<PAGE>
As filed with the Securities and Exchange Commission on February 4, 2000
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
NUANCE COMMUNICATIONS
(Exact name of Registrant as specified in its charter)
<TABLE>
<CAPTION>
-------------------------------
<S> <C> <C>
California
[pending reincorporation
in Delaware] 7373 94-3238130
(State or other jurisdiction of (Primary Standard Industrial (IRS Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
1005 Hamilton Court
Menlo Park, CA 94025
(650) 847-0000
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
---------------
RONALD A. CROEN
President and Chief Executive Officer
Nuance Communications
1005 Hamilton Court
Menlo Park, CA 94025
(650) 847-0000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------
Copies to:
<TABLE>
<S> <C>
STEVEN E. BOCHNER KEVIN P. KENNEDY
NEVAN C. ELAM Shearman & Sterling
SUSAN P. KRAUSE 1550 El Camino Real
JILL L. NISSEN Menlo Park, CA 94025
SACHA D. ROSS (650) 330-2200
Wilson Sonsini Goodrich & Rosati
Professional Corporation
650 Page Mill Road
Palo Alto, CA 94304
(650) 493-9300
</TABLE>
---------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act,
check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
<TABLE>
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<CAPTION>
Proposed Maximum
Title of Each Class Aggregate Offering Amount of
of Securities to be Registered Price(1) Registration fee
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<S> <C> <C>
Common Stock, $0.001 par value.... $72,450,000 $19,127
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</TABLE>
(1) Estimated solely for the purpose of calculating the amount of the
registration fee pursuant to Rule 457(o).
---------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment 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 Securities and Exchange Commission,
acting pursuant to said Section 8(a), may determine.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this preliminary prospectus is not complete and may be +
+changed. These securities may not be sold until the registration statement +
+filed with the Securities and Exchange Commission is effective. This +
+preliminary prospectus is not an offer to sell these securities, and is not +
+soliciting an offer to buy these securities in any state where the offer or +
+sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion. Dated February 4, 2000.
Shares
[LOGO OF NUANCE]
Common Stock
-----------
This is an initial public offering of shares of common stock of Nuance
Communications. All of the shares of common stock are being sold by
Nuance.
Prior to this offering, there has been no public market for the common stock.
It is currently estimated that the initial public offering price per share will
be between $ and $ . Nuance will apply for quotation of the common
stock on The Nasdaq National Market under the symbol "NUAN."
See "Risk Factors" beginning on page 5 to read about factors you should
consider before buying shares of the common stock.
-----------
Neither the Securities and Exchange Commission nor any other regulatory body
has approved or disapproved of these securities or passed upon the accuracy or
adequacy of this prospectus. Any representation to the contrary is a criminal
offense.
-----------
<TABLE>
<CAPTION>
Per Share Total
--------- -----
<S> <C> <C>
Initial public offering price............................. $ $
Underwriting discount..................................... $ $
Proceeds, before expenses, to Nuance...................... $ $
</TABLE>
To the extent that the underwriters sell more than shares of
common stock, the underwriters have the option to purchase up to an additional
shares from Nuance at the initial public offering price less the
underwriting discount.
-----------
The underwriters expect to deliver the shares against payment in New York,
New York on , 2000.
Goldman, Sachs & Co.
Thomas Weisel Partners LLC
Dain Rauscher Wessels
Wit SoundView
-----------
Prospectus dated , 2000
<PAGE>
[EDGAR DESCRIPTION OF INSIDE FRONT COVER ART:
Three dialog bubbles located in the center of the page containing the
following text:
"Computer: "What would you like to do?"
Caller: "Buy a hundred shares of IBM at one twelve and a quarter."
Computer: "Confirming, for the day, buy 100 shares of International
Business Machines at 112 and 1/4. Is this correct?"
Caller: "Yeah."
Computer: "Your order is confirmed and pending."
and
"Computer: "Who would you like to call?"
Caller: "Get me Doug Johnson at work."
Computer: "Calling Douglas Johnson, office phone."
and
"Computer: "Welcome to your voice portal homepage, how can I help you?
Caller: "I'd like a traffic report."
Computer: "For what road would you like the traffic report?"
Caller: "Highway 280, northbound."
Computer: "Highway 280 northbound is stop-and-go from the Sand Hill
Road exit to Highway 92." "
Nuance logo in lower left followed by text: "Voice interface software platform
making the information and services of enterprises, telecommunications networks
and the Internet accessible from any telephone.]
<PAGE>
PROSPECTUS SUMMARY
You should read this summary together with the more detailed information
regarding our company and the common stock being sold in this offering and the
financial statements and notes appearing elsewhere in this prospectus.
NUANCE COMMUNICATIONS
Our Business
Nuance develops, markets and supports a voice interface software platform
that makes the information and services of enterprises, telecommunications
networks and the Internet accessible from any telephone.
Our software platform consists of software servers that run on industry-
standard hardware and perform speech recognition, natural language
understanding and voice authentication. Speech recognition recognizes what a
person says; natural language understanding derives the meaning of what is
said; and voice authentication verifies the identity of a speaker based on the
unique qualities of his voice. We offer a software developer's toolkit and
software components to enable our customers and third parties to develop voice
user interfaces that use our software platform. We also offer a range of
consulting, support and educational services.
In October 1999, we publicly announced and demonstrated our Voyager voice
browser, which we anticipate will be commercially available in the second half
of 2000. Our voice browser will provide a standard voice user interface for
access to traditional telephony applications, voice portals and voice-enabled
Internet content. The functionality of our voice browser used via the telephone
is analogous to a web browser, which allows users to navigate the World Wide
Web via a personal computer.
Enterprises such as brokerages, banks, airlines and retailers, use our
software platform to provide a voice user interface to applications including
stock quotes and trading, home banking, travel planning and shopping. Wireless
and wireline telecommunications carriers can use our software platform to
provide their subscribers with a variety of services having a voice user
interface. These voice-enabled services include dialing, directory assistance,
access to voicemail and email messages, access to personal contact information,
conference call set-up and calendar management. a voice portal is a new type of
enhanced service provider that uses our software platform to enable and expand
its offerings. Voice portals offer access to information and commerce over the
telephone using a voice user interface, similar to the way that web portals
provide information and commerce through a personal computer using a graphical
user interface.
As of December 31, 1999, over 150 businesses in a variety of industries
worldwide had licensed our software platform directly from us or through our
resellers. These businesses include:
. enterprises, including financial service companies such as
Charles Schwab & Co. and Fidelity Investments, banks such as
Banco Itau (Brazil) and Lloyds TSB (United Kingdom), airlines
such as American Airlines and Delta Airlines, and retailers such
as The Home Shopping Network and Sears, Roebuck and Co.;
. telecommunications carriers, such as British Telecom, CTBC
Telecom (Brazil), Telia (Italy) and US West; and
. enhanced service providers, such as General Magic, GoSolo
Technologies, U-Access and Webley Systems.
1
<PAGE>
Our Market Opportunity
Companies are continually striving to create more efficient and effective
ways of communicating and conducting business with their customers. Customers
are placing increasing value on real-time availability of, and convenience of
access to, information, products and services.
The Internet has emerged as a global communications medium enabling
businesses and their customers to connect. Considerable investment has been
made by enterprises in developing information and commerce systems for the
Internet over the past few years. Although access to the Internet is becoming
increasingly common, International Data Corporation estimates that by 2002,
only 47% of U.S. households will have access to the Internet. Even those
potential users who do have Internet access are not always near their personal
computers when they need information or want to conduct commerce.
The proliferation of wireless phones and the ubiquity of wireline phones
provides a powerful means to connect businesses with all of their potential
customers at any time, from anywhere. We believe that enterprises will seek to
leverage their investments in the Internet by providing customers with enhanced
commerce capabilities over the telephone. Telecommunications carriers will
compete to provide this telephone access by expanding the functionality and
performance of their network services. Voice portals will offer applications
that further support the delivery of communications and commerce through a
voice user interface.
Voice interface software enables the transformation of customer access to
information and services to occur. Therefore, we believe that there is a
significant opportunity for a telephone-based voice user interface to deliver
information and enable commerce in a cost-effective, convenient and easy-to-use
manner.
