement with
any person to sell, transfer or grant participations to person or to any third
person, with respect to any of the Securities.
9.3 Disclosure of Information. Holder believes that it has received
all the information it considers necessary or appropriate for deciding whether
to purchase the Warrant and any Warrant Shares for which the Warrant may be
exercised. Holder further represents that it has had an opportunity to ask
questions and receive answers from the Company regarding the terms and
conditions of the offering of the Warrant and the business, properties,
prospects and financial condition of the Company.
9.4 Investment Experience. Holder is an investor in securities of
companies in the development stage and acknowledges that Holder is able to fend
for itself, can bear the economic risk of its investment, and has such knowledge
and experience in financial or business matters that it is capable of evaluating
the merits and risks of the investment in the Warrant and any Warrant Shares for
which the Warrant may be exercised.
9.5 Accredited Investor. Holder is an "accredited investor" within the
meaning of Securities and Exchange Commission ("SEC") Rule 501 of Regulation D,
as presently in effect.
9.6 Restricted Securities. Holder understands that the Securities are
characterized as "restricted securities" under the federal securities laws
inasmuch as they are being acquired from the Company in a transaction not
involving a public offering and that under such laws and applicable regulations
such Securities may be resold without registration under the Act, only in
certain limited circumstances. In this connection, Holder represents that it is
familiar with SEC Rule 144, as presently in effect, and understands the resale
limitations imposed thereby and by the Act.
9.7 Further Limitations on Disposition. Without in any way limiting
the representations set forth above, Holder further agrees not to make any
disposition of all or any portion of the Securities unless and until:
a. There is then in effect a Registration Statement under the Act
covering such proposed disposition and such disposition is made in accordance
with such Registration Statement; or
b. Holder shall have notified the Company of the proposed disposition
and shall have furnished the Company with a reasonably detailed statement of the
circumstances surrounding the proposed disposition, and if reasonably requested
by the Company, Holder shall have furnished the Company with an opinion of
counsel, reasonably satisfactory to the Company that such disposition will not
require registration of such shares under the Act. It is agreed that
8
<PAGE> 8
the Company will not require opinions of counsel for transactions made pursuant
to Rule 144 except in unusual circumstances, or if required by a sale pursuant
to Rule 144(g).
10. Communication. All notices, requests, demands and other communications
under this Warrant must be in writing and will be deemed duly given, unless
otherwise expressly indicated to the contrary in this Agreement, (a) when
personally delivered, (b) three (3) business days after having been deposited in
the United States mail, certified or registered, return receipt requested,
postage prepaid, (c) one (1) business day after having been dispatched by a
nationally recognized overnight courier service, addressed to the parties or
their permitted assigns with an acknowledgment of receipt requested at the
following addresses, or (d) upon receipt of confirmation of a telephonic
facsimile transmission:
To the Company: WebSENSE, INC.
10240 Sorrento Valley Road
San Diego, CA 92123
Attn: John Carrington
Fax: (858) 458-2953
To Holder: Global Alliance Los Angeles, LLC
5200 W. Century Blvd., Suite 450
Los Angeles, CA 90045
Attn: Adam Button
Fax: (310) 207-4210
The Company and the Holder may change the address to which such notices are to
be addressed to them by giving the other party notice in the manner set forth
herein.
11. Headings. The headings of this Warrant have been inserted as a matter
of convenience and shall not affect the construction hereof.
12. Applicable Law. This Warrant shall be governed by and construed in
accordance with the internal laws of the State of California.
8
<PAGE> 9
IN WITNESS WHEREOF, WebSENSE, INC. has caused this Warrant to be executed
by its officers thereunto authorized effective as of July 30, 1999.
WEBSENSE, INC.
By:
------------------------------------
John Carrington
Chief Executive Officer
ACCEPTED AND AGREED:
- -------------------------
By:
------------------------------------
Its:
-----------------------------------
9
<PAGE> 10
FORM OF ASSIGNMENT
(To Be Signed Only Upon Assignment)
For value received, the undersigned hereby sells, assigns and transfers
unto __________________ the right to purchase __________ shares of Common Stock
evidenced by the within Warrant, and hereby appoints
____________________________ to transfer the same on the books of WebSENSE, INC.
with full power of substitution in the premises.
Date: ________________ ____, _________
(Signature)
Note: Signature must conform in all respects to the name of the Warrant
Holder as specified on the face of this Warrant in every particular, without
alteration or enlargement or any change whatsoever.
10
<PAGE> 11
EXERCISE FORM
(To Be Executed By The Warrant Holder If The Holder Desires To Exercise The
Warrant In Whole Or In Part)
TO: WebSENSE, INC.
The undersigned hereby irrevocably elects to exercise the right of
purchase represented by the within Warrant for, and for purchase thereunder,
___________________ shares of Common Stock provided for therein and tenders
payment herewith to the order of WebSENSE, INC. in the amount of
$_____________.____. The undersigned requested that certificates for such shares
of Common Stock be issued as follows:
Name:
Address:
Deliver to:
Address:
Date: _____________, _______
(Signature)
Note: Signature must conform in all respects to the name of the Warrant
Holder as specified on the face of this Warrant in every particular, without
alteration or enlargement or any change whatsoever.
11
<PAGE> 12
NET ISSUE ELECTION NOTICE
To: WebSENSE, INC.
The undersigned hereby elects, pursuant to Section 1.2 of the attached
Warrant, to surrender the right to purchase ___________ shares of Common Stock.
The Certificate(s) for the shares issuable upon such net issue election shall be
issued in the name of the undersigned or as otherwise indicated below.
Date:
---------------------------- ----------------------------------------
Signature
----------------------------------------
Name for Registration
----------------------------------------
Mailing Address
12
<PAGE> 13
SCHEDULE A
<TABLE>
<CAPTION>
Warrant Holder Number of Shares
- -------------- ----------------
<S> <C>
Adam Button, Inc. 25,000
Paul Hardy 9,375
Pan Pacific Partners 4,688
Global Alliance Ltd. 23,437
</TABLE>
<PAGE> 1
EXHIBIT 10.5
EMPLOYMENT AGREEMENT
BY AND BETWEEN
NETPARTNER, INC.
AND
JOHN B. CARRINGTON
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
1. EMPLOYMENT...........................................................................1
2. LOYAL AND CONSCIENTIOUS PERFORMANCE; NONCOMPETITION..................................2
3. COMPENSATION OF EXECUTIVE............................................................2
4. TERM.................................................................................4
5. CHOICE OF LAW........................................................................7
6. AMENDMENT AND WAIVER.................................................................8
7. CONFIDENTIAL AND PROPRIETARY INFORMATION;
NONSOLICITATION......................................................................8
8. ASSIGNMENT AND BINDING EFFECT........................................................9
9. NOTICES..............................................................................9
10. CHOICE OF LAW........................................................................9
11. INTEGRATION..........................................................................9
12. AMENDMENT...........................................................................10
13. WAIVER..............................................................................10
14. SEVERABILITY........................................................................10
15. INTERPRETATION; CONSTRUCTION........................................................10
16. REPRESENTATIONS AND WARRANTIES......................................................10
17. LITIGATION COSTS....................................................................10
18. TRADE SECRETS OF OTHERS..............................................................1
</TABLE>
i.
<PAGE> 3
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into as
of May 10, 1999 (the "Hire Date") by and between NETPARTNERS, INC. (the
"Company"), a Delaware corporation, and JOHN B. CARRINGTON ("Executive"). The
Company and Executive are hereinafter collectively referred to as the "Parties,"
and individually referred to as a "Party."
RECITALS
A. The Company desires assurance of the association and services of
Executive in order to retain Executive's experience, skills, abilities,
background and knowledge, and is willing to engage Executive's services on the
terms and conditions set forth in this Agreement.
B. Executive desires to be in the employ of the Company, and is willing
to accept such employment on the terms and conditions set forth in this
Agreement.
AGREEMENT
In consideration of the foregoing Recitals and the mutual promises and
covenants herein contained, and for other good and valuable consideration, the
Parties, intending to be legally bound, agree as follows:
1. EMPLOYMENT.
1.1 The Company hereby employs Executive, and Executive hereby accepts
employment by the Company, upon the terms and conditions set forth in this
Agreement, for the period commencing on the Hire Date and ending as provided in
paragraph 4 hereof (the "Employment Period").
1.2 Executive shall serve as President, Chief Executive Officer ("CEO")
and a director on the Company's Board of Directors (the "Board") Executive shall
report to the Board.
1.3 Executive shall do and perform all services, acts or things
necessary or advisable to manage and conduct the business of the Company and
which are normally associated with the position of President and CEO consistent
with the bylaws of the Company and as required by the Company's Board.
1.4 Unless the Parties otherwise agree in writing, during the term of
this Agreement, Executive shall perform the services he is required to perform
pursuant to this Agreement at the Company's offices, located in San Diego,
California, or at any other place at which the Company maintains an office;
provided, however, that the Company may from time to time require Executive to
travel temporarily to other locations in connection with the Company's business.
1.
<PAGE> 4
2. LOYAL AND CONSCIENTIOUS PERFORMANCE; NONCOMPETITION.
2.1 During the Employment Period, Executive shall devote his full
business energies, interest, abilities and productive time to the proper and
efficient performance of his duties under this Agreement. The foregoing shall
not preclude Executive from engaging in civic, charitable or religious
activities, or from serving on boards of directors of companies or organizations
which will not present any direct conflict with the interest of the Company or
affect the performance of Executive's duties hereunder. The Company acknowledges
that, at this time the Executive is on the Board of Directors of SalesLogix in
Phoenix, Arizona and Digital Lava in Los Angeles, California.
2.2 Except with the prior written consent of the Company's Board,
Executive will not, during the Employment Period, or any period during which
Executive is receiving compensation or any other consideration from the Company,
including severance pay pursuant to Section 4 herein, engage in competition with
the Company, either directly or indirectly, in any manner or capacity, as
adviser, principal, agent, partner, officer, director, employee, member of any
association or otherwise, in any phase of the business of developing,
manufacturing and marketing of products which are in the same field of use or
which otherwise compete with the products or products actively under development
by the Company.
2.3 Except as permitted herein, Executive agrees not to acquire, assume
or participate in, directly or indirectly, any position, investment or interest
known by him to be adverse or antagonistic to the Company, its business or
prospects, financial or otherwise. Ownership by Executive, as a passive
investment, of less than five percent (5%) of the outstanding shares of capital
stock of any corporation with one or more classes of its capital stock listed on
a national securities exchange or publicly traded in the over-the-counter market
shall not constitute a breach of this paragraph.
3. COMPENSATION OF EXECUTIVE.
3.1 The Company shall pay Executive an initial base salary of Two
Hundred Thousand and Four Dollars ($200,004.00) per year (the "Base Salary"),
payable in regular periodic payments in accordance with Company policy. Such
salary shall be prorated for any partial year of employment on the basis of a
365 day fiscal year.
3.2 Executive's compensation may be changed from time to time by mutual
agreement of Executive and the Board. Executive's Base Salary shall be reviewed
annually by the Board and increased (but not decreased) based upon Executive's
performance in the sole discretion of the Board.
3.3 All of Executive's compensation shall be subject to customary
withholding taxes and any other employment taxes as are commonly required to be
collected or withheld by the Company.
2.
<PAGE> 5
3.4 During the Employment Period, the Company agrees to reimburse
Executive for all reasonable and necessary business expenses subject to the
Company's standard requirements with respect to reporting and documentation of
such expenses.
3.5 Executive shall, in accordance with Company policy and the terms of
the applicable plan documents, be eligible to participate in benefits under any
Executive benefit plan or arrangement which may be in effect from time to time
and made available to its executive or key management employees. The Company may
modify or cancel its benefit plan(s) as it deems necessary.
3.6 Executive shall be eligible for a performance bonus in 1999 to be
awarded by the Board based upon Executive's attainment of certain sales goals.
If the Company's sales for the period of May through December, 1999, are between
Eight Million Six Hundred Thousand Dollars ($8,600,000.00) and Ten Million Seven
Hundred Thousand Dollars ($10,700,000.00), Executive shall earn a bonus equal to
the formula of Actual $ Sales / $10,700,000. x $50,000.00. As a stretch bonus,
if the Company's sales for the period of May through December, 1999, are between
Ten Million Seven Hundred Thousand Dollars ($10,700,000.00) and Thirteen Million
Dollars ($13,000,000.00), Executive will earn an additional bonus equal to the
formula of Actual $ Sales / $13,000,000.00 x $50,000.00 In the event Executive
attains sales goals in excess of Thirteen Million Dollars ($13,000,000.00), his
total bonus paid shall be limited to One Hundred Thousand Dollars ($100,000.00)
in 1999. If Executive earns a bonus, hereunder, it shall be paid within sixty
(60) days of December 31, 1999. For each year following 1999, Executive shall be
eligible for an annual bonus which shall be awarded at the sole discretion of
the Board pursuant to the terms of any bonus formula or plan which the Board may
approve in the future.
3.7 (a) Subject to the Board's approval, Executive will be granted a
non-statutory stock option to purchase nine hundred seventy-five thousand
(975,000) shares of the common stock of the Company, contingent on Executive
accepting employment with the Company and effective upon Executive's Hire Date
and subject to the terms and conditions of the 1998 Equity Incentive Plan
("Option 1"). One-fourth (1/4) of the shares subject to Option 1 shall vest and
be immediately exercisable on the flat anniversary of the Hire Date following
twelve (12) continuous months of service with the Company, with an additional
one forty-eighth (1/48th) of the shares subject to Option 1 vesting monthly
thereafter, provided that Executive remains employed with the Company through
each vesting installment date. The exercise price of Option 1 shall be fifty
(.50) cents per share. Notwithstanding the foregoing, Option 1 shall be fully
exercisable and shall vest in full upon a Change in Control (as defined below).
(b) Subject to the Board's approval, Executive will also be
granted a non-statutory stock option to purchase 325,000 shares of the Company's
common stock, contingent upon Executive accepting employment with the Company
and effective upon Executive's Hire Date, and subject to the terms and
conditions of the 1998 Equity Incentive Plan ("Option 2"). Option 2 will be
immediately exercisable; provided, however, that the Company shall have the
right to repurchase all unvested shares at the original purchase price of the
shares. The right of repurchase in favor of the Company shall lapse monthly
(27,083 shares per month) so that on the first anniversary of the date of grant
the right of repurchase in favor of the Company shall have
3.
<PAGE> 6
lapsed in fall. Such right of repurchase shall be subject to the terms and
conditions of subsection 6(i) of the 1998 Equity Incentive Plan. The exercise
price of Option 2 shall be fifty (.50) cents per share. Notwithstanding the
foregoing, Option 2 shall be fully exercisable and shall vest in full upon a
Change in Control (as defined below).
(c) If the outstanding shares of the Company's common stock are
increased, decreased, changed into or exchanged for a different number or kind
of shares for the Company through a reorganization or recapitalization, stock
dividend, stock split or reverse stock split, or other similar transaction, then
appropriate and proportional adjustment shall be made in the number and kind of
securities receivable upon the exercise of the Options and the exercise price
per share to prevent the dilution or enlargement of Executive's rights under the
Options; provided, however, the aggregate exercise price applicable to the
Options shall remain the same.
(d) Upon any acquisition of the Company (through acquisition of
shares, merger, sale of assets or otherwise) in which shares of the Company's
common stock are converted into or exchanged for shares of another corporation,
provision shall be made by the Company for the assumption of the Options by such
other corporation and the Options shall be appropriately adjusted to apply and
pertain to the number and class of securities which would have been issued to
Executive upon consummation of such acquisition had the Options been exercised
immediately prior thereto. Appropriate adjustments shall also be made to the
exercise price applicable to the Options shall remain the same; provided, that
in the event any surviving corporation or acquiring corporation refuses to
assume such Options or to substitute similar stock awards for such Options, the
vesting of such Options (and, if applicable, 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.
4. TERM.
(a) The Employment Period shall end on the second anniversary of the
Hire Date; provided, that the Employment Period terminate earlier as provided in
this Section 4. The two (2) year Employment Period shall be extended at the end
of each year during the Employment Period for an additional one (1) year period
unless the Company notifies Executive in writing by April 30 of any year of the
Company's election not to extend the Employment Period. Notwithstanding the
foregoing, (i) the Employment Period shall terminate upon Executive's
resignation, death or permanent Disability (as defined in Section 4(k)); (ii)
the Employment Period may be terminated by Executive at any time if the Company
fails to comply with any material provision of this Agreement, which failure has
not been cured within ten (10) business days after notice of such noncompliance
has been given by the Executive to the Company; (iii) the Employment Period may
be terminated for Good Reason by Executive at any time during the period two (2)
years after the date of a Change in Control (as defined below); (iv) the
Employment Period may be terminated without Cause by the Company upon thirty
(30) days prior written notice to Executive; and (v) the Employment Period may
be terminated by the Company at any time for Cause.
4.
<PAGE> 7
(b) If the Employment Period is terminated by the Company for Cause
or by Executive's resignation, Executive shall be entitled to receive all
amounts due to him through the date of termination, including any Bonus earned.
(c) If the Employment Period is terminated as a result of
Executive's death or permanent Disability, the Company shall pay any amounts due
to Executive through the date of termination and a pro-rated Bonus in an amount
equal to the Bonus which would have otherwise been payable to Executive pursuant
to paragraph 3.6, if any, with respect to the fiscal year in which such
termination occurs.
(d) If the Employment Period is terminated by the Company pursuant
to paragraph 4(a)(iv) or by Executive pursuant to paragraphs 4(a)(ii) above
then, upon Executive's furnishing to the Company an executed waiver and release
of claims (a form of which is attached hereto as Exhibit A), Executive shall be
entitled to receive (i) a lump sum payment equal to 50% of his current Base
Salary in effect as of the date of termination, subject to standard deductions
and withholdings payable within ten (10) days after the date of termination,
(ii) a Bonus equal to 50% of the average of the annual Bonuses earned by
Executive during the Employment Period subject to standard deductions and
withholdings. Executive shall also be eligible to receive continued medical
benefits to the extent permitted under COBRA for a period of six (6) months from
the date of termination.
(e) If, within two (2) years after a Change in Control, the
Employment Period is terminated by the Company other than for Cause, or if
Executive terminates the Employment Period for Good Reason (as hereinafter
defined), then upon Executive's furnishing to the Company an executed waiver and
release of claims (a form of which is attached hereto as Exhibit A), Executive
shall be entitled to the following: (i) Executive's Base Salary and accrued and
unused vacation earned through the date of termination; (ii) a lump sum payment
equal to one and one-half times the sum of Executive's current Base Salary in
effect as of the date of termination, subject to standard deductions and
withholdings, to be paid within (10) days after the date of termination; (iii) a
lump sum payment equal to one and one-half times the average of the Bonuses
earned by Executive during the Employment Period, subject to standard deductions
and withholdings, to be paid within ten (10) days after the date of termination;
(iv) continued medical benefits, to the extent permitted under COBRA, for a
period of eighteen (18) months.
(f) If the Employment Period is terminated prior to December 1,
1999, there shall be no Bonus earned by Executive for the fiscal year ending
December 31, 1999. If the Employment Period is terminated between December 1 and
December 31, 1999, the Bonus earned by Executive for the fiscal year ending
December 31, 1999 shall be 50% of Executive's Base Salary in effect as of such
termination for purposes of calculating average Bonuses in paragraphs 4(d) and
(e) above; provided, however, that Executive is not terminated for Cause.
(g) For purposes of this Agreement, a "Change in Control" of the
Company shall be deemed to have occurred if (i) any "person" (as such term is
used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as
amended (the Exchange Act")), other than a trustee or other fiduciary holding
securities of the Company under an employee benefit plan of
5.
<PAGE> 8
the Company, becomes the "beneficial owner" (as defined in Rule 13d-3
promulgated under the Exchange Act), directly or indirectly, of securities of
the Company representing 50% or more of (A) the outstanding shares of Common
Stock of the Company or (B) the combined voting power of the Company's
then-outstanding securities entitled to vote generally in the election of
directors; (ii) during any period of not more than two consecutive years, not
including any period prior to the date of this Agreement, individuals who at the
beginning of such period constitute the Board, and any new director (other than
a director designed by a person who has entered into an agreement with the
Company to effect a transaction described in clause (i) or (iii) of this
paragraph (g)) whose election by the Board or nomination by the Company's
shareholders was approved by a vote by at least a majority of the directors
still in office who either were in office at the beginning of such period or
whose election or nomination for election was previously so approved, ceases for
any reason to constitute a majority of the Board; (iii) the Company is party to
a merger or consolidation which results in the holders of voting securities of
the Company outstanding immediately prior thereto failing to continue to
represent (either by remaining outstanding or by being converted into voting
securities of the surviving entity) at least 50% of the combined voting power of
the voting securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation, or the Company sells or disposes
of all or substantially all of the Company's assets or any transaction having a
similar effect is consummated.
(h) "Good Reason" as used in this Agreement shall mean (i) without
Executive's express written consent, any failure by the Company to comply with
any material provision of this Agreement, which failure has not been cured
within ten (10) business days after notice of such noncompliance has been given
by Executive to the Company, or (ii) the occurrence (without Executive's express
written consent), within two (2) years after a Change in Control, of any one of
the following acts by the Company, or failures by the Company to act, unless, in
the case of any act or failure to act described below, such act or failure to
act is corrected prior to the date of termination specified in any notice of
termination given by Executive to the Company in respect thereof:
(a) Any change in Executive's title, authorities,
responsibilities (including reporting responsibilities) which represents an
adverse change from his status, title, position or responsibilities (including
reporting responsibilities) which were in effect immediately prior to the Change
in Control; the assignment to Executive of any material duties or work
responsibilities which are inconsistent with such status, title, position or
work responsibilities; or any removal of Executive from, or failure to appoint
or reelect him to, any such positions, except if such changes are because of
Disability, retirement, death or for Cause;
(b) The relocation of Executive's office to a location outside of
San Diego or Orange County, California;
(c) The failure by the Company to continue in effect any annual
or long-term incentive compensation plan in which Executive participated
immediately prior to the Change in Control, unless Executive participates after
the Change in Control in another
6.
<PAGE> 9
comparable plan generally available to senior executives of the Company and
senior executives of any person in control of the Company; or
(d) The failure by the Company to continue to provide the
Executive with benefits substantially similar in value in the aggregate to those
enjoyed by Executive immediately prior to the Change in Control.
(i) Except as otherwise set forth above, all of Executive's rights
to fringe benefits and bonuses hereunder (if any) accruing after the termination
of the Employment Period shall cease upon such termination.
(j) For purposes of this Agreement, "Cause" shall mean (i) the
willful failure or refusal by Executive to perform his duties hereunder (other
than any such failure resulting from Executive's incapacity due to physical or
mental illness), which has not ceased within ten (10) business days after
written demand for substantial performance is delivered to Executive by the
Company, which demand identifies the manner in which Company believes that the
Executive has not performed such duties and the steps required to cure such
failure to perform; (ii) Executive shall intentionally and willfully engage in
misconduct which is materially injurious to the Company, monetarily or
otherwise; or (iii) the conviction of Executive of or the entering of a plea of
nolo contenders by Executive with respect to, a felony.
Notwithstanding the foregoing, Executive's Employment hereunder shall not be
deemed to be terminated for Cause and no other action shall be taken by the
Company which is adverse to Executive unless and until there shall have been
delivered to Executive a copy of a resolution duly adopted by a unanimous vote
of the Board (excluding Executive) at a meeting of the Board (after written
notice to Executive and a reasonable opportunity for Executive to be heard
before the Board) authorizing and approving such termination or other action.
(k) For purposes of this Agreement, permanent "Disability" shall
mean the expiration of a continuous period of one hundred and eighty (180) days
during which Executive is unable to perform his assigned duties due to physical
or mental incapacity. In the event of any dispute regarding the existence of
Executive's Disability hereunder, the matter will be resolved by the
determination of a majority of three physicians qualified to practice medicine
in California, one to be selected by each of Executive and the Board and the
third to be selected by the two designated physicians. For this purpose,
Executive will submit to appropriate medical examinations.
(l) Executive shall not be required to mitigate the amount of any
payment provided for in this Section 4 by seeking other employment or otherwise,
and the amount of any payment or benefit provided for in this Section 4 shall
not be reduced by any compensation earned by Executive as a result of employment
by another employer or by any other benefits.
5. CHOICE OF LAW.
5.1 This Agreement will be governed by the internal law, and not the
laws of conflicts, of the State of California.
7.
<PAGE> 10
6. AMENDMENT AND WAIVER.
6.1 The provisions of this Agreement may be amended or waived only with
the prior written consent of the Company and Executive, and no course of conduct
or failure or delay in enforcing the provisions of this Agreement shall affect
the validity, binding effect or enforceability of this Agreement.
7. CONFIDENTIAL AND PROPRIETARY INFORMATION; NONSOLICITATION.
7.1 Executive agrees to execute and abide by the Proprietary Information
and Inventions Agreement attached and amended hereto as Exhibit B.
7.2 Executive recognizes that his employment with the Company will
involve contact with information of substantial value to the Company, which is
not old and generally known in the trade, and which gives the Company an
advantage over its competitors who do not know or use it, including but not
limited to, techniques, designs, drawings, processes, inventions, developments,
equipment, prototypes, sales and customer information, and business and
financial information relating to the business, products, practices and
techniques of the Company, (hereinafter referred to as "Confidential and
Proprietary Information"). Executive will at all times regard and preserve as
confidential such Confidential and Proprietary Information obtained by Executive
from whatever source and will not, either during his employment with the Company
or thereafter, publish or disclose any part of such Confidential and Proprietary
Information in any manner at any time, or use the same except on behalf of the
Company, without the prior written consent of the Company.
7.3 While employed by the Company and for one (1) year thereafter, the
Executive agrees that in order to protect the Company's Confidential and
Proprietary Information from unauthorized use, that Executive will not, either
directly or through others, solicit or attempt to solicit any employee,
consultant or independent contractor of the Company to terminate his or her
relationship with the Company in order to become an employee, consultant or
independent contractor to or for any other person or business entity; or the
business of any customer, vendor or distributor of the Company which, at the
time of termination or one (1) year immediately prior thereto, was doing
business with the Company or listed on Company's customer, vendor or distributor
list.
8.
<PAGE> 11
8. ASSIGNMENT AND BINDING EFFECT.
8.1 This Agreement shall be binding upon and inure to the benefit of
Executive and Executive's heirs, executors, personal representatives, assigns,
administrators and legal representatives. Due to the unique and personal nature
of Executive's duties under this Agreement, neither this Agreement nor any
rights or obligations under this Agreement shall be assignable by Executive.
This Agreement shall be binding upon and inure to the benefit of the Company and
its successors, assigns and legal representatives. The Company will require any
successor (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or assets of the
Company, to expressly assume and agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to perform it
if no such succession had taken place.
9. NOTICES.
9.1 All notices or demands of any kind required or permitted to be given
by the Company or Executive under this Agreement shall be given in writing and
shall be personally delivered (and receipted for) or mailed by certified mail,
return receipt requested, postage prepaid, addressed as follows:
9.1.1 If to the Company:
NetPartners, Inc.
9210 Sky Park Court
San Diego, California 92123
Attn: Chairman of the Board of Directors
9.1.2 If to Executive:
John B. Carrington
25 Pelican Hill Circle
Newport Coast, California 92657
Any such written notice shall be deemed received when personally delivered or
three (3) days after its deposit in the United States mail as specified above.
Either Party may change its address for notices by giving notice to the other
Party in the manner specified in this section.
10. CHOICE OF LAW.
10.1 This Agreement is made in San Diego, California. This Agreement
shall be construed and interpreted in accordance with the laws of the State of
California.
11. INTEGRATION.
11.1 This Agreement contains the complete, final and exclusive agreement
of the Parties relating to the subject matter of this Agreement, and supersedes
all prior oral and written employment agreements or arrangements between the
Parties.
9.
<PAGE> 12
12. AMENDMENT.
12.1 This Agreement cannot be amended or modified except by a written
agreement signed by Executive and the Company.
13. WAIVER.
13.1 No term, covenant or condition of this Agreement or any breach
thereof shall be deemed waived, except with the written consent of the Party
against whom the wavier in claimed, and any waiver or any such term, covenant,
condition or breach shall not be deemed to be a waiver of any preceding or
succeeding breach of the same or any other term, covenant, condition or breach.
14. SEVERABILITY.
14.1 The finding by a court of competent jurisdiction of the
unenforceability, invalidity or illegality of any provision of this Agreement
shall not render any other provision of this Agreement unenforceable, invalid or
illegal. Such court shall have the authority to modify or replace the invalid or
unenforceable term or provision with a valid and enforceable term or provision
which most accurately represents the parties' intention with respect to the
invalid or unenforceable term or provision.
15. INTERPRETATION; CONSTRUCTION.
15.1 The headings set forth in this Agreement are for convenience of
reference only and shall not be used in interpreting this Agreement. This
Agreement has been drafted by legal counsel representing the Company, but
Executive has been encouraged, and has consulted with, his own independent
counsel and tax advisors with respect to the terms of this Agreement. The
Parties acknowledge that each Party and its counsel has reviewed and revised, or
had an opportunity to review and revise, this Agreement, and the normal rule of
construction to the effect that any ambiguities are to be resolved against the
drafting party shall not be employed in the interpretation of this Agreement.
16. REPRESENTATIONS AND WARRANTIES.
16.1 Executive represents and warrants that he is not restricted or
prohibited, contractually or otherwise, from entering into and performing each
of the terms and covenants contained in this Agreement, and that his execution
and performance of this Agreement will not violate or breach any other
agreements between Executive and any other person or entity.
17. LITIGATION COSTS.
17.1 Should any litigation, arbitration, or administrative action be
commenced between the parties or their personal representatives concerning any
provision of this agreement or the rights and duties of any person in relation
to this agreement, the party or parties prevailing such action shall be
entitled, in addition to such other relief as may be granted to a reasonable
10.
<PAGE> 13
sum as and for that party's attorney's fees in such litigation which shall be
determined by the court, arbitrator, or administrative agency, in such action or
in a separate action brought for that purpose.
18. TRADE SECRETS OF OTHERS.
18.1 It is the understanding of both the Company and Executive that
Executive shall not divulge to the Company and/or its subsidiaries any
confidential information or trade secrets belonging to others, including
Executive's former employers, nor shall the Company and/or its affiliates seek
to elicit from Executive any such information. Consistent with the foregoing,
Executive shall not provide to the Company and/or its affiliates, and the
Company and/or its affiliates shall not request, any documents or copies of
documents containing such information.
IN WITNESS WHEREOF, the Parties have executed this Agreement as of the
date first above written.
NETPARTNERS, INC.
By: /s/ Bruce Coleman
------------------------------
Its: CEO
------------------------------
Dated: 5/7/99
----------------------------
EXECUTIVE:
/s/ John B. Carrington
- ----------------------------------
JOHN B. CARRINGTON
Dated: May 7, 1999
---------------------------
11.
<PAGE> 14
EXHIBIT A
RELEASE AND WAIVER OF CLAIMS
In consideration of the payments and other benefits set forth in Section
4 of the Employment Agreement dated May ____, 1999 to which this form is
attached, I, JOHN B. CARRINGTON, hereby furnish NETPARTNERS, INC. (the
"Company"), with the following release and waiver ("Release and Waiver").
I hereby release, and forever discharge the Company, its officers,
directors, agents, employees, stockholders, successors, assigns affiliates and
Benefit Plans, of and from any and all claims, liabilities, demands, causes of
action, costs, expenses, attorneys' fees, damages, indemnities and obligations
of every kind and nature, in law, equity, or otherwise, known and unknown,
suspected and unsuspected, disclosed and undisclosed, arising at any time prior
to and including my employment termination date with respect to any claims
relating to my employment and the termination of my employment, including but
not limited to, claims pursuant to any federal, state or local law relating to
employment, including, but not limited to, discrimination claims, claims under
the California Fair Employment and Housing Act, and the Federal Age
Discrimination in Employment Act of 1967, as amended ("ADEA"), or claims for
wrongful termination, breach of the covenant of good faith, contract claims,
tort claims, and wage or benefit claims, including but not limited to, claims
for salary, bonuses, commissions, stock, stock options, vacation pay, fringe
benefits, severance pay or any form of compensation.
In releasing claims unknown to me at present, I am waiving all rights
and benefits under Section 1542 of the California Civil Code, and any law or
legal principle of similar effect in any jurisdiction: "A GENERAL RELEASE DOES
NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS
FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE
MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR."
I acknowledge that, among other rights, I am waiving and releasing any
rights I may have under ADEA, that this release and waiver is knowing and
voluntary, and that the consideration given for this release and waiver is in
addition to anything of value to which I was already entitled as an Executive of
the Company. I further acknowledge that I have been advised, as required by the
Older Workers Benefit Protection Act, that: (a) the release and waiver granted
herein does not relate to claims which may arise after this release and waiver
is executed; (b) I have the right to consult with an attorney prior to executing
this release and waiver (although I may choose voluntarily not to do so); and if
I am over 40 years old upon execution of this (c) I have twenty-one (21) days
from the date of termination of my employment with the Company in which to
consider this release and waiver (although I may choose voluntarily to execute
this release and waiver earlier); (d) I have seven (7) days following the
execution of this release and waiver to revoke my consent to this release and
waiver; and (e) this release and waiver shall not be effective until the seven
(7) day revocation period has expired.
Date: /s/ John B. Carrington
---------------------- ------------------------------
JOHN B. CARRINGTON
<PAGE> 15
EXHIBIT B
NETPARTNERS, INC.
EMPLOYEE PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT
In consideration of my employment or continued employment by
NETPARTNERS, INC. (the "COMPANY"), and the compensation now and hereafter paid
to me, I, JOHN B. CARRINGTON, hereby agree as follows:
1. NONDISCLOSURE
1.1 RECOGNITION OF COMPANY'S RIGHTS; NONDISCLOSURE. At all times during
my employment and thereafter, I will hold in strictest confidence and will not
disclose, use, lecture upon or publish any of the Company's Proprietary
Information (defined below), except as such disclosure, use or publication may
be required in connection with my work for the Company, or unless an officer of
the Company expressly authority such in writing. I will obtain Company's written
approval before publishing or submitting for publication any material (written,
verbal, or otherwise) that relates to my work at Company and/or incorporates any
Proprietary Information. I hereby assign to the Company any rights I may have or
acquire in such Proprietary information and recognize that all Proprietary
Information shall be the sole property of the Company and its assigns.
1.2 PROPRIETARY INFORMATION. The term "PROPRIETARY INFORMATION" shall
mean any and all confidential and/or proprietary knowledge, data or information
of the Company. By way of illustration but not limitation, "PROPRIETARY
INFORMATION" includes (a) trade secrets, inventions, mask works, ideas,
processes, formulas, source and object codes, data, programs, other works of
authorship, know-how, improvements, discoveries developments, designs and
techniques (hereinafter collectively referred to as "INVENTIONS"); and (b)
information regarding plans for research, development, new products, marketing
and selling, business plans, budgets and unpublished financial statements,
licenses, prices and costs, suppliers and customers; and (c) information
regarding the skills and compensation of other employees of the Company.
Notwithstanding the foregoing, it is understood that, at all such times, I am
free to use information which is generally known in the trade or industry, which
is not gained as result of a breach of this Agreement, and my own, skill,
knowledge, know-how and experience to whatever extent and in whichever way I
wish.
1.3 THIRD PARTY INFORMATION. I understand, in addition, that the Company
has received and in the future will receive from third parties confidential or
proprietary information ("THIRD PARTY INFORMATION") subject to a duty on the
Company's part to maintain the confidentiality of such information and to use it
only for certain limited purposes. During the term of my employment and
thereafter, I will hold Third Party Information in the strictest confidence and
will not disclose to anyone (other than Company personnel who need to know such
information in connection with their work for the Company) or use, except in
connection with my work for the Company, Third Party Information unless
expressly authorized by an officer of the Company in writing.
1.4 NO IMPROPER USE OF INFORMATION OF PRIOR EMPLOYERS AND OTHERS. During
my employment by the Company I will not improperly use or disclose any
confidential information or trade secrets, if any, of any former employer or any
other person to whom I have an obligation of confidentiality, and I will not
bring onto the promises of the Company any unpublished documents or any property
belonging to any former employer or any other person to whom I have an
obligation of confidentiality unless consented to in writing by that former
employer or person. I will use in the performance of my duties only information
which is generally known and used by persons with training and experience
comparable to my own, which is common knowledge in the industry or otherwise
legally in the public domain, or which is otherwise provided or developed by the
Company.
2. ASSIGNMENT OF INVENTIONS
2.1 PROPRIETARY RIGHTS. The term "PROPRIETARY RIGHTS" shall mean all
trade secret, patent, copyright, mask work and other intellectual property
rights throughout the world.
2.2 PRIOR INVENTIONS. Inventions, if any, patented or unpatented, which
I made prior to the commencement of my employment with the
2.
<PAGE> 16
Company are excluded from the scope of this Agreement. To preclude any possible
uncertainty, I have set forth on Exhibit B (Previous Inventions) attached hereto
a complete list of all Inventions that I have, alone or jointly with others,
conceived, developed or reduced to practice or caused to be conceived, developed
or reduced to practice prior to the commencement of my employment with the
Company, that I consider to be my property or the property of third parties and
that I wish to have excluded from the scope of this Agreement (collectively
referred to as "PRIOR INVENTIONS"). If disclosure of any such Prior Invention
would cause me to violate any prior confidentiality agreement, I understand that
I am not to list such Prior Inventions in Exhibit B but am only to disclose a
cursory name for each such invention, a listing of the party(ies) to whom it
belongs and the fact that full disclosure as to such inventions has not been
made for that reason. A space is provided on Exhibit B for such purpose. If no
such disclosure is attached, I represent that there are no Prior Inventions. If,
in the course of my employment with the Company, I incorporate a Prior Invention
into a Company product, process or machine, the Company is hereby granted and
shall have a nonexclusive, royalty-free, irrevocable, perpetual, worldwide
license (with rights to sublicense through multiple tiers of sublicensees) to
make, have made, modify, use and sell such Prior Invention. Notwithstanding the
foregoing, I agree that I will not incorporate, or permit to be incorporated,
Prior Inventions in any Company Inventions without the Company's prior written
consent.
2.3 ASSIGNMENT OF INVENTIONS. Subject to Sections 2.4, and 2.6, I hereby
assign and agree to assign in the future (when any such Inventions or
Proprietary Rights are first reduced to practice or first fixed in a tangible
medium, as applicable) to the Company all my right, title and interest in and to
any and all Inventions (and all Proprietary Rights with respect thereto) whether
or not patentable or registrable under copyright or similar statutes, made or
conceived or reduced to practice or learned by me, either alone or jointly with
others, during the period of my employment with the Company. Inventions assigned
to the Company, or to a third party as directed by the Company pursuant to this
Section 2, are hereinafter referred to as "COMPANY INVENTIONS."
2.4 NONASSIGNABLE INVENTIONS. This Agreement does not apply to an
Invention which qualifies fully as a nonassignable Invention under Section 2870
of the California Labor Code (hereinafter "SECTION 2870"). I have reviewed the
Notification on Exhibit A (Limited Exclusion Notification) and agree that my
signature acknowledges receipt of the notification.
2.5 OBLIGATION TO KEEP COMPANY INFORMED. During the period of my
employment I will promptly disclose to the Company fully and in writing all
Inventions authored, conceived or reduced to practice by me, either alone or
jointly with others. In addition, I will promptly disclose to the Company all
patent applications filed by me or on my behalf within six (6) months after
termination of employment. At the time of each such disclosure, I will advise
the Company in writing of any Inventions that I believe fully qualify for
protection under Section 2870; and I will at that time provide to the Company in
writing all evidence necessary to substantiate that belief. The Company will
keep in confidence and will not use for any purpose or disclose to third parties
without my consent any confidential information disclosed in writing to the
Company pursuant to this Agreement relating to Inventions that qualify fully for
protection under the provisions of Section 2870. I will preserve the
confidentiality of any Invention that does not fully qualify for protection
under Section 2870.
2.6 GOVERNMENT OR THIRD PARTY. I also agree to assign all my right,
title and interest in and to any particular Company Invention to a third party,
including without limitation the United States, as directed by the Company.
2.7 WORKS FOR HIRE. I acknowledge that all original works of authorship
which am made by me (solely or jointly with others) within the scope of my
employment and which are protectable by copyright are "works made for hire,"
pursuant to United States Copyright Act (17 U.S.C., Section 101).
2.8 ENFORCEMENT OF PROPRIETARY RIGHTS. I will assist the Company in
every proper way to obtain, and from time to time enforce, United States and
foreign Proprietary Rights relating to Company Inventions in any and all
countries. To that end I will execute, verify and deliver such documents and
perform such other acts (including appearances as a witness) as the Company may
reasonably request for use in applying for, obtaining, perfecting, evidencing,
sustaining and enforcing such Proprietary Rights and the assignment thereof. In
addition, I will execute, verify and deliver assignments of such Proprietary
Rights to the Company or its designee.
3.
<PAGE> 17
My obligation to assist the Company with respect to Proprietary Rights relating
to such Company Inventions in any and all countries shall continue beyond the
termination of my employment, but the Company shall compensate me at a
reasonable rate after my termination for the time actually spent by me at the
Company's request on such assistance.
In the event the Company is unable for any reason, after reasonable effort, to
secure my signature on any document needed in connection with the actions
specified in this Section 2.8, I hereby irrevocably designate and appoint the
Company and its duly authorized officers and agents as my agent and attorney in
fact, which appointment is coupled with an interest, to act for and in my behalf
to execute, verify and file any such documents and to do all other lawfully
permitted acts to further the purposes of the preceding paragraph with the same
legal force and effect as if executed by me. I hereby waive and quitclaim to the
Company any and all claims, of any nature whatsoever, which I now or may
hereafter have for infringement of any Proprietary Rights assigned hereunder to
the Company.
3. RECORDS. I agree to keep and maintain adequate and current records (in the
form of notes, sketches, drawings and in any other form that may be required by
the Company) of all Proprietary information developed by me and all Inventions
made by me during the period of my employment at the Company, which records
shall be available to and remain the sole property of the Company at all times.
4. ADDITIONAL ACTIVITIES. I agree that during the period of my employment by the
Company I will not without the Company's express written consent, engage in any
employment or business activity which is competitive with, or would otherwise
conflict with, my employment by the Company. I agree further that for the period
of my employment by the Company and for six (6) months after the date of
termination of my employment by the Company I will not induce any employee of
the Company to leave the employ of the Company.
5. NO CONFLICTING OBLIGATION. I represent that my performance of all the terms
of this Agreement and as an employee of the Company does not and will not breech
any agreement to keep in confidence information acquired by me in confidence or
in trust prior to my employment by the Company. I have not entered into, and I
agree I will not enter into, any agreement either written or oral in conflict
herewith.
6. RETURN OF COMPANY DOCUMENTS. When I leave the employ of the Company, I will
deliver to the Company any and all drawings, notes, memoranda, specifications,
devices, formulas, and documents, together with all copies thereof, and any
other material containing or disclosing any Company Inventions, Third Party
Information or Proprietary Information of the Company. I further agree that any
property situated on the Company's premises and owned by the Company, including
disks and other storage media, filing cabinets or other work areas, is subject
to inspection by Company personnel at any time with or without notice. Prior to
leaving, I will cooperate with the Company in completing and signing a mutually
agreed termination statement.
7. LEGAL AND EQUITABLE REMEDIES. Because my services are personal and unique and
because I may have access to and become acquainted with the Proprietary
Information of the Company, the Company shall have the right to enforce this
Agreement and any of its provisions by injunction, specific performance or other
equitable relief, without bond and without prejudice to any other rights and
remedies that the Company may have for a breach of this Agreement
8. NOTICES. Any notices required or permitted hereunder shall be given to the
appropriate party at the address specified below or at such other address as the
party shall specify in writing. Such notice shall be deemed given upon personal
delivery to the appropriate address or if sent by certified or registered mail,
three (3) days after the date of mailing.
9. NOTIFICATION OF NEW EMPLOYER. In the event that I leave the employ of the
Company, I hereby consent to the notification of my new employer of my rights
and obligations under this Agreement.
10. GENERAL PROVISIONS
10.1 GOVERNING LAW; CONSENT TO PERSONAL JURISDICTION. This Agreement
will be governed by and construed according to the laws of the State of
California, as such laws are applied to agreements entered into and to be
performed entirely within California between California residents. I hereby
expressly consent to the personal jurisdiction of the state and federal courts
located in San Diego County, California for any lawsuit filed there against me
by Company arising from or related to this Agreement
4.
<PAGE> 18
10.2 SEVERABILITY. In case any one or more of the provisions contained
in this Agreement shall, for any reason, be held to be invalid, illegal or
unenforceable in any respect such invalidity, illegality or unenforceability
shall not affect the other provisions of this Agreement, and this Agreement
shall be construed as if such invalid, illegal or unenforceable provision had
never been contained herein.
10.3 SUCCESSORS AND ASSIGNS. This Agreement will be binding upon my
heirs, executors, administrators and other legal representatives and will be for
the benefit of the Company, its successors, and its assigns.
10.4 SURVIVAL. The provisions of this Agreement shall survive the
termination of my employment and the assignment of this Agreement by the Company
to any successor in interest or other assignee.
10.5 EMPLOYMENT. I agree and understand that nothing in this Agreement
shall confer any right with respect to continuation of employment by the
Company, nor shall it interfere in any way with my right or the Company's right
to terminate my employment at any time, with or without cause.
10.6 WAIVER. No waiver by the Company of any breach of this Agreement
shall be a waiver of any preceding or succeeding breach. No waiver by the
Company of any right under this Agreement shall be construed as a waiver of any
other right. The Company shall not be required to give notice to enforce strict
adherence to all terms of this Agreement.
10.7 ENTIRE AGREEMENT. The obligations pursuant to Sections 1 and 2 of
this Agreement shall apply to any time during which I was previously employed,
or am in the future employed, by the Company as a consultant if no other
agreement governs nondisclosure and assignment of inventions during such period.
Except for my Employment Agreement dated May 10th, 1999, this Agreement is the
final, complete and exclusive agreement of the parties with respect to the
subject matter hereof. In the event of any conflict between the terms of this
Agreement and my Employment Agreement, my Employment Agreement shall prevail. No
modification of or amendment to this Agreement, nor any waiver of any rights
under this Agreement, will be effective unless in writing and signed by the
party to be charged.
This Agreement shall be effective as of the first day of my employment
with the Company, namely: May 10, 1999.
I HAVE READ THIS AGREEMENT CAREFULLY AND UNDERSTAND ITS TERMS. I HAVE COMPLETELY
FILLED OUT EXHIBIT B TO THIS AGREEMENT.
Dated: 5-7-99
----------------------------
/s/ John B. Carrington
- ----------------------------------
(SIGNATURE)
JOHN B. CARRINGTON
- ----------------------------------
(PRINTED NAME)
ACCEPTED AND AGREED TO:
NETPARTNERS, INC.
By: /s/ Bruce Coleman
------------------------------
Title: CEO
----------------------------
- ----------------------------------
(Address)
- ----------------------------------
Dated: 5/7/99
---------------------------
5.
<PAGE> 19
EXHIBIT A
LIMITED EXCLUSION NOTIFICATION
THIS IS TO NOTIFY you in accordance with Section 2872 of the California
Labor Code that the foregoing Agreement between you and the Company does not
require you to assign or offer to assign to the Company any invention that you
developed entirely on your own time without using the Company's equipment,
supplies, facilities or trade secret information except for those inventions
that either:
1. Relate at the time of conception or reduction to practice of the
invention to the Company's business, or actual or demonstrably anticipated
research or development of the Company;
2. Result from any work performed by you for the Company.
To the extent a provision in the foregoing Agreement purports to require
you to assign an invention otherwise excluded from the preceding paragraph, the
provision is against the public policy of this state and is unenforceable.
This limited exclusion does not apply to any patent or invention covered
by a contract between the Company and the United States or any of its agencies
requiring full title to such patent or invention to be in the United States.
I ACKNOWLEDGE RECEIPT of a copy of this notification.
By: /s/ John B. Carrington
----------------------------------
JOHN B. CARRINGTON
Date: 5-7-99
--------------------------------
WITNESSED BY:
/s/ Bruce Coleman
- ----------------------------------
(PRINTED NAME OF REPRESENTATIVE)
<PAGE> 20
EXHIBIT B
TO: NETPARTNERS, INC.
FROM: JOHN B. CARRINGTON
DATE: May 7, 1999
SUBJECT: PREVIOUS INVENTIONS
1. Except as listed in Section 2 below, the following is a complete list of all
inventions or improvements relevant to the subject matter of my employment by
NETPARTNERS, INC. (the "COMPANY") that have been made or conceived or first
reduced to practice by me alone or jointly with others prior to my engagement by
the Company:
[X] No inventions or improvements.
[ ] See below:
----------------------------------
----------------------------------
----------------------------------
[ ] Additional sheets attached.
2. Due to a prior confidentiality agreement, I cannot complete the
disclosure under Section 1 above with respect to inventions or improvements
generally listed below, the proprietary rights and duty of confidentiality with
respect to which I owe to the following party(ies):
INVENTION OR IMPROVEMENT PARTY(IES) RELATIONSHIP
------------------------ ---------- ------------
1.
------------------------ ---------- ------------
2.
------------------------ ---------- ------------
3.
------------------------ ---------- ------------
[ ] Additional sheets attached.
<PAGE> 1
EXHIBIT 10.6
[COMPANY LOGO AND LETTERHEAD]
June 11, 1999
Douglas C. Wride
2052 Burnt Mill Road
Tustin, CA 92680
RE: EMPLOYMENT AGREEMENT
Dear Doug:
Pursuant to our discussions, this letter sets forth the terms of your
employment with NetPartners Internet Solutions, Inc. (the "Company") as well as
our understanding with respect to any termination of that employment
relationship.
1. POSITION AND DUTIES: You will be employed by the Company as its Chief
Financial Officer, reporting to the Chief Executive Officer ("CEO") and, as
needed, the Company's Board of Directors (the "Board") and audit committee. You
accept employment with the Company on the terms and conditions set forth in this
Agreement, and you agree to devote your full business time, energy and skill to
your duties at the Company. Your duties shall include, but not be limited to,
any duties that are consistent with your position, as well as any other duties
that may be assigned to you from time to time by the CEO or the Board. Those
duties will include responsibility for the Company's control, treasury,
strategic planning, human resources, legal and MIS functions.
2. TERM OF -EMPLOYMENT: Your employment with the Company will start on
June 11, 1999, will be for no specified term, and may be terminated by you or
the Company at any time, with or without cause, subject to the provisions of
Paragraphs 4 and 5 below.
3. COMPENSATION: You will be compensated by the Company for your
services as follows:
(a) Salary: You will be paid a monthly salary of $12,500.00, less
applicable withholding, in accordance with the Company's normal payroll
procedures. Your salary will be reviewed by the CEO on an annual basis, and may
be subject to adjustment based upon various factors including, but not limited
to, your performance and the Company's profitability. Any adjustment to your
salary shall occur only by the mutual agreement of you and the CEO.
(b) Bonus: You will be eligible to earn an annual bonus of up to 20%
of your annual base salary. The bonus plan will be based upon the Company's
achievement of various financial and/or other goals established in a written
bonus plan that will be communicated to you each year. Your 1999 bonus plan will
be established as soon as possible.
1
<PAGE> 2
(c) Benefits: You will have the right, on the same basis as other
executive employees of the Company, to participate in and to receive benefits
under any Company medical, vision, life, disability or other group insurance
plans, as well as under the Company's 401 (k) and business expense reimbursement
policy. NetPartners pays all but $5.00 per month of your health and dental
premiums for yourself and 50% of the premiums for your dependents.
(d) Vacation: You will accrue three weeks paid vacation each year of
employment and receive ten holidays each year. You shall schedule all of your
vacations at times that are mutually convenient and reasonable for both you and
the Company.
(e) Stock Options. On June 11, 1999 the Board of Directors approved
that you be granted an option to purchase 300,000 shares of the Company's common
stock, with a strike price of $0.75 per share, and which option will vest over a
four year period, except that the first years options (75,000 shares), are
immediately exercisable. You may purchase these 75,000 shares any time during
your first year of employment, provided, however, that the Company shall have
the right to repurchase all unvested shares at the original purchase price of
$0.75 per share. The right of repurchase in favor of the Company shall lapse
monthly (6,250 shares per month) so that on June 11, 2000 the right of
repurchase in favor of the Company shall have lapsed in full. In addition, from
June 11, 1999 your options will be treated as if you had achieved the one-year
employment requirement making you eligible for any acceleration of options due
to Change of Control. Except as noted here, your option will be governed by the
terms and conditions of the Company's stock option plan.
4. VOLUNTARY TERMINATION: In the event that you voluntarily resign from
your employment with the Company, or in the event that your employment
terminates as a result of your death or disability (meaning that you are unable
to perform your duties for any 90 days in any one year period as a result of a
physical and/or mental impairment), you will be entitled to no compensation or
benefits from the Company other than those earned under Paragraph 3 through the
date of your termination. In particular, you will not be entitled to any pro
rated portion of the bonus that you would have earned under subparagraph 3(b)
had you been employed for the entire year in which your termination occurs. You
agree that in the event you resign from your employment with the Company for any
reason, you will provide the Company with one month's written notice of your
resignation. The Company may, in its sole discretion, elect to waive all or any
part of such notice period and accept your resignation at an earlier date so
long as it pays you any compensation and benefits that you would have earned
through the end of such notice period.
5. OTHER TERMINATION: Your employment may be terminated by the Company
under the circumstances set forth below.
(a) Termination for Cause. If your employment is terminated by the
Company for cause as defined below, you shall be entitled to no compensation or
benefits from the Company other than those earned under Paragraph 3 through the
date of your termination. In particular, you will not be entitled to any pro
rated portion of the bonus that you would have earned under subparagraph 3(b)
had you been employed for the entire year in which your termination occurs.
For purposes of this Agreement, a termination "for cause" occurs if you
are terminated for any of the following reasons: (i) theft dishonesty,
misconduct or falsification of any employment or Company
2
<PAGE> 3
records; (ii) improper disclosure of the Company's confidential or proprietary
information; (iii) any action by you which has a material detrimental effect on
the Company's reputation or business; (iv) your failure or inability to perform
any assigned duties reasonably expected of a chief financial officer after
written notice from the Company to you of, and a reasonable opportunity to cure,
such failure or inability; (v) any material breach of this Agreement by you,
which breach is not cured within 10 days following written notice to you of such
breach; or (vi) your conviction (including any plea of guilty or nolo contendre)
for any criminal act that impairs your ability to perform your duties under this
Agreement.
(b) Termination Without Cause: If your employment is terminated by
the Company without cause (and not as a result of your death or disability), you
shall receive severance payments at your final base salary rate, less applicable
withholding, for a period of six months. Severance payments will be made in
accordance with the Company's normal payroll procedures. The Company will also
accelerate the vesting of any unvested stock options previously granted to you
that would have vested during the six-month period following the termination of
your employment. You will also be entitled to receive any compensation and
benefits that you earn under Paragraph 3 through the date of your termination
without cause. You will not be entitled to any pro rated portion of the bonus
that you would have earned under subparagraph 3(b) had you been employed for the
entire year in which your termination occurs. Your right to receive the
severance pay and other benefits described in this subparagraph is conditioned
upon your execution and delivery to the Company of a general release of claims,
in form reasonably satisfactory to the Company and you, that does not impair
your right to receive any compensation or benefits that you have earned under
this Agreement.
(c) Termination Without Cause Following Change in Control: If your
employment is terminated by the Company without cause and within one year
following any Change in Control (as defined below), you shall receive severance
payments at your final base salary rate, less applicable withholding, for a
period of 12 months. Severance payments will be made on your final day of
employment. The Company will also accelerate the vesting of any unvested stock
options previously granted to you as outlined in the Company option plan. You
will also be entitled to receive any compensation and benefits that you earn
under Paragraph 3 through the date of your termination without cause. You will
not be entitled to any pro rated portion of the bonus that you would have earned
under subparagraph 3(b) had you been employed for the entire year in which your
termination occurs. Your right to receive the severance pay and other benefits
described in this subparagraph is conditioned upon your execution and delivery
to the Company of a general release of claims, in form reasonably satisfactory
to the Company and you, that does not impair your right to receive any
compensation or benefits that you have earned under this Agreement. If your
employment is terminated by the Company without cause either within four months
prior to, or more than one year after, any Change in Control, you shall receive
only the compensation and benefits described in subparagraph 5(b).
For purposes of this Agreement, a "Change in Control" of the Company
shall be deemed to have occurred if:
(i) any "person" (as such term is used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")),
other than a trustee or other fiduciary holding securities of the Company under
an employee benefit plan of the Company, becomes the "beneficial owner" (as
defined in Rule 13d-3 promulgated under the Exchange Act), directly or
3
<PAGE> 4
indirectly, of securities of the Company representing 50% or more of (A) the
outstanding shares of common stock of the Company or (B) the combined voting
power of the Company's then-outstanding securities entitled to vote generally in
the election of directors; or
(ii) the Company (A) is party to a merger or consolidation which
results in the holders of voting securities of the Company outstanding
immediately prior thereto failing to continue to represent (either by remaining
outstanding or by being converted into voting securities of the surviving
entity) at least 50% of the combined voting power of the voting securities of
the Company or such surviving entity outstanding immediately after such merger
or consolidation, or (B) sells or disposes of all or substantially all of the
Company's assets (or any transaction having similar effect is consummated), or
(C) the individuals constituting the Board immediately prior to such merger,
consolidation, sale or disposition shall cease to constitute at least 50% of the
Board, unless the election of each director who was not a director prior to such
merger, consolidation, sale or disposition was approved by a vote of at least
two-thirds of the directors then in office who were directors prior to such
merger, consolidation, sale or disposition.
6. CONFIDENTIAL AND PROPRIETARY INFORMATION: As a condition of your
employment, you agree to sign the Company's standard form of employee
proprietary information and assignment of inventions agreement.
7. DISPUTE RESOLUTION: In the event of any dispute or claim relating to
or arising out of your employment relationship with the Company, this Agreement,
or the termination of your employment with the Company for any reason
(including, but not limited to, any claims of breach of contract, wrongful
termination or age, disability or other discrimination), you and the Company
agree that all such disputes shall be fully, finally and exclusively resolved by
binding arbitration conducted by the American Arbitration Association ("AAA") in
Orange County, California, pursuant to the AAA's National Rules for the
Resolution of Employment Disputes. You and the Company hereby knowingly and
willingly waive your respective rights to have any such disputes or claims tried
to a judge or jury. Provided, however, that this arbitration provision shall not
apply to any disputes or claims relating to or arising out of the actual or
alleged misuse or misappropriation of the Company's property, including, but not
limited to, its trade secrets or proprietary information. In any arbitration (or
other legal proceeding) commenced to enforce any right arising out of this
Agreement, the prevailing party shall be entitled to recover from the losing
party its attorneys' fees and costs incurred in connection with such proceeding.
8. INTERPRETATION: This Agreement shall be interpreted in accordance
with and governed by the laws of the State of California.
9. ASSIGNMENT. In view of the personal nature of the services to be
performed under this Agreement by you, you cannot assign or transfer any of your
obligations under this Agreement.
10. ENTIRE AGREEMENT: This Agreement and the agreements referred to
above constitute the entire agreement between you and the Company regarding the
terms and conditions of your employment, and they supersede all prior
negotiations, representations or agreements between you and the Company
regarding your employment whether written or oral.
11. MODIFICATION: This Agreement may only be modified or amended by a
supplemental written agreement signed by you and the CEO.
4
<PAGE> 5
Doug, we look forward to working with you at NetPartners Internet
Solutions, Inc. Please sign and date this letter on the spaces provided below to
acknowledge your acceptance of the terms of this Agreement.
Sincerely,
NetPartners Internet Solutions, Inc.
By: /s/ John B. Carrington 6/11/99
----------------------------------
John B. Carrington
Chief Executive Officer
I agree to and accept employment with NetPartners Internet Solutions,
Inc. on the terms and conditions set forth in this Agreement
Date: June 11, 1999 /s/ Douglas C. Wride
----------------------------------
Douglas C. Wride
5
<PAGE> 1
EXHIBIT 10.7
LEASE AGREEMENT
(NNN R&D)
BASIC LEASE INFORMATION
<TABLE>
<S> <C>
Lease Date: June 21, 1999
Landlord: Legacy-RECP Sorrento OPCO, LLC,
a Delaware limited liability company
Landlord's Address: c/o Legacy Partners Commercial, Inc.
6480 Weathers Place, Suite 245
San Diego, CA 92121
Tenant: NETPARTNERS INTERNET SOLUTIONS, Inc.,
a Delaware corporation
Tenant's Address: 10240 Sorrento Valley Road, Suite 200
San Diego, CA 92121
Premises: Approximately 41,259 rentable square feet as shown on Exhibit A
Premises Address: 10240 Sorrento Valley road, 1st (Storage Room), 2nd (All) and
3rd (All) Floors,
San Diego, CA 92121
Building [10240]: Approximately 65,217 rentable square feet
Lot (Building's tax parcel): APN 343-130-17
Park [Legacy Creekside]: Approximately 122,172 rentable
square feet
Term: September 1, 1999 ("Commencement Date"), through
August 31, 2002 ("Expiration Date")
Base Rent (P. 3): Fifty-four Thousand Four Hundred Sixty-two Dollars ($54,462.00)
per month
Adjustments to Base Rent: September 1, 2000 to August 31, 2001: $56,640.00 per month
September 1, 2001 to August 31 2002: $58,906.00 per month
Security Deposit (P. 41): Fifty-four thousand Four Hundred Sixty-two Dollars ($54,462.00)
Letter of Credit (P. 4): Two Hundred Seventy-one Thousand Four Hundred Sixty-five Dollars
($271,465.00) as further described in Section 4 of the Lease.
*Tenant's Share of Operating
Expenses (P. 6.1): 63.3% of Building 10240 and 33.8% of the Park
*Tenant's Share of Tax
Expenses (P. 6.2): 33.8% of the Park
*Tenant's Share of Common Area
Utility Costs (P. 7): 33.8% of the Park
*Tenant's Share of Utility
Expenses (P. 7): 63.3% of Building 10240 and 33.8% of the Park
</TABLE>
*The amount of Tenant's Share of the expenses as referenced above shall be
subject to modification as set forth in this Lease.
<TABLE>
<S> <C>
Permitted Uses P. 9: General office, software development and customer support,
but only to the extent permitted by the City of San Diego
and all agencies and governmental authorities having
jurisdiction thereof.
Unreserved One hundred sixty (160) spaces, consisting of one (1) reserved
Parking Spaces: space designated for Tenant's Employee of the Month, and one
hundred fifty-nine (159) non-exclusive and non-designated
spaces.
</TABLE>
1
<PAGE> 2
<TABLE>
<S> <C>
Broker (P. 38): CB Richard Ellis for Tenant Colliers International for Landlord
Exhibits: Exhibit A - Premises, Building, Lot and/or Park
Exhibit B - Tenant Improvements
Exhibit C - Rules and Regulations
Exhibit D - Intentionally Omitted
Exhibit E - Hazardous Materials Disclosure Certificate - Example
Exhibit F - Change of Commencement Date - Example
Exhibit G - Tenant's Initial Hazardous Materials Disclosure Certificate
Exhibit H - Sign Criteria
Addenda: Addendum 1: Option to Extend the Lease
Addendum 2: Right of First Refusal
</TABLE>
2
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C> <C>
1. Premises......................................................................5
2. Adjustment of Commencement Date; Condition of the Premises....................5
3. Rent..........................................................................5
4. Collateral for Performance of Lease Obligations...............................6
5. Tenant Improvements...........................................................7
6. Additional Rent...............................................................7
7. Utilities....................................................................10
8. Late Charges.................................................................11
9. Use of Premises..............................................................12
10. Alterations and Additions; and Surrender of Premises.........................12
11. Repairs and Maintenance......................................................13
12. Insurance....................................................................14
13. Waiver of Subrogation........................................................15
14. Limitation of Liability and Indemnity........................................15
15. Assignment and Subleasing....................................................16
16. Ad Valorem Taxes.............................................................17
17. Subordination................................................................18
18. Right of Entry...............................................................18
19. Estoppel Certificate.........................................................18
20. Tenant's Default.............................................................19
21. Remedies for Tenant's Default................................................19
22. Holding Over.................................................................21
23. Landlord's Default...........................................................21
24. Parking......................................................................21
25. Sale of Premises.............................................................21
26. Waiver.......................................................................21
27. Casualty Damage..............................................................22
28. Condemnation.................................................................22
29. Environmental Matters/Hazardous Materials....................................22
30. Financial Statements.........................................................25
31. General Provisions...........................................................25
32. Signs........................................................................26
33. Mortgage Protection..........................................................27
34. Quitclaim....................................................................27
35. Modifications of Tenant......................................................27
36. Warranties of Tenant.........................................................27
37. Compliance with Americans with Disabilities Act..............................27
38. Brokerage Commission.........................................................28
39. Quiet Enjoyment..............................................................28
40. Landlord's Ability to Perform Tenant's Unperformed Obligations...............28
41. Security Deposit.............................................................28
42. Satellite Dish...............................................................29
43. Attendant on First Floor of Building.........................................30
</TABLE>
3
<PAGE> 4
LEASE AGREEMENT
Date: This Lease is made and entered into as of the Lease Date set forth on
Page 1. The Basic Lease Information set forth on Page 1 and this Lease
are and shall be construed as a single instrument.
1. PREMISES
Landlord hereby leases the Premises to Tenant upon the terms and
conditions contained herein. Landlord hereby grants to Tenant a license for the
right to use, on a non-exclusive basis, parking areas and ancillary facilities
located within the Common Areas of the Park, subject to the terms of this Lease.
Landlord and Tenant hereby agree that for purposes of this Lease, as of the
Lease Date, the rentable square footage area of the Premises, the Building, the
Lot and the Park shall be deemed to be the number of rentable square feet as set
forth in the Basic Lease Information on Page 1. Tenant hereby acknowledges that
the rentable square footage of the Premises may include a proportionate share of
certain areas used in common by all occupants of the Building and/or the Park
(for example an electrical room or telephone room). Tenant further agrees that
the number of rentable square feet of the Building, the Lot and the Park may
subsequently change after the Lease Date commensurate with any physical
modifications to any of the foregoing by Landlord resulting from condemnation,
casualty, or rehabilitation of the Building, the Lot, or the Park, and Tenant's
Share shall accordingly change.
2. ADJUSTMENT OF COMMENCEMENT DATE; CONDITION OF THE PREMISES
2.1 If Landlord cannot deliver possession of the Premises on the
Commencement Date, Landlord shall not be subject to any liability nor shall the
validity of the Lease be affected; provided, the Lease Term and the obligation
to pay Rent shall commence on the date possession is tendered and the Expiration
Date and the dates for the adjustments to Base Rent shall be extended
commensurately. In the event the commencement date and/or the expiration date of
this Lease is other than the Commencement Date and/or Expiration Date specified
in the Base Lease Information, as the case may be, Landlord and Tenant shall
execute a written amendment to this Lease, substantially in the form of Exhibit
F hereto, wherein the parties shall specify the actual commencement date,
expiration date, the date on which Tenant is to commence paying Rent, and the
dates for the adjustments to Base Rent. The work "Term" whenever used herein
refers to the initial term of this Lease and any extension thereof. By taking
possession of the Premises, Tenant shall be deemed to have accepted the Premises
in good condition and state of repair; however Landlord shall deliver the
Premises with the existing building operating systems including electrical,
mechanical and plumbing systems in good working condition as of the Commencement
Date of the Lease and Tenant shall have a review period of thirty (30) days to
confirm such condition. Tenant hereby acknowledges and agrees that neither
Landlord nor Landlord's agents or representatives has made any representations
or warranties as to the suitability, safety or fitness of the Premises for the
conduct of Tenant's business, Tenant's intended use of the Premises or for any
other purpose.
2.2 Landlord shall permit Tenant to access the Premises for the sole
purposes of installing telephone and computer wiring and systems, and installing
cubicles on August 1, 1999 (prior to the Commencement Date) and such access
shall be at Tenant's sole risk and subject to all provisions of this Lease,
including, but not limited to, the requirement to pay the Security Deposit and
deliver to Landlord the Letter of Credit, and to obtain the insurance required
pursuant to this Lease and to delivery insurance certificates as required
herein. In addition to the foregoing, Landlord shall have the right to impose
such additional reasonable conditions on Tenant's early entry as Landlord shall
deem appropriate. Tenant shall not be reasonable for paying Base Rent or
Tenant's Share of Operating Expenses, Tax Expenses, Common Area Utility Costs,
or Utility Expenses during such early access period. However, if, at any time,
Tenant is in default of any term, condition or provision of this Lease, any such
waiver by Landlord of Tenant's requirement to pay rental payments shall be null
and void and Tenant shall immediately pay to Landlord all rental payments so
waived by Landlord.
3. RENT
On the date that Tenant executes this Lease, Tenant shall deliver to
Landlord the original executed Lease, the Base Rent (which shall be applied
against the Rent payable for the first month Tenant is required to pay Base
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<PAGE> 5
Rent), the Security Deposit, and all insurance certificates evidencing the
insurance required to be obtained by Tenant under Section 12 of this Lease.
Tenant agrees to pay Landlord, without prior notice or demand, or abatement,
offset, deduction or claim, the Base Rent specified in the Basic Lease
Information, payable in advance at Landlord's address specified in the Basic
Lease Information on the Commencement Date and thereafter on the first (1st) day
of each month throughout the balance of the Term of the Lease. In addition to
the Base Rent set forth in the Basic Lease Information, Tenant shall pay
Landlord in advance on the Commencement Date and thereafter on the first (1st)
day of each month throughout the balance of the Term of this Lease, as
Additional Rent, Tenant's Share of Operating Expenses, Tax Expenses, Common Area
Utility Costs, and Utility Expenses. Tenant shall also pay to Landlord as
Additional Rent hereunder, within ten (10) days after receipt of Landlord's
written demand therefor, any and all costs and expenses incurred by Landlord to
enforce the provisions of this Lease, including, but not limited to, costs
associated with the delivery of notices, delivery and recordation of notice(s)
of default, attorneys' fees, expert fees, court costs and filing fees
(collectively, the "Enforcement Expenses"). The term "Rent" whenever used herein
refers to the aggregate of all these amounts. If Landlord permits Tenant to
occupy the Premises without requiring Tenant to pay rental payments for a period
of time, the waiver of the requirement to pay rental payments shall only apply
to waiver of the Base Rent and Tenant shall otherwise perform all other
obligations of Tenant required hereunder, except Tenant shall not be responsible
for paying Tenant's Share of Operating Expenses, Tax Expenses, Common Area
Utility Costs, or Utility Expenses during the early access period described in
Section 2.2 above. The Rent for any fractional part of a calendar month at the
commencement or termination of the Lease term shall be a prorated amount of the
Rent for a full calendar month based upon a thirty (30) day month. The prorated
Rent shall be paid on the Commencement Date and the first day of the calendar
month in which the date of termination occurs, as the case may be.