Our Strategy
Our objective is to be the leading voice interface software platform for
applications used within enterprises and across telecommunications networks and
the Internet. To achieve our objective, we intend to:
. facilitate the development, adoption and usage of voice user interfaces
to information and services;
. facilitate broad acceptance and deployment of our software platform;
. establish the de facto standard for voice user interfaces;
. leverage our strategic relationships to deliver complete solutions; and
. further develop our global sales, distribution, service and support
capabilities and related product offerings.
Corporate Information
We were founded in 1994 to develop and commercialize voice interface
technologies. We were incorporated in California in July 1994 but we plan to
reincorporate in Delaware prior to the closing of this offering. Our principal
executive offices are located at 1005 Hamilton Court, Menlo Park, California
94025 and our telephone number is (650) 847-0000. Our web site is located at
"www.nuance.com." Information contained on our web site is not a part of this
prospectus.
Nuance and Nuance Communications are registered trademarks of Nuance. The
Nuance logo, Nuance 6, Nuance Express, Nuance Verifier, SpeechObjects, Voyager
and V-Builder are trademarks of Nuance. This prospectus also contains
trademarks of other companies.
2
<PAGE>
The Offering
<TABLE>
<C> <S>
Common stock offered................................ shares
Common stock to be outstanding after this offering.. shares
Use of proceeds..................................... We intend to use the
proceeds for general
corporate purposes,
including working capital
and capital expenditures.
You should look at the
"Use of Proceeds" section
for a discussion on how
we plan to use the
proceeds.
Proposed Nasdaq National Market symbol.............. NUAN
</TABLE>
The above information is based on shares outstanding as of September 30,
1999 and excludes:
. shares issuable upon exercise of options outstanding at a weighted
average exercise price of $ per share as of September 30, 1999;
. shares issuable upon exercise of warrants outstanding at a weighted
average exercise price of $ per share as of September 30, 1999; and
. a total of shares available for future issuance under our various
stock plans as of September 30, 1999, excluding the annual increases in
the number of shares authorized under each of our plans beginning January
1, 2001. See "Management--Incentive Plans" for a description of how these
annual increases are determined.
In addition, the above information excludes shares issuable upon exercise
of options granted from October 1, 1999 to January 31, 2000 at a weighted
average exercise price of $ per share.
----------------
Unless otherwise indicated, this prospectus assumes:
. our reincorporation in Delaware prior to the closing of the offering,
. the automatic conversion of our outstanding convertible preferred stock
into common stock upon closing of the offering,
. the filing of our restated certificate of incorporation, authorizing a
class of 5,000,000 shares of undesignated preferred stock, upon closing
of the offering, and
. no exercise by the underwriters of their option to purchase additional
shares of stock in the offering.
3
<PAGE>
Summary Financial Data
(In thousands, except per share data)
The following table sets forth a summary of our statement of operations data
for the periods presented. The pro forma basic and diluted net loss per share
for the periods presented reflects the conversion of our convertible preferred
stock upon completion of this offering.
<TABLE>
<CAPTION>
Period From
July 14, 1994
(inception) Nine Months Ended
to Year Ended December 31, September 30,
December 31, ---------------------------------- -------------------
1994 1995 1996 1997 1998 1998 1999
------------- ------- ------- ------- ------- -------- ---------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated Statement
of Operations Data:
Total revenue........... $ 34 $ 908 $ 1,498 $ 4,382 $11,879 $ 9,161 $ 13,515
Gross profit............ 33 698 850 3,218 8,656 6,977 9,560
Loss from operations.... (468) (1,233) (3,299) (3,758) (7,536) (3,800) (11,803)
Net loss................ (474) (1,192) (3,241) (3,554) (6,938) (3,324) (11,466)
Basic and diluted net
loss per share......... $ (2.34) $ (2.78) $ (2.46) $ (3.19) $ (1.61) $ (3.95)
======= ======= ======= ======= ======== =========
Shares used to compute
basic and diluted net
loss per share......... 510 1,164 1,443 2,173 2,063 2,900
======= ======= ======= ======= ======== =========
Pro forma basic net loss
per share (unaudited).. $ (0.42) $ (0.20) $ (0.63)
======= ======== =========
Shares used to compute
pro forma basic net
loss per share
(unaudited)............ 16,659 16,303 18,126
======= ======== =========
</TABLE>
For a description of shares used in computing basic and diluted net loss per
share and pro forma basic net loss per share, see note 2 of notes to financial
statements included in this prospectus.
The following table sets forth a summary of our balance sheet data as of
September 30, 1999:
. on an actual basis;
. on a pro forma basis to give effect to the automatic conversion of all of
the outstanding shares of our convertible preferred stock into shares of
common stock upon the closing of this offering; and
. on a pro forma as adjusted basis to reflect the automatic conversion of
the convertible preferred stock and our receipt of the estimated net
proceeds from the sale of shares of common stock in this offering at
an assumed initial public offering price of $ per share.
<TABLE>
<CAPTION>
As of September 30, 1999
-----------------------------
Pro Forma
Actual Pro Forma As Adjusted
------- --------- -----------
(unaudited)
<S> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents......................... $ 1,622 $ 1,622 $
Working capital................................... 778 778
Total assets...................................... 13,897 13,897
Long-term debt, less current portion.............. 1,069 1,069
Total stockholders' equity........................ 3,087 3,087
</TABLE>
4
<PAGE>
RISK FACTORS
This offering and an investment in our common stock involve a high degree of
risk. You should carefully consider the following risk factors and the other
information in this prospectus before investing in our common stock. Our
business and results of operations could be seriously harmed by any of the
following risks. The trading price of our common stock could decline due to any
of these risks and you may lose part or all of your investment.
We have a history of losses. We expect to continue to incur losses and we may
not achieve or maintain profitability.
We have incurred losses since our inception, including a loss of
approximately $6.9 million for the year ended December 31, 1998 and $11.5
million for the nine months ended September 30, 1999. As of September 30, 1999,
we have an accumulated deficit of approximately $26.9 million. We expect to
have net losses and negative cash flow for at least the next 24 months. We
expect to spend significant amounts to enhance our products and technologies,
expand international sales and operations and fund research and development. As
a result, we will need to generate significant additional revenue to achieve
profitability. Even if we do achieve profitability, we may not be able to
sustain or increase profitability on a quarterly or annual basis. If we do not
achieve and maintain profitability, the market price for our common stock may
decline, perhaps substantially.
Voice interface software may not achieve widespread acceptance by businesses
and telecommunications carriers, which could limit our ability to grow our
business.
The market for voice interface software is relatively new and rapidly
evolving. Our ability to increase revenue in the future depends on the
acceptance by both our customers and their end users of voice interface
software. The adoption of voice interface software could be hindered by the
perceived costs of this new technology, as well as the reluctance of
enterprises that have invested substantial resources in existing call centers
or touch-tone-based systems to replace their current systems with this new
technology. Accordingly, in order to achieve commercial acceptance, we will
have to educate prospective customers, including large, established
telecommunications companies, about the uses and benefits of voice interface
software in general and our products in particular. If these efforts fail, or
if voice interface software platforms do not achieve commercial acceptance, our
business could be harmed.
The continued development of the market for our products also will depend
upon the:
. widespread deployment of voice interface applications by third parties,
which is driven by consumer demand for services having a voice user
interface;
. demand for new uses and applications of voice interface technology,
including adoption of voice user interfaces by companies that operate
web sites;
. adoption of industry standards for voice interface and related
technologies; and
. continuing improvements in hardware technology that may reduce the costs
of voice interface software solutions.
5
<PAGE>
Our ability to accurately forecast our quarterly sales is limited, our costs
are relatively fixed in the short term and we expect our business to be
affected by seasonality. As a result, our quarterly operating results and our
stock price may fluctuate.
Our quarterly operating results have varied significantly in the past and we
expect that they will vary significantly from quarter to quarter in the future.
These quarterly variations are caused by a number of factors, including:
. delays in customer orders due to the complex nature of large telephony
systems and the associated implementation projects;
. timing of product deployments and completion of project phases,
particularly for large orders;
. delays in recognition of software license revenue in accordance with
applicable accounting principles;
. our ability to develop, introduce, ship and support new and enhanced
products, such as our voice browser and new versions of our software
platform, that respond to changing technology trends in a timely manner
and our ability to manage product transitions;
. the amount and timing of increases in expenses associated with our
growth; and
. the utilization rate of our professional services personnel.
Due to these factors, and because the market for our voice interface software
platform is new and rapidly evolving, our ability to accurately forecast our
quarterly sales is limited. In addition, most of our costs are for personnel
and facilities, which are relatively fixed in the short term. If we have a
shortfall in revenue in relation to our expenses, we may be unable to reduce
our expenses quickly enough to avoid lower quarterly operating results. We do
not know whether our business will grow rapidly enough to absorb the costs of
these employees and facilities. As a result, our quarterly operating results
could fluctuate and this fluctuation could adversely affect the market price of
our common stock.
In addition, we expect to experience seasonality in the sales of our
products. For example, we anticipate that sales may be lower in the first
quarter of each year due to patterns in the capital budgeting and purchasing
cycles of our current and prospective customers. We also expect that sales may
decline during summer months, particularly in Asian and European markets. These
seasonal variations in our sales may lead to fluctuations in our quarterly
operating results. Because we have limited operating results, it is difficult
for us to evaluate the degree to which this seasonality may affect our
business.
Our products can have a long sales and implementation cycle and, as a result,
our quarterly operating results and our stock price may fluctuate.
The sales cycles for our products have typically ranged from three to twelve
months, depending on the size and complexity of the order, the amount of
services to be provided by us and whether the sale is made directly by us or
indirectly through a value added reseller or systems integrator.
Purchase of our products requires a significant expenditure by a customer.
Accordingly, the decision to purchase our products typically requires
significant pre-purchase evaluation. We may spend significant time educating
and providing information to prospective customers regarding the use and
benefits of our products. During this evaluation period, we may expend
substantial sales, marketing and management resources.
6
<PAGE>
In addition, during any quarter we may receive a number of orders that are
large relative to our total revenues for that quarter or subsequent quarters.
For example, we received a large order during the quarter ended June 30, 1998
which caused significant fluctuations in our license revenue during the
quarters ended September 30, 1998 through March 31, 1999 as the revenue
associated with this order was recognized.
After purchase, it may take substantial time and resources to implement our
software and to integrate it with our customers' existing systems. If we are
performing significant professional services in connection with the
implementation, we do not recognize software revenue until after system
acceptance or deployment. In cases where the contract specifies milestones or
acceptance criteria, we may not be able to recognize services revenue until
these conditions are met. We have in the past and may in the future experience
unexpected delays in recognizing revenue. Consequently, the length of our sales
and implementation cycles and the varying order amounts for our products make
it difficult to predict the quarter in which revenue recognition may occur and
may cause license and services revenue and operating results to vary
significantly from period to period. These factors could cause our stock price
to be volatile or to decline.
Our failure to respond to rapid change in the market for voice interface
software could cause us to lose revenue and harm our business.
The voice interface software industry is relatively new and rapidly evolving.
Our success will depend substantially upon our ability to enhance our existing
products and to develop and introduce, on a timely and cost-effective basis,
new products and features that meet changing end-user requirements and
incorporate technological advancements. If we are unable to develop new
products and enhanced functionalities or technologies to adapt to these
changes, or if we cannot offset a decline in revenue from existing products
with sales of new products, our business would suffer.
Commercial acceptance of our products and technologies will depend, among
other things, on:
. the ability of our products and technologies to meet and adapt to the
needs of our target markets;
. the performance and price of our products and our competitors' products;
and
. our ability to deliver customer service directly and through our
resellers.
We could be subject to claims related to the use of our products. Any claims,
whether successful or unsuccessful, could result in significant costs and could
damage our reputation.
Speech recognition, natural language understanding and authentication
technologies, including our own, are not 100% accurate. Our customers,
including several financial institutions, use our products to provide important
services to their customers, including transferring funds to accounts and
buying and selling securities. Any misrecognition of voice commands or
incorrect authentication of a user's voice in connection with these financial
or other transactions could result in claims against us or our customers for
losses incurred. Although our contracts typically contain provisions designed
to limit our exposure to liability claims, a claim brought against us for
misrecognition or incorrect authentication, even if unsuccessful, could be
time-consuming, divert management's attention, result in costly litigation and
harm our reputation. Moreover, existing or future laws or unfavorable judicial
decisions could limit the enforceability of the limitation of liability,
disclaimer of warranty or other protective provisions contained in our
contracts.
Any software defects in our products could harm our business and result in
litigation.
Complex software products such as ours may contain errors, defects and bugs.
With the planned release of any product, we may discover these errors, defects
and bugs and, as a result,
7
<PAGE>
our products may take longer than expected to develop. In addition, we may
discover that remedies for errors or bugs may be technologically unfeasible.
Delivery of products with undetected production defects or reliability,
quality, or compatibility problems could damage our reputation. Errors, defects
or bugs could also cause interruptions, delays or a cessation of sales to our
customers. We could be required to expend significant capital and other
resources to remedy these problems. In addition, customers whose businesses are
disrupted by these errors, defects and bugs could bring claims against us
which, even if unsuccessful, would likely be time-consuming and could result in
costly litigation and payment of damages.
Our current and potential competitors, some of whom have greater resources and
experience than we do, may develop products and technologies that may cause
demand for, and the prices of, our products to decline.
A number of companies have developed, or are expected to develop, products
that compete with our products. Competitors in the voice interface software
market include IBM, ITT Industries, Lernout and Hauspie Speech Products, Locus
Dialogue, Lucent Technologies, Philips Electronics, SpeechWorks International
and T-NETIX. We expect additional competition from other companies such as
Microsoft, who recently acquired a voice interface technology company.
Furthermore, our competitors may combine with each other, and other companies
may enter our markets by acquiring or entering into strategic relationships
with our competitors. Current and potential competitors have established, or
may establish, cooperative relationships among themselves or with third parties
to increase the abilities of their advanced speech and language technology
products to address the needs of our prospective customers.
Many of our current and potential competitors have longer operating
histories, significantly greater financial, technical, product development and
marketing resources, greater name recognition and larger customer bases than we
do. Our present or future competitors may be able to develop products
comparable or superior to those we offer, adapt more quickly than we do to new
technologies, evolving industry trends and standards or customer requirements,
or devote greater resources to the development, promotion and sale of their
products than we do. Accordingly, we may not be able to compete effectively in
our markets, competition may intensify and future competition may harm our
business.
We depend on resellers for a significant portion of our sales. The loss of a
key reseller would limit our ability to sustain and grow our revenue.
In 1998, 31% of our revenue was achieved by indirect sales through resellers.
The percentage of revenue through indirect sales increased to 49% in the first
nine months of 1999. One reseller in particular, Periphonics--a Nortel Networks
Company, accounted for 19% of our revenue in 1998 and 29% of our revenue in the
first nine months of 1999. We intend to continue to rely on resellers for a
substantial portion of our sales in the future. As a result, we are dependent
upon the continued viability and financial stability of our resellers, as well
as upon their continued interest and success in selling our products. The loss
of a key reseller or our failure to develop new and viable reseller
relationships could limit our ability to sustain and grow our revenue.
Significant expansion of our internal sales force to replace the loss of a key
reseller would require increased management attention and higher expenditures.
Our contracts with resellers generally do not require a reseller to purchase
our products. We cannot guarantee that any of our resellers will continue to
market our products or devote significant resources to doing so. In addition,
we may, from time to time, terminate some of our relationships with resellers.
Any termination could have a negative impact on our business and result in
threatened
8
<PAGE>
or actual litigation. Finally, these resellers possess confidential information
concerning our products, product release schedules and sales, marketing and
reseller operations. Although we have nondisclosure agreements with our
resellers, we cannot guarantee that any reseller would not use our confidential
information in competition with us or otherwise. If our resellers do not
successfully market and sell our products for these or any other reasons, our
sales could be adversely affected and our revenue could decline.
We depend on a limited number of customer orders for a substantial portion of
our revenue during any given period. Loss of or delays in a key order could
substantially reduce our revenue in any given period and harm our business.