4. COLLATERAL FOR PERFORMANCE OF LEASE OBLIGATIONS
Prior to Tenant's early access under Section 2.2, Tenant shall deliver
to Landlord, as collateral for the full and faithful performance by Tenant of
all of its obligations under this Lease and for all losses and damages Landlord
may suffer as a result of any default by Tenant under this Lease, an irrevocable
and unconditional negotiable letter of credit, in the form and containing the
terms required herein, payable in the City of San Diego, California running in
favor of Landlord issued by a solvent bank under the supervision of the
Superintendent of Banks of the State of California, or a National Banking
Association, in the original amount of Two Hundred Seventy-one Thousand Four
Hundred Sixty-five Dollars ($271,465,000) (the "Letter of Credit"). The Letter
of Credit shall be (a) at sight and irrevocable, (b) except as set forth in this
Section 4, maintained in effect, whether through replacement, renewal or
extension, for the entire Lease Term (the "Letter of Credit Expiration Date")
and Tenant shall delivery a new Letter of Credit or certificate of renewal or
extension to Landlord at least thirty (30) days prior to the expiration of the
Letter of Credit, without any action whatsoever on the part of Landlord, (c)
subject to the Uniform Customs and Practices for Documentary Credits (1993-Rev)
International Chamber of Commence Publication #500, (d) acceptable to Landlord
in its sole discretion, (e) fully assignable by Landlord by amendment thereto in
accordance with customary letter of credit practice, and (f) permit partial
draws. In addition to the foregoing, the form and terms of the Letter of Credit
(and the bank issuing the same) shall be acceptable to Landlord, in Landlord's
reasonable discretion, and shall provide, among other things, in effect that:
(1) Landlord, or its then managing agent, shall have the right to draw down an
amount up to the face amount of the Letter of Credit upon the presentation to
the issuing bank of Landlord's (or Landlord's then managing agent's) statement
that such (A) amount is due to Landlord under the terms and conditions of this
Lease, it being understood that if Landlord or its managing agent by a
corporation, partnership or other entity, then such statement shall be signed by
an officer (if a corporation), a general partner (if a partnership), or any
authorized party (if another entity), and (B) an event of default has occurred
under this Lease and all applicable notice and care periods have elapsed; (2)
the Letter of Credit will be honored by the issuing bank without inquiry as to
the accuracy thereof and regardless of whether the Tenant disputes the content
of such statement; and (3) in the event of a transfer of Landlord's interest in
the Building, Landlord shall transfer the Letter of Credit, in whole or in part
(or cause a substitute letter of credit to be delivered, as applicable), to the
transferee and thereupon the Landlord shall, without any further agreement
between the parties, be released by Tenant from all liability therefor, and it
is agreed that the provisions hereof shall apply to every transfer or assignment
of the whole or any portion of said Letter of Credit to a new Landlord. If, as a
result of any such application of all or any part of the Letter of Credit, the
amount of the Letter of Credit shall be less than Two Hundred Seventy-one
Thousand Four Hundred Sixty-five Dollars ($271,465.00), Tenant shall within five
(5) days thereafter provide Landlord with additional letter(s) of credit in an
amount equal to the deficiency (or a replacement letter of credit in the total
amount of Two Hundred Seventy-one Thousand Four Hundred Sixty-five Dollars
5
<PAGE> 6
($271,465.00) and each such additional (or replacement) letter of credit shall
comply with all of the provisions of this Section 4, and if Tenant fails to do
so, the same shall constitute an incurable default by Tenant. Tenant further
covenants and warrants that it will neither assign nor encumber the Letter of
Credit or any part thereof and that neither Landlord nor its successors or
assigns will be bound by any such assignment, encumbrance, attempted assignment
or attempted encumbrance. Without limiting the generality of the foregoing, if
the Letter of Credit expires earlier than the Letter of Credit Expiration Date,
Landlord will accept a renewal thereof or substitute letter of credit (such
renewal or substitute letter of credit to be in effect not later than twenty
(20) days prior to the expiration thereof), which shall be irrevocable and
automatically renewable as above provided through the Letter of Credit
Expiration Date upon the same terms as the expiring letter of credit or such
other terms as may be acceptable to Landlord in its reasonable discretion.
However, if the Letter of Credit is not timely renewed or a substitute letter of
credit is not timely received, or if Tenant fails to maintain the Letter of
Credit in the amount and terms set forth in this Section 4, Landlord shall have
the right to present such Letter of Credit to the bank in accordance with terms
of this Section 4, and the entire sum evidenced thereby shall be paid to and
held by Landlord as collateral for performance of all Tenant's obligations under
this Lease and for all losses and damages Landlord may suffer as a result of any
default by Tenant under this Lease. If there shall occur a default under this
Lease as set forth in Section 20 of this Lease, Landlord may, but without
obligation to do so, draw upon the Letter of Credit, in part or in whole, to
cure any default of Tenant and/or to compensate Landlord for any all damages of
any kind or nature sustained or which may be sustained by Landlord resulting
from Tenant's default. Tenant agrees not to interfere in any way with payment to
Landlord of the proceeds of the Letter of Credit, either prior to or following a
"draw" by Landlord of any portion of the Letter of Credit, regardless of whether
any dispute exists between Tenant and Landlord as to Landlord's right to draw
from the Letter of Credit. No condition or term of this Lease shall be deemed to
render the Letter of Credit conditional to justify the issuer of the Letter of
Credit in failing to honor a drawing upon such Letter of Credit in a timely
manner. Landlord and Tenant acknowledge and agree that in no event or
circumstance shall the Letter of Credit or any renewal thereof or substitute
therefor be (i) deemed to be or treated as a "security deposit" within the
meaning of California Civil Code Section 1950.7, (ii) subject to the terms of
such Section 1950.7, or (iii) intended to serve as a "security deposit" within
the meaning of such Section 1950.7. The parties hereto (x) recite that the
Letter of Credit is not intended to serve as a security deposit and such Section
1950.7 and any and all other laws, rules and regulations applicable to security
deposits in the commercial context ("Security Deposit Laws") shall have no
applicability or relevancy to the Letter of Credit and (y) waive any and all
rights, duties and obligations either party may now or, in the future, will have
relating to or arising from the expiration of each six (6) month period
thereafter, provided Tenant is not then in default under this Lease, Tenant
shall have the right to reduce the amount of the Letter of Credit by an amount
equal to Fifty-Four Thousand Two Hundred Ninety-Three Dollars ($54,293.00), if
and when Tenant provides to Landlord financial statements in the form required
by Section 30 of this Lease which demonstrate, over the previous three (3)
calendar quarters, that the quotient of the following, on a percentage basis,
equals or exceeds eight percent (8%): Tenant's EBITDA (Earnings Before Interest,
Taxes and Depreciation), divided by Tenant's gross revenues.
5. TENANT IMPROVEMENTS
Tenant hereby accepts the Premises as suitable for Tenant's intended use
and as being in good operating order, condition and repair, "AS IS", except as
specified in Exhibit B attached hereto. Landlord or Tenant, as the case may be,
shall install and construct the Tenant Improvements (as such term is defined in
Exhibit B hereto) in accordance with the terms, conditions, criteria and
provisions set forth in Exhibit B. Landlord and Tenant hereby agree to and shall
be bound by the terms, conditions and provisions of Exhibit B. Tenant
acknowledges and agrees that neither Landlord nor any of Landlord's agents,
representatives or employees has may any representations as to the suitability,
fitness or condition of the Premises for the conduct of Tenant's business or for
any other purpose, including without limitation, any storage incidental thereto.
Any exception to the foregoing provisions must be made by express written
agreement by both parties.
6. ADDITIONAL RENT
It is intended by Landlord and Tenant that this Lease be a "triple net
lease." The costs and expenses described in this Section 6 and all other sums,
charges, costs and expenses specified in this Lease other than Base Rent are to
be paid by Tenant to Landlord as additional rent (collectively, "Additional
Rent").
6
<PAGE> 7
6.1 OPERATING EXPENSES: In addition to the Base Rent set forth in
Section 3, Tenant shall pay Tenant's Share, which is specified in the Base Lease
Information, of all Operating Expenses as Additional Rent. The term "Operating
Expenses" as used herein shall mean the total amounts paid or payable by
Landlord in connection with the ownership, maintenance, repair and operation of
the Premises, the Building and the Lot, and where applicable, of the Park
referred to in the Basic Lease Information. The amount of Tenant's Share of
Operating Expenses shall be reviewed from time to time by Landlord and shall be
subject to modification by Landlord if there is a change in the rentable square
footage of the Premises, the Building and/or the Park. These Operating Expenses
may include, but are not limited to:
6.1.1 Landlord's cost of repairs to, and maintenance of, the roof,
the roof membrane and the exterior walls of the Building;
6.1.2 Landlord's cost of maintaining the outside paved area,
landscaping and other common areas for the Park. The term "Common Area" shall
mean all areas and facilities within the Park exclusive of the Promises and the
other portions of the Park leasable exclusively to other tenants. The Common
Areas include, but are not limited to, interior lobbies, mezzanines, parking
areas, access and perimeter roads, sidewalks, landscaped areas and similar areas
and facilities;
6.1.3 Landlord's annual cost of insurance insuring against fire and
extended coverage (including, if Landlord elects, "all risk" or "special
purpose" coverage) and all other insurance, including, but not limited to,
earthquake, flood and/or surface water endorsements for the Building, the Lot
and the Park (including the Common Areas), rental value insurance against loss
of Rent in an amount equal to the amount of Rent for a period of at least six
(6) months commencing on the date of loss, and subject to the provisions of
Section 27 below, any deductible;
6.1.4 Landlord's cost of: (i) modifications and/or new improvements
to the Building, the Common Areas and/or the Park occasioned by any rules, laws
or regulations effective subsequent to the date on which the Building was
originally constructed, but excluding Landlord's cost of modifications and/or
new improvements to the Building, the Common Areas and/or the Park required by
the Americans with Disabilities Act as in effect as of the date of the Lease;
(ii) reasonable necessary replacement improvements to the Building, the Common
Areas and the Park after the Commencement Date; and (iii) new improvements to
the Building, the Common Areas and/or the Park that reduce operating costs or
improve life/safety conditions, all as reasonably determined by Landlord, in its
sole discretion; provided, however, if any of the foregoing are in the nature of
capital improvements, then the cost of such capital improvements shall be
amortized on a straight-line basis over a reasonable period, which shall not be
less than the lesser of fifteen (15) years or the reasonable estimated useful
life of such modifications, new improvements or replacement improvements in
question (at an interest rate as reasonable determined by Landlord), and Tenant
shall pay Tenant's Share of the monthly amortized portion of such costs
(including interest charges) as part of the Operating Expenses herein;
6.1.5 If Landlord reasonably elects to so procure, Landlord's cost
of preventative maintenance, and repair contracts including, but not limited to,
contracts for elevator systems and heating, ventilation and air conditioning
systems, lifts for disabled persons as required by law, and trash or refuse
collection;
6.1.6 Landlord's cost of security and fire protection services for
the Building and/or the Park, as the case may be, if in Landlord's sole
discretion such services are provided;
6.1.7 Intentionally Omitted;
6.1.8 Intentionally Omitted;
6.1.9 Landlord's cost of supplies, equipment, rental equipment and
other similar items used in the operation and/or maintenance of the Park;
6.1.10 Landlord's cost for the repairs and maintenance items set
forth in Section 11.2 below;
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6.1.11 Landlord's cost for the management and administration of the
Premises, the Building and/or Park or any part thereof, including, without
limitation, a property management fee, accounting, auditing, billing, postage,
salaries and benefits for clerical and supervisory employees, whether located on
the Park or off-site, payroll taxes and legal and accounting costs and all fees,
licenses and permits related to the ownership, operation and management of the
Park. Landlord covenants that said costs shall be allocated uniformly throughout
the Park, and shall not be in excess of those costs charged by unaffiliated
third-party management companies in the San Diego area;
6.1.12 In the event Landlord elects, at Landlord's sole discretion,
to employ (or contract with a vendor for) a concierge for the Building (which
concierge shall perform such services for the Building as Landlord shall
reasonably request of such concierge), Landlord's cost of providing such
concierge, including without limitation, vendor charges, salary costs,
employment taxes, health insurance costs and other costs typically incurred in
the employment of personnel; and
6.1.13 Despite anything to the contrary in this Lease, the following
items shall be excluded from the calculation of Operating Expenses, and Tenant
shall not have a responsibility for any portion of the cost thereof:
(a) Cost of repairs or other work occasioned by the exercise of
right of eminent domain;
(b) Leasing considerations, attorneys' fees, costs and
disbursements and other expenses which are incurred in connection with
negotiations or disputes with tenants, other occupants or prospective tenants;
(c) Cost of renovating or otherwise improving or decorating,
painting or redecorating leased space for tenants or other occupants or vacant
tenant space, other than ordinary maintenance provided to all tenants, except in
all Common Areas;
(d) If applicable, Landlord's costs of electricity and other
services sold separately to tenants for which Landlord is entitled to be
reimbursed by such tenants as an additional charge over and above the Base Rent
and Operating Expenses or other rental adjustments payable under the Lease with
such tenant, and domestic water submetered and separately billed to tenants;
(e) Depreciation;
(f) Costs incurred due to violation by Landlord or any tenant of
the terms and conditions of any lease;
(g) Overhead and profit paid to subsidiaries or affiliates of
Landlord for services on or to the Building and/or Premises, to the extent only
that the costs of such services exceed competitive costs for such services were
they not so rendered by a subsidiary or affiliate;
(h) Ground rents, principal payments, or any interest expense on
any loans secured by mortgages placed upon the Building and Lot (or a leasehold
interest therein);
(i) Any compensation paid to clerks, attendants or other persons
in commercial concessions operated by Landlord, except to the extent that such
compensation exceeds the revenue earned from such commercial concession. In such
event, the revenue earned from such commercial concession shall first be applied
to the cost of such compensation;
(j) Any particular items and services for which Tenant otherwise
reimburses Landlord by direct payment over and above Base Rent and Operating
Expenses;
(k) Advertising and promotional expenditures;
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(l) Any fines or penalties incurred due to violations by Landlord
of any governmental law, ordinance, rule or authority;
(m) Any expense for which Landlord is compensated through
proceeds of insurance; and
(n) Expenses in connection with services or other benefits of a
type which Tenant is not entitled to receive under the Lease but which are
provided to another tenant or occupant.
6.2 TAX EXPENSES: In addition to the Base rent set forth in Section 3,
Tenant shall pay its share, which is specified in the Basic Lease Information,
of all real property taxes applicable to the land and improvements included
within the Lot on which the Premises are situated and one hundred percent (100%)
of all personal property taxes now or hereafter assessed or levied against the
Premises or Tenant's personal property. The amount of Tenant's Share of Tax
Expenses shall be reviewed from time to time by Landlord and shall be subject to
modification by Landlord if there is a change in the rentable square footage of
the Premises, the Building and/or the Park. Tenant shall also pay one hundred
percent (100%) of any increase in real property taxes attributable, in
Landlord's reasonable discretion, to any and all alterations, Tenant
Improvements or other improvements of any kind, which are above standard
improvements customarily installed for similar buildings located within the
Building or the Park (as applicable), whatsoever placed in, on or about the
Premises for the benefit of, at the request of, or by assessment (general,
special, supplemental, ordinary or extraordinary), commercial rental tax,
payment under any improvement bond or bonds, license fees, license tax, business
license fee, rental tax, transaction tax, levy, or penalty imposed by authority
having the direct or indirect power of tax (including any city, county, state or
federal government, or any school, agricultural, lighting, drainage or other
improvement district thereof) as against any legal or equitable interest of
Landlord in the Premises, the Building, the Lot or the Park, as against
Landlord's right to rent, or as against Landlord's business of leasing the
Premises or the occupancy of Tenant or any other tax, fee, or excise, however
described, including, but not limited to, any value added tax, or any tax
imposed in substitution (partially or totally) of any tax previously included
within the definition of real property taxes, or any additional tax the nature
of which was previously included within the definition of real property taxes.
The term "Tax Expenses" shall not include any franchise, estate, inheritance,
net income, or excess profits tax imposed upon Landlord.
6.3 PAYMENT OF EXPENSES: Landlord shall reasonably estimate Tenant's
Share of the Operating Expenses and Tax Expenses for the calendar year in which
the Lease commences. Commencing on the Commencement Date, one-twelfth (1/12th)
of this estimated amount shall be paid by Tenant to Landlord, as Additional
Rent, and thereafter on the first (1st) day of each month throughout the
remaining months of such calendar year. Thereafter, Landlord may estimate such
expenses as of the beginning of each calendar year during the Term of this Lease
and Tenant shall pay one-twelfth (1/12th) of such estimated amount as Additional
Rent hereunder on the first (1st) day of each month during such calendar year
and for each ensuing calendar year throughout the Term of this Lease. Tenant's
obligation to pay Tenant's Share of Operating Expenses and Tax Expenses shall
survive the expiration or earlier termination of this Lease.
6.4 ANNUAL RECONCILIATION: By June 30th of each calendar year, or as
soon thereafter as reasonably possible, Landlord shall furnish Tenant with an
accounting of actual Operating Expenses and Tax Expenses. Within thirty (30)
days of Landlord's delivery of such accounting, Tenant shall pay to Landlord the
amount of any underpayment. Notwithstanding the foregoing, failure by Landlord
to give such accounting by such date shall not constitute a waiver by Landlord
of its right to collect any of Tenant's underpayment at any time. Landlord shall
credit the amount of any overpayment by Tenant toward the next estimated monthly
installment(s) falling due, or where the Term of the Lease has expired, refund
the amount of overpayment to Tenant together with such accounting. If the Term
of the Lease expires prior to the annual reconciliation of expenses Landlord
shall have the right to reasonably estimate Tenant's Share of such expenses, and
if Landlord determines that an underpayment is due, Tenant hereby agrees that
Landlord shall be entitled to deduct such underpayment from Tenant's Security
Deposit, provided Landlord delivers such accounting described herein. If
Landlord reasonably determines that an overpayment has been made by Tenant,
Landlord shall refund said overpayment to Tenant as soon a practicable
thereunder. Notwithstanding the foregoing, failure of Landlord to accurately
estimate Tenant's Share of such expenses or to otherwise perform such
reconciliation of expenses, including without limitation, Landlord's failure to
deduct any portion of any underpayment from Tenant's Security Deposit, shall not
constitute a waiver of Landlord's
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<PAGE> 10
right to collect any of Tenant's underpayment at any time during the Term of the
Lease or at any time after the expiration or earlier termination of this Lease.
6.5 AUDIT: After delivery to Landlord of at least twenty (20) days prior
written notice Tenant, at its sole cost and expense through any accountant
designated by it, shall have the right to examine and/or audit the books and
records evidencing such costs and expenses for the previous one (1) calendar
year, during Landlord's reasonable business hours but not more frequently than
once during any calendar year. Any such accounting firm designated by Tenant may
not be compensated on a contingency fee basis. The results of any such audit
(and any negotiations between the parties related thereto) shall be maintained
strictly confidential by Tenant and its accounting firm and shall not be
disclosed, published or otherwise disseminated to any other party other than to
Landlord and its authorized agents. Landlord and Tenant shall use their best
efforts to cooperate in such negotiations and to promptly resolve any
discrepancies between Landlord and Tenant in the accounting of such costs and
expenses.
6.6 AFTER-HOURS HVAC: Landlord shall install at its expense equipment to
enable Tenant to activate and control heating, air conditioning and/or
ventilation to the Premises during all hours which are non-building standard
hours for operation ("After-Hours HVAC"). Heating, air conditioning and/or
ventilation utilized at anytime outside of the hours of 7:00 a.m. to 6:00 p.m.
on Monday through Friday and 8:00 a.m. to 1:00 p.m. on Saturday (including legal
holidays) shall be considered After-Hours HVAC use. Tenant shall pay to Landlord
within ten (10) days of Landlord's written demand therefor, as additional rent
(i) Landlord's actual cost of supplying such After-Hours HVAC, plus (ii) an
amount reasonably determined by Landlord to be the depreciation and ordinary
wear-and-tear of the HVAC system attributable to Tenant's additional usage of
such system, plus an amount equal to fifteen percent (15%) of (i) and (ii) above
as Landlord's administrative fee. As of the date of this Lease, the cost for
After-Hours HVAC use is estimated to be $15.18 per hour, but is subject to
change as reasonably determined by Landlord.
7. UTILITIES
Utility Expenses, Common Area Utility Costs and all other sums or
charges set forth in this Section 7 are considered part of Additional Rent. In
addition to the Base Rent set forth in Section 3 hereof, Tenant shall pay the
cost of all water, sewer use, sewer discharge fees and sewer connection fees,
gas, heat, electricity, refuse pickup, janitorial service, telephone and other
utilities billed or metered separately to the Premises and/or Tenant. Tenant
shall also pay Tenant's Share (as set forth in the Basic Lease Information) of
any assessments or charges for utility or similar purposes included within any
tax bill for the Lot on which the Premises are situated, including, without
limitation, entitlement fees, allocation unit fees, and/or similar fees or
charges, and any penalties related thereto. For any such utility fees or use
charges that are not billed or metered separately to Tenant, including without
limitation, electricity serving the Premises and water and refuse pick up
charges. Tenant shall pay to Landlord, as Additional Rent, without prior notice
or demand, on the Commencement Date and thereafter on the first (1st) day of
each month throughout the balance of the Term of this Lease the amount which is
attributable to Tenant's use of the utilities or similar services, as reasonably
estimated and determined by Landlord based upon factors such as size of the
Premises in relation to the size of the Building and/or Park and intensity of
use of such utilities by Tenant such that Tenant shall pay the portion of such
charges reasonably consistent with Tenant's use of such utilities and similar
services ("Utility Expenses"). If Tenant disputes any such estimate or
determination, then Tenant shall either pay the estimated amount or cause the
Premises to be separately metered at Tenant's sole expense. In addition, Tenant
shall pay to Landlord Tenant's Share of any Common Area utility costs, fees,
charges or expenses ("Common Area Utility Costs"). Tenant shall pay to Landlord
one-twelfth (1/12th) of the estimated amount of Tenant's Share of the Common
Area Utility Costs on the Commencement Date and thereafter on the first (1st)
day of each month throughout the balance of the Term of this Lease and any
reconciliation thereof shall be substantially in the same manner as specified
Section 6.4 above. The amount of Tenant's Share of Common Area Utility Costs
shall be reviewed from time to time by Landlord and shall be subject to
modification by Landlord if there is a change in the rentable square footage of
the Premises, the Building and/or the Park. Tenant acknowledges that the
Premises may become subject to the rationing of utility services or restrictions
on utility use as required by a public utility company, governmental agency or
other similar entity having jurisdiction thereof. Notwithstanding any such
rationing or restrictions on use of any such utility services, Tenant
acknowledges and agrees that its tenancy and occupancy hereunder shall be
subject to such rationing restrictions as may be imposed upon Landlord, Tenant,
the Premises, the Building or the Park, and Tenant shall in no event be excused
or relieved from any covenant or
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obligation to be kept or performed by Tenant by reason of any such rationing or
restrictions. Tenant further agrees to timely and faithfully pay, prior to
delinquency, any amount, tax, charge, surcharge, assessment or imposition
levied, assessed or imposed upon the Premises, or Tenant's use and occupancy
thereof. Notwithstanding anything to the contrary contained herein, if permitted
by applicable Laws, Landlord shall have the right at any time and from time to
time during the Term of this Lease to either contract for service from a
different company or companies (each such company shall be referred to herein as
an "Alternate Service Provider") other than the company or companies presently
providing electricity service for the Building or the Park (the "Electric
Service Provider") or continue to contract for service from the Electric Service
Provider, at Landlord's sole discretion. Tenant hereby agrees to cooperate with
Landlord, the Electric Service Provider, and any Alternate Service Provider at
all times and, as reasonably necessary, shall allow Landlord, the Electric
Service Provider, and any Alternate Service Provider reasonable access to the
Building's electric lines, feeders, risers, wiring, and any other machinery
within the Premises. In the event any of the utility services essential to the
use and occupancy of the Premises shall be interrupted (such that any of such
services shall not be available for Tenant's use and occupancy of the Premises)
for a period in excess of thirty (30) days, such interruption shall not have
been caused in whole or in part by the acts or omissions of Tenant or Tenant's
Representatives, such interruption shall not have been the result of or arise
out of a Casualty or Condemnation contained within the terms of Sections 27 or
28, such interruption shall have had a material and adverse effect on Tenant's
use and occupancy of the Premises and the business interruption insurance
required to be carried by Tenant hereunder shall have been exhausted by such
interruption or such business interruption insurance shall not cover such
utility interruption, Tenant shall receive an abatement of one (1) day of Base
Rent for each day subsequent to the expiration of such thirty (30) day period
that such utility interruption continues and the Term of this Lease shall be
extended by one (1) day for each day of such abatement. Tenant shall not be
entitled to any abatement or to exercise any termination rights based on such
interruption in the event Tenant is in default of this Lease.
8. LATE CHARGES
Any and all sums or charges set forth in this Section 8 are considered
part of Additional Rent. Tenant acknowledges that late payment (the fifth day of
each month or any time thereafter) by Tenant to Landlord of Base Rent, Tenant's
Share of Operating Expenses, Tax Expenses, Common Area Utility Costs, and
Utility Expenses or other sums due hereunder, will cause Landlord to incur costs
not contemplated by this Lease, the exact amount of such costs being extremely
difficult and impracticable to fix. Such costs include, without limitation,
processing and accounting charges, and late charges that may be imposed on
Landlord by the terms of any note secured by any encumbrance against the
Premises, and late charges and penalties due to the late payment of real
property taxes on the Premises. Therefore, if any installment of Rent or any
other sum due from Tenant is not received by Landlord within five (5) days of
when due, Tenant shall promptly pay to Landlord all of the following, as
applicable: (a) an additional sum equal to five percent (5%) of such delinquent
amount plus interest on such delinquent amount at the rate equal to the prime
rate plus three percent (3%) for the time period such payments are delinquent as
a late charge for every month or portion thereof that such sums remain unpaid,
(b) the amount of seventy-five dollars ($75) for each three-day notice prepared
for, or served on, Tenant, (c) the amount of fifty dollars ($50) relating to
checks for which there are not sufficient funds. If Tenant delivers to Landlord
a check for which there are not sufficient funds, Landlord may, at its sole
option, require Tenant to replace such check with a cashier's check for the
amount of such check and all other charges payable hereunder. The parties agree
that this late charge and other charges referenced above represent a fair and
reasonable estimate of the costs that Landlord will incur by reason of late
payment by Tenant. Acceptance of any late charge or other charges shall not
constitute a waiver by Landlord of Tenant's default with respect to the
delinquent amount, nor prevent Landlord from exercising any of the other rights
and remedies available to Landlord for any other breach of Tenant under this
Lease. If a late charge or other charge becomes payable for any three (3)
installments of Rent within any twelve (12) month period, then Landlord, at
Landlord's sole option, can either require the Rent be paid quarterly in
advance, or be paid monthly in advance by cashier's check or by electronic funds
transfer.
9. USE OF PREMISES
9.1 COMPLIANCE WITH LAWS, RECORDED MATTERS, AND RULES AND REGULATIONS:
The Premises are to be used solely for the purposes and uses specified in the
Basic Lease Information and for no other uses or purposes without Landlord's
prior written consent, which consent shall not be unreasonably withheld,
conditioned or delayed so long as the proposed use (i) does not involve the use
of Hazardous Materials other than as expressly permitted
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under the provisions of Section 29 below, (ii) does not require any additional
parking in excess of the parking spaces already licensed to Tenant pursuant to
the provisions of Section 24 of this Lease, and (iii) is compatible and
consistent with the other uses then being made in the Park and in other similar
types of buildings in the vicinity of the Park, as reasonably determined by
Landlord. The use of the Premises by Tenant and its employees, representatives,
agents, invitees, licensees, subtenants, customers or contractors (collectively,
"Tenant's Representatives") shall be subject to, and at all times in compliance
with, (a) any and all applicable laws, ordinances, statutes, orders and
regulations as same exist from time to time (collectively the "Laws"), (b) any
and all documents, matters or instruments, including without limitation, any
declarations of covenants, conditions and restrictions, and any supplements
thereto, each of which has been or hereafter is recorded in any official or
public records with respect to the Premises, the Building, the Lot and/or the
Park, or any portion thereof (collectively, the "Recorded Matters") and (c) any
and all rules and regulations set forth in Exhibit C, attached to and made a
part of this Lease, and any other reasonable rules and regulations promulgated
by Landlord now or hereafter enacted relating to parking and the operation of
the Premises, the Building and the Park (collectively, the "Rules and
Regulations"). Tenant agrees to, and does hereby, assume full and complete
responsibility to ensure that the Premises are adequate to fully meet the needs
and requirements of Tenant's intended operations of its business within the
Premises, and Tenant's use of the Premises and that same are in compliance with
all applicable Laws throughout the Term of this Lease. Additionally, Tenant
shall be solely responsible for the payment of all costs, fees and expenses
associated with any modifications, improvements or alterations to the Premises,
Building, the Common Areas and/or the Park occasioned by the enactment of, or
changes to, any Laws arising from Tenant's particular use of the Premises or
alterations, improvements or additions made to the Premises regardless of when
such Laws became effective.
9.2 PROHIBITION ON USE: Tenant shall not use the Premises or permit
anything to be done in or about the Premises nor keep or bring anything therein
which will in any way conflict with any of the requirements of the Board of Fire
Underwriters or similar body now or hereafter constituted or in any way increase
the existing rate of or affect any policy of fire or other insurance upon the
Building or any of its contents, or cause a cancellation of any insurance
policy. No auctions may be held or otherwise conducted in, on or about the
Premises, the Building, the Lot or the Park without Landlord's written consent
thereto, which consent may be given or withheld in Landlord's sole discretion.
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 Landlord, other tenants
or occupants of the Building, other buildings in the Park, or other persons or
businesses in the area or injure or annoy or use or allow the Premises to be
used for any unlawful or objectionable purpose, as determined by Landlord, in
its reasonable discretion, for the benefit, quiet enjoyment and use by Landlord
and all other tenants or occupants of the Building or other buildings in the
Park; nor shall Tenant cause, maintain or permit any private or public nuisance
in, on or about the Premises, Building, Park and/or the Common Area including
but not limited to, any offensive odors noises, fumes or vibrations. Tenant
shall not damage or deface or otherwise commit or suffer to be committed any
waste in, upon or about the Premises. Tenant shall not place or store, nor
permit any other person or entity to place or store, any property, equipment,
materials, supplies personal property or other items or goods outside of the
Premises for any period of time. Tenant shall not permit any non-service
animals, including, but not limited to, any household pets, to be brought or
kept in or about the Premises. Tenant shall place no loads upon the floors,
walls, or ceilings in excess of the maximum designed load permitted by the
applicable Uniform Building Code or which may damage the Building or outside
areas; nor place any harmful liquids in the drainage systems; nor dump or store
waste materials, refuse or other such materials, or allow such to remain outside
the Building area, expect for any non-refuse or other such materials, or allow
such to remain outside the Building area, except for any non-hazardous or
non-harmful materials which may be stored in refuse dumpsters or in any enclosed
trash areas provided. Tenant shall honor the terms of all Recorded Matters
relating to the Premises, the Building, the Lot and/or the Park Tenant shall
honor the Rules and Regulations. If Tenant fails to comply with such Laws,
Recorded Matters, Rules and Regulations or the provisions of this Lease,
Landlord shall have the right to collect from Tenant a reasonable sum as a
penalty, in addition to all rights and remedies of Landlord hereunder including,
but not limited to, the payment by Tenant to Landlord of all Enforcement
Expenses and Landlord's costs and expenses, if any, to cure any of such failures
of Tenant, if Landlord, at its sole option, to undertake such cure.
10. ALTERATIONS AND ADDITIONS; AND SURRENDER OF PREMISES
10.1 ALTERATIONS AND ADDITIONS: Tenant shall not install any signs,
fixtures, improvements, nor make or permit any other alterations or additions to
the Premises without the prior written consent of Landlord, which
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consent shall not be unreasonably withheld, conditioned, or delayed. If any such
alteration or addition is expressly permitted by Landlord, Tenant shall deliver
at least fifteen (15) days prior notice to Landlord, from the date Tenant
intends to commence construction, sufficient to enable Landlord to post a Notice
of Non-Responsibility. In all events, Tenant shall obtain all permits or other
governmental approvals prior to commencing any of such work and delivery a copy
of same to Landlord. All alterations and additions shall be installed by a
licensed contractor approved by Landlord, at Tenant's sole expense in compliance
with applicable Laws (including, but not limited to, the ADA as defined herein),
Recorded Matters, and Rules and Regulations. Tenant shall keep the Premises and
the property on which the Premises are situated free from any liens arising out
of any work performed, materials furnished or obligations incurred by or on
behalf of Tenant.
10.2 SURRENDER OF PREMISES: Upon the termination of this Lease, whether
by forfeiture, lapse of time or otherwise, or upon the termination of Tenant's
right to possession of the Premises, Tenant will at once surrender and deliver
up the Premises, together with the fixtures (other than trade fixtures),
additions and improvements which Landlord has notified Tenant, in writing, that
Landlord will require Tenant not to remove, to Landlord in good condition and
repair (including, but not limited to, replacing all light bulbs and ballasts
not in good working condition) and in the condition in which the Premises
existed as of Commencement Date, except for casualty under Section 27 or
reasonable wear and tear. Reasonable wear and tear shall not include any damage
or deterioration to the floors of the Premises arising from the use of forklifts
in, on or about the Premises (including, without limitation, any marks or stains
of any portion of the floors), and any damage or deterioration that would have
been prevented by proper maintenance by Tenant or Tenant otherwise performing
all of its obligations under this Lease. Upon such termination of this Lease,
Tenant shall remove all tenant signage, trade fixtures, furniture, furnishings,
personal property, additions, and other improvements unless Landlord requests,
in writing, that Tenant not remove some or all of such fixtures (other than
trade fixtures), additions or improvements installed by, or on behalf of Tenant
or situated in or about the Premises. By the date which is twenty (20) days
prior to such termination of this Lease, Landlord shall notify Tenant in writing
of those fixtures (other than trade fixtures), alterations, additions and other
improvements which Landlord shall require Tenant not to remove from the
Premises. Tenant shall repair any damage caused by the installation or removal
of such signs, trade fixtures, furniture, furnishings, fixtures, additions and
improvements which are to be removed from the Premises by Tenant hereunder. If
Landlord fails to so notify Tenant at least twenty (20) days prior to such
termination of this Lease, then Tenant shall remove all tenant signage,
alterations, furniture, furnishings, trade fixtures, additions and other
improvements (other than the Tenant Improvements) installed in or about the
Premises by, or on behalf of Tenant. Tenant shall ensure that the removal of
such items and the repair of the Premises will be completed prior to such
termination of this Lease.
11. REPAIRS AND MAINTENANCE
11.1 TENANT'S REPAIRS AND MAINTENANCE OBLIGATIONS: Except for those
portions of the Building to be maintained by Landlord, as provided in Sections
11.2 and 11.3 below, Tenant shall, at Tenant's sole cost and expense, keep and
maintain the Premises in good, clean and safe condition and repair to the
reasonable satisfaction of Landlord including, but not limited to, repairing any
damage caused by Tenant or Tenant's Representatives and replacing any property
so damaged by Tenant or Tenant's Representatives. Without limiting the
generality of the foregoing, Tenant shall be solely responsible for maintaining,
repairing, and replacing (a) all plumbing, electrical wiring and equipment
exclusively serving the Premises, (b) all interior lighting (including, without
limitation, light bulbs and/or ballasts) serving the Premises, (c) all glass,
windows, window frames, window casements, skylights, interior and exterior
doors, door frames and door closers, (d) all tenant signage, (e) security
systems, (f) all partitions, fixtures, equipment, interior painting, and
interior walls contiguous to any portion of the Premises). Tenant shall be
responsible for providing janitorial service for the Premises at its sole cost.
11.2 REIMBURSABLE REPAIRS AND MAINTENANCE OBLIGATIONS: Subject to the
provisions of Sections 6 and 9 of this Lease and except for (i) the obligations
of Tenant set forth in Section 11.1 above, (ii) the obligations of Landlord set
forth in Section 11.3 below, and (iii) the repairs rendered necessary by the
intentional or negligent acts or omissions of Tenant or any of Tenant's
Representatives, Landlord agrees, at Landlord's expense, subject to
reimbursement pursuant to Section 6 above, to keep in good repair all mechanical
systems, heating, ventilation and air conditioning systems exclusively serving
the Premises, sprinkler systems and fire protection systems, the plumbing and
mechanical systems exterior to the Premises, the roof, roof membranes, exterior
walls of the Building, signage (exclusive of tenant signage), and exterior
electrical wiring and equipment, exterior lighting, exterior glass, exterior
doors/entrances and door closers, exterior window casements, exterior painting
of the Building (exclusive of
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the Premises), and underground utility and sewer pipes outside the exterior
walls of the Building. For purposes of this Section 11.2, the term "exterior"
shall mean outside of and not exclusively serving the Premises. Landlord shall
procure and maintain (a) the heating, ventilation and air conditioning systems
preventative maintenance and repair contract(s), and (b) the fire and sprinkler
protection services and preventative maintenance and repair contract(s)
(including, without limitation, monitoring services). Tenant will reimburse
Landlord for the cost thereof in accordance with the provisions of Section 6
above.
11.3 LANDLORD'S REPAIRS AND MAINTENANCE OBLIGATIONS: Except for repairs
rendered necessary by the intentional or negligent acts or omissions of Tenant
or any of Tenant's Representatives, Landlord agrees, at Landlord's sole cost and
expense, to (a) keep in good repair the structural portions of the floors,
foundations and exterior perimeter walls of the Building (exclusive of glass and
exterior doors), and (b) replace the structural portions of the roof of the
Building (excluding the roof membrane) as, and when, Landlord determines such
replacement to be necessary in Landlord's reasonable discretion.
11.4 TENANT'S FAILURE TO PERFORM REPAIRS AND MAINTENANCE OBLIGATIONS:
Except for normal maintenance and repair of the items described above and
subject to Section 42 below, Tenant shall have no right of access to or right to
install any device on the roof of the Building nor make any penetrations of the
roof of the Building without the express prior written consent of Landlord. If
Tenant refuses or neglects to repair and maintain the Premises and the adjacent
areas properly as required herein and to the reasonable satisfaction of
Landlord, Landlord may, but without obligation to do so, at any time after
providing ten (10) days prior written notice of its intent to do so (except in
the event of an emergency, in which case such notice is not required), make such
repairs and/or maintenance without Landlord having any liability to Tenant for
any loss or damage that may accrue to Tenant's merchandise, fixtures or other
property, or to Tenant's business by reason thereof, except to the extent any
damage is caused by the willful misconduct or gross negligence of Landlord or
its authorized agents and representatives. In the event Landlord makes such
repairs and/or maintenance, upon completion thereof Tenant shall pay to
Landlord, as additional rent, the Landlord's costs for making such repairs
and/or maintenance, plus twenty percent (20%) for overhead, upon presentation of
a bill therefor, plus any Enforcement Expenses. The obligations of Tenant
hereunder shall survive the expiration of the Term of this Lease or the earlier
termination thereof. Tenant hereby waives any right to repair at the expense of
Landlord under any applicable Laws now or hereafter in effect respecting the
Premises.
12. INSURANCE
12.1 TYPES OF INSURANCE: Tenant shall maintain in full force and effect
at all times during the Term of this Lease, at Tenant's sole cost and expense,
for the protection of Tenant and Landlord, as their interests may appear,
policies of insurance which afford the following coverages (i) worker's
compensation: statutory limits; (ii) employer's liability, as required by law,
with a minimum limit of $100,000 per employee and $500,000 per occurrence; (iii)
commercial general liability insurance (occurrence form) providing coverage
against any and all claims for bodily injury and property damage occurring in,
or about the Premises arising out of Tenant's and Tenant's Representatives' use
and/or occupancy of the Premises. Such insurance shall include coverage for
blanket contractual liability, fire damage, premises, personal injury, completed
operations, products liability, personal and advertising, and a plate-glass
rider to provide coverage for all glass in, on or about the Premises including,
without limitation, skylights. Such insurance shall have a combined single limit
of not less than One Million Dollars ($1,000,000) per occurrence with a Two
Million Dollar ($2,000,000) aggregate limit and excess/umbrella insurance in the
amount of Two Million Dollars ($2,000,000). If Tenant has other locations which
it owns or leases, the policy shall include an aggregate limit per location
endorsement. If necessary, as reasonably determined by Landlord, Tenant shall
provide for restoration of the aggregate limit; (iv) comprehensive automobile
liability insurance: a combined single limit of not less than $2,000,000 per
occurrence and insuring Tenant against liability for claims arising out of the
ownership, maintenance, or use of any owned, hired or non-owned automobiles; (v)
"all risk" or "special purpose" property insurance, including without
limitation, sprinkler leakage, boiler and machinery comprehensive form, if
applicable, covering damages to or loss of any personal property, trade
fixtures, inventory, fixtures and equipment located in, or about the Premises
and in addition, business interruption of Tenant. Such insurance shall be
written on a replacement cost basis (without deduction for depreciation) in an
amount equal to one hundred percent (100%) of the full replacement value of the
aggregate of the items referred to in this subparagraph (v); and (vi) such other
insurance as Landlord deems necessary and prudent or as may otherwise be
reasonably required by any of Landlord's lenders or joint venture partners.
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12.2 INSURANCE POLICIES: Insurance required to be maintained by Tenant
shall be written by companies (i) licensed to do business in the State o
California, (ii) domiciled in the United States of America, and (iii) having a
"General Policyholders Rating" of at least A:X (or such higher rating as may be
require by a lender having a lien on the Premises) as set forth in the most
current issues of A.M. Best's Rating Guides." Any deductible amounts under any
of the insurance policies required hereunder shall not exceed Five Thousand
Dollars ($5,000). Tenant shall deliver to Landlord certificates of insurance and
true and complete copies of any and all endorsements required herein for all
insurance required to be maintained by Tenant hereunder prior to Tenant's early
access in accordance with Section 2.2. Tenant shall, at least thirty (30) days
prior to expiration of each policy, furnish Landlord with certificates of
renewal or "binders" thereof. Each certificate shall expressly provide that such
policies shall not be cancelable or otherwise subject to modification except
after thirty (30) days prior written notice to the parties named as additional
insureds as required in this Lease (except for cancellation for nonpayment of
premium, in which event cancellation shall not take effect until at least ten
(10) days' notice has been given to Landlord). Tenant shall have the right to
provide insurance coverage which it is obligated to carry pursuant to the terms
of this Lease under a blanket insurance policy, provided such blanket policy
expressly affords coverage for the Premises and for Landlord as required by this
Lease.
12.3 ADDITIONAL INSUREDS AND COVERAGE: Landlord, any property management
company and/or agent of Landlord for the Premises, the Building, the Lot or the
Park, and any lender(s) of Landlord having a lien against the Premises, the
Building, the Lot or the Park shall be named as additional insureds under all of
the policies required in Section 12.1 (iii) above, but only if Landlord provides
notice expressly requesting such entities to be named as additional insureds.
Additionally, such policies shall provide for severability of interest. All
insurance to be maintained by Tenant shall, except for workers' compensation and
employer's liability insurance, be primary, without right of contribution from
insurance maintained by Landlord. Any umbrella/excess liability policy (which
shall be in "following form") shall provide that if the underlying aggregate is
exhausted, the excess coverage will drop down as primary insurance. The limits
of insurance maintained by Tenant shall not limit Tenant's liability under this
Lease. It is the parties' intention that the insurance be procured and
maintained by Tenant as required herein shall provide coverage for any and all
damage or injury arising from or related to Tenant's operations of its business
and/or Tenant's or Tenant's Representatives' use of the Premises and/or any of
the areas within the Park, whether such events occur within the Premises (as
described in Exhibit A hereto) or in any other part of the Park. It is not
contemplated or anticipated by the parties that the aforementioned risks of loss
be borne by Landlord's insurance carriers, rather it is contemplated and
anticipated by Landlord and Tenant that such risks of loss be borne by Tenant's
insurance carriers pursuant to the insurance policies procured and maintained by
Tenant as required herein.
13. WAIVER OF SUBROGATION
Landlord and Tenant hereby mutually waive their respective rights of
recovery against each other for any loss of, or damage to, either parties'
property to the extent that such loss or damage is insured by an insurance
policy required to be in effect at the time of such loss or damage. Each party
shall obtain any special endorsements, if required by its insurer whereby the
insurer waives its rights of subrogation against the other party. This provision
is intended to waive fully, and for the benefit of the parties hereto, any
rights and/or claims which might give rise to a right of subrogation in favor of
any insurance carrier. The coverage obtained by Tenant pursuant to Section 12 of
this Lease shall include, without limitation, a waiver of subrogation
endorsement attached to the certificate of insurance. The provisions of this
Section 13 shall not apply in those instances in which such waiver of
subrogation would invalidate such insurance coverage or would cause either
party's insurance coverage to be voided or otherwise uncollectable.
14. LIMITATION OF LIABILITY AND INDEMNITY
Except to the extent of damage resulting from the gross negligence or
willful misconduct of Landlord or its authorized representatives, Tenant agrees
to protect, defend (with counsel acceptable to Landlord) and hold Landlord and
Landlord's lenders, partners, members, property management company (if other
than Landlord), agents, directors, officers, employees, representatives,
contractors, shareholders, successors and assigns, and each of their respective
partners, members, directors, employees, representatives, agents, contractors,
shareholders, successors and assigns (collectively, the "Indemnitees") harmless
and indemnify the Indemnitees from and against
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all liabilities, damages, claims, losses, judgments, charges and expenses
(including reasonable attorneys' fees, costs of court and expenses necessary in
the prosecution or defense of any litigation including the enforcement of this
provision) arising from or in any way related to, directly or indirectly, (i)
Tenant's or Tenant's Representatives' use of the Premises, Building and/or Park,
(ii) the conduct of Tenant's business, (iii) from any activity, work or thing
done, permitted or suffered by Tenant in or about the Premises, (iv) in any way
connected with the Premises or with the improvements or personal property
therein, including, but not limited to, any liability for injury to person or
property of Tenant, Tenant's Representatives, or third party persons, and/or (v)
Tenant's failure to perform any covenant or obligation of Tenant under this
Lease. Tenant agrees that the obligations of Tenant herein shall survive the
expiration or earlier termination of this Lease.
Except to the extent of damage resulting from the gross negligence or
willful misconduct of Landlord or its authorized representatives, to the fullest
extent permitted by law, Tenant agrees that neither Landlord nor any of
Landlord's lender(s), partners, members, employees, representatives, legal
representatives, successors or assigns shall at any time or to any extent
whatsoever be liable, responsible or in any way accountable for any loss,
liability, injury, death or damage to persons or property which at time may be
suffered or sustained by Tenant or by any person(s) whomsoever who may at any
time be using, occupying or visiting the Premises, the Building or the Park,
including, but not limited to, any acts, errors or omissions by or on behalf of
any other tenants or occupants of the Building and/or Park. Tenant shall not, in
any event or circumstance, be permitted to offset or otherwise credit against
any payments of Rent required herein for matters which Landlord may be liable
hereunder. Landlord and its authorized representatives shall not be liable for
any interference with light or air, or for any latent defect in the Premises or
the Building.
15. ASSIGNMENT AND SUBLEASING
15.1 PROHIBITION: Tenant shall not assign, mortgage, hypothecate,
encumber, grant any license or concession, pledge or otherwise transfer this
Lease (collectively, "assignment"), in whole or in part whether voluntarily or
involuntarily or by operation of law, nor sublet or permit occupancy by any
person other than Tenant of all or any portion of the Premises without first
obtaining the prior written consent of Landlord, which constant shall not
reasonably be withheld, conditioned or delayed. Tenant hereby agrees that
Landlord may withhold its consent to any proposed sublease or assignment if the
proposed sublessee or assignee or its business is subject to compliance with
additional requirements of the ADA (defined below) and/or Environmental Laws
(defined below) beyond those requirements which are applicable to Tenant, unless
the proposed sublessee or assignee shall (a) first delivery plans and
specifications for complying with such additional requirements and obtain
Landlord's written consent thereto, and (b) comply with all Landlord's
conditions for or contained in such consent, including without limitation,
requirements for security to assure the lien-free completion of such
improvements. If Tenant seeks to sublet or assign all or any portion of the
Premises, Tenant shall deliver to Landlord at least thirty (30) days prior to
the proposed commencement of the sublease or assignment (the "Proposed Effective
Date") the following (i) the name of the proposed assignee or sublessee; (ii)
such information as to such assignee's or sublessee's financial responsibility
and standing as Landlord may reasonably require; and (iii) the aforementioned
plans and specifications, if any. Within ten (10) days after Landlord's receipt
of a written request from Tenant that Tenant seeks to sublet or assign all or
any portion of the Premises, Landlord shall deliver to Tenant a copy of
Landlord's standard form of sublease or assignment agreement (as applicable),
which instrument shall be utilized for each proposed sublease or assignment (as
applicable), and such instrument shall include a provision whereby the assignee
or sublessee assumes all of Tenant's obligations hereunder and agrees to be
bound by the terms hereof. As Additional Rent hereunder, Tenant shall pay to
Landlord a fee in the amount of five hundred dollars ($500) plus Tenant shall
reimburse Landlord for actual reasonable legal and other expenses incurred by
Landlord in connection with any actual or proposed assignment or subletting. In
the event the sublease or assignment (1) by itself or taken together with prior
sublease(s) or partial assignment(s) covers or totals, as the case may be, more
than twenty-five percent (25%) of the rentable square feet of the Premises or
(2) is for a term which by itself or taken together with prior or other
subleases or partial assignments is greater than fifty percent (50%) of the
period remaining in the Term of this Lease as of the time of the Proposed
Effective Date, then Landlord shall have the right to be exercised by giving
written notice to Tenant within thirty (30) days following receipt of Tenant's
notice of proposed assignment or sublease, to recapture the space described in
the sublease or assignment. If such recapture notice is given, it shall serve to
terminate this Lease with respect to the proposed sublease so long as Tenant
delivers such recission notice to Landlord within ten (10) days of Tenant's
receipt of Landlord's recapture notice. However, no termination of this Lease
with respect to part or all of the Premises shall become effective without the
prior written consent, where
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necessary, of the holder of each deed of trust encumbering the Premises or any
party thereof. If this Lease is terminated pursuant to the foregoing with
respect to less then the entire Premises, the Rent shall be adjusted on the
basis of proportion of square feet retained by Tenant to the square feet
originally demised and this Lease as so amended shall continue thereafter in
full force and effect Each permitted assignee or sublessee shall assume and be
deemed to assume this Lease and shall be and remain liable jointly and severally
with Tenant for payment of Rent and for the due performance of, and compliance
with all terms, covenants, conditions and agreements herein contained on
Tenant's part to be performed or complied with for the term of this Lease. No
assignment or subletting shall affect the continuing primary liability of Tenant
(which, following assignment, shall be joint and several with the assignee), and
Tenant shall not be released from performing any of the terms, covenants and
conditions of this Lease. Tenant hereby acknowledges and agrees that it
understands that Landlord's accounting department may process and accept Rent
payments without verifying that such payments are being made by Tenant, a
permitted sublessee or a permitted assignee in accordance with the provisions of
this Lease. Although such payments may be processed and accepted by such
accounting department personnel, any and all actions or omissions by the
personnel of Landlord's accounting department shall not be considered as
acceptance by Landlord of any proposed assignee or sublessee nor shall such
actions or omissions to be deemed to be a substitute for the requirement that
Tenant obtain Landlord's prior written consent to any such subletting or
assignment, and any such actions or omissions by the personnel of Landlord's
accounting department shall not be considered as a voluntary relinquishment by
Landlord of any its rights hereunder nor shall any voluntary relinquishment of
such rights be inferred therefrom. For purposes hereof, in the event Tenant is a
corporation, partnership, joint venture, trust or other entity other than a
natural person, any change in the direct or indirect ownership of Tenant
(whether pursuant to one or more transfers) which results in a change of more
than fifty percent (50%) in the direct or indirect ownership of Tenant shall be
deemed to be an assignment within the meaning of this Section 15 and shall be
subject to all the provisions hereof. Except with respect to any Related Entity
(as defined below), any and all opinions (except for the Option to Extend the
Lease described in Addendum One of this Lease), first rights of refusal, tenant
improvement allowances and other similar rights granted to Tenant in this Lease,
if any, shall not be assignable by Tenant unless expressly authorized in writing
by Landlord.
15.2 EXCESS SUBLEASE RENTAL OR ASSIGNMENT CONSIDERATION: In the vent of
any sublease or assignment of all or any portion of the Premises where the rent
or other consideration provided for in the sublease or assignment either
initially or over the term of the sublease or assignment exceeds the Rent or pro
rata portion of the Rent, as the case may be, for such space reserved in the
Lease, Tenant shall pay the Landlord monthly, as Additional Rent, at the same
time as the monthly installments of Rent are payable hereunder, after deduction
for reasonable attorneys' fees (in an amount not to exceed $2,500) and brokerage
commissions (but without deduction for any Tenant Improvement Costs incurred by
Tenant) fifty percent (50%) of the excess of each such payment of rent or other
consideration in excess of the Rent called for hereunder.
15.3 WAIVER: Notwithstanding any assignment or sublease, or any
indulgences, waivers or extensions of time granted by Landlord to any assignee
or sublessee, or failure by Landlord to take action against any assignee or
sublessee, Tenant waives notice of any default of any assignee or sublessee and
agrees that Landlord may, at its option, proceed against Tenant without having
taken action against or joined such assignee or sublessee, except that Tenant
shall have the benefit of any indulgences, waivers and extensions of time
granted to any such assignee or sublessee.
15.4 RELATED ENTITIES: Notwithstanding anything to the contrary
contained in this Section 15, so long as Tenant delivers to Landlord (1) at
least fifteen (15) business days prior written notice of its intention to assign
or sublease the Premises to any Related Entity, which notice shall set forth the
name of the Related Entity, (2) a copy of the proposed agreement pursuant to
which such assignment or sublease shall be effectuated, and (3) such other
information concerning the Related Entity as Landlord may reasonably require,
including without limitation, information regarding any change in the proposed
use of any portion of the Premises and any financial information with respect to
such Related Entity, and so long as any change in the proposed use of the
subject portion of the Premises is in conformance with the uses permitted to be
made under this Lease and do not involve the use or storage of any Hazardous
Materials (other than nominal amounts of ordinary household cleaners, office
supplies and janitorial supplies which are not regulated by any Environmental
Laws), then Tenant may assign this Lease or sublease any portion of the Premises
to any Related Entity, or in connection with any merger, consolidation or sale
of substantially all of the assets of Tenant, without having to obtain the prior
written consent of Landlord thereto. For purposes of this Lease the term
"Related Entity" shall mean and refer to any corporation or entity which
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controls, is controlled by or is under common control with Tenant, as all of
such terms are customarily used in the industry.
16. AD VALOREM TAXES
Prior to delinquency, Tenant shall pay all taxes and assessments levied
upon trade fixtures, alterations, additions, improvement, inventories and
personal property located and/or installed on or in the Premises by, or on
behalf of, Tenant; and if requested by Landlord, Tenant shall promptly deliver
to Landlord copies of receipts for payment of all such taxes and assessments. To
the extent any such taxes are not separately assessed or billed to Tenant,
Tenant shall pay the amount thereof as invoiced by Landlord.
17. SUBORDINATION
Without the necessity of any additional document being executed by
Tenant for the purpose of effecting a subordination, and at the election of
Landlord or any bona fide mortgagee or deed of trust beneficiary with a lien on
all or any portion of the Premises or any ground lessor with respect to the land
of which the Premises are a part, the rights of Tenant under this Lease and this
Lease shall be subject and subordinate at all times to (i) all ground leases or
underlying leases which may now exist or hereafter be executed affecting the
Building or the land upon which the Building is situated or both, and (ii) the
lien of any mortgage or deed of trust which my now exist or hereafter be
executed in any amount of which the Building, the Lot, ground leases or
underlying leases, or Landlord's interest or estate in any of said items is
specified as security. Notwithstanding the foregoing, Landlord or any such
ground lessor, mortgagee, or any beneficiary shall have the right to subordinate
or cause to be subordinated any such ground leases or underlying leases or any
such liens to this Lease. If any ground lease or underlying lease terminates for
any reason or any mortgage or deed of trust is foreclosed or a conveyance in
lieu of foreclosure is made for any reason, Tenant shall, notwithstanding any
subordination and upon the request of such successor to Landlord, attain to and
become the Tenant of the successor in interest to Landlord, provided such
successor in interest will not disturb Tenant's use, occupancy or quiet
enjoyment of the Premises so long as Tenant is not in default of the terms and
provisions of this Lease. The successor in interest to Landlord following
foreclosure, sale or deed in lieu thereof shall not be (a) liable for any act or
omission of any prior lessor or with respect to events occurring prior to
acquisition of ownership; (b) subject to any offsets or defenses which Tenant
might have against any prior lessor (c) bound by prepayment of more than one (1)
month's Rent, except in those instances when Tenant pays Rent quarterly in
advance pursuant to Section 8 hereof, then not more than three months' Rent; or
(d) liable to Tenant for any Security Deposit not actually received by such
successor in interest to the extent any portion of all of such Security Deposit
has not already been forfeited by, or refunded to, Tenant. Landlord shall be
liable to Tenant for all or any portion of the Security Deposit not forfeited
by, or refunded to Tenant, until and unless Landlord transfers such Security
Deposit to the successor in interest. Tenant covenants and agrees to execute
(and acknowledge if required by Landlord, any lender or ground lessor) and
deliver, within ten (10) days of a demand or request by Landlord and in the
commercially reasonable form requested by Landlord, ground lessor, mortgagee or
beneficiary, any additional documents evidencing the priority or subordination
of this Lease with respect to any such ground leases or underlying leases or the
lien of any such mortgage or deed of trust. Tenant's failure to timely execute
and deliver such additional documents shall, at Landlord's option, constitute a
material default hereunder. It is further agreed that Tenant shall be liable to
Landlord, and shall indemnify Landlord from and against any loss, cost, damage
or expense, incidental, consequential, or otherwise, arising or accruing
directly or indirectly, from any failure of Tenant to execute or deliver to
Landlord any such additional documents, together with any and all Enforcement
Expenses.
Tenant's agreement to subordinate this Lease to any future ground or
underlying lease or any future deed of trust or mortgage pursuant to the
foregoing provisions of this Section 17 is conditioned upon Landlord delivering
to Tenant from the Lessor under such future ground or underlying lease or the
holder of any such deed of trust, a non-disturbance agreement in a commercially
reasonable form agreeing, among other things, that Tenant's right to possession
of the Premises pursuant to the terms and conditions of this Lease shall not be
disturbed provided Tenant is not in default under this Lease beyond the
applicable notice and cure periods hereunder.
18. RIGHT OF ENTRY
Tenant grants Landlord or its agents the right to enter the Premises at
all reasonable times upon one (1) business day notice (except in the event of an
emergency, in which case such notice is not required) for purposes of
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inspection, exhibition, posting or notices, repair or alteration. At Landlord's
option, Landlord shall at all times have and retain a key with which to unlock
all the doors in, upon and about the Premises, excluding Tenant's vaults and
safes. It is further agreed that Landlord shall have the right to use any and
all means Landlord deems necessary to enter the Premises in an emergency.
Landlord shall have the right to place "for rent" or "for lease" signs on the
outside of the Premises, the Building and in the Common Areas. Landlord shall
also have the right to place " for sale" signs on the outside of the Building
and in the Common Areas. Tenant hereby waives any claim from, damages or for any
injury or inconvenience to or interference with Tenant's business, or any other
loss occasioned thereby except for any claim for any of the foregoing arising
out of the sole active gross negligence or willful misconduct of Landlord or its
authorized representatives.
19. ESTOPPEL CERTIFICATE
Tenant shall execute (and acknowledge if required by any lender or
ground lessor) and deliver to Landlord, within ten (10) days after Landlord
provides such to Tenant, a statement in writing certifying that this Lease is
unmodified and in full force and effect (or, if modified, stating the nature of
such modification), the date to which the Rent and other charges are paid in
advance, if any, acknowledging that there are not, to Tenant's knowledge, any
uncured defaults on the part of Landlord hereunder or specifying such defaults
as are claimed, and such other matters as Landlord may reasonably require. Any
such statement may be conclusively relied upon by Landlord and any prospective
purchaser or encumbrance of the Premises. Tenant's failure to deliver such
statement within such time shall be conclusive upon the Tenant that (a) this
Lease is in full force and effect, without modification except as may be
represented by Landlord; (b) there are no uncured defaults in Landlord's
performance; and (c) not more than one month's Rent has been paid in advance,
except in those instances when Tenant pays Rent quarterly in advance pursuant to
Section 8 hereof, then not more than three month's Rent has been paid in
advance. Failure by Tenant to so deliver such certified estoppel certificate
shall be a material default of the provisions of this Lease. Tenant shall be
liable to Landlord, and shall indemnify Landlord from and against any loss,
cost, damage or expense, incidental, consequential, or otherwise, arising or
accruing directly or indirectly, from any failure of Tenant to execute or
deliver to Landlord any such certified estoppel certificate, together with any
and all Enforcement Expenses.
20. TENANT'S DEFAULT
The occurrence of any one or more of the following events shall, at
Landlord's option, constitute a material default by Tenant of the provisions of
this Lease:
20.1 The abandonment of the Premises by Tenant or, after five (5)
business days written notice to Tenant, the vacation of the Premises by Tenant
which would cause any insurance policy to be invalidated or otherwise lapse.
Tenant agrees to notice and service of notice as provided for in this Lease and
waives any right to any other or further notice or service of notice which
Tenant may have under any statute of law now or hereafter in effect;
20.2 The failure by Tenant to make any payment of Rent, Additional Rent
or any other payment required hereunder with three (3) business days after
Landlord's delivery of written notice to Tenant that said payment is past due.
Tenant agrees that any such written notice delivered by Landlord shall, to the
fullest extent permitted by law, serve as the statutorily required notice under
applicable law. In addition to the foregoing, Tenant agrees to notice and
service of notice as provided for in this Lease;
20.3 The failure by Tenant to observe, perform or comply with any of the
conditions, covenants or provisions of this Lease (except failure to make any
payment of Rent and/or Additional Rent) and such failure is not cured within
fifteen (15) days after notice from Landlord. If such failure is susceptible of
cure but cannot reasonably be cured within the aforementioned time period (if
any), as reasonably determined by Landlord, Tenant shall promptly commence the
cure of such failure and thereafter diligently prosecute such cure to completion
within the time period specified by Landlord in any written notice regarding
such failure as may be delivered to Tenant by Landlord. In no event or
circumstance shall Tenant have more than thirty (30) days to complete any such
cure, unless otherwise expressly agreed to in writing by Landlord (in Landlord's
sole discretion); notwithstanding the foregoing, the failure of Tenant to
deliver the Letter of Credit to Landlord as and when set forth in Section 4 of
this Lease shall constitute a material default hereunder;
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20.4 The making of a general assignment by Tenant for the benefit of
creditors, the filing of a voluntary petition by Tenant or the filing of an
involuntary petition of any of Tenant's creditors seeking the rehabilitation,
liquidation, or reorganization of Tenant under any law relating to bankruptcy,
insolvency or other relief of debtors and, in the case of an involuntary action,
the failure to remove or discharge the same within sixty (60) days of such
filing, the appointment of a receiver or other custodian to take possession of
substantially all of Tenant's assets or this leasehold, Tenant's insolvency or
inability to pay Tenant's debts or failure generally to pay Tenant's debts when
due, any court entering a decree or order directing the winding up or
liquidation of Tenant or of substantially all of Tenant's assets, Tenant taking
any action toward the dissolution or winding up of Tenant's affairs, the
cessation or suspension of Tenant's use of the Premises, or the attachment,
execution or other judicial seizure of substantially all of Tenant's assets or
this leasehold;
20.5 Tenant's use or storage of Hazardous Materials in, on or about the
Premises, the Building, the Lot and/or the Park other than as expressly
permitted by the provisions of Section 29 below which is not cured with five (5)
business days' notice from Landlord; or
20.6 The making of any material misrepresentation or omission by Tenant
in any materials delivered by or on behalf of Tenant to Landlord pursuant to
this Lease.
21. REMEDIES FOR TENANT'S DEFAULT
21.1 LANDLORD'S RIGHTS: In the event of Tenant's material default under
this Lease, Landlord may terminate Tenant's right to possession of the Premises
by any lawful means in which case upon delivery of written notice by Landlord
this Lease shall terminate on the date specified by Landlord in such notice and
Tenant shall immediately surrender possession of the Premises to Landlord. In
addition, the Landlord shall have the immediate right of re-entry whether or not
this Lease is terminated, and if this right of re-entry is exercised following
abandonment of the Premises by Tenant, Landlord may consider any personal
property belonging to Tenant and left on the Premises to also have been
abandoned. No re-entry or taking possession of the Premises by Landlord pursuant
to this Section 21 shall be construed as an election to terminate this Lease
unless a written notice of such intention is given to Tenant. If Landlord relets
the Premises or any portion thereof, (i) Tenant shall be liable immediately to
Landlord for all reasonable costs Landlord incurs in reletting the Premises or
any part thereof, including, without limitation, broker's commissions, expenses
of cleaning, redecorating, and further improving the Premises and other similar
costs (collectively, the "Reletting Costs"), and (ii) the rent received by
Landlord from such reletting shall be applied to the payment of, first, any
indebtedness from Tenant to Landlord other than Base Rent, Operating Expenses,
Tax Expenses, Common Area Utility Costs and Utility Expenses; second, all costs
including maintenance, incurred by Landlord in reletting; and, third, Base Rent,
Operating Expenses, Tax Expenses, Common Area Utility Costs, Utility Expenses,
and all other sums due under this Lease. Any and all of the Reletting Costs
shall be fully chargeable to Tenant and shall not be prorated or otherwise
amortized in relation to any new lease for the Premises or any portion thereof.
After deducting the payments referred to above, any sum remaining from the
rental Landlord received from reletting shall be held by Landlord and applied in
payment of future Rent as Rent becomes due under this Lease. In no event shall
Tenant be entitled to any excess rent received by Landlord. Reletting may be for
a period shorter or longer than the remaining term of this Lease. No act by
Landlord other than giving written notice to Tenant shall terminate this Lease.
Act of maintenance, efforts to relet the Premises or the appointment of a
receiver on Landlord's initiative to protect Landlord's interest under this
Lease shall not constitute a termination of Tenant's right to possession. So
long as this Lease is not terminated, Landlord shall have the right to remedy
any default of Tenant, to maintain or improve the Premises, to cause a receiver
to be appointed to administer the Premises and new or existing subleases and to
add to the Rent payable hereunder all of Landlord's reasonable costs in so
doing, with interest at the maximum rate permitted by law from the date of such
expenditure.
21.2 DAMAGES RECOVERABLE: If Tenant breaches this Lease and abandons the
Premises before the end of the Term, or if Tenant's right to possession is
terminated by Landlord because of a breach or default under this Lease, then in
either such case, Landlord may recover from Tenant all damages suffered by
Landlord as a result of Tenant's failure to perform its obligations hereunder,
including, but not limited to, the cost of any Tenant Improvements constructed
by or on behalf of Tenant pursuant to Exhibit B hereto, the portion of any
broker's or leasing agent's commission incurred with respect to the leasing of
the Premises to Tenant for the balance of the Term of the Lease remaining after
the date on which Tenant is in default of its obligations hereunder, and all
Reletting Costs, and the worth at the time of the award (computed in accordance
with paragraph (3) of Subdivision
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(a) of Section 1951.2 of the California Civil Code) of the amount by which the
Rent then unpaid hereunder for the balance of the Lease Term exceeds the amount
of such loss of Rent for the same period which Tenant proves could be reasonably
avoided by Landlord and in such case, Landlord prior to the award, may relet the
Premises for the purpose of mitigating damages suffered by Landlord because of
Tenant's failure to perform its obligations hereunder; provided, however, that
even though Tenant has abandoned the Premises following such breach, this Lease
shall nevertheless continue in full force and effect for as long as Landlord
does not terminate Tenant's right of possession, and until such termination,
Landlord shall have the remedy described in Section 1951.4 of the California
Civil Code (Landlord may continue this Lease in effect after Tenant's breach and
abandonment and recover Rent as it becomes due, if Tenant has the right to
sublet or assign, subject only to reasonable limitations) and may enforce all
its rights and remedies under this Lease, including the right to recover the
Rent from Tenant as it becomes due hereunder. The "worth at the time of the
award" within the meaning of Subparagraphs (a)(1) and (a)(2) of Section 1951.2
of the California Civil Code shall be computed by allowing interest at the rate
of ten percent (10%) per annum. Tenant waives redemption or relief from
forfeiture under California Code of Civil Procedure Sections 1174 and 1179, or
under any other present or future law, in the event Tenant is evicted or
Landlord takes possession of the Premises by reason of any default of Tenant
hereunder.
21.3 RIGHTS AND REMEDIES CUMULATIVE: The foregoing rights and remedies
of Landlord are not exclusive; they are cumulative in addition to any rights and
remedies now or hereafter existing at law, in equity by statute or otherwise, or
to any equitable remedies Landlord may have, and to any remedies Landlord may
have under bankruptcy laws or laws affecting creditor's rights generally. In
addition to all remedies set forth above, if Tenant materially defaults under
this Lease, any and all Base Rent waived by Landlord under Section 3 above shall
be immediately due and payable to Landlord and all options granted to Tenant
hereunder shall automatically terminate, unless otherwise expressly agreed to in
writing by Landlord.
21.4 WAIVER OF A DEFAULT: The waiver by Landlord of any default of any
provision of this Lease shall not be deemed or construed a waiver of any other
default by Tenant hereunder or of any subsequent default of this Lease, except
for the default specified in the waiver.
22. HOLDING OVER
If Tenant holds possession of the Premises after the expiration of the
Term of this Lease with Landlord's consent, Tenant shall become a tenant from
month-to-month upon the terms and provision of this Lease, provided the monthly
Base Rent during such hold over period shall be 125% of the Base Rent due on the
last month of the Lease Term, payable in advance on or before the first day of
each month. Acceptance by Landlord of the monthly Base Rent without the
additional twenty-five percent (25%) increase of Base Rent shall not be deemed
or construed as a waiver by Landlord of any of its rights to collect the
increased amount of the Base Rent as provided herein at any time. Such
month-to-month tenancy shall not constitute a renewal or extension for any
further term. All options, if any, granted under the terms of this Lease shall
be deemed automatically terminated and be of no force or effect during said
month-to-month tenancy. Tenant shall continue in possession until such tenancy
shall be terminated by either Landlord or Tenant giving written notice of
termination to the other party at least thirty (30) days prior to the effective
date of termination. This paragraph shall not be construed as Landlord's
permission for Tenant to hold over. Acceptance of Base Rent by Landlord
following expiration or termination of this Lease shall not constitute a renewal
of this Lease.