We derive a significant portion of our software license revenue in each
quarter from a limited number of customers. For example, for the year ended
December 31, 1998, five customers accounted for 82% of our revenue. Similarly,
in the nine months ended September 30, 1999, five customers accounted for 78%
of our revenue.
In the same periods, customers exceeding 10% of total revenue were:
. Periphonics--a Nortel Networks Company, who, acting as a reseller,
accounted for 19% of total revenue for 1998 and 29% of total revenue for
the nine months ended September 30, 1999;
. Motorola, a stockholder of Nuance, who accounted for 15% of total
revenue for 1998 and 13% of total revenue for the nine months ended
September 30, 1999; and
. Fidelity, a stockholder of Nuance, who accounted for 32% of total
revenue for 1998 and 29% of total revenue for the nine months ended
September 30, 1999.
We expect that a limited number of customers and customer orders will continue
to account for a substantial portion of our revenue in a given period.
Generally, customers who make large purchases from us are not expected to make
subsequent, equally large purchases in the short term. As a result, if we do
not acquire a major customer, if a contract is delayed, cancelled or deferred,
or if an anticipated sale is not made, our revenue could be adversely affected.
Sales to customers outside the United States account for a significant portion
of our revenue, which exposes us to risks inherent in international operations.
International sales represented approximately 33% of our revenue in 1997, 18%
in 1998 and 18% for the nine months ended September 30, 1999. We are subject to
a variety of risks associated with conducting business internationally, any of
which could harm our business. These risks include:
. difficulties and costs of staffing and managing foreign operations;
. the difficulty in establishing and maintaining an effective
international reseller network;
. the burden of complying with a wide variety of foreign laws,
particularly with respect to intellectual property and license
requirements;
. political and economic instability outside the United States;
. import or export licensing and product certification requirements;
9
<PAGE>
. tariffs, duties, price controls or other restrictions on foreign
currencies or trade barriers imposed by foreign countries;
. potential adverse tax consequences, including higher marginal rates;
. unfavorable fluctuations in currency exchange rates; and
. limited ability to enforce agreements, intellectual property rights and
other rights in some foreign countries.
In order to increase our international sales, we must develop localized
versions of our products. If we are unable to do so, we may be unable to grow
our revenue and execute our business strategy.
We intend to expand our international sales, which requires us to invest
significant resources to create and refine different language models for each
particular language or dialect. These language models are required to create
versions of our products that allow end users to speak the local language or
dialect and be understood and authenticated. If we fail to develop localized
versions of our products, our ability to address international market
opportunities and to grow our business will be limited.
If the standards we have selected to support are not adopted as the standards
for voice interface software, businesses might not use our voice interface
software platform for delivery of applications and services.
The market for voice interface software is new and emerging and industry
standards have not been established yet. We may not be competitive unless our
products support changing industry standards. The emergence of industry
standards, whether through adoption by official standards committees or
widespread usage, could require costly and time consuming redesign of our
products. If these standards become widespread and our products do not support
them, our customers and potential customers may not purchase our products.
Multiple standards in the marketplace could also make it difficult for us to
insure that our products will support all applicable standards, which could in
turn result in decreased sales of our products.
We may encounter difficulties in managing our growth, which could prevent us
from executing our business strategy.
Our rapid growth and expansion has placed, and continues to place, a
significant strain on our resources. To accommodate this growth, we must
implement or upgrade a variety of operational and financial systems, procedures
and controls, including the improvement of our accounting and other internal
management systems. For example, in the second quarter of 2000 we plan to begin
implementing new financial and human resource software systems. This may
require substantial management effort, and our implementation efforts may not
be successful. In addition, we have had to hire additional employees to
accommodate this growth in business and product development activity. This has
resulted in increased responsibilities for our management. Our systems,
procedures and controls may not be adequate to support our operations. If we
fail to improve our operational, financial and management information systems,
or to hire, train, motivate or manage our employees, our business could be
harmed.
Any inability to adequately protect our proprietary technology could harm our
ability to compete.
Our future success and ability to compete depends in part upon our
proprietary technology and our trademarks, which we attempt to protect with a
combination of patent, copyright, trademark and
10
<PAGE>
trade secret laws, as well as with our confidentiality procedures and
contractual provisions. These legal protections afford only limited protection
and may be time-consuming and expensive to obtain and/or maintain. Further,
despite our efforts, we may be unable to prevent third parties from infringing
upon or misappropriating our intellectual property.
Although we have filed fifteen U.S. patent applications, we do not currently
have any issued patents. There is no guarantee that patents will be issued with
respect to our current or future patent applications. Any patents that are
issued to us could be invalidated, circumvented or challenged. If challenged,
our patents might not be upheld or their claims could be narrowed. Our
intellectual property may not be adequate to provide us with competitive
advantage or to prevent competitors from entering the markets for our products.
Additionally, our competitors could independently develop non-infringing
technologies that are competitive with, equivalent to, and/or superior to our
technology. Monitoring infringement and/or misappropriation of intellectual
property can be difficult, and there is no guarantee that we would detect any
infringement or misappropriation of our proprietary rights. Even if we do
detect infringement or misappropriation of our proprietary rights, litigation
to enforce these rights could cause us to divert financial and other resources
away from our business operations. Further, we license our products
internationally, and the laws of some foreign countries do not protect our
proprietary rights to the same extent as do the laws of the United States.
Third parties could obtain licenses from SRI International relating to voice
interface technologies and develop technologies to compete with our products,
which could cause our sales to decline.
Upon our incorporation in 1994, we received a license from SRI International
to a number of patents and other proprietary rights, including rights in
software, relating to voice interface technologies developed by SRI
International. This license was exclusive until December 1999, when we chose to
allow the exclusivity to lapse. As a result, SRI International may license
these patents and proprietary rights to our competitors. If a license from SRI
International were to enable third parties to enter the markets for our
products and services or to compete more effectively, we could lose market
share and our business could suffer.
Our products may infringe the intellectual property rights of others, and
resulting claims against us could be costly and require us to enter into
disadvantageous license or royalty arrangements.
The software industry is characterized by the existence of a large number of
patents and frequent litigation based on allegations of patent infringement and
the violation of intellectual property rights. Although we attempt to avoid
infringing known proprietary rights of third parties we may be subject to legal
proceedings and claims for alleged infringement by us or our licensees of
third-party proprietary rights, such as patents, trade secrets, trademarks or
copyrights, from time to time in the ordinary course of business. Any claims
relating to the infringement of third-party proprietary rights, even if not
successful or meritorious, could result in costly litigation, divert resources
and management's attention or require us to enter into royalty or license
agreements which are not advantageous to us. In addition, parties making these
claims may be able to obtain injunctions, which could prevent us from selling
our products. Furthermore, former employers of our employees may assert that
these employees have improperly disclosed confidential or proprietary
information to us. Any of these results could harm our business. We may be
increasingly subject to infringement claims as the number of, and number of
features of, our products grow.
If we are unable to hire and retain technical, sales and marketing and
operational personnel, our business could be harmed.
We intend to continue to hire a significant number of additional personnel,
including software engineers, sales and marketing personnel and operational
personnel. Competition for these
11
<PAGE>
individuals is intense, especially in the San Francisco Bay Area where we are
located, and we may not be able to attract, assimilate, or retain additional
highly qualified personnel in the future. The failure to attract, integrate,
motivate and retain these employees could harm our business.
We rely on the services of our key personnel, whose knowledge of our business
and technical expertise would be difficult to replace.
We rely upon the continued service and performance of a relatively small
number of key technical and senior management personnel. Our future success
depends on our retention of these key employees, such as Ronald Croen, our
Chief Executive Officer. None of our key technical or senior management
personnel are bound by employment agreements, and, as a result, any of these
employees could leave with little or no prior notice. If we lose any of our key
technical and senior management personnel, our business could be harmed. We do
not have key person life insurance policies covering any of our employees.
Our stock price could be extremely volatile, and you may not be able to resell
your shares at or above the initial offering price.
Our common stock has never been sold in a public market, and an active
trading market for our common stock may not develop or be sustained upon the
completion of this offering. We are negotiating the initial offering price of
the common stock with the underwriters. However, the initial offering price may
not be indicative of the prices that will prevail in the public market after
the offering, and the market price of the common stock could fall below the
initial public offering price. You should read the "Underwriting" section for a
discussion of the factors considered in determining the initial public offering
price.
In addition, in recent years, the stock market in general, and the Nasdaq
National Market and the securities of technology companies in particular, has
experienced extreme price and trading volume fluctuations. These fluctuations
have often been unrelated or disproportionate to the operating performance of
individual companies. These broad market fluctuations may materially adversely
affect our stock price, regardless of our operating results.
Management may invest or spend the proceeds of this offering in ways with which
you may not agree and in ways that may not yield a favorable return.
Management will retain broad discretion over the use of proceeds from this
offering. Stockholders may not deem these uses desirable and our use of the
proceeds may not yield a significant return or any return at all. Because of
the number and variability of factors that determine our use of the net
proceeds from this offering, we cannot guarantee that these uses will not vary
substantially from our currently planned uses. Pending these uses of the net
proceeds from this offering, we intend to invest the net proceeds from this
offering in short-term, interest-bearing, investment-grade securities and U.S.
government securities.
Some of our existing stockholders can exert control over Nuance and may not
make decisions that are in the best interests of all stockholders.
After this offering, our executive officers and directors, their affiliates
and other current substantial stockholders will together control approximately
% of our outstanding common stock. As a result, these stockholders, if they
act together, will be able to exert a significant degree of influence over our
management and affairs and over matters requiring stockholder approval,
including the election of directors and approval of significant corporate
transactions. In addition, this concentration of ownership may delay or prevent
a change in control of Nuance, even when a change in control may be in the best
interests of other stockholders. Moreover, the interests of this
12
<PAGE>
concentration of ownership may not always coincide with our interests or the
interests of other stockholders and, accordingly, these controlling
stockholders could cause us to enter into transactions or agreements which we
would not otherwise consider.
Our charter and bylaws and Delaware law contain provisions which may delay or
prevent a change of control of Nuance.
Provisions of our charter and bylaws may make it more difficult for a third
party to acquire, or discourage a third party from attempting to acquire,
control of Nuance. These provisions could limit the price that investors might
be willing to pay in the future for shares of our common stock. These
provisions include:
. the division of the board of directors into three separate classes;
. the elimination of cumulative voting in the election of directors;
. prohibitions on our stockholders from acting by written consent and
calling special meetings;
. procedures for advance notification of stockholder nominations and
proposals; and
. the ability of the board of directors to alter our bylaws without
stockholder approval.
In addition, our board of directors has the authority to issue up to
5,000,000 shares of preferred stock and to determine the price, rights,
preferences, privileges and restrictions, including voting rights, of those
shares without any further vote or action by the stockholders. The issuance of
preferred stock, while providing flexibility in connection with possible
financings or acquisitions or other corporate purposes, could have the effect
of making it more difficult for a third party to acquire a majority of our
outstanding voting stock.
Upon completion of this offering, we will be subject to the antitakeover
provisions of the Delaware General Corporation Law, including Section 203 which
may deter potential acquisition bids for our company. You should read the
"Description of Capital Stock" for a discussion of how Section 203 operates.
Under Delaware law, a corporation may opt out of Section 203. We do not intend
to opt out of the provisions of Section 203.
We may incur a variety of costs to engage in future acquisitions of companies,
products or technologies, and the anticipated benefits of those acquisitions
may never be realized.
As a part of our business strategy, we may make acquisitions of, or
significant investments in, complementary companies, products or technologies,
although no acquisitions or investments are currently pending. Any future
acquisitions would be accompanied by risks such as:
. difficulties in assimilating the operations and personnel of acquired
companies;
. diversion of our management's attention from ongoing business concerns;
. our potential inability to maximize our financial and strategic position
through the successful incorporation of acquired technology and rights
into our products and services;
. additional expense associated with amortization of acquired assets;
. maintenance of uniform standards, controls, procedures and policies; and
. impairment of existing relationships with employees, suppliers and
customers as a result of the integration of new management personnel.
We cannot guarantee that we will be able to successfully integrate any
business, products, technologies or personnel that we might acquire in the
future, and our failure to do so could harm our business.
13
<PAGE>
A total of 22,966,335 shares, or % of our total outstanding shares after the
offering, are restricted from immediate resale, but may be sold into the market
in the near future. Sales of these securities could cause the market price of
our common stock to drop significantly, even if our business is doing well.
Our current stockholders hold a substantial number of shares, which they will
be able to sell in the public market in the near future. Sales of a substantial
number of shares of our common stock could cause our stock price to fall. In
addition, the sale of these shares could impair our ability to raise capital
through the sale of additional stock.
After this offering, we will have outstanding shares of common stock
assuming the conversion of all outstanding shares of preferred stock into
common stock and no exercise of options or warrants after December 31, 1999.
This includes shares that we are selling in the offering, which may be
resold immediately in the public market. The remaining 22,966,335 shares will
become eligible for resale in the public market as shown in the table below.
<TABLE>
<CAPTION>
Number of shares/
percent outstanding
after the offering Date of availability for resale into public market
------------------- ------------------------------------------------------
<C> <S>
/ % 180 days after the date of the final prospectus due to
agreements these stockholders have with us and the
underwriters. However, the underwriters can waive this
restriction without prior notice and allow these
stockholders to sell their shares at any time.
/ % At various times after October 1, 2000 due to the
requirements of federal securities laws.
</TABLE>
In addition, we have 5,203,000 shares of our common stock available for
future grant pursuant to our stock option plans, and 5,719,265 shares subject
to outstanding options at December 31, 1999. 5,719,265 of these outstanding
options are also subject to a 180-day lockup agreement. We intend to register,
prior to the expiration of the lockup, the shares of common stock reserved for
issuance under our stock option plans and shares of common stock reserved for
issuance under our employee stock purchase plan. Accordingly, shares underlying
vested options will be eligible for resale in the public market beginning on
expiration of the lockup. We also have shares underlying outstanding
warrants, also subject to lockup, that will be eligible for resale in the
public market as soon as the expiration of the lockup.
Our facilities are located near known earthquake fault zones, and the
occurrence of an earthquake or other natural disaster could cause damage to our
facilities and equipment which could require us to cease or curtail operations.
Our facilities are located in the San Francisco Bay Area near known
earthquake fault zones and are vulnerable to damage from earthquakes. In
October 1989, a major earthquake that caused significant property damage and a
number of fatalities struck this area. We are also vulnerable to damage from
other types of disasters, including fire, floods, power loss, communications
failures and similar events. If any disaster were to occur, our ability to
operate our business at our facilities could be seriously, or potentially
completely, impaired. The insurance we maintain may not be adequate to cover
our losses resulting from disasters or other business interruptions.
We do not intend to pay dividends on our common stock.
We currently intend to retain any future earnings for funding growth and,
therefore, do not anticipate paying any dividends in the foreseeable future.
You should read the "Dividend Policy" section for a discussion of our dividend
policy.
14
<PAGE>
Investors in this offering will suffer immediate and substantial dilution.
If you purchase shares of our common stock, you will suffer an immediate and
substantial dilution of approximately $ in net tangible book value per
share, or approximately % of the anticipated offering price of $ per
share. If the holders of options or warrants exercise these securities, you
will suffer further dilution. You should read the "Dilution" section for a
discussion and calculation of dilution.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that involve risks and
uncertainties. These statements relate to future events or our future financial
performance. In some cases, you can identify forward-looking statements by
terminology such as "may," "will," "should," "could," "expect," "anticipate,"
"intend," "plan," "believe," "estimate," "potential," or "continue," the
negative of these terms or other comparable terminology. These statements are
only predictions. Actual events or results may differ materially from any
forward-looking statement. In evaluating these statements, you should
specifically consider various factors, including the risks outlined under "Risk
Factors."
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Moreover, neither we nor any other
person assume responsibility for the accuracy and completeness of the forward-
looking statements. Except as required by law, we undertake no obligation to
update publicly any forward-looking statements for any reason after the date of
this prospectus to conform these statements to actual results or to changes in
our expectations. Before you invest in our common stock, you should be aware
that the occurrence of the events described under "Risk Factors" and elsewhere
in this prospectus could harm our business.