23. LANDLORD'S DEFAULT
Landlord shall not be deemed in breach or default of this Lease unless
Landlord fails within a reasonable time to perform an obligation required to be
performed by Landlord hereunder. For purposes of this provision, a reasonable
time shall not be less than thirty (30) days after receipt by Landlord of
written notice specifying the nature of this obligation Landlord has not
performed; provided, however, that if the nature of Landlord's obligation is
such that more than thirty (30) days, after receipt of written notice, is
reasonably necessary for its performance, then Landlord shall not be in breach
or default of this Lease if performance of such obligation is commenced within
such thirty (30) day period and thereafter diligently pursued to completion. In
providing notice to Landlord hereunder, Tenant shall also comply with any notice
requirements under Section 33 below.
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24. PARKING
Tenant shall have a license to use the number of parking spaces
specified in the Basic Lease Information. Landlord shall exercise reasonable
efforts to insure that such spaces are available to Tenant for its use, but
Landlord shall not be required to enforce Tenant's right to use the same.
25. SALE OF PREMISES
In the event of any sale of Premises by Landlord or the cessation
otherwise of Landlord's interest therein, Landlord shall be and is hereby
released from any and all of its obligations to perform or further perform under
this Lease and from all liability hereunder accruing from or after the date of
such sale; and the purchaser, at such sale or any subsequent sale of the
Premises shall be deemed, without any further agreement between the parties or
their successors in interest or between the parties and any such purchaser, to
have assumed and agreed to carry out any and all of the covenants and
obligations of the Landlord under this Lease. For purposes of this Section 25,
the term "Landlord" means only the owner and/or agent of the owner as such
parties exist as of the date on which Tenant executes this Lease. A ground lease
or similar long term lease by Landlord of the entire Building, of which Premises
are a part, shall be deemed a sale within the meaning of this Section 25. Tenant
agrees to attorn to such new owner provided such new order does not disturb
Tenant's use, occupancy or quiet enjoyment of the Premises so long as Tenant is
not in default of any of the provisions of this Lease.
26. WAIVER
No delay or omission in the exercise of any right or remedy of Landlord
on any default by Tenant shall impair such a right or remedy or be construed as
a waiver. No delay or omission in the exercise of any right or remedy of Tenant
on any default by Landlord shall impair such a right or remedy or be construed
as a waiver. The subsequent acceptance of Rent by Landlord after default by
Tenant of any covenant or term of this Lease shall not be deemed a waiver of
such default, other than a waiver of timely payment for the particular Rent
payment involved, and shall not prevent Landlord from maintaining an unlawful
detainer or other action based on such breach. No payment by Tenant or receipt
by Landlord of a lesser amount than the monthly Rent and other sums due
hereunder shall be deemed to be other than on account of the earliest Rent or
other sums due, nor shall any endorsement or statement on any check or
accompanying any check or payment be deemed an accord and satisfaction; and
Landlord may accept such check or payment without prejudice to Landlord's right
to recover the balance of such Rent or other sum or pursue any other remedy
provided in this Lease. No failure, partial exercise or delay on the part of the
Landlord in exercising any right, power or privilege hereunder shall operate as
a waiver thereof.
27. CASUALTY DAMAGE
If the Premises or any part thereof shall be damaged by fire or other
casualty, Tenant shall give prompt written notice thereof to Landlord. In case
the Building shall be so damaged by fire or other casualty that substantial
alteration or reconstruction of the Building shall, in Landlord's reasonable
opinion, be required (whether or not the Premises shall have been damaged by
such fire or other casualty), Landlord may, at its option, terminate this Lease
by notifying Tenant in writing of such termination within ninety (90) days after
the date of such damage, in which event the Rent shall be abated as of the date
of such damage. If Landlord does not elect to terminate this Lease, and provided
insurance proceeds and any contributions from Tenant, if necessary, are
available to fully repair the damage, Landlord shall within one hundred twenty
(120) days after the date of such damage commence to repair and restore the
Building and shall proceed with reasonable diligence to restore the Building
(except that Landlord shall not be responsible for delays outside its control)
to substantially the same condition in which it was immediately prior to the
happening of the casualty; provided, Landlord shall not be required to rebuild,
repair, or replace any part of Tenant's furniture, furnishings, fixtures and/or
equipment removable by Tenant or any improvements, alterations or additions
installed by or for the benefit of Tenant under the provisions of this Lease.
Landlord shall not in any event be required to spend for such work an amount in
excess of the insurance proceeds (excluding any deductible) and any
contributions from Tenant, if necessary, actually received by Landlord as a
result of the fire or other casualty. Landlord shall not be liable for any
inconvenience or annoyance to Tenant, injury to the business of Tenant, loss of
use of any part of the Premises by the Tenant or loss of Tenant's personal
property resulting in any way from such damage or the repair thereof, except to
the extent caused by Landlord's gross negligence or willful misconduct, and
except that, subject to the provision of the next sentence, Landlord shall allow
Tenant a fair diminution of Rent during the time and to the extent the Premises
are unfit for occupancy. Notwithstanding
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anything to the contrary contained herein, if the Premises or any other portion
of the Building be damaged by fire or other casualty resulting from the
intentional or negligent acts or omissions of Tenant or any of Tenant's
Representatives; (i) the Rent shall not be diminished during the repair of such
damage, (ii) Tenant shall not have any right to terminate this Lease due to the
occurrence of such casualty or damage, and (iii) Tenant shall be liable to
Landlord for the cost and expense of the repair and restoration of all or any
portion of the Building caused thereby (including, without limitation, any
deductible) to the extent such cost and expenses is not covered by insurance
proceeds. In the event the holder of any indebtedness secured by the Premises
requires that the insurance proceeds he applied to such indebtedness, then
Landlord shall have the right to terminate this Lease by delivering written
notice of termination to Tenant within thirty (30) days after the date of notice
to Tenant of any such event, whereupon all rights and obligations shall cease
and terminate hereunder except for those obligations expressly intended to
survive any such termination of this Lease. Except as otherwise provided in this
Section 27, Tenant hereby waives the provisions of Sections 1932(2), 1933(4),
1941 and 1942 of the California Civil Code.
28. CONDEMNATION
If twenty-five percent (25%) or more of the Premises is condemned by
eminent domain, inversely condemned or sold in lieu of condemnation for any
public or quasi-public use or purpose ("Condemned"), then Tenant or Landlord may
terminate this Lease as of the date when physical possession of the Premises is
taken and title vests in such condemning authority, and Rent shall be adjusted
to the date of termination. Tenant shall not because of such condemnation assert
any claim against Landlord or the condemning authority for any compensation
because of such condemnation, and Landlord shall be entitled to receive the
entire amount of any award without deduction for any estate of interest or other
interest of Tenant; provided, however, the foregoing provisions shall not
preclude Tenant, at Tenant's sole cost and expense, from obtaining any separate
award to Tenant for loss of or damage to Tenant's trade fixtures and removable
personal property or for damages for cessation of interruption of Tenant's
business provided such award is separate from Landlord's award and provided
further such separate award neither diminishes nor impairs the award otherwise
payable to Landlord. In addition to the foregoing, Tenant shall be entitled to
seek compensation for the relocation costs recoverable by Tenant pursuant to the
provisions of California Government Code Section 7262. If neither party elects
to terminate this Lease, Landlord shall, if necessary, promptly proceed to
restore the Premises or the Building to substantially its same condition prior
to such partial condemnation, allowing for the reasonable effects of such
partial condemnation, and a proportionate allowance shall be made to Tenant, as
reasonably determined by Landlord, for the Rent corresponding to the time during
which, and to the part of the Premises of which, Tenant is deprived on account
of such partial condemnation and restoration. Landlord shall not be required to
spend funds for restoration in excess of the amount received by Landlord as
compensation awarded.
29. ENVIRONMENTAL MATTERS/HAZARDOUS MATERIALS
29.1 HAZARDOUS MATERIALS DISCLOSURE CERTIFICATE: Prior to executing this
Lease, Tenant has completed, executed and delivered to Landlord Tenant's Initial
Hazardous Materials Disclosure Certificate (the "Initial HazMat Certificate"), a
copy of which is attached hereto as Exhibit G and incorporated herein by this
reference. Tenant covenants, represents and warrants to Landlord that the
information on the Initial HazMat Certificate is true and correct and accurately
describes the use(s) of Hazardous Materials which will be made and/or used on
the Premises by Tenant. Tenant shall commencing with the date which is one year
from the Commencement Date and continuing every year thereafter, complete,
execute, and deliver to Landlord, a Hazardous Materials Disclosure Certificate
("the HazMat Certificate") describing Tenant's present use of Hazardous
Materials on the Premises, and any other reasonably necessary documents as
requested by Landlord. The HazMat Certificate required hereunder shall be in
substantially the form as that which is attached hereto as Exhibit E.
29.2 DEFINITION OF HAZARDOUS MATERIALS: As used in this Lease, the term
Hazardous Materials shall mean and include (a) any hazardous or toxic wastes,
materials or substances, and other pollutants or contaminants, which are or
become regulated by any Environmental Laws; (b) petroleum, petroleum by
products, gasoline, diesel fuel, crude oil or any fraction thereof; (c) asbestos
and asbestos containing material, in any form, whether friable or non-friable;
(d) polychlorinated biphenyls; (e) radioactive materials; (f) lead and
lead-containing materials; (g) any other material, waste or substance displaying
toxic, reactive, ignitable or corrosive characteristics, as all such terms are
used in their broadest sense, and are defined or become defined by any
Environmental Law (defined below); or (h) any materials which cause or threatens
to cause a nuisance upon or waste to any portion of the Premises, the
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Building, the Lot, the Park or any surrounding property; or poses or threatens
to pose a hazard to the health and safety of persons on the Premises or any
surrounding property.
29.3 PROHIBITION; ENVIRONMENTAL LAWS: Tenant shall not be entitled to
use nor store any Hazardous Materials on, in, or about the Premises, the
Building, the Lot and the Park, or any portion of the foregoing, without, in
each instance, obtaining Landlord's prior written consent thereto. If Landlord
consents to any such usage or storage, then Tenant shall be permitted to use
and/or store only those Hazardous Materials that are necessary for Tenant's
business and to the extent disclosed in the HazMat Certificate (and any updates
thereof) and as expressly approved by Landlord in writing, provided that such
usage and storage is only to the extent of the quantities of Hazardous Materials
as specified in the then applicable HazMat Certificate as expressly approved by
Landlord and provided further that such usage and storage is in full compliance
with any and all local, state and federal environmental, health and/or
safety-related laws, statutes, orders, standards, courts' decisions, ordinances,
rules and regulations (as interpreted by judicial and administrative decisions),
decrees, directives, guidelines, permits or permit conditions, currently
existing and as amended, enacted, issued or adopted in the future which are or
become applicable to Tenant or all or any portion of the Premises (collectively,
the "Environmental Laws"). Tenant agrees that any changes to the type and/or
quantities of Hazardous Materials specified in the most recent HazMat
Certificate may be implemented only with the prior written consent of Landlord,
which consent may be given or withheld in Landlord's sole discretion. Tenant
shall not be entitled nor permitted to install any tanks under, on or about the
Premises for the storage of Hazardous Materials without the express written
consent of Landlord, which may be given or withheld in Landlord's sole
discretion. Landlord shall have the right during ordinary business hours during
the Term of this Lease, upon one business day's advance written notice to (I)
inspect the Premises, (ii) conduct tests and investigations to determine whether
Tenant is in compliance with the provisions of this Section 29, and (iii)
request lists of all Hazardous Materials used, stored or otherwise located on,
under or about any portion of the Premises and/or the Common Areas. The cost of
all such inspections, tests and investigations shall be borne solely by Tenant,
if Landlord reasonably determines that Tenant or any Tenant's Representatives
are directly or indirectly responsible in any manner for any contamination
revealed by such inspections, costs and investigations. The aforementioned
rights granted herein to Landlord and its representatives shall not create (a) a
duty on Landlord's part to inspect, test, investigate, monitor or otherwise
observe the Premises or the activities of Tenant and Tenant's Representatives
with respect to Hazardous Materials, including without limitation, Tenant's
operation, use and any remediation related thereto, or (b) liability on the part
of Landlord and its representatives for Tenant's use, storage, disposal or
remediation of Hazardous Materials, it being understood that Tenant shall be
solely responsible for all liability in connection therewith.
29.4 TENANT'S ENVIRONMENTAL OBLIGATIONS: Tenant shall give to Landlord
immediate verbal and follow-up written notice of any spills, releases,
discharges, disposals, emissions, migrations, removals or transportation of
Hazardous Materials on, under or about any portion of the Premises or in any
Common Areas. Tenant, at its sole cost and expense, covenants and warrants to
promptly investigate, clean up, remove, restore and otherwise remediate
(including, without limitation, preparation of any feasibility studies or
reports and the performance of any and all closures) any spill, release,
discharge, disposal, emission, migration or transportation of Hazardous
Materials arising from or related to the intentional or negligent acts or
omissions of Tenant or Tenant's Representatives such that the affected portions
of the Park and any adjacent property are returned to the condition existing
prior to the appearance of such Hazardous Materials. Any such investigation,
clean up, removal, restoration and other remediation shall only be performed
after Tenant has obtained Landlord's prior written consent, which consent shall
not be unreasonably withheld, conditioned or delayed so long as such actions
would not potentially have a material advance long-term or short-term effect on
any portion of the Premises, the Building, the Lot or the Park. Notwithstanding
the foregoing, Tenant shall be entitled to respond immediately to an emergency
without first obtaining Landlord's prior written consent. Tenant, at its sole
cost and expense, shall conduct and perform, or cause to be conducted and
performed, all closures as required by any Environmental Laws or any agencies or
other governmental authorities having jurisdiction thereof. If Tenant fails to
so promptly investigate, clean up, remove, restore, provide closure or otherwise
so remediate, Landlord may, but without obligation to do so, take any and all
steps necessary to rectify the same and Tenant shall promptly reimburse Landlord
upon demand, for all costs and expenses to Landlord of performing investigation,
clean up, removal, restoration, closure and remediation work. All such work
undertaken by Tenant, as required herein, shall be performed in such a manner as
to enable Landlord to make full economic use of the Premises, the Building, the
Lot and the Park after the satisfactory completion of such work.
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29.5 ENVIRONMENTAL INDEMNITY: In addition to Tenant's obligations as set
forth hereinabove, Tenant and Tenant's officers and directors agree to, and
shall, protect, indemnify, defend (with counsel acceptable to Landlord) and hold
Landlord and the other Indemnitees harmless from and against any and all claims,
judgments, damages, penalties, fines, liabilities, losses (including, without
limitation, diminution in value of any portion of the Premises, the Building,
the Lot or the Park, damages for the loss of or restriction on the use of
rentable or usable space, and from any adverse impact of Landlord's marketing of
any space within the Building and/or Park), suits, administrative proceedings
and costs (including, but not limited to, attorneys' and consultant fees and
court costs) arising at any time during or after the Term of this Lease in
connection with or related to, directly or indirectly, the use, presence,
transportation, storage, disposal, migration, removal, spill, release or
discharge of Hazardous Materials on, in or about any portion of the Premises,
the Common Areas, the Building, the Lot or the Park as a result (directly or
indirectly) of the intentional or negligent acts or omissions of Tenant or any
Tenant's Representatives. Neither the written consent of Landlord to the
presence, use or storage of Hazardous Materials in, on, under or about any
portion of the Premises, the Building, the Lot and/or the Park, nor the strict
compliance by Tenant with all Environmental Laws shall excuse Tenant and
Tenant's officers and directors from its obligations of indemnification pursuant
hereto. Tenant shall not be relieved of its indemnification obligations under
the provisions of this Section 29.5 due to Landlord's status as either an
"owner" or "operator" under any Environmental Laws.
29.6 SURVIVAL: Tenant's obligations and liabilities pursuant to the
provisions of this Section 29 shall survive the expiration or earlier
termination of this Lease. If it is determined by Landlord that the condition of
all or any portion of the Premises, the Building, the Lot and/or the Park is not
in compliance with the provision of this Lease with respect to Hazardous
Materials, including without limitation all Environmental Laws at the expiration
or earlier termination of this Lease, then in Landlord's reasonable discretion,
Landlord may require Tenant to hold over possession of the Premises until Tenant
can surrender the Premises to Landlord in the condition in which the Premises
existed as of the Commencement Date and prior to the appearance of such
Hazardous Materials except for reasonable wear and tear, including without
limitation, the conduct or performance of any closures as required by any
Environmental Laws. The burden of proof hereunder shall be upon Tenant. For
purposes hereof, the term "reasonable wear and tear" shall not include any
deterioration in the condition or diminution of the value of any portion of the
Premises, the Building, the Lot and/or the Park in any manner whatsoever related
to directly, or indirectly, Hazardous Materials. Any such holdover by Tenant
will be with Landlord's consent, will not be terminable by Tenant in any event
or circumstances and will otherwise be subject to the provisions of Section 22
of this Lease.
29.7 EXCULPATION OF TENANT: Tenant shall not be liable to Landlord
(either directly or as an Operating Expense) for nor otherwise obligated to
Landlord under any provision of the Lease with respect to the following: (i) any
claim, remediation, obligation, investigation, obligation, liability, cause of
action, attorney's fees, consultants' costs, expense or damage resulting from
any Hazardous Materials present in, on or about the Premises or the Buildings to
the extent not caused or otherwise permitted, directly or indirectly, by Tenant
or Tenant's Representatives; or (ii) the removal, investigations, monitoring or
remediation of any Hazardous Materials present in, or about the Premises or the
Building caused by any source, including third parties, other than Tenant or
Tenant's Representatives; provided, however, Tenant shall be fully liable for
and otherwise obligated to Landlord under the provisions of this Lease for all
liabilities, costs, damages, penalties, claims, judgments, expenses (including
without limitation, attorneys' and experts' fees and costs) and losses to the
extent (a) Tenant or any of Tenant's Representatives contributes to the presence
of such Hazardous Materials, or Tenant and/or any of Tenant's Representatives
exacerbates the conditions caused by such Hazardous Materials, or (b) Tenant
and/or Tenant's Representatives allows or permits persons over which Tenant or
any of Tenant's Representatives had control, and/or for which Tenant or any of
Tenant's Representatives are legally responsible for, to cause such Hazardous
Materials to be present in, on, under, through or about any portion of the
Premises, the Common Areas, the Building or the Park, or (c) Tenant and/or any
of Tenant's Representatives does not take all reasonably appropriate actions to
prevent such persons over which Tenant of any of Tenant's Representatives has
control and/or for which Tenant or any of Tenant's Representatives are legally
responsible from causing the presence of Hazardous Materials in, on, under,
through or about any portion of the Premises, the Common Areas, the Building or
the Park.
30. FINANCIAL STATEMENTS
Tenant, for the reliance of Landlord, any lender holding or anticipated
to acquire a lien upon the Premises, the Building or the Park or any
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portion thereof, or any prospective purchaser of the Building or the Park or any
portion thereof, within ten (10) days after Landlord's request therefor, but not
more often than once annually so long as Tenant is not in default of this Lease,
shall deliver to Landlord the then current audited financial statements of
Tenant (including interim periods following the end of the last fiscal year for
which annual statements are available) which statements shall be prepared or
compiled by a certified public accountant and shall present fairly the financial
condition of Tenant at such dates and thus result of its operations and changes
in its financial positions for the periods ended on such dates. If an audited
financial statement has not been prepared, Tenant shall provide Landlord with an
unaudited financial statement and/or such other information, the type and form
of which are acceptable to Landlord in Landlord's reasonable discretion, which
reflects the financial condition of Tenant. If Landlord so requests, Tenant
shall deliver to Landlord an opinion of a certified public accountant, including
a balance sheet and profit and loss statement for the most recent prior year,
all prepared in accordance with generally accepted accounting principles
consistently applied. Any and all options granted to Tenant hereunder shall be
subject to and conditioned upon Landlord's reasonable approval of Tenant's
financial condition at the time of Tenant's exercise of any such option. In the
event Tenant shall remain a privately held company, Landlord shall not disclose
any of Tenant's financial statements without Tenant's consent, which consent
shall not be unreasonably withheld, conditioned or delayed, except Landlord may
disclose such financial statements to its joint venture partners, lenders,
attorneys, accountants, prospective buyers and lenders, agents, employees, and
property manager without Tenant's consent.
31. GENERAL PROVISIONS
31.1 TIME. Time is of the essence in this Lease and with respect to each
and all of its provisions in which performance is a factor.
31.2 SUCCESSORS AND ASSIGNS. The covenants and conditions herein
contained, subject to the provisions as to assignment, apply to and bind the
heirs, successors, executors, administrators and assigns of the parties hereto.
31.3 RECORDATION. Tenant shall not record this Lease or a short form
memorandum hereof with the prior written consent of the Landlord.
31.4 LANDLORD'S PERSONAL LIABILITY. The liability of Landlord (which,
for purposes of this Lease, shall include Landlord and the owner of the Building
if other than Landlord) to Tenant for any default by Landlord under the terms of
this Lease shall be limited to the actual interest of Landlord and its present
or future partners or members in the Premises or the Building and the proceeds
therefrom, and Tenant agrees to look solely to the Premises for satisfaction of
any liability and shall not look to other assets of Landlord nor seek any
recourse against the assets of the individual partners, members, directors,
officers, shareholders, agents or employees of Landlord (including without
limitation, any property management company of Landlord); it being intended that
Landlord and the individual partners, members, directors, officers,
shareholders, agents and employees of Landlord (including without limitation,
any property management company of Landlord) shall not be personally liable in
any manner whatsoever for any judgment or deficiency. The liability of Landlord
under this Lease is limited to its actual period of ownership of title to the
Building, and Landlord shall be automatically released from further performance
under this Lease upon transfer of Landlord's interest in the Premises or the
Building.
31.5 SEPARABILITY. Any provisions of this Lease which shall prove to be
invalid, void or illegal shall in no way affect, impair or invalidate any other
provisions hereof and such other provision shall remain in full force and
effect.
31.6 CHOICE OF LAW. This Lease shall be governed by, and construed in
accordance with, the laws of the State of California.
31.7 ATTORNEYS' FEES. In the event any dispute between the parties
results in litigation or other proceeding, the prevailing party shall be
reimbursed by the party not prevailing for all reasonable costs and expenses,
including, without limitation, reasonable attorneys' and experts' fees and costs
incurred by the prevailing party in connection with such litigation or other
proceeding, and any appeal thereof. Such costs, expenses and fees shall be
included in and made a part of the judgment recovered by the prevailing party,
if any.
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31.8 ENTIRE AGREEMENT. This Lease supercedes any prior agreements,
representations, negotiations or correspondence between the parties, and
contains the entire agreement of the parties on matters covered. No other
agreement, statement or promise made by any party, that is not in writing and
signed by all parties to this Lease, shall be binding.
31.9 WARRANTY OF AUTHORITY. On the date that each party executes this
Lease, each party shall deliver to the other an original certificate of status
for itself issued by the California Secretary of State or statement of
partnership for itself recorded in the county in which the Premises are located,
as applicable. Each person executing this Lease on behalf of the party
represents and warrants that (1) such person is duly and validly authorized to
do so on behalf of the entity it purports to so bind, and (2) if such party is a
partnership, corporation or trustee, that such partnership, corporation or
trustee has full right and authority to enter into this Lease and perform all of
its obligations hereunder. Tenant hereby warrants that this Lease is valid and
binding upon Tenant and enforceable against Tenant in accordance with its terms.
31.10 NOTICES. Any and all notices and demands required or permitted to
be given hereunder to Landlord shall be in writing and shall be sent: (a) by
United States mail, certified and postage prepaid; or (b) by personal delivery;
or (c) by overnight courier, addressed to Landlord at 101 Lincoln Centre Drive,
Fourth Floor, Foster City, California 94404-1167. Any and all notices and
demands required or permitted to be given hereunder to Tenant shall be in
writing and shall be sent: (i) by United Stated mail, certified and postage
prepaid; or (ii) by personal delivery to any employee or agent of Tenant over
the age of eighteen (18) years; or (ii) by overnight courier, all of which shall
be addressed to Tenant at the Premises. Notice and/or demand shall be deemed
given upon the earlier of actual receipt or the third day following deposit in
the United States mail. Any notice or requirement of service required by any
statute or law now or hereafter in effect, including, but not limited to,
California Code of Civil Procedure Sections 1161, 1161.1, and 1162 (including
any amendments, supplements or substitutions thereof), is hereby waived by
Tenant.
31.11 JOINT AND SEVERAL. If Tenant consists of more than one person or
entity, the obligations of all such persons or entities shall be joint and
several.
31.12 COVENANTS AND CONDITIONS. Each provisions to be performed by
Tenant hereunder shall be deemed to be both a covenant and a condition.
31.13 WAIVER OF JURY TRIAL. The parties hereto shall and they hereby do
waive trial by jury in any action, proceeding or counterclaim brought by either
of the parties hereto against the other on any matters whatsoever arising out of
or in any way related to this Lease, the relationship of Landlord and Tenant,
Tenant's use or occupancy of the Premises, the Building or the Part, and/or any
claim of injury, loss or damage.
31.14 INTENTIONALLY OMITTED.
31.15 UNDERLINING. The use of underlining within the Lease is for
Landlord's reference purposes only and no other meaning or emphasis is intended
by this use, nor should any be inferred.
31.16 MERGER. The voluntary or other surrender of this Lease by Tenant,
the mutual termination or cancellation hereof by Landlord and Tenant, or a
termination of this Lease by Landlord for a material default by Tenant
hereunder, shall not work a merger, and, at the sole option of Landlord, (i)
shall terminate all or any existing subleases or subtenancies, or (ii) may
operate as an assignment to Landlord of any or all of such subleases or
subtenancies. Landlord's election of either or both of the foregoing options
shall be exercised by delivery by Landlord of written notice thereof to Tenant
and all known subtenants under any sublease.
32. SIGNS
All signs and graphics of every kind visible in or from public view of
corridors or the exterior of the Premises shall be subject to Landlord's prior
written approval and shall be subject to any applicable governmental laws,
ordinances, and regulations and in compliance with Landlord's sign criteria as
same may exist from time to time or as set forth in Exhibit H hereto and made a
part hereof. Tenant shall remove all such signs and graphics prior to the
termination of this Lease. Such installations and removals shall be made in a
manner as to avoid damage
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or defacement of the Premises; and Tenant shall repair any damage or defacement,
including without limitation, discoloration caused by such installation or
removal. Landlord shall have the right, at its option, to deduct from the
Security Deposit such sums as are reasonably necessary to remove such signs,
including, but not limited to, the costs and expenses associated with any
repairs necessitated by such removal. Notwithstanding the foregoing, in no event
shall any: (a) neon, flashing or moving sign(s) or (b) signs which shall
interfere with the visibility of any sign, awning, canopy, advertising matter,
or decoration of any kind of any other business or occupant of the Building or
the Park be permitted hereunder. Tenant further agrees to maintain any such
sign, awning, canopy, advertising matter, lettering, decoration or other thing
as may be approved in good condition and repair at all times.
33. MORTGAGEE PROTECTION
Upon any default on the part of Landlord, Tenant will give written
notice by registered or certified mail to any beneficiary of a deed of trust or
mortgagee of a mortgage covering the Premises who has requested such notice and
provided Tenant with notice of their interest together with an address for
receiving notice, and shall offer such beneficiary or mortgagee a reasonable
opportunity to cure the default (which, in no event shall be less than ninety
(90) days nor more than one hundred twenty (120) days), including time to obtain
possession of the Premises by power of sale or a judicial foreclosure, if such
should prove necessary to effect a cure. If such default cannot be cured within
such time period, then such additional time as may be necessary will be given to
such beneficiary or mortgagee to effect such cure so long as such beneficiary or
mortgagee has commenced the cure within the original time period and thereafter
diligently pursues such cure to completion, in which event this Lease shall not
be terminated while such cure is being diligently pursued. Tenant agrees that
each lender to whom this Lease has been assigned by Landlord is an express third
party beneficiary hereof. Tenant shall not make any prepayment of Rent more than
one (1) month in advance without the prior written consent of each such lender,
except if Tenant is required to make quarterly payments of Rent in advance
pursuant to the provisions of Section 8 above. Tenant waives the collection of
any deposit from such lender(s) or any purchaser at a foreclosure sale of such
lender(s)' deed of trust unless the lender(s) or such purchaser shall not
actually received and not refunded the deposit. Tenant agrees to make all
payments under this Lease to the lender with the most senior encumbrance upon
receiving a direction, in writing, to pay said amounts to such lender. Tenant
shall comply with such written direction to pay without determining whether an
event of default exists under such lender's loan to Landlord.
34. QUITCLAIM
Upon any termination of this Lease, Tenant shall, at Landlord's request,
execute, have acknowledged and deliver to Landlord a quitclaim deed of Tenant's
interest in and to the Premises. If Tenant fails to so deliver to Landlord such
a quitclaim deed, Tenant hereby agrees that Landlord shall have the full
authority and right to record such a quitclaim deed signed only by Landlord and
such quitclaim deed shall be deemed conclusive and binding upon Tenant.
35. MODIFICATIONS FOR LENDER
If, in connection with obtaining financing for the Premises or any
portion thereof, Landlord's lender shall request reasonable modification(s) to
this Lease as a condition to such financing, Tenant shall not unreasonably
withhold, delay or defer to consent thereto, provided such modifications do not
materially adversely affect Tenant's rights hereunder or the use, occupancy or
quiet enjoyment of Tenant hereunder.
36. WARRANTIES OF TENANT
Tenant hereby warrants and represents to Landlord, for the express
benefit of Landlord, that Tenant has undertaken a complete and independent
evaluation of the risks inherent in the execution of this Lease and the
operation of the Premises for the use permitted hereby, and that, based upon
said independent evaluation, Tenant has elected to enter into this Lease and
hereby assumes all risks with respect thereto. Tenant hereby further warrants
and represents to Landlord, for the express benefit of Landlord, that in
entering into this Lease, Tenant has not relied upon any statement, fact,
promise or representation (whether express or implied, written or oral) not
specifically set forth herein in writing and that any statement, fact, promise
or representation (whether express or implied, written or oral) made at any time
to Tenant, which is not expressly incorporated herein in writing, is hereby
waived by Tenant.
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37. COMPLIANCE WITH AMERICANS WITH DISABILITIES ACT
Landlord and Tenant hereby agree and acknowledge that the Premises, the
Building and/or the Park may be subject to the requirements of the Americans
with Disabilities Act, a federal law codified at 42 U.S.C. 12101 et seq,
including, but not limited to Title III thereof, all regulations and guidelines
related thereto, together with any and all laws, rules, regulations, ordinances,
codes and statutes now or hereafter enacted by local or state agencies having
jurisdiction thereof, including all requirements of Title 24 of the State of
California, as the same may be in effect on the date of this Lease and may be
hereafter modified, amended or supplemented (collectively, the "ADA"). Any
Tenant Improvements to be constructed hereunder shall be in compliance with the
requirements of the ADA, and all costs incurred for purposes of compliance
therewith shall be a part of and included in the costs of the Tenant
Improvements. Tenant shall be solely responsible for conducting its own
independent investigation of this matter and for ensuring that the design of all
Tenant Improvements strictly comply with all requirement of the ADA. Subject to
reimbursement pursuant to Section 6 of the Lease, if any barrier removal work or
other work is required to the Building, the Common Areas or the Park under the
ADA, then such work shall be the responsibility of Landlord; provided, if such
work is required under the ADA as a result of Tenant's use of the Premises or
any work or alteration made to the Premises by or on behalf Tenant, then such
work shall be performed by Landlord at the sole cost and expense of Tenant.
Except as otherwise expressly provided in this provision, Tenant shall be
responsible at its sole cost and expense for fully and faithfully complying with
all applicable requirements of the ADA, including without limitation, not
discriminating against any disabled persons in the operation of Tenant's
business in or about the Premises, and offering or otherwise providing auxiliary
aids and services as, and when, required by the ADA. Within ten (10) days after
receipt, Landlord and Tenant shall advise the other party in writing, and
provide the other copies of (as applicable), any notices alleging violation of
the ADA relating to any portion of the Premises or the Building; any claims made
or threatened in writing regarding noncompliance with the ADA and relating to
any portion of the Premises or the Building; or any governmental or regulatory
actions or investigations instituted or threatened regarding noncompliance with
the ADA and relating to any portion of the Premises or the Building. Tenant
shall and hereby agrees to protect, defend (with counsel acceptable to Landlord)
and hold Landlord and the other Indemnitees harmless and indemnify the
Indemnitees from and against all liabilities, damages, claims, loses, penalties,
judgments, charges and expenses (including reasonable attorneys' fees, costs of
court and expenses necessary in the prosecution or defense of any litigation
including the enforcement of this provision) arising from or in any way related
to, directly or indirectly, Tenant's or Tenant's Representatives' violation or
alleged violation of the ADA. Tenant agrees that the obligations of Tenant
herein shall survive the expiration or earlier termination of this Lease.
38. BROKERAGE COMMISSION
Landlord and Tenant each represents and warrants for the benefit of the
other that it has had no dealings with any real estate broker, agent or finder
in connection with the Premises and/or the negotiation of this Lease, except for
the Broker(s) (as set forth on Page 1), and that it knows of no other real
estate broker, agent or finder who is or might be entitled to a real estate
broker, agent or finder who is or might be entitled to a real estate brokerage
commission or finder's fee in connection with this Lease or otherwise based upon
contacts between the claimant and Tenant. Each party shall indemnify and hold
harmless the other from and against any and all liabilities or expenses arising
out of claims made for a fee or commission by any real estate broker, agent or
finder in connection with the Premises and this Lease other than Broker(s), if
any, resulting from the actions of the indemnifying party. Any real estate
brokerage commission or finder's fee payable to the Broker(s) in connection with
this Lease shall be paid by Landlord and only be payable and applicable to the
extent of the initial Term of the Lease and to the extent of the Premises as
same exist as of the date on which Tenant executes this Lease. Unless expressly
agreed to in writing by Landlord and Broker(s) no real estate brokerage
commission or finder's fee shall be owed to, or otherwise payable to, the
Broker(s) for any renewals or other extensions of the initial Term of this Lease
or for any additional space leased by Tenant other than the Premises as same
exists as of the date on which Tenant executes this Lease. Tenant further
represents and warrants to Landlord that Tenant will not receive (i) any portion
of any brokerage commission or finder's fee payable to the Broker(s) in
connection with this Lease or (ii) any other form of compensation or incentive
from the Broker(s) with respect to this Lease.
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39. QUIET ENJOYMENT
Landlord covenants with Tenant, upon the paying of Rent and observing
and keeping the covenants, agreements and conditions of this Lease on its part
to be kept, and during the period that Tenant is not otherwise in default of any
of the terms or provisions of this Lease, and subject to the rights of any of
Landlord's lenders, (i) that Tenant shall and may peaceably and quietly hold,
occupy and enjoy the Premises and the Common Areas during the Term of this
Lease; and (ii) neither Landlord, nor any successor or assign of Landlord, shall
disturb Tenant's occupancy or enjoyment of the Premises and the Common Areas.
40. LANDLORD'S ABILITY TO PERFORM TENANT'S UNPERFORMED OBLIGATIONS
Notwithstanding anything to the contrary contained in this Lease, if
Tenant shall fail to perform any of the terms, provision, covenants or
conditions to be performed or complied with by Tenant pursuant to this Lease,
and/or if the failure of Tenant relates to a matter which in Landlord's judgment
reasonably exercised is of an emergency nature and such failure shall remain
uncured for a period of time commensurate with such emergency, then Landlord
may, at Landlord's option without any obligation to do so, and in its sole
discretion as to the necessity therefor, perform any such term, provision,
covenant, or condition, or make any such payment and Landlord by reason of so
doing shall not be liable or responsible for any loss or damage thereby
sustained by Tenant or anyone holding under or through Tenant. If Landlord so
performs any of Tenant's obligations hereunder, the full amount of the cost and
expense entailed or the payment so made or the amount of the loss so sustained
shall immediately be owing by Tenant to Landlord, and Tenant shall promptly pay
to Landlord upon demand, as Additional Rent, the full amount thereof with
interest thereon from the date of payment at the greater of (i) ten percent
(10%) per annum, or (ii) the highest rate permitted by applicable law and
Enforcement Expenses.
41. SECURITY DEPOSIT
Upon Tenant's execution of this Lease, Tenant shall deliver to Landlord,
as a Security Deposit for the performance by Tenant of its obligations under
this Lease, the amount specified in the Basic Lease Information. If Tenant is in
default, Landlord may, but without obligation to do so, use the Security
Deposit, or any portion thereof, to cure the default or to compensate Landlord
for all damages sustained by Landlord resulting from Tenant's default,
including, but not limited to the Enforcement Expenses. Tenant shall,
immediately on demand, pay to Landlord a sum equal to the portion of the
Security Deposit so applied or used so as to replenish the amount of the
Security Deposit held to increase such deposit to the amount initially deposited
with Landlord. As soon as practicable but no later than (30) days after the
termination of this Lease, Landlord shall return the Security Deposit to Tenant,
less such amounts as are reasonably necessary, as determined solely by Landlord,
to remedy Tenant's default(s) hereunder or to otherwise restore the Premises to
a clean and safe condition, reasonable wear and tear excepted. If the cost to
restore the Premises exceeds the amount of the Security Deposit, Tenant shall
promptly deliver to Landlord any and all of such excess sums as reasonably
determined by Landlord. Landlord shall not be required to keep the Security
Deposit separate from other funds, and, unless otherwise required by law, Tenant
shall not be entitled to interest on the Security Deposit. In no event or
circumstance shall Tenant have the right to any use of the Security Deposit and,
specifically, Tenant may not use the Security Deposit as a credit or to
otherwise offset any payments required hereunder, including, but not limited to,
Rent or any portion thereof.
42. SATELLITE DISH
Tenant shall have the right (but only to the extent permitted by the
City of San Diego and all agencies and governmental authorities having
jurisdiction thereof), at Tenant's sole cost and expense, to install and operate
a satellite or microwave dish or dishes and related equipment ("Satellite
Dishes") along with any necessary cables ("Cables") on a portion of the roof of
the Building to be designated by Landlord ("Roof Space") for the Term of the
Lease (the Satellite Dishes and Cables are hereinafter collectively referred to
as the "Equipment"). The location and size of the Equipment shall be subject to
Landlord's approval, not to be unreasonably withheld and which best promotes the
safety, aesthetics and efficiency of the Equipment; provided, all of the
Equipment and any modifications thereto or placement thereof shall (i) be at
Tenant's sole cost and expense, (ii) be contained visually within a roof screen
to be at Tenant's sole cost and expense, (iii) be installed and operated to
Landlord's reasonable specifications, (iv) installed, maintained, operated and
removed in accordance with all Recorded Matters, applicable Laws, and the
provisions of Section 10 of this Lease, and (v) not affect any of the structural
components or any of the systems of the Building. For purposes hereof, the
Equipment shall be construed as part of the Tenant's Property and shall be
removed by the Tenant at the expiration or earlier termination of this Lease.
Landlord shall cooperate
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reasonably with Tenant to modify the roof screen placement (subject to all
applicable Laws and Recorded Matters) if required for signal quality,
reconfiguration due to the installation of any HVAC systems and other reasonable
considerations; provided, the cost of all such modifications shall be solely the
responsibility of the Tenant. All modifications to the Building, including the
Roof Space, if any, shall be approved by the Landlord prior to commencement of
any work with respect to the Equipment. No additional rent shall be paid by
Tenant for use of the Roof Space and operation of the Equipment. The Equipment
shall remain the property of the Tenant and Tenant shall remove the Equipment
upon the expiration or earlier termination of the Lease in accordance with the
provisions of Section 10 of this Lease. Tenant shall restore the Roof Space and
any other portion of the Building affected by the Equipment to its original
condition, excepting ordinary wear and tear and/or damage or destruction due to
fire or other casualty not caused directly or indirectly by Tenant, its agents,
employees, contractors or the Equipment or any part thereof. Notwithstanding
anything to the contrary contained herein, Tenant may not assign, lease, rent,
sublet or otherwise transfer any of its interest in the Roof Space or the
Equipment. Each of the other provisions of this Lease shall be applicable to the
Equipment and the use of the Roof Space by Tenant, including without limitation,
Sections 12 and 14 of this Lease. The Equipment shall comply with all rules and
regulations of the Federal Communications Commission and all other agencies
having jurisdiction thereof. If applicable, Tenant shall provide to the Landlord
a copy of (i) the Federal Communications Commission (or other agency) grant
which has awarded frequencies to Tenant and (ii) a list of Tenant's frequencies.
Anything to the contrary contained herein notwithstanding, if, during the Lease
Term, as such Term may be extended, Landlord, in its reasonable judgment,
believes that the Equipment poses a threat to human health or otherwise may be
an environmental hazard that cannot be remediated or has not been remediated
within ten (10) days after Tenant has been notified thereof, the Tenant shall
immediately cease all operations of the Equipment and Tenant shall remove all of
the Equipment within thirty (30) days thereafter. To the best of Tenant's
knowledge, Tenant represents to Landlord that the Equipment shall not emit or
project any electromagnetic fields which pose a threat to human health or
otherwise may be an environmental hazard. In addition, Tenant shall be solely
responsible for insuring the Equipment and Landlord shall have not
responsibility therefor. Tenant shall indemnify, defend (by counsel reasonably
acceptable to Landlord) and hold harmless Landlord and the other Indemnitees
from and against any and all claims, demands, liabilities, damages, judgments,
losses, penalties, costs and expenses (including reasonable attorneys' fees)
Landlord may suffer or incur arising out of or related to the installation, use,
operation, maintenance, replacement and/or removal of the Equipment or any
portion thereof, including without limitation the cost of repairs and
replacements to the roof of the Building occasioned by the installation,
maintenance, repairs and removal of the Equipment.
43. ATTENDANT ON FIRST FLOOR OF BUILDING
Tenant shall have a non-exclusive license, which license shall be
revocable by Landlord in the event Tenant, or Tenant's Representatives, or the
attendant described below, shall not comply with any of the Provisions set forth
below within ten (10) days after written notice to Tenant, to employ, at
Tenant's sole cost and expense, an attendance for Tenant's operations to be
located on the first (1st) floor of the Building in area designated by Landlord;
provided, (i) any furniture (other than the existing reception desk, which will
be provided and owned by Landlord but maintained by Tenant), fixtures and/or
equipment for such attendant shall be at Tenant's sole cost and expense and
shall not be permanently attached to the Building or floor, (ii) upon revocation
o this license, Tenant shall have the obligation to restore the first (1st)
floor of the Building to its original condition, (iii) such attendant shall not
interfere with Landlord's operation, management, maintenance, marketing and
repair of any portion of the Building and shall work in harmony with any and all
representatives, contractors, subcontractors, employees and agents of Landlord,
(iv) all of the provisions of this Lease shall be applicable to such attendant,
including without limitation, Sections 12 and 14 of this Lease, (v) such
attendant shall (a) not interfere with other tenants' use and occupancy of their
respective premises and (b) use their commercially reasonable efforts to
minimize any disruption and inconvenience to such other tenants occupying the
first floor of the Building, and (vi) Tenant shall be fully and wholly
responsible and liable for any action, omission and/or failure to act of such
attendant and any and all damage, liability, claim, judgment, cost and expense
(collectively, "Claims") incurred as a result of or arising out of the presence,
action, omission and/or failure to act of such attendant and Tenant shall
indemnify, defend and hold Indemnitees harmless from and against all of such
Claims. Landlord and Landlord's agents, representatives, employees, and
contractors shall use their commercially reasonable efforts to work in harmony
with the attendant.
IN WITNESS WHEREOF, this Lease is executed by the parties as of the
Lease Date referenced on Page 1 of this Lease.
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TENANT:
NETPARTNERS INTERNET SOLUTIONS, INC.
A DELAWARE CORPORATION
By: /s/ illegible
--------------------------------
Its: Chairman & CEO
--------------------------------
Date: June 23, 1999
--------------------------------
By: /s/ illegible
--------------------------------
Its: VP Finance
--------------------------------
Date: June 23, 1999
--------------------------------
LANDLORD:
LEGACY-RECP SORRENTO OPCO, LLC
A DELAWARE LIMITED LIABILITY COMPANY
By: Legacy Partners Commercial, Inc.
as Manager and Agent of Landlord
By: /s/ illegible
--------------------------------
Date:
--------------------------------
<PAGE> 33
EXHIBIT A - PREMISES
This exhibit, entitled "Premises", is and shall constitute EXHIBIT A to that
certain Lease Agreement dated June 21, 1999 (the "Lease"), by and between
Legacy-RECP Sorrento OPCO, LLC, a Delaware limited liability company
("Landlord") and NETPARTNERS INTERNET SOLUTIONS, Inc. a Delaware corporation
("Tenant") for the leasing of certain premises at 10240 Sorrento Valley Road,
1st (Storage Room), 2nd (All) and 3rd (All) Floors, San Diego, California (the
"Premises").
The Premises consist of the rentable square footage of space specified in the
Base Lease Information and has the address specified in the Base Lease
Information. The Premises are a part of and are contained in the Building
specified in the Base Lease Information. The cross-hatched area depicts the
Premises within the Building.
[PICTURE]
[PICTURE]
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EXHIBIT A TO ADDENDUM TWO
[PICTURE]
<PAGE> 35
EXHIBIT A
(CONTINUED)
[PICTURE]
[PICTURE]
<PAGE> 36
EXHIBIT B TO LEASE AGREEMENT
TENANT IMPROVEMENTS
This exhibit, entitled "Tenant Improvements", is and shall constitute EXHIBIT B
to that certain Lease Agreement dated June 21, 1999 (the "Lease"), by and
between Legacy-RECP Sorrento OPCO, LLC, a Delaware limited liability company
("Landlord") and NETPARTNERS INTERNET SOLUTIONS, Inc., a Delaware corporation
("Tenant") for the leasing of certain premises located at 10240 Sorrento Valley
Road, 1st (Storage Room), 2nd (All) and 3rd (All) Floors, San Diego, California
(the "Premises"). The terms, conditions and provisions of this EXHIBIT B are
hereby incorporated into and are made a part of the Lease. Any capitalized terms
used herein and not otherwise defined herein shall have the meaning ascribed to
such terms as set forth in the Lease.
1. Tenant Improvements. Subject to the conditions set forth below, Landlord
agrees to construct and install certain improvements ("Tenant Improvements") in
the Building of which the Premises are a part in accordance with the Final
Drawings (defined below) and pursuant to the terms of this EXHIBIT B, in a good
and workman-like manner, using good quality materials.
2. Definition. "Tenant Improvements" as used in this Lease shall include only
those interior portions of the Building which are described below. "Tenant
Improvements" shall specifically not include any alterations, additions or
improvements installed or constructed by Tenant, and any of Tenant's trade
fixtures, equipment, furniture, furnishings, telephone equipment or other
personal property (collectively, "Personal Property"). The Tenant Improvements
shall include any and all interior improvements to be made to the Premises as
specified in the Final Drawings (defined below), as specified and agreed to by
Tenant and Landlord. Tenant identification signage (in accordance with Exhibit
H) shall be considered part of the Tenant Improvements.
3. Tenant's Initial Plans; the Work. Tenant desires Landlord to perform certain
Tenant Improvements in the Premises in substantial accordance with the plan(s)
or scope of work (collectively, the "Initial Plans") prepared by Legacy Partners
C.D.S., Inc., last revised June 23, 1999, a copy of which is attached hereto as
Schedule 1, and made a part hereof. Such work, as shown in the Initial Plans and
as more fully detailed in the Final Drawings (as defined and described in
Section 4 below), shall be hereinafter referred to as the "Work". Not later than
two (2) business days following Landlord's request specifying the needed
information, Tenant and/or Tenant's Representatives shall furnish to Landlord
such additional plans, drawings, specifications and finish details as Landlord
may reasonably request to enable Landlord's architects and engineers, as
applicable, to prepare mechanical, electrical and plumbing plans and to prepare
the Final Drawings, including but not limited to, a final telephone layout and
special electrical connections, if any. All plans, drawings, specifications and
other details describing the Work which have been, or are hereafter, furnished
by or on behalf of Tenant shall be subject to Landlord's approval, which
approval shall not be unreasonably withheld. Landlord shall not be deemed to
have acted unreasonably if it withholds its approval of any plans,
specifications, drawings or other details or of any Change Request (hereafter
defined in Section 11 below) because, in Landlord's reasonable opinion, the work
as described in any such item, or any Change Request, as the case may be: (a) is
likely to adversely affect Building systems, the structure of the Building or
the safety of the Building and/or its occupants; (b) might impair Landlord's
ability to furnish services to Tenant or other tenants in the Building; (c)
would increase the cost of operating the Building or the Park; (d) would violate
any applicable governmental, administrative body's or agencies' laws, rules,
regulations, ordinances, codes or similar requirements (or interpretations
thereof); (e) contains or uses Hazardous Materials; (f) would adversely affect
the appearance of the Building or the Park; (g) might adversely affect another
tenant's premises or such other tenant's use and enjoyment of such premises; (h)
is prohibited by any ground lease affecting the Building, the Lot and/or the
Park, any Recorded Matters or any mortgage, trust deed or other instrument
encumbering the building, the Lot and/or the Park; (i) is likely to be
substantially delayed because of unavailability or shortage of labor or
materials necessary to perform such work or the difficulties or unusual nature
of such work; (j) is not, at a minimum, in accordance with Landlord's Building
Standards (defined below), or (k) would increase the Tenant Improvement Costs
(defined in Section 9 below) by more than ten percent (10%) from the cost
originally estimated and anticipated by the parties. The foregoing reasons,
however, shall not be the only reasons for which Landlord may withhold its
approval, whether or not such other reasons are similar or dissimilar to the
foregoing. Neither the approval by Landlord of the Work or the Initial Plans or
any other plans, specifications, drawings or other items associated with the
Work nor Landlord's performance, supervision or monitoring of the Work shall
constitute any warranty or covenant by Landlord to Tenant of the adequacy of the
design for Tenant's intended use of the Premises. Tenant agrees to, and
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does hereby, assume full and complete responsibility to ensure that the Work and
the Final Drawings are adequate to fully meet the needs and requirements of
Tenant's intended operations of its business within the Premises and Tenant's
use of the Premises.
4. Final Drawings. If necessary for the performance of the Work and to the
extent not already included as part of the Initial Plans attached hereto,
Landlord shall promptly prepare or cause to be prepared final working drawings
and specifications for the Work (the "Final Drawings") based on and consistent
with the Initial Plans and the other plans, specifications, drawings, finish
details or other information furnished by Tenant or Tenant's Representatives to
Landlord and approved by Landlord pursuant to Section 3 above. Tenant shall
cooperate diligently with Landlord and Landlord's architect, engineer and other
representatives and Tenant shall furnish within two (2) days after any request
therefor, all information required by Landlord or Landlord's architect, engineer
or other representatives for completion of the Final Drawings. So long as the
Final Drawings are substantially consistent with the Initial Plans, Tenant shall
approve the Final Drawings within two (2) business days after receipt of same
from Landlord. Landlord and Tenant shall indicate their approval of the Final
Drawings by initialing each sheet of the Final Drawings and delivering to one
another a true and complete copy of such initialed Final Drawings. A true and
complete copy of the approved and initialed Final Drawings shall be attached to
the Lease as EXHIBIT B-1 and shall be made a part thereof. Tenant's failure to
approve or disapprove such Final Drawings within the foregoing three (3)
business day time period, shall be conclusively deemed to be approval of same by
Tenant. If Tenant reasonably disapproves of any matters included in the Final
Drawings because such items are not substantially consistent with the Initial
Plans, Tenant shall, within the aforementioned two (2) business day period,
deliver to Landlord written notice of its disapproval and Tenants shall specify
in such written notice, in sufficient details as Landlord may reasonably
require, the matters disapproved, the reasons for such disapproval, and the
specific changes or revisions necessary to be made to the Final Drawings to
cause such drawings to substantially conform to the Initial Plans. Any
additional costs associated with such requested changes or revisions shall be
paid for solely by Tenant, as the Excess Tenant Improvement Costs (defined in
Section 10 below), in cash upon written demand therefor by Landlord. Any changes
or revisions requested by Tenant must first be approved by Landlord, which
approval shall not be unreasonably withheld, subject to the provisions of
Section 3 above. If Landlord approves such requested changes or revisions,
Landlord shall cause the Final Drawings to be revised accordingly and Landlord
and Tenant shall initial each sheet of the Final Drawings as revised and attach
a true and complete copy thereof to the Lease as EXHIBIT B-1. Landlord and
Tenant hereby covenant to each other to cooperate with each other and to act
reasonably in the preparation and approval of the Final Drawings.
5. Performance of Work. As soon as practicable after Tenant and Landlord initial
and attach to the Lease as EXHIBIT B-1 a true and complete copy of the Final
Drawings, Landlord shall submit the Final Drawings to the governmental
authorities having rights of approval over the Work and shall apply for the
necessary approvals and building permits. Subject to the satisfaction of all
conditions precedent and subsequent to its obligations under this EXHIBIT B, and
further subject to the provisions of Section 10 hereof, as soon as practicable
after Landlord or its representatives have received all necessary approvals and
building permits, Bearing Construction (or other general contractor selected by
Landlord), ("Bearing") will put the Final Drawings out for bid to its licensed,
bonded and insured sub-contractors. If the Tenant Improvement Costs (which
include the bid to be received from Bearing) exceed the Tenant Improvement
Allowance, then, within three (3) business days of Landlord informing Tenant in
writing that the Tenants Improvement Costs exceed the Tenant Improvement
Allowance, Tenant, at its sole option, which must be exercised within such three
(3) business day period, shall have the right to instruct Landlord in writing to
put the Final Drawings out for bid to at least two (2) other licensed, bonded
and insured general contractors chosen by Landlord. The Tenants Improvements
shall be constructed by Bearing or such other general contractor selected by
Landlord (the general contractor which shall construct the Tenant Improvements,
whether Bearing or such other general contractor is hereinafter referred to as
the "General Contractor"), provided, however, Landlord and Tenant acknowledge
and agree that, in the event Landlord bids the Final Drawings to a General
Contractor other than Bearing, it is each party's intention that the lowest
bidder be given substantial (although not determinative) consideration in the
selection of the General Contractor. Landlord shall commence construction, or
cause the commencement of construction by the General Contractor, of the Tenant
Improvements, as soon as practicable after selection of the General Contractor.
Except as hereinafter expressly provided to the contrary, Landlord shall cause
the performance of the Work using (except as may be stated or otherwise shown in
the Final Drawings) building standard materials, quantities and procedures then
in use by Landlord ("Building Standards"). Landlord shall use commercially
reasonable efforts not to unreasonably interfere with Tenant's business
operations at the Premises during any construction undertaken by Landlord on the
first floor of the Building.
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6. Substantial Completion. Landlord and Tenant shall cause the General
Contractor to Substantially Complete (defined below) the Tenant Improvements in
accordance with the Final Drawings by the Commencement Date of the Lease as set
forth in Section 2 of the Lease (the "Completion Date"), subject to delays due
to (a) acts or events beyond its control including, but not limited to, acts of
God, earthquakes, strikes, lockouts, boycotts, casualties, discontinuance of any
utility or other service required for performance of the Work, moratoriums,
governmental agencies and weather, (b) the lack of availability or shortage of
specialized materials used in the construction of the Tenant Improvements, (c)
any matters beyond the control of Landlord, the General Contractor or any
subcontractors, (d) any changes required by the fire department, building and/or
planning department, building inspectors or any other agency having jurisdiction
over the Building, the Work and/or the Tenant Improvements (except to the extent
such changes are directly attributable to Tenant's use or Tenant's specialized
tenant improvements, in which event such delays are considered Tenant Delays)
(the events and matters set forth in Subsections (a), (b), (c) and (d) are
collectively referred to as "Force Majeure Delays"), or (c) any Tenant Delays
(defined in Section 7 below). The Tenant Improvements shall be deemed
substantially complete on the date that the building officials of the applicable
governmental agency(s) issues its temporary or final approval of the
construction of the Tenant Improvements whether in the form of the issuance of a
temporary or final permit, temporary or final certificate of occupancy or the
written approval evidencing its temporary or final inspection on the building
permit(s), or the date on which Tenant first takes occupancy of the Premises,
whichever first occurs ("Substantial Completion", or "Substantially Completed,
or "Substantially Complete"). Both Landlord and Tenant agree that any delay in
the installation of any folding door within the Premises or the door proposed to
be installed at the First Floor lobby stairway shall not be a condition of the
occurrence of Substantial Completion. If the Work is not deemed to be
Substantially Completed on or before the scheduled Completion Date, (i) Landlord
agrees to use reasonable efforts to Substantially Complete the Work as soon as
practicable thereafter, (ii) the Lease shall remain in full force and effect,
(iii) Landlord shall not be deemed to be in breach or default of the Lease or
this EXHIBIT B as a result thereof and Landlord shall have no liability to
Tenant as a result of any delay in occupancy (whether for damages, abatement of
all or any portion of the Rent, or otherwise), and (iv) except in the event of
any Tenant Delays, which will not affect the Commencement Date but will extend
the Completion Date without any penalty or liability to Landlord, and
notwithstanding anything to the contrary contained in the Lease, the
Commencement Date and the Expiration Date of the term of the Lease (as defined
in Section 2 of the Lease) shall be extended commensurately by the amount of
time attributable to such Force Majeure Delays, and Landlord and Tenant shall
execute a written amendment to the Lease evidencing such extensions of time,
substantially in the form of Exhibit F to the Lease. Subject to the provisions
of Section 10.2 of the Lease, the Tenant Improvements shall belong to Landlord
and shall be deemed to be incorporated into the Premises for all purposes of the
Lease, unless Landlord, in writing, indicates otherwise to Tenant.
In the event Landlord is unable to deliver the Premises to Tenant on or
before September 1, 1999 due solely to a Landlord Delay (defined below), then
Tenant shall be entitled to one (1) day's free Base rent for each day after
September 1, 1999 until the Premises are delivered to Tenant; provided, however,
in no event shall Tenant be entitled to receive in excess of forty-five (45)
days of free Base Rent. For example, if Landlord delivers the Premises to Tenant
on October 1, 1999, then Tenant shall not be obligated to pay Base Rent for the
period commencing October 1, 1999 through October 30, 1999. As used herein,
"Landlord Delay" means any delay in the Substantial Completion of the Tenant
Improvements which is due to any act or omission of the Landlord (wrongful,
negligent or otherwise), its agents or contractors (including acts or omissions
while acting as agent or contractor for Tenant). The term Landlord Delay shall
include, but shall not be limited to any: (1) delay in the giving of
authorizations or approvals by Landlord beyond the time periods allowed for such
approvals in this Exhibit B; (2) delay attributable to the acts or failures to
act of Landlord or Landlord's agents or contractors, where such acts or failures
to act actually delay the Substantial Completion of Tenant Improvements; and (3)
delay attributable to the interference of Landlord, its agents or contractors
with the Substantial Completion of Tenant Improvements. No Landlord Delay shall
be deemed to have occurred unless Tenant has given Landlord written notice that
an act or omission by Landlord is about to occur or has occurred which will
cause a delay in construction of the Tenant Improvements, and Landlord has
failed to cure such delay within two (2) business days after Landlord's receipt
of such notice, in which case, the number of days of delay after such notice
shall constitute a Landlord Delay. Landlord shall pay all of the costs and
expenses incurred by Landlord which result from a Landlord Delay.
7. Tenant Delays. There shall be no extension of the scheduled Commencement Date
or Expiration Date of the term of the Lease (as otherwise permissibly extended
in accordance with the provisions of Section 6 above) if
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<PAGE> 39
the Work has not been Substantially Completed by the scheduled Commencement Date
due to any delay attributable to Tenant and/or Tenant's Representatives or
Tenant's intended use of the Premises (collectively, "Tenant Delays"),
including, but not limited to, any of the following described events or
occurrences: (a) delays related to changes made or requested by Tenant to the
Work and/or the Final Drawings; (b) the failure of Tenant to furnish all or any
plans, drawings, specifications, finish details or other information required
under Section 3 and 4 above; (c) the failure of Tenant to comply with the
requirements of Section 10 below; (d) Tenant's requirements for special work or
materials, finishes, or installations other than the building Standards or
Tenant's requirements for special construction or phasing (including, but not
limited to, the door proposed to be installed at the First floor lobby stairway,
and the folding wall proposed for the training room); (e) any changes required
by the fire department, building or planning department, building inspectors or
any other agency having jurisdiction over the Building, the Work and/or the
Tenant Improvements if such changes are directly attributable to Tenant's use or
Tenant's specialized tenant improvements; (f) the performance of any additional
work pursuant to a Change Request (defined below in Section 11) which is
requested by Tenant; (g) the performance of work in or about the Premises by any
person, firm or corporation employed by or on behalf of Tenant, including,
without limitation, any failure to complete or any delay in the completion of
such work; or (h) any and all delays caused by or arising from acts or omissions
of Tenant and/or Tenant's Representatives, in any manner whatsoever, including,
but not limited to, any and all revisions to the Final Drawings. Any delays in
the construction of the Tenant Improvements due to any of the events described
above, shall in no way extend or affect the date on which Tenant is required to
commence paying Rent under the terms of the Lease. It is the intention of the
parties that all of such delays will be considered Tenant Delays for which
Tenant shall be wholly and completely responsible for any and all consequences
related to such delays, including, without limitation, any costs and expenses
attributable to increases in labor or materials.
8. Tenant Improvement Allowance. Landlord and Tenant hereby acknowledge and
agree that the Tenant Improvement Costs (defined in Section 9 below) for the
Tenant Improvements, based upon the Initial Plans approved by Landlord and
Tenant in accordance with the provisions of Section 4 above, are estimated to be
approximately Three Hundred Twenty-nine Thousand Forty-eight Dollars
($329,048.00) (the "Estimated TI Costs"). If the actual Tenant Improvement Costs
varies from this estimate by more than twenty-five percent (25%), then Landlord
may required any of the following, in its sole discretion: (a) changes be made
to the Final Drawings to reduce the cost of the Tenant Improvements and Landlord
may refuse to sign any construction contract or Change Orders to the
construction contract, as the case may be, until such changes are made to the
sole satisfaction of Landlord; (b) Tenant to deposit into a separate escrow
account cash in an amount equal to the Excess Tenant Improvement Costs (defined
in Section 10 below); (c) Tenant to provide Landlord evidence satisfactory to
Landlord, in its sole discretion, that Tenant has adequate financial resources
to pay for the Excess Tenant Improvement Costs, as solely determined by
Landlord; and/or (a) Tenants to pay all of the Excess Tenant Improvement Costs
before Landlord's contribution of the Tenant Improvement Allowance (defined in
Section 10 below); provided, however, in no event or circumstance shall the
Tenant Improvement Costs exceed the maximum amount of Four Hundred Eleven
Thousand Three Hundred Ten Dollars ($411,310.00), which amount is based on the
amount of Ten Dollars ($10.00) per rentable square foot for 41,131 square feet
of the Premises which is to be improved, as described in the Initial Plans.
Subject to the foregoing, Landlord shall provide an allowance for the planning
and construction of the Tenant Improvements for the Work to be performed in the
Premises, as described in the Initial Plans and the Final Drawings, in the
amount of Three Hundred Twenty-nine Thousand Forty-eight Dollars ($329,048.00)
(the "Tenant Improvement Allowance") based upon an allowance of Eight Dollars
($8.00) per rentable square foot for 41,131 square feet of the Premises which is
to be improved, as described in the Initial Plans and the Final Drawings. Tenant
shall not be entitled to any credit, abatement or payment from Landlord in the
event that the amount of the Tenant Improvement Allowance specified above
exceeds the actual Tenant Improvement Costs. The Tenant Improvement Allowance
shall only be used for tenant improvements typically installed by Landlord in
office/R&D buildings. The Tenant Improvement Allowance shall be the maximum
contribution by Landlord for the Tenant Improvement Costs and shall be subject
to the provisions of Section 10 below.
9. Tenant Improvement Costs. The Tenant Improvements' cost ("Tenant Improvement
Costs") shall mean and include any and all costs and expenses of the Work,
including without limitation, all of the following:
(a) All costs of preliminary space planning and final architectural and
engineering plans and specifications (including, without limitation, the scope
of work, all plans and specifications, the Initial Plans and the Final Drawings)
for the Tenant Improvements, and architectural fees, engineering costs and fees,
and other costs associated with completion of said plans;
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(b) All costs of obtaining building permits and other necessary
authorizations and approvals from the City of San Diego and other applicable
jurisdictions;
(c) All costs of interior design and finish schedule plans and
specifications including as-built drawings;
(d) All direct and indirect costs of procuring, constructing and
installing the Tenant Improvements in the Premises, including, but not limited
to, the construction fee for overhead and profit, the cost of all on-site
supervisory and administrative staff, office, equipment and temporary services
rendered by Landlord's consultants and the General Contractor in connection with
construction of the Tenant Improvements, and all labor (including overtime) and
materials constituting the Work;
(e) All fees payable to the General Contractor, architect and
Landlord's engineering firm if they are required by Tenant to redesign any
portion of the Tenant Improvements following Tenant's approval of the Final
Drawings; and
(f) A construction management fee payable to Landlord in the amount of
the following percentages of all direct and indirect costs of procuring,
constructing and installing the Tenant Improvements in the Premises and the
Building; five percent (5%) of the first $200,000; four percent (4%) of the next
$100,000; and three percent (3%) of the remainder;
(g) All costs of design, fabrication, installation, and permitting of
Tenant identification signage, in accordance with Exhibit H.
10. Excess Tenant Improvement Costs. Prior to commencing the Work, Landlord
shall submit to Tenant a written statement of the actual Tenant Improvement
Costs (the "Actual TI Costs") (which shall include the amount of any overtime
projected as necessary to Substantially Complete the Work by the Completion
Date) as then known by Landlord, and such statement shall indicate the amount,
if any, by which the Actual TI Costs exceeds the Tenant Improvement Allowance
(the "Excess Tenant Improvement Costs"). The term "Excess Tenant Improvement
Costs" shall also include the costs related to any and all Change Orders. Tenant
agrees, within three (3) days after submission to it of such statement, to
execute and deliver to Landlord, in the form then in use by Landlord, an
authorization to proceed with the Work Tenant shall faithfully pay all of the
Excess Tenant Improvement Costs to Landlord in cash, concurrently with Tenant's
delivery to Landlord of the aforementioned signed written authorization to
proceed. No Work shall be commenced until Tenant has fully complied with the
preceding provisions of this Section 10. If Tenant fails to remit the sums so
demanded by Landlord pursuant to Section 8 above and this Section 10 within the
time periods required, Landlord may, at its option, declare Tenant in default
under the Lease.
11. Change Requests. No changes or revisions to the approved Final Drawings
shall be made by either Landlord or Tenant unless approved in writing by both
parties. Upon Tenant's request and submission by Tenant (at Tenant's sole cost
and expense) of the necessary information and/or plans and specifications for
any changes or revisions to the approved Final Drawings and/or for any work
other than the Work described in the approved Final Drawings ("Change Requests")
and the approval by Landlord of such Change Request(s), which approval Landlord
agrees shall not be unreasonably withheld, conditioned or delayed Landlord shall
perform the additional work associated with the approved Change Request(s), at
Tenant's sole cost and expense, subject, however, to the following provisions of
the Section 11. Prior to commencing any additional work related to the approved
Change Request(s), Landlord shall submit to Tenant a written statement of the
cost of such additional work and a proposed tenant change order therefor
("Change Order") in the standard form then in use by Landlord. Tenant shall
execute and deliver to Landlord such Change Order and shall pay the entire cost
of such additional work in the following described manner. Any costs related to
such approved Change Request(s), Change Order and any delays associated
therewith, shall be added to the Tenant Improvement Costs and shall be paid for
by Tenant as and with any Excess Tenant Improvement Costs as set forth in
Section 10 above. The billing for such additional costs to Tenant shall be
accompanied by evidence of the amounts billed as is customarily used in the
business. Costs related to approved Change Requests and Change Orders shall
include, without limitation, any architectural or design fees, Landlord's
construction fee for overhead and profit, the cost of all on-site supervisory
and administrative staff, office,
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equipment and temporary services rendered by Landlord and/or Landlord's
consultants, and the General Contractor's price for offering the change. If
Tenant fails to execute or deliver such Change Order, or to pay the costs
related thereto, then Landlord shall not be obligated to do any additional work
related to such approved Change Request(s) and/or Change Orders, and Landlord
may proceed to perform only the Work, as specified in the Final Drawings.
12. Termination. If the Lease in terminated prior to Completion Date, for any
reason due to the default of Tenant hereunder, in addition to any other remedies
available to Landlord under the Lease, Tenant shall pay to Landlord as
Additional Rent under the Lease, within five (5) days of receipt of a statement
therefor, any and all costs incurred by Landlord and not reimbursed or otherwise
paid by Tenant through the date of termination in connection with the Tenant
Improvements to the extent planned, installed and/or constructed as of such date
of termination include, but not limited to, any costs related to the removal of
all or any portion of the Tenant Improvements and restorations costs related
thereto. Subject to the provisions of Section 10.2 of the Lease, upon the
expiration or earlier termination of the Lease, Tenant shall not be required to
remove the Tenant Improvements it being the intention of the parties that the
Tenant Improvements are to be considered incorporated into the Building.
Notwithstanding anything to the contrary contained herein, Landlord shall have
the right to terminate the Lease, upon written notice to Tenant, if Landlord is
unable to obtain a building permit for the Tenant Improvements with Sixty (60)
days from the date the Lease is signed by Tenant.
13. Tenant Access. Landlord shall grant Tenant a license to have access to the
Premises on August 1, 1999 (prior to the Completion Date) to allow Tenant to do
other work required by Tenant to make the Premises ready for Tenant's use,
consisting of installing telephone and computer wiring and systems, and
installing cubicles (the "Tenant's Pre-Occupancy Work"). It shall be a condition
to the grant by Landlord and continued effectiveness of such license that:
(a) Tenant shall give to Landlord a written request to have such access
not less than two (2) business days prior to the date on which such proposed
access will commence (the "Access Notice"). The Access Notice shall contain or
be accompanied by each of the following items, all in form and substance
reasonably acceptable to Landlord: (i) a detailed description of and schedule
for Tenant's Pre-Occupancy Work; (ii) the names and addresses of all
contractors, subcontractors and material suppliers and all other representatives
of Tenant who or which will be entering the Premises on behalf of Tenant to
perform Tenant's Pre-Occupancy Work or will be supplying materials for such
work, and the approximate number of individuals, itemized by trade, who will be
present in the Premises; (iii) copies of all contracts, subcontracts, material
purchase orders, plans and specifications pertaining to Tenant's Pre-Occupancy
Work; (iv) copies of all licenses and permits required in connection with the
performance of Tenant's Pre-Occupancy Work; (v) certificates of insurance (in
amounts satisfactory to Landlord and with the parties identified in, or required
by, the Lease named as additional insureds) and instruments of indemnification
against all claims, costs, expenses, penalties, fines, and damages which may
arise in connection with Tenant's Pre-Occupancy Work; and (vi) assurances of the
ability of Tenant to pay for all of Tenant's Pre-Occupancy Work and/or a letter
of credit or other security deemed appropriate by Landlord securing Tenant's
lien-free completion of Tenant's Pre-Occupancy Work.
(b) Such pre-term access by Tenant and Tenant's employees, agents,
contractors, consultants, workmen, mechanics, suppliers and invites shall be
subject to scheduling by Landlord.