15
<PAGE>
USE OF PROCEEDS
We estimate that our net proceeds from the sale of the shares of
common stock we are offering at an estimated initial public offering price of
$ per share, after deducting underwriting discounts and commissions and
estimated offering expenses, will be approximately $ . If the
underwriters' over-allotment option is exercised in full, we estimate that our
net proceeds will be approximately $ million. We expect to use the net
proceeds from this offering for general corporate purposes, including working
capital and capital expenditures. A portion of the proceeds may also be used to
acquire or invest in complementary businesses or products or to obtain the
right to use complementary technologies, although there are no current plans,
negotiations or discussions for any of these transactions. Pending use of the
net proceeds for the above purposes, we intend to invest these funds in short-
term, interest-bearing, investment-grade securities.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our common stock or
other securities. We currently anticipate that we will retain all of our future
earnings for use in the expansion and operation of our business and do not
anticipate paying any cash dividends in the foreseeable future.
16
<PAGE>
CAPITALIZATION
The following table sets forth our total capitalization as of September 30,
1999:
. on an actual basis;
. on a pro forma basis to reflect the conversion of all outstanding shares
of convertible preferred stock into shares of common stock
upon the closing of this offering; and
. on a pro forma as adjusted basis to reflect the receipt by Nuance of the
estimated net proceeds from the sale of common stock offered by this
prospectus at an assumed initial public offering price of $ per share,
after deducting underwriting discounts and commissions and estimated
offering expenses.
<TABLE>
<CAPTION>
September 30, 1999
-------------------------------
Pro Pro Forma
Actual Forma As Adjusted
-------- -------- -----------
(In thousands)
<S> <C> <C> <C>
Long-term debt, less current portion........... $ 1,069 $ 1,069 $
-------- -------- ----
Stockholders' equity:
Convertible preferred stock, $0.001 par value,
19,977,076 shares authorized, 15,226,022
shares issued and outstanding actual; no
shares issued and outstanding pro forma and
pro forma as adjusted........................ 15 --
Preferred stock, $0.001 par value, no shares
authorized, issued or outstanding actual and
pro forma; 5,000,000 shares authorized, no
shares issued and outstanding pro forma as
adjusted..................................... -- --
Common stock, $0.001 par value, 50,000,000
shares authorized actual and pro forma;
3,069,283 shares issued and outstanding
actual; 18,295,305 shares issued and
outstanding pro forma; 250,000,000 shares
authorized, shares issued and
outstanding pro forma as adjusted............ 3 18
Additional paid-in capital.................... 30,217 30,217
Deferred stock compensation................... (283) (283)
Accumulated deficit........................... (26,865) (26,865)
-------- -------- ----
Total stockholders' equity................. $ 3,087 $ 3,087 $
======== ======== ====
Total capitalization....................... $ 4,156 $ 4,156 $
======== ======== ====
</TABLE>
In addition to the shares of common stock to be outstanding after the
offering, we may issue additional shares of common stock under the following
plans and arrangements:
. shares of common stock subject to outstanding options at a
weighted average exercise price of $ per share as of September 30,
1999;
. shares of common stock issuable upon exercise of
outstanding warrants at a weighted average exercise price of $ per
share as of September 30, 1999;
. shares of common stock that have been set aside for future
stock options as of September 30, 1999; or
. shares of common stock that have been set aside for
employees who elect to participate in our employee stock purchase plan.
Of the shares of common stock that have been set aside for future stock
options, shares have been granted from October 1, 1999 to January 31, 2000.
This information should be read in conjunction with our financial statements
and related notes included elsewhere in this prospectus.
17
<PAGE>
DILUTION
Our pro forma net tangible book value as of September 30, 1999, was
approximately $ or $ per share of common stock. Pro forma net
tangible book value per share represents the amount of our total tangible
assets reduced by the amount of our total liabilities divided by the pro forma
number of outstanding shares of common stock, assuming the conversion of all
outstanding shares of preferred stock into shares of common stock. After giving
effect to our sale of the shares of common stock offered by this
prospectus, based upon an assumed initial public offering price of $ per
share and after deducting underwriting discounts and commissions and estimated
offering expenses payable by Nuance, our pro forma net tangible book value at
September 30, 1999 would have been $ or $ per share. This represents an
immediate increase in pro forma net tangible book value of $ per share to
existing stockholders and an immediate dilution of $ per share to new
investors purchasing shares of the initial offering price. Dilution is
determined by subtracting pro forma net tangible book value per share after the
offering from the assumed initial public offering price per share. The
following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Initial public offering price per share.............................. $
Pro forma net tangible book value per share as of September 30,
1999.............................................................. $
Increase in pro forma net tangible book value per share
attributable to new investors.....................................
----
Pro forma net tangible book value per share after offering...........
----
Dilution per share to new investors.................................. $
====
</TABLE>
The following table sets forth, on the pro forma basis, as of September 30,
1999, the difference between the number of shares of common stock purchased
from us, the total consideration paid, and the average price per share paid by
the existing stockholders and by investors purchasing shares in this offering
(based upon an initial public offering price of $ per share before deduction
of underwriting discounts and commissions and estimated offering expenses):
<TABLE>
<CAPTION>
Shares
Purchased Total Consideration
-------------- --------------------- Average Price
Number Percent Amount Percent Per Share
------ ------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders....... % $ % $
New investors...............
---- ----- ---------- ---------
Total..................... 100.0% $ 100.0%
==== ===== ========== =========
</TABLE>
If the underwriters' over-allotment option is exercised in full, the number
of shares held by new investors will increase to or % of the
total shares of common stock outstanding after this offering.
In the event that we issue additional shares of common stock in the future,
purchasers of common stock in this offering may experience further dilution. As
of September 30, 1999, there were options outstanding to purchase shares
of common stock at a weighted average exercise price of approximately $
per share, shares of common stock issuable upon exercise of outstanding
warrants at a weighted average exercise price of $ per share and
shares of common stock reserved for issuance under our stock option plans and
our employee stock purchase plan.
Assuming the exercise in full of all outstanding options and warrants, our
pro forma as adjusted net tangible book value at September 30, 1999 would be
$ per share, representing an immediate increase in net tangible book value
of $ per share to our existing stockholders, and an immediate decrease in
the net tangible book value per share of $ to the new investors.
18
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with our
financial statements and related notes thereto and "Management's Discussion and
Analysis of Financial Condition and Results of Operations," included elsewhere
in this prospectus. The selected statement of operations data for the years
ended December 31, 1996, 1997 and 1998 and the selected balance sheet data as
of December 31, 1997 and 1998 have been derived from our audited financial
statements and the notes thereto included elsewhere in this prospectus. The
selected balance sheet data as of December 31, 1995 and 1996, and as of
September 30, 1999, and selected statement of operations data for the period
from July 14, 1994 (inception) to December 31, 1994, for the year ended
December 31, 1995 and for nine month periods ended September 30, 1998 and 1999
have not been audited. In the opinion of management, these unaudited financial
statements have been prepared on the same basis as the audited financial
statements referred to above and include all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation of our
operating results for the indicated periods. Operating results for the nine
months ended September 30, 1999 are not necessarily indicative of the results
that may be expected for the full year.