(c) Tenant's employees, agents, contractors, consultants, workmen,
mechanics, suppliers and invitees shall fully cooperate, work in harmony and
not, in any manner, interfere with Landlord or Landlord's agents or
representatives in performing the Work and any additional work pursuant to
approved Change Orders, Landlord's work in other areas of the Building or the
Park, or the general operation of the Building. If at any time any such person
representing Tenant shall not be cooperative or shall otherwise cause or
threaten to cause any such disharmony or interference, include, without
limitation, labor disharmony, and Tenant fails to immediately institute and
maintain corrective actions as directed by Landlord, then Landlord may revoke
such license upon twenty-four (24) hours' prior written notice to Tenant.
Landlord shall use commercially reasonable efforts (i) not to interfere with
Tenant's Pre-Occupancy Work and (ii) shall work in harmony with Tenant's agents
and representatives.
(d) Any such entry into and occupancy of the Premises or any portion
thereof by Tenant or any person or entity working for or on behalf of Tenant
shall be deemed to be subject to all of the terms, covenants, conditions
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and provisions of the Lease, excluding only the covenant to pay Rent. Landlord
shall not be liable for any injury, loss or damage which may occur to any of
Tenant's Pre-Occupancy Work made in or about the Premises or to any property
placed therein prior to the commencement of the term of the Lease, the same
being at Tenant's sole risk and liability. Tenant shall be liable to Landlord
for any damage to any portion of Premises, the Work or the additional work
related to any approved Change Orders caused by Tenant or any of Tenant's
employees, agents, contractors, consultants, workmen, mechanics, suppliers and
invitees. In the event that the performance of Tenant's Pre-Occupancy Work
causes extra costs to be incurred by Landlord or requires the use of other
Building services, Tenant shall promptly reimburse Landlord for such extra costs
and/or shall pay Landlord for such other Building services at Landlord's
standard rates then in effect.
14. Improvements by Landlord. Landlord and Tenant acknowledge and agree that, in
consideration of Tenant entering into this Lease, Landlord shall construct,
install or otherwise perform at its sole cost the following improvements:
(a) Installation of a security card key access system in the Building
elevator and at the door proposed to be installed at the First
Floor lobby stairway;
(b) Removal of eucalyptus trees (to be mutually approved by Landlord
and Tenant) to allow reasonably unobstructed view of Tenant's
exterior sign from Sorrento Valley Road;
(c) Construct acoustical ceiling, drop sprinkler heads, install carpet
to reasonably match the existing carpet (if available), provide
heating, ventilation and air conditioning, and demolish the
demising walls separating the portions of the Premises currently
in shell condition.
15. Lease Provisions; Conflict. The terms and provisions of the Lease, insofar
as they are applicable, in whole or in part, to this EXHIBIT B, are hereby
incorporated herein by reference, and specifically including all of the
provisions of Section 31 of the Lease. In the event of any conflict between the
terms of the Lease and this EXHIBIT B, the terms of this EXHIBIT B shall
prevail. Any amounts payable by Tenant to Landlord hereunder shall be deemed to
be Additional Rent under the Lease and, upon any default in the payment of same,
Landlord shall have all rights and remedies available to it as provided for in
the Lease.
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SCHEDULE 1 OF EXHIBIT B
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[PICTURE]
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SCHEDULE 1 OF EXHIBIT B
PAGE 2 OF 3
[PICTURE]
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SCHEDULE 1 OF EXHIBIT B
PAGE 3 OF 3
[PICTURE]
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EXHIBIT C TO LEASE AGREEMENT
RULES & REGULATIONS
This exhibit, entitled "Rules & Regulations", is and shall constitute EXHIBIT C
to that certain Lease Agreement dated June 21, 1999 (the "Lease"), by and
between Legacy-RECP Sorrento OPCO, LLC, a Delaware limited liability company
("Landlord") and NETPARTNERS INTERNET SOLUTIONS, Inc., a Delaware corporation
("Tenant") for the leasing of certain premises located at 10240 Sorrento Valley
Road, 1st (Storage Room), 2nd (All) and 3rd (All) Floors, San Diego, California
(the "Premises"). The terms, conditions and provisions of this EXHIBIT C are
hereby incorporated into and are made a part of the Lease. Any capitalized terms
used herein and not otherwise defined herein shall have the meaning ascribed to
such terms as set forth in the Lease:
1. No advertisement, picture or sign of any sort shall be displayed on or
outside the Premises or the Building without the prior written consent of
Landlord. Landlord shall have the right to remove any such unapproved item
without notice and at Tenant's expense.
2. Tenant shall not regularly park motor vehicles in designated parking areas
after the conclusion of normal daily business activity.
3. Tenant shall not use any method of heating or air conditioning other than
that supplied by Landlord without the prior written consent of Landlord.
4. All window coverings installed by Tenant and visible from the outside of the
Building require the prior written approval of Landlord.
5. Tenant shall not use, keep or permit to be used or kept any foul or noxious
gas or substance or any flammable or combustible materials on or around the
Premises, the Building or the Park.
6. Tenant shall not alter any lock or install any new locks or bolts on any door
at the Premises without the prior written consent of Landlord, unless said door
is part of a private office, in which case Landlord's prior consent is not
required.
7. Tenant agrees not to make any duplicate keys without the prior consent of
Landlord, unless said key operates a lock installed on a private office door, in
which case Landlord's prior consent is not required.
8. Tenant shall park motor vehicles in those general parking areas as designated
by Landlord except for loading and unloading. During those periods of loading
and unloading, Tenant shall not unreasonably interfere with traffic flow within
the Park and loading and unloading areas of other Tenants.
9. Tenant shall not disturb, solicit or canvas any occupant of the Building or
Park and shall cooperate to prevent same.
10. No person shall go on the roof without Landlord's permission.
11. Business machines and mechanical equipment belonging to Tenant which cause
noise or vibration that may be transmitted to the structure of the Building, to
such a degree as to be objectionable to Landlord or other Tenants, shall be
placed and maintained by Tenant, at Tenant's expense, on vibration eliminators
or other devices sufficient to eliminate noise or vibration.
12. All goods, including material used to store goods, delivered to the Premises
of Tenant shall be immediately moved into the Premises and shall not be left in
parking or receiving areas overnight.
13. Tractor trailers which must be unhooked or parked with dolly wheels beyond
the concrete loading areas must use steel plates or wood blocks under the dolly
wheels to prevent damage to the asphalt paving surfaces. No parking or storing
of such trailers will be permitted in the auto parking areas of the Park or on
streets adjacent thereto.
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14. Forklifts which operate on asphalt paving areas shall not have solid rubber
tires and shall only use tires that do not damage the asphalt.
15. Tenant is responsible for the storage and removal of all trash and refuse.
All such trash and refuse shall be contained in suitable receptacles stored
behind screened enclosures at locations approved by Landlord.
16. Tenant shall not store or permit the storage or placement of goods, or
merchandise or pallets or equipment of any sort in or around the Premises, the
Building, the Park or any of the Common Areas of the foregoing. No displays or
sales of merchandise shall be allowed in the parking lots or other Common Areas.
17. Tenant shall not permit any animals, including, but not limited to, any
household pets, to be brought or kept in or about the Premises, the Building,
the Park or any of the Common Areas of the foregoing.
18. Tenant shall not permit any motor vehicles to be washed on any portion of
the Premises or in the Common Areas of the Park, nor shall Tenant permit
mechanical work or maintenance of motor vehicles to be performed on any portion
of the Premises or in the Common Areas of the Park.
19. Tenant shall not waste electricity, water or air conditioning and agrees to
cooperate fully with Landlord to assure the most effective operation of the
Building's heating, ventilation and air conditioning and to comply with any
governmental energy-saving rules, laws or regulations of which Tenant has
notice, and shall refrain from attempting to adjust controls other than room
thermostats installed for Tenant's use. Tenant shall keep corridor doors closed,
and shall close window coverings at the end of each business day. Heat and air
conditioning shall be provided during ordinary business hours of generally
recognized business days, but not less than the hours of 7:00 a.m. to 6:00 p.m.
on Monday through Friday and 8:00 a.m. to 1:00 p.m. on Saturday (excluding in
any event Sundays and legal holidays).
20. Tenant shall have access to the Premises at all times. However, Landlord
reserves the right to exclude from the Building (unless Tenant leases the entire
Building) between the hours of 6:00 p.m. and 7:00 a.m. the following day, or
such other hours as may be established from time to time by Landlord, and on
Saturdays, Sundays and legal holidays, any person unless that person is known to
the person or employee in charge of the Building, has a pass, is properly
identified, or has been authorized by Tenant (as long as Tenant has notified
Landlord in advance). Tenant shall be responsible for all persons for whom its
requests passes and shall be liable to Landlord for all acts or omissions of
such persons. Landlord shall not be liable for damages for any error with regard
to the admission to or exclusion from the Building of any person. Landlord
reserves the right to prevent access to the Building in case of invasion, mob,
riot, public excitement or other commotion by closing the doors or by other
appropriate action. Should Landlord install a security card key access system,
Tenant shall pay Landlord Landlord's actual cost for each security card issued
to Tenant (including new and replacement cards).
21. Tenant shall close and lock the doors of its Premises and entirely shut off
all water faucets or other water apparatus, and, except with regard to Tenant's
computers and other equipment which requires utilities on a twenty-four hours
basis, all electricity, gas or air outlets before Tenant and its employees leave
the Premises. Tenant shall be responsible for any damage or injuries sustained
by other tenants or occupants of the Building or by Landlord for noncompliance
with this rule.
22. The toilet rooms, toilets, urinals, wash bowls and other apparatus shall not
be used for any purpose other than that for which they were constructed and no
foreign substance of any kind whatsoever shall be thrown therein. The expense of
any breakage, stoppage or damage resulting from the violation of this rule shall
be borne by the tenant who, or whose employees or invoices, shall have caused
it.
23. Landlord reserves the right to exclude or expel from the Building any person
who, in Landlord's judgment, is intoxicated or under the influence of liquor or
drugs or who is in violation of any of the Rules and Regulations of the
Building.
24. Tenant shall not use in any space or in the public halls of the Building any
mailcarts or hand trucks except those equipped with rubber tires and side guards
or such other material handling equipment as Landlord may
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approve. Tenant shall not bring any other vehicles of any kind into the Building
except as provided in the Parking Rules and Regulations.
25. Tenant shall comply with all safety, fire protection and evacuation
procedures and regulations established by Landlord or any governmental agency.
26. Tenant assumes any and all responsibility for protecting its Premises from
theft, robbery and pilferage, which includes keeping doors locked and other
means of entry to the Premises closed.
27. Landlord reserves the right to make such other and reasonable Rules and
Regulations (including Parking Rules and Regulations) as, in its judgment, may
from time to time be needed for safety and security, for care and cleanliness of
the Building and for the preservation of good order therein. Tenant agrees to
abide by all such Rules and Regulations hereinabove stated and any additional
rules and regulations which are adopted.
28. Tenant shall be responsible for the observation of all of the foregoing
rules by Tenant's employees, agents, representatives, contractors, consultants,
clients, customers, invitees, guests, subtenants and assignees.
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EXHIBIT E
HAZARDOUS MATERIALS DISCLOSURE CERTIFICATE
Your cooperation in this matter is appreciated. Initially, the information
provided by you in this Hazardous Materials Disclosure Certificate is necessary
for the Lessor (identified below) to evaluate and finalize a lease agreement
with you as lessee. After a lease agreement is signed by you and the Lessor (the
"Lease Agreement"), on an annual basis in accordance with the provisions of the
signed Lease Agreement, you are to provide an update to the information
initially provided by you in this certificate. The information contained in the
initial Hazardous Materials Disclosure Certificate and each annual certificate
provided by you thereafter will be maintained in confidentiality by Lessor
subject to release and disclosure as required by (i) any lenders and owners and
their respective environmental consultants, (ii) any prospective purchaser(s) of
all or any portion of the property on which the Premises are located, (iii)
Lessor to defend itself or its lenders, partners or representatives against any
claim or demand, and (iv) any laws, rules, regulations, orders, decrees or
ordinances, including, without limitation, court orders or subpoenas. Any and
all capitalized terms used herein, which are not otherwise defined herein, shall
have the same meaning ascribed to such term in the signed Lease Agreement. Any
questions regarding this certificate should be directed to, and when completed,
the certificate should be delivered to:
Lessor's Agent: Legacy Partners Commercial, Inc.
6480 Weathers Place, Suite 245
San Diego, California 92121
Phone: (619) 453-4800
Name of (Prospective) Lessee: __________________________________________________
Mailing Address: _______________________________________________________________
________________________________________________________________________________
Contact Person, Title and Telephone Number(s): _________________________________
Contact Person for Hazardous Waste Materials Management and Manifests and
Telephone Number(s): ___________________________________________________________
________________________________________________________________________________
Address of (Prospective) Premises: _____________________________________________
Length of (Prospective) initial Term: __________________________________________
1. GENERAL INFORMATION:
Describe the initial proposed operations to take place in, on, or about
the Premises, including, without limitation, principal products processed,
manufactured or assembled services and activities to be provided or
otherwise conducted. Existing lessees should describe any proposed changes
to on-going operations.
__________________________________________________________________________
__________________________________________________________________________
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2. USE, STORAGE AND DISPOSAL OF HAZARDOUS MATERIALS
2.1 Will any Hazardous Materials be used, generated, stored or disposed
of in, on or about the Premises? Existing lessees should describe
any Hazardous Materials which continue to be used, generated, stored
or disposed of in, on or about the Premises.
Wastes Yes [ ] No [ ]
Chemical Products Yes [ ] No [ ]
Other Yes [ ] No [ ]
If Yes is marked, please explain: __________________________________
____________________________________________________________________
____________________________________________________________________
If Yes is marked in Section 2.1, attach a list of any Hazardous Materials
to be used, generated, stored or disposed of in, on or about the Premises,
including the applicable hazard class and an estimate of the quantities of
such Hazardous Materials at any given time; estimated annual throughput;
the proposed location(s) and method of storage (excluding nominal amounts
of ordinary household cleaners and janitorial supplies which are not
regulated by any Environmental Laws); and the proposed location(s) and
method of disposal for each Hazardous Material, including, the estimated
frequency, and the proposed contractors or subcontractors. Existing
lessees should attach a list setting forth the information requested above
and such list should include actual data from on-going operations and the
identification of any variations in such information from the prior year's
certificate.
3. STORAGE TANKS AND SUMPS
3.1 Is any above or below ground storage of gasoline, diesel, petroleum,
or other Hazardous Materials in tanks or sumps proposed in, on or
about the Premises? Existing lessees should describe any such actual
or proposed activities.
Yes [ ] No [ ]
If Yes, please explain: ____________________________________________
____________________________________________________________________
____________________________________________________________________
4. WASTE MANAGEMENT
4.1 Has your company been issued an EPA Hazardous Waste Generator I.D.
Number? Existing lessees should describe any additional
identification numbers issued since the previous certificate.
Yes [ ] No [ ]
4.2 Has your company filed a biannual or quarterly reports as a
hazardous waste generator? Existing lessees should describe any new
report filed.
Yes [ ] No [ ]
If yes, attach a copy of the most recent report filed.
5. WASTEWATER TREATMENT AND DISCHARGE
5.1 Will your company discharge wastewater or other wastes to:
______ storm drain? ______ sewer?
______ surface water? ______ no wastewater or other wastes
discharged
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Existing lessees should indicate any actual discharges. If so,
describe the nature of any proposed or actual discharge(s).
____________________________________________________________________
____________________________________________________________________
5.2 Will any such wastewater or waste be treated before discharge?
Yes [ ] No [ ]
If yes, describe the type of treatment proposed to be conducted.
Existing lessees should describe the actual treatment conducted.
____________________________________________________________________
____________________________________________________________________
6. AIR DISCHARGES
6.1 Do you plan for any air filtration systems or stacks to be used in
your company's operations in, on or about the Premises that will
discharge into the air; and will such air emissions be monitored?
Existing lessees should indicate whether or not there are any such
air filtration systems or stacks in use in, on or about the Premises
which discharge into the air and whether such air emissions are
being monitored.
Yes [ ] No [ ]
If Yes, please describe: ___________________________________________
____________________________________________________________________
____________________________________________________________________
6.2 Do you propose to operate any of the following types of equipment,
or any other equipment requiring an air emissions permit? Existing
lessees should specify any such equipment being operated in, on or
about the Premises.
______ Spray booth(s) ______ Incinerator(s)
______ Dip tank(s) ______ Other (Please describe)
______ Drying oven(s) ______ No Equipment Requiring Air
Permits
If Yes, please describe: ___________________________________________
____________________________________________________________________
____________________________________________________________________
7. HAZARDOUS MATERIALS DISCLOSURES
7.1 Has your company prepared or will it be required to prepare a
Hazardous Materials management plan ("Management Plan") pursuant to
Fire Department or other governmental or regulatory agencies'
requirements? Existing lessees should indicate whether or not a
Management Plan is required and has been prepared.
Yes [ ] No [ ]
If yes, attach a copy of the Management Plan. Existing lessees
should attach a copy of any required updates to the Management Plan.
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7.2 Are any of the Hazardous Materials, and in particular chemicals,
proposed to be used in your operations in, on or about the Premises
regulated under Proposition 65? Existing lessees should indicate
whether or not there are any new Hazardous Materials being so used
which are regulated under Proposition 65.
Yes [ ] No [ ]
If Yes, please explain: ____________________________________________
____________________________________________________________________
____________________________________________________________________
8. ENFORCEMENT ACTIONS AND COMPLAINTS
8.1 With respect to Hazardous Materials or Environmental Laws, has your
company ever been subject to any agency enforcement actions,
administrative orders, or consent decrees or has your company
received requests for information, notice or demand letters, or any
other inquiries regarding its operations? Existing lessees should
indicate whether or not any such actions, orders or decrees have
been, or are in the process of being, undertaken or if any such
requests have been received.
Yes [ ] No [ ]
If yes, describe the actions, orders or decrees and any continuing
compliance obligations imposed as a result of these actions, orders
or decrees and also describe any requests, notices or demands, and
attach a copy of all such documents. Existing lessees should
describe and attach a copy of any new actions, orders, decrees,
requests, notices or demands not already delivered to Lessor
pursuant to the provisions of Section 29 of the signed Lease
Agreement.
____________________________________________________________________
____________________________________________________________________
____________________________________________________________________
8.2 Have there ever been, or are there now pending, any lawsuits against
your company regarding any environmental or health and safety
concerns?
Yes [ ] No [ ]
If yes, describe any such lawsuits and attach copies of the
complaint(s), cross-complaint(s), pleadings and all other documents
related thereto as requested by Lessor. Existing lessees should
describe and attach a copy of any new complaint(s),
cross-complaint(s), pleadings and other related documents not
already delivered to Landlord pursuant to the provisions of Section
29 of the signed Lease Agreement.
____________________________________________________________________
____________________________________________________________________
____________________________________________________________________
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8.3 Have there been any problems or complaints from adjacent tenants,
owners or other neighbors at your company's current facility with
regard to environmental or health and safety concerns? Existing
lessees should indicate whether or not there have been any such
problems or complaints from adjacent tenants, owners or other
neighbors at, about or near the Premises.
Yes [ ] No [ ]
If yes, please describe. Existing lessees should describe any such
problems or complaints not already disclosed to Lessor under the
provisions of the signed Lease Agreement
____________________________________________________________________
____________________________________________________________________
9. PERMITS AND LICENSES
9.1 Attach copies of all Hazardous Materials permits and licenses
including a Transporter Permit number issued to your company with
respect to its proposed operations in, on or about the Premises,
including, without limitation, any wastewater discharge permits, air
omissions permits, and use permits or approvals. Existing lessees
should attach copies of any new permits and licenses as well as any
renewals of permits or licenses previously issued.
The undersigned hereby acknowledges and agrees that (A) this Hazardous Materials
Disclosure Certificate is being delivered in connection with, and as required
by, Landlord in connection with the evaluation and finalization of a Lease
Agreement and will be attached thereto as an exhibit; (B) that this Hazardous
Materials Disclosure Certificate is being delivered in accordance with, and as
required by, the provisions of Section 29 of the Lease Agreement; and (C) that
Lessee shall have and retain full and complete responsibility and liability with
respect to any of the Hazardous Materials disclosed in the HazMat Certificate
notwithstanding Lessor's receipt and/or approval of such certificate. Lessee
further agrees that none of the following described acts or events shall be
construed or otherwise interpreted as either (a) excusing, diminishing or
otherwise limiting Lessee from the requirement to fully and faithfully perform
its obligations under the Lease with respect to Hazardous Materials, including,
without limitation, Lessee's indemnification of the Indemnitees and compliance
with all Environmental Laws, or (b) imposing upon Lessor, directly or
indirectly, any duty or liability with respect to any such Hazardous Materials,
including, without limitation, any duty on Landlord to investigate or otherwise
verify the accuracy of the representations and statements made therein or to
ensure that Lessee is in compliance with all Environmental Laws; (i) the
delivery of such certificate to Lessor and/or Lessor's acceptance of such
certificate, (ii) Lessor's review and approval of such certificate, (iii)
Lessor's failure to obtain such certificate from Lessee at any time, or (iv)
Lessor's actual or constructive knowledge of the types and quantities of
Hazardous Materials being used, stored, generated, disposed of or transported on
or about the Premises by Lessee or Lessee's Representatives. Notwithstanding the
foregoing or anything to the contrary contained herein, the undersigned
acknowledges and agrees that Lessor and its partners, lenders and
representatives may, and will, rely upon the statements, representations,
warranties, and certifications made herein and the truthfulness thereof in
entering into the Lease Agreement and the continuance thereof throughout the
term, and any renewals thereof, of the Lease Agreement.
I, (print name) ________________________________, acting with full authority to
bind the (proposed) Lessee and on behalf of the (proposed) Lessee, certify,
represent and warrant that the information contained in this certificate is true
and correct.
TENANT
By: ___________________________________
Title: ________________________________
Date: _________________________________
5
<PAGE> 54
EXHIBIT F
FIRST AMENDMENT TO LEASE AGREEMENT
CHANGE OF COMMENCEMENT DATE
This First Amendment to Lease Agreement (the "Amendment") is made and entered
into to be effective as of __________________________________, by and between
________________________ ("Landlord"), and ________________________ ("Tenant"),
with reference to the following facts:
RECITALS
A. Landlord and Tenant have entered into that certain Lease Agreement dated
______________ (the "Lease"), for the leasing of certain premises containing
approximately _______________ rentable square feet of space located at
________________________________________, California (the "Premises") as
such Premises are more fully described in the Lease.
B. Landlord and Tenant wish to amend the Commencement Date of the Lease.
NOW, THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, Landlord and Tenant hereby agree as follows:
1. Recitals: Landlord and Tenant agree that the above recitals are true and
correct.
2. The Commencement Date of the Lease shall be _______________________.
3. The last day of the Term of the Lease (the "Expiration Date") shall be
______________________.
4. The dates on which the Base Rent will be adjusted are:
for the period __________ to __________ the monthly Base Rent shall be
$_______________;
for the period __________ to __________ the monthly Base Rent shall be
$_______________; and
for the period __________ to __________ the monthly Base Rent shall be
$_______________.
5. 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 Amendment, the terms and conditions of this Amendment
shall prevail.
6. Definitions: Unless otherwise defined in this Amendment, all terms not
defined in this Amendment shall have the meaning set forth in the Lease.
7. Authority: Subject to the provisions of the Lease, this 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 Amendment.
8. The terms and provisions of the Lease are hereby incorporated in this
Amendment.
1
<PAGE> 55
IN WITNESS WHEREOF, the parties have executed this Amendment as of the date and
year first above written.
TENANT
By: ___________________________________
Title: ________________________________
Date: _________________________________
LANDLORD
Legacy Partners Commercial, Inc.
By: ___________________________________
2
<PAGE> 56
EXHIBIT G (TENANT/LANDLORD)
TENANT'S INITIAL HAZARDOUS MATERIALS DISCLOSURE CERTIFICATE
Your cooperation in this matter is appreciated. Initially, the information
provided by you in this Hazardous Materials Disclosure Certificate is necessary
for the Landlord (identified below) to evaluate and finalize a lease agreement
with you as tenant. After a lease agreement is signed by you and the Landlord
(the "Lease Agreement"), on an annual basis in accordance with the signed Lease
Agreement, you are to provide an update to the information initially provided by
you in this certificate. The information contained in the initial Hazardous
Materials Disclosure Certificate and each annual certificate provided by you
thereafter will be maintained in confidentiality by Landlord subject to release
and disclosure as required by (i) any lenders and owners and their respective
environmental consultants, (ii) any prospective purchaser(s) of all or any
portion of the property on which the Premises are located, (iii) Landlord to
defend itself or its lenders, partners or representatives against any claim or
demand, and (iv) any laws, rules, regulations, orders, decrees, or ordinances,
including, without limitation, court orders or subpoenas. Any and all
capitalized terms used herein, which are not otherwise defined herein, shall
have the same meaning ascribed to such term in the signed Lease Agreement. Any
questions regarding this certificate should be directed to, and when completed,
the certificate should be delivered to:
Lessor: Legacy-RECP Sorrento OPCO, LLC
c/o Legacy Partners Commercial, Inc.
6480 Weathers Place, Suite 245
San Diego, California 92121
Phone: (619) 453-4800
Name of (Prospective) Lessee: NETPARTNERS INTERNET SOLUTIONS, Inc.
Mailing Address: _______________________________________________________________
________________________________________________________________________________
Contact Person, Title and Telephone Number(s): _________________________________
Contact Person for Hazardous Waste Materials Management and Manifests and
Telephone Number(s): ___________________________________________________________
Address of (Prospective) Premises: 10240 Sorrento Valley Road, 2nd and 3rd
Floors, San Diego, CA
Length of (Prospective) initial Term: Three (3) years
1. GENERAL INFORMATION:
Describe the initial proposed operations to take place in, on, or about
the Premises, including, without limitation, principal products processed,
manufactured or assembled services and activities to be provided or
otherwise conducted. Existing tenants should describe any proposed changes
to on-going operations.
__________________________________________________________________________
__________________________________________________________________________
1
<PAGE> 57
2. USE, STORAGE AND DISPOSAL OF HAZARDOUS MATERIALS
2.1 Will any Hazardous Materials be used, generated, stored or disposed
of in, on or about the Premises? Existing tenants should describe
any Hazardous Materials which continue to be used, generated, stored
or disposed of in, on or about the Premises.
Wastes Yes [ ] No [ ]
Chemical Products Yes [ ] No [ ]
Other Yes [ ] No [ ]
If Yes is marked, please explain: __________________________________
____________________________________________________________________
____________________________________________________________________
2.2 If Yes is marked in Section 2.1, attach a list of any Hazardous
Materials to be used, generated, stored or disposed of in, on or
about the Premises, including the applicable hazard class and an
estimate of the quantities of such Hazardous Materials at any given
time; estimated annual throughput; the proposed location(s) and
method of storage (excluding nominal amounts of ordinary household
cleaners and janitorial supplies which are not regulated by any
Environmental Laws); and the proposed location(s) and method of
disposal for each Hazardous Material, including, the estimated
frequency, and the proposed contractors or subcontractors. Existing
tenants should attach a list setting forth the information requested
above and such list should include actual data from on-going
operations and the identification of any variations in such
information from the prior year's certificate.
3. STORAGE TANKS AND SUMPS
3.1 Is any above or below ground storage of gasoline, diesel, petroleum,
or other Hazardous Materials in tanks or sumps proposed in, on or
about the Premises? Existing tenants should describe any such actual
or proposed activities.
Yes [ ] No [ ]
If Yes, please explain: ____________________________________________
____________________________________________________________________
____________________________________________________________________
4. WASTE MANAGEMENT
4.1 Has your company been issued an EPA Hazardous Waste Generator I.D.
Number? Existing tenants should describe any additional
identification numbers issued since the previous certificate.
Yes [ ] No [ ]
4.2 Has your company filed a biannual or quarterly reports as a
hazardous waste generator? Existing tenants should describe any new
report filed.
Yes [ ] No [ ]
If yes, attach a copy of the most recent report filed.
5. WASTEWATER TREATMENT AND DISCHARGE
5.1 Will your company discharge wastewater or other wastes to:
______ storm drain? ______ sewer?
2
<PAGE> 58
______ surface water? ______ no wastewater or other wastes
discharged
Existing tenants should indicate any actual discharges. If so,
describe the nature of any proposed or actual discharge(s).
____________________________________________________________________
____________________________________________________________________
5.2 Will any such wastewater or waste be treated before discharge?
Yes [ ] No [ ]
If yes, describe the type of treatment proposed to be conducted.
Existing tenants should describe the actual treatment conducted.
____________________________________________________________________
____________________________________________________________________
6. AIR DISCHARGES
6.1 Do you plan for any air filtration systems or stacks to be used in
your company's operations in, on or about the Premises that will
discharge into the air; and will such air emissions be monitored?
Existing tenants should indicate whether or not there are any such
air filtration systems or stacks in use in, on or about the Premises
which discharge into the air and whether such air emissions are
being monitored.
Yes [ ] No [ ]
If Yes, please describe: ___________________________________________
____________________________________________________________________
____________________________________________________________________
6.2 Do you propose to operate any of the following types of equipment,
or any other equipment requiring an air emissions permit? Existing
tenants should specify any such equipment being operated in, on or
about the Premises.
______ Spray booth(s) ______ Incinerator(s)
______ Dip tank(s) ______ Other (Please describe)
______ Drying oven(s) ______ No Equipment Requiring Air
Permits
If Yes, please describe: ___________________________________________
____________________________________________________________________
____________________________________________________________________
7. HAZARDOUS MATERIALS DISCLOSURES
7.1 Has your company prepared or will it be required to prepare a
Hazardous Materials management plan ("Management Plan") pursuant to
Fire Department or other governmental or regulatory agencies'
requirements? Existing tenants should indicate whether or not a
Management Plan is required and has been prepared.
Yes [ ] No [ ]
If yes, attach a copy of the Management Plan. Existing tenants
should attach a copy of any required updates to the Management Plan.
3
<PAGE> 59
7.2 Are any of the Hazardous Materials, and in particular chemicals,
proposed to be used in your operations in, on or about the Premises
regulated under Proposition 65? Existing tenants should indicate
whether or not there are any new Hazardous Materials being so used
which are regulated under Proposition 65.
Yes [ ] No [ ]
If Yes, please explain: ____________________________________________
____________________________________________________________________
____________________________________________________________________
8. ENFORCEMENT ACTIONS AND COMPLAINTS
8.1 With respect to Hazardous Materials or Environmental Laws, has your
company ever been subject to any agency enforcement actions,
administrative orders, or consent decrees or has your company
received requests for information, notice or demand letters, or any
other inquiries regarding its operations? Existing tenants should
indicate whether or not any such actions, orders or decrees have
been, or are in the process of being, undertaken or if any such
requests have been received.
Yes [ ] No [ ]
If yes, describe the actions, orders or decrees and any continuing
compliance obligations imposed as a result of these actions, orders
or decrees and also describe any requests, notices or demands, and
attach a copy of all such documents. Existing tenants should
describe and attach a copy of any new actions, orders, decrees,
requests, notices or demands not already delivered to Landlord
pursuant to the provisions of Section 29 of the signed Lease
Agreement.
____________________________________________________________________
____________________________________________________________________
____________________________________________________________________
8.2 Have there ever been, or are there now pending, any lawsuits against
your company regarding any environmental or health and safety
concerns?
Yes [ ] No [ ]
If yes, describe any such lawsuits and attach copies of the
complaint(s), cross-complaint(s), pleadings and all other documents
related thereto as requested by Landlord. Existing tenants should
describe and attach a copy of any new complaint(s),
cross-complaint(s), pleadings and other related documents not
already delivered to Landlord pursuant to the provisions of Section
29 of the signed Lease Agreement.
____________________________________________________________________
____________________________________________________________________
____________________________________________________________________
8.3 Have there been any problems or complaints from adjacent tenants,
owners or other neighbors at your company's current facility with
regard to environmental or health and safety concerns? Existing
tenants should indicate whether or not there have been any such
problems or complaints from adjacent tenants, owners or other
neighbors at, about or near the Premises.
Yes [ ] No [ ]
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<PAGE> 60
If yes, please describe. Existing tenants should describe any such
problems or complaints not already disclosed to Lessor under the
provisions of the signed Lease Agreement
____________________________________________________________________
____________________________________________________________________
9. PERMITS AND LICENSES
9.1 Attach copies of all Hazardous Materials permits and licenses
including a Transporter Permit number issued to your company with
respect to its proposed operations in, on or about the Premises,
including, without limitation, any wastewater discharge permits, air
omissions permits, and use permits or approvals. Existing tenants
should attach copies of any new permits and licenses as well as any
renewals of permits or licenses previously issued.
The undersigned hereby acknowledges and agrees that (A) this
Hazardous Materials Disclosure Certificate is being delivered in
connection with, and as required by, Landlord in connection with the
evaluation and finalization of a Lease Agreement and will be
attached thereto as an exhibit; (B) that this Hazardous Materials
Disclosure Certificate is being delivered in accordance with, and as
required by, the provisions of Section 29 of the Lease Agreement;
and (C) that Tenant shall have and retain full and complete
responsibility and liability with respect to any of the Hazardous
Materials disclosed in the HazMat Certificate notwithstanding
Landlord's/Tenant's receipt and/or approval of such certificate.
Tenant further agrees that none of the following described acts or
events shall be construed or otherwise interpreted as either (a)
excusing, diminishing or otherwise limiting Tenant from the
requirement to fully and faithfully perform its obligations under
the Lease with respect to Hazardous Materials, including, without
limitation, Tenant's indemnification of the Indemnitees and
compliance with all Environmental Laws, or (b) imposing upon
Landlord, directly or indirectly, any duty or liability with respect
to any such Hazardous Materials, including, without limitation, any
duty on Lessor to investigate or otherwise verify the accuracy of
the representations and statements made therein or to ensure that
Tenant is in compliance with all Environmental Laws; (i) the
delivery of such certificate to Landlord and/or Landlord's
acceptance of such certificate, (ii) Tenant's review and approval of
such certificate, (iii) Landlord's failure to obtain such
certificate from Tenant at any time, or (iv) Landlord's actual or
constructive knowledge of the types and quantities of Hazardous
Materials being used, stored, generated, disposed of or transported
on or about the Premises by Tenant or Tenant's Representatives.
Notwithstanding the foregoing or anything to the contrary contained
herein, the undersigned acknowledges and agrees that Landlord and
its partners, lenders and representatives may, and will, rely upon
the statements, representations, warranties, and certifications made
herein and the truthfulness thereof in entering into the Lease
Agreement and the continuance thereof throughout the term, and any
renewals thereof, of the Lease Agreement.
I, (print name) ________________________________, acting with full authority to
bind the (proposed) Tenant and on behalf of the (proposed) Tenant, certify,
represent and warrant that the information contained in this certificate is true
and correct.
TENANT
NETPARTNERS INTERNET SOLUTIONS, Inc.
By: ___________________________________
Title: ________________________________
Date: _________________________________
5
<PAGE> 61
EXHIBIT H
SIGN CRITERIA
Tenant shall be entitled to display its business name on signs to be mounted in
the following locations, provided such exact locations shall be subject to
Landlord's reasonable approval:
(A) Tenant's name and logo on the cast fascia of the Building;
(B) Tenant's name and logo in the Building's first-floor lobby at the bottom
of the second-floor "catwalk,"
(C) Tenant's name and logo adjacent to Tenant's Premises entry doors on the
second and third floors;
(D) Tenant's name and logo on a monument sign to be installed at the entrance
to the driveway on Sorrento Valley Road. (Tenant shall pay one-half of the
costs of the monument sign structure, in addition to the entire cost of
Tenant's name and logo);
(E) Tenant's name and logo on the west fascia of the Building, but only if
signage rights at this location are also granted to one or more other
tenants.
In addition to the above, Landlord shall construct a "way-finding" sign at a
locations near the bridge showing the addresses of the Buildings within the Park
with arrows pointing in the direction such building is located. The cost of such
sign shall be divided equally between Landlord and Tenant.
Notwithstanding the above, all aspects of said signage (including, but not
limited to, size, font, color, location, etc.) shall be subject to Landlord's
reasonable approval, and must meet governmental and quasi-governmental
regulations. Furthermore, all signage shall be non-exclusive and may be shared
by other tenants.
The fabrication and installation of all Tenant signage shall be at Tenant's sole
expense. The removal of said signage and repair of any damage caused by such
removal at the end of the Term shall also be at Tenant's sole expense.
<PAGE> 62
ADDENDUM ONE
OPTION TO EXTEND THE LEASE
The Addendum One ("Addendum") is incorporated as a part of that certain Lease
Agreement dated June 21, 1999 (the "Lease"), by and between Legacy-RECP Sorrento
OPCO, LLC, a Delaware limited liability company ("Landlord") and NETPARTNERS
INTERNET SOLUTIONS, Inc., a Delaware corporation ("Tenant") for the leasing of
certain premises located at 10240 Sorrento Valley Road, 1st (Storage Room), 2nd
(All) and 3rd (All) Floors, San Diego, California as more particularly described
in Exhibit A to the Lease (the "Premises"). Any capitalized terms used herein
and not otherwise defined herein shall have the meaning ascribed to such terms
as set forth in the Lease.
1. Grant of Extension Option. Subject to the provisions of this Addendum, if
tenant has not at any time been in default of its obligations beyond applicable
cure periods more than three (3) times during any twelve (12) month period of
the initial term of this Lease (a "Chronic Default"), or is not in default in
the performance of any of its obligations under this Lease beyond applicable
cure periods at the time of Tenant's exercise of this option to extend the
initial term of this Lease, Tenant shall have the right, at its option (the
"Option"), to extend the initial term of the Lease for one (1) additional Three
(3) year period (the "Extended Term").
2. Tenant's Option Notice. If Landlord does not receive written notice from
Tenant of its exercise of this Option on date which is not more than two hundred
seventy (270) days nor less than one hundred eighty (180) days prior to the end
of the initial term of the Lease ("Option Notice"), all rights under this Option
shall automatically lapse and terminate and shall be of no further force or
effect. Time is of the essence herein.
3. Establishing the Monthly Base Rent for the Extended Term. The monthly Base
Rent for the Extended Term shall be the then current market rent for similar
space within the competitive market area of the Premises (the "Fair Rental
Value") agreed upon by and between Landlord and Tenant and their agents
appointed for this purpose. The "Fair Rental Value" of the Premises shall be
defined to mean the current market rental value of the Premises as of the
commencement of the Extended Term, taking into consideration all relevant
factors, including length of term, the uses permitted under the Lease, the
quality size, design and location of the Premises, including the condition and
value of the existing tenant improvements, and the monthly base rent paid by
tenants for premises comparable to the Premises, and located within the
competitive market area of the Premises.
If Landlord and Tenant are unable to agree on the Fair Rental Value for the
Extended Term within ten (10) days of receipt by Landlord of the Option Notice,
Landlord and Tenant each, at its cost and by giving notice to the other party,
shall appoint a competent and disinterested commercial real estate MAI appraiser
(hereinafter "appraiser") with at least ten (10) years' full-time commercial
real estate appraisal experience in the geographical area of the Premises to set
the Fair Rental Value for the Extended Term. If either Landlord or Tenant does
not appoint an appraiser within ten (10) days after the other party has given
notice of the name of its appraiser, the single appraiser appointed shall be the
sole appraiser and shall set the Fair Rental Value for the Extended Term. If two
(2) appraisers are appointed by Landlord the Tenant as stated in this paragraph,
they shall meet promptly and attempt to set the Fair Rental Value. If the two
(2) appraiser are unable to agree within ten (10) days after the second
appraiser has been appointed, they shall attempt to select a third appraiser,
meeting the qualifications stated in this paragraph within ten (10) days after
the last day the two (2) appraisers agree given to set the Fair Rental Value. If
they are unable to agree on the third appraiser, either Landlord or Tenant by
giving ten (10) days' notice to the other party, can apply to the Presiding
Judge of the Superior Court of the county in which the Premises is located for
the selection of a third appraiser who meets the qualifications stated in this
paragraph. Landlord and Tenant each shall bear on one-half (1/2) of the cost of
appointing the third appraiser and of paying the third appraiser's fee. The
third appraiser, however selected, shall be a person who has not previously
acted in any capacity for either Landlord or Tenant. Within fifteen (15) days
after the selection of the third appraiser, the third appraiser shall determine
the Fair Rental Value for the Extended Term, which Fair Rental Value shall not
be higher than the highest Fair Rental Value nor lower than the lowest Fair
Rental Value submitted by the first two appraisers as the Fair Rental Value for
the Extended Term. If either of the first two appraisers fails to submit their
opinion of the Fair Rental Value , then the single Fair Rental Value submitted
shall automatically be the monthly Base Rent for the Extended Term.
<PAGE> 63
Upon determination of the initial monthly Base Rental for the Extended Term,
pursuant to the terms outlined above, Landlord and Tenant shall immediately
execute an amendment to the Lease. Such amendment, shall set forth among other
things, the initial monthly Base Rent for the Extended Term, and the actual
commencement date and expiration date of the Extended Term and shall otherwise
be on the same terms and provisions of the Lease to the extent then applicable
(by way of example only, the provisions of Exhibit B to the Lease may not be
applicable during the Extended Term). Tenant shall have no other right to
further extend the term of the Lease under this Addendum unless Landlord and
Tenant otherwise expressly agree in writing.
4. Condition of Premises and Brokerage Commissions for the Extended Term. If
Tenant timely and properly exercises this Option, in accordance with the terms
contained herein: (1) Tenant shall accept the Premises in its then "As-Is"
condition and, accordingly, Landlord shall not be required to perform any
additional improvements to the Premises; and (2) Tenant hereby agrees that it
will solely be responsible for any and all brokerage commissions and finder's
fees payable to any broker now or hereafter procured for hired by Tenant or who
otherwise claims a commission based on any act or statement of Tenant ("Tenant's
Broker") in connection with this Option; and Tenant hereby further agrees that
Landlord shall in no event or circumstance be responsible for the payment of any
such commissions and fees to Tenant's Broker.
5. Limitations On, and Conditions To, Extension Option. At Landlord's option,
all rights of Tenant under this Option shall terminate and be of no force or
effect if any of the following individual events occur or any combination
thereof occur: (1) Tenant has been in Chronic Default at any time during the
initial term of the Lease, or is in default in the performance of any of its
obligations under this Lease beyond any applicable cure periods at the time of
Tenant's exercised of this Option; and/or (2) Tenant's financial condition is
unacceptable to Landlord at the time of Tenant's delivery to Landlord of the
Option Notice (provided, however, if there is not any substantial adverse change
in Tenant's net profits during the prior three (3) fiscal quarters of Tenant's
operations then Tenant's then existing financial condition shall be acceptable
to Landlord); and/or (3) Tenant has failed to exercise properly the Option
described in this Addendum in a timely manner in strict accordance with the
provisions of this Addendum, and/or (4) Tenant no longer has lawful possession
of the Premises under the Lease, or if the Lease has been terminated earlier,
pursuant to the terms of the Lease.
6. Time is of the Essence. Time is of the essence with respect to each and every
time period set forth in this Addendum.
<PAGE> 64
ADDENDUM TWO
RIGHT OF FIRST REFUSAL
This Addendum Two is incorporated as a part of that certain Lease Agreement
dated June 21, 1999 (the "Lease"), by and between Legacy-RECP Sorrento OPCO,
LLC, a Delaware limited liability company ("Landlord") and NETPARTNERS INTERNET
SOLUTIONS, Inc., a Delaware corporation ("Tenant") for the leasing of certain
premises located at 10240 Sorrento Valley Road, 1st (Storage Room), 2nd (All)
and 3rd (All) Floors, San Diego, California (the "Premises").
During the initial term of the Lease only, Tenant shall have a continuous First
Right to Lease ("Right of First Refusal") all or a portion of the continuous
space within the First Floor of Building 10240 (consisting of approximately
24,086 square feet), and the vacant space at Building 10220 (consisting of
approximately 15,590 square feet), as outlined on Exhibit A attached hereto and
made a part hereof (the "Expansion Space"). Tenant's right, as granted herein,
is subject tot he following conditions:
i. Tenant's Right of First Refusal shall be void if Tenant is currently
in default or has been in default more than three (3) times during any twelve
(12) month period of the initial Term of this Lease, in the performance of any
of its obligations under the Lease;
ii. Tenant's Right of First Refusal shall be subject to Landlord's
review and approval of Tenant's then current financial condition; and
iii. Tenant's Right of First Refusal shall be subject to the rights of
the then existing tenant pursuant to its existing Lease, as such Lease may be
modified, amended or extended.
Provided the above conditions are satisfied, and upon Landlord's receipt of a
third party offer to lease the Expansion Space which Landlord is willing to
accept, Landlord will offer this Right of First Refusal to Tenant in writing
stating all material terms on which Landlord proposes to lease such Expansion
Space to Tenant and Tenant shall have five (5) business days after deliver of
such notice to notify Landlord in writing ("Election Notice") of Tenant's
election to lease all the Expansion Space upon those terms. If Tenant fails to
notify Landlord of Tenant's election to lease the Expansion Space within the
time specified herein, it shall be deemed that (i) Tenant has elected not to
lease said Expansion Space, and (ii) Landlord may thereafter enter into a Lease
Agreement with a third party. Time is of the essence herein.
In the event Tenant exercises this Right of First Refusal as herein provided,
Tenant shall provide Landlord an additional Security Deposit equal to the Rent
due for the first month of Tenant's lease term for the Expansion Space, and the
parties shall have ten (10) working days after Landlord receives the Election
Notice from Tenant in which to execute an amendment to the Lease setting forth
the agree-upon terms. Upon full execution of an amendment for the Expansion
Space, the nonrefundable deposit shall be credited toward Rent or security
deposit for the Expansion Space, as agreed between the parties.
This Right of Refusal shall terminate and be of no force and effect if, at any
time, Tenant is or has been in default of the performance of any of the
covenants, conditions or agreements to be performed under this Lease, or the
Premises are being subleased at the time of this Right of First Refusal is
offered.
This Right of First Refusal is personal to Tenant and may not be assigned,
voluntarily or involuntarily, separate from or as a part of the Lease.
Should Tenant exercise the Right herein, Landlord and Tenant shall execute an
amendment to this Lease, adding the Expansion Space to the Premises and
adjusting the Rent and Tenant's Share set forth in the Basic Lease Information.
If Tenant does not elect to exercise the Right herein, based upon the material
terms proposed by Landlord, all Rights under this Right of First Refusal shall
terminate and be of no further force and effect.
<PAGE> 65
FIRST AMENDMENT TO LEASE AGREEMENT
This First Amendment to Lease Agreement (the "Amendment") is made and entered
into to be effective as of August 2, 1999, by and between Legacy-RECP Sorrento
OPCO, LLC, a Delaware limited liability company ("Landlord"), and WebSENSE,
Inc., a Delaware corporation ("Tenant"), with reference to the following facts:
RECITALS
A. Landlord and NetPartners Internet Solutions Inc., have entered into that
certain Lease Agreement dated June 21, 1999 (the "Lease"), for the leasing
of certain premises containing approximately 41,259 rentable square feet
of space located at 10240 1st (Storage Room), 2nd (All) and 3rd (All)
Floors, San Diego, California (the "Premises") as such Premises are more
fully described in the Lease.
B. NetPartners Internet Solutions, Inc., has changed it's name to WebSENSE,
Inc.
C. Landlord and Tenant wish to amend the location of the Storage Room of the
First Floor.
NOW, THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, Landlord and Tenant hereby agree as follows:
1. Recitals: Landlord and Tenant agree that the above recitals are true
and correct.
2. Exhibit A. ("Premises") of the Lease is hereby deleted in its
entirety and replaced with Exhibit A attached hereto.
3. 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 Amendment, the terms and conditions
of this Amendment shall prevail.
4. Definitions: Unless otherwise defined in this Amendment, all terms
not defined in this Amendment shall have the meaning set forth in
the Lease.
5. Authority: Subject to the provisions of the Lease, this 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 persons signing below on such party's behalf is authorized
to do so and to bind such party to the terms of this Amendment.
6. The terms and provisions of the Lease are hereby incorporated in
this Amendment.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the date and
year first above written.
TENANT: LANDLORD:
WebSENSE, Inc. Legacy-RECP Sorrento OPCO, LLC
a Delaware corporation a Delaware limited liability company
By: /s/ [illegible] By: Legacy Partners Commercial, Inc.
-------------------------------
Its: VP Financing As Manager and Agent of Landlord
-------------------------------
Date: August 4, 1999
------------------------------- By: /s/ [illegible]
-------------------------------
By: /s/ [illegible]
-------------------------------
Its: CEO Date: 9/1/99
-------------------------------
Date: August 4, 1999
-------------------------------
<PAGE> 66
EXHIBIT A
(CONTINUED)
[PICTURE]
[PICTURE]
11
<PAGE> 67
EXHIBIT A - PREMISES
This exhibit, entitled "Premises", is and shall constitute EXHIBIT A to that
certain First Amendment to Lease Agreement dated August 2, 1999 (the
"Amendment"), by and between Legacy-RECP Sorrento OPCO, LLC, a Delaware limited
liability company ("Landlord") and WEBSENSE, Inc., a Delaware corporation
("Tenant") for the leasing of certain premises at 10240 Sorrento Valley Road,
1st (Storage Room), 2nd (All) and 3rd (All) Floors, San Diego, California (the
"Premises").
The premises consist of the rentable square footage of space specified in the
Base Lease Information and has the address specified in the Base Lease
Information. The Premises are a part of and are contained in the Building
specified in the Base Lease Information. The cross-hatched area depicts the
Premises within the Building.
[PICTURE]
[PICTURE]
12
<PAGE> 68
ESTOPPEL CERTIFICATE
<TABLE>
<CAPTION>
<S> <C>
RE: Netpartners Internet Solutions, Inc., a Delaware corporation
----------------------------------------------------------------------
Tenant's Full Name
10240 Sorrento Valley Road Suite No.:
-------------------------- ----------------
Full Address
San Diego, CA 92121
------------------------------------------------------
City, State, Zip
Legacy RECP Sorrento QPCO, LLC
------------------------------------------------------
(Borrower)
TO: FREMONT INVESTMENT & LOAN
------------------------------------------------------
(Lender)
ATTN: Debi Williams
</TABLE>
Sir/Madam:
RECITALS
1. Borrower is either Lessor or the successor-in-interest to Lessor and has
applied for a loan (the "loan") from Lender.
2. The proposed Loan will be secured by, among other things, the Lease
Agreement (the "Lease") reference herein.
3. The undersigned (hereinafter called "Lessee") is the Lessee of the
above-referenced property under the following lease agreement:
3.1 Date of Lease: June 21, 1999
------------------------------------------------------
3.2 Name of Original Lessor: RECP Sorrento OPCO, LLC
--------------------------------------------
3.3 Name of Original Lessee: NETPARTNERS INTERNET SOLUTIONS, Inc.,
--------------------------------------------
company name was changed to WebSENSE, Inc. per the First Amendment
--------------------------------------------------------------------
to Lease
--------------------------------------------------------------------
3.4 Suite or Unit Number: 10240 Sorrento Valley Road
-----------------------------------------------
3.5 Net Rentable S.F.: 41,259 square feet
--------------------------------------------------
3.6 Expiration date of existing term: August 31, 2002
-----------------------------------
3.7 Number and length of options (if none, write none): One additional
-----------------
3 years
--------------------------------------------------------------------
3.8 There are no Assignments, Amendments, Addendums, Modifications,
Extensions and/or Options to the Lease, except for (if none, write
none): Addendum 1, Option To Extend The Lease (dated 6/21/99),
--------------------------------------------------------------
Addendum 2, Right of First Offer (dated 6/21/99), and First
--------------------------------------------------------------------
Amendment To Lease Agreement Change of Commencement Date, (dated
--------------------------------------------------------------------
6/2/99)
--------------------------------------------------------------------
3.9 Current Fixed Monthly Base Rent: $54,452.00
------------------------------------
3.10 Current Total Monthly Expense Reimbursement (if none, write none):
$9,065.00
3.11 Total Parking Spaces Leased (if none, write none): One exclusive and
------------------
designated
--------------------------------------------------------------------
3.12 Total Current Parking Rent (if none, write none): None
-------------------
3.13 Present or Future Rent Abatement (if none, write none): None
-------------
4. Said lease agreement, together with the assignments, amendments,
addendums, modifications, extensions and/or options described above
(collectively called "Lease") constitute the entire agreement between
Lessee and Lessor with respect to the Leased Premises.
<PAGE> 69
Fremont Investment & Loan
Estoppel Certificate
Page 2
5. As of this date the Lease is in full force and effect.
5.1 Lessee is the actual occupant and is in possession of the Leased
Premises.
5.2 Lessee has not assigned, transferred or hypothecated it's interest
under the Lease.
5.3 All construction and installation of tenant improvements required to
be performed by, or paid by Lessor, under the Lease have been
completed and the Leased Premises has been accepted by Lessee. All
expenditures have been made and costs paid that are required of the
Lessee under the lease.
6. As of this date, no breach exists on the part of Lessee under the Lease.
7. To the best knowledge of Lessee, as of this date, no breach exists on the
part of Lessor under the Lease.
8. As to the rent:
8.1 No rent has been prepaid more than thirty (30) days in advance of
its' due date.
8.2 Lessee has no offsets or credits against rents payable.
8.3 Lessee has no claim against Lessor for any security or other
deposits other than the sum, which was paid pursuant to the terms of
the Lease.
8.4 The Fixed Monthly Base Rent, referenced above, does not include any
expense reimbursement or reimbursement for tenant improvements or
rental charges based on a percentage of sales.
9. Lessee does not engage in any activity on or about the Leased Premises
which constitutes or causes a Hazardous Substance Activity and Lessee does
not know of, nor has any reasonable cause to believe that a Hazardous
Substance, or a condition involving or resulting from the same, has come
to be located in, or, under or about the Leased Premises except for the
following.
(if none write "none"): __________________________________________________
The term "Hazardous Substance Activity" means any actual, proposed or threatened
storage, holding, existence, release, omission, discharge, generation,
processing, treatment, abatement, removal, disposition, handling or
transportation by any person of any Hazardous Substance from, under, into or on
the Leased Premises or the real property and improvements of which the Leased
Premises is a part, or surrounding property. The term "Hazardous Substance"
means (a) any chemical, compound, material, mixture or substance that is now or
hereafter defined or listed in, or otherwise classified pursuant to, any
Environmental Laws as a "hazardous substance", "hazardous material", "hazardous
waste", "extremely hazardous waste", "acutely hazardous waste", "radioactive
waste", "infectious waste", "biohazardous waste", "toxic substance",
"pollutant", "toxic pollutant", "contaminant" as well as any formulation not
mentioned herein intended to define, list or classify substances by reason of
deleterious properties such as ignitability, corrosivity, reactivity,
carcinogenicity, toxicity, reproductive toxicity, "EP toxicity", or "TCLP
toxicity"; (b) petroleum, natural gas, natural gas liquids, liquefied natural
gas, synthetic gas usable for fuel (or mixtures of natural gas and such
synthetic gas) and ash produced by a resource recovery facility utilizing a
municipal solid waste stream, and drilling fluids, produced waters and other
wastes associated with the exploration, development or production of crude oil,
natural gas, or geothermal resources; (c) "hazardous substance" as defined in
Section 25281(f) of the California Health and Safety Code; (d) "waste" as
defined in Section 13050(d) of the California Water Code; (e) asbestos in any
form; (f) urea formaldehyde foam insulation; (g) polychlorinated biphenyls
(PCBs); (h) radon; and (i) any other chemical, material, or substance exposure
to which is limited or regulated by any Governmental Agency because of its
quantity, concentration, or physical or chemical characteristics, or which poses
a significant present or potential hazard to human health or safety or to the
environment if released into the workplace or the environment. "Hazardous
Substances" shall not include ordinary
<PAGE> 70
Fremont Investment & Loan
Estoppel Certificate
Page 3
office supplies and repair, maintenance and cleaning supplies maintained in
reasonable and necessary quantities and used in accordance with all
Environmental Laws. The term "Environmental Laws" means any and all present and
future federal, state and local laws, ordinances, regulations, policies and any
other requirements of any governmental agency exercising jurisdiction over the
Leased Premises, Lessee or Lessor relating to health, safety, the environment or
to any Hazardous Substances, including without limitation, the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980 (CERCLA), the
Resource Conservation Recovery Act (RCRA), the Hazardous Materials
Transportation Act, the Toxic Substance Control Act, the California
Environmental Quality Act and the applicable provisions of the California Health
and Safety Code, California Labor Code and the California Water Code, each
Endangered Species Act, the Clean Water Act, the Occupational Safety and Health
Act, as hereafter amended from time to time, and the present and future rules,
regulations and guidance documents promulgated under any of the foregoing.
10. Except as may be specifically set forth in the Lease, Lessee does not have
any right to renew or extend the term of the Lease nor any option or
preferential right to purchase all or any part of the Leased Premises or
all or any part of the building and premises of which the Leased Premises
are a part, nor any right, title or interest with respect to the Leased
Premises other than as Lessee under the lease.
11. Lessee understands that Lendor may make a loan secured by the Leased
Premises and that if it does so, it's action will be in material reliance
on this certificate.
LESSEE:
Dated: _________, ____ ____________________ _________________ _______________
Authorized Signature (Notary Required) Title/Position
<PAGE> 71
Fremont Investment & Loan
Estoppel Certificate
Page 4
ACKNOWLEDGEMENT (to be completed by Notary)
State of California )
) ss.
County of _________________ )
On ____________________ before me, ___________________________, Notary Public,
personally appeared _______________________________________, personally know to
me (or proved to me on the basis of satisfactory evidence) to be the person
whose name is subscribed to the within instrument and acknowledged to me that
he/she executed the same in his/her authorized capacity, and that by his/her
signature on the instrument the person, or the entity upon behalf of which the
person acted, executed the instrument.
WITNESS my hand and official seal.
______________________________________
Signature of Notary Public
LESSOR:
The undersigned Lessor under the above-described Lease hereby certifies that the
information contained in the foregoing certificate is true and correct and that
the party to whom this statement is addressed may rely upon said information.
Dated: _________, ____ _______________________________________ _______________
Authorized Signature Title/Position
Terry Thompson, Vice President
Date:__________________________________
<PAGE> 1
EXHIBIT 10.8
NETPARTNERS INTERNET SOLUTIONS, INC,
1998 EQUITY INCENTIVE PLAN
ADOPTED APRIL 28, 1998
APPROVED BY STOCKHOLDERS ON APRIL 28, 1998
1. PURPOSES.
(a) The purpose of this 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 benefit from increases in value of the stock of
the Company through the granting of (i) Incentive Stock Options, (ii)
Nonstatutory Stock Options, (iii) stock bonuses, and (iv) rights to purchase
restricted stock, all as defined below.
(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 Stock Awards 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 (i) Options granted pursuant to Section 6 hereof, including Incentive
Stock Options and Nonstatutory Stock Options, or (ii) stock bonuses or rights to
purchase restricted stock granted pursuant to Section 7 hereof. 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 NetPartners Internet Solutions, Inc., a Delaware
corporation.
1
<PAGE> 2
(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 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 stockholders 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.
(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.
(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 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
2
<PAGE> 3
a business relationship as to which disclosure would be required under 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 1998 Equity Incentive 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.
(y) "STOCK AWARD" means any right granted under the Plan, including any
Option, any stock bonus, and any right to purchase restricted stock.
(z) "STOCK AWARD AGREEMENT" means a written agreement between the
Company and a holder of Stock Award evidencing the terms and conditions of an
individual Stock Award grant. Each Stock Award Agreement shall be subject to the
terms and conditions of the Plan.
3
<PAGE> 4
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 Stock Awards; when and how each Stock Award
shall be granted; whether a Stock Award will be an Incentive Stock Option, a
Nonstatutory Stock Option, a stock bonus, a right to purchase restricted stock,
or a combination of the foregoing; the provisions of each Stock Award granted
(which need not be identical), including the time or times when a person shall
be permitted to receive stock pursuant to a Stock Award; and the number of
shares with respect to which a Stock Award shall be granted to each such person.
(2) To construe and interpret the Plan and Stock Awards 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 Stock Award 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 a Stock Award as provided in Section 13.
(c) The Board may delegate administration of the Plan to a committee of
the Board composed of not fewer than two (2) 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 Stock Awards 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 Stock Award, or (ii) not persons with
respect to whom the Company wishes to comply with Section 162(m) of the Code.
4
<PAGE> 5
4. SHARES SUBJECT TO THE PLAN.
(a) Subject to the provisions of Section 13 relating to adjustments upon
changes in stock, the stock that may be issued pursuant to Stock Awards shall
not exceed in the aggregate Two Million (2,000,000) shares of the Company's
common stock. If any Stock Award shall for any reason expire or otherwise
terminate, in whole or in part, without having been exercised in full, the stock
not acquired under such Stock Award 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. Stock
Awards other than Incentive Stock Options and may be granted only to Employees,
Directors or Consultants.
(b) No person shall be eligible for the grant of an Option or an award
to purchase restricted stock 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, or in the case of a
restricted stock purchase award, the purchase price is at least one hundred
percent (100%) of the Fair Market Value of such stock at the date of grant.
(c) Subject to the provisions of Section 13 relating to adjustments upon
changes in stock, no person shall be eligible to be granted Options covering
more than Five Hundred Thousand (500,000) shares of the Company's common stock
in any twelve (12)-month period; provided, however, that to the extent that
Options are granted in connection with the commencement of employment of any
person, the total number of shares of Company's common stock covered under such
Options may equal to an amount not to exceed Five Hundred Thousand (500,000)
shares. 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
stockholders 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
5
<PAGE> 6
Option shall include (through incorporation of provisions hereof by reference in
the Option or otherwise) the substance of each of the following provisions:
(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 or
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 applicable law, the "par value" of the stock
will not be subject to any deferred payment arrangement and 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
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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 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) 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 resignation) 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 Service 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(f), 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.
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<PAGE> 8
(g) 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.
(h) 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) 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.
(i) 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.
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<PAGE> 9
(j) 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 greater of (A)
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.
(k) 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.
7. TERMS OF STOCK BONUSES AND PURCHASES OF RESTRICTED STOCK.
Each stock bonus or restricted stock purchase agreement shall be in such
form and shall contain such terms and conditions as the Board or the Committee
shall deem appropriate. The terms and conditions of stock bonus or restricted
stock purchase agreements may change from time to time, and the terms and
conditions of separate agreements need not be identical, but each stock bonus or
restricted stock purchase agreement shall include (through incorporation of
provisions hereof by reference in the agreement or otherwise) the substance of
each of the following provisions as appropriate:
(a) PURCHASE PRICE. The purchase price under each restricted stock
purchase agreement shall be such amount as the Board or Committee shall
determine and designate in such Stock Award Agreement, but in no event shall the
purchase price be less than eighty-five percent (85%) of the stock's Fair Market
Value on the date such award is made. In addition, any Stock Award made to a 10%
stockholder (as defined in Section 5(b)) shall have a purchase price not less
than one hundred and ten percent (110%) of the stock's Fair Market Value on the
date such award is made. Notwithstanding the foregoing, the Board or the
Committee may determine that eligible participants in the Plan may be awarded
stock pursuant to a stock bonus agreement in consideration for past services
actually rendered to the Company or for its benefit.
(b) TRANSFERABILITY. Rights under a stock bonus or restricted stock
purchase agreement shall be transferable by the grantee only upon such terms and
conditions as are set forth in the applicable Stock Award Agreement, as the
Board or the Committee shall determine
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in its discretion, so long as stock awarded under such Stock Award Agreement
remains subject to the terms of the agreement.
(c) CONSIDERATION. The purchase price of stock acquired pursuant to a
stock purchase agreement shall be paid either: (i) in cash at the time of
purchase; (ii) at the discretion of the Board or the Committee, according to a
deferred payment or other arrangement with the person to whom the stock is sold;
or (iii) in any other form of legal consideration that may be acceptable to the
Board or the Committee in its discretion. Notwithstanding the foregoing, the
Board or the Committee to which administration of the Plan has been delegated
may award stock pursuant to a stock bonus agreement in consideration for past
services actually rendered to the Company or for its benefit.
(d) VESTING. Shares of stock sold or awarded under the Plan may, but
need not, be subject to a repurchase option in favor of the Company in
accordance with a vesting schedule to be determined by the Board or the
Committee. The applicable agreement shall provide (i) that 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 Stock Award
was granted, and (ii) such right shall be exercisable only (A) within 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 holder of the Stock Award (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.
Should the right of repurchase be assigned by the Company, the assignee shall
pay the Company cash equal to the difference between the original purchase price
and the stock's Fair Market Value if the original purchase price is less than
the stock's Fair Market Value.
(e) TERMINATION OF EMPLOYMENT OR RELATIONSHIP AS A DIRECTOR OR
CONSULTANT. In the event a Participant's Continuous Status as an Employee,
Director or Consultant terminates, the Company may repurchase or otherwise
reacquire, subject to the limitations described in subsection 7(d), any or all
of the shares of stock held by that person which have not vested as of the date
of termination under the terms of the stock bonus or restricted stock purchase
agreement between the Company and such person.
8. CANCELLATION AND RE-GRANT OF OPTIONS.
(a) 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 under the Plan and the grant in
substitution therefor of new Options under the Plan covering the same or
different numbers of shares of 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 10% stockholder (as described in subsection 5(b)),
not less than one hundred ten percent (110%) of the Fair Market Value) per share
of stock on the new grant date. Notwithstanding the foregoing, the Board or the
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Committee may grant an Option with an exercise price lower than that set forth
above if such Option is granted as part of a transaction to which section 424(a)
of the Code applies.
(b) Shares subject to an Option canceled under this Section 8 shall
continue to be counted 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 Section 8, 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 counted against the maximum awards of Options permitted to be
granted pursuant to subsection 5(c) of the Plan. The provisions of this
subsection 8(b) shall be applicable only to the extent required by Section
162(m) of the Code.
9. COVENANTS OF THE COMPANY.
(a) During the terms of the Stock Awards, the Company shall keep
available at all times the number of shares of stock required to satisfy such
Stock Awards.
(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 Stock Award; provided,
however, that this undertaking shall not require the Company to register under
the Securities Act either the Plan, any Stock Award or any stock issued or
issuable pursuant to any such Stock Award. 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 Stock Awards
unless and until such authority is obtained.
10. USE OF PROCEEDS FROM STOCK.
(a) Proceeds from the sale of stock pursuant to Stock Awards shall
constitute general funds of the Company.
11. MISCELLANEOUS.
(a) The Board shall have the power to accelerate the time at which a
Stock Award may first be exercised or the time during which a Stock Award or any
part thereof will vest pursuant to subsection 6(e), 7(d) or 8(b),
notwithstanding the provisions in the Stock Award stating the time at which it
may first be exercised or the time during which it will vest.
(b) Neither an Employee, Director or Consultant nor any person to whom a
Stock Award is transferred under subsection 6(d), 7(b), or 8(b) 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 Stock Award unless and until such person has
satisfied all requirements for exercise of the Stock Award pursuant to its
terms.
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(c) Throughout the term of any Stock Award, the Company shall deliver to
the holder of such Stock Award, not later than one hundred twenty (120) days
after the close of each of the Company's fiscal years during the term of such
Stock Award, a balance sheet and an income statement. This subsection 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 Stock Award
granted pursuant thereto shall confer upon any Employee, Director, Consultant or
other holder of Stock Awards 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 the right of the Company's Board of Directors
and/or the Company's stockholders to remove any Director as provided in the
Company's By-Laws and the provisions of the General Corporations Law of the
State of Delaware, or the right to terminate the relationship of any Consultant
subject to the terms of such Consultant's agreement with the Company or
Affiliate.
(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) The Company may require any person to whom a Stock Award is granted,
or any person to whom a Stock Award is transferred pursuant to subsection 6(d),
7(b) or 8(b), as a condition of exercising or acquiring stock under any Stock
Award, (1) to give written assurances satisfactory to the Company as to such
person'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 Stock Award; and (2) to
give written assurances satisfactory to the Company stating that such person is
acquiring the stock subject to the Stock Award 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 or acquisition of stock under the Stock Award 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, 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) To the extent provided by the terms of a Stock Award Agreement, the
person to whom a Stock Award is granted may satisfy any federal, state or local
tax withholding obligation
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relating to the exercise or acquisition of stock under a Stock Award 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 participant as a result of the exercise
or acquisition of stock under the Stock Award; or (3) delivering to the Company
owned and unencumbered shares of the common stock of the Company.
12. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) If any change is made in the stock subject to the plan, or subject
to any Stock Award (through merger, consolidation, reorganization,
recapitalization, reincorporation, 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 twelve (12) month period pursuant to subsection
5(c), and the outstanding Stock Awards will be appropriately adjusted in the
type(s) and number of securities and price per share of stock subject to such
outstanding Stock Awards. Such adjustments shall be made by the Board or the
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
Company.")
(b) In the event of: (1) a merger or consolidation in which the Company
is not the surviving corporation; or (2) 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; then: (i) any surviving corporation or acquiring corporation shall
assume any Stock Awards outstanding under the Plan or shall substitute similar
stock awards (including an award to acquire the same consideration paid to the
stockholders in the transaction described in this subsection 12(b)) for those
outstanding under the Plan, or (ii) in the event any surviving corporation or
acquiring corporation refuses to assume such Stock Awards or to substitute
similar stock awards for those outstanding under the Plan, (A) with respect to
Stock Awards held by persons then performing services as Employees, Directors or
Consultants, the vesting of such Stock Awards (and, if applicable, the time
during which such Stock Awards may be exercised) shall be accelerated prior to
such event and the Stock Awards terminated if not exercised after such
acceleration and at or prior to such event, and (B) with respect to any other
Stock Awards outstanding under the Plan, such Stock Awards shall be terminated
if not exercised prior to such event. In the event of: (x) a, dissolution or
liquidation, or (y) a sale of all or substantially all of the assets of the
Company, the outstanding Options shall terminate if not exercised prior to such
event; unless, in the event of such a sale of all or substantially all of the
assets of the Company, the acquiring person or entity agrees to assume the
Options outstanding under the Plan.
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13. AMENDMENT OF THE PLAN AND STOCK AWARDS.
(a) The Board at any time, and from time to time, may amend the Plan.
However, except as provided in Section 12 relating to adjustments upon changes
in stock, no amendment shall be effective unless approved by the stockholders of
the Company to the extent stockholder 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 stockholder 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 eligible Employees
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 Stock Award 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 Stock Award 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 Stock Award; provided, however, that the rights and obligations
under any Stock Award shall not be impaired by any such amendment unless (i) the
Company requests the consent of the person to whom the Stock Award was granted
and (ii) such person consents in writing.
14. 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 August 28, 2008, which date shall
be within ten (10) years from the date the Plan is adopted by the Board or
approved by the stockholders of the Company, whichever is earlier. No Stock
Awards may be granted under the Plan while the Plan is suspended or after it is
terminated.
(b) Rights and obligations under any Stock Award 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 Stock Award was
granted.
15. EFFECTIVE DATE OF PLAN.
The Plan shall become effective as determined by the Board, but no Stock
Awards granted under the Plan shall be exercised unless and until the Plan has
been approved by the stockholders of the Company, which approval shall be within
twelve (12) months before or after the date the Plan is adopted by the Board.
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EXHIBIT 10.9
STANDARD TERMS AND CONDITIONS RELATING TO
NONSTATUTORY STOCK OPTIONS
UNDER THE 1998 EQUITY INCENTIVE PLAN OF
NETPARTNERS INTERNET SOLUTIONS, INC.
The following Standard Terms and Conditions Relating to Nonstatutory
Stock Options (the "Terms and Conditions") apply to the Nonstatutory Stock
Options granted under the 1998 Equity Incentive Plan of NetPartners Internet
Solutions, Inc. (the "Plan"), the applicable terms of which are hereby
incorporated by reference and made a part of these standard Terms and
Conditions. In turn, these Terms and Conditions are incorporated by reference
into each such Option. Whenever capitalized terms are used in these Terms and
Conditions, they shall have the meaning specified (i) in the Plan, (ii) in the
NetPartners Internet Solutions, Inc. Notice of Grant of Stock Options (the
"Facing Page") into which these Terms and Conditions are incorporated by
reference, or (iii) below, unless the context clearly indicates to the contrary.
As used herein and in the Plan, the "Option Agreement" shall mean the Notice of
Grant of Stock Options Facing Page and these Terms and Conditions as
incorporated therein. The masculine pronoun shall include the feminine and
neuter, and the singular the plural, where the context so indicates.
1. TERM OF OPTION. Subject to the maximum time limitations in Article 6
of the Plan, the term of the Option shall be the period commencing on the date
of the Option Agreement and ending on the Expiration Date (as defined in the
Facing Page), unless terminated earlier as provided herein or in the Plan.
2. EXERCISE PRICE. The exercise price of the Option granted hereby shall
be not less than eighty-five percent (85%) of the Fair Market Value of the
shares of Common Stock acquired upon exercise of each Option (the "Option
Shares") on the date the Option is granted; provided, however, if the Optionee
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 any of its Affiliates), the exercise price
of the Option shall be not less than one hundred ten percent (110%) of the Fair
Market Value of the Option Shares on the date the Option is granted.
3. EXERCISE OF OPTION.
(a) The Facing Page shall set forth the rate at which the Option
Shares shall become subject to purchase by Optionee; provided, however, such
Option Shares shall become subject to purchase ("vest") at an annual rate which
is not less than twenty percent (20%) of the total Option Shares subject to the
Option over the five (5) year period commencing with the date of the grant of
the Option.
(b) Optionee shall exercise the Option to the extent exercisable, in
whole or in part, by sending written notice to the Company in the form attached
hereto as Exhibit A of his intention to purchase Option Shares hereunder,
together with a check in the amount of the full purchase price of the Option
Shares to be purchased. Except as otherwise provided in the Plan,
<PAGE> 2
Optionee shall not exercise the Option at any one time with respect to less than
the minimum number of Option Shares as is set forth on the Facing Page.
(c) Optionee agrees to complete and execute any additional documents
which the Company reasonably requests that Optionee complete in order to comply
with applicable federal, state and local securities laws, rules and regulations.
(d) Subject to the Company's compliance with all applicable laws,
rules and regulations relating to the issuance of such Option Shares and
Optionee's compliance with all the terms and conditions of the Option Agreement,
these Terms and Conditions and the Plan, the Company shall promptly deliver the
Option Shares to the Optionee.
(e) Except as otherwise provided herein or in the Plan, the Option
may be exercised during the lifetime of the Optionee only by the Optionee.
4. OPTION NOT TRANSFERABLE. The Option granted hereunder shall not be
transferable in any manner other than upon the death of Optionee as provided in
the Plan. More particularly (but without limiting the foregoing), the Option may
not be assigned, transferred (except as expressly provided herein), pledged or
hypothecated in any way, shall not be assignable by operation of law and shall
not be subject to execution, attachment or similar process. Any attempted
assignment, transfer, pledge, hypothecation or other disposition of the Option
contrary to the provisions hereof, or the levy of any execution, attachment or
similar process upon the Option, shall be null and void and without effect.
5. TERMINATION OF OPTION.
(a) To the extent not previously exercised, the Option shall
terminate on the Expiration Date; provided, however, that except as otherwise
provided in this Section 5 the Option may not be exercised more than thirty (30)
days after the Termination of Employment or Consulting Relationship of Optionee
for any reason (other than upon Optionee's death or disability). Within such
thirty (30) day period, Optionee may exercise the Option only to the extent the
same was exercisable on the date of such termination and said right to exercise
shall terminate at the end of such period.
(b) In the event of the Termination of Employment or Consulting
Relationship of Optionee as a result of Optionee's disability, the Option shall
be exercisable for a period of twelve (12) months from the date of such
termination, but in no event later than the Expiration Date and only to the
extent that the Option was exercisable on the date of such termination.
(c) In the event of the Termination of Employment or Consulting
Relationship of Optionee as a result of Optionee's death, the Option shall be
exercisable by the Optionee's estate (or by the person who acquires the right to
exercise the Option by will or by the laws of descent and distribution) for a
period of twelve (12) months from the date of such termination, but in no event
later than the Expiration Date and only to the extent that the Optionee was
entitled to exercise the Option on the date of death.
(d) Notwithstanding the preceding paragraphs of this Section 5, if
the Company's Board of Directors determines in good faith that Optionee has
committed an act of
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fraud, theft, other act of dishonesty, act of moral turpitude, or any other act
materially inimical to the interest of the Company, the Option (including the
right to purchase Option Shares hereunder which have accrued but remain
unexercised) shall cease to be exercisable simultaneously with such act.
(e) Notwithstanding anything herein to the contrary, no portion of
any Option which is not exercisable by the Optionee upon the Termination of
Employment or Consulting Relationship of such Optionee shall thereafter become
exercisable, regardless of the reason for such termination.
6. NO RIGHT TO CONTINUED RELATIONSHIP. The Option does not confer upon
Optionee any right to continue in his capacity as an Employee, Consultant or
Director of the Company, nor does it limit in any way the right of the Company
to terminate Optionee's relationship with the Company at any time, with or
without cause.
7. RIGHT OF REPURCHASE OF OPTION SHARES.
(a) Notwithstanding any provision herein to the contrary, the Option
Shares issued pursuant to the Option shall be subject to a right, but not an
obligation, of repurchase by the Company (the "Right of Repurchase"), at the
price determined under subsection (b) below, if prior to the Expiration Date or
the termination of the Right of Repurchase as provided in Section 9(d) below, a
Termination of Employment or Consulting Relationship occurs for any reason,
including as a result of Optionee's death or disability. Option Shares issued by
the Company shall not be transferable by the Optionee during the period during
which the Right of Repurchase applies, and the Company may take such steps as it
deems necessary to ensure compliance with this restriction.
(b) The price per share at which the Company may exercise the Right
of Repurchase (the "Repurchase Price") shall be the higher of (i) the price the
Optionee paid for such Option Shares or (ii) the Fair Market Value of such
Option Shares on the date the Company exercises its Right of Repurchase, as
determined in good faith by the Company's Board of Directors (or an officer
appointed by the Board of Directors for such purpose).
(c) The Company's Right of Repurchase shall terminate if not
exercised by written notice from the Company to the Optionee within ninety (90)
days of the Termination of Employment or Consulting Relationship, unless the
Termination of Employment or Consulting Relationship occurs under section 5(b),
or 5(c), in which case, within fifteen (15) months. If the Company exercises its
Right of Repurchase, it shall give notice thereof to the Optionee within such
ninety (90) day (or 15 month) period, and, upon receipt of such notice, the
Optionee shall immediately endorse and deliver to the Company the stock
certificate(s) representing the Option Shares being repurchased, and the Company
shall then promptly pay, pursuant to the provisions of Section 7(d) below, the
total Repurchase Price to the Optionee. If the Company exercises its Right of
Repurchase it shall exercise its right with respect to all (not some) of such
Option Shares.
(d) The Repurchase Price shall be paid first by cancellation of any
obligation for accrued but unpaid interest outstanding under notes issued by the
Optionee upon purchase of
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the Option Shares (if any), next by cancellation of principal outstanding under
such notes (if any), and finally by payment in cash of the balance due.
(e) In the event the Company does not elect to exercise its Right of
Repurchase within the specific period as outlined in section 7(b), the Option
Shares shall no longer be subject to repurchase by the Company pursuant to this
Section 7.
8. RIGHT OF FIRST REFUSAL. Optionee agrees that he will not sell or
otherwise transfer any Option Shares (including transfer by operation of law) at
any time after the expiration of the Right of Repurchase and prior to the
termination of this section pursuant to Section 9(d) below unless such Option
Shares shall first be offered to the Company as follows:
(a) The Optionee shall deliver a notice (the "Notice") to the
Company, stating (i) the Optionee's bona fide intention to sell or transfer such
Option Shares, (ii) the number of such Option Shares to be sold or transferred,
(iii) the consideration for which the Optionee proposes to sell or transfer such
Option Shares, (iv) the terms of payment of such consideration and any other
terms and conditions of sale, and (v) the name of the proposed purchaser or
transferee.
(b) Within thirty (30) days after receipt of the Notice, the Company
may elect to purchase any or all of the Option Shares to which the Notice
refers, for the consideration per share and upon the terms and conditions
specified in the Notice, except as set forth in Section 8(e) below for transfers
involving non-cash consideration. If the Company elects not to purchase all such
Option Shares, the Company may assign its right to purchase the remaining Option
Shares. The Company's assignees may elect, within thirty (30) days after receipt
by the Company of the Notice, to purchase any or all Option Shares to which the
Notice refers which the Company has not elected to purchase, for the
consideration per share and upon the terms and conditions specified in the
Notice, except as set forth in Section 8(e) below. An election to purchase shall
be made by written notice to the Optionee, specifying the number of Option
Shares to be purchased. If the Company and/or its assignees elect to so purchase
the offered Option Shares, they shall complete the purchase of such shares
within sixty (60) days after receipt by the Company of the Notice, unless a
longer period is set forth in the Notice.
(c) If the Company and/or its assignees do not elect to so purchase
all of such offered Option Shares within such thirty (30) day period, Optionee
shall have no obligation to transfer such Option Shares to the Company and/or
its assignees and Optionee shall have a period of thirty (30) days thereafter to
transfer all (but not less than all) of such Option Shares to the transferee
referred to in the Notice and for the same consideration and on the other terms
as set forth therein; provided, however, that prior to any transfer of such
Option Shares, the proposed transferee shall execute and deliver to the Company
an agreement with the Company, in form and substance satisfactory to the
Company, pursuant to which such transferee agrees to be subject to the relevant
provisions of the Option Agreement.
(d) In the event that such Option Shares are not transferred to the
transferee referred to in the Notice and in accordance with the terms of the
Option Agreement within such 30-day period, the restrictions on transfer
provided in this Section 8 shall again become applicable to the Option Shares.
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(e) If part or all of the purchase consideration specified in a
Notice delivered by the Optionee pursuant to this Section 8 is other than cash
or purchaser's promissory note or other evidence of indebtedness, the Company
and its assignee(s) shall have the right to purchase any or all of the Option
Shares specified in the Notice for a cash price equal to the Fair Market Value
of the number of Option Shares to be so purchased by the Company and/or its
assignee(s). The Fair Market Value of any Option Shares shall be as determined
in good faith by the Company's Board of Directors (or an officer appointed by
the Board of Directors for such purposes).
9. OTHER PROVISIONS REGARDING TRANSFER.
(a) Optionee, as a condition for accepting any Option Shares, shall
not sell, transfer or pledge any Option Shares subject to the Right of
Repurchase described in Section 7 or the right of first refusal described in
Section 8 hereof, other than in the manner expressly permitted in the Option
Agreement, and any such sale, transfer or pledge of the Option Shares in
violation of this Agreement shall be void. The Company shall not be required (i)
to transfer on its books any Option Shares which shall have been sold or
transferred in violation of any of the provisions set forth in the Option
Agreement or (ii) to treat as the owner of such Option Shares or accord the
right to vote or pay dividends to any transferee to whom such Option Shares
shall have been so transferred.
(b) Notwithstanding anything to the contrary contained herein,
Optionee is under no restrictions as to the transfer by him of any or all of the
issued Option Shares to his Related Transferees (as defined herein) provided
that each such Related Transferee shall first (i) execute a written consent to
be bound by all of the relevant provisions of the Option Agreement in form and
substance satisfactory to the Company and (ii) give a duplicate original of such
consent to the Company. The "Related Transferees" of the Optionee as used herein
shall consist of the Optionee's spouse, his lineal descendants, and trusts for
the benefit of any Optionee or of the foregoing, Optionee and/or his minor
lineal descendants. In the event of any transfer by the Optionee to his Related
Transferees of all or any part of the Option Shares (or in the event of any
subsequent transfer by any such Related Transferee to another Related Transferee
of the Optionee), such Related Transferees shall receive and hold the Option
Shares subject to the relevant terms of the Option Agreement and the Optionee's
rights and obligations hereunder as though the Option Shares were still owned by
the Optionee and shall together with the Optionee continue to be deemed to be
the "Optionee" for purposes of the Option Agreement, including without
limitation restrictions on the transfer of Option Shares. There shall be no
further transfer of the Option Shares by a Related Transferee except between and
among such Related Transferee, the Optionee and other Related Transferees of the
Optionee, or except as permitted by the Option Agreement. The Company advises
the Optionee to seek independent tax counsel prior to transferring any Option
Shares to any Related Transferee.
(c) The Optionee hereby grants to the Company a security interest in
the Option Shares for the purpose of ensuring that a transfer in violation of
the restrictions set forth in Sections 7, 8 and 9 of this Agreement does not
occur. In furtherance of such security interest, the Company may, at its option,
retain the certificate(s) evidencing the Option Shares, together with stock
assignments executed in blank by the Optionee, until such transfer restrictions
terminate in accordance with Section 9(d). The Optionee hereby grants to any
officer(s) of the
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Company the power of attorney to cause the Option Shares to be transferred on
the books of the Company in the event the Company and/or its assignees
repurchase some or all of the Option Shares in accordance with the Option
Agreement.
(d) The transfer restrictions provided in Sections 7, 8 and 9 hereof
shall terminate upon the earlier to occur of (i) the effectiveness of a
registration statement (other than a registration statement pursuant to any
employee, purchase, savings, option, bonus, appreciation, profit sharing,
thrift, incentive or similar plan of the Company) filed by the Company under the
Securities Act in connection with the initial public offering of its securities,
and the completion of the sale of securities made pursuant to such registration
statement for an aggregate amount of at least $10,000,000, and (ii) such other
conditions as the Board of Directors may determine in its sole discretion.
10. NOTICE OF TAX ELECTION. If Optionee makes any tax election relating
to the treatment of the Option Shares under the Internal Revenue Code of 1986,
as amended, Optionee shall promptly notify the Company of such election.
11. MARKET STAND-OFF.
(a) In connection with any underwritten public offering by the
Company of its equity securities pursuant to an effective registration statement
filed under the Securities Act, including the Company's initial public offering,
Optionee shall not sell, make any short sale of, loan, hypothecate, pledge,
grant any option for the purchase of, or otherwise dispose of or transfer for
value or otherwise agree to engage in any of the foregoing transactions with
respect to any of the Option Shares without the prior written consent of the
Company and its underwriters, for such period of time from and after the
effective date of such registration statement as may be requested by the Company
or such underwriters. This Section 11 shall only remain in effect for the one
hundred and eighty (180) day period immediately following the effective date of
the Company's initial public offering and shall thereafter terminate.
(b) Notwithstanding the foregoing, Optionee shall be subject to the
market stand-off provisions of this Section 11 only if the executive officers
and directors of the Company are also subject to similar arrangements which are
no less restrictive.
(c) In order to enforce the provisions of this Section 11, the
Company may impose stop-transfer instructions with respect to the Option Shares
until the end of the applicable stand-off period.
12. ACKNOWLEDGMENTS OF OPTIONEE. Optionee acknowledges and agrees that:
(a) Optionee and his transferees shall have no rights as a
shareholder with respect to any Option Shares until the date of the issuance of
a stock certificate evidencing such Option Shares. No adjustment shall be made
for dividends (ordinary or extraordinary, whether in cash, securities or other
property) or distributions or other rights for which the record date is prior to
the date such stock certificate is issued, except as provided in Article 14 of
the Plan.
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(b) All certificates representing the Option Shares shall have
endorsed thereon the following legends, the provisions of which are hereby
incorporated into the Option Agreement:
THE SHARES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR THE SECURITIES
LAWS OF ANY STATE AND HAVE BEEN ISSUED AND SOLD PURSUANT TO AN EXEMPTION
FROM THE ACT AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED BY
THE HOLDERS THEREOF AT ANY TIME EXCEPT (1) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT FILED UNDER THE ACT COVERING THE SECURITIES, OR
(2) IF, IN THE REASONABLE OPINION OF COUNSEL TO THE CORPORATION, SUCH
SHARES MAY BE TRANSFERRED WITHOUT SUCH REGISTRATION.
IN ADDITION, SALE, TRANSFER OR HYPOTHECATION OF THIS SECURITY IS
RESTRICTED BY THE PROVISIONS OF A NONSTATUTORY STOCK OPTION AGREEMENT
(AND THE STANDARD TERMS AND CONDITIONS RELATING TO NONSTATUTORY STOCK
OPTIONS INCORPORATED THEREIN) ENTERED INTO BY THE CORPORATION AND THIS
SHAREHOLDER, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL OFFICE OF THE
CORPORATION AND ALL OF THE PROVISIONS OF WHICH ARE INCORPORATED HEREIN.
13. INVESTMENT REPRESENTATIONS. As an inducement to the Company to grant
the Option and issue the Option Shares to the Optionee, the Optionee hereby
makes the following representations and warranties, and authorizes the Company
to rely upon the same:
(a) The Optionee will acquire the Option Shares for investment for
his own account, not for resale, without any intention of or view toward or for
participating, directly or indirectly, in a distribution of the Option Shares or
any portion thereof.
(b) The Optionee understands that an investment in the Company is
speculative, that any possible profits therefrom are uncertain, and that he must
bear the economic risks of the investment in the Company for an indefinite
period of time.
(c) The Optionee understands that the Option Shares have not been
registered under the Securities Act in reliance on the exemption provided by
Rule 701 promulgated thereunder for compensatory benefit plans; and that the
Option Shares have not been registered or qualified under the "blue sky" laws of
any state.
(d) The Optionee understands that the Option Shares may have to be
held indefinitely unless they are subsequently registered under the Securities
Act and qualified or registered under other applicable securities laws, rules
and regulations, which is unlikely, or unless an exemption from such
qualification or registration is available.
(e) The Optionee understands and agrees that (i) the legends set
forth in Section 12(b) hereof will be placed on the certificate(s) evidencing
the Option Shares and, except
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as otherwise provided in Section 12(b), on certificate(s) issued to transferees;
(ii) the stock records of the Company will be noted with respect to such
restrictions; (iii) the Company will not be under any obligation to register the
Option Shares or to comply with any exemption available for sale of the Option
Shares without registration; and (iv) the information or conditions necessary to
permit routine sales of securities of the Company under Rule 144 of the
Securities Act are not now available and it is not likely that they will become
available in the foreseeable future.
(f) The Optionee is a bona fide resident and domiciliary of, not a
temporary transient resident of, and has his principal residence in, the state
or other jurisdiction set forth under Optionee's signature in the Option
Agreement, and Optionee does not have any present intention of moving his
principal residence from such state or jurisdiction.
14. WITHHOLDING TAXES. Whenever Option Shares are to be issued under the
Option Agreement, the Company shall have the right to require Optionee to remit
to the Company an amount sufficient to satisfy federal, state and local
withholding tax requirements prior to issuance and/or delivery of any
certificate or certificates for such Option Shares.
15. FINANCIAL INFORMATION. The Corporation shall provide to each
Optionee on an annual basis a copy of the annual financial report prepared by
the Company's independent certified public accountants.
16. MISCELLANEOUS.
(a) The Option Agreement shall bind and inure to the benefit of the
parties' heirs, legal representatives, successors and permitted assigns.
(b) The Option Agreement, the Plan, and these Terms and Conditions
constitute the entire agreement between the parties pertaining to the subject
matter contained herein and they supersede all prior and contemporaneous
agreements, representations and understandings of the parties. No supplement,
modification or amendment of the Option Agreement shall be binding unless
executed in writing by all of the parties. No waiver of any of the provisions of
the Option Agreement shall be deemed or shall constitute a waiver of any other
provisions, whether or not similar, nor shall any waiver constitute a continuing
waiver. No waiver shall be binding unless executed in writing by the party
making the waiver. In the event there exists any conflict or discrepancy between
any of the terms in the Plan and the Option Agreement, the terms of the Plan
shall be controlling. A copy of the Plan has been delivered to the Optionee and
also may be inspected by Optionee at the principal office of the Company.
(c) Should any portion of the Plan, the Option Agreement or these
Terms and Conditions be declared invalid and unenforceable, then such portion
shall be deemed to be severable from the Option Agreement and shall not affect
the remainder hereof.
(d) All notices to be sent hereunder shall be delivered in person or
sent by United States Mail, certified and postage prepaid, to Optionee at the
address set forth on the Facing Page of the Option Agreement or to the Company
at its principal place of business, Attention: President. Any change in the
address to which notices shall be sent under the Option
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Agreement to the Optionee shall be made by the Optionee upon ten (10) days'
written notice to the Company.
(e) The Option Agreement shall be construed according to the laws of
the State of Delaware.
17. VESTING ACCELERATION FOR ONE YEAR EMPLOYEES.
(a) In the event of a Change in Control (as defined herein) any
surviving corporation or acquiring corporation shall assume this Option
Agreement or shall substitute a similar Option Agreement. In the event any
surviving or acquiring corporation refuses to assume this Option Agreement or to
substitute a similar Option Agreement, and if the Optionee has been employed by
the Company for a minimum of a consecutive twelve (12) month period, then (i)
the vesting (and, if applicable, the exercisability) of this Option Agreement
shall be accelerated immediately prior to such event, and (ii) any Company
repurchase option or reacquisition right with respect to shares acquired by the
Optionee under this Option Agreement shall lapse immediately prior to such event
and the shares shall be fully vested.
(b) In addition, if the Optionee has been employed by the Company
for a minimum of a consecutive twelve (12) month period, and if the surviving or
acquiring corporation assumes this Option Agreement, and if within twenty-four
(24) months following a Change in Control one of the following events occurs:
(i) Optionee's Continuous Service is terminated by the acquiror or successor
without Cause (as defined herein); (ii) the principal place of the performance
of Optionee's responsibilities (the "Principal Location") is changed to a
location more than fifty (50) miles from Optionee's Principal Location
immediately prior to the Change in Control; or (iii) there is a material
reduction in Optionee's compensation or responsibilities (not involving a
termination of Continuous Service for Cause); then the unvested portion of
Optionee's Options shall immediately become fully vested and exercisable and any
Company repurchase option or reacquisition right with respect to shares acquired
by the Optionee under this Option Agreement shall immediately lapse and the
shares shall be fully vested.
(c) For the purposes of this Option Agreement, "Cause" shall mean:
(i) conviction of any felony or any crime involving moral turpitude or
dishonesty; (ii) participation in a fraud or act of dishonesty against the
Company; (iii) willful and material breach of the Company's policies; (iv)
intentional and material damage to the Company's property; (v) material breach
of the Optionee's Proprietary Information and Inventions Agreement; or (vi)
death and physical or mental disability.
(d) For purposes of this Option Agreement, a "Change in Control"
shall mean: (i) any consolidation or merger of the Company with or into any
other corporation or other entity or person, or any other corporate
reorganization, in which the shareholders of the Company immediately prior to
such consolidation, merger or reorganization, own less than 50% of the company's
voting power immediately after such consolidation, merger or reorganization, or
any transaction of series of related transactions in which in excess of fifty
percent (50%) of the Company's voting power is transferred; or (ii) a sale,
lease or other disposition of all or substantially all of the assets of the
Company.
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(e) For purposes of this Option Agreement, "Continuous Service"
shall mean Optionee's service with the Company or an Affiliate, 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 Service 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 locations of the Company or between
the Company, Affiliates or their successors.
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EXHIBIT A
NOTICE OF EXERCISE OF NONSTATUTORY STOCK OPTION
To: NETPARTNERS INTERNET SOLUTIONS, INC.
____________________________________
____________________________________
Attention: President
I, a resident of the State of _________________________, hereby exercise
my nonstatutory stock option granted by NETPARTNERS INTERNET SOLUTIONS, INC., a
Delaware corporation (the "Company"), pursuant to a Nonstatutory Stock Option
Agreement dated _________________________, subject to all the terms and
provisions thereof and notify the Company of my desire to purchase ____________
shares of Common Stock of the Company at the exercise price of
__________________ Dollars ($__________) per share pursuant to said option.
I agree to complete and execute any additional documents which the
Company may request that I complete in order to comply with applicable federal,
state and local securities laws, rules and regulations.
Dated: __________________
________________________________ ________________________________
Social Security or Name:
Taxpayer I.D. Number
Address:
________________________________
________________________________
________________________________
<PAGE> 1
EXHIBIT 10.10
WEBSENSE, INC.
2000 STOCK INCENTIVE PLAN
ARTICLE ONE
GENERAL PROVISIONS
I. PURPOSE OF THE PLAN
This 2000 Stock Incentive Plan is intended to promote the interests of
Websense, Inc., a Delaware corporation, by providing eligible persons in the
Corporation's service with the opportunity to acquire a proprietary interest, or
otherwise increase their proprietary interest, in the Corporation as an
incentive for them to remain in such service.
Capitalized terms shall have the meanings assigned to such terms in
the attached Appendix.
II. STRUCTURE OF THE PLAN
A. The Plan shall be divided into five separate equity incentives
programs:
- the Discretionary Option Grant Program under which eligible
persons may, at the discretion of the Plan Administrator, be granted options to
purchase shares of Common Stock,
- the Salary Investment Option Grant Program under which eligible
employees may elect to have a portion of their base salary invested each year in
special option grants,
- the Stock Issuance Program under which eligible persons may, at
the discretion of the Plan Administrator, be issued shares of Common Stock
directly, either through the immediate purchase of such shares or as a bonus for
services rendered the Corporation (or any Parent or Subsidiary),
- the Automatic Option Grant Program under which eligible
non-employee Board members shall automatically receive option grants at
designated intervals over their period of continued Board service, and
- the Director Fee Option Grant Program under which non-employee
Board members may elect to have all or any portion of their annual retainer fee
otherwise payable in cash applied to a special stock option grant.
<PAGE> 2
B. The provisions of Articles One and Seven shall apply to all equity
programs under the Plan and shall govern the interests of all persons under the
Plan.
III. ADMINISTRATION OF THE PLAN
A. The Primary Committee shall have sole and exclusive authority to
administer the Discretionary Option Grant and Stock Issuance Programs with
respect to Section 16 Insiders. Administration of the Discretionary Option Grant
and Stock Issuance Programs with respect to all other persons eligible to
participate in those programs may, at the Board's discretion, be vested in the
Primary Committee or a Secondary Committee, or the Board may retain the power to
administer those programs with respect to all such persons. However, any
discretionary option grants or stock issuances for members of the Primary
Committee must be authorized by a disinterested majority of the Board.
B. Members of the Primary Committee or any Secondary Committee shall
serve for such period of time as the Board may determine and may be removed by
the Board at any time. The Board may also at any time terminate the functions of
any Secondary Committee and reassume all powers and authority previously
delegated to such committee.
C. Each Plan Administrator shall, within the scope of its
administrative functions under the Plan, have full power and authority (subject
to the provisions of the Plan) to establish such rules and regulations as it may
deem appropriate for proper administration of the Discretionary Option Grant and
Stock Issuance Programs and to make such determinations under, and issue such
interpretations of, the provisions of those programs and any outstanding options
or stock issuances thereunder as it may deem necessary or advisable. Decisions
of the Plan Administrator within the scope of its administrative functions under
the Plan shall be final and binding on all parties who have an interest in the
Discretionary Option Grant and Stock Issuance Programs under its jurisdiction or
any stock option or stock issuance thereunder.
D. The Primary Committee shall have the sole and exclusive authority
to determine which Section 16 Insiders and other highly compensated Employees
shall be eligible for participation in the Salary Investment Option Grant
Program for one or more calendar years. However, all option grants under the
Salary Investment Option Grant Program shall be made in accordance with the
express terms of that program, and the Primary Committee shall not exercise any
discretionary functions with respect to the option grants made under that
program.
E. Service on the Primary Committee or the Secondary Committee shall
constitute service as a Board member, and members of each such committee shall
accordingly be entitled to full indemnification and reimbursement as Board
members for their service on such committee. No member of the Primary Committee
or the Secondary Committee shall be liable for any act or omission made in good
faith with respect to the Plan or any option grants or stock issuances under the
Plan.
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F. Administration of the Automatic Option Grant and Director Fee
Option Grant Programs shall be self-executing in accordance with the terms of
those programs, and no Plan Administrator shall exercise any discretionary
functions with respect to any option grants or stock issuances made under those
programs.
IV. ELIGIBILITY
A. The persons eligible to participate in the Discretionary Option
Grant and Stock Issuance Programs are as follows:
(i) Employees,
(ii) non-employee members of the Board or the board of directors
of any Parent or Subsidiary, and
(iii) consultants and other independent advisors who provide
services to the Corporation (or any Parent or Subsidiary).
B. Only Employees who are Section 16 Insiders or other highly
compensated individuals shall be eligible to participate in the Salary
Investment Option Grant Program.
C. Each Plan Administrator shall, within the scope of its
administrative jurisdiction under the Plan, have full authority to determine,
(i) with respect to the option grants under the Discretionary Option Grant
Program, which eligible persons are to receive such grants, the time or times
when those grants are to be made, the number of shares to be covered by each
such grant, the status of the granted option as either an Incentive Option or a
Non-Statutory Option, the time or times when each option is to become
exercisable, the vesting schedule (if any) applicable to the option shares and
the maximum term for which the option is to remain outstanding and (ii) with
respect to stock issuances under the Stock Issuance Program, which eligible
persons are to receive such issuances, the time or times when the issuances are
to be made, the number of shares to be issued to each Participant, the vesting
schedule (if any) applicable to the issued shares and the consideration for such
shares.
D. The Plan Administrator shall have the absolute discretion either to
grant options in accordance with the Discretionary Option Grant Program or to
effect stock issuances in accordance with the Stock Issuance Program.
E. The individuals who shall be eligible to participate in the
Automatic Option Grant Program shall be limited to (i) those individuals who
first become non-employee Board members on or after the Underwriting Date,
whether through appointment by the Board or election by the Corporation's
stockholders, and (ii) those individuals who continue to serve as non-employee
Board members at one or more Annual Stockholders Meetings held after the
Underwriting Date. A non-employee Board member who has previously been in the
employ of the Corporation (or any Parent or Subsidiary) shall not be eligible to
receive an option grant
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under the Automatic Option Grant Program at the time he or she first becomes a
non-employee Board member, but shall be eligible to receive periodic option
grants under the Automatic Option Grant Program while he or she continues to
serve as a non-employee Board member.
F. All non-employee Board members shall be eligible to participate in
the Director Fee Option Grant Program.
V. STOCK SUBJECT TO THE PLAN
A. The stock issuable under the Plan shall be shares of authorized but
unissued or reacquired Common Stock, including shares repurchased by the
Corporation on the open market. The number of shares of Common Stock initially
reserved for issuance over the term of the Plan shall not exceed 4,500,000
shares. Such reserve shall consist of (i) the number of shares estimated to
remain available for issuance, as of the Plan Effective Date, under the
Predecessor Plan as last approved by the Corporation's stockholders, including
the shares subject to outstanding options under the Predecessor Plan, (ii) plus
an additional increase of approximately 1,000,000 shares to be approved by the
Corporation's stockholders prior to the Underwriting Date.
B. The number of shares of Common Stock available for issuance under
the Plan shall automatically increase on the first trading day of January each
calendar year during the term of the Plan, beginning with calendar year 2001, by
an amount equal to four percent (4%) of the total number of shares of Common
Stock outstanding on the last trading day in December of the immediately
preceding calendar year, but in no event shall any such annual increase exceed
1,500,000 shares.
C. No one person participating in the Plan may receive stock options,
separately exercisable stock appreciation rights and direct stock issuances for
more than 750,000 shares of Common Stock in the aggregate per calendar year.
D. Shares of Common Stock subject to outstanding options (including
options incorporated into this Plan from the Predecessor Plan) shall be
available for subsequent issuance under the Plan to the extent (i) those options
expire or terminate for any reason prior to exercise in full or (ii) the options
are cancelled in accordance with the cancellation-regrant provisions of Article
Two. Unvested shares issued under the Plan and subsequently cancelled or
repurchased by the Corporation at the original issue price paid per share,
pursuant to the Corporation's repurchase rights under the Plan shall be added
back to the number of shares of Common Stock reserved for issuance under the
Plan and shall accordingly be available for reissuance through one or more
subsequent option grants or direct stock issuances under the Plan. However,
should the exercise price of an option under the Plan be paid with shares of
Common Stock or should shares of Common Stock otherwise issuable under the Plan
be withheld by the Corporation in satisfaction of the withholding taxes incurred
in connection with the exercise of an option or the vesting of a stock issuance
under the Plan, then the number of shares of Common Stock available for issuance
under the Plan shall be reduced by the gross number of shares for which the
option is exercised or which vest under the stock issuance, and not by the net
number of shares of Common Stock issued to the holder of such option or stock
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issuance. Shares of Common Stock underlying one or more stock appreciation
rights exercised under Section IV of Article Two, Section III of Article Three,
Section II of Article Five or Section III of Article Six of the Plan shall NOT
be available for subsequent issuance under the Plan.
E. If any change is made to the Common Stock by reason of any stock
split, stock dividend, recapitalization, combination of shares, exchange of
shares or other change affecting the outstanding Common Stock as a class without
the Corporation's receipt of consideration, appropriate adjustments shall be
made by the Plan Administrator to (i) the maximum number and/or class of
securities issuable under the Plan, (ii) the maximum number and/or class of
securities for which any one person may be granted stock options, separately
exercisable stock appreciation rights and direct stock issuances under the Plan
per calendar year, (iii) the number and/or class of securities for which grants
are subsequently to be made under the Automatic Option Grant Program to new and
continuing non-employee Board members, (iv) the number and/or class of
securities and the exercise price per share in effect under each outstanding
option under the Plan, (v) the number and/or class of securities and exercise
price per share in effect under each outstanding option incorporated into this
Plan from the Predecessor Plan and (vi) the maximum number and/or class of
securities by which the share reserve is to increase automatically each calendar
year pursuant to the provisions of Section V.B of this Article One. Such
adjustments to the outstanding options are to be effected in a manner which
shall preclude the enlargement or dilution of rights and benefits under such
options. The adjustments determined by the Plan Administrator shall be final,
binding and conclusive.
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ARTICLE TWO
DISCRETIONARY OPTION GRANT PROGRAM
I. OPTION TERMS
Each option shall be evidenced by one or more documents in the form
approved by the Plan Administrator; provided, however, that each such document
shall comply with the terms specified below. Each document evidencing an
Incentive Option shall, in addition, be subject to the provisions of the Plan
applicable to such options.
A. EXERCISE PRICE.
1. The exercise price per share shall be fixed by the Plan
Administrator but shall not be less than one hundred percent (100%) of the Fair
Market Value per share of Common Stock on the option grant date.
2. The exercise price shall become immediately due upon exercise
of the option and shall, subject to the provisions of Section I of Article Seven
and the documents evidencing the option, be payable in one or more of the forms
specified below:
(i) cash or check made payable to the Corporation,
(ii) shares of Common Stock held for the requisite period
necessary to avoid a charge to the Corporation's earnings for financial
reporting purposes and valued at Fair Market Value on the Exercise Date, or
(iii) to the extent the option is exercised for vested
shares, through a special sale and remittance procedure pursuant to which
the Optionee shall concurrently provide irrevocable instructions to (a) a
Corporation-designated brokerage firm to effect the immediate sale of the
purchased shares and remit to the Corporation, out of the sale proceeds
available on the settlement date, sufficient funds to cover the aggregate
exercise price payable for the purchased shares plus all applicable
Federal, state and local income and employment taxes required to be
withheld by the Corporation by reason of such exercise and (b) the
Corporation to deliver the certificates for the purchased shares directly
to such brokerage firm in order to complete the sale.
Except to the extent such sale and remittance procedure is utilized,
payment of the exercise price for the purchased shares must be made on the
Exercise Date.
B. EXERCISE AND TERM OF OPTIONS. Each option shall be exercisable at
such time or times, during such period and for such number of shares as shall be
determined by the
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Plan Administrator and set forth in the documents evidencing the option.
However, no option shall have a term in excess of ten (10) years measured from
the option grant date.
C. EFFECT OF TERMINATION OF SERVICE.
1. The following provisions shall govern the exercise of any
options held by the Optionee at the time of cessation of Service or death:
(i) Any option outstanding at the time of the Optionee's
cessation of Service for any reason shall remain exercisable for such
period of time thereafter as shall be determined by the Plan
Administrator and set forth in the documents evidencing the option,
but no such option shall be exercisable after the expiration of the
option term.
(ii) Any option held by the Optionee at the time of death
and exercisable in whole or in part at that time may be subsequently
exercised by the personal representative of the Optionee's estate or
by the person or persons to whom the option is transferred pursuant to
the Optionee's will or the laws of inheritance or by the Optionee's
designated beneficiary or beneficiaries of that option.
(iii) Should the Optionee's Service be terminated for
Misconduct or should the Optionee otherwise engage in Misconduct while
holding one or more outstanding options under this Article Two, then
all those options shall terminate immediately and cease to be
outstanding.
(iv) During the applicable post-Service exercise period, the
option may not be exercised in the aggregate for more than the number
of vested shares for which the option is exercisable on the date of
the Optionee's cessation of Service. Upon the expiration of the
applicable exercise period or (if earlier) upon the expiration of the
option term, the option shall terminate and cease to be outstanding
for any vested shares for which the option has not been exercised.
However, the option shall, immediately upon the Optionee's cessation
of Service, terminate and cease to be outstanding to the extent the
option is not otherwise at that time exercisable for vested shares.
2. The Plan Administrator shall have complete discretion,
exercisable either at the time an option is granted or at any time while the
option remains outstanding, to:
(i) extend the period of time for which the option is to
remain exercisable following the Optionee's cessation of Service from
the limited exercise period otherwise in effect for that option to
such greater period of time as the Plan Administrator shall deem
appropriate, but in no event beyond the expiration of the option term,
and/or
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(ii) permit the option to be exercised, during the
applicable post-Service exercise period, not only with respect to the
number of vested shares of Common Stock for which such option is
exercisable at the time of the Optionee's cessation of Service but
also with respect to one or more additional installments in which the
Optionee would have vested had the Optionee continued in Service.
D. STOCKHOLDER RIGHTS. The holder of an option shall have no
stockholder rights with respect to the shares subject to the option until such
person shall have exercised the option, paid the exercise price and become a
holder of record of the purchased shares.
E. REPURCHASE RIGHTS. The Plan Administrator shall have the discretion
to grant options which are exercisable for unvested shares of Common Stock.
Should the Optionee cease Service while holding such unvested shares, the
Corporation shall have the right to repurchase, at the exercise price paid per
share, any or all of those unvested shares. The terms upon which such repurchase
right shall be exercisable (including the period and procedure for exercise and
the appropriate vesting schedule for the purchased shares) shall be established
by the Plan Administrator and set forth in the document evidencing such
repurchase right.
F. LIMITED TRANSFERABILITY OF OPTIONS. During the lifetime of the
Optionee, Incentive Options shall be exercisable only by the Optionee and shall
not be assignable or transferable other than by will or the laws of inheritance
following the Optionee's death. Non-Statutory Options shall be subject to the
same restriction, except that a Non-Statutory Option may be assigned in whole or
in part during the Optionee's lifetime to one or more members of the Optionee's
family or to a trust established exclusively for one or more such family members
or to Optionee's former spouse, to the extent such assignment is in connection
with the Optionee's estate plan or pursuant to a domestic relations order. The
assigned portion may only be exercised by the person or persons who acquire a
proprietary interest in the option pursuant to the assignment. The terms
applicable to the assigned portion shall be the same as those in effect for the
option immediately prior to such assignment and shall be set forth in such
documents issued to the assignee as the Plan Administrator may deem appropriate.
Notwithstanding the foregoing, the Optionee may also designate one or more
persons as the beneficiary or beneficiaries of his or her outstanding options
under this Article Two, and those options shall, in accordance with such
designation, automatically be transferred to such beneficiary or beneficiaries
upon the Optionee's death while holding those options. Such beneficiary or
beneficiaries shall take the transferred options subject to all the terms and
conditions of the applicable agreement evidencing each such transferred option,
including (without limitation) the limited time period during which the option
may be exercised following the Optionee's death.
II. INCENTIVE OPTIONS
The terms specified below shall be applicable to all Incentive
Options. Except as modified by the provisions of this Section II, all the
provisions of Articles One, Two and Seven shall be applicable to Incentive
Options. Options which are specifically designated as Non-Statutory Options when
issued under the Plan shall not be subject to the terms of this Section II.
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A. ELIGIBILITY. Incentive Options may only be granted to Employees.
B. DOLLAR LIMITATION. The aggregate Fair Market Value of the shares of
Common Stock (determined as of the respective date or dates of grant) for which
one or more options granted to any Employee under the Plan (or any other option
plan of the Corporation or any Parent or Subsidiary) may for the first time
become exercisable as Incentive Options during any one calendar year shall not
exceed the sum of One Hundred Thousand Dollars ($100,000). To the extent the
Employee holds two (2) or more such options which become exercisable for the
first time in the same calendar year, the foregoing limitation on the
exercisability of such options as Incentive Options shall be applied on the
basis of the order in which such options are granted.
C. 10% STOCKHOLDER. If any Employee to whom an Incentive Option is
granted is a 10% Stockholder, then the exercise price per share shall not be
less than one hundred ten percent (110%) of the Fair Market Value per share of
Common Stock on the option grant date, and the option term shall not exceed five
(5) years measured from the option grant date.
III. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. In the event of any Corporate Transaction, each outstanding option
shall automatically accelerate so that each such option shall, immediately prior
to the effective date of the Corporate Transaction, become exercisable for all
the shares of Common Stock at the time subject to such option and may be
exercised for any or all of those shares as fully vested shares of Common Stock.
However, an outstanding option shall NOT become exercisable on such an
accelerated basis if and to the extent: (i) such option is, in connection with
the Corporate Transaction, to be assumed by the successor corporation (or parent
thereof) or (ii) such option is to be replaced with a cash incentive program of
the successor corporation which preserves the spread existing at the time of the
Corporate Transaction on any shares for which the option is not otherwise at
that time exercisable and provides for subsequent payout in accordance with the
same exercise/vesting schedule applicable to those option shares or (iii) the
acceleration of such option is subject to other limitations imposed by the Plan
Administrator at the time of the option grant.
B. All outstanding repurchase rights shall automatically terminate,
and the shares of Common Stock subject to those terminated rights shall
immediately vest in full, in the event of any Corporate Transaction, except to
the extent: (i) those repurchase rights are to be assigned to the successor
corporation (or parent thereof) in connection with such Corporate Transaction or
(ii) such accelerated vesting is precluded by other limitations imposed by the
Plan Administrator at the time the repurchase right is issued.
C. Immediately following the consummation of the Corporate
Transaction, all outstanding options shall terminate and cease to be
outstanding, except to the extent assumed by the successor corporation (or
parent thereof).
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D. Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in consummation of such Corporate Transaction had
the option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments to reflect such Corporate Transaction shall also be made
to (i) the exercise price payable per share under each outstanding option,
provided the aggregate exercise price payable for such securities shall remain
the same, (ii) the maximum number and/or class of securities available for
issuance over the remaining term of the Plan and (iii) the maximum number and/or
class of securities for which any one person may be granted stock options,
separately exercisable stock appreciation rights and direct stock issuances
under the Plan per calendar year and (iv) the maximum number and/or class of
securities by which the share reserve is to increase automatically each calendar
year. To the extent the actual holders of the Corporation's outstanding Common
Stock receive cash consideration for their Common Stock in consummation of the
Corporate Transaction, the successor corporation may, in connection with the
assumption of the outstanding options under the Discretionary Option Grant
Program, substitute one or more shares of its own common stock with a fair
market value equivalent to the cash consideration paid per share of Common Stock
in such Corporate Transaction.
E. The Plan Administrator shall have the discretionary authority to
structure one or more outstanding options under the Discretionary Option Grant
Program so that those options shall, immediately prior to the effective date of
such Corporate Transaction, become exercisable for all the shares of Common
Stock at the time subject to those options and may be exercised for any or all
of those shares as fully vested shares of Common Stock, whether or not those
options are to be assumed in the Corporate Transaction. In addition, the Plan
Administrator shall have the discretionary authority to structure one or more of
the Corporation's repurchase rights under the Discretionary Option Grant Program
so that those rights shall not be assignable in connection with such Corporate
Transaction and shall accordingly terminate upon the consummation of such
Corporate Transaction, and the shares subject to those terminated rights shall
thereupon vest in full.
F. The Plan Administrator shall have full power and authority to
structure one or more outstanding options under the Discretionary Option Grant
Program so that those options shall become exercisable for all the shares of
Common Stock at the time subject to those options in the event the Optionee's
Service is subsequently terminated by reason of an Involuntary Termination
within a designated period (not to exceed eighteen (18) months) following the
effective date of any Corporate Transaction in which those options are assumed
and do not otherwise accelerate. In addition, the Plan Administrator may
structure one or more of the Corporation's repurchase rights so that those
rights shall immediately terminate with respect to any shares held by the
Optionee at the time of his or her Involuntary Termination, and the shares
subject to those terminated repurchase rights shall accordingly vest in full at
that time.
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G. The Plan Administrator shall have the discretionary authority to
structure one or more outstanding options under the Discretionary Option Grant
Program so that those options shall, immediately prior to the effective date of
a Change in Control, become exercisable for all the shares of Common Stock at
the time subject to those options and may be exercised for any or all of those
shares as fully vested shares of Common Stock. In addition, the Plan
Administrator shall have the discretionary authority to structure one or more of
the Corporation's repurchase rights under the Discretionary Option Grant Program
so that those rights shall terminate automatically upon the consummation of such
Change in Control, and the shares subject to those terminated rights shall
thereupon vest in full. Alternatively, the Plan Administrator may condition the
automatic acceleration of one or more outstanding options under the
Discretionary Option Grant Program and the termination of one or more of the
Corporation's outstanding repurchase rights under such program upon the
subsequent termination of the Optionee's Service by reason of an Involuntary
Termination within a designated period (not to exceed eighteen (18) months)
following the effective date of such Change in Control.
H. The portion of any Incentive Option accelerated in connection with
a Corporate Transaction or Change in Control shall remain exercisable as an
Incentive Option only to the extent the applicable One Hundred Thousand Dollar
($100,000) limitation is not exceeded. To the extent such dollar limitation is
exceeded, the accelerated portion of such option shall be exercisable as a
Nonstatutory Option under the Federal tax laws.
I. The outstanding options shall in no way affect the right of the
Corporation to adjust, reclassify, reorganize or otherwise change its capital or
business structure or to merge, consolidate, dissolve, liquidate or sell or
transfer all or any part of its business or assets.
IV. CANCELLATION AND REGRANT OF OPTIONS
The Plan Administrator shall have the authority to effect, at any time
and from time to time, with the consent of the affected option holders, the
cancellation of any or all outstanding options under the Discretionary Option
Grant Program (including outstanding options incorporated from the Predecessor
Plan) and to grant in substitution new options covering the same or a different
number of shares of Common Stock but with an exercise price per share based on
the Fair Market Value per share of Common Stock on the new grant date.
V. STOCK APPRECIATION RIGHTS
A. The Plan Administrator shall have full power and authority to grant
to selected Optionees tandem stock appreciation rights and/or limited stock
appreciation rights.
B. The following terms shall govern the grant and exercise of tandem
stock appreciation rights:
(i) One or more Optionees may be granted the right, exercisable
upon such terms as the Plan Administrator may establish, to elect between
the exercise of the underlying option for shares of Common Stock and
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the surrender of that option in exchange for a distribution from the
Corporation in an amount equal to the excess of (a) the Fair Market Value
(on the option surrender date) of the number of shares in which the
Optionee is at the time vested under the surrendered option (or surrendered
portion thereof) over (b) the aggregate exercise price payable for such
shares.
(ii) No such option surrender shall be effective unless it is
approved by the Plan Administrator, either at the time of the actual option
surrender or at any earlier time. If the surrender is so approved, then the
distribution to which the Optionee shall be entitled may be made in shares
of Common Stock valued at Fair Market Value on the option surrender date,
in cash, or partly in shares and partly in cash, as the Plan Administrator
shall in its sole discretion deem appropriate.
(iii) If the surrender of an option is not approved by the Plan
Administrator, then the Optionee shall retain whatever rights the Optionee
had under the surrendered option (or surrendered portion thereof) on the
option surrender date and may exercise such rights at any time prior to the
later of (a) five (5) business days after the receipt of the rejection
notice or (b) the last day on which the option is otherwise exercisable in
accordance with the terms of the documents evidencing such option, but in
no event may such rights be exercised more than ten (10) years after the
option grant date.
C. The following terms shall govern the grant and exercise of limited
stock appreciation rights:
(i) One or more Section 16 Insiders may be granted limited stock
appreciation rights with respect to their outstanding options.
(ii) Upon the occurrence of a Hostile Take-Over, each individual
holding one or more options with such a limited stock appreciation right
shall have the unconditional right (exercisable for a thirty (30)-day
period following such Hostile Take-Over) to surrender each such option to
the Corporation. In return for the surrendered option, the Optionee shall
receive a cash distribution from the Corporation in an amount equal to the
excess of (A) the Take-Over Price of the shares of Common Stock at the time
subject to such option (whether or not the option is otherwise at that time
exercisable for those shares) over (B) the aggregate exercise price payable
for those shares. Such cash distribution shall be paid within five (5) days
following the option surrender date.
(iii) At the time such limited stock appreciation right is
granted, the Plan Administrator shall pre-approve any subsequent exercise
of that right in accordance with the terms of this Paragraph C.
Accordingly, no further approval of the Plan Administrator or the Board
shall be required at the time of the actual option surrender and cash
distribution.
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ARTICLE THREE
SALARY INVESTMENT OPTION GRANT PROGRAM
I. OPTION GRANTS
The Primary Committee shall have the sole and exclusive authority to
determine the calendar year or years (if any) for which the Salary Investment
Option Grant Program is to be in effect and to select the Section 16 Insiders
and other highly compensated Employees eligible to participate in the Salary
Investment Option Grant Program for such calendar year or years. Each selected
individual who elects to participate in the Salary Investment Option Grant
Program must, prior to the start of each calendar year of participation, file
with the Plan Administrator (or its designate) an irrevocable authorization
directing the Corporation to reduce his or her base salary for that calendar
year by an amount not less than Ten Thousand Dollars ($10,000.00) nor more than
Fifty Thousand Dollars ($50,000.00). Each individual who files such a timely
authorization shall automatically be granted an option under the Salary
Investment Grant Program on the first trading day in January of the calendar
year for which the salary reduction is to be in effect.
II. OPTION TERMS
Each option shall be a Non-Statutory Option evidenced by one or more
documents in the form approved by the Plan Administrator; provided, however,
that each such document shall comply with the terms specified below.
A. EXERCISE PRICE.
1. The exercise price per share shall be thirty-three and
one-third percent (33-1/3%) of the Fair Market Value per share of Common Stock
on the option grant date.
2. The exercise price shall become immediately due upon exercise
of the option and shall be payable in one or more of the alternative forms
authorized under the Discretionary Option Grant Program. Except to the extent
the sale and remittance procedure specified thereunder is utilized, payment of
the exercise price for the purchased shares must be made on the Exercise Date.
B. NUMBER OF OPTION SHARES. The number of shares of Common Stock
subject to the option shall be determined pursuant to the following formula
(rounded down to the nearest whole number):
X = A / (B x 66-2/3%), where
X is the number of option shares,
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A is the dollar amount by which the Optionee's base salary is to
be reduced for the calendar year pursuant to his or her election under
the Salary Investment Option Grant Program, and
B is the Fair Market Value per share of Common Stock on the
option grant date.
C. EXERCISE AND TERM OF OPTIONS. The option shall become exercisable
in a series of twelve (12) successive equal monthly installments upon the
Optionee's completion of each calendar month of Service in the calendar year for
which the salary reduction is in effect. Each option shall have a maximum term
of ten (10) years measured from the option grant date.
D. EFFECT OF TERMINATION OF SERVICE. Should the Optionee cease Service
for any reason while holding one or more options under this Article Three, then
each such option shall remain exercisable, for any or all of the shares for
which the option is exercisable at the time of such cessation of Service, until
the earlier of (i) the expiration of the ten (10)-year option term or (ii) the
expiration of the three (3)-year period measured from the date of such cessation
of Service. Should the Optionee die while holding one or more options under this
Article Three, then each such option may be exercised, for any or all of the
shares for which the option is exercisable at the time of the Optionee's
cessation of Service (less any shares subsequently purchased by Optionee prior
to death), by the personal representative of the Optionee's estate or by the
person or persons to whom the option is transferred pursuant to the Optionee's
will or the laws of inheritance or by the designated beneficiary or
beneficiaries of the option. Such right of exercise shall lapse, and the option
shall terminate, upon the earlier of (i) the expiration of the ten (10)-year
option term or (ii) the three (3)-year period measured from the date of the
Optionee's cessation of Service. However, the option shall, immediately upon the
Optionee's cessation of Service for any reason, terminate and cease to remain
outstanding with respect to any and all shares of Common Stock for which the
option is not otherwise at that time exercisable.
III. CORPORATE TRANSACTION/ CHANGE IN CONTROL/ HOSTILE TAKE-OVER
A. In the event of any Corporate Transaction while the Optionee
remains in Service, each outstanding option held by such Optionee under this
Salary Investment Option Grant Program shall automatically accelerate so that
each such option shall, immediately prior to the effective date of the Corporate
Transaction, become exercisable for all the shares of Common Stock at the time
subject to such option and may be exercised for any or all of those shares as
fully vested shares of Common Stock. Each such outstanding option shall
terminate immediately following the Corporate Transaction, except to the extent
assumed by the successor corporation (or parent thereof) in such Corporate
Transaction. Any option so assumed and shall remain exercisable for the fully
vested shares until the earlier of (i) the expiration of the ten (10)-year
option term or (ii) the expiration of the three (3)-year period measured from
the date of the Optionee's cessation of Service.
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B. In the event of a Change in Control while the Optionee remains in
Service, each outstanding option held by such Optionee under this Salary
Investment Option Grant Program shall automatically accelerate so that each such
option shall, immediately prior to the effective date of the Change in Control,
become exercisable for all the shares of Common Stock at the time subject to
such option and may be exercised for any or all of those shares as fully vested
shares of Common Stock. The option shall remain so exercisable until the
earliest to occur of (i) the expiration of the ten (10)-year option term, (ii)
the expiration of the three (3)-year period measured from the date of the
Optionee's cessation of Service, (iii) the termination of the option in
connection with a Corporate Transaction or (iv) the surrender of the option in
connection with a Hostile Take-Over.
C. Upon the occurrence of a Hostile Take-Over, the Optionee shall have
a thirty (30)-day period in which to surrender to the Corporation each
outstanding option granted him or her under the Salary Investment Option Grant
Program. The Optionee shall in return be entitled to a cash distribution from
the Corporation in an amount equal to the excess of (i) the Take-Over Price of
the shares of Common Stock at the time subject to the surrendered option
(whether or not the option is otherwise at the time exercisable for those
shares) over (ii) the aggregate exercise price payable for such shares. Such
cash distribution shall be paid within five (5) days following the surrender of
the option to the Corporation. The Primary Committee shall, at the time the
option with such limited stock appreciation right is granted under the Salary
Investment Option Grant Program, pre-approve any subsequent exercise of that
right in accordance with the terms of this Paragraph C. Accordingly, no further
approval of the Primary Committee or the Board shall be required at the time of
the actual option surrender and cash distribution.
D. Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in consummation of such Corporate Transaction had
the option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments shall also be made to the exercise price payable per
share under each outstanding option, provided the aggregate exercise price
payable for such securities shall remain the same. To the extent the actual
holders of the Corporation's outstanding Common Stock receive cash consideration
for their Common Stock in consummation of the Corporate Transaction, the
successor corporation may, in connection with the assumption of the outstanding
options under the Salary Investment Option Grant Program, substitute one or more
shares of its own common stock with a fair market value equivalent to the cash
consideration paid per share of Common Stock in such Corporate Transaction.
E. The grant of options under the Salary Investment Option Grant
Program shall in no way affect the right of the Corporation to adjust,
reclassify, reorganize or otherwise change its capital or business structure or
to merge, consolidate, dissolve, liquidate or sell or transfer all or any part
of its business or assets.
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IV. REMAINING TERMS
The remaining terms of each option granted under the Salary Investment
Option Grant Program shall be the same as the terms in effect for option grants
made under the Discretionary Option Grant Program.
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ARTICLE FOUR
STOCK ISSUANCE PROGRAM
I. STOCK ISSUANCE TERMS
Shares of Common Stock may be issued under the Stock Issuance Program
through direct and immediate issuances without any intervening option grants.
Each such stock issuance shall be evidenced by a Stock Issuance Agreement which
complies with the terms specified below. Shares of Common Stock may also be
issued under the Stock Issuance Program pursuant to share right awards which
entitle the recipients to receive those shares upon the attainment of designated
performance goals.
A. PURCHASE PRICE.
1. The purchase price per share shall be fixed by the Plan
Administrator, but shall not be less than one hundred percent (100%) of the Fair
Market Value per share of Common Stock on the issuance date.
2. Subject to the provisions of Section I of Article Seven,
shares of Common Stock may be issued under the Stock Issuance Program for any of
the following items of consideration which the Plan Administrator may deem
appropriate in each individual instance:
(i) cash or check made payable to the Corporation, or
(ii) past services rendered to the Corporation (or any
Parent or Subsidiary).
B. VESTING PROVISIONS.
1. Shares of Common Stock issued under the Stock Issuance Program
may, in the discretion of the Plan Administrator, be fully and immediately
vested upon issuance or may vest in one or more installments over the
Participant's period of Service or upon attainment of specified performance
objectives. The elements of the vesting schedule applicable to any unvested
shares of Common Stock issued under the Stock Issuance Program shall be
determined by the Plan Administrator and incorporated into the Stock Issuance
Agreement. Shares of Common Stock may also be issued under the Stock Issuance
Program pursuant to share right awards which entitle the recipients to receive
those shares upon the attainment of designated performance goals.
2. Any new, substituted or additional securities or other
property (including money paid other than as a regular cash dividend) which the
Participant may have the right to receive with respect to the Participant's
unvested shares of Common Stock by reason of any stock dividend, stock split,
recapitalization, combination of shares, exchange of shares or
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other change affecting the outstanding Common Stock as a class without the
Corporation's receipt of consideration shall be issued subject to (i) the same
vesting requirements applicable to the Participant's unvested shares of Common
Stock and (ii) such escrow arrangements as the Plan Administrator shall deem
appropriate.
3. The Participant shall have full stockholder rights with
respect to any shares of Common Stock issued to the Participant under the Stock
Issuance Program, whether or not the Participant's interest in those shares is
vested. Accordingly, the Participant shall have the right to vote such shares
and to receive any regular cash dividends paid on such shares.
4. Should the Participant cease to remain in Service while
holding one or more unvested shares of Common Stock issued under the Stock
Issuance Program or should the performance objectives not be attained with
respect to one or more such unvested shares of Common Stock, then those shares
shall be immediately surrendered to the Corporation for cancellation, and the
Participant shall have no further stockholder rights with respect to those
shares. To the extent the surrendered shares were previously issued to the
Participant for consideration paid in cash or cash equivalent (including the
Participant's purchase-money indebtedness), the Corporation shall repay to the
Participant the cash consideration paid for the surrendered shares and shall
cancel the unpaid principal balance of any outstanding purchase-money note of
the Participant attributable to the surrendered shares.
5. The Plan Administrator may in its discretion waive the
surrender and cancellation of one or more unvested shares of Common Stock which
would otherwise occur upon the cessation of the Participant's Service or the
non-attainment of the performance objectives applicable to those shares. Such
waiver shall result in the immediate vesting of the Participant's interest in
the shares of Common Stock as to which the waiver applies. Such waiver may be
effected at any time, whether before or after the Participant's cessation of
Service or the attainment or non-attainment of the applicable performance
objectives.
6. Outstanding share right awards under the Stock Issuance
Program shall automatically terminate, and no shares of Common Stock shall
actually be issued in satisfaction of those awards, if the performance goals
established for such awards are not attained. The Plan Administrator, however,
shall have the discretionary authority to issue shares of Common Stock under one
or more outstanding share right awards as to which the designated performance
goals have not been attained.
II. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. All of the Corporation's outstanding repurchase rights under the
Stock Issuance Program shall terminate automatically, and all the shares of
Common Stock subject to those terminated rights shall immediately vest in full,
in the event of any Corporate Transaction, except to the extent (i) those
repurchase rights are to be assigned to the successor corporation (or parent
thereof) in connection with such Corporate Transaction or (ii) such accelerated
vesting is precluded by other limitations imposed in the Stock Issuance
Agreement.
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B. The Plan Administrator shall have the discretionary authority to
structure one or more of the Corporation's repurchase rights under the Stock
Issuance Program so that those rights shall automatically terminate in whole or
in part, and the shares of Common Stock subject to those terminated rights shall
immediately vest, in the event the Participant's Service should subsequently
terminate by reason of an Involuntary Termination within a designated period
(not to exceed eighteen (18) months) following the effective date of any
Corporate Transaction in which those repurchase rights are assigned to the
successor corporation (or parent thereof).
C. The Plan Administrator shall also have the discretionary authority
to structure one or more of the Corporation's repurchase rights under the Stock
Issuance Program so that those rights shall automatically terminate in whole or
in part, and the shares of Common Stock subject to those terminated rights shall
immediately vest, in the event the Participant's Service should subsequently
terminate by reason of an Involuntary Termination within a designated period
(not to exceed eighteen (18) months) following the effective date of any Change
in Control.
III. SHARE ESCROW/LEGENDS
Unvested shares may, in the Plan Administrator's discretion, be held in
escrow by the Corporation until the Participant's interest in such shares vests
or may be issued directly to the Participant with restrictive legends on the
certificates evidencing those unvested shares.
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ARTICLE FIVE
AUTOMATIC OPTION GRANT PROGRAM
I. OPTION TERMS
A. GRANT DATES. Option grants shall be made on the dates specified
below:
1. Each individual who is first elected or appointed as a
non-employee Board member at any time on or after the Underwriting Date shall
automatically be granted, on the date of such initial election or appointment, a
Non-Statutory Option to purchase 50,000 shares of Common Stock, provided that
individual has not previously been in the employ of the Corporation or any
Parent or Subsidiary.
2. On the date of each Annual Stockholders Meeting held after the
Underwriting Date, each individual who is to continue to serve as a non-employee
Board member, whether or not that individual is standing for re-election to the
Board at that particular Annual Meeting, shall automatically be granted a
Non-Statutory Option to purchase 2,500 shares of Common Stock, provided such
individual has served as a non-employee Board member for at least six (6)
months. There shall be no limit on the number of such 2,500-share option grants
any one non-employee Board member may receive over his or her period of Board
service, and non-employee Board members who have previously been in the employ
of the Corporation (or any Parent or Subsidiary) or who have otherwise received
one or more stock option grants from the Corporation prior to the Underwriting
Date shall be eligible to receive one or more such annual option grants over
their period of continued Board service.
B. EXERCISE PRICE.
1. The exercise price per share shall be equal to one hundred
percent (100%) of the Fair Market Value per share of Common Stock on the option
grant date.
2. The exercise price shall be payable in one or more of the
alternative forms authorized under the Discretionary Option Grant Program.
Except to the extent the sale and remittance procedure specified thereunder is
utilized, payment of the exercise price for the purchased shares must be made on
the Exercise Date.
C. OPTION TERM. Each option shall have a term of ten (10) years
measured from the option grant date.
D. EXERCISE AND VESTING OF OPTIONS. Each option shall be immediately
exercisable for any or all of the option shares. However, any unvested shares
purchased under the option shall be subject to repurchase by the Corporation, at
the exercise price paid per share, upon the Optionee's cessation of Board
service prior to vesting in those shares. The shares subject to each initial
50,000-share grant shall vest, and the Corporation's repurchase right shall
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<PAGE> 21
lapse, in a series of four (4) successive equal annual installments upon the
Optionee's completion of each year of service as a Board member over the four
(4)-year period measured from the option grant date. The shares subject to each
annual 2,500-share option grant shall vest in one installment upon the
Optionee's completion of the one (1)-year period of service measured from the
grant date.
E. LIMITED TRANSFERABILITY OF OPTIONS. Each option under this Article
Five may be assigned in whole or in part during the Optionee's lifetime to one
or more members of the Optionee's family or to a trust established exclusively
for one or more such family members or to Optionee's former spouse, to the
extent such assignment is in connection with the Optionee's estate plan or
pursuant to a domestic relations order. The assigned portion may only be
exercised by the person or persons who acquire a proprietary interest in the
option pursuant to the assignment. The terms applicable to the assigned portion
shall be the same as those in effect for the option immediately prior to such
assignment and shall be set forth in such documents issued to the assignee as
the Plan Administrator may deem appropriate. The Optionee may also designate one
or more persons as the beneficiary or beneficiaries of his or her outstanding
options under this Article Five, and those options shall, in accordance with
such designation, automatically be transferred to such beneficiary or
beneficiaries upon the Optionee's death while holding those options. Such
beneficiary or beneficiaries shall take the transferred options subject to all
the terms and conditions of the applicable agreement evidencing each such
transferred option, including (without limitation) the limited time period
during which the option may be exercised following the Optionee's death.
F. TERMINATION OF BOARD SERVICE. The following provisions shall govern
the exercise of any options held by the Optionee at the time the Optionee ceases
to serve as a Board member:
(i) The Optionee (or, in the event of Optionee's death, the
personal representative of the Optionee's estate or the person or
persons to whom the option is transferred pursuant to the Optionee's
will or the laws of inheritance or the designated beneficiary or
beneficiaries of such option) shall have a twelve (12)-month period
following the date of such cessation of Board service in which to
exercise each such option.
(ii) During the twelve (12)-month exercise period, the
option may not be exercised in the aggregate for more than the number
of vested shares of Common Stock for which the option is exercisable
at the time of the Optionee's cessation of Board service.
(iii) Should the Optionee cease to serve as a Board member
by reason of death or Permanent Disability, then all shares at the
time subject to the option shall immediately vest so that such option
may, during the twelve (12)-month exercise period following such
cessation of Board service, be exercised for all or any portion of
those shares as fully vested shares of Common Stock.
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(iv) In no event shall the option remain exercisable after
the expiration of the option term. Upon the expiration of the twelve
(12)-month exercise period or (if earlier) upon the expiration of the
option term, the option shall terminate and cease to be outstanding
for any vested shares for which the option has not been exercised.
However, the option shall, immediately upon the Optionee's cessation
of Board service for any reason other than death or Permanent
Disability, terminate and cease to be outstanding to the extent the
option is not otherwise at that time exercisable for vested shares.
II. CORPORATE TRANSACTION/ CHANGE IN CONTROL/ HOSTILE TAKE-OVER
A. In the event of any Corporate Transaction while the Optionee
remains a Board member, the shares of Common Stock at the time subject to each
outstanding option under the Automatic Option Grant Program but not otherwise
vested shall automatically vest in full so that each such option shall,
immediately prior to the effective date of the Corporate Transaction, become
exercisable for all the option shares as fully vested shares of Common Stock and
may be exercised for any or all of those vested shares. Immediately following
the consummation of the Corporate Transaction, each automatic option grant shall
terminate and cease to be outstanding, except to the extent assumed by the
successor corporation (or parent thereof).
B. In connection with any Change in Control while the Optionee remains
a Board member, the shares of Common Stock at the time subject to each
outstanding option under the Automatic Option Grant Program but not otherwise
vested shall automatically vest in full so that each such option shall,
immediately prior to the effective date of the Change in Control, become
exercisable for all the option shares as fully vested shares of Common Stock and
may be exercised for any or all of those vested shares. Each such option shall
remain exercisable for such fully vested option shares until the expiration or
sooner termination of the option term or the surrender of the option in
connection with a Hostile Take-Over.
C. All outstanding repurchase rights under the Automatic Option Grant
Program shall automatically terminate, and the shares of Common Stock subject to
those terminated rights shall immediately vest in full, in the event of any
Corporate Transaction or Change in Control.
D. Upon the occurrence of a Hostile Take-Over, the Optionee shall have
a thirty (30)-day period in which to surrender to the Corporation each of his or
her outstanding option under the Automatic Option Grant Program. The Optionee
shall in return be entitled to a cash distribution from the Corporation in an
amount equal to the excess of (i) the Take-Over Price of the shares of Common
Stock at the time subject to each surrendered option (whether or not the
Optionee is otherwise at the time vested in those shares) over (ii) the
aggregate exercise price payable for such shares. Such cash distribution shall
be paid within five (5) days following the surrender of the option to the
Corporation. No approval or consent of the Board or any Plan Administrator shall
be required at the time of the actual option surrender and cash distribution.
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E. Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in consummation of such Corporate Transaction had
the option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments shall also be made to the exercise price payable per
share under each outstanding option, provided the aggregate exercise price
payable for such securities shall remain the same. To the extent the actual
holders of the Corporation's outstanding Common Stock receive cash consideration
for their Common Stock in consummation of the Corporate Transaction, the
successor corporation may, in connection with the assumption of the outstanding
options under the Automatic Option Grant Program, substitute one or more shares
of its own common stock with a fair market value equivalent to the cash
consideration paid per share of Common Stock in such Corporate Transaction.
F. The grant of options under the Automatic Option Grant Program shall
in no way affect the right of the Corporation to adjust, reclassify, reorganize
or otherwise change its capital or business structure or to merge, consolidate,
dissolve, liquidate or sell or transfer all or any part of its business or
assets.
III. REMAINING TERMS
The remaining terms of each option granted under the Automatic Option
Grant Program shall be the same as the terms in effect for option grants made
under the Discretionary Option Grant Program.
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ARTICLE SIX
DIRECTOR FEE OPTION GRANT PROGRAM
I. OPTION GRANTS
The Primary Committee shall have the sole and exclusive authority to
determine the calendar year or years for which the Director Fee Option Grant
Program is to be in effect. For each such calendar year the program is in
effect, each non-employee Board member may irrevocably elect to apply all or any
portion of the annual retainer fee otherwise payable in cash for his or her
service on the Board for that year to the acquisition of a special option grant
under this Director Fee Option Grant Program. Such election must be filed with
the Corporation's Chief Financial Officer prior to the first day of the calendar
year for which the annual retainer fee which is the subject of that election is
otherwise payable. Each non-employee Board member who files such a timely
election shall automatically be granted an option under this Director Fee Option
Grant Program on the first trading day in January in the calendar year for which
the annual retainer fee which is the subject of that election would otherwise be
payable in cash.