<TABLE>
<CAPTION>
Period From
July 14, 1994
(inception) Nine Months Ended
to Year Ended December 31, September 30,
December 31, ---------------------------------- -------------------
1994 1995 1996 1997 1998 1998 1999
------------- ------- ------- ------- ------- -------- ---------
(unaudited) (unaudited)
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenue:
License............... -- $ 43 $ 1,187 $ 2,726 $ 8,092 $ 6,573 $ 9,257
Service............... $ 34 865 311 1,656 3,787 2,588 4,258
----- ------- ------- ------- ------- -------- ---------
Total revenue........ 34 908 1,498 4,382 11,879 9,161 13,515
----- ------- ------- ------- ------- -------- ---------
Cost of revenue:
License............... -- -- 383 125 524 514 124
Service............... 1 210 265 1,039 2,699 1,670 3,831
----- ------- ------- ------- ------- -------- ---------
Total cost of
revenue............. 1 210 648 1,164 3,223 2,184 3,955
----- ------- ------- ------- ------- -------- ---------
Gross profit............ 33 698 850 3,218 8,656 6,977 9,560
----- ------- ------- ------- ------- -------- ---------
Operating expenses:
Sales and marketing... 52 100 807 2,264 6,857 4,595 11,221
Research and
development.......... 182 1,273 2,685 3,641 6,615 4,371 7,753
General and
administrative....... 267 558 657 1,071 2,720 1,811 2,389
----- ------- ------- ------- ------- -------- ---------
Total operating
expenses............ 501 1,931 4,149 6,976 16,192 10,777 21,363
----- ------- ------- ------- ------- -------- ---------
Loss from operations.... (468) (1,233) (3,299) (3,758) (7,536) (3,800) (11,803)
Interest and other
income, net............ (6) 41 58 204 598 476 337
----- ------- ------- ------- ------- -------- ---------
Net loss................ $(474) $(1,192) $(3,241) $(3,554) $(6,938) $ (3,324) $ (11,466)
===== ======= ======= ======= ======= ======== =========
Basic and diluted net
loss per share......... $ (2.34) $ (2.78) $ (2.46) $ (3.19) $ (1.61) $ (3.95)
======= ======= ======= ======= ======== =========
Shares used to compute
basic and diluted net
loss per share ........ 510 1,164 1,443 2,173 2,063 2,900
======= ======= ======= ======= ======== =========
Pro forma basic net loss
per share (unaudited).. $ (0.42) $ (0.20) $ (0.63)
======= ======== =========
Shares used in computing
pro forma basic net
loss per share
(unaudited)............ 16,659 16,303 18,126
======= ======== =========
</TABLE>
<TABLE>
<CAPTION>
As of December 31, As of
---------------------------- September 30,
1995 1996 1997 1998 1999
------ ------ ------ ------- -------------
(unaudited) (unaudited)
(In thousands)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents.......... $ 514 $1,283 $2,056 $ 1,642 $ 1,622
Working capital.................... 3,957 480 4,028 12,406 778
Total assets....................... 4,581 2,216 6,940 20,199 13,897
Long-term debt, less current
portion........................... -- -- 815 -- 1,069
Total stockholders' equity......... 4,042 801 4,384 14,260 3,087
</TABLE>
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
We develop, market and support a voice interface software platform that makes
the content and services of the Internet, telecommunications networks and
enterprises accessible from any telephone. We were incorporated in July 1994
and began operations in October 1994. Prior to 1996, our revenue was derived
from technical consulting services. In 1996, we deployed the first version of
our voice interface software platform and began to generate software license
revenue. Today, we offer a range of voice interface and verification software
products. To support the sale, deployment and operation of our products, we
also provide a number of services that include consulting, training,
maintenance updates and technical support.
Our license revenue consists of license fees for our voice interface software
products. This revenue is derived from a license fee comprised of two
components: a charge based on the computation power required to run our
platform and a charge based on the maximum number of simultaneous end-user
connections to an application running on our platform. License revenue is
recognized when delivery has occurred, evidence of an arrangement exists,
collection of the receivable is probable and the fee is fixed or determinable.
When we are performing significant consulting services, we recognize license
revenue upon system deployment or acceptance, whichever occurs first. License
revenue from resellers is recognized when their customers take delivery.
Service revenue consists of revenue from providing consulting, training,
maintenance updates and technical support. Consulting and training service
revenue is recognized as services are performed. Losses on service contracts,
if any, are recognized as soon as such losses become known. Revenue from
maintenance updates and technical support is recognized ratably over the term
of the applicable agreement.
We record deferred revenue primarily as a result of payments from customers
received in advance of product deployment or performance of services. As of
September 30, 1999, deferred revenue was $2.2 million. The deferred revenue
amount includes unearned license revenue and prepaid services that will be
recognized as revenue in the future as we deliver licenses and perform
services.
We sell products to our customers both directly through a sales force and
indirectly through resellers and systems integrators. Customers exceeding 10%
of total revenue are:
. Charles Schwab, who accounted for 83% of total revenue for 1996 and 16%
of total revenue for 1997;
. Periphonics--a Nortel Networks Company, who acting as a reseller
accounted for 4% of total revenue for 1996, 11% of total revenue for
1997, 19% of total revenue for 1998 and 29% of total revenue for the
nine months ended September 30, 1999;
. Telia, a Swedish telecommunications carrier, who accounted for 28% of
total revenue for 1997;
. Motorola, a stockholder of Nuance, who accounted for 10% of total
revenue for 1997, 15% of total revenue for 1998 and 13% of total revenue
for the nine months ended September 30, 1999; and
. Fidelity, a stockholder of Nuance, who accounted for 32% of total
revenue for 1998 and 29% of total revenue for the nine months ended
September 30, 1999.
20
<PAGE>
No other customers accounted for more than 10% of our revenue for 1996, 1997,
1998 or the nine months ended September 30, 1999.
We sell our products to customers in North America, South America, Europe,
Asia and Australia. International sales accounted for approximately 4% of our
total revenue in 1996, 33% of our total revenue in 1997, 18% of our total
revenue in 1998 and 18% of our total revenue for the nine months ended
September 30, 1999. We anticipate that markets outside the United States will
represent an increasing portion of total future revenue. We intend to increase
our sales and marketing activities with respect to international licensing of
our software and provisioning of our services in the foreseeable future.
International sales are currently denominated in U.S. dollars. However, we may
denominate sales in foreign currencies in the future.
Cost of license revenue consists primarily of fees payable on third-party
software products and documentation and media costs. Cost of service revenue
consists of compensation and related overhead costs for personnel engaged in
consulting, training and maintenance for our customers.
Our operating expenses are classified into three general categories: sales
and marketing, research and development, and general and administrative. We
classify all charges to these operating expense categories based on the nature
of the expenditures. Although each category includes expenses that are unique
to the category, some expenditures, such as compensation, employee benefits,
recruiting costs, equipment costs, travel and entertainment costs, facilities
costs and third-party professional services fees, occur in each of these
categories.
We allocate the total costs for information services and facilities to each
functional area that uses the information services and facilities based on
relative headcount. These allocated costs include rent and other facility-
related costs for our office, communication charges and depreciation expense
for furniture and equipment.
We had 201 full-time employees as of September 30, 1999 and intend to hire a
significant number of employees in the future. This continued expansion places
significant demands on our management and operational resources. To manage this
rapid growth, we must continue to invest in and implement operational systems,
procedures and controls.
From our inception through September 30, 1999, we have incurred approximately
$51.1 million of operating costs and expenses, including approximately $22.1
million of research and development expenditures used to develop our current
and future software products. As a result of these and other operating
expenditures, we have incurred net operating losses in each year since
inception. We anticipate that our operating expenses will increase in the
foreseeable future as we build our services, sales and marketing organizations
and as we continue to invest in research and development. Accordingly, we
expect to incur operating losses for at least the next 24 months.
In connection with the grant of stock options during the nine months ended
September 30,1999, we recorded deferred stock compensation of approximately
$283,000 within stockholders' equity representing the difference between the
estimated fair value of the common stock for accounting purposes and the option
exercise price of these options at the date of grant. This amount is presented
as a reduction of stockholders' equity and will be amortized over the vesting
period of the applicable options using an accelerated method of amortization.
Under the accelerated method, each vested tranche of options is accounted for
as a separate option grant awarded for past services. Accordingly, the
compensation expense is recognized over the period during which the services
will be provided. However, the method results in a front-loading of the
compensation expense. We recorded no amortization of deferred stock
compensation through September 30, 1999.
21
<PAGE>
From October 1, 1999 through December 31, 1999, we recorded additional
deferred stock compensation of $5.1 million relating to 2.2 million stock
options granted at a weighted average exercise price of $8.30, during the
quarter ended December 31, 1999.
We believe that period-to-period comparisons of our historical operating
results are not necessarily meaningful and should not be relied upon as being
indicative of future performance. Our prospects must be considered in light of
the risks, expenses and difficulties frequently experienced by companies in
early stages of development, particularly companies in new and rapidly evolving
markets. Although we have experienced significant revenue growth recently, this
trend may not continue. Furthermore, we may not achieve or maintain
profitability in the future.
Results of Operations
The following table presents selected financial data for the periods
indicated as a percentage of total revenue.