II. OPTION TERMS
Each option shall be a Non-Statutory Option governed by the terms and
conditions specified below.
A. EXERCISE PRICE.
1. The exercise price per share shall be thirty-three and
one-third percent (33-1/3%) of the Fair Market Value per share of Common Stock
on the option grant date.
2. The exercise price shall become immediately due upon exercise
of the option and shall be payable in one or more of the alternative forms
authorized under the Discretionary Option Grant Program. Except to the extent
the sale and remittance procedure specified thereunder is utilized, payment of
the exercise price for the purchased shares must be made on the Exercise Date.
B. NUMBER OF OPTION SHARES. The number of shares of Common Stock
subject to the option shall be determined pursuant to the following formula
(rounded down to the nearest whole number):
X = A / (B x 66-2/3%), where
X is the number of option shares,
A is the portion of the annual retainer fee subject to the
non-employee Board member's election under the Director Fee Option
Grant Program, and
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<PAGE> 25
B is the Fair Market Value per share of Common Stock on the
option grant date.
C. EXERCISE AND TERM OF OPTIONS. The option shall become exercisable
in a series of twelve (12) equal monthly installments upon the Optionee's
completion of each calendar month of Board service during the calendar year for
which the retainer fee election is in effect. Each option shall have a maximum
term of ten (10) years measured from the option grant date.
D. LIMITED TRANSFERABILITY OF OPTIONS. Each option under this Article
Six may be assigned in whole or in part during the Optionee's lifetime to one or
more members of the Optionee's family or to a trust established exclusively for
one or more such family members or to Optionee's former spouse, to the extent
such assignment is in connection with Optionee's estate plan or pursuant to a
domestic relations order. The assigned portion may only be exercised by the
person or persons who acquire a proprietary interest in the option pursuant to
the assignment. The terms applicable to the assigned portion shall be the same
as those in effect for the option immediately prior to such assignment and shall
be set forth in such documents issued to the assignee as the Plan Administrator
may deem appropriate. The Optionee may also designate one or more persons as the
beneficiary or beneficiaries of his or her outstanding options under this
Article Six, and those options shall, in accordance with such designation,
automatically be transferred to such beneficiary or beneficiaries upon the
Optionee's death while holding those options. Such beneficiary or beneficiaries
shall take the transferred options subject to all the terms and conditions of
the applicable agreement evidencing each such transferred option, including
(without limitation) the limited time period during which the option may be
exercised following the Optionee's death.
E. TERMINATION OF BOARD SERVICE. Should the Optionee cease Board
service for any reason (other than death or Permanent Disability) while holding
one or more options under this Director Fee Option Grant Program, then each such
option shall remain exercisable, for any or all of the shares for which the
option is exercisable at the time of such cessation of Board service, until the
earlier of (i) the expiration of the ten (10)-year option term or (ii) the
expiration of the three (3)-year period measured from the date of such cessation
of Board service. However, each option held by the Optionee under this Director
Fee Option Grant Program at the time of his or her cessation of Board service
shall immediately terminate and cease to remain outstanding with respect to any
and all shares of Common Stock for which the option is not otherwise at that
time exercisable.
F. DEATH OR PERMANENT DISABILITY. Should the Optionee's service as a
Board member cease by reason of death or Permanent Disability, then each option
held by such Optionee under this Director Fee Option Grant Program shall
immediately become exercisable for all the shares of Common Stock at the time
subject to that option, and the option may be exercised for any or all of those
shares as fully vested shares until the earlier of (i) the expiration of the ten
(10)-year option term or (ii) the expiration of the three (3)-year period
measured from
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the date of such cessation of Board service. To the extent such option is held
by the Optionee at the time of his or her death, that option may be exercised by
the personal representative of the Optionee's estate or by the person or persons
to whom the option is transferred pursuant to the Optionee's will or the laws of
inheritance or by the designated beneficiary or beneficiaries of such option.
Should the Optionee die after cessation of Board service but
while holding one or more options under this Director Fee Option Grant Program,
then each such option may be exercised, for any or all of the shares for which
the option is exercisable at the time of the Optionee's cessation of Board
service (less any shares subsequently purchased by Optionee prior to death), by
the personal representative of the Optionee's estate or by the person or persons
to whom the option is transferred pursuant to the Optionee's will or the laws of
inheritance or by the designated beneficiary or beneficiaries of such option.
Such right of exercise shall lapse, and the option shall terminate, upon the
earlier of (i) the expiration of the ten (10)-year option term or (ii) the three
(3)-year period measured from the date of the Optionee's cessation of Board
service.
III. CORPORATE TRANSACTION/CHANGE IN CONTROL/HOSTILE TAKE-OVER
A. In the event of any Corporate Transaction while the Optionee
remains a Board member, each outstanding option held by such Optionee under this
Director Fee Option Grant Program shall automatically accelerate so that each
such option shall, immediately prior to the effective date of the Corporate
Transaction, become exercisable for all the shares of Common Stock at the time
subject to such option and may be exercised for any or all of those shares as
fully vested shares of Common Stock. Each such outstanding option shall
terminate immediately following the Corporate Transaction, except to the extent
assumed by the successor corporation (or parent thereof) in such Corporate
Transaction. Any option so assumed and shall remain exercisable for the fully
vested shares until the earlier of (i) the expiration of the ten (10)-year
option term or (ii) the expiration of the three (3)-year period measured from
the date of the Optionee's cessation of Board service.
B. In the event of a Change in Control while the Optionee remains in
Service, each outstanding option held by such Optionee under this Director Fee
Option Grant Program shall automatically accelerate so that each such option
shall, immediately prior to the effective date of the Change in Control, become
exercisable for all the shares of Common Stock at the time subject to such
option and may be exercised for any or all of those shares as fully vested
shares of Common Stock. The option shall remain so exercisable until the
earliest to occur of (i) the expiration of the ten (10)-year option term, (ii)
the expiration of the three (3)-year period measured from the date of the
Optionee's cessation of Board service, (iii) the termination of the option in
connection with a Corporate Transaction or (iv) the surrender of the option in
connection with a Hostile Take-Over.
C. Upon the occurrence of a Hostile Take-Over, the Optionee shall have
a thirty (30)-day period in which to surrender to the Corporation each
outstanding option granted him or her under the Director Fee Option Grant
Program. The Optionee shall in return be
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entitled to a cash distribution from the Corporation in an amount equal to the
excess of (i) the Take-Over Price of the shares of Common Stock at the time
subject to each surrendered option (whether or not the option is otherwise at
the time exercisable for those shares) over (ii) the aggregate exercise price
payable for such shares. Such cash distribution shall be paid within five (5)
days following the surrender of the option to the Corporation. No approval or
consent of the Board or any Plan Administrator shall be required at the time of
the actual option surrender and cash distribution.
D. Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in consummation of such Corporate Transaction had
the option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments shall also be made to the exercise price payable per
share under each outstanding option, provided the aggregate exercise price
payable for such securities shall remain the same. To the extent the actual
holders of the Corporation's outstanding Common Stock receive cash consideration
for their Common Stock in consummation of the Corporate Transaction, the
successor corporation may, in connection with the assumption of the outstanding
options under the Director Fee Option Grant Program, substitute one or more
shares of its own common stock with a fair market value equivalent to the cash
consideration paid per share of Common Stock in such Corporate Transaction.
E. The grant of options under the Director Fee Option Grant Program
shall in no way affect the right of the Corporation to adjust, reclassify,
reorganize or otherwise change its capital or business structure or to merge,
consolidate, dissolve, liquidate or sell or transfer all or any part of its
business or assets.
IV. REMAINING TERMS
The remaining terms of each option granted under this Director Fee
Option Grant Program shall be the same as the terms in effect for option grants
made under the Discretionary Option Grant Program.
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ARTICLE SEVEN
MISCELLANEOUS
I. FINANCING
The Plan Administrator may permit any Optionee or Participant to pay
the option exercise price under the Discretionary Option Grant Program or the
purchase price of shares issued under the Stock Issuance Program by delivering a
full-recourse, interest-bearing promissory note payable in one or more
installments. The terms of any such promissory note (including the interest rate
and the terms of repayment) shall be established by the Plan Administrator in
its sole discretion. In no event may the maximum credit available to the
Optionee or Participant exceed the sum of (i) the aggregate option exercise
price or purchase price payable for the purchased shares (less the par value of
such shares) plus (ii) any Federal, state and local income and employment tax
liability incurred by the Optionee or the Participant in connection with the
option exercise or share purchase.
II. TAX WITHHOLDING
A. The Corporation's obligation to deliver shares of Common Stock upon
the exercise of options or the issuance or vesting of such shares under the Plan
shall be subject to the satisfaction of all applicable Federal, state and local
income and employment tax withholding requirements.
B. The Plan Administrator may, in its discretion, provide any or all
holders of Non-Statutory Options or unvested shares of Common Stock under the
Plan (other than the options granted or the shares issued under the Automatic
Option Grant or Director Fee Option Grant Program) with the right to use shares
of Common Stock in satisfaction of all or part of the Withholding Taxes to which
such holders may become subject in connection with the exercise of their options
or the vesting of their shares. Such right may be provided to any such holder in
either or both of the following formats:
Stock Withholding: The election to have the Corporation withhold,
from the shares of Common Stock otherwise issuable upon the exercise of such
Non-Statutory Option or the vesting of such shares, a portion of those shares
with an aggregate Fair Market Value equal to the percentage of the Withholding
Taxes (not to exceed one hundred percent (100%)) designated by the holder.
Stock Delivery: The election to deliver to the Corporation, at
the time the Non-Statutory Option is exercised or the shares vest, one or more
shares of Common Stock previously acquired by such holder (other than in
connection with the option exercise or share vesting triggering the Withholding
Taxes) with an aggregate Fair Market Value equal to the percentage of the
Withholding Taxes (not to exceed one hundred percent (100%)) designated by the
holder.
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III. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Plan shall become effective immediately on the Plan Effective
Date. However, the Salary Investment Option Grant Program and the Director Fee
Option Grant Program shall not be implemented until such time as the Primary
Committee may deem appropriate. Options may be granted under the Discretionary
Option Grant at any time on or after the Plan Effective Date, and the initial
option grants under the Automatic Option Grant Program shall also be made on the
Plan Effective Date to any non-employee Board members eligible for such grants
at that time. However, no options granted under the Plan may be exercised, and
no shares shall be issued under the Plan, until the Plan is approved by the
Corporation's stockholders. If such stockholder approval is not obtained within
twelve (12) months after the Plan Effective Date, then all options previously
granted under this Plan shall terminate and cease to be outstanding, and no
further options shall be granted and no shares shall be issued under the Plan.
B. The Plan shall serve as the successor to the Predecessor Plan, and
no further option grants or direct stock issuances shall be made under the
Predecessor Plan after the Plan Effective Date. All options outstanding under
the Predecessor Plan on the Plan Effective Date shall be incorporated into the
Plan at that time and shall be treated as outstanding options under the Plan.
However, each outstanding option so incorporated shall continue to be governed
solely by the terms of the documents evidencing such option, and no provision of
the Plan shall be deemed to affect or otherwise modify the rights or obligations
of the holders of such incorporated options with respect to their acquisition of
shares of Common Stock.
C. One or more provisions of the Plan, including (without limitation)
the option/vesting acceleration provisions of Article Two relating to Corporate
Transactions and Changes in Control, may, in the Plan Administrator's
discretion, be extended to one or more options incorporated from the Predecessor
Plan which do not otherwise contain such provisions.
D. The Plan shall terminate upon the earliest to occur of (i) January
31, 2010, (ii) the date on which all shares available for issuance under the
Plan shall have been issued as fully vested shares or (iii) the termination of
all outstanding options in connection with a Corporate Transaction. Should the
Plan terminate on January 31, 2010, then all option grants and unvested stock
issuances outstanding at that time shall continue to have force and effect in
accordance with the provisions of the documents evidencing such grants or
issuances.
IV. AMENDMENT OF THE PLAN
A. The Board shall have complete and exclusive power and authority to
amend or modify the Plan in any or all respects. However, no such amendment or
modification shall adversely affect the rights and obligations with respect to
stock options or unvested stock issuances at the time outstanding under the Plan
unless the Optionee or the Participant consents to such amendment or
modification. In addition, certain amendments may require stockholder approval
pursuant to applicable laws or regulations.
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B. Options to purchase shares of Common Stock may be granted under the
Discretionary Option Grant and Salary Investment Option Grant Programs and
shares of Common Stock may be issued under the Stock Issuance Program that are
in each instance in excess of the number of shares then available for issuance
under the Plan, provided any excess shares actually issued under those programs
shall be held in escrow until there is obtained stockholder approval of an
amendment sufficiently increasing the number of shares of Common Stock available
for issuance under the Plan. If such stockholder approval is not obtained within
twelve (12) months after the date the first such excess issuances are made, then
(i) any unexercised options granted on the basis of such excess shares shall
terminate and cease to be outstanding and (ii) the Corporation shall promptly
refund to the Optionees and the Participants the exercise or purchase price paid
for any excess shares issued under the Plan and held in escrow, together with
interest (at the applicable Short Term Federal Rate) for the period the shares
were held in escrow, and such shares shall thereupon be automatically cancelled
and cease to be outstanding.
V. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the sale of shares
of Common Stock under the Plan shall be used for general corporate purposes.
VI. REGULATORY APPROVALS
A. The implementation of the Plan, the granting of any stock option
under the Plan and the issuance of any shares of Common Stock (i) upon the
exercise of any granted option or (ii) under the Stock Issuance Program shall be
subject to the Corporation's procurement of all approvals and permits required
by regulatory authorities having jurisdiction over the Plan, the stock options
granted under it and the shares of Common Stock issued pursuant to it.
B. No shares of Common Stock or other assets shall be issued or
delivered under the Plan unless and until there shall have been compliance with
all applicable requirements of Federal and state securities laws, including the
filing and effectiveness of the Form S-8 registration statement for the shares
of Common Stock issuable under the Plan, and all applicable listing requirements
of any stock exchange (or the Nasdaq National Market, if applicable) on which
Common Stock is then listed for trading.
VII. NO EMPLOYMENT/SERVICE RIGHTS
Nothing in the Plan shall confer upon the Optionee or the Participant
any right to continue in Service for any period of specific duration or
interfere with or otherwise restrict in any way the rights of the Corporation
(or any Parent or Subsidiary employing or retaining such person) or of the
Optionee or the Participant, which rights are hereby expressly reserved by each,
to terminate such person's Service at any time for any reason, with or without
cause.
30
<PAGE> 31
APPENDIX
The following definitions shall be in effect under the Plan:
A. AUTOMATIC OPTION GRANT PROGRAM shall mean the automatic option
grant program in effect under Article Five of the Plan.
B. BOARD shall mean the Corporation's Board of Directors.
C. CHANGE IN CONTROL shall mean a change in ownership or control of
the Corporation effected through either of the following transactions:
(i) the acquisition, directly or indirectly by any person or
related group of persons (other than the Corporation or a person that
directly or indirectly controls, is controlled by, or is under common
control with, the Corporation), of beneficial ownership (within the meaning
of Rule 13d-3 of the 1934 Act) of securities possessing more than fifty
percent (50%) of the total combined voting power of the Corporation's
outstanding securities pursuant to a tender or exchange offer made directly
to the Corporation's stockholders, or
(ii) a change in the composition of the Board over a period
of thirty-six (36) consecutive months or less such that a majority of the
Board members ceases, by reason of one or more contested elections for
Board membership, to be comprised of individuals who either (A) have been
Board members continuously since the beginning of such period or (B) have
been elected or nominated for election as Board members during such period
by at least a majority of the Board members described in clause (A) who
were still in office at the time the Board approved such election or
nomination.
D. CODE shall mean the Internal Revenue Code of 1986, as amended.
E. COMMON STOCK shall mean the Corporation's common stock.
F. CORPORATE TRANSACTION shall mean either of the following
stockholder-approved transactions to which the Corporation is a party:
(i) a merger or consolidation in which securities
possessing more than fifty percent (50%) of the total combined voting power
of the Corporation's outstanding securities are transferred to a person or
persons different from the persons holding those securities immediately
prior to such transaction, or
(ii) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets in complete liquidation or
dissolution of the Corporation.
A-1.
<PAGE> 32
G. CORPORATION shall mean Websense, Inc., a Delaware corporation, and
any corporate successor to all or substantially all of the assets or voting
stock of Websense, Inc. which shall by appropriate action adopt the Plan.
H. DIRECTOR FEE OPTION GRANT PROGRAM shall mean the special stock
option grant in effect for non-employee Board members under Article Six of the
Plan.
I. DISCRETIONARY OPTION GRANT PROGRAM shall mean the discretionary
option grant program in effect under Article Two of the Plan.
J. EMPLOYEE shall mean an individual who is in the employ of the
Corporation (or any Parent or Subsidiary), subject to the control and direction
of the employer entity as to both the work to be performed and the manner and
method of performance.
K. EXERCISE DATE shall mean the date on which the Corporation shall
have received written notice of the option exercise.
L. FAIR MARKET VALUE per share of Common Stock on any relevant date
shall be determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on the Nasdaq
National Market, then the Fair Market Value shall be the closing
selling price per share of Common Stock on the date in question, as
such price is reported by the National Association of Securities
Dealers on the Nasdaq National Market and published in The Wall Street
Journal. If there is no closing selling price for the Common Stock on
the date in question, then the Fair Market Value shall be the closing
selling price on the last preceding date for which such quotation
exists.
(ii) If the Common Stock is at the time listed on any Stock
Exchange, then the Fair Market Value shall be the closing selling
price per share of Common Stock on the date in question on the Stock
Exchange determined by the Plan Administrator to be the primary market
for the Common Stock, as such price is officially quoted in the
composite tape of transactions on such exchange and published in The
Wall Street Journal. If there is no closing selling price for the
Common Stock on the date in question, then the Fair Market Value shall
be the closing selling price on the last preceding date for which such
quotation exists.
(iii) For purposes of any option grants made on the
Underwriting Date, the Fair Market Value shall be deemed to be equal
to the price per share at which the Common Stock is to be sold in the
initial public offering pursuant to the Underwriting Agreement.
A-2.
<PAGE> 33
M. HOSTILE TAKE-OVER shall mean the acquisition, directly or
indirectly, by any person or related group of persons (other than the
Corporation or a person that directly or indirectly controls, is controlled by,
or is under common control with, the Corporation) of beneficial ownership
(within the meaning of Rule 13d-3 of the 1934 Act) of securities possessing more
than fifty percent (50%) of the total combined voting power of the Corporation's
outstanding securities pursuant to a tender or exchange offer made directly to
the Corporation's stockholders which the Board does not recommend such
stockholders to accept.
N. INCENTIVE OPTION shall mean an option which satisfies the
requirements of Code Section 422.
O. INVOLUNTARY TERMINATION shall mean the termination of the Service
of any individual which occurs by reason of:
(i) such individual's involuntary dismissal or discharge by
the Corporation for reasons other than Misconduct, or
(ii) such individual's voluntary resignation following (A) a
change in his or her position with the Corporation which materially
reduces his or her duties and responsibilities or the level of
management to which he or she reports, (B) a reduction in his or her
level of compensation (including base salary, fringe benefits and
target bonus under any corporate-performance based bonus or incentive
programs) by more than fifteen percent (15%) or (C) a relocation of
such individual's place of employment by more than fifty (50) miles,
provided and only if such change, reduction or relocation is effected
by the Corporation without the individual's consent.
P. MISCONDUCT shall mean the commission of any act of fraud,
embezzlement or dishonesty by the Optionee or Participant, any unauthorized use
or disclosure by such person of confidential information or trade secrets of the
Corporation (or any Parent or Subsidiary), or any other intentional misconduct
by such person adversely affecting the business or affairs of the Corporation
(or any Parent or Subsidiary) in a material manner. The foregoing definition
shall not be deemed to be inclusive of all the acts or omissions which the
Corporation (or any Parent or Subsidiary) may consider as grounds for the
dismissal or discharge of any Optionee, Participant or other person in the
Service of the Corporation (or any Parent or Subsidiary).
Q. 1934 ACT shall mean the Securities Exchange Act of 1934, as
amended.
R. NON-STATUTORY OPTION shall mean an option not intended to satisfy
the requirements of Code Section 422.
S. OPTIONEE shall mean any person to whom an option is granted under
the Discretionary Option Grant, Salary Investment Option Grant, Automatic Option
Grant or Director Fee Option Grant Program.
A-3.
<PAGE> 34
T. PARENT shall mean any corporation (other than the Corporation) in
an unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the time
of the determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
U. PARTICIPANT shall mean any person who is issued shares of Common
Stock under the Stock Issuance Program.
V. PERMANENT DISABILITY OR PERMANENTLY DISABLED shall mean the
inability of the Optionee or the Participant to engage in any substantial
gainful activity by reason of any medically determinable physical or mental
impairment expected to result in death or to be of continuous duration of twelve
(12) months or more. However, solely for purposes of the Automatic Option Grant
and Director Fee Option Grant Programs, Permanent Disability or Permanently
Disabled shall mean the inability of the non-employee Board member to perform
his or her usual duties as a Board member by reason of any medically
determinable physical or mental impairment expected to result in death or to be
of continuous duration of twelve (12) months or more.
W. PLAN shall mean the Corporation's 2000 Stock Incentive Plan, as set
forth in this document.
X. PLAN ADMINISTRATOR shall mean the particular entity, whether the
Primary Committee, the Board or the Secondary Committee, which is authorized to
administer the Discretionary Option Grant and Stock Issuance Programs with
respect to one or more classes of eligible persons, to the extent such entity is
carrying out its administrative functions under those programs with respect to
the persons under its jurisdiction.
Y. PLAN EFFECTIVE DATE shall mean the date the Plan shall become
effective and shall be coincident with the Underwriting Date.
Z. PREDECESSOR PLAN shall mean the Corporation's 1998 Equity Incentive
Plan in effect immediately prior to the Plan Effective Date hereunder.
AA. PRIMARY COMMITTEE shall mean the committee of two (2) or more
non-employee Board members appointed by the Board to administer the
Discretionary Option Grant and Stock Issuance Programs with respect to Section
16 Insiders and to administer the Salary Investment Option Grant Program solely
with respect to the selection of the eligible individuals who may participate in
such program.
BB. SALARY INVESTMENT OPTION GRANT PROGRAM shall mean the salary
investment option grant program in effect under Article Three of the Plan.
CC. SECONDARY COMMITTEE shall mean a committee of one or more Board
members appointed by the Board to administer the Discretionary Option Grant and
Stock Issuance Programs with respect to eligible persons other than Section 16
Insiders.
A-4.
<PAGE> 35
DD. SECTION 16 INSIDER shall mean an officer or director of the
Corporation subject to the short-swing profit liabilities of Section 16 of the
1934 Act.
EE. SERVICE shall mean the performance of services for the Corporation
(or any Parent or Subsidiary) by a person in the capacity of an Employee, a
non-employee member of the board of directors or a consultant or independent
advisor, except to the extent otherwise specifically provided in the documents
evidencing the option grant or stock issuance.
FF. STOCK EXCHANGE shall mean either the American Stock Exchange or
the New York Stock Exchange.
GG. STOCK ISSUANCE AGREEMENT shall mean the agreement entered into by
the Corporation and the Participant at the time of issuance of shares of Common
Stock under the Stock Issuance Program.
HH. STOCK ISSUANCE PROGRAM shall mean the stock issuance program in
effect under Article Four of the Plan.
II. SUBSIDIARY shall mean any corporation (other than the Corporation)
in an unbroken chain of corporations beginning with the Corporation, provided
each corporation (other than the last corporation) in the unbroken chain owns,
at the time of the determination, stock possessing fifty percent (50%) or more
of the total combined voting power of all classes of stock in one of the other
corporations in such chain.
JJ. TAKE-OVER PRICE shall mean the greater of (i) the Fair Market
Value per share of Common Stock on the date the option is surrendered to the
Corporation in connection with a Hostile Take-Over or (ii) the highest reported
price per share of Common Stock paid by the tender offeror in effecting such
Hostile Take-Over. However, if the surrendered option is an Incentive Option,
the Take-Over Price shall not exceed the clause (i) price per share.
KK. 10% STOCKHOLDER shall mean the owner of stock (as determined under
Code Section 424(d)) possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Corporation (or any Parent
or Subsidiary).
LL. UNDERWRITING AGREEMENT shall mean the agreement between the
Corporation and the underwriter or underwriters managing the initial public
offering of the Common Stock.
MM. UNDERWRITING DATE shall mean the date on which the Underwriting
Agreement is executed and priced in connection with an initial public offering
of the Common Stock.
NN. WITHHOLDING TAXES shall mean the Federal, state and local income
and employment withholding taxes to which the holder of Non-Statutory Options or
unvested shares of Common Stock may become subject in connection with the
exercise of those options or the vesting of those shares.
A-5.
<PAGE> 1
EXHIBIT 10.11
WEBSENSE, INC.
NOTICE OF GRANT OF STOCK OPTION
Notice is hereby given of the following option grant (the "Option") to
purchase shares of the Common Stock of Websense, Inc. (the "Corporation"):
Optionee:
-----------------------------------------------------------------
Grant Date:
---------------------------------------------------------------
Vesting Commencement Date:
------------------------------------------------
Exercise Price: $ per share
-------------------------------------------------
Number of Option Shares: shares
-------------------------------------------
Expiration Date:
----------------------------------------------------------
Type of Option: Incentive Stock Option
-------------
Non-Statutory Stock Option
-------------
Exercise Schedule: The Option shall become exercisable for twenty-five
percent (25%) of the Option Shares upon Optionee's completion of one (1)
year of Service measured from the Vesting Commencement Date and shall
become exercisable for the balance of the Option Shares in a series of
thirty-six (36) successive equal monthly installments upon Optionee's
completion of each additional month of Service over the thirty-six (36)
month period measured from the first anniversary of the Vesting
Commencement Date. In no event shall the Option become exercisable for any
additional Option Shares after Optionee's cessation of Service.
Optionee understands and agrees that the Option is granted subject to and
in accordance with the terms of the Websense, Inc. 2000 Stock Incentive Plan
(the "Plan"). Optionee further agrees to be bound by the terms of the Plan and
the terms of the Option as set forth in the Stock Option Agreement attached
hereto as Exhibit A. Optionee hereby acknowledges the receipt of a copy of the
official prospectus for the Plan in the form attached hereto as Exhibit B. A
copy of the Plan is available upon request made to the Corporate Secretary at
the Corporation's principal offices.
<PAGE> 2
Employment at Will. Nothing in this Notice or in the attached Stock Option
Agreement or in the Plan shall confer upon Optionee any right to continue in
Service for any period of specific duration or interfere with or otherwise
restrict in any way the rights of the Corporation (or any Parent or Subsidiary
employing or retaining Optionee) or of Optionee, which rights are hereby
expressly reserved by each, to terminate Optionee's Service at any time for any
reason, with or without cause.
Definitions. All capitalized terms in this Notice shall have the meaning
assigned to them in this Notice or in the attached Stock Option Agreement.
DATED:
-----------------------
WEBSENSE, INC.
By:
------------------------------------
Title:
---------------------------------
----------------------------------------
OPTIONEE
Address:
-------------------------------
----------------------------------------
ATTACHMENTS
EXHIBIT A - STOCK OPTION AGREEMENT
EXHIBIT B - PLAN SUMMARY AND PROSPECTUS
2
<PAGE> 3
EXHIBIT A
STOCK OPTION AGREEMENT
Filed as Exhibit 10.11 to this Registration Statement
<PAGE> 4
EXHIBIT B
PLAN SUMMARY AND PROSPECTUS
4
<PAGE> 5
SECTION 16 INSIDERS
WEBSENSE, INC.
---------------------------------------
2000 STOCK INCENTIVE PLAN
PLAN SUMMARY AND PROSPECTUS
---------------------------------------
The date of this Prospectus is ___________, 2000
<PAGE> 6
TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C> <C>
INFORMATION ON THE 2000 STOCK INCENTIVE PLAN................................................1
QUESTIONS AND ANSWERS ABOUT THE PLAN........................................................1
GENERAL PLAN PROVISIONS.............................................................1
1. What is the basic structure of the Plan?..............................1
2. When did the Plan become effective?...................................1
3. Who administers the Plan?.............................................2
4. Who is eligible to participate in the Plan?...........................2
5. How many shares of Common Stock may be issued under the Plan?.........2
6. What happens if there is a change in the Corporation's capital
structure?............................................................3
7. Can the Plan be amended or terminated?................................4
DISCRETIONARY OPTION GRANT PROGRAM..........................................................4
GRANT OF OPTIONS....................................................................4
8. How are options granted under the Discretionary Option Grant
Program?..............................................................4
9. What type of options may be granted under the Discretionary
Option Grant Program?.................................................4
10. How is the exercise price determined?.................................4
11. How is the fair market value of the Common Stock determined?..........4
12. Can the Corporation cancel my option and grant me a new option?.......4
13. Can I assign or transfer my option?...................................5
14. When do I acquire the rights of a stockholder?........................5
EXERCISE OF OPTIONS.................................................................5
15. When may I exercise my option?........................................5
16. When will my option terminate?........................................5
17. How do I exercise my option?..........................................5
18. How do I pay the exercise price?......................................6
19. Does the Corporation have the right to repurchase the shares
acquired upon exercise of my option?..................................6
20. Can I transfer shares subject to the Corporation's repurchase
rights?...............................................................6
21. When will the Corporation's repurchase right lapse?...................6
22. Does the Plan include any special programs?...........................7
23. What is the Stock Appreciation Rights Program?........................7
24. What is the Tax Withholding Program?..................................8
INCENTIVE OPTIONS...................................................................8
25. Who is eligible to receive an Incentive Option?.......................8
26. Is there a limitation on the number of shares for which an
Incentive Option may become exercisable in any one calendar
year?.................................................................8
27. Can an Incentive Option lose its qualified status?....................9
28. What limitations apply to Incentive Options granted to a 10%
stockholder?..........................................................9
EARLY TERMINATION OF OPTIONS........................................................9
29. What happens to my options if my service terminates?..................9
30. What happens to my options if I am discharged from service for
Misconduct?...........................................................9
31. What happens to my options if I die or become disabled?..............10
32. What happens to my options if the Corporation is acquired or
merged?..............................................................10
</TABLE>
i
<PAGE> 7
<TABLE>
<S> <C> <C>
33. What happens to my options that are assumed upon a Corporate
Transaction?.........................................................11
34. What happens to my options if there is a change in control of
the Corporation?.....................................................11
SALARY INVESTMENT OPTION GRANT PROGRAM.............................................12
35. What is the Salary Investment Option Grant Program?..................12
36. Are there any limitations on the amount of salary reduction a
participant may elect?...............................................12
37. What are the terms of the options granted under the Salary
Investment Option Grant Program?.....................................12
STOCK ISSUANCE PROGRAM.............................................................14
38. How are shares of Common Stock issued under the Stock Issuance
Program?.............................................................14
39. How is the purchase price determined?................................14
40. What form of payment is required for shares issued under the
Stock Issuance Program?..............................................14
41. When do shares of Common Stock acquired under the Stock
Issuance Program vest?...............................................14
42. Does the Corporation have the right to repurchase the shares
acquired under the Stock Issuance Program?...........................14
43. Can I transfer shares subject to the Corporation's repurchase
rights?..............................................................15
44. What happens to unvested shares if the Corporation is acquired
or merged?...........................................................15
45. What happens to repurchase rights that are assigned upon a
Corporate Transaction?...............................................15
46. What happens to unvested shares if there is a change in control
of the Corporation?..................................................15
47. Do I have any stockholder rights with respect to shares issued
under the Stock Issuance Program?....................................15
48. Is the Tax Withholding Program available under the Stock
Issuance Program?....................................................16
DISPOSITION OF SHARES..............................................................16
49. When can I sell my shares acquired under the Discretionary
Option Grant and Stock Issuance Programs?............................16
MISCELLANEOUS......................................................................16
50. Is financing available under the Plan?...............................16
51. Do I have the right to remain employed until my options under
the Discretionary Option Grant or the Salary Investment Option
Grant Program, or my shares under the Stock Issuance Program,
vest?................................................................16
52. Are there any circumstances which would cause me to lose my
rights with respect to an option grant or a stock issuance?..........17
53. Does the Plan restrict the authority of the Corporation to
grant or assume options outside of the Plan?.........................17
54. Does the grant of an option or the issuance of shares under the
Plan affect my eligibility to participate in other plans of the
Corporation?.........................................................17
55. What is a parent corporation?........................................17
56. What is a subsidiary corporation?....................................17
57. Is the Plan subject to ERISA?........................................17
RESTRICTIONS ON RESALE.............................................................17
58. What restrictions apply because I am a Section 16 Insider?...........17
59. What restrictions apply if I am an affiliate?........................19
</TABLE>
ii
<PAGE> 8
<TABLE>
<S> <C> <C>
QUESTIONS AND ANSWERS ON FEDERAL TAX CONSEQUENCES..........................................19
INCENTIVE OPTIONS..................................................................19
T1. Will the grant of an Incentive Option result in Federal income
tax liability to me?.................................................19
T2. Will the exercise of an Incentive Option result in Federal
income tax liability to me?..........................................19
T3. When will I be subject to Federal income tax on shares acquired
under an Incentive Option?...........................................20
T4. What constitutes a disposition of Incentive Option shares?...........20
T5. How is my Federal income tax liability determined when I
dispose of my shares?................................................20
T6. What if I make a qualifying disposition?.............................20
T7. What are the normal tax rules for a disqualifying disposition?.......20
T8. What if the shares purchased under an Incentive Option are
subject to a substantial risk of forfeiture, such as the
Corporation's repurchase right?......................................21
T9. What are the Federal tax consequences to the Corporation?............22
T10. What are the consequences of paying the exercise price of an
Incentive Option in the form of shares of Common Stock
acquired upon the exercise of an earlier-granted Incentive
Option if the delivery of the shares results in a
disqualifying disposition?...........................................22
T11. What are the consequences of paying the exercise price of an
Incentive Option in the form of shares of Common Stock (i)
acquired under an Incentive Option and held for the requisite
holding periods, (ii) acquired under a Non-Statutory Option or
(iii) acquired through open-market purchases?........................22
T12. What are the consequences of a subsequent disposition of shares
purchased under an Incentive Option with shares of Common Stock?.....22
NON-STATUTORY OPTIONS..............................................................23
T13. Will the grant of a Non-Statutory Option result in Federal
income tax liability to me?..........................................23
T14. Will the exercise of a Non-Statutory Option result in Federal
income tax liability to me?..........................................23
T15. What if the shares purchased under a Non-Statutory Option are
subject to a substantial risk of forfeiture, such as the
Corporation's repurchase right?......................................23
T16. What is the effect of making a Section 83(b) election?...............23
T17. Will I recognize additional income when I sell shares acquired
under a Non-Statutory Option?........................................24
T18. What are the consequences of paying the exercise price of a
Non-Statutory Option in the form of shares of Common Stock
previously acquired upon the exercise of employee options or
through open-market purchases?.......................................24
T19. What are the Federal tax consequences to the Corporation?............24
STOCK APPRECIATION RIGHTS..........................................................24
T20. Will the exercise of a stock appreciation right result in
Federal income tax liability to me?..................................24
T21. What are the Federal tax consequences to the Corporation?............25
STOCK ISSUANCES....................................................................25
T22. Will the issuance of vested shares result in Federal income tax
liability to me?.....................................................25
T23. Will the issuance of unvested shares result in Federal income
tax liability to me?.................................................25
T24. What is the effect of making a Section 83(b) election?...............25
</TABLE>
iii
<PAGE> 9
<TABLE>
<S> <C> <C>
T25. Will I recognize additional income when I sell shares acquired
under the Stock Issuance Program?....................................25
T26. What are the Federal tax consequences to the Corporation?............26
FEDERAL TAX RATES..................................................................26
T27. What are the applicable Federal tax rates?...........................26
ALTERNATIVE MINIMUM TAX............................................................27
T28. What is the alternative minimum tax?.................................27
T29. What is the allowable exemption amount?..............................27
T30. How is the alternative minimum taxable income calculated?............27
T31. When is the spread on shares acquired under an Incentive Option
that are subject to a substantial risk of forfeiture includible
in alternative minimum taxable income?...............................27
T32. How will the payment of alternative minimum taxes in one year
affect the calculation of my tax liability in a later year?..........28
CORPORATION INFORMATION AND ANNUAL PLAN INFORMATION........................................28
</TABLE>
iv
<PAGE> 10
THIS DOCUMENT CONSTITUTES PART OF THE OFFICIAL PROSPECTUS COVERING SECURITIES
THAT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933.
INFORMATION ON THE
2000 STOCK INCENTIVE PLAN
Websense, Inc., a Delaware corporation (the "Corporation"), is offering
shares of its common stock (the "Common Stock") to eligible individuals in the
Corporation's service pursuant to option grants and direct stock issuances made
under the Corporation's 2000 Stock Incentive Plan (the "Plan"). The purpose of
the Plan is to offer the Corporation's employees, the non-employee members of
the Board of Directors (the "Board"), and consultants and other independent
advisors who provide services to the Corporation the opportunity to acquire an
ownership interest in the Corporation as an incentive for such persons to
continue in the Corporation's service. Unless the context indicates otherwise,
all references to the Corporation in this Plan Summary and Prospectus include
Websense, Inc. and its parent and subsidiary corporations, whether now existing
or subsequently established.
QUESTIONS AND ANSWERS ABOUT THE PLAN
This Plan Summary and Prospectus sets forth in question and answer format
the principal terms of the option grants and direct stock issuances which may be
made from time to time under the Plan to individuals who are executive officers
of the Corporation or Board members subject to the short-swing profit
restrictions of Section 16(b) of the Securities Exchange Act of 1934 (the "1934
Act"). Such individuals will be referred to in this document as "Section 16
Insiders."
GENERAL PLAN PROVISIONS
1. WHAT IS THE BASIC STRUCTURE OF THE PLAN?
The Plan is divided into five (5) separate equity programs: (i) the
Discretionary Option Grant Program under which options may be granted to
eligible persons which will provide them with the right to purchase shares of
Common Stock at a fixed price per share equal to the fair market value of the
Common Stock on the grant date; (ii) the Salary Investment Option Grant Program
under which the Corporation's officers and other highly-compensated executives
may elect to invest a portion of their base salary each year in special option
grants with a below-market exercise price; (iii) the Stock Issuance Program
under which eligible persons may be issued shares of Common Stock directly,
either through the purchase of those shares at fair market value or as a bonus
for services rendered to the Corporation; (iv) the Automatic Option Grant
Program under which non-employee Board members will receive automatic option
grants at periodic intervals with exercise prices equal to the fair market value
of the Common Stock on the grant date and (v) the Director Fee Option Grant
Program under which non-employee Board members may elect to have their annual
cash retainer fee applied in whole or in part to the acquisition of special
option grants with a below-market exercise price.
2. WHEN DID THE PLAN BECOME EFFECTIVE?
The Plan became effective on June 24, 2000 in connection with the
initial public offering of the Common Stock and serves as the successor to the
Corporation's 1998 Stock Plan (the "Predecessor Plan").
All options outstanding under the Predecessor Plan have been
incorporated into the new Plan, and no further option grants or stock issuances
will be made under the Predecessor Plan. Each option so incorporated will
continue to be governed by the terms of the agreement evidencing that option,
and no provision of the new Plan will adversely affect or otherwise modify the
rights of the holders of such incorporated options with respect to their
acquisition of shares of Common Stock thereunder.
<PAGE> 11
3. WHO ADMINISTERS THE PLAN?
The Discretionary Option Grant and Stock Issuance Programs under the
Plan will, with respect to all executive officers and Board members subject to
the short-swing profit restrictions of the federal securities laws, be
administered by the Compensation Committee. This committee is comprised of two
(2) or more non-employee Board members appointed by the Board, and each member
will serve for so long as the Board deems appropriate and may be removed by the
Board at any time. The Compensation Committee will also administer the
Discretionary Option Grant and Stock Issuance Programs with respect to all other
persons eligible to participate in those programs. However, a secondary
committee of one or more Board members may be delegated separate but concurrent
jurisdiction with the Compensation Committee to administer those programs with
respect to such persons. The Compensation Committee and any secondary Board
committee will each, within the scope of their administrative jurisdiction under
the Plan, have full power and authority to determine, with respect to the option
grants or share issuances made under the Discretionary Option Grant and Stock
Issuance Programs, the persons who are to be granted options or issued shares,
the time or times when such option grants or share issuances are to be made, the
number of shares to be subject to each such grant or issuance, the time or times
when each option is to become exercisable, the vesting schedule applicable to
the option shares or the share issuance and the maximum period for which the
option is to remain outstanding. However, any discretionary option grants or
stock issuances to members of the Compensation Committee will require the
approval of a disinterested majority of the Board. The Compensation Committee
will also have the sole and exclusive authority to select the eligible
individuals who are to participate in the Salary Investment Option Grant
Program. However, the number of shares subject to each option grant made under
the Salary Investment Option Grant Program and the exercise price payable per
share will be determined in accordance with the express provisions in effect for
that program.
Neither the Compensation Committee nor any secondary committee will
perform any discretionary functions under the Automatic Option Grant or Director
Fee Option Programs. The terms and conditions of the option grants made under
the Automatic Option Grant and Director Fee Option Programs (including the
timing and pricing of each such option grant) will be determined solely in
accordance with the express provisions of those programs.
The Compensation Committee and any secondary Board committee with
administrative jurisdiction under the Plan will each be referred to in this
document as the "Plan Administrator."
4. WHO IS ELIGIBLE TO PARTICIPATE IN THE PLAN?
Employees, non-employee Board members, consultants and other
independent advisors in the Corporation's service will be eligible to
participate in the Discretionary Option Grant and Stock Issuance Programs. Only
employees who are executive officers and other highly-compensated individuals in
the Corporation's employ will be eligible to participate in the Salary
Investment Option Grant Program. However, the actual persons to whom option
grants or stock issuances are to be made under the foregoing programs will be
determined by the Plan Administrator in its sole discretion. Non-employee Board
members will also be eligible to participate in the Automatic Option Grant and
Director Fee Option Grant Programs.
5. HOW MANY SHARES OF COMMON STOCK MAY BE ISSUED UNDER THE PLAN?
The maximum number of shares of Common Stock issuable over the term of
the Plan will initially be limited to 4,500,000 shares (subject to adjustment
for certain changes in the Corporation's capital structure). Such share reserve
consists of (i) the number of shares which remained available for issuance under
the Predecessor Plan at the time of the initial public offering of the Common
Stock, including the shares subject to outstanding options under the Predecessor
Plan incorporated into the new Plan, plus (ii) an additional increase of
approximately 1,000,000 shares of Common Stock.
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The number of shares of Common Stock available for issuance under the
Plan will automatically increase on the first trading day in January each
calendar year, beginning with calendar year 2001, by an amount equal to four
percent (4%) of the total number of shares of Common Stock outstanding on the
last trading day in December in the immediately preceding calendar year, but in
no event will any such annual increase exceed 1,500,000 shares.
No individual participating in the Plan may receive stock options,
separately exercisable stock appreciation rights and direct share issuances for
more than 750,000 shares of Common Stock under the Plan per calendar year.
Except for such restriction and certain other restrictions in connection with
incentive stock option grants (see the "Incentive Options" section below), there
are no limitations on the number of shares of Common Stock for which an eligible
individual may be granted options under the Discretionary Option Grant or Salary
Investment Option Grant Programs or issued stock under the Stock Issuance
Program.
Should one or more outstanding options under the Plan expire or
terminate for any reason prior to exercise in full, the shares of Common Stock
subject to the portion of each such option not so exercised will be available
for subsequent issuance under the Plan. Unvested shares issued under the Plan
and subsequently repurchased by the Corporation, at the original exercise price
or issue price paid per share, pursuant to the Corporation's repurchase rights
under the Plan will be added back to the number of shares of Common Stock
available for issuance under the Plan and may accordingly be reissued through
one or more subsequent option grants or direct stock issuances under the Plan.
Should the exercise price of an option under the Plan be paid with shares of
Common Stock or should shares of Common Stock otherwise issuable under the Plan
be withheld by the Corporation in satisfaction of the withholding taxes incurred
in connection with the exercise of an option or the vesting of a stock issuance
under the Plan, then the number of shares of Common Stock available for issuance
under the Plan will be reduced by the gross number of shares for which the
option is exercised or which vest under the stock issuance, and not by the net
number of shares of Common Stock issued to the holder of such option or stock
issuance. Shares subject to options which are surrendered pursuant to any stock
appreciation rights exercised under the Plan will not be available for
subsequent issuance.
The Common Stock will be made available either from authorized but
unissued shares of Common Stock or from shares of Common Stock reacquired by the
Corporation, including shares repurchased on the open market.
6. WHAT HAPPENS IF THERE IS A CHANGE IN THE CORPORATION'S CAPITAL
STRUCTURE?
In the event of a Recapitalization, appropriate adjustments will
automatically be made to (i) the maximum number and/or class of securities
issuable under the Plan, (ii) the maximum number and/or class of securities by
which the share reserve is to increase automatically each calendar year pursuant
to the automatic share increase provisions of the Plan, (iii) the maximum number
and/or class of securities for which any one person may be granted stock
options, separately exercisable stock appreciation rights and direct stock
issuances per calendar year, (iv) the number and/or class of securities for
which grants are subsequently to be made under the Automatic Option Grant
Program to new and continuing non-employee Board members and (v) the number
and/or class of securities and the exercise price per share in effect under each
outstanding option (including options incorporated from the Predecessor Plan).
The adjustments to such outstanding options will preclude the dilution or
enlargement of the rights and benefits available under those options.
For purposes of the Plan, a Recapitalization will include any stock
dividend, stock split, recapitalization, combination of shares, exchange of
shares or other change affecting the outstanding Common Stock as a class without
the Corporation's receipt of consideration.
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7. CAN THE PLAN BE AMENDED OR TERMINATED?
Yes. The Board has exclusive authority to amend or modify the Plan in
any and all respects. However, no amendment or modification may, without the
holder's consent, adversely affect such individual's rights and obligations
under his or her outstanding stock options, stock appreciation rights or direct
stock issuances under the Plan. In addition, certain amendments to the Plan may
require the approval of the Corporation's stockholders.
The Plan will terminate upon the earliest to occur of (i) January 31,
2010, (ii) the date on which all shares available for issuance under the Plan
are issued as fully vested shares or (iii) the termination of all outstanding
options in connection with a Corporate Transaction (see the "Early Termination
of Options" section below). Should the Plan terminate on January 31, 2010, then
any option grants and unvested stock issuances outstanding at that time under
the Plan will continue to have force and effect in accordance with the
provisions of the agreements evidencing those grants or issuances.
DISCRETIONARY OPTION GRANT PROGRAM
GRANT OF OPTIONS
8. HOW ARE OPTIONS GRANTED UNDER THE DISCRETIONARY OPTION GRANT PROGRAM?
The Plan Administrator will have complete discretion (subject to the
limitations of the Plan) to determine when and to whom options will be granted
under the Discretionary Option Grant Program and the terms of each such grant.
Each option grant will be evidenced by one or more option documents
(collectively, the "Option Agreement") executed by the Corporation and the
optionee.
9. WHAT TYPE OF OPTIONS MAY BE GRANTED UNDER THE DISCRETIONARY OPTION
GRANT PROGRAM?
The Plan Administrator may grant incentive stock options ("Incentive
Options") designed to meet the requirements of Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"), or options which do not satisfy
such requirements ("Non-Statutory Options"). For a discussion of the difference
in tax treatment under the Code between Incentive Options and Non-Statutory
Options, see the "Questions and Answers on Federal Tax Consequences" section
below.
10. HOW IS THE EXERCISE PRICE DETERMINED?
The exercise price of an option will be determined by the Plan
Administrator. However, the exercise price of an option cannot be less than one
hundred percent (100%) of the fair market value of the Common Stock on the grant
date.
11. HOW IS THE FAIR MARKET VALUE OF THE COMMON STOCK DETERMINED?
The fair market value per share of Common Stock on any relevant date
under the Plan will be the closing selling price per share on that date, as
reported on the Nasdaq National Market and published in The Wall Street Journal.
If the Common Stock is not traded on that day, the fair market value will be the
closing selling price per share on the last preceding date for which such
quotation exists.
12. CAN THE CORPORATION CANCEL MY OPTION AND GRANT ME A NEW OPTION?
Yes. The Plan Administrator has the authority to cancel outstanding
options and to issue new options in replacement, but your consent will be
required in connection with your participation in any such cancellation/regrant
program. The new options can cover the same or a different number of shares of
Common
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Stock and will have an exercise price per share not less than the fair market
value of the Common Stock on the new grant date. In addition, it is likely that
the new options will have a vesting schedule based on the new grant date,
without any credit provided for the period the cancelled options were
outstanding.
13. CAN I ASSIGN OR TRANSFER MY OPTION?
No. Your options generally cannot be assigned or transferred, except
by the provisions of your will or the laws of inheritance following your death
or pursuant to any beneficiary designation you have in effect for your options
at the time of your death. However, one or more Non-statutory Options may be
structured so that those options will be assignable in whole or in part during
your lifetime to one or more members of your immediate family or to a trust
established exclusively for one or more such family members. The assigned
portion may only be exercised by the person or persons who acquire a proprietary
interest in the option pursuant to the assignment. No such assignment will be
permitted, however, unless in connection with your estate plan.
14. WHEN DO I ACQUIRE THE RIGHTS OF A STOCKHOLDER?
You will not have any stockholder rights with respect to the option
shares. You will not acquire stockholder rights until you exercise the option,
pay the exercise price and become a holder of record of the purchased shares.
EXERCISE OF OPTIONS
15. WHEN MAY I EXERCISE MY OPTION?
Your option may be immediately exercisable for all of the option
shares or may become exercisable for those shares in a series of installments
over the period that you remain in the Corporation's service. The exercise
schedule applicable to your option will be determined by the Plan Administrator
at the time of grant and will be set forth in the Option Agreement. You may
exercise your option at any time for the shares for which your option is
exercisable, provided you do so before the option terminates. However, any
purchased shares in which you are not vested at the time of your termination of
service will be subject to repurchase by the Corporation as discussed below.
16. WHEN WILL MY OPTION TERMINATE?
No option granted under the Discretionary Option Grant Program may
have a term in excess of ten (10) years. The actual expiration date of your
option will be set forth in the Option Agreement. Your option may, however,
terminate prior to its designated expiration date in the event of your
termination of service or upon the occurrence of certain other events. See the
"Early Termination of Options" section below.
17. HOW DO I EXERCISE MY OPTION?
To exercise your option, you must provide the Corporation with written
notice of the exercise in which you indicate the number of shares to be
purchased under your option. The notice must be accompanied by payment of the
exercise price for the purchased shares, together with appropriate proof that
the person exercising the option (if other than yourself) has the right to
effect such exercise. You will be required to satisfy all applicable income and
employment tax withholding requirements at that time. For information about such
tax withholding, see the "Questions and Answers on Federal Tax Consequences"
section below.
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18. HOW DO I PAY THE EXERCISE PRICE?
The exercise price may be paid in cash or check payable to the
Corporation or in shares of Common Stock. Any shares delivered in payment of the
exercise price will be valued at fair market value on the exercise date and must
have been held for the requisite period necessary to avoid a charge to the
Corporation's earnings for financial reporting purposes (generally a six
(6)-month period).
Cashless exercises are also permitted to the extent your option is
exercised for vested shares of Common Stock. To use this procedure, you must
provide irrevocable instructions to a Corporation-designated brokerage firm to
effect the immediate sale of the vested shares of Common Stock purchased under
your option and to pay over to the Corporation, out of the sale proceeds
available on the settlement date, sufficient funds to cover the aggregate
exercise price payable for the purchased shares plus all applicable withholding
taxes. Concurrently with such instructions, you must also direct the Corporation
to deliver the certificates for the purchased shares to the brokerage firm in
order to complete the sale.
19. DOES THE CORPORATION HAVE THE RIGHT TO REPURCHASE THE SHARES ACQUIRED
UPON EXERCISE OF MY OPTION?
The answer will depend upon the exercise and vesting schedules in
effect for your option. If you are granted an option which becomes exercisable
in a series of installments over your period of service, then the shares of
Common Stock purchased under that option will be fully-vested when acquired and
will not be subject to the Corporation's repurchase rights. However, if you are
granted an option which is exercisable immediately, then the shares of Common
Stock purchased under that option will normally be subject to a vesting schedule
pursuant to which the Corporation may repurchase, at the original exercise
price, any unvested shares you hold at the time of your termination of service.
If you wait to exercise your option so that you purchase only vested shares,
then the Corporation will not have any right to repurchase those shares.
The Corporation's repurchase rights will also cover any new,
substituted or additional securities or other property subsequently distributed
with respect to your unvested shares of Common Stock by reason of any
Recapitalization. Appropriate adjustments to reflect the distribution will be
made to the number and/or class of securities subject to the Corporation's
repurchase rights and the price per share payable upon the exercise of those
rights.
The Plan Administrator will have full discretion to establish the
remaining terms upon which the Corporation's repurchase rights are to become
exercisable (including the procedure for effecting such repurchase), and such
terms will be included in the agreement evidencing the repurchase rights.
20. CAN I TRANSFER SHARES SUBJECT TO THE CORPORATION'S REPURCHASE RIGHTS?
You may not transfer, assign or encumber any unvested shares of Common
Stock which are subject to the Corporation's repurchase rights, except for
certain gifts approved by the Plan Administrator or transfers by will or
inheritance following your death. The certificates representing such unvested
shares may, in the Plan Administrator's discretion, bear a legend indicating the
existence of such transfer restrictions, or the unvested shares (and any
securities or other property distributed with respect to the shares) may be held
in escrow by the Corporation (or any successor entity) until you vest in those
shares.
21. WHEN WILL THE CORPORATION'S REPURCHASE RIGHT LAPSE?
The Corporation's repurchase right will lapse, and you will vest in
your option shares, in one or more installments according to the vesting
schedule established by the Plan Administrator and set forth in the agreement
evidencing the repurchase right. In addition, the Corporation's repurchase right
may under certain
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circumstances lapse, and the shares subject to the terminated right will
thereupon vest, in connection with a Corporate Transaction or Change in Control.
(For further information, see the discussion below under the "Early Termination
of Options" section.)
22. DOES THE PLAN INCLUDE ANY SPECIAL PROGRAMS?
The Plan includes two special programs: the Stock Appreciation Rights
Program and the Tax Withholding Program which are explained more fully below.
The Plan Administrator will have the discretion to extend the benefits of either
of those programs to one or more eligible individuals under the Plan. You will
be notified in writing should you be selected for participation in either
program.
23. WHAT IS THE STOCK APPRECIATION RIGHTS PROGRAM?
The Plan Administrator has the discretion to grant to selected
optionees tandem stock appreciation rights ("SARs") which provide the optionee
with the right to elect between the normal exercise of the option for shares of
Common Stock and the surrender of all or part of that option for a distribution
from the Corporation equal to the excess of (i) the fair market value of the
vested shares of Common Stock subject to the surrendered option over (ii) the
exercise price payable for those shares. The distribution may, in the Plan
Administrator's discretion, be made in cash or in shares of Common Stock. There
are a number of limitations governing the exercise of an SAR:
- The exercise of the SAR must be approved by the Plan
Administrator.
- If the Plan Administrator disapproves the exercise of the SAR,
the optionee will retain whatever rights existed under the
surrendered option (or surrendered portion) and may exercise
those rights at any time before the later of (i) five (5)
business days following notification of such disapproval or (ii)
the last day on which the option is otherwise exercisable in
accordance with its terms.
- No SAR may be transferred or assigned.
The Plan Administrator may also grant limited SARs to one or more
Section 16 Insiders. Each outstanding option with such a limited SAR may be
surrendered to the Corporation within thirty (30) days following the occurrence
of a Hostile Take-Over. In return, the Section 16 Insider will receive a cash
distribution from the Corporation in an amount equal to the excess of (i) the
Take-Over Price of the shares of Common Stock at the time subject to each
surrendered option (whether or not the option is otherwise vested and
exercisable for those shares) over (ii) the aggregate exercise price payable for
those shares. The exercise of the limited SAR in accordance with the foregoing
terms and conditions will be pre-approved by the Plan Administrator at the time
the SAR is granted, and no additional approval of the Plan Administrator or the
Board will be required at the time of the actual option surrender and cash
distribution. Accordingly, the cash distribution to which the Section 16 Insider
becomes entitled upon the exercise of the limited SAR will be made within five
(5) days following the option surrender date.
A HOSTILE TAKE-OVER will be deemed to occur in the event any person or
related group of persons directly or indirectly acquires securities possessing
more than fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities pursuant to a tender or exchange offer made
directly to the Corporation's stockholders which the Board does not recommend
such stockholders to accept.
The TAKE-OVER PRICE per share will be deemed to be equal to the
greater of (i) the fair market value per share of Common Stock on the option
surrender date or (ii) the highest reported price per share paid by the tender
offeror in effecting the Hostile Take-Over. However, if the surrendered option
is an Incentive Option, the Take-Over Price will not exceed the clause (i) price
per share.
The shares of Common Stock subject to options surrendered in
connection with the exercise of SARs will not be available for subsequent
issuance under the Plan.
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NOTE: NONE OF THE OPTIONS INCORPORATED FROM THE PREDECESSOR PLAN
CONTAIN ANY SARS.
25. WHAT IS THE TAX WITHHOLDING PROGRAM?
The Plan Administrator may select one or more holders of Non-Statutory
Options for participation in the Tax Withholding Program. Each selected
individual may elect to have the Corporation withhold, from the shares of Common
Stock purchased under his or her Non-Statutory Option, a portion of those shares
with a fair market value equal to a designated percentage (not to exceed one
hundred percent (100%)) of the Federal, state and local income and employment
withholding taxes to which such individual may become subject in connection with
the exercise of that option. In lieu of such direct withholding, the Plan
Administrator may allow such individual to deliver previously acquired shares of
Common Stock in satisfaction of the withholding tax liability. However, no
shares of Common Stock will actually be withheld or accepted in satisfaction of
such withholding tax liability except to the extent approved by the Plan
Administrator, and any such withheld or delivered shares will be valued at fair
market value on the date of the option exercise.
INCENTIVE OPTIONS
This section applies only to Incentive Options. Non-Statutory Options
are not subject to these provisions.
25. WHO IS ELIGIBLE TO RECEIVE AN INCENTIVE OPTION?
Incentive Options may only be granted to individuals who are employees
of the Corporation.
26. IS THERE A LIMITATION ON THE NUMBER OF SHARES FOR WHICH AN INCENTIVE
OPTION MAY BECOME EXERCISABLE IN ANY ONE CALENDAR YEAR?
Yes. The aggregate fair market value of the shares of Common Stock
(determined at the date of grant) for which an option may for the first time
become exercisable in any calendar year as an Incentive Option under the Federal
tax laws may not exceed $100,000. To the extent you hold two (2) or more
Incentive Options which become exercisable for the first time in the same
calendar year, the $100,000 limitation will be applied on the basis of the order
in which those options were granted. Options which do not qualify for Incentive
Option treatment under the Federal tax laws by reason of this dollar limitation
may nevertheless be exercised as Non-Statutory Options in the calendar year in
which they become exercisable for the excess number of shares.
EXAMPLE: On March 1, 2000, Sam Smith is granted an Incentive
Option to purchase 20,000 shares of Common Stock at an exercise price
of $15.00 per share, the fair market value of the Common Stock on that
date. The option will become exercisable for the option shares in a
series of four successive equal annual installments, beginning March
1, 2001. When the option becomes exercisable for the second annual
installment on March 1, 2002, the fair market value of the Common
Stock is assumed to be $25.00 per share. On April 25, 2001, Sam is
granted a second Incentive Option to purchase 10,000 shares of Common
Stock at an exercise price of $20.00 per share, the fair market value
of the Common Stock on that date. This option will also become
exercisable for the option shares in a series of four successive equal
annual installments beginning on April 25, 2002. When the option
becomes exercisable for the first annual installment on that date, the
fair market value of the Common Stock is assumed to be $25.00 per
share.
The aggregate fair market value of the 5,000 shares of
Common Stock (measured as of the grant date) which become exercisable
under the first option in calendar year 2002 is $75,000. The aggregate
fair market value of the 2,500 shares of Common Stock (measured as of
the grant date) which become exercisable under the second option in
calendar year 2002 is $50,000. Accordingly, 1,250 of the shares which
first become purchasable in calendar
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year 2002 under the calendar year 2001 option will not qualify for
favorable tax treatment as Incentive Options because the aggregate
value (as measured as of the grant date) of the shares of Common Stock
for which the two options first become exercisable in calendar year
2002 exceeds $100,000 ($75,000 + $50,000 = $125,000). The 1,250 shares
which do not qualify for Incentive Option treatment under the calendar
year 2001 option may be exercised as Non-Statutory Options.
27. CAN AN INCENTIVE OPTION LOSE ITS QUALIFIED STATUS?
Yes. An option granted as an Incentive Option will be taxed as a
Non-Statutory Option if exercised more than three (3) months after you terminate
employee status. Certain amendments or modifications to an outstanding option
may also cause the loss of Incentive Option status, but no such amendment or
modification may be made without your consent.
28. WHAT LIMITATIONS APPLY TO INCENTIVE OPTIONS GRANTED TO A 10%
STOCKHOLDER?
If an Incentive Option is granted to an individual who is at the time
the owner of stock possessing more than ten percent (10%) of the total combined
voting power of all classes of stock of the Corporation or any parent or
subsidiary corporation, then the exercise price per share cannot be less than
one hundred ten percent (110%) of the fair market value of the Common Stock on
the grant date, and the option term may not exceed five (5) years from the grant
date.
EARLY TERMINATION OF OPTIONS
29. WHAT HAPPENS TO MY OPTIONS IF MY SERVICE TERMINATES?
After your termination of service for any reason other than death,
disability or Misconduct (as defined below in Question 30), you will have a
limited period of time in which to exercise your outstanding options for any
shares of Common Stock in which you are vested on the date your service
terminates. The length of this period will be set forth in your Option Agreement
and will generally not be in excess of three (3) months. However, your option
will in all events terminate on the specified expiration date of the option
term. To the extent your options are not exercisable for one or more vested
shares at the time of your termination of service, your options will immediately
terminate and cease to be outstanding with respect to those unvested shares.
Unless your Option Agreement specifically provides otherwise, you will
be deemed to continue in service for so long as you render services to the
Corporation, whether as (i) an employee, subject to the control and direction of
the employer entity as to both the work to be performed and the manner and
method of performance, (ii) a non-employee Board member or (iii) a consultant or
other independent advisor.
The Plan Administrator has the discretion to extend the period during
which you may exercise one or more of your options following your termination of
service and/or to permit such options to be exercised not only with respect to
the number of shares of Common Stock in which you are at the time vested but
also with respect to one or more additional installments in which you would have
vested had you continued in service. You will be notified in writing in the
event the Plan Administrator decides to provide you with any of those additional
benefits.
30. WHAT HAPPENS TO MY OPTIONS IF I AM DISCHARGED FROM SERVICE FOR
MISCONDUCT?
Should you be discharged from service for Misconduct or otherwise
engage in Misconduct while your options are outstanding, then all of your
outstanding options will immediately terminate. For purposes of the Plan,
MISCONDUCT includes (i) any act of fraud, embezzlement or dishonesty, (ii) any
unauthorized use or disclosure of confidential information or trade secrets of
the Corporation, or (iii) any other intentional misconduct adversely affecting
the business or affairs of the Corporation in a material manner. However, the
foregoing list is not inclusive of all the acts or omissions which may be
considered as grounds for dismissal or discharge of any individual in the
Corporation's service.
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31. WHAT HAPPENS TO MY OPTIONS IF I DIE OR BECOME DISABLED?
If you die while any of your options are outstanding, the personal
representative of your estate or the person or persons to whom the options are
transferred by the provisions of your will or the laws of inheritance or
pursuant to the beneficiary designation you have in effect for those options may
exercise each of those options for any or all vested shares of Common Stock for
which the option was exercisable on the date your service with the Corporation
terminated, less any shares you may have subsequently purchased prior to your
death. The right to exercise each such option will lapse upon the earlier of (i)
the expiration of the option term or (ii) the first anniversary of the date of
your death.
If you terminate your service with the Corporation because you become
permanently disabled, you will normally have a period of twelve (12) months from
such termination date during which to exercise your options for any or all of
the vested shares for which those options were exercisable at the time of such
termination. In no event, however, may you exercise any option after the
specified expiration of the option term. For purposes of the Plan, you will be
deemed to be PERMANENTLY DISABLED if you are unable to perform any substantial
gainful activity by reason of any medically-determinable physical or mental
impairment expected to result in death or to be of continuous duration of twelve
(12) consecutive months or more.
NOTE: FOR OPTIONS INCORPORATED FROM THE PREDECESSOR PLAN, YOU WILL
HAVE UNTIL THE EARLIER OF (i) THE EXPIRATION DATE OF THE OPTION TERM OR
(ii) THE LIMITED PERIOD PROVIDED IN THE OPTION AGREEMENT FOR THE EXERCISE
OF THAT OPTION FOLLOWING YOUR TERMINATION OF SERVICE.
32. WHAT HAPPENS TO MY OPTIONS IF THE CORPORATION IS ACQUIRED OR MERGED?
In the event of a Corporate Transaction, all options outstanding under
the Discretionary Option Grant Program will automatically vest on an accelerated
basis so that each such option will, immediately prior to the effective date of
the Corporate Transaction, become exercisable for all the shares of Common Stock
at the time subject to that option and may be exercised for any or all of those
shares as fully-vested shares. However, an outstanding option will NOT vest and
become exercisable on such an accelerated basis, if and to the extent: (i) the
option is assumed by the successor corporation, (ii) such option is replaced
with a cash incentive program which preserves the option spread existing on the
unvested shares subject to the option at the time of the Corporate Transaction
and provides for subsequent payout in accordance with the same vesting schedule
applicable to those option shares or (iii) the acceleration of the option is
subject to other limitations imposed by the Plan Administrator in the Option
Agreement. In addition, all of the Corporation's outstanding repurchase rights
under the Discretionary Option Grant Program will automatically terminate in the
event of a Corporate Transaction except to the extent: (i) the repurchase right
is assigned to the successor corporation or (ii) termination of the repurchase
right is subject to other limitations imposed by the Plan Administrator in the
agreement evidencing the right.
All outstanding options under the Discretionary Option Grant Program
will, to the extent not assumed by the successor corporation, terminate and
cease to be outstanding immediately following the completion of the Corporate
Transaction.
Any Incentive Options accelerated upon the Corporate Transaction will
remain exercisable as Incentive Options under the Federal tax laws only to the
extent the applicable $100,000 limitation is not exceeded. If such limitation is
exceeded, the option may be exercised for the excess number of shares as a
Non-Statutory Option.
A CORPORATE TRANSACTION will be deemed to occur upon (i) a merger or
consolidation in which securities possessing more than fifty percent (50%) of
the total combined voting power of the Corporation's outstanding securities are
transferred to a person or persons different from the persons holding those
securities immediately prior to such transaction or (ii) a sale, transfer or
other disposition of all or substantially all the assets of the Corporation in
liquidation or dissolution of the Corporation.
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NOTE: THE OPTIONS INCORPORATED FROM THE PREDECESSOR PLAN WILL VEST
UPON AN ACQUISITION OF THE CORPORATION BY MERGER OR ASSET SALE AND BECOME
IMMEDIATELY EXERCISABLE FOR ALL THE OPTION SHARES, UNLESS THE REPURCHASE
RIGHTS APPLICABLE TO THE OPTION SHARES ARE TRANSFERRED TO THE ACQUIRING
COMPANY. THE OPTIONS WILL TERMINATE IMMEDIATELY AFTER THE ACQUISITION,
UNLESS ASSUMED BY THE SUCCESSOR ENTITY.
33. WHAT HAPPENS TO MY OPTIONS THAT ARE ASSUMED UPON A CORPORATE
TRANSACTION?
Each option under the Discretionary Option Grant Program which is
assumed by the successor corporation will, immediately after the Corporate
Transaction, be appropriately adjusted to apply to the number and class of
securities which would have been issued to the optionee in consummation of the
Corporate Transaction had the option been exercised immediately prior to the
Corporate Transaction. Appropriate adjustments will also be made to the exercise
price payable per share under each assumed option, provided the aggregate
exercise price for the option shares will remain the same. To the extent the
actual holders of the Corporation's outstanding Common Stock receive cash
consideration for their Common Stock in consummation of the Corporate
Transaction, the successor corporation may, in connection with the assumption of
the option, substitute one or more shares of its own common stock with a fair
market value equivalent to the cash consideration paid per share of Common Stock
in such Corporate Transaction.
The Plan Administrator may structure one or more options granted under
the Discretionary Option Grant Program so that those options will immediately
vest and become exercisable for all the option shares as fully vested shares
upon an Involuntary Termination of the optionee's service within a designated
period (not to exceed eighteen (18) months) following the effective date of a
Corporate Transaction in which the options are assumed and do not otherwise vest
at that time. Any option so accelerated will remain exercisable for the vested
shares until the expiration or sooner termination of the option term. In
addition, the Plan Administrator may structure one or more of the Corporation's
outstanding repurchase rights so that those rights will automatically terminate,
and the shares subject those terminated rights will immediately vest, upon such
an Involuntary Termination. You should review your Option Agreement to determine
whether the options you hold will in fact accelerate upon such an Involuntary
Termination.
An INVOLUNTARY TERMINATION will be deemed to occur upon (i) the
optionee's involuntary dismissal or discharge by the Corporation for reasons
other than Misconduct or (ii) such individual's voluntary resignation following
(A) a change in his or her position with the Corporation which materially
reduces his or her duties and responsibilities or the level of management to
which he or she reports, (B) a reduction in his or her level of compensation
(including base salary, fringe benefits and target bonus under any corporate
performance-based bonus or incentive programs) by more than fifteen percent
(15%) or (C) a relocation of such individual's place of employment by more than
fifty (50) miles, provided and only if such change, reduction or relocation is
effected by the Corporation without the optionee's consent.
NOTE: A NUMBER OF OUTSTANDING OPTIONS INCORPORATED FROM THE
PREDECESSOR PLAN INCLUDE A SPECIAL VESTING ACCELERATION PROVISION PURSUANT
TO WHICH THOSE OPTIONS WILL VEST AND BECOME IMMEDIATELY EXERCISABLE FOR ALL
THE OPTION SHARES AS FULLY-VESTED SHARES UPON AN INVOLUNTARY TERMINATION OF
THE OPTIONEE'S SERVICE WITHIN EIGHTEEN (18) MONTHS FOLLOWING AN ACQUISITION
OF THE CORPORATION BY A MERGER OR ASSET SALE.
34. WHAT HAPPENS TO MY OPTIONS IF THERE IS A CHANGE IN CONTROL OF THE
CORPORATION?
The Plan Administrator may structure one or more options granted under
the Discretionary Option Grant Program so that those options will immediately
vest and become exercisable for all the option shares as fully vested shares
either upon the occurrence of a Change in Control or upon an Involuntary
Termination of the optionee's service within a designated period (not to exceed
eighteen (18) months) following the effective date of that Change in Control. In
addition, the Plan Administrator may structure one or more of the Corporation's
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outstanding repurchase rights so that those rights will automatically terminate,
and the shares subject those terminated rights will immediately vest, upon such
a Change in Control or subsequent Involuntary Termination. You should review
your Option Agreement to determine whether the options you hold will in fact
accelerate upon a Change in Control or your subsequent Involuntary Termination.
Any option accelerated in connection with a Change in Control or
subsequent Involuntary Termination will remain exercisable for fully-vested
shares until the expiration or sooner termination of the option term. However,
any Incentive Option so accelerated will remain exercisable as an Incentive
Option under the Federal tax laws only to the extent the applicable $100,000
limitation is not exceeded. If such limitation is exceeded, the option may be
exercised for the excess number of shares as a Non-Statutory Option.
A CHANGE IN CONTROL will be deemed to occur in the event (i) any
person directly or indirectly acquires securities possessing more than fifty
percent (50%) of the total combined voting power of the Corporation's
outstanding securities pursuant to a tender or exchange offer made directly to
the Corporation's stockholders or (ii) there is a change in the composition of
the Board over a period of thirty-six (36) consecutive months or less such that
a majority of the Board ceases, by reason of one or more contested elections for
Board membership, to be comprised of individuals who either (A) have been Board
members continuously since the beginning of such period or (B) have been elected
or nominated for election as Board members during such period by at least a
majority of the Board members described in clause (A) who were still in office
at the time such election or nomination was approved by the Board.
NOTE: NONE OF THE OPTIONS INCORPORATED FROM THE PREDECESSOR PLAN
CONTAIN ANY CHANGE IN CONTROL ACCELERATION PROVISIONS.
SALARY INVESTMENT OPTION GRANT PROGRAM
35. WHAT IS THE SALARY INVESTMENT OPTION GRANT PROGRAM?
The Salary Investment Option Grant Program may become effective for
one or more calendar years designated by the Compensation Committee. Once the
Salary Investment Program is implemented, the Compensation Committee will have
the discretionary authority to select the executive officers and other highly
compensated employees who may participate each year, and the selected
individuals may elect to invest a portion of their base salary for the upcoming
calendar year in a special below-market option grant. The elected investment
will be effected through a reduction in the participant's salary for that
calendar year by a designated dollar amount. In return, the participant will
receive an option to purchase shares of Common Stock at an aggregate discount
from the fair market value of the option shares on the grant date equal to the
amount by which his or her salary is to be reduced. The election must be filed
with the Compensation Committee prior to the start of the calendar year for
which the salary reduction is to be in effect, and the election, once filed,
will be irrevocable.
36. ARE THERE ANY LIMITATIONS ON THE AMOUNT OF SALARY REDUCTION A
PARTICIPANT MAY ELECT?
The salary investment amount subject to the participant's election may
not be less than Ten Thousand Dollars ($10,000) nor more than Fifty Thousand
Dollars ($50,000).
37. WHAT ARE THE TERMS OF THE OPTIONS GRANTED UNDER THE SALARY INVESTMENT
OPTION GRANT PROGRAM?
The participant will be granted a stock option under the program on
the first trading day in January of the calendar year for which the salary
reduction is to be in effect. Such option will be subject to substantially the
same terms and conditions applicable to option grants under the Discretionary
Option Grant Program, except for the following differences:
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- Each option will be a Non-Statutory Option and will have a maximum
term of ten (10) years measured from the option grant date.
- The exercise price per share will be equal to one-third of the fair
market value per share of Common Stock on the option grant date.
- The number of shares subject to the option will be determined by
dividing the total dollar amount of the reduction in the participant's base
salary by two-thirds of the fair market value per share of Common Stock on the
option grant date (and rounding down to the nearest whole share).
- The option will become exercisable for the option shares in a series
of twelve (12) successive equal monthly installments upon the optionee's
completion of each calendar month of service in the calendar year for which the
salary reduction is in effect.
- The optionee will have until the earlier of (i) the expiration date
of the option term or (ii) the expiration of the three (3)-year period measured
from the date of his or her cessation of service in which to exercise the option
for any option shares for which the option is exercisable on the date of such
cessation of service. However, upon the optionee's cessation of service, the
option will immediately terminate and cease to be outstanding with respect to
any option shares for which the option is not otherwise at that time
exercisable.
- Should a Corporate Transaction occur during the optionee's period of
service, then his or her salary investment option will automatically accelerate
so that the option will, immediately prior to the effective date of the
Corporate Transaction, become exercisable for all the shares of Common Stock at
the time subject to that option, and the accelerated option may be exercised for
any or all of those shares as fully-vested shares. The accelerated option will
terminate immediately after the Corporate Transaction, except to the extent
assumed by the successor corporation (or its parent corporation). Any option so
assumed will remain exercisable for the fully-vested shares until the earlier of
(i) the expiration of the option term or (ii) the expiration of the three
(3)-year period measured from the date of the optionee's cessation of service.
- Should a Change in Control occur during the optionee's period of
service, then his or her salary investment option will automatically accelerate
so that the option will, immediately prior to the effective date of such Change
in Control, become exercisable for all the shares of Common Stock at the time
subject to that option and may be exercised for any or all of those shares as
fully-vested shares. The accelerated option will remain exercisable until the
earliest to occur of (i) the expiration of the option term, (ii) the expiration
of the three (3)-year period measured form the date of the optionee's cessation
of service, (iii) the termination of the option in connection with a Corporate
Transaction or (iv) the surrender of the option in connection with a Hostile
Take-Over.
- Each salary investment option grant will include a limited SAR.
Accordingly, upon a Hostile Take-Over, that option may be surrendered to the
Corporation for a cash distribution in an amount equal to the excess of (i) the
Take-Over Price of the shares of Common Stock at the time subject to the
surrendered option (whether or not the option is otherwise exercisable for those
shares) over (ii) the aggregate exercise price payable for those shares.
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STOCK ISSUANCE PROGRAM
38. HOW ARE SHARES OF COMMON STOCK ISSUED UNDER THE STOCK ISSUANCE
PROGRAM?
The Plan Administrator will have complete discretion to determine when
and to whom share issuances are to be made under the Stock Issuance Program and
the terms of each such issuance. Each share issuance will be evidenced by a
stock issuance agreement (the "Issuance Agreement") executed by the Corporation
and the participant.
Alternatively, the Plan Administrator may issue the shares pursuant to
share right awards which entitle the recipients to receive those shares upon the
attainment of designated performance goals or the completion of a specified
period of service.
39. HOW IS THE PURCHASE PRICE DETERMINED?
The purchase price per share will be determined by the Plan
Administrator but will not be less than one hundred percent (100%) of the fair
market value of the Common Stock on the issuance date.
40. WHAT FORM OF PAYMENT IS REQUIRED FOR SHARES ISSUED UNDER THE STOCK
ISSUANCE PROGRAM?
The purchase price will be due immediately upon the issuance of the
Common Stock and may be paid in cash or check payable to the Corporation. Shares
of Common Stock may also be issued as a bonus for past services rendered to the
Corporation without any cash payment required of the participant.
41. WHEN DO SHARES OF COMMON STOCK ACQUIRED UNDER THE STOCK ISSUANCE
PROGRAM VEST?
Shares of Common Stock issued under the Stock Issuance Program may, in
the discretion of the Plan Administrator, be fully-vested upon issuance or may
vest over the participant's period of service or upon attainment of specified
performance objectives. The Plan Administrator will determine the vesting
schedule applicable to any unvested shares of Common Stock issued under the
program, and that schedule will be incorporated into the Issuance Agreement for
those shares.
42. DOES THE CORPORATION HAVE THE RIGHT TO REPURCHASE THE SHARES ACQUIRED
UNDER THE STOCK ISSUANCE PROGRAM?
The answer will depend on the vesting schedule in effect for your
shares. If you are issued shares of Common Stock which are fully vested, then
those shares will not be subject to the Corporation's repurchase rights.
However, if you are issued shares which are not fully vested at the time of
issuance, then the Corporation may repurchase those shares should you fail to
complete the applicable service requirement or should the Corporation not attain
the specified performance objectives. If you paid for the unvested shares in
cash, then the Corporation will refund the purchase price at the time those
shares are repurchased. If you delivered a promissory note in payment for such
shares, the Corporation will, in effecting the repurchase, cancel the principal
balance of the note attributable to the repurchased shares.
The Corporation's repurchase rights will also cover any new,
substituted or additional securities or other property subsequently distributed
with respect to your unvested shares by reason of any Recapitalization.
Appropriate adjustments to reflect the distribution will be made to the number
and/or class of securities subject to the Corporation's repurchase rights and
the price per share (if any) payable upon the exercise of those rights.
The Plan Administrator may waive one or more of the Corporation's
outstanding repurchase rights with respect to any unvested shares of Common
Stock you hold at the time of your cessation of service and thereby trigger the
immediate vesting of those shares.
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The Plan Administrator will have full discretion to establish the
remaining terms upon which the Corporation's repurchase rights are to become
exercisable (including the procedure for effecting such repurchase). All the
terms of the repurchase right will be included in the Issuance Agreement.
43. CAN I TRANSFER SHARES SUBJECT TO THE CORPORATION'S REPURCHASE RIGHTS?
You may not transfer, assign or encumber any unvested shares of Common
Stock which are subject to the Corporation's repurchase rights, except for
permissible gifts approved by the Plan Administrator, transfers by will or
inheritance following your death or transfers to the Corporation in pledge as
security for any promissory note delivered in payment for the shares. The
certificates representing such unvested shares may, in the Plan Administrator's
discretion, bear a legend indicating the existence of such transfer
restrictions, or the unvested shares (and any securities or other property
distributed with respect to such shares) may be held in escrow by the
Corporation (or any successor entity) until you vest in those shares.
44. WHAT HAPPENS TO UNVESTED SHARES IF THE CORPORATION IS ACQUIRED OR
MERGED?
In the event of a Corporate Transaction, all unvested shares of Common
Stock acquired under the Stock Issuance Program will immediately vest in full,
except to the extent the Corporation's repurchase rights with respect to those
shares are assigned to the successor corporation or such accelerated vesting is
subject to other limitations imposed by the Plan Administrator in the Issuance
Agreement.
45. WHAT HAPPENS TO REPURCHASE RIGHTS THAT ARE ASSIGNED UPON A CORPORATE
TRANSACTION?
The Plan Administrator may structure one or more repurchase rights so
that those rights will automatically terminate, and the shares subject to those
terminated rights will immediately vest, upon an Involuntary Termination of the
participant's service within a designated period (not to exceed eighteen (18)
months) following the effective date of a Corporate Transaction in which those
repurchase rights are assigned to the successor corporation and do not otherwise
terminate. You should review your Issuance Agreement to determine whether your
unvested shares will in fact accelerate upon such an Involuntary Termination.
46. WHAT HAPPENS TO UNVESTED SHARES IF THERE IS A CHANGE IN CONTROL OF THE
CORPORATION?
The Plan Administrator may structure one or more repurchase rights so
that those rights will automatically terminate, and the shares subject to those
terminated rights will immediately vest, either upon the occurrence of a Change
in Control or upon an Involuntary Termination of the participant's service
within a designated period (not to exceed eighteen (18) months) following the
effective date of that Change in Control. You should review your Issuance
Agreement to determine whether your unvested shares will in fact accelerate upon
such a Change in Control or subsequent Involuntary Termination.
47. DO I HAVE ANY STOCKHOLDER RIGHTS WITH RESPECT TO SHARES ISSUED UNDER
THE STOCK ISSUANCE PROGRAM?
You will have full stockholder rights with respect to the shares of
Common Stock issued to you under the Stock Issuance Program, including the right
to vote such shares and receive all regular cash dividends paid on such shares,
whether or not such shares are vested. However, unvested shares will be subject
to the transfer restrictions specified above.
Share right awards under the program will not entitle you to any
stockholder rights until the shares of Common Stock subject to those awards are
actually issued upon the attainment of the performance goals or the completion
of the required service period.
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48. IS THE TAX WITHHOLDING PROGRAM AVAILABLE UNDER THE STOCK ISSUANCE
PROGRAM?
Yes. The Plan Administrator will have the discretion to extend the Tax
Withholding Program to holders of unvested shares of Common Stock under the
Stock Issuance Program who elect to be taxed on those shares at the time of
vesting rather than at the time of issuance. Each selected participant may
accordingly elect to have the Corporation withhold, from the shares which
otherwise vest at the time, a portion of those shares with a fair market value
equal to a designated percentage (not to exceed one hundred percent (100%)) of
the Federal, state and local income and employment withholding taxes to which
the participant may become subject in connection with the vesting of those
shares. In lieu of such direct withholding, the selected participants may also
be allowed to deliver existing shares of Common Stock to the Corporation in
satisfaction of such withholding tax liability. However, no shares will actually
be withheld or accepted in satisfaction of such withholding tax liability except
to the extent approved by the Plan Administrator, and any such withheld or
delivered shares will be valued at fair market value on the vesting date.
You will be notified in writing should you be selected for
participation in the Tax Withholding Program.
DISPOSITION OF SHARES
49. WHEN CAN I SELL MY SHARES ACQUIRED UNDER THE DISCRETIONARY OPTION
GRANT AND STOCK ISSUANCE PROGRAMS?
As a Section 16 Insider, you will be subject to certain restrictions
in connection with your transactions under the Discretionary Option Grant and
Stock Issuance Programs. These restrictions are described in detail in the
"Restrictions on Resale" section below.
MISCELLANEOUS
50. IS FINANCING AVAILABLE UNDER THE PLAN?
The Plan Administrator may assist you in the acquisition of shares of
Common Stock under the Discretionary Option Grant Program or Stock Issuance
Program by permitting you to pay the purchase price for the shares through a
promissory note payable in one or more installments. The terms of any such
promissory note, including the interest rate and terms of repayment, will be
established in the sole discretion of the Plan Administrator. Promissory notes
will be made on a full-recourse basis, and the maximum credit available to you
may not exceed the purchase price payable for the acquired shares plus any
withholding tax liability incurred by you in connection with such acquisition.
In addition, the Corporation will comply with all applicable requirements of
Regulation U of the Board of Governors of the Federal Reserve System in
connection with any financing extended under the Plan.
51. DO I HAVE THE RIGHT TO REMAIN EMPLOYED UNTIL MY OPTIONS UNDER THE
DISCRETIONARY OPTION GRANT OR THE SALARY INVESTMENT OPTION GRANT
PROGRAM, OR MY SHARES UNDER THE STOCK ISSUANCE PROGRAM, VEST?
No. Nothing in the Plan or in any option grant or stock issuance under
the Plan is intended to provide any person with the right to remain in the
Corporation's service for any specific period, and both you and the Corporation
will each have the right to terminate your service at any time and for any
reason, with or without cause.
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52. ARE THERE ANY CIRCUMSTANCES WHICH WOULD CAUSE ME TO LOSE MY RIGHTS
WITH RESPECT TO AN OPTION GRANT OR A STOCK ISSUANCE?
Yes. The grant of options and the issuance of Common Stock under such
options or pursuant to the Stock Issuance Program are subject to the
Corporation's procurement of all approvals and permits required by regulatory
authorities having jurisdiction over the Plan and the securities issuable
thereunder. It is possible that the Corporation could be prevented from granting
options or from issuing shares of Common Stock under the Plan in the event one
or more required approvals or permits were not obtained.
53. DOES THE PLAN RESTRICT THE AUTHORITY OF THE CORPORATION TO GRANT OR
ASSUME OPTIONS OUTSIDE OF THE PLAN?
No. The Plan does not limit the authority of the Corporation to grant
options outside of the Plan or to grant options to, or assume the options of,
any person in connection with the acquisition of the business and assets of any
firm, corporation or other business entity.
54. DOES THE GRANT OF AN OPTION OR THE ISSUANCE OF SHARES UNDER THE PLAN
AFFECT MY ELIGIBILITY TO PARTICIPATE IN OTHER PLANS OF THE
CORPORATION?
No. Option grants and stock issuances made under the Plan do not in
any way affect, limit or restrict your eligibility to participate in any other
stock plan or other compensation or benefit plan or program maintained by the
Corporation.
55. WHAT IS A PARENT CORPORATION?
A corporation is a parent corporation if such corporation owns,
directly or indirectly, stock possessing fifty percent (50%) or more of the
total combined voting power of the Corporation's outstanding securities.
56. WHAT IS A SUBSIDIARY CORPORATION?
A corporation is a subsidiary corporation if the Corporation owns,
directly or indirectly, stock possessing fifty percent (50%) or more of the
total combined voting power of the outstanding securities of that corporation.
57. IS THE PLAN SUBJECT TO ERISA?
The Plan is not subject to the provisions of the Employee Retirement
Income Security Act of 1974 (ERISA) or Section 401(a) of the Code.
RESTRICTIONS ON RESALE
58. WHAT RESTRICTIONS APPLY BECAUSE I AM A SECTION 16 INSIDER?
Section 16(b) of the 1934 Act requires the Corporation to recover any
profit realized by any officer, director or beneficial owner of more than ten
percent (10%) of the outstanding Common Stock (a "Section 16 Insider") from any
purchase and sale, or sale and purchase, of such Common Stock made within a
period of less than six (6) months.
The Securities and Exchange Commission (the "SEC") has issued a series
of revised rules under Section 16(b) of the 1934 Act which govern the
short-swing liability treatment of certain transactions effected by a Section 16
Insider under equity incentive plans such as the Plan. The application of those
rules to Plan transactions may be summarized as follows.
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Option Grant. The receipt of an option grant will not be treated as a
"purchase" of the underlying option shares for short-swing liability purposes.
Option Exercise. The exercise of an option under the Plan will be an
exempt transaction and will not be treated as a "purchase" of the acquired
shares for short-swing liability purposes.
Delivery of Shares. The delivery of shares of Common Stock in payment
of the exercise price will be an exempt transaction for short-swing liability
purposes.
Stock Withholding. The withholding of a portion of the shares of
Common Stock otherwise issuable to the Section 16 Insider by the Corporation in
satisfaction of the withholding taxes incurred in connection with the exercise
of his or her outstanding options or the vesting of his or her stock issuances
will be an exempt transaction for short-swing liability purposes if such
withholding is approved by the Plan Administrator, either at the time of the
option exercise or vesting of the shares or at any earlier time. The delivery of
shares of Common Stock out of the Section 16 Insider's existing investment
portfolio in satisfaction of the applicable tax withholding liability will be an
exempt transaction for short-swing liability purposes if approved by the Plan
Administrator.
Direct Stock Issuances. The direct issuance of shares of Common Stock
under the Stock Issuance Program, whether effected as a purchase or bonus, will
be an exempt transaction and will not be treated as a "purchase" of the issued
shares for short-swing liability purposes.
Vesting of Issued Shares. The vesting of shares issued under the Plan
will not be taken into account for short-swing liability purposes.
SAR Transactions. The grant of an SAR will not be treated as a
purchase of the underlying shares of Common Stock subject to that grant. If the
SAR is subsequently exercised for shares of Common Stock, the exercise of such
right will not be treated as a "purchase" of the acquired shares for short-swing
liability purposes. If the SAR is exercised for cash, including the cash-out of
an option in connection with a Hostile Take-Over, then the transaction will be
exempt from short-swing liability if approved by the Plan Administrator either
at the time of exercise or at any earlier time.
Repurchase of Unvested Shares. The surrender of unvested shares to the
Corporation for cancellation without any cash payment or other consideration to
the participant will not be deemed a "sale" of those shares for short-swing
liability purposes. The repurchase of unvested shares by the Corporation for
consideration equal to the original purchase price paid for those shares will
normally not result in a "sale" transaction for short-swing liability purposes.
Sale of Shares. The sale of any shares acquired under the Plan will be
treated as a "sale" for short-swing liability purposes and will be matched with
any non-exempt purchases of Common Stock (e.g. open-market purchases) made
within six (6) months before or after the date of such sale.
REPORTING REQUIREMENTS
Each of the following transactions involving the Section 16 Insider
must be reported on the annual Form 5 required to be filed by such individual
within forty-five (45) days after the close of the Corporation's fiscal year in
which such transaction occurs or may be reported on any earlier-filed Form 4:
* Receipt of option grant or SAR
* Acquisition of shares under the Stock Issuance Program
* Surrender of unvested shares for repurchase
However, the receipt of an option grant or SAR must in all events be
reported on or before the due date for the Form 4 in which the exercise of that
option or SAR must be reported.
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The exercise of an option or SAR must be reported on a Form 4 filed
within ten (10) days after the close of the calendar month in which such
exercise occurs. If the exercise price is paid with shares of Common Stock, then
the disposition of those shares should also be reported on the same Form 4 for
the option exercise.
The sale of Common Stock must be reported on a Form 4 filed within ten
(10) days after the close of the calendar month in which the sale is effected.
When shares of Common Stock are withheld in satisfaction of applicable
withholding taxes, the Section 16 Insider should report the gross number of
shares acquired upon the exercise of the option (including the withheld shares)
on the Form 4 filed for the month in which the option is exercised and should
also report the disposition of the withheld shares on that same Form 4.
59. WHAT RESTRICTIONS APPLY IF I AM AN AFFILIATE?
In general, persons with power to manage and direct the policies
of the Corporation, their relatives and trusts, estates, corporations or other
entities controlled by any of those persons may be deemed to be affiliates of
the Corporation. Affiliates of the Corporation are obligated to resell their
shares of Common Stock in compliance with SEC Rule 144. This rule requires such
sales to be effected in "brokers' transactions," as defined in the rule, and a
written notice of each sale must be filed with the SEC at the time of such sale.
The rule also limits the number of shares which may be sold in any three
(3)-month period to the greater of (i) one percent (1%) of the outstanding
shares of Common Stock or (ii) the average weekly reported volume of trading in
such shares on all securities exchanges during the four (4) calendar weeks
preceding the filing of the required notice of proposed sale. However, there
will be no Rule 144 holding period requirements applicable to the shares of
Common Stock acquired under the Plan.
AS AN OFFICER OR DIRECTOR OF THE CORPORATION, OR A NON-EMPLOYEE
BOARD MEMBER, YOU SHOULD CONSULT WITH COUNSEL BEFORE OFFERING FOR SALE ANY
SHARES OF COMMON STOCK ACQUIRED UNDER THE PLAN IN ORDER TO ASSURE YOUR
COMPLIANCE WITH RULE 144, SECTION 16 AND ALL OTHER APPLICABLE PROVISIONS OF
FEDERAL AND STATE SECURITIES LAWS.
QUESTIONS AND ANSWERS ON FEDERAL TAX CONSEQUENCES
The following is a general description of the Federal income tax
consequences of option grants and stock issuances under the Plan. State and
local tax treatment, which is not discussed below, may vary from such Federal
income tax treatment. You should consult with your own tax advisor as to the tax
consequences of your particular transactions under the Plan.
The tax consequences of Incentive Options and Non-Statutory
Options differ as described below.
INCENTIVE OPTIONS
T1. WILL THE GRANT OF AN INCENTIVE OPTION RESULT IN FEDERAL INCOME TAX
LIABILITY TO ME?
No.
T2. WILL THE EXERCISE OF AN INCENTIVE OPTION RESULT IN FEDERAL INCOME TAX
LIABILITY TO ME?
No. You will not recognize taxable income at the time the Incentive
Option is exercised. However, the amount by which the fair market value (at the
time of exercise) of the purchased shares exceeds the exercise price paid for
those shares will constitute an adjustment to your income for purposes of the
alternative minimum tax (see the "Alternative Minimum Tax" section below). On or
before January 31 of the calendar year
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following the calendar year in which you exercise your Incentive Option, you
will receive an information statement from the Corporation indicating, among
other items, the number of shares of Common Stock you purchased in connection
with such exercise, the market price of the Common Stock on the exercise date
and the price you paid for the purchased shares.
T3. WHEN WILL I BE SUBJECT TO FEDERAL INCOME TAX ON SHARES ACQUIRED UNDER
AN INCENTIVE OPTION?
Generally, you will recognize income in the year in which you make a
disposition of the shares purchased under your Incentive Option.
T4. WHAT CONSTITUTES A DISPOSITION OF INCENTIVE OPTION SHARES?
A disposition of shares purchased under an Incentive Option will occur
in the event you transfer legal title to those shares, whether by sale, exchange
or gift, or you deliver such shares in payment of the exercise price of any
other Incentive Option you hold. However, a disposition will not occur if you
engage in any of the following transactions: a transfer of the shares to your
spouse, a transfer into joint ownership with right of survivorship provided you
remain one of the joint owners, a pledge of the shares as collateral for a loan,
a transfer by bequest or inheritance upon your death or certain tax-free
exchanges of the shares permitted under the Code.
T5. HOW IS MY FEDERAL INCOME TAX LIABILITY DETERMINED WHEN I DISPOSE OF MY
SHARES?
Your Federal income tax liability will depend upon whether you make a
qualifying or disqualifying disposition of the shares purchased under your
Incentive Option. A qualifying disposition will occur if the sale or other
disposition of the shares takes place more than two (2) years after the date the
Incentive Option was granted and more than one (1) year after the date that
option was exercised for the particular shares involved in the disposition. A
disqualifying disposition is any sale or other disposition made before both of
these minimum holding periods are satisfied.
T6. WHAT IF I MAKE A QUALIFYING DISPOSITION?
You will recognize a long-term capital gain equal to the excess of (i)
the amount realized upon the sale or other disposition over (ii) the exercise
price paid for the shares. You will recognize a long-term capital loss if the
amount realized is lower than the exercise price paid for the shares. (For the
tax rates applicable to capital gain, please see Question T27.)
EXAMPLE: On March 1, 2000, you are granted an Incentive
Option for 1,000 shares with an exercise price of $15.00 per share. On
March 1, 2002, you exercise the option for 500 vested shares when the
market price is $25.00 per share. The purchased shares are held until
July 1, 2003, when you sell them for $30.00 per share.
Because the disposition of the shares is made more than two
(2) years after the grant date of the Incentive Option and more than
one (1) year after the option was exercised for the shares sold on
July 1, 2003, the sale represents a qualifying disposition of such
shares, and for Federal income tax purposes, there will be a long-term
capital gain of $15.00 per share.
T7. WHAT ARE THE NORMAL TAX RULES FOR A DISQUALIFYING DISPOSITION?
Normally, when you make a disqualifying disposition of shares
purchased under an Incentive Option, you will recognize ordinary income at the
time of the disposition in an amount equal to the excess of (i) the fair market
value of the shares on the option exercise date over (ii) the exercise price
paid for those shares. If the disqualifying disposition is effected by means of
an arm's length sale or exchange with an unrelated party, the ordinary income
will be limited to the amount by which (i) the amount realized upon the
disposition of the shares or
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(ii) their fair market value on the exercise date, whichever is less, exceeds
the exercise price paid for the shares. The amount of your disqualifying
disposition income will be reported by the Corporation on your W-2 wage
statement for the year of disposition, and any applicable withholding taxes
which arise in connection with the disqualifying disposition will be deducted
from your wages or otherwise collected from you.
Any additional gain recognized upon the disqualifying disposition will
be capital gain, which will be long-term if the shares have been held for more
than one (1) year following the exercise date of the option. (See Question T27
below for the tax rates applicable to capital gain.)
EXAMPLE: On March 1, 2000, you are granted an Incentive
Option for 1,000 shares with an exercise price of $15.00 per share. On
March 1, 2002, you exercise this option for 500 vested shares when the
market price is $25.00 per share. The purchased shares are held until
December 15, 2002, when you sell them for $30.00 per share.
Because the disposition of the shares is made less than one
(1) year after the Incentive Option was exercised for the shares sold
on December 15, 2002, the sale represents a disqualifying disposition
of the shares, and for Federal income tax purposes, the gain upon the
sale will be divided into two (2) components:
Ordinary Income: You will recognize ordinary income in the
amount of $10.00 per share, the excess of the $25.00 per share market
price of the shares on the date the option was exercised over the
$15.00 per share exercise price.
Capital Gain: You will also recognize a short-term capital
gain of $5.00 per share with respect to each share sold.
In the event the shares purchased under an Incentive Option are sold
in a disqualifying disposition for less than the exercise price paid for those
shares, you will not recognize any income but will recognize a capital loss
equal to the excess of (i) the exercise price paid for the shares over (ii) the
amount realized upon the disposition of those shares. For example, if the shares
in the above Example are sold for $12.00 per share in the disqualifying
disposition, you would simply recognize a short-term capital loss of $3.00 per
share.
T8. WHAT IF THE SHARES PURCHASED UNDER AN INCENTIVE OPTION ARE SUBJECT TO
A SUBSTANTIAL RISK OF FORFEITURE, SUCH AS THE CORPORATION'S REPURCHASE
RIGHT?
If the shares purchased under your Incentive Option are subject to a
substantial risk of forfeiture, such as the Corporation's right to repurchase
those shares at the original exercise price in the event your service terminates
prior to vesting in such shares, then the amount of ordinary income you would
recognize upon a disqualifying disposition of those shares will be based upon
their fair market value on the date the forfeiture period lapses (i.e., the
vesting date for the shares), rather than the date the Incentive Option is
exercised, and the holding period for determining whether any additional gain is
long-term or short-term capital gain will not commence until such lapse date. In
the absence of final Treasury Regulations relating to Incentive Options, it is
not certain whether such a result can be avoided, and the normal disqualifying
disposition rules discussed above reinstated, by making a conditional election
pursuant to Code Section 83(b) to have the ordinary income measured at the time
the Incentive Option is exercised. (See the discussion below concerning Code
Section 83(b) elections for additional information.) Because of the uncertainty
as to the precise tax consequences of such a conditional election, you should
consult with your own tax advisor before filing any such election.
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T9. WHAT ARE THE FEDERAL TAX CONSEQUENCES TO THE CORPORATION?
If you make a qualifying disposition of shares acquired upon the
exercise of an Incentive Option, then no income tax deduction may be taken by
the Corporation with respect to such shares. Should you make a disqualifying
disposition of such shares, then the Corporation will be entitled to an income
tax deduction equal to the amount of ordinary income you recognize in connection
with the disposition. The deduction will, in general, be allowed to the
Corporation in the taxable year in which the disposition occurs.
T10. WHAT ARE THE CONSEQUENCES OF PAYING THE EXERCISE PRICE OF AN INCENTIVE
OPTION IN THE FORM OF SHARES OF COMMON STOCK ACQUIRED UPON THE
EXERCISE OF AN EARLIER-GRANTED INCENTIVE OPTION IF THE DELIVERY OF THE
SHARES RESULTS IN A DISQUALIFYING DISPOSITION?
If the delivery of the shares acquired under an earlier granted
Incentive Option results in a disqualifying disposition, then you will be
subject to ordinary income taxation on the excess of (i) the fair market value
of the delivered shares at the time of their original purchase (or at the time
any forfeiture restriction applicable to those shares lapsed) over (ii) the
exercise price paid for the delivered shares.
The tax basis and capital gain holding periods for the shares of
Common Stock purchased upon exercise of the Incentive Option will be determined
as follows:
(i) To the extent the purchased shares equal in number the
delivered shares as to which there is a disqualifying disposition, the
basis for the new shares will be equal to the fair market value of the
delivered shares at the time they were originally purchased (or at the
time any forfeiture restriction applicable to those shares lapsed),
and the capital gain holding period for those shares will include the
period for which the delivered shares were held (measured from their
original purchase date or (if later) from the lapse date of any
forfeiture restriction applicable to those shares).
(ii) To the extent the number of purchased shares exceeds
the number of delivered shares, the additional shares will have a zero
basis and a capital gain holding period measured (in general) from the
exercise date.
T11. WHAT ARE THE CONSEQUENCES OF PAYING THE EXERCISE PRICE OF AN INCENTIVE
OPTION IN THE FORM OF SHARES OF COMMON STOCK (i) ACQUIRED UNDER AN
INCENTIVE OPTION AND HELD FOR THE REQUISITE HOLDING PERIODS, (ii)
ACQUIRED UNDER A NON-STATUTORY OPTION OR (iii) ACQUIRED THROUGH
OPEN-MARKET PURCHASES?
If the exercise price for the Incentive Option is paid with shares of
Common Stock (i) acquired under an Incentive Option and held for the requisite
minimum holding periods for a qualifying disposition, (ii) acquired under a
Non-Statutory Option or (iii) acquired through open-market purchases, you will
not recognize any taxable income (other than as described in the "Alternative
Minimum Tax" section below) with respect to the shares of Common Stock purchased
upon exercise of the Incentive Option. To the extent the purchased shares equal
in number the shares of Common Stock delivered in payment of the exercise price,
the new shares will have the same basis and holding period for capital gain
purposes as the delivered shares. To the extent the number of purchased shares
exceeds the number of delivered shares, the additional shares will have a zero
basis and a capital gain holding period measured (in general) from the exercise
date.
T12. WHAT ARE THE CONSEQUENCES OF A SUBSEQUENT DISPOSITION OF SHARES
PURCHASED UNDER AN INCENTIVE OPTION WITH SHARES OF COMMON STOCK?
If the Incentive Option is exercised with shares of Common Stock, then
those shares purchased under the Incentive Option which have a zero basis will
be treated as the first shares sold or otherwise transferred in a disqualifying
disposition. Accordingly, upon such a disqualifying disposition, you will
recognize ordinary income
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with respect to the zero basis shares in an amount equal to their fair market
value on the date the option was exercised for those shares or, if such shares
were subject to any forfeiture restriction, on the date that restriction lapsed.
Any additional gain upon such disqualifying disposition will in most instances
be taxed as short-term capital gain.
NON-STATUTORY OPTIONS
T13. WILL THE GRANT OF A NON-STATUTORY OPTION RESULT IN FEDERAL INCOME TAX
LIABILITY TO ME?
No.
T14. WILL THE EXERCISE OF A NON-STATUTORY OPTION RESULT IN FEDERAL INCOME
TAX LIABILITY TO ME?
Normally, you will recognize ordinary income in the year in which the
Non-Statutory Option is exercised in an amount equal to the excess of (i) the
fair market value of the purchased shares on the exercise date over (ii) the
exercise price paid for those shares. This income will be reported by the
Corporation on your W-2 wage statement for the year of exercise (or on a Form
1099 if you are not an employee), and you will be required to satisfy the tax
withholding requirements applicable to this income.
T15. WHAT IF THE SHARES PURCHASED UNDER A NON-STATUTORY OPTION ARE SUBJECT
TO A SUBSTANTIAL RISK OF FORFEITURE, SUCH AS THE CORPORATION'S
REPURCHASE RIGHT?
If the shares you purchase under a Non-Statutory Option are unvested
and subject to a substantial risk of forfeiture, such as the Corporation's right
to repurchase those shares at the original exercise price upon your termination
of service prior to vesting in such shares, then you will not recognize any
taxable income at the time of exercise but will have to report as ordinary
income, as and when the Corporation's repurchase right lapses, an amount equal
to the excess of (i) the fair market value of the shares on the date such shares
vest over (ii) the exercise price paid for those shares.
If you purchase unvested shares subject to the Corporation's
repurchase right, you may elect under Code Section 83(b) to recognize income at
the time of exercise (see the question below concerning the effect of making a
Section 83(b) election). If such election is made, you will not recognize any
additional income with respect to your shares until such shares are sold or
otherwise transferred in a taxable transaction.
T16. WHAT IS THE EFFECT OF MAKING A SECTION 83(b) ELECTION?
If you purchase shares subject to the Corporation's repurchase right,
you may elect under Code Section 83(b) to include as ordinary income in the year
of exercise an amount equal to the excess of (i) the fair market value of the
purchased shares on the exercise date over (ii) the exercise price paid for the
shares. The fair market value of the purchased shares will be determined as if
the shares were not subject to the Corporation's repurchase right. If you make
the Section 83(b) election, you will not recognize any additional income when
the Corporation's repurchase right subsequently lapses.
The Section 83(b) election must be filed with the Internal Revenue
Service within thirty (30) days following the date the option is exercised, and
any ordinary income resulting from such election will be subject to applicable
tax withholding requirements.
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T17. WILL I RECOGNIZE ADDITIONAL INCOME WHEN I SELL SHARES ACQUIRED UNDER A
NON-STATUTORY OPTION?
Yes. You will recognize a capital gain to the extent the amount
realized upon the sale of such shares exceeds their fair market value at the
time you recognized the ordinary income with respect to their acquisition. A
capital loss will result to the extent the amount realized upon the sale is less
than such fair market value. The gain or loss will be long-term if the shares
are held for more than one (1) year prior to the disposition. (Please see
Question T27 below for the tax rates applicable to capital gain.)
The holding period normally starts at the time the Non-Statutory
Option is exercised. If you purchase shares subject to the Corporation's
repurchase right, the capital gain holding period will start either (i) at the
time the shares may first be sold free of such repurchase right, if no Section
83(b) election is made at the time of the option exercise, or (ii) at the time
the option is exercised if you file the Section 83(b) election within thirty
(30) days after the exercise date.
T18. WHAT ARE THE CONSEQUENCES OF PAYING THE EXERCISE PRICE OF A
NON-STATUTORY OPTION IN THE FORM OF SHARES OF COMMON STOCK PREVIOUSLY
ACQUIRED UPON THE EXERCISE OF EMPLOYEE OPTIONS OR THROUGH OPEN-MARKET
PURCHASES?
You will not recognize any taxable income to the extent the shares of
Common Stock received upon the exercise of the Non-Statutory Option equal in
number the shares of Common Stock delivered in payment of the exercise price.
For Federal income tax purposes, these newly-acquired shares will have the same
basis and capital gain holding period as the delivered shares. To the extent the
delivered shares were acquired under an Incentive Option, the new shares
received upon the exercise of the Non-Statutory Option will continue to be
subject to taxation as Incentive Option shares in accordance with the Incentive
Option principles discussed above.
The additional shares of Common Stock received upon the exercise of
the Non-Statutory Option will, in general, have to be reported as ordinary
income for the year of exercise in an amount equal to their fair market value on
the exercise date. These additional shares will have a tax basis equal to such
fair market value and a capital gain holding period measured (in general) from
the exercise date. However, if the shares purchased under the Non-Statutory
Option are subject to the Corporation's repurchase right, then the recognition
and measurement of ordinary income and the commencement of the capital gain
holding period will be deferred until the time the repurchase right lapses,
unless you make a Section 83(b) election to be taxed at the time of exercise.
T19. WHAT ARE THE FEDERAL TAX CONSEQUENCES TO THE CORPORATION?
The Corporation will be entitled to an income tax deduction equal to
the amount of ordinary income you recognize in connection with the exercise of
the Non-Statutory Option. The deduction will, in general, be allowed for the
taxable year of the Corporation in which you recognize such ordinary income.
However, if the deduction is attributable to a Non-Statutory Option exercised
for unvested shares subject to the Corporation's repurchase right, then in the
absence of your Section 83(b) election, the deduction will not be allowed until
the taxable year of the Corporation which includes the last day of the calendar
year in which you recognize the ordinary income with respect to the unvested
shares acquired under your Non-Statutory Option.
STOCK APPRECIATION RIGHTS
T20. WILL THE EXERCISE OF A STOCK APPRECIATION RIGHT RESULT IN FEDERAL
INCOME TAX LIABILITY TO ME?
Yes. Upon the exercise of a stock appreciation right for a
distribution from the Corporation, you will, in general, recognize ordinary
income in an amount equal to that distribution.
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T21. WHAT ARE THE FEDERAL TAX CONSEQUENCES TO THE CORPORATION?
The Corporation will be entitled to an income tax deduction equal to
the amount of ordinary income you recognize in connection with the appreciation
distribution. The deduction will, in general, be allowed for the taxable year of
the Corporation in which you recognize such ordinary income.
STOCK ISSUANCES
T22. WILL THE ISSUANCE OF VESTED SHARES RESULT IN FEDERAL INCOME TAX
LIABILITY TO ME?
Yes. Upon the issuance of vested shares, you will recognize ordinary
income in an amount equal to the excess of (i) the then fair market value of the
issued shares over (ii) the purchase price (if any) paid for such shares.
T23. WILL THE ISSUANCE OF UNVESTED SHARES RESULT IN FEDERAL INCOME TAX
LIABILITY TO ME?
If you are issued unvested shares of Common Stock subject to the
Corporation's right to repurchase those shares at the issue price per share upon
your cessation of service and you do not make a Section 83(b) election at the
time of such issuance, then you will not recognize any taxable income with
respect to those unvested shares at the time of acquisition. However, you will
subsequently recognize ordinary income, as and when the Corporation's repurchase
right lapses with respect to the shares, in an amount equal to the excess of (i)
the fair market value of the shares on the date those shares vest over (ii) the
purchase price (if any) paid for the shares.
You may elect under Code Section 83(b) to recognize income at the time
the unvested shares are issued to you (see discussion of Section 83(b) election
below). If such election is made, you will not recognize any additional income
with respect to your unvested shares until such shares are sold or otherwise
transferred in a taxable transaction.
T24. WHAT IS THE EFFECT OF MAKING A SECTION 83(b) ELECTION?
If you are issued shares subject to the Corporation's repurchase
right, you may elect under Code Section 83(b) to include as ordinary income in
the year of issuance an amount equal to the excess of (i) the fair market value
of the issued shares on the issue date over (ii) the purchase price (if any)
paid for the shares. The fair market value of the issued shares will be
determined as if the shares were not subject to the Corporation's repurchase
right. If you make the Section 83(b) election, you will not recognize any
additional income when the Corporation's repurchase right subsequently lapses
with respect to the shares.
The Section 83(b) election must be filed with the Internal Revenue
Service within thirty (30) days following the date the shares are issued, and
any ordinary income resulting from such election will be subject to applicable
tax withholding requirements.
T25. WILL I RECOGNIZE ADDITIONAL INCOME WHEN I SELL SHARES ACQUIRED UNDER
THE STOCK ISSUANCE PROGRAM?
Yes. You will recognize a capital gain to the extent the amount
realized upon the sale of such shares exceeds their fair market value at the
time you recognized the ordinary income with respect to their issuance. A
capital loss will result to the extent the amount realized upon such sale is
less than such fair market value. (Please see Question T27 for the tax rates
applicable to capital gain.)
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The gain or loss will be long-term if the shares are held for more
than one (1) year prior to the sale. The capital gain holding period for
unvested shares issued under the Stock Issuance Program will start either (i) at
the time the Corporation's repurchase right with respect to the shares lapses,
if no Section 83(b) election is filed at the time of issuance, or (ii) at the
time of issuance if you file the Section 83(b) election within thirty (30) days
after the issue date.
T26. WHAT ARE THE FEDERAL TAX CONSEQUENCES TO THE CORPORATION?
The Corporation will be entitled to an income tax deduction equal to
the amount of ordinary income you recognize in connection with the acquisition
of Common Stock under the Stock Issuance Program. The deduction will normally be
allowed for the taxable year in which such issuance occurs. However, in the
absence of your Section 83(b) election, the deduction for share issuances
subject to the Corporation's repurchase right will not be allowed until the
taxable year of the Corporation which includes the last day of the calendar year
in which you recognize ordinary income with respect to the issued shares.
FEDERAL TAX RATES
T27. WHAT ARE THE APPLICABLE FEDERAL TAX RATES?
REGULAR TAX RATES. Effective for the 2000 calendar year, ordinary
income in excess of $288,350 ($144,175 for a married taxpayer filing a separate
return) will be subject to the maximum federal income tax rate of 39.6%. The
applicable $288,350 or $144,175 threshold is subject to cost-of-living
adjustments in taxable years beginning after December 31, 2000. Certain
limitations are imposed upon a taxpayer's itemized deductions, and the personal
exemptions claimed by the taxpayer are subject to phase-out. These limitations
may result in the taxation of ordinary income at an effective top marginal rate
in excess of 39.6%.
CAPITAL GAIN TAX RATES. Short-term capital gains are subject to the
same tax rates as ordinary income. Long-term capital gain is subject to a
maximum federal income tax rate of 20%, provided the capital asset is held for
more than one (1) year prior to sale or other taxable disposition.
Beginning in 2001, capital gain recognized on the sale or disposition
of capital assets held for more than five (5) years by individuals not subject
to the 28% tax rate on their ordinary income will be subject to tax at a rate of
8%.
Beginning in 2006, capital gain recognized on the sale or disposition
of capital assets held for more than five (5) years by individuals subject to
the 28% tax rate on their ordinary income will be taxed at a rate of 18%,
provided the holding period for such property begins after December 31, 2000.
However, any capital gain recognized on the sale or disposition of shares of the
Corporation's common stock acquired pursuant to options granted under the
Discretionary Option Grant or Salary Investment Option Grant Program will not be
eligible for the 18% tax rate unless those options are granted after December
31, 2000.
ITEMIZED DEDUCTIONS. For the tax year ending December 31, 2000,
itemized deductions are reduced by 3% of the amount by which the taxpayer's
adjusted gross income for the year exceeds $128,950 ($64,475 for a married
taxpayer filing a separate return). However, the reduction may not exceed 80% of
the total itemized deductions (excluding medical expenses, casualty and theft
losses, and certain investment interest expense) claimed by the taxpayer. The
applicable $128,950 or $64,475 threshold is subject to cost-of-living
adjustments in taxable years beginning after December 31, 2000.
PERSONAL EXEMPTIONS. In addition, the deduction for personal
exemptions claimed by the taxpayer is reduced by 2% for each $2,500 ($1,250 for
a married taxpayer filing a separate return) or fraction thereof by which the
taxpayer's adjusted gross income for the year exceeds a specified threshold
amount. The applicable thresholds for 2000 are $193,400 for married taxpayers
filing joint returns (and in certain instances, surviving
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spouses), $161,150 for heads of households, $128,950 for single taxpayers and
$96,700 for married taxpayers filing separate returns. Accordingly, the
deduction is completely eliminated for any taxpayer whose adjusted gross income
for the year exceeds the applicable threshold amount by more than $122,500. The
threshold amounts will be subject to cost-of-living adjustments in taxable years
beginning after December 31, 2000.
ALTERNATIVE MINIMUM TAX
T28. WHAT IS THE ALTERNATIVE MINIMUM TAX?
The alternative minimum tax is an alternative method of calculating
the income tax you must pay each year in order to assure that a minimum amount
of tax is paid for the year. The first $175,000 ($87,500 for a married taxpayer
filing a separate return) of your alternative minimum taxable income for the
year over the allowable exemption amount is subject to alternative minimum
taxation at the rate of 26%. The balance of your alternative minimum taxable
income is subject to alternative minimum taxation at the rate of 28%. However,
the portion of your alternative minimum taxable income attributable to capital
gain recognized upon the sale or disposition of capital assets held for more
than one (1) year will be subject to a reduced alternative minimum tax rate of
20% (10% for individuals not subject to the regular 28% tax rate on their
ordinary income). Beginning in 2001, the alternative minimum tax rate applicable
to capital gain recognized upon the sale or disposition of capital assets held
for more than five (5) years will be equal to the capital gain tax rate in
effect for such gain for regular tax purposes (see Question T27 above). The
alternative minimum tax will, however, be payable only to the extent that it
exceeds your regular federal income tax for the year (computed without regard to
certain credits and special taxes).
T29. WHAT IS THE ALLOWABLE EXEMPTION AMOUNT?
The allowable exemption amount is $45,000 for a married taxpayer
filing a joint return, $33,750 for an unmarried taxpayer and $22,500 for a
married taxpayer filing a separate return. The allowable exemption amount is,
however, to be reduced by $0.25 for each $1.00 by which the individual's
alternative minimum taxable income for the year exceeds $150,000 for a married
taxpayer filing a joint return, $112,500 for an unmarried taxpayer, and $75,000
for a married taxpayer filing a separate return.
T30. HOW IS THE ALTERNATIVE MINIMUM TAXABLE INCOME CALCULATED?
Your alternative minimum taxable income is based upon your regular
taxable income for the year, adjusted to (i) include certain additional items of
income and tax preference and (ii) disallow or limit certain deductions
otherwise allowable for regular tax purposes. The spread on the shares purchased
under an Incentive Option (the excess of the fair market value of the purchased
shares at the time of exercise over the aggregate exercise price paid for those
shares) will be included in your alternative minimum taxable income at the time
of exercise, whether or not the shares are subsequently made the subject of a
disqualifying disposition.
T31. WHEN IS THE SPREAD ON SHARES ACQUIRED UNDER AN INCENTIVE OPTION THAT
ARE SUBJECT TO A SUBSTANTIAL RISK OF FORFEITURE INCLUDIBLE IN
ALTERNATIVE MINIMUM TAXABLE INCOME?
Should the shares purchased under an Incentive Option be subject to a
substantial risk of forfeiture (such as the Corporation's repurchase rights
applicable to unvested shares), then the optionee's alternative minimum taxable
income attributable to the exercised Incentive Option will be measured at the
time the risk of forfeiture lapses and will be equal to the excess of the fair
market value of the shares at that time over the aggregate exercise price paid
for the shares. Alternatively, the optionee may file a Section 83(b) election
within thirty (30) days after the exercise of the Incentive Option in order to
limit the amount of such alternative minimum taxable income to the spread
between the fair market value of the purchased shares at the time of exercise
and the aggregate exercise price paid for those shares.
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T32. HOW WILL THE PAYMENT OF ALTERNATIVE MINIMUM TAXES IN ONE YEAR AFFECT
THE CALCULATION OF MY TAX LIABILITY IN A LATER YEAR?
If alternative minimum taxes are paid for one or more taxable years, a
portion of those taxes (subject to certain adjustments and reductions) will be
applied as a partial credit against your regular tax liability (but not
alternative minimum tax liability) for subsequent taxable years. In addition,
the sale or other disposition of the purchased shares, whether in the year of
exercise or in any subsequent taxable year, your basis for computing the gain
for purposes of alternative minimum taxable income (but not regular taxable
income) will include the amount of the Incentive Option spread previously
included in your alternative minimum taxable income.
CORPORATION INFORMATION AND ANNUAL PLAN INFORMATION
Websense, Inc. is a Delaware corporation which maintains its principal
executive offices at 3420 Ocean Park Boulevard, Suite 1040, Santa Monica,
California 94045. The telephone number at the executive offices is (310)
581-7200. You may contact the Corporation at this address or telephone number
for further information concerning the Plan and its administration.
A copy of the Corporation's Annual Report to Stockholders for each
fiscal year will be furnished to each participant in the Plan, and additional
copies will be furnished without charge to each participant upon written or oral
request to the Corporate Secretary of the Corporation at its principal executive
office or upon telephoning the Corporation at its principal executive office. In
addition, any person receiving a copy of this Prospectus may obtain without
charge, upon written or oral request to the Corporate Secretary, a copy of any
of the documents listed below, which are hereby incorporated by reference into
this Prospectus, other than certain exhibits to such documents.
(a) The Corporation's Registration Statement No. 333-77025 on Form S-1
filed with the SEC on April 26, 1999, together with the amendments
filed thereto on Form S-1/A on May 13, 1999, June 7, 1999, June 14,
1999, June 22, 1999 and June 24, 1999, respectively.
(b) The Corporation's Prospectus filed with the SEC on June 25, 1999
pursuant to Rule 424(b) of the Securities Act of 1933, as amended, in
connection with the Corporation's Registration Statement No.
333-77025, in which there is set forth the audited financial
statements for the Corporation's fiscal year ended December 31, 1998.
(c) The Corporation's Registration Statement on Form 8-A12G filed with the
SEC on June 17, 1999, in which are described the terms, rights and
provisions applicable to the Corporation's outstanding Common Stock.
The Corporation will also deliver to each participant in the Plan who
does not otherwise receive such materials a copy of all reports, proxy
statements and other communications distributed to the Corporation's
stockholders.
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EXHIBIT 10.12
WEBSENSE, INC.
STOCK OPTION AGREEMENT
RECITALS
A. The Board has adopted the Plan for the purpose of retaining the services
of selected Employees, non-employee members of the Board (or the board of
directors of any Parent or Subsidiary) and consultants and other independent
advisors who provide services to the Corporation (or any Parent or Subsidiary).
B. Optionee is to render valuable services to the Corporation (or a Parent
or Subsidiary), and this Agreement is executed pursuant to, and is intended to
carry out the purposes of, the Plan in connection with the Corporation's grant
of an option to Optionee.
C. All capitalized terms in this Agreement shall have the meaning assigned
to them in the attached Appendix.
NOW, THEREFORE, it is hereby agreed as follows:
1. GRANT OF OPTION. The Corporation hereby grants to Optionee, as of
the Grant Date, an option to purchase up to the number of Option Shares
specified in the Grant Notice. The Option Shares shall be purchasable from time
to time during the option term specified in Paragraph 2 at the Exercise Price.
2. OPTION TERM. This option shall have a maximum term of ten (10)
years measured from the Grant Date and shall accordingly expire at the close of
business on the Expiration Date, unless sooner terminated in accordance with
Paragraph 5 or 6.
3. LIMITED TRANSFERABILITY.
(a) This option shall be neither transferable nor assignable by
Optionee other than by will or the laws of inheritance following Optionee's
death and may be exercised, during Optionee's lifetime, only by Optionee.
However, Optionee may designate one or more persons as the beneficiary or
beneficiaries of this option, and this option shall, in accordance with such
designation, automatically be transferred to such beneficiary or beneficiaries
upon the Optionee's death while holding this option. Such beneficiary or
beneficiaries shall take the transferred option subject to all the terms and
conditions of this Agreement, including (without limitation) the limited time
period during which this option may, pursuant to Paragraph 5, be exercised
following Optionee's death.
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(b) If this option is designated a Non-Statutory Option in the
Grant Notice, then this option may be assigned in whole or in part during
Optionee's lifetime to one or more members of Optionee's family or to a trust
established for the exclusive benefit of one or more such family members or to
Optionee's former spouse, to the extent such assignment is in connection with
the Optionee's estate plan or pursuant to a domestic relations order. The
assigned portion shall be exercisable only by the person or persons who acquire
a proprietary interest in the option pursuant to such assignment. The terms
applicable to the assigned portion shall be the same as those in effect for this
option immediately prior to such assignment.
4. DATES OF EXERCISE. This option shall become exercisable for the
Option Shares in one or more installments as specified in the Grant Notice. As
the option becomes exercisable for such installments, those installments shall
accumulate, and the option shall remain exercisable for the accumulated
installments until the Expiration Date or sooner termination of the option term
under Paragraph 5 or 6.
5. CESSATION OF SERVICE. The option term specified in Paragraph 2
shall terminate (and this option shall cease to be outstanding) prior to the
Expiration Date should any of the following provisions become applicable:
(a) Should Optionee cease to remain in Service for any reason
(other than death, Permanent Disability or Misconduct) while holding this
option, then Optionee shall have a period of three (3) months (commencing with
the date of such cessation of Service) during which to exercise this option, but
in no event shall this option be exercisable at any time after the Expiration
Date.
(b) Should Optionee die while holding this option, then the
personal representative of Optionee's estate or the person or persons to whom
the option is transferred pursuant to Optionee's will or the laws of inheritance
shall have the right to exercise this option. However, if Optionee has
designated one or more beneficiaries of this option, then those persons shall
have the exclusive right to exercise this option following Optionee's death. Any
such right to exercise this option shall lapse, and this option shall cease to
be outstanding, upon the earlier of (i) the expiration of the twelve (12)-month
period measured from the date of Optionee's death or (ii) the Expiration Date.
(c) Should Optionee cease Service by reason of Permanent
Disability while holding this option, then Optionee shall have a period of
twelve (12) months (commencing with the date of such cessation of Service)
during which to exercise this option. In no event shall this option be
exercisable at any time after the Expiration Date.
(d) During the limited period of post-Service exercisability,
this option may not be exercised in the aggregate for more than the number of
Option Shares for which the option is exercisable at the time of Optionee's
cessation of Service. Upon the expiration of such limited exercise period or (if
earlier) upon the Expiration Date, this option shall terminate and
2
<PAGE> 3
cease to be outstanding for any exercisable Option Shares for which the option
has not been exercised. However, this option shall, immediately upon Optionee's
cessation of Service for any reason, terminate and cease to be outstanding with
respect to any Option Shares for which this option is not otherwise at that time
exercisable.
(e) Should Optionee's Service be terminated for Misconduct or
should Optionee otherwise engage in any Misconduct while this option is
outstanding, then this option shall terminate immediately and cease to remain
outstanding.
6. SPECIAL ACCELERATION OF OPTION.
(a) This option, to the extent outstanding at the time of a
Corporate Transaction but not otherwise fully exercisable, shall automatically
accelerate so that this option shall, immediately prior to the effective date of
such Corporate Transaction, become exercisable for all of the Option Shares at
the time subject to this option and may be exercised for any or all of those
Option Shares as fully vested shares of Common Stock. However, this option shall
NOT become exercisable on such an accelerated basis, if and to the extent: (i)
this option is, in connection with the Corporate Transaction, to be assumed by
the successor corporation (or parent thereof) or (ii) this option is to be
replaced with a cash incentive program of the successor corporation which
preserves the spread existing at the time of the Corporate Transaction on any
Option Shares for which this option is not otherwise at that time exercisable
(the excess of the Fair Market Value of those Option Shares over the aggregate
Exercise Price payable for such shares) and provides for subsequent payout in
accordance with the same option exercise/vesting schedule for those Option
Shares set forth in the Grant Notice.
(b) Immediately following the Corporate Transaction, this option
shall terminate and cease to be outstanding, except to the extent assumed by the
successor corporation (or parent thereof) in connection with the Corporate
Transaction.
(c) If this option is assumed in connection with a Corporate
Transaction, then this option shall be appropriately adjusted, immediately after
such Corporate Transaction, to apply to the number and class of securities which
would have been issuable to Optionee in consummation of such Corporate
Transaction had the option been exercised immediately prior to such Corporate
Transaction, and appropriate adjustments shall also be made to the Exercise
Price, provided the aggregate Exercise Price shall remain the same. To the
extent the actual holders of the Corporation's outstanding Common Stock receive
cash consideration for their Common Stock in consummation of the Corporate
Transaction, the successor corporation may, in connection with the assumption of
this option, substitute one or more shares of its own common stock with a fair
market value equivalent to the cash consideration paid per share of Common Stock
in such Corporate Transaction.
(d) This Agreement shall not in any way affect the right of the
Corporation to adjust, reclassify, reorganize or otherwise change its capital or
business structure or to merge, consolidate, dissolve, liquidate or sell or
transfer all or any part of its business or assets.
3
<PAGE> 4
7. ADJUSTMENT IN OPTION SHARES. Should any change be made to the
Common Stock by reason of any stock split, stock dividend, recapitalization,
combination of shares, exchange of shares or other change affecting the
outstanding Common Stock as a class without the Corporation's receipt of
consideration, appropriate adjustments shall be made to (i) the total number
and/or class of securities subject to this option and (ii) the Exercise Price in
order to reflect such change and thereby preclude a dilution or enlargement of
benefits hereunder.
8. STOCKHOLDER RIGHTS. The holder of this option shall not have any
stockholder rights with respect to the Option Shares until such person shall
have exercised the option, paid the Exercise Price and become a holder of record
of the purchased shares.
9. MANNER OF EXERCISING OPTION.
(a) In order to exercise this option with respect to all or any
part of the Option Shares for which this option is at the time exercisable,
Optionee (or any other person or persons exercising the option) must take the
following actions:
(i) Execute and deliver to the Corporation a Notice of
Exercise for the Option Shares for which the option is exercised.
(ii) Pay the aggregate Exercise Price for the purchased
shares in one or more of the following forms:
(A) cash or check made payable to the Corporation;
(B) a promissory note payable to the Corporation, but
only to the extent authorized by the Plan Administrator in
accordance with Paragraph 13;
(C) shares of Common Stock held by Optionee (or any
other person or persons exercising the option) for the
requisite period necessary to avoid a charge to the
Corporation's earnings for financial reporting purposes and
valued at Fair Market Value on the Exercise Date; or
(D) through a special sale and remittance procedure
pursuant to which Optionee (or any other person or persons
exercising the option) shall concurrently provide
irrevocable instructions (i) to a Corporation-designated
brokerage firm to effect the immediate sale of the purchased
shares and remit to the Corporation, out of the sale
proceeds available on the settlement date, sufficient funds
to cover the aggregate Exercise Price payable for the
purchased shares plus all
4
<PAGE> 5
applicable Federal, state and local income and employment
taxes required to be withheld by the Corporation by reason
of such exercise and (ii) to the Corporation to deliver the
certificates for the purchased shares directly to such
brokerage firm in order to complete the sale.
Except to the extent the sale and remittance procedure
is utilized in connection with the option exercise, payment
of the Exercise Price must accompany the Notice of Exercise
delivered to the Corporation in connection with the option
exercise.
(iii) Furnish to the Corporation appropriate documentation
that the person or persons exercising the option (if other than
Optionee) have the right to exercise this option.
(iv) Make appropriate arrangements with the Corporation (or
Parent or Subsidiary employing or retaining Optionee) for the
satisfaction of all Federal, state and local income and
employment tax withholding requirements applicable to the option
exercise.
(b) As soon as practical after the Exercise Date, the Corporation
shall issue to or on behalf of Optionee (or any other person or persons
exercising this option) a certificate for the purchased Option Shares, with the
appropriate legends affixed thereto.
(c) In no event may this option be exercised for any fractional
shares.
10. COMPLIANCE WITH LAWS AND REGULATIONS.
(a) The exercise of this option and the issuance of the Option Shares
upon such exercise shall be subject to compliance by the Corporation and
Optionee with all applicable requirements of law relating thereto and with all
applicable regulations of any stock exchange (or the Nasdaq National Market, if
applicable) on which the Common Stock may be listed for trading at the time of
such exercise and issuance.
(b) The inability of the Corporation to obtain approval from any
regulatory body having authority deemed by the Corporation to be necessary to
the lawful issuance and sale of any Common Stock pursuant to this option shall
relieve the Corporation of any liability with respect to the non-issuance or
sale of the Common Stock as to which such approval shall not have been obtained.
The Corporation, however, shall use its best efforts to obtain all such
approvals.
11. SUCCESSORS AND ASSIGNS. Except to the extent otherwise
provided in Paragraphs 3 and 6, the provisions of this Agreement shall inure to
the benefit of, and be binding upon, the Corporation and its successors and
assigns and Optionee, Optionee's assigns, the legal representatives, heirs and
legatees of Optionee's estate and any beneficiaries of this option designated by
Optionee.
5
<PAGE> 6
12. NOTICES. Any notice required to be given or delivered to the
Corporation under the terms of this Agreement shall be in writing and addressed
to the Corporation at its principal corporate offices. Any notice required to be
given or delivered to Optionee shall be in writing and addressed to Optionee at
the address indicated below Optionee's signature line on the Grant Notice. All
notices shall be deemed effective upon personal delivery or upon deposit in the
U.S. mail, postage prepaid and properly addressed to the party to be notified.
13. FINANCING. The Plan Administrator may, in its absolute discretion
and without any obligation to do so, permit Optionee to pay the Exercise Price
for the purchased Option Shares (to the extent such Exercise Price is in excess
of the par value of those shares) by delivering a full-recourse promissory note
payable to the Corporation. The terms of any such promissory note (including the
interest rate, the requirements for collateral and the terms of repayment) shall
be established by the Plan Administrator in its sole discretion.
14. CONSTRUCTION. This Agreement and the option evidenced hereby are
made and granted pursuant to the Plan and are in all respects limited by and
subject to the terms of the Plan. All decisions of the Plan Administrator with
respect to any question or issue arising under the Plan or this Agreement shall
be conclusive and binding on all persons having an interest in this option.
15. GOVERNING LAW. The interpretation, performance and enforcement of
this Agreement shall be governed by the laws of the State of California without
resort to that State's conflict-of-laws rules.
16. EXCESS SHARES. If the Option Shares covered by this Agreement
exceed, as of the Grant Date, the number of shares of Common Stock which may
without stockholder approval be issued under the Plan, then this option shall be
void with respect to those excess shares, unless stockholder approval of an
amendment sufficiently increasing the number of shares of Common Stock issuable
under the Plan is obtained in accordance with the provisions of the Plan.
17. ADDITIONAL TERMS APPLICABLE TO AN INCENTIVE OPTION. In the event
this option is designated an Incentive Option in the Grant Notice, the following
terms and conditions shall also apply to the grant:
(a) This option shall cease to qualify for favorable tax
treatment as an Incentive Option if (and to the extent) this option is exercised
for one or more Option Shares: (A) more than three (3) months after the date
Optionee ceases to be an Employee for any reason other than death or Permanent
Disability or (B) more than twelve (12) months after the date Optionee ceases to
be an Employee by reason of Permanent Disability.
(b) No installment under this option shall qualify for favorable
tax treatment as an Incentive Option if (and to the extent) the aggregate Fair
Market Value (determined at the Grant Date) of the Common Stock for which such
installment first becomes exercisable hereunder would, when added to the
aggregate value (determined as of the respective date or dates of grant) of the
Common Stock or other securities for which this option or any other
6
<PAGE> 7
Incentive Options granted to Optionee prior to the Grant Date (whether under the
Plan or any other option plan of the Corporation or any Parent or Subsidiary)
first become exercisable during the same calendar year, exceed One Hundred
Thousand Dollars ($100,000) in the aggregate. Should such One Hundred Thousand
Dollar ($100,000) limitation be exceeded in any calendar year, this option shall
nevertheless become exercisable for the excess shares in such calendar year as a
Non-Statutory Option.
(c) Should the exercisability of this option be accelerated upon
a Corporate Transaction, then this option shall qualify for favorable tax
treatment as an Incentive Option only to the extent the aggregate Fair Market
Value (determined at the Grant Date) of the Common Stock for which this option
first becomes exercisable in the calendar year in which the Corporate
Transaction occurs does not, when added to the aggregate value (determined as of
the respective date or dates of grant) of the Common Stock or other securities
for which this option or one or more other Incentive Options granted to Optionee
prior to the Grant Date (whether under the Plan or any other option plan of the
Corporation or any Parent or Subsidiary) first become exercisable during the
same calendar year, exceed One Hundred Thousand Dollars ($100,000) in the
aggregate. Should the applicable One Hundred Thousand Dollar ($100,000)
limitation be exceeded in the calendar year of such Corporate Transaction, the
option may nevertheless be exercised for the excess shares in such calendar year
as a Non-Statutory Option.
(d) Should Optionee hold, in addition to this option, one or more
other options to purchase Common Stock which become exercisable for the first
time in the same calendar year as this option, then the foregoing limitations on
the exercisability of such options as Incentive Options shall be applied on the
basis of the order in which such options are granted.
7
<PAGE> 8
EXHIBIT I
NOTICE OF EXERCISE
I hereby notify Websense, Inc. (the "Corporation") that I elect to
purchase ______________ shares of the Corporation's Common Stock (the "Purchased
Shares") at the option exercise price of $ per share (the "Exercise Price")
pursuant to that certain option (the "Option") granted to me under the
Corporation's 2000 Stock Incentive Plan on , _______.
Concurrently with the delivery of this Exercise Notice to the
Corporation, I shall hereby pay to the Corporation the Exercise Price for the
Purchased Shares in accordance with the provisions of my agreement with the
Corporation (or other documents) evidencing the Option and shall deliver
whatever additional documents may be required by such agreement as a condition
for exercise. Alternatively, I may utilize the special broker-dealer sale and
remittance procedure specified in my agreement to effect payment of the Exercise
Price.
- --------------------, -------
Date
----------------------------------------
Optionee
----------------------------------------
Address:
----------------------------------------
Print name in exact manner it is to
appear on the stock certificate:
----------------------------------------
Address to which certificate is to
be sent, if different from address
above:
----------------------------------------
----------------------------------------
Social Security Number:
----------------------------------------
<PAGE> 9
APPENDIX
The following definitions shall be in effect under the Agreement:
A. AGREEMENT shall mean this Stock Option Agreement.
B. BOARD shall mean the Corporation's Board of Directors.
C. COMMON STOCK shall mean shares of the Corporation's common stock.
D. CODE shall mean the Internal Revenue Code of 1986, as amended.
E. CORPORATE TRANSACTION shall mean either of the following
stockholder-approved transactions to which the Corporation is a party:
(i) a merger or consolidation in which securities possessing more than
fifty percent (50%) of the total combined voting power of the Corporation's
outstanding securities are transferred to a person or persons different
from the persons holding those securities immediately prior to such
transaction, or
(ii) the sale, transfer or other disposition of all or substantially
all of the Corporation's assets in complete liquidation or dissolution of
the Corporation.
F. CORPORATION shall mean Websense, Inc., a Delaware corporation, and any
successor corporation to all or substantially all of the assets or voting stock
of Websense, Inc. which shall by appropriate action adopt the Plan.
G. EMPLOYEE shall mean an individual who is in the employ of the
Corporation (or any Parent or Subsidiary), subject to the control and direction
of the employer entity as to both the work to be performed and the manner and
method of performance.
H. EXERCISE DATE shall mean the date on which the option shall have been
exercised in accordance with Paragraph 9 of the Agreement.
I. EXERCISE PRICE shall mean the exercise price per Option Share as
specified in the Grant Notice.
J. EXPIRATION DATE shall mean the date on which the option expires as
specified in the Grant Notice.
A-1
<PAGE> 10
K. FAIR MARKET VALUE per share of Common Stock on any relevant date shall
be determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on the Nasdaq National
Market, then the Fair Market Value shall be deemed equal to the closing
selling price per share of Common Stock on the date in question, as the
price is reported by the National Association of Securities Dealers on the
Nasdaq National Market and published in The Wall Street Journal. If there
is no closing selling price for the Common Stock on the date in question,
then the Fair Market Value shall be the closing selling price on the last
preceding date for which such quotation exists, or
(ii) If the Common Stock is at the time listed on any Stock Exchange,
then the Fair Market Value shall be deemed equal to the closing selling
price per share of Common Stock on the date in question on the Stock
Exchange determined by the Plan Administrator to be the primary market for
the Common Stock, as such price is officially quoted in the composite tape
of transactions on such exchange and published in The Wall Street Journal.
If there is no closing selling price for the Common Stock on the date in
question, then the Fair Market Value shall be the closing selling price on
the last preceding date for which such quotation exists.
L. GRANT DATE shall mean the date of grant of the option as specified in
the Grant Notice.
M. GRANT NOTICE shall mean the Notice of Grant of Stock Option
accompanying the Agreement, pursuant to which Optionee has been informed of the
basic terms of the option evidenced hereby.
N. INCENTIVE OPTION shall mean an option which satisfies the requirements
of Code Section 422.
O. MISCONDUCT shall mean the commission of any act of fraud, embezzlement
or dishonesty by Optionee, any unauthorized use or disclosure by Optionee of
confidential information or trade secrets of the Corporation (or any Parent or
Subsidiary), or any other intentional misconduct by Optionee adversely affecting
the business or affairs of the Corporation (or any Parent or Subsidiary) in a
material manner. The foregoing definition shall not be deemed to be inclusive of
all the acts or omissions which the Corporation (or any Parent or Subsidiary)
may consider as grounds for the dismissal or discharge of Optionee or any other
individual in the Service of the Corporation (or any Parent or Subsidiary).
P. NON-STATUTORY OPTION shall mean an option not intended to satisfy the
requirements of Code Section 422.
Q. NOTICE OF EXERCISE shall mean the notice of exercise in the form
attached hereto as Exhibit I.
A-2
<PAGE> 11
R. OPTION SHARES shall mean the number of shares of Common Stock subject
to the option as specified in the Grant Notice.
S. OPTIONEE shall mean the person to whom the option is granted as
specified in the Grant Notice.
T. PARENT shall mean any corporation (other than the Corporation) in an
unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the time
of the determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
U. PERMANENT DISABILITY shall mean the inability of Optionee to engage in
any substantial gainful activity by reason of any medically determinable
physical or mental impairment which is expected to result in death or has lasted
or can be expected to last for a continuous period of twelve (12) months or
more.
V. PLAN shall mean the Corporation's 2000 Stock Incentive Plan.
W. PLAN ADMINISTRATOR shall mean either the Board or a committee of the
Board acting in its capacity as administrator of the Plan.
X. SERVICE shall mean the Optionee's performance of services for the
Corporation (or any Parent or Subsidiary) in the capacity of an Employee, a
non-employee member of the board of directors or a consultant or independent
advisor.
Y. STOCK EXCHANGE shall mean the American Stock Exchange or the New York
Stock Exchange.
Z. SUBSIDIARY shall mean any corporation (other than the Corporation) in
an unbroken chain of corporations beginning with the Corporation, provided each
corporation (other than the last corporation) in the unbroken chain owns, at the
time of the determination, stock possessing fifty percent (50%) or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.
A-3
<PAGE> 1
EXHIBIT 10.13
WEBSENSE, INC.
2000 EMPLOYEE STOCK PURCHASE PLAN
I. PURPOSE OF THE PLAN
This Employee Stock Purchase Plan is intended to promote the interests
of Websense, Inc., a Delaware corporation, by providing eligible employees with
the opportunity to acquire a proprietary interest in the Corporation through
participation in a payroll deduction-based employee stock purchase plan designed
to qualify under Section 423 of the Code.
Capitalized terms herein shall have the meanings assigned to such
terms in the attached Appendix.
II. ADMINISTRATION OF THE PLAN
The Plan Administrator shall have full authority to interpret and
construe any provision of the Plan and to adopt such rules and regulations for
administering the Plan as it may deem necessary in order to comply with the
requirements of Code Section 423. Decisions of the Plan Administrator shall be
final and binding on all parties having an interest in the Plan.
III. STOCK SUBJECT TO PLAN
A. The stock purchasable under the Plan shall be shares of authorized
but unissued or reacquired Common Stock, including shares of Common Stock
purchased on the open market. The number of shares of Common Stock initially
reserved for issuance over the term of the Plan shall be limited to 250,000
shares.
B. The number of shares of Common Stock available for issuance under
the Plan shall automatically increase on the first trading day of January each
calendar year during the term of the Plan, beginning with calendar year 2001, by
an amount equal to one percent (1%) of the total number of shares of Common
Stock outstanding on the last trading day in December of the immediately
preceding calendar year, but in no event shall any such annual increase exceed
375,000 shares.
C. Should any change be made to the Common Stock by reason of any
stock split, stock dividend, recapitalization, combination of shares, exchange
of shares or other change affecting the outstanding Common Stock as a class
without the Corporation's receipt of consideration, appropriate adjustments
shall be made to (i) the maximum number and class of securities issuable under
the Plan, (ii) the maximum number and class of securities purchasable per
Participant on any one Purchase Date, (iii) the maximum number and class of
securities purchasable in total by all Participants on any one Purchase Date,
(iv) the maximum number
<PAGE> 2
and/or class of securities by which the share reserve is to increase
automatically each calendar year pursuant to the provisions of Section III.B of
this Article One and (v) the number and class of securities and the price per
share in effect under each outstanding purchase right in order to prevent the
dilution or enlargement of benefits thereunder.
IV. OFFERING PERIODS
A. Shares of Common Stock shall be offered for purchase under the Plan
through a series of overlapping offering periods until such time as (i) the
maximum number of shares of Common Stock available for issuance under the Plan
shall have been purchased or (ii) the Plan shall have been sooner terminated.
B. Each offering period shall be of such duration (not to exceed
twenty-four (24) months) as determined by the Plan Administrator prior to the
start date of such offering period. Offering periods shall commence at
semi-annual intervals on the first business day of May and November each year
over the term of the Plan. Accordingly, two (2) separate offering periods shall
commence in each calendar year the Plan remains in existence. However, the
initial offering period shall commence at the Effective Time and terminate on
the last business day in April 2002.
C. Each offering period shall consist of a series of one or more
successive Purchase Intervals. Purchase Intervals shall run from the first
business day in May to the last business day in October each year and from the
first business day in November each year to the last business day in April in
the following year. However, the first Purchase Interval in effect under the
initial offering period shall commence at the Effective Time and terminate on
the last business day in October 2000.
D. Should the Fair Market Value per share of Common Stock on any
Purchase Date within an offering period be less than the Fair Market Value per
share of Common Stock on the start date of that offering period, then that
offering period shall automatically terminate immediately after the purchase of
shares of Common Stock on such Purchase Date, and a new offering period shall
commence on the next business day following such Purchase Date. The new offering
period shall have a duration of twenty (24) months, unless a shorter duration is
established by the Plan Administrator within five (5) business days following
the start date of that offering period. All individuals participating in the
terminated offering period shall automatically be transferred to the new
offering period.
V. ELIGIBILITY
A. Each individual who is an Eligible Employee on the start date of
any offering period under the Plan may enter that offering period on such start
date. However, an Eligible Employee may participate in only one offering period
at a time.
2.
<PAGE> 3
B. To participate in the Plan for a particular offering period, the
Eligible Employee must complete the enrollment forms prescribed by the Plan
Administrator (including a stock purchase agreement and a payroll deduction
authorization) and file such forms with the Plan Administrator (or its
designate) on or before the start date of that offering period.
VI. PAYROLL DEDUCTIONS
A. The payroll deduction authorized by the Participant for purposes of
acquiring shares of Common Stock during an offering period may be any multiple
of one percent (1%) of the Cash Earnings paid to the Participant during each
Purchase Interval within that offering period, up to a maximum of fifteen
percent (15%). The deduction rate so authorized shall continue in effect
throughout the offering period, except to the extent such rate is changed in
accordance with the following guidelines:
(i) The Participant may, at any time during the offering period,
reduce his or her rate of payroll deduction to become effective as
soon as possible after filing the appropriate form with the Plan
Administrator. The Participant may not, however, effect more than one
(1) such reduction per Purchase Interval.
(ii) The Participant may, prior to the commencement of any new
Purchase Interval within the offering period, increase the rate of his
or her payroll deduction by filing the appropriate form with the Plan
Administrator. The new rate (which may not exceed the fifteen percent
(15%) maximum) shall become effective on the start date of the first
Purchase Interval following the filing of such form.
B. Payroll deductions shall begin on the first pay day
administratively feasible following the start of the offering period in which
the Participant in enrolled and shall (unless sooner terminated by the
Participant) continue through the pay day ending with or immediately prior to
the last day of that offering period. The amounts so collected shall be credited
to the Participant's book account under the Plan, but no interest shall be paid
on the balance from time to time outstanding in such account. The amounts
collected from the Participant shall not be required to be held in any
segregated account or trust fund and may be commingled with the general assets
of the Corporation and used for general corporate purposes.
C. Payroll deductions shall automatically cease upon the termination
of the Participant's purchase right in accordance with the provisions of the
Plan.
D. The Participant's acquisition of Common Stock under the Plan on any
Purchase Date shall neither limit nor require the Participant's acquisition of
Common Stock on any subsequent Purchase Date, whether within the same or a
different offering period.
3.
<PAGE> 4
VII. PURCHASE RIGHTS
A. GRANT OF PURCHASE RIGHTS. A Participant shall be granted a separate
purchase right for each offering period in which he or she participates. The
purchase right shall be granted on the start date of the offering period and
shall provide the Participant with the right to purchase shares of Common Stock,
in a series of successive installments during that offering period, upon the
terms set forth below. The Participant shall execute a stock purchase agreement
embodying such terms and such other provisions (not inconsistent with the Plan)
as the Plan Administrator may deem advisable.
Under no circumstances shall purchase rights be granted under the Plan
to any Eligible Employee if such individual would, immediately after the grant,
own (within the meaning of Code Section 424(d)) or hold outstanding options or
other rights to purchase, stock possessing five percent (5%) or more of the
total combined voting power or value of all classes of stock of the Corporation
or any Corporate Affiliate.
B. EXERCISE OF THE PURCHASE RIGHT. Each purchase right shall be
automatically exercised in installments on each successive Purchase Date within
the offering period, and shares of Common Stock shall accordingly be purchased
on behalf of each Participant on each such Purchase Date. The purchase shall be
effected by applying the Participant's payroll deductions for the Purchase
Interval ending on such Purchase Date to the purchase of whole shares of Common
Stock at the purchase price in effect for the Participant for that Purchase
Date.
C. PURCHASE PRICE. The purchase price per share at which Common Stock
will be purchased on the Participant's behalf on each Purchase Date within the
particular offering period in which he or she is participating shall be equal to
eighty-five percent (85%) of the lower of (i) the Fair Market Value per share of
Common Stock on the start date of that offering period or (ii) the Fair Market
Value per share of Common Stock on that Purchase Date.
D. NUMBER OF PURCHASABLE SHARES. The number of shares of Common Stock
purchasable by a Participant on each Purchase Date during the offering period
shall be the number of whole shares obtained by dividing the amount collected
from the Participant through payroll deductions during the Purchase Interval
ending with that Purchase Date by the purchase price in effect for the
Participant for that Purchase Date. However, the maximum number of shares of
Common Stock purchasable per Participant on any one Purchase Date shall not
exceed 1,250 shares, subject to periodic adjustments in the event of certain
changes in the Corporation's capitalization. In addition, the maximum number of
shares of Common Stock purchasable in total by all Participants in the Plan on
any one Purchase Date shall not exceed 150,000 shares, subject to periodic
adjustments in the event of certain changes in the Corporation's capitalization.
However, the Plan Administrator shall have the discretionary authority,
exercisable prior to the start of any offering period under the Plan, to
increase or decrease the limitations to be in effect for the number of shares
purchasable per Participant and in total by all Participants in that particular
offering period on each Purchase Date which occurs during that offering period.
4.
<PAGE> 5
E. EXCESS PAYROLL DEDUCTIONS. Any payroll deductions not applied to
the purchase of shares of Common Stock on any Purchase Date because they are not
sufficient to purchase a whole share of Common Stock shall be held for the
purchase of Common Stock on the next Purchase Date. However, any payroll
deductions not applied to the purchase of Common Stock by reason of the
limitation on the maximum number of shares purchasable per Participant or in
total by all Participants on the Purchase Date shall be promptly refunded.
F. TERMINATION OF PURCHASE RIGHT. The following provisions shall
govern the termination of outstanding purchase rights:
(i) A Participant may, at any time prior to the next scheduled
Purchase Date in the offering period, terminate his or her outstanding
purchase right by filing the appropriate form with the Plan
Administrator (or its designate), and no further payroll deductions
shall be collected from the Participant with respect to the terminated
purchase right. Any payroll deductions collected during the Purchase
Interval in which such termination occurs shall, at the Participant's
election, be immediately refunded or held for the purchase of shares
on the next Purchase Date. If no such election is made at the time
such purchase right is terminated, then the payroll deductions
collected with respect to the terminated right shall be refunded as
soon as possible.
(ii) The termination of such purchase right shall be irrevocable,
and the Participant may not subsequently rejoin the offering period
for which the terminated purchase right was granted. In order to
resume participation in any subsequent offering period, such
individual must re-enroll in the Plan (by making a timely filing of
the prescribed enrollment forms) on or before the start date of that
offering period.
(iii) Should the Participant cease to remain an Eligible Employee
for any reason (including death, disability or change in status) while
his or her purchase right remains outstanding, then that purchase
right shall immediately terminate, and all of the Participant's
payroll deductions for the Purchase Interval in which the purchase
right so terminates shall be immediately refunded. However, should the
Participant cease to remain in active service by reason of an approved
unpaid leave of absence, then the Participant shall have the right,
exercisable up until the last business day of the Purchase Interval in
which such leave commences, to (a) withdraw all the payroll deductions
collected to date on his or her behalf for that Purchase Interval or
(b) have such funds held for the purchase of shares on his or her
behalf on the next scheduled Purchase Date. In no event, however,
shall any further payroll deductions be collected on the Participant's
behalf during such leave. Upon the Participant's return to active
service (x) within ninety (90) days following the commencement of such
leave or (y) prior to the expiration of any longer period for which
such Participant's right to reemployment with the Corporation is
guaranteed by statute or contract, his or her payroll deductions under
the Plan shall automatically resume at the rate in
5.
<PAGE> 6
effect at the time the leave began, unless the Participant withdraws
from the Plan prior to his or her return. An individual who returns to
active employment following a leave of absence that exceeds in
duration the applicable (x) or (y) time period will be treated as a
new Employee for purposes of subsequent participation in the Plan and
must accordingly re-enroll in the Plan (by making a timely filing of
the prescribed enrollment forms) on or before the start date of any
subsequent offering period in which he or she wishes to participate.
G. CHANGE IN CONTROL. Each outstanding purchase right shall
automatically be exercised, immediately prior to the effective date of any
Change in Control, by applying the payroll deductions of each Participant for
the Purchase Interval in which such Change in Control occurs to the purchase of
whole shares of Common Stock at a purchase price per share equal to eighty-five
percent (85%) of the lower of (i) the Fair Market Value per share of Common
Stock on the start date of the offering period in which the Participant is
enrolled at the time of such Change in Control (ii) the Fair Market Value per
share of Common Stock immediately prior to the effective date of such Change in
Control. However, the applicable limitation on the number of shares of Common
Stock purchasable per Participant shall continue to apply to any such purchase,
but not the limitation applicable to the maximum number of shares of Common
Stock purchasable in total by all Participants in the Plan on any one Purchase
Date.
The Corporation shall use its best efforts to provide at least ten
(10) days' prior written notice of the occurrence of any Change in Control, and
Participants shall, following the receipt of such notice, have the right to
terminate their outstanding purchase rights prior to the effective date of the
Change in Control.
H. PRORATION OF PURCHASE RIGHTS. Should the total number of shares of
Common Stock to be purchased pursuant to outstanding purchase rights on any
particular date exceed the number of shares then available for issuance under
the Plan, the Plan Administrator shall make a pro-rata allocation of the
available shares on a uniform and nondiscriminatory basis, and the payroll
deductions of each Participant, to the extent in excess of the aggregate
purchase price payable for the Common Stock pro-rated to such individual, shall
be refunded.
I. ASSIGNABILITY. The purchase right shall be exercisable only by the
Participant and shall not be assignable or transferable by the Participant.
J. STOCKHOLDER RIGHTS. A Participant shall have no stockholder rights
with respect to the shares subject to his or her outstanding purchase right
until the shares are purchased on the Participant's behalf in accordance with
the provisions of the Plan and the Participant has become a holder of record of
the purchased shares.
VIII. ACCRUAL LIMITATIONS
A. No Participant shall be entitled to accrue rights to acquire Common
Stock pursuant to any purchase right outstanding under this Plan if and to the
extent such accrual, when aggregated with (i) rights to purchase Common Stock
accrued under any other purchase right granted under this Plan and (ii) similar
rights accrued under other employee stock purchase plans
6.
<PAGE> 7
(within the meaning of Code Section 423)) of the Corporation or any Corporate
Affiliate, would otherwise permit such Participant to purchase more than
Twenty-Five Thousand Dollars ($25,000.00) worth of stock of the Corporation or
any Corporate Affiliate (determined on the basis of the Fair Market Value per
share on the date or dates such rights are granted) for each calendar year such
rights are at any time outstanding.
B. For purposes of applying such accrual limitations to the purchase
rights granted under the Plan, the following provisions shall be in effect:
(i) The right to acquire Common Stock under each outstanding
purchase right shall accrue in a series of installments on each
successive Purchase Date during the offering period on which such
right remains outstanding.
(ii) No right to acquire Common Stock under any outstanding
purchase right shall accrue to the extent the Participant has already
accrued in the same calendar year the right to acquire Common Stock
under one or more other purchase rights at a rate equal to Twenty-Five
Thousand Dollars ($25,000.00) worth of Common Stock (determined on the
basis of the Fair Market Value per share on the date or dates of
grant) for each calendar year such rights were at any time
outstanding.
C. If by reason of such accrual limitations, any purchase right of a
Participant does not accrue for a particular Purchase Interval, then the payroll
deductions that the Participant made during that Purchase Interval with respect
to such purchase right shall be promptly refunded.
D. In the event there is any conflict between the provisions of this
Article and one or more provisions of the Plan or any instrument issued
thereunder, the provisions of this Article shall be controlling.
IX. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Plan was adopted by the Board on February 11, 2000, and shall
become effective at the Effective Time, provided no purchase rights granted
under the Plan shall be exercised, and no shares of Common Stock shall be issued
hereunder, until (i) the Plan shall have been approved by the stockholders of
the Corporation and (ii) the Corporation shall have complied with all applicable
requirements of the 1933 Act (including the registration of the shares of Common
Stock issuable under the Plan on a Form S-8 registration statement filed with
the Securities and Exchange Commission), all applicable listing requirements of
any stock exchange (or the Nasdaq National Market, if applicable) on which the
Common Stock is listed for trading and all other applicable requirements
established by law or regulation. In the event such stockholder approval is not
obtained, or such compliance is not effected, within twelve (12) months after
the date on which the Plan is adopted by the Board, the Plan shall terminate and
have no further force or effect, and all sums collected from Participants during
the initial offering period hereunder shall be refunded.
7.
<PAGE> 8
B. Unless sooner terminated by the Board, the Plan shall terminate
upon the earliest of (i) the last business day in April 2010, (ii) the date on
which all shares available for issuance under the Plan shall have been sold
pursuant to purchase rights exercised under the Plan or (iii) the date on which
all purchase rights are exercised in connection with a Change in Control. No
further purchase rights shall be granted or exercised, and no further payroll
deductions shall be collected, under the Plan following such termination.
X. AMENDMENT OF THE PLAN
A. The Board may alter, amend, suspend or terminate the Plan at any
time to become effective immediately following the close of any Purchase
Interval. However, the Plan may be amended or terminated immediately upon Board
action, if and to the extent necessary to assure that the Corporation will not
recognize, for financial reporting purposes, any compensation expense in
connection with the shares of Common Stock offered for purchase under the Plan,
should the financial accounting rules applicable to the Plan at the Effective
Time be subsequently revised so as to require the Corporation to recognize
compensation expense in the absence of such amendment or termination.
B. In no event may the Board effect any of the following amendments or
revisions to the Plan without the approval of the Corporation's stockholders:
(i) increase the number of shares of Common Stock issuable under the Plan,
except for permissible adjustments in the event of certain changes in the
Corporation's capitalization, (ii) alter the purchase price formula so as to
reduce the purchase price payable for the shares of Common Stock purchasable
under the Plan or (iii) modify the eligibility requirements for participation in
the Plan.
XI. GENERAL PROVISIONS
A. All costs and expenses incurred in the administration of the Plan
shall be paid by the Corporation; however, each Plan Participant shall bear all
costs and expenses incurred by such individual in the sale or other disposition
of any shares purchased under the Plan.
B. Nothing in the Plan shall confer upon the Participant any right to
continue in the employ of the Corporation or any Corporate Affiliate for any
period of specific duration or interfere with or otherwise restrict in any way
the rights of the Corporation (or any Corporate Affiliate employing such person)
or of the Participant, which rights are hereby expressly reserved by each, to
terminate such person's employment at any time for any reason, with or without
cause.
C. The provisions of the Plan shall be governed by the laws of the
State of New York without resort to that State's conflict-of-laws rules.
8.
<PAGE> 9
SCHEDULE A
CORPORATIONS PARTICIPATING IN
EMPLOYEE STOCK PURCHASE PLAN
AS OF THE EFFECTIVE TIME
Websense, Inc.
<PAGE> 10
APPENDIX
The following definitions shall be in effect under the Plan:
A. BOARD shall mean the Corporation's Board of Directors.
B. CASH EARNINGS shall mean (i) the regular base salary paid to a
Participant by one or more Participating Companies during such individual's
period of participation in one or more offering periods under the Plan plus (ii)
all overtime payments, bonuses, commissions, profit-sharing distributions and
other incentive-type payments received during such period. Such Cash Earnings
shall be calculated before deduction of (A) any income or employment tax
withholdings or (B) any contributions made by the Participant to any Code
Section 401(k) salary deferral plan or any Code Section 125 cafeteria benefit
program now or hereafter established by the Corporation or any Corporate
Affiliate. However, Cash Earnings shall NOT include any contributions made by
the Corporation or any Corporate Affiliate on the Participant's behalf to any
employee benefit or welfare plan now or hereafter established (other than Code
Section 401(k) or Code Section 125 contributions deducted from such Cash
Earnings).
C. CHANGE IN CONTROL shall mean a change in ownership of the Corporation
pursuant to any of the following transactions:
(i) a merger or consolidation in which securities possessing more than
fifty percent (50%) of the total combined voting power of the Corporation's
outstanding securities are transferred to a person or persons different
from the persons holding those securities immediately prior to such
transaction, or
(ii) the sale, transfer or other disposition of all or substantially
all of the assets of the Corporation in complete liquidation or dissolution
of the Corporation, or
(iii) the acquisition, directly or indirectly, by a person or related
group of persons (other than the Corporation or a person that directly or
indirectly controls, is controlled by or is under common control with the
Corporation) of beneficial ownership (within the meaning of Rule 13d-3 of
the 1934 Act) of securities possessing more than fifty percent (50%) of the
total combined voting power of the Corporation's outstanding securities
pursuant to a tender or exchange offer made directly to the Corporation's
stockholders.
D. CODE shall mean the Internal Revenue Code of 1986, as amended.
E. COMMON STOCK shall mean the Corporation's common stock.
A-1
<PAGE> 11
F. CORPORATE AFFILIATE shall mean any parent or subsidiary corporation of
the Corporation (as determined in accordance with Code Section 424), whether now
existing or subsequently established.
G. CORPORATION shall mean Websense, Inc., a Delaware corporation, and any
corporate successor to all or substantially all of the assets or voting stock of
Websense, Inc. that shall by appropriate action adopt the Plan.
H. EFFECTIVE TIME shall mean the time at which the Underwriting Agreement
is executed and the Common Stock priced for the initial public offering of such
Common Stock. Any Corporate Affiliate that becomes a Participating Corporation
after such Effective Time shall designate a subsequent Effective Time with
respect to its employee-Participants.
I. ELIGIBLE EMPLOYEE shall mean any person who is employed by a
Participating Corporation on a basis under which he or she is regularly expected
to render more than twenty (20) hours of service per week for more than five (5)
months per calendar year for earnings considered wages under Code Section 3401
(a).
J. FAIR MARKET VALUE per share of Common Stock on any relevant date shall
be determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on the Nasdaq National
Market, then the Fair Market Value shall be the closing selling price per
share of Common Stock on the date in question, as such price is reported by
the National Association of Securities Dealers on the Nasdaq National
Market and published in The Wall Street Journal. If there is no closing
selling price for the Common Stock on the date in question, then the Fair
Market Value shall be the closing selling price on the last preceding date
for which such quotation exists.
(ii) If the Common Stock is at the time listed on any Stock Exchange,
then the Fair Market Value shall be the closing selling price per share of
Common Stock on the date in question on the Stock Exchange determined by
the Plan Administrator to be the primary market for the Common Stock, as
such price is officially quoted in the composite tape of transactions on
such exchange and published in The Wall Street Journal. If there is no
closing selling price for the Common Stock on the date in question, then
the Fair Market Value shall be the closing selling price on the last
preceding date for which such quotation exists.
(iii) For purposes of the initial offering period that begins at the
Effective Time, the Fair Market Value shall be deemed to be equal to the
price per share at which the Common Stock is sold in the initial public
offering pursuant to the Underwriting Agreement.
K. 1933 ACT shall mean the Securities Act of 1933, as amended.
A-2.
<PAGE> 12
L. PARTICIPANT shall mean any Eligible Employee of a Participating
Corporation who is actively participating in the Plan.
M. PARTICIPATING CORPORATION shall mean the Corporation and such Corporate
Affiliate or Affiliates as may be authorized from time to time by the Board to
extend the benefits of the Plan to their Eligible Employees. The Participating
Corporations in the Plan are listed in attached Schedule A.
N. PLAN shall mean the Corporation's 2000 Employee Stock Purchase Plan, as
set forth in this document.
O. PLAN ADMINISTRATOR shall mean the committee of two (2) or more Board
members appointed by the Board to administer the Plan.
P. PURCHASE DATE shall mean the last business day of each Purchase
Interval. The initial Purchase Date shall be October 31, 2000.
Q. PURCHASE INTERVAL shall mean each successive six (6)-month period within
the offering period at the end of which there shall be purchased shares of
Common Stock on behalf of each Participant.
R. STOCK EXCHANGE shall mean either the American Stock Exchange or the New
York Stock Exchange.
S. UNDERWRITING AGREEMENT shall mean the agreement between the Corporation
and the underwriter or underwriters managing the initial public offering of the
Common Stock.
A-3.
<PAGE> 1
EXHIBIT 10.14
INDEMNIFICATION AGREEMENT
THIS AGREEMENT is made and entered into this ___ day of February, 2000
between Websense, Inc., a Delaware corporation ("Corporation"), whose address is
10240 Sorrento Valley Road, San Diego, California 92121 and __________________
("Director"), whose address is __________________________________.
RECITALS:
A. WHEREAS, Director, a member of the Board of Directors of Corporation
(the "Board"), performs a valuable service in such capacity for Corporation; and
B. WHEREAS, the stockholders of Corporation have adopted Bylaws (the
"Bylaws") providing for the indemnification of the officers, directors, agents
and employees of Corporation to the maximum extent authorized by Section 145 of
the Delaware General Corporation Law, as amended (the "Law"); and
C. WHEREAS, the Bylaws and the Law, as amended and in effect from time to
time or any successor or other statutes of Delaware having similar import and
effect, currently purport to be the controlling law governing Corporation with
respect to certain aspects of corporate law, including indemnification of
directors and officers; and
D. WHEREAS, in accordance with the authorization provided by the Law,
Corporation may from time to time purchase and maintain a policy or policies of
Directors and Officers Liability Insurance ("D & O Insurance"), covering certain
liabilities which may be incurred by its directors and officers in the
performance of services as directors and officers of Corporation; and
E. WHEREAS, as a result of developments affecting the terms, scope and
availability of D & O Insurance there exists general uncertainty as to the
extent and overall desirability of protection afforded members of the Board of
Directors by such D & O Insurance, if any, and by statutory and bylaw
indemnification provisions; and
F. WHEREAS, in order to induce Director to continue to serve as a member of
the Board, Corporation has determined and agreed to enter into this contract
with Director.
NOW, THEREFORE, in consideration of Director's continued service as a
director after the date hereof, the parties hereto agree as follows:
1. Certain Definitions. The following terms used in this Agreement shall
have the meanings set forth below. Other terms are defined where appropriate in
this Agreement.
(a) "Disinterested Director" shall mean a director of Corporation who
is not or was not a party to the Proceeding in respect of which indemnification
is being sought by Director.
1
<PAGE> 2
(b) "Expenses" shall include all direct and indirect costs (including,
without limitation, attorneys' fees, retainers, court costs, transcripts, fees
of experts, witness fees, travel expenses, duplicating costs, printing and
binding costs, telephone charges, postage, delivery service fees, all other
disbursements or out-of-pocket expenses and reasonable compensation for time
spent by Director for which he or she is otherwise not compensated by
Corporation) actually and reasonably incurred in connection with a Proceeding or
establishing or enforcing a right to indemnification under this Agreement,
applicable law or otherwise; provided, however, that "Expenses" shall not
include any Liabilities.
(c) "Final Adverse Determination" shall mean that a determination that
Director is not entitled to indemnification shall have been made pursuant to
Section 5 hereof and either (i) a final adjudication in a Delaware court or
decision of an arbitrator pursuant to Section 13(a) hereof shall have denied
Director's right to indemnification hereunder, or (ii) Director shall have
failed to file a complaint in a Delaware court or seek an arbitrator's award
pursuant to Section 13(a) for a period of one hundred twenty (120) days after
the determination made pursuant to Section 5 hereof.
(d) "Independent Legal Counsel" shall mean a law firm or member of a
law firm selected by Corporation and approved by Director (which approval shall
not be unreasonably withheld) and that neither is presently nor in the past five
years has been retained to represent: (i) Corporation, in any material matter,
or (ii) any other party to the Proceeding giving rise to a claim for
indemnification hereunder. Notwithstanding the foregoing, the term "Independent
Legal Counsel" shall not include any person who, under the applicable standards
of professional conduct then prevailing, would have a conflict of interest in
representing either Corporation or Director in a Proceeding to determine
Director's right to indemnification under this Agreement.
(e) "Liabilities" shall mean liabilities of any type whatsoever
including, but not limited to, any judgments, fines, ERISA excise taxes and
penalties, and penalties and amounts paid in settlement (including all interest
assessments and other charges paid or payable in connection with or in respect
of such judgments, fines, penalties or amounts paid in settlement) of any
proceeding.
(f) "Proceeding" shall mean any threatened, pending or completed
action, claim, suit, arbitration, alternative dispute resolution mechanism,
investigation, administrative hearing or any other proceeding whether civil,
criminal, administrative or investigative, including any appeal therefrom.
(g) "Change of Control" shall mean the occurrence of any of the
following events after the date of this Agreement:
(i) A change in the composition of the Board, as a result of
which fewer than two-thirds (2/3) of the incumbent directors are directors who
either (1) had been directors of Corporation twenty-four (24) months prior to
such change or (2) were elected, or nominated for election, to the Board with
the affirmative votes of at least a majority of the directors who had been
directors of Corporation 24 months prior to such change and who were still in
office at the time of the election or nomination; or
2
<PAGE> 3
(ii) Any "person" (as such term is used in section 13(d) and
14(d) of the Securities Exchange Act of 1934, as amended) through the
acquisition or aggregation of securities is or becomes the beneficial owner,
directly or indirectly, of securities of Corporation representing twenty percent
(20%) or more of the combined voting power of Corporation's then outstanding
securities ordinarily (and apart from rights accruing under special
circumstances) having the right to vote at elections of directors (the "Capital
Stock"), except that any change in ownership of Corporation's securities by any
person resulting solely from a reduction in the aggregate number of outstanding
shares of Capital Stock, and any decrease thereafter in such person's ownership
of securities, shall be disregarded until such person increases in any manner,
directly or indirectly, such person's beneficial ownership of any securities of
Corporation.
2. Indemnity of Director. Corporation hereby agrees to hold harmless and
indemnify Director to the fullest extent authorized or permitted by the
provisions of the Law, as may be amended from time to time.
3. Additional Indemnity. Subject only to the exclusions set forth in
Section 4 hereof, Corporation hereby further agrees to hold harmless and
indemnify Director:
(a) against any and all Expenses in connection with any Proceeding
(including an action by or in the right of Corporation) to which Director is,
was or at any time becomes a party, or is threatened to be made a party, by
reason of the fact that Director is, was or at any time becomes a director,
officer, employee or agent of Corporation, or is or was serving or at any time
serves at the request of Corporation as a director, officer, employee or agent
of another corporation, partnership, joint venture, trust, employee benefit plan
or other enterprise; and
(b) otherwise to the fullest extent as may be provided to Director by
Corporation under the non-exclusivity provisions of the Bylaws of Corporation
and the Law.
4. Limitations on Additional Indemnity. No indemnity pursuant to Section 3
hereof shall be paid by Corporation:
(a) except to the extent the aggregate of losses to be indemnified
thereunder exceeds the sum of such losses for which the Director is indemnified
pursuant to Section 2 hereof or reimbursed pursuant to any D & O Insurance
purchased and maintained by Corporation;
(b) in respect of remuneration paid to Director if it shall be
determined by a final judgment or other final adjudication that such
remuneration was in violation of law;
(c) on account of any Proceeding in which judgment is rendered against
Director for an accounting of profits made from the purchase or sale by Director
of securities of Corporation pursuant to the provisions of Section 16(b) of the
Securities Exchange Act of 1934 and amendments thereto or similar provisions of
any federal, state or local statutory law;
(d) on account of a Final Adverse Determination that Director's
conduct was knowingly fraudulent or deliberately dishonest or constituted
willful misconduct;
3
<PAGE> 4
(e) provided there has been no Change of Control, on account of or
arising in response to any Proceeding (other than a Proceeding referred to in
Section 10(b) hereof) initiated by Director or any of Director's affiliates
against Corporation or any officer, director or stockholder of Corporation
unless such Proceeding was authorized in the specific case by action of the
Board of Directors of Corporation;
(f) if a final decision by a Court having jurisdiction in the matter
shall determine that such indemnification is not lawful; or
(g) on account of any Proceeding to the extent that Director is a
plaintiff, a counter-complainant or a cross-complainant therein (other than a
Proceeding permitted by Section 4(e) hereof).
5. Procedure for Determination of Entitlement to Indemnification.
(a) Whenever Director believes that he or she is entitled to
indemnification pursuant to this Agreement, Director shall submit a written
request for indemnification to Corporation. Any request for indemnification
shall include sufficient documentation or information reasonably available to
Director to support his or her claim for indemnification. Director shall submit
his or her claim for indemnification within a reasonable time not to exceed five
years after any judgment, order, settlement, dismissal, arbitration award,
conviction, acceptance of a plea of nolo contendere or its equivalent, final
termination or other disposition or partial disposition of any Proceeding,
whichever is the later date for which Director requests indemnification. The
President, Secretary or other appropriate officer shall, promptly upon receipt
of Director's request for indemnification, advise the Board in writing that
Director has made such a request. Determination of Director's entitlement to
indemnification shall be made not later than ninety (90) days after
Corporation's receipt of his or her written request for such indemnification.
(b) The Director shall be entitled to select the forum in which
Director's request for indemnification will be heard, which selection shall be
included in the written request for indemnification required in Section 5(a).
This forum shall be any one of the following:
(i) The stockholders of Corporation;
(ii) A quorum of the Board consisting of Disinterested Directors;
(iii) Independent Legal Counsel, who shall make the determination
in a written opinion; or
(iv) A panel of three arbitrators, one selected by Corporation,
another by Director and the third by the first two arbitrators selected. If for
any reason three arbitrators are not selected within thirty (30) days after the
appointment of the first arbitrator, then selection of additional arbitrators
shall be made by the American Arbitration Association. If any arbitrator resigns
or is unable to serve in such capacity for any reason, the American Arbitration
Association shall select his or her replacement. The arbitration shall be
conducted pursuant to the commercial arbitration rules of the American
Arbitration Association now in effect.
4
<PAGE> 5
If Director fails to make such designation, his or her claim shall be
determined by the forum selected by Corporation.
6. Presumption and Effect of Certain Proceedings. Upon making a request for
indemnification, Director shall be presumed to be entitled to indemnification
under this Agreement and Corporation shall have the burden of proof to overcome
that presumption in reaching any contrary determination. The termination of any
Proceeding by judgment, order, settlement, arbitration award or conviction, or
upon a plea of nolo contendere or its equivalent shall not affect this
presumption or, except as may be provided in Section 4 hereof, establish a
presumption with regard to any factual matter relevant to determining Director's
rights to indemnification hereunder. If the person or persons so empowered to
make a determination pursuant to Section 5(b) hereof shall have failed to make
the requested determination within thirty (30) days after any judgment, order,
settlement, dismissal, arbitration award, conviction, acceptance of a plea of
nolo contendere or its equivalent, or other disposition or partial disposition
of any Proceeding or any other event which could enable Corporation to determine
Director's entitlement to indemnification, the requisite determination that
Director is entitled to indemnification shall be deemed to have been made.
7. Contribution. If the indemnification provided in Sections 2 and 3 is
unavailable and may not be paid to Director for any reason other than those set
forth in Section 4, then in respect of any Proceeding in which Corporation is or
is alleged to be jointly liable with Director (or would be if joined in such
Proceeding), Corporation shall contribute to the amount of Expenses and
Liabilities paid or payable by Director in such proportion as is appropriate to
reflect (i) the relative benefits received by Corporation on the one hand and
Director on the other hand from the transaction from which such Proceeding
arose, and (ii) the relative fault of Corporation on the one hand and of
Director on the other hand in connection with the events which resulted in such
Expenses and Liabilities, as well as any other relevant equitable
considerations. The relative fault of Corporation on the one hand and of
Director on the other shall be determined by reference to, among other things,
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent the circumstances resulting in such Expenses and
Liabilities. Corporation agrees that it would not be just and equitable if
contribution pursuant to this Section 7 were determined by pro rata allocation
or any other method of allocation which does not take account of the foregoing
equitable considerations.
8. Insurance and Funding. Corporation hereby represents and warrants that
it shall purchase and maintain insurance to protect itself and/or Director
against any Expenses and Liabilities in connection with any Proceeding to the
fullest extent permitted by the Law.
9. Continuation of Obligations. All agreements and obligations of
Corporation contained herein shall continue during the period Director is a
director, officer, employee or agent of Corporation (or is or was serving at the
request of Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise) and shall continue thereafter so long as Director shall be subject
to any possible Proceeding, by reason of the fact that Director was serving
Corporation or such other entity in any capacity referred to herein.
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<PAGE> 6
10. Notification and Defense of Claim. Promptly after receipt by Director
of notice of the commencement of any Proceeding, Director will, if a claim in
respect thereof is to be made against Corporation under this Agreement, notify
Corporation of the commencement thereof; but the omission so to notify
Corporation will not relieve it from any liability which it may have to Director
otherwise than under this Agreement. With respect to any Proceeding as to which
Director notifies Corporation of the commencement thereof:
(a) Corporation will be entitled to participate therein at its own
expense;
(b) Except as otherwise provided below, to the extent that it may
wish, Corporation jointly with any other indemnifying party similarly notified
will be entitled to assume the defense thereof, with counsel reasonably
satisfactory to Director. After notice from Corporation to Director of its
election to assume the defense thereof, Corporation will not be liable to
Director under this Agreement for any Expenses subsequently incurred by Director
in connection with the defense thereof other than reasonable costs of
investigation or as otherwise provided below. Director shall have the right to
employ his or her own counsel in such Proceeding but the Expenses associated
with the employment of such counsel incurred after notice from Corporation of
its assumption of the defense thereof shall be at the expense of Director unless
(i) the employment of counsel by Director has been authorized by Corporation,
(ii) Director shall have reasonably concluded that there may be a conflict of
interest between Corporation and Director in the conduct of the defense of such
Proceeding or (iii) Corporation shall not in fact have employed counsel to
assume the defense of such Proceeding, in each of which cases the Expenses of
Director's separate counsel shall be at the expense of Corporation. Corporation
shall not be entitled to assume the defense of any Proceeding brought by or on
behalf of Corporation or as to which Director shall have made the conclusion
provided for in (ii) above; and
(c) Provided there has been no Change of Control, Corporation shall
not be liable to indemnify Director under this Agreement for any amounts paid in
settlement of any Proceeding effected without its written consent, which consent
shall not be unreasonably withheld. Corporation shall be permitted to settle any
Proceeding except that it shall not settle any Proceeding in any manner which
would impose any penalty, out-of-pocket liability, or limitation on Director
without Director's written consent.
11. Advancement and Repayment of Expenses.
(a) In the event that Director employs his or her own counsel pursuant
to Section 10(b)(i) through (iii) above, Corporation shall advance to Director,
prior to any final disposition of any Proceeding any and all Expenses incurred
in investigating or defending any such Proceeding within ten (10) days after
receiving copies of invoices presented to Director for such Expenses.
(b) Director agrees that Director will reimburse Corporation for all
Expenses paid by Corporation in defending any Proceeding against Director in the
event and only to the extent that there has been a Final Adverse Determination
that Director is not entitled, under the provisions of the Law, the Bylaws, this
Agreement or otherwise, to be indemnified by Corporation for such Expenses.
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12. Remedies of Director.
(a) In the event that (i) a determination pursuant to Section 5 hereof
is made that Director is not entitled to indemnification, (ii) advances of
Expenses are not made pursuant to this Agreement, (iii) payment has not been
timely made following a determination of entitlement to indemnification pursuant
to this Agreement, or (iv) Director otherwise seeks enforcement of this
Agreement, Director shall be entitled to a final adjudication in an appropriate
court of his or her rights. Alternatively, Director at his or her option may
seek an award in arbitration to be conducted by a single arbitrator pursuant to
the commercial arbitration rules of the American Arbitration Association now in
effect, whose decision is to be made within ninety (90) days following the
filing of the demand for arbitration. The Corporation shall not oppose
Director's right to seek any such adjudication or arbitration award.
(b) In the event that a determination that Director is not entitled to
indemnification, in whole or in part, has been made pursuant to Section 5
hereof, the decision in the judicial proceeding or arbitration provided in
paragraph (a) of this Section 12 shall be made de novo and Director shall not be
prejudiced by reason of a determination that he or she is not entitled to
indemnification.
(c) If a determination that Director is entitled to indemnification
has been made pursuant to Section 5 hereof or otherwise pursuant to the terms of
this Agreement, Corporation shall be bound by such determination in the absence
of (i) a misrepresentation of a material fact by Director or (ii) a specific
finding (which has become final) by an appropriate court that all or any part of
such indemnification is expressly prohibited by law.
(d) In any court proceeding pursuant to this Section 12, Corporation
shall be precluded from asserting that the procedures and presumptions of this
Agreement are not valid, binding and enforceable. The Corporation shall
stipulate in any such court or before any such arbitrator that Corporation is
bound by all the provisions of this Agreement and is precluded from making any
assertion to the contrary.
(e) Expenses reasonably incurred by Director in connection with his or
her request for indemnification under this Agreement, meeting enforcement of
this Agreement or to recover damages for breach of this Agreement shall be borne
by Corporation.
(f) Corporation and Director agree herein that a monetary remedy for
breach of this Agreement, at some later date, will be inadequate, impracticable
and difficult to prove, and further agree that such breach would cause Director
irreparable harm. Accordingly, Corporation and Director agree that Director
shall be entitled to temporary and permanent injunctive relief to enforce this
Agreement without the necessity of proving actual damages or irreparable harm.
The Corporation and Director further agree that Director shall be entitled to
such injunctive relief, including temporary restraining orders, preliminary
injunctions and permanent injunctions, without the necessity of posting bond or
other undertaking in connection therewith. Any such requirement of bond or
undertaking is hereby waived by Corporation, and Corporation acknowledges that
in the absence of such a waiver, a bond or undertaking may be required by the
court.
7.
<PAGE> 8
13. Enforcement. Corporation expressly confirms and agrees that it has
entered into this Agreement and assumed the obligations imposed on Corporation
hereby in order to induce Director to continue as a director of Corporation, and
acknowledges that Director is relying upon this Agreement in continuing in such
capacity.
14. Separability. Each of the provisions of this Agreement is a separate
and distinct agreement and independent of the others, so that if any or all of
the provisions hereof shall be held to be invalid or unenforceable to any extent
for any reason, such invalidity or unenforceability shall not affect the
validity or enforceability of the other provisions hereof, or the obligation of
the Corporation to indemnify the Director to the full extent provided by the
Bylaws or the Law, and the affected provision shall be construed and enforced so
as to effectuate the parties' intent to the maximum extent possible.
15. Governing Law. This Agreement shall be governed by and interpreted and
enforced in accordance with the internal laws of the State of Delaware.
16. Consent to Jurisdiction. The Corporation and Director each irrevocably
consent to jurisdiction of the courts of the State of Delaware for all purposes
in connection with any Proceeding which arises out of or relates to this
Agreement and agree that any Proceeding instituted under this Agreement shall be
brought only in the state courts of the State of Delaware.
17. Binding Effect. This Agreement shall be binding upon Director and upon
Corporation, its successors and assigns, and shall inure to the benefit of
Director, his or her heirs, executors, administrators, personal representatives
and assigns and to the benefit of Corporation, its successors and assigns.
18. Entire Agreement. This Agreement represents the entire agreement
between the parties hereto and there are no other agreements, contracts or
understandings between the parties hereto with respect to the subject matter of
this Agreement, except as specifically referred to herein. This Agreement
supersedes any and all agreements regarding indemnification heretofore entered
into by the parties.
19. Amendment and Termination. No amendment, modification, waiver,
termination or cancellation of this Agreement shall be effective for any purpose
unless set forth in writing signed by both parties hereto.
20. Subrogation. In the event of payment under this agreement, Corporation
shall be subrogated to the extent of such payment to all of the rights of
recovery of Director, who shall execute all documents required and shall do all
acts that may be necessary to secure such rights and to enable Corporation
effectively to bring suit to enforce such rights.
21. Non-Exclusivity of Rights. The rights conferred on Director by this
Agreement shall not be exclusive of any other right which Director may have or
hereafter acquire under any statute, provision of Corporation's Certificate of
Incorporation or Bylaws, agreement, vote of stockholders or directors, or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding office.
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<PAGE> 9
22. Survival of Rights. The rights conferred on Director by this Agreement
shall continue after Director has ceased to be a director, officer, employee or
other agent of Corporation or such other entity.
23. Notices. All notices, requests, demands and other communications
hereunder shall be in writing and shall be addressed to Director or to
Corporation, as the case may be, at the address shown on page 1 of this
Agreement, or to such other address as may have been furnished by either party
to the other, and shall be deemed to have been duly given if (a) delivered by
hand and receipted for by the party to whom said notice or other communication
shall have been directed, or (b) mailed by certified or registered mail with
postage prepaid, on the third business day after the date on which it is so
mailed.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
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<PAGE> 10
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on and
as of the day and year first above written.
DIRECTOR: WEBSENSE, INC.,
a Delaware corporation
By:
- ------------------------- ------------------------------------
Its:
-----------------------------------
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<PAGE> 1
EXHIBIT 10.15
INDEMNIFICATION AGREEMENT
THIS AGREEMENT is made and entered into this ___ day of February, 2000
between Websense, Inc., a Delaware corporation ("Corporation"), whose address is
10240 Sorrento Valley Road, San Diego, California 92121 and __________________
("Officer"), whose address is __________________________________.
RECITALS:
A. WHEREAS, Officer, an officer of Corporation (but not currently a member
of the Board of Directors of Corporation (the "Board")), performs a valuable
service in such capacity for Corporation; and
B. WHEREAS, the stockholders of Corporation have adopted Bylaws (the
"Bylaws") providing for the indemnification of the officers, directors, agents
and employees of Corporation to the maximum extent authorized by Section 145 of
the Delaware General Corporation Law, as amended (the "Law"); and
C. WHEREAS, the Bylaws and the Law, as amended and in effect from time to
time or any successor or other statutes of Delaware having similar import and
effect, currently purport to be the controlling law governing Corporation with
respect to certain aspects of corporate law, including indemnification of
directors and officers; and
D. WHEREAS, in accordance with the authorization provided by the Law,
Corporation may from time to time purchase and maintain a policy or policies of
Directors and Officers Liability Insurance ("D & O Insurance"), covering certain
liabilities which may be incurred by its directors and officers in the
performance of services as directors and officers of Corporation; and
E. WHEREAS, as a result of developments affecting the terms, scope and
availability of D & O Insurance there exists general uncertainty as to the
extent and overall desirability of protection afforded officers by such D & O
Insurance, if any, and by statutory and bylaw indemnification provisions; and
F. WHEREAS, in order to induce Officer to continue to serve as an officer
of Corporation, Corporation has determined and agreed to enter into this
contract with Officer.
NOW, THEREFORE, in consideration of Officer's continued service as an
officer after the date hereof, the parties hereto agree as follows:
1. Certain Definitions. The following terms used in this Agreement shall
have the meanings set forth below. Other terms are defined where appropriate in
this Agreement.
(a) "Disinterested Director" shall mean a director of Corporation who
is not or was not a party to the Proceeding in respect of which indemnification
is being sought by Officer.
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(b) "Expenses" shall include all direct and indirect costs (including,
without limitation, attorneys' fees, retainers, court costs, transcripts, fees
of experts, witness fees, travel expenses, duplicating costs, printing and
binding costs, telephone charges, postage, delivery service fees, all other
disbursements or out-of-pocket expenses and reasonable compensation for time
spent by Officer for which he or she is otherwise not compensated by
Corporation) actually and reasonably incurred in connection with a Proceeding or
establishing or enforcing a right to indemnification under this Agreement,
applicable law or otherwise; provided, however, that "Expenses" shall not
include any Liabilities.
(c) "Final Adverse Determination" shall mean that a determination that
Officer is not entitled to indemnification shall have been made pursuant to
Section 5 hereof and either (i) a final adjudication in a Delaware court or
decision of an arbitrator pursuant to Section 13(a) hereof shall have denied
Officer's right to indemnification hereunder, or (ii) Officer shall have failed
to file a complaint in a Delaware court or seek an arbitrator's award pursuant
to Section 13(a) for a period of one hundred twenty (120) days after the
determination made pursuant to Section 5 hereof.
(d) "Independent Legal Counsel" shall mean a law firm or member of a
law firm selected by Corporation and approved by Officer (which approval shall
not be unreasonably withheld) and that neither is presently nor in the past five
years has been retained to represent: (i) Corporation, in any material matter,
or (ii) any other party to the Proceeding giving rise to a claim for
indemnification hereunder. Notwithstanding the foregoing, the term "Independent
Legal Counsel" shall not include any person who, under the applicable standards
of professional conduct then prevailing, would have a conflict of interest in
representing either Corporation or Officer in a Proceeding to determine
Officer's right to indemnification under this Agreement.
(e) "Liabilities" shall mean liabilities of any type whatsoever
including, but not limited to, any judgments, fines, ERISA excise taxes and
penalties, and penalties and amounts paid in settlement (including all interest
assessments and other charges paid or payable in connection with or in respect
of such judgments, fines, penalties or amounts paid in settlement) of any
proceeding.
(f) "Proceeding" shall mean any threatened, pending or completed
action, claim, suit, arbitration, alternative dispute resolution mechanism,
investigation, administrative hearing or any other proceeding whether civil,
criminal, administrative or investigative, including any appeal therefrom.
(g) "Change of Control" shall mean the occurrence of any of the
following events after the date of this Agreement:
(i) A change in the composition of the Board, as a result of
which fewer than two-thirds (2/3) of the incumbent directors are directors who
either (1) had been directors of Corporation twenty-four (24) months prior to
such change or (2) were elected, or nominated for election, to the Board with
the affirmative votes of at least a majority of the directors who had been
directors of Corporation 24 months prior to such change and who were still in
office at the time of the election or nomination; or
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<PAGE> 3
(ii) Any "person" (as such term is used in section 13(d) and
14(d) of the Securities Exchange Act of 1934, as amended) through the
acquisition or aggregation of securities is or becomes the beneficial owner,
directly or indirectly, of securities of Corporation representing twenty percent
(20%) or more of the combined voting power of Corporation's then outstanding
securities ordinarily (and apart from rights accruing under special
circumstances) having the right to vote at elections of directors (the "Capital
Stock"), except that any change in ownership of Corporation's securities by any
person resulting solely from a reduction in the aggregate number of outstanding
shares of Capital Stock, and any decrease thereafter in such person's ownership
of securities, shall be disregarded until such person increases in any manner,
directly or indirectly, such person's beneficial ownership of any securities of
Corporation.
2. Indemnity of Officer. Corporation hereby agrees to hold harmless and
indemnify Officer to the fullest extent authorized or permitted by the
provisions of the Law, as may be amended from time to time.
3. Additional Indemnity. Subject only to the exclusions set forth in
Section 4 hereof, Corporation hereby further agrees to hold harmless and
indemnify Officer:
(a) against any and all Expenses in connection with any Proceeding
(including an action by or in the right of Corporation) to which Officer is, was
or at any time becomes a party, or is threatened to be made a party, by reason
of the fact that Officer is, was or at any time becomes a director, officer,
employee or agent of Corporation, or is or was serving or at any time serves at
the request of Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise; and
(b) otherwise to the fullest extent as may be provided to Officer by
Corporation under the non-exclusivity provisions of the Bylaws of Corporation
and the Law.
4. Limitations on Additional Indemnity. No indemnity pursuant to Section
3 hereof shall be paid by Corporation:
(a) except to the extent the aggregate of losses to be indemnified
thereunder exceeds the sum of such losses for which the Officer is indemnified
pursuant to Section 2 hereof or reimbursed pursuant to any D & O Insurance
purchased and maintained by Corporation;
(b) in respect of remuneration paid to Officer if it shall be
determined by a final judgment or other final adjudication that such
remuneration was in violation of law;
(c) on account of any Proceeding in which judgment is rendered against
Officer for an accounting of profits made from the purchase or sale by Officer
of securities of Corporation pursuant to the provisions of Section 16(b) of the
Securities Exchange Act of 1934 and amendments thereto or similar provisions of
any federal, state or local statutory law;
(d) on account of a Final Adverse Determination that Officer's conduct
was knowingly fraudulent or deliberately dishonest or constituted willful
misconduct;
(e) provided there has been no Change of Control, on account of or
arising in response to any Proceeding (other than a Proceeding referred to in
Section 10(b) hereof) initiated
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<PAGE> 4
by Officer or any of Officer's affiliates against Corporation or any officer,
director or stockholder of Corporation unless such Proceeding was authorized in
the specific case by action of the Board;
(f) if a final decision by a Court having jurisdiction in the matter
shall determine that such indemnification is not lawful; or
(g) on account of any Proceeding to the extent that Officer is a
plaintiff, a counter-complainant or a cross-complainant therein (other than a
Proceeding permitted by Section 4(e) hereof).
5. Procedure for Determination of Entitlement to Indemnification.
(a) Whenever Officer believes that he or she is entitled to
indemnification pursuant to this Agreement, Officer shall submit a written
request for indemnification to Corporation. Any request for indemnification
shall include sufficient documentation or information reasonably available to
Officer to support his or her claim for indemnification. Officer shall submit
his or her claim for indemnification within a reasonable time not to exceed five
years after any judgment, order, settlement, dismissal, arbitration award,
conviction, acceptance of a plea of nolo contendere or its equivalent, final
termination or other disposition or partial disposition of any Proceeding,
whichever is the later date for which Officer requests indemnification. The
President, Secretary or other appropriate officer shall, promptly upon receipt
of Officer's request for indemnification, advise the Board in writing that
Officer has made such a request. Determination of Officer's entitlement to
indemnification shall be made not later than ninety (90) days after
Corporation's receipt of his or her written request for such indemnification.
(b) The Officer shall be entitled to select the forum in which
Officer's request for indemnification will be heard, which selection shall be
included in the written request for indemnification required in Section 5(a).
This forum shall be any one of the following:
(i) The stockholders of Corporation;
(ii) A quorum of the Board consisting of Disinterested Directors;
(iii) Independent Legal Counsel, who shall make the determination
in a written opinion; or
(iv) A panel of three arbitrators, one selected by Corporation,
another by Officer and the third by the first two arbitrators selected. If for
any reason three arbitrators are not selected within thirty (30) days after the
appointment of the first arbitrator, then selection of additional arbitrators
shall be made by the American Arbitration Association. If any arbitrator resigns
or is unable to serve in such capacity for any reason, the American Arbitration
Association shall select his or her replacement. The arbitration shall be
conducted pursuant to the commercial arbitration rules of the American
Arbitration Association now in effect.
If Officer fails to make such designation, his or her claim shall be
determined by the forum selected by Corporation.
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<PAGE> 5
6. Presumption and Effect of Certain Proceedings. Upon making a request for
indemnification, Officer shall be presumed to be entitled to indemnification
under this Agreement and Corporation shall have the burden of proof to overcome
that presumption in reaching any contrary determination. The termination of any
Proceeding by judgment, order, settlement, arbitration award or conviction, or
upon a plea of nolo contendere or its equivalent shall not affect this
presumption or, except as may be provided in Section 4 hereof, establish a
presumption with regard to any factual matter relevant to determining Officer's
rights to indemnification hereunder. If the person or persons so empowered to
make a determination pursuant to Section 5(b) hereof shall have failed to make
the requested determination within thirty (30) days after any judgment, order,
settlement, dismissal, arbitration award, conviction, acceptance of a plea of
nolo contendere or its equivalent, or other disposition or partial disposition
of any Proceeding or any other event which could enable Corporation to determine
Officer's entitlement to indemnification, the requisite determination that
Officer is entitled to indemnification shall be deemed to have been made.
7. Contribution. If the indemnification provided in Sections 2 and 3 is
unavailable and may not be paid to Officer for any reason other than those set
forth in Section 4, then in respect of any Proceeding in which Corporation is or
is alleged to be jointly liable with Officer (or would be if joined in such
Proceeding), Corporation shall contribute to the amount of Expenses and
Liabilities paid or payable by Officer in such proportion as is appropriate to
reflect (i) the relative benefits received by Corporation on the one hand and
Officer on the other hand from the transaction from which such Proceeding arose,
and (ii) the relative fault of Corporation on the one hand and of Officer on the
other hand in connection with the events which resulted in such Expenses and
Liabilities, as well as any other relevant equitable considerations. The
relative fault of Corporation on the one hand and of Officer on the other shall
be determined by reference to, among other things, the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent the
circumstances resulting in such Expenses and Liabilities. Corporation agrees
that it would not be just and equitable if contribution pursuant to this Section
7 were determined by pro rata allocation or any other method of allocation which
does not take account of the foregoing equitable considerations.
8. Insurance and Funding. Corporation hereby represents and warrants that
it shall purchase and maintain insurance to protect itself and/or Officer
against any Expenses and Liabilities in connection with any Proceeding to the
fullest extent permitted by the Law.
9. Continuation of Obligations. All agreements and obligations of
Corporation contained herein shall continue during the period Officer is a
director, officer, employee or agent of Corporation (or is or was serving at the
request of Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise) and shall continue thereafter so long as Officer shall be subject to
any possible Proceeding, by reason of the fact that Officer was serving
Corporation or such other entity in any capacity referred to herein.
10. Notification and Defense of Claim. Promptly after receipt by Officer of
notice of the commencement of any Proceeding, Officer will, if a claim in
respect thereof is to be made against Corporation under this Agreement, notify
Corporation of the commencement thereof; but the omission so to notify
Corporation will not relieve it from any liability which it may have to
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<PAGE> 6
Officer otherwise than under this Agreement. With respect to any Proceeding as
to which Officer notifies Corporation of the commencement thereof:
(a) Corporation will be entitled to participate therein at its own
expense;
(b) Except as otherwise provided below, to the extent that it may
wish, Corporation jointly with any other indemnifying party similarly notified
will be entitled to assume the defense thereof, with counsel reasonably
satisfactory to Officer. After notice from Corporation to Officer of its
election to assume the defense thereof, Corporation will not be liable to
Officer under this Agreement for any Expenses subsequently incurred by Officer
in connection with the defense thereof other than reasonable costs of
investigation or as otherwise provided below. Officer shall have the right to
employ his or her own counsel in such Proceeding but the Expenses associated
with the employment of such counsel incurred after notice from Corporation of
its assumption of the defense thereof shall be at the expense of Officer unless
(i) the employment of counsel by Officer has been authorized by Corporation,
(ii) Officer shall have reasonably concluded that there may be a conflict of
interest between Corporation and Officer in the conduct of the defense of such
Proceeding or (iii) Corporation shall not in fact have employed counsel to
assume the defense of such Proceeding, in each of which cases the Expenses of
Officer's separate counsel shall be at the expense of Corporation. Corporation
shall not be entitled to assume the defense of any Proceeding brought by or on
behalf of Corporation or as to which Officer shall have made the conclusion
provided for in (ii) above; and
(c) Provided there has been no Change of Control, Corporation shall
not be liable to indemnify Officer under this Agreement for any amounts paid in
settlement of any Proceeding effected without its written consent, which consent
shall not be unreasonably withheld. Corporation shall be permitted to settle any
Proceeding except that it shall not settle any Proceeding in any manner which
would impose any penalty, out-of-pocket liability, or limitation on Officer
without Officer's written consent.
11. Advancement and Repayment of Expenses.
(a) In the event that Officer employs his or her own counsel pursuant
to Section 10(b)(i) through (iii) above, Corporation shall advance to Officer,
prior to any final disposition of any Proceeding any and all Expenses incurred
in investigating or defending any such Proceeding within ten (10) days after
receiving copies of invoices presented to Officer for such Expenses.
(b) Officer agrees that Officer will reimburse Corporation for all
Expenses paid by Corporation in defending any Proceeding against Officer in the
event and only to the extent that there has been a Final Adverse Determination
that Officer is not entitled, under the provisions of the Law, the Bylaws, this
Agreement or otherwise, to be indemnified by Corporation for such Expenses.
12. Remedies of Officer.
(a) In the event that (i) a determination pursuant to Section 5 hereof
is made that Officer is not entitled to indemnification, (ii) advances of
Expenses are not made pursuant to
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<PAGE> 7
this Agreement, (iii) payment has not been timely made following a determination
of entitlement to indemnification pursuant to this Agreement, or (iv) Officer
otherwise seeks enforcement of this Agreement, Officer shall be entitled to a
final adjudication in an appropriate court of his or her rights. Alternatively,
Officer at his or her option may seek an award in arbitration to be conducted by
a single arbitrator pursuant to the commercial arbitration rules of the American
Arbitration Association now in effect, whose decision is to be made within
ninety (90) days following the filing of the demand for arbitration. The
Corporation shall not oppose Officer's right to seek any such adjudication or
arbitration award.
(b) In the event that a determination that Officer is not entitled to
indemnification, in whole or in part, has been made pursuant to Section 5
hereof, the decision in the judicial proceeding or arbitration provided in
paragraph (a) of this Section 12 shall be made de novo and Officer shall not be
prejudiced by reason of a determination that he or she is not entitled to
indemnification.
(c) If a determination that Officer is entitled to indemnification has
been made pursuant to Section 5 hereof or otherwise pursuant to the terms of
this Agreement, Corporation shall be bound by such determination in the absence
of (i) a misrepresentation of a material fact by Officer or (ii) a specific
finding (which has become final) by an appropriate court that all or any part of
such indemnification is expressly prohibited by law.
(d) In any court proceeding pursuant to this Section 12, Corporation
shall be precluded from asserting that the procedures and presumptions of this
Agreement are not valid, binding and enforceable. The Corporation shall
stipulate in any such court or before any such arbitrator that Corporation is
bound by all the provisions of this Agreement and is precluded from making any
assertion to the contrary.
(e) Expenses reasonably incurred by Officer in connection with his or
her request for indemnification under this Agreement, meeting enforcement of
this Agreement or to recover damages for breach of this Agreement shall be borne
by Corporation.
(f) Corporation and Officer agree herein that a monetary remedy for
breach of this Agreement, at some later date, will be inadequate, impracticable
and difficult to prove, and further agree that such breach would cause Officer
irreparable harm. Accordingly, Corporation and Officer agree that Officer shall
be entitled to temporary and permanent injunctive relief to enforce this
Agreement without the necessity of proving actual damages or irreparable harm.
The Corporation and Officer further agree that Officer shall be entitled to such
injunctive relief, including temporary restraining orders, preliminary
injunctions and permanent injunctions, without the necessity of posting bond or
other undertaking in connection therewith. Any such requirement of bond or
undertaking is hereby waived by Corporation, and Corporation acknowledges that
in the absence of such a waiver, a bond or undertaking may be required by the
court.
13. Enforcement. Corporation expressly confirms and agrees that it has
entered into this Agreement and assumed the obligations imposed on Corporation
hereby in order to induce Officer to continue as an officer of Corporation, and
acknowledges that Officer is relying upon this Agreement in continuing in such
capacity.
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14. Separability. Each of the provisions of this Agreement is a separate
and distinct agreement and independent of the others, so that if any or all of
the provisions hereof shall be held to be invalid or unenforceable to any extent
for any reason, such invalidity or unenforceability shall not affect the
validity or enforceability of the other provisions hereof, or the obligation of
the Corporation to indemnify the Officer to the full extent provided by the
Bylaws or the Law, and the affected provision shall be construed and enforced so
as to effectuate the parties' intent to the maximum extent possible.
15. Governing Law. This Agreement shall be governed by and interpreted and
enforced in accordance with the internal laws of the State of Delaware.
16. Consent to Jurisdiction. The Corporation and Officer each irrevocably
consent to jurisdiction of the courts of the State of Delaware for all purposes
in connection with any Proceeding which arises out of or relates to this
Agreement and agree that any Proceeding instituted under this Agreement shall be
brought only in the state courts of the State of Delaware.
17. Binding Effect. This Agreement shall be binding upon Officer and upon
Corporation, its successors and assigns, and shall inure to the benefit of
Officer, his or her heirs, executors, administrators, personal representatives
and assigns and to the benefit of Corporation, its successors and assigns.
18. Entire Agreement. This Agreement represents the entire agreement
between the parties hereto and there are no other agreements, contracts or
understandings between the parties hereto with respect to the subject matter of
this Agreement, except as specifically referred to herein. This Agreement
supersedes any and all agreements regarding indemnification heretofore entered
into by the parties.
19. Amendment and Termination. No amendment, modification, waiver,
termination or cancellation of this Agreement shall be effective for any purpose
unless set forth in writing signed by both parties hereto.
20. Subrogation. In the event of payment under this agreement, Corporation
shall be subrogated to the extent of such payment to all of the rights of
recovery of Officer, who shall execute all documents required and shall do all
acts that may be necessary to secure such rights and to enable Corporation
effectively to bring suit to enforce such rights.
21. Non-Exclusivity of Rights. The rights conferred on Officer by this
Agreement shall not be exclusive of any other right which Officer may have or
hereafter acquire under any statute, provision of Corporation's Certificate of
Incorporation or Bylaws, agreement, vote of stockholders or directors, or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding office.
22. Survival of Rights. The rights conferred on Officer by this Agreement
shall continue after Officer has ceased to be a director, officer, employee or
other agent of Corporation or such other entity.
23. Notices. All notices, requests, demands and other communications
hereunder shall be in writing and shall be addressed to Officer or to
Corporation, as the case may be, at the
8
<PAGE> 9
address shown on page 1 of this Agreement, or to such other address as may have
been furnished by either party to the other, and shall be deemed to have been
duly given if (a) delivered by hand and receipted for by the party to whom said
notice or other communication shall have been directed, or (b) mailed by
certified or registered mail with postage prepaid, on the third business day
after the date on which it is so mailed.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
9
<PAGE> 10
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on and
as of the day and year first above written.
OFFICER: WEBSENSE, INC.,
a Delaware corporation
By:
- ------------------------ -----------------------------------
Its:
-----------------------------------
10
<PAGE> 1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated January 14, 2000, in the Registration Statement
(Amendment No. 1 to Form S-1 No. 333-95619) and related Prospectus of Websense,
Inc. for the registration of shares of its common stock.
Our audits also included the financial statement schedule of Websense, Inc.
listed in Item 16(b). This schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits. In
our opinion, the financial statement schedule referred to above, when considered
in relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
/s/ Ernst & Young LLP
San Diego, California
March 1, 2000
<PAGE> 1
EXHIBIT 99.1
BUSINESS REPRESENTATION CONTRACT
Philip G Trubey, Janet A McVeigh and John Stiska agree to the following:
1. John Stiska agrees to act as a board member on the NetPartners Internet
Solutions, Inc. (NetPartners) board, on behalf of Janet McVeigh and Philip
Trubey, and to protect Janet McVeigh and Philip Trubey's interests as they
relate to NetPartners, subject to any limitations that a director of any
company are subject to. John Stiska will act as a business advisor, not a
lawyer for services performed as a result of this contact. Separate legal
help may be used sparingly when agreed and will be provided by Latham &
Watkins or another major firm as agreed, and fees & costs will be paid 80%
by Janet McVeigh and Philip Trubey, and 20% by John Stiska.
2. From this day forward, if any full or partial liquidation event occurs with
regard to Janet McVeigh or Philip Trubey's ownership in NetPartners, Janet
McVeigh and Philip Trubey agree to pay John Stiska 4% of the liquidation
event within 30 days of the event occurring, payment to be made in kind.
4. If John Stiska should be incapacitated in any way resulting in a
permanently continuing failure to performance his duties under this
agreement, a determination will be made on such a "failure to perform" by
Janet McVeigh and Philip Trubey at their sole discretion. John Stiska's
contribution will be determined first by mutual agreement with John Stiska
(or his estate) if possible, and if not by mutual agreement then by
mediation, and if the mediation conclusion is not accepted by both sides,
then by binding arbitration before the San Diego American Arbitration
Association.
5. This contract will automatically terminate when Janet McVeigh and Philip
Trubey's ownership in NetPartners is completely liquid.
6. Any party can terminate this contract on an at-will basis. In such case, a
determination will be made with regard to John Stiska's contribution, and
resulting payment, if any, to terminate this contract. This will be
determined first by mutual agreement between Janet McVeigh and Philip
Trubey and John Stiska if possible, and if not by mutual agreement then by
mediation, and if the mediation conclusion is not accepted by all sides,
then by binding arbitration before the San Diego American Arbitration
Association.
7. Any disputes arising between the parties as a result of this contract will
be referred to mediation, and if the mediation conclusion is not accepted
by all sides, then by binding arbitration before the San Diego American
Arbitration Association.
Agreed to on March 29, 1999 by,
/s/ Phil Trubey
- ----------------------------------------
Phil Trubey
/s/ Janet McVeigh
- ----------------------------------------
Janet McVeigh
/s/ John Stiska
- ----------------------------------------
John Stiska
<PAGE> 1
EXHIBIT 99.2
February 28, 2000
VIA FEDERAL EXPRESS
- -------------------
Saratoga Institute
3500 Pruneridge Avenue
Suite 380
Santa Clara, CA 95051
Re: Websense, Inc.
--------------
Dear Ms. Vigo
This letter is sent to notify you that Websense, Inc. has filed a
Registration Statement on Form S-1 (the "Registration Statement") with the
Securities and Exchange Commission (the "SEC"). After we obtain approval from
the SEC, we intend to distribute copies of our prospectus that include the name
of the Saratoga Institute ("Saratoga") and information set forth in the study
that Saratoga completed on our behalf.
Attached for your review, please find the "Industry Background" section
of the Registration Statement that references your institution. This section
references Saratoga in connection with a study regarding Internet use in the
workplace. This study was commissioned by Websense performed by Saratoga and is
titled "Survey on Internet Misuse in the Workplace" (the "Survey").
Please countersign this letter to indicate your consent to the use of the
name "Saratoga Institute" and the inclusion of the information from the Survey
contained in the Industry Background section of our Registration Statement. If
you have any questions, please contact me at the above listed number as soon as
possible.
<PAGE> 2
Very truly yours,
WEBSENSE, INC.
By: /s/ D.C. WRIDE
-----------------------------------
TITLE: CFO
--------------------------------
ACKNOWLEDGED AND AGREED
SARATOGA INSTITUTE
By: /s/ VICKIE VIGO
-------------------------------
Title: Manager, Marketing &
Communications
----------------------------
3/1/00
Enclosures
2