<TABLE>
<CAPTION>
Nine Months
Year Ended Ended
December 31, September 30,
------------------ ----------------
1996 1997 1998 1998 1999
---- ---- ---- ------ ------
<S> <C> <C> <C> <C> <C>
Revenue:
License .............................. 79% 62% 68% 72% 68%
Service .............................. 21 38 32 28 32
---- --- --- ------ ------
Total revenue........................ 100 100 100 100 100
---- --- --- ------ ------
Cost of revenue:
License............................... 25 3 4 6 1
Service............................... 18 24 23 18 28
---- --- --- ------ ------
Total cost of revenue................ 43 27 27 24 29
---- --- --- ------ ------
Gross profit........................... 57 73 73 76 71
---- --- --- ------ ------
Operating expenses:
Sales and marketing................... 54 52 57 50 83
Research and development.............. 179 83 56 47 57
General and administrative............ 44 24 23 20 18
---- --- --- ------ ------
Total operating expenses............. 277 159 136 117 158
---- --- --- ------ ------
Loss from operations................... (220) (86) (63) (41) (87)
Interest and other income, net......... 4 5 5 5 2
---- --- --- ------ ------
Net loss............................... (216)% (81)% (58)% (36)% (85)%
==== === === ====== ======
</TABLE>
Nine Months Ended September 30, 1998 Compared With Nine Months Ended
September 30, 1999
Revenue
Total revenue increased from $9.2 million for the nine months ended September
30, 1998 to $13.5 million for the nine months ended September 30, 1999, an
increase of 48%.
License revenue increased from $6.6 million for the nine months ended
September 30, 1998 to $9.3 million for the nine months ended September 30,
1999, an increase of 41%. This increase in license revenue was due primarily to
increased sales generated by our resellers and expanded sales channel. License
revenue represented 72% of total revenue for the nine months ended
September 30, 1998 and 68% of total revenue for the nine months ended September
30, 1999.
22
<PAGE>
Service revenue increased from $2.6 million for the nine months ended
September 30, 1998 to $4.3 million for the nine months ended September 30,
1999, an increase of 65%. This increase in service revenue was due primarily to
the customer implementations, customization projects and maintenance contracts
associated with the increase in license sales described above. Service revenue
represented 28% of total revenue for the nine months ended September 30, 1998
and 32% of total revenue for the nine months ended September 30, 1999.
Cost of Revenue
Cost of license revenue decreased from $514,000 for the nine months ended
September 30, 1998 to $124,000 for the nine months ended September 30, 1999. As
a percentage of license revenue, cost of license revenue was 8% for the nine
months ended September 30, 1998 and 1% for the nine months ended September 30,
1999. The decrease in the cost of license revenue was due primarily to a
reduction in software license fees of $400,000 paid to a subsidiary of SRI
International, a stockholder of Nuance. We anticipate that the cost of license
revenue may increase in absolute dollars as we license additional technologies,
although cost of license revenue will vary as a percentage of license and total
revenue from period to period.
Cost of service revenue increased from $1.7 million for the nine months ended
September 30, 1998 to $3.8 million for the nine months ended September 30,
1999. Cost of service revenue as a percentage of service revenue was 65% for
the nine months ended September 30, 1998 and 90% for the nine months ended
September 30, 1999. This increase was due to twelve additional services
personnel who were hired with the expectation of supporting a larger customer
base in the future. We anticipate that cost of service revenue will increase in
absolute dollars, although cost of service revenue will vary as a percentage of
service and total revenue from period to period.
Operating Expenses
Sales and Marketing. Sales and marketing expenses consist primarily of
compensation and related costs for sales and marketing personnel and
promotional expenditures, including public relations, advertising, trade shows
and marketing collateral materials. Sales and marketing expenses increased from
$4.6 million for the nine months ended September 30, 1998 to $11.2 million for
the nine months ended September 30, 1999. This increase was attributable
primarily to the addition of 19 sales and marketing personnel which added
approximately $4.6 million to expenses, an increase in sales commissions
associated with increased revenue which added approximately $994,000 to
expenses and higher marketing costs due to expanded promotional activities
which added approximately $983,000 to expenses. As a percentage of total
revenue, sales and marketing expenses were 50% for the nine months ended
September 30, 1998 and 83% for the nine months ended September 30, 1999. We
expect to continue to increase our marketing and promotional efforts and hire
additional sales personnel. Accordingly, we anticipate that sales and marketing
expenses will increase in absolute dollars, but will vary as a percentage of
total revenue from period to period.
Research and Development. Research and development expenses consist primarily
of compensation and related costs for research and development personnel and
contractors. Research and development expenses increased from $4.4 million for
the nine months ended September 30, 1998 to $7.8 million for the nine months
ended September 30, 1999. This increase was attributable primarily to the
addition of 23 personnel associated with product development activities which
added approximately $2.7 million to expenses and increased use of technical
contractors which added approximately $690,000 to expenses. As a percentage of
total revenue, research and development expenses were 47% for the nine months
ended September 30, 1998 and 57% for the nine months ended September 30, 1999.
We expect to continue to make substantial investments in research and
development and anticipate that research and development expenses will continue
to increase in absolute dollars, but will vary as a percentage of total revenue
from period to period.
23
<PAGE>
General and Administrative. General and administrative expenses consist
primarily of compensation and related costs for administrative personnel, legal
services, accounting services and other general corporate expenses. General and
administrative expenses increased from $1.8 million for the nine months ended
September 30, 1998 to $2.4 million for the nine months ended September 30,
1999, due primarily to an increase of eight personnel, which added
approximately $432,000 to expenses and increased legal and professional fees,
which added approximately $146,000 to expenses. This increased expense was
necessary to support our growth. As a percentage of total revenue, general and
administrative expenses were 20% for the nine months ended September 30, 1998
and 18% for the nine months ended September 30, 1999. We expect that general
and administrative expenses will increase in absolute dollars as we add
personnel and incur additional costs related to the anticipated growth of our
business. However, we expect that these expenses will vary as a percentage of
total revenue from period to period.
Interest and Other Income, Net
Interest and other income, net consists primarily of interest earned on cash
and short-term investments, offset by interest expense related to a note
payable and loss from disposition of assets. Interest and other income, net was
$476,000 for the nine months ended September 30, 1998 and $337,000 for the nine
months ended September 30, 1999. The decrease was due primarily to interest
income earned on lower cash balances.
Comparison of Years Ended December 31, 1997 and 1998
Revenue
Total revenue increased from $4.4 million in 1997 to $11.9 million in 1998,
an increase of 171%.
License revenue increased from $2.7 million in 1997 to $8.1 million in 1998,
an increase of 197%. This increase in license revenue was due primarily to
increased market acceptance of our products and increased sales generated by
our resellers and expanded sales channel. License revenue represented 62% of
total revenue for 1997 and 68% of total revenue for 1998.
Service revenue increased from $1.7 million in 1997 to $3.8 million in 1998,
an increase of 129%. This increase in service revenue was due primarily to the
customer implementations, customization projects and maintenance contracts
associated with the increase in license sales described above. Service revenue
represented 38% of total revenue for 1997 and 32% of total revenue for 1998.
Cost of Revenue
Cost of license revenue increased from $125,000 in 1997 to $524,000 in 1998.
As a percentage of license revenue, cost of license revenue was 5% in 1997 and
6% in 1998. The increase in the cost of license revenue was due primarily to an
increase of $400,000 in software fees paid to a subsidiary of SRI
International.
Cost of service revenue increased from $1.0 million in 1997 to $2.7 million
in 1998. The increase in cost of service revenue was attributable primarily to
an increase of 21 personnel dedicated to support our growing number of
customers. Cost of service revenue as a percent of service revenue was 63% in
1997 and 71% in 1998.
Operating Expenses
Sales and Marketing. Sales and marketing expenses increased from $2.3 million
in 1997 to $6.9 million in 1998. The increase was due primarily to the addition
of 28 sales and marketing
24
<PAGE>
personnel which added approximately $3.1 million to expenses, increased sales
commissions related to increased revenue which added approximately $1.1 million
to expenses and increased marketing costs which added approximately $398,000 to
expenses. As a percentage of total revenue, sales and marketing expenses were
52% for 1997 and 57% for 1998.
Research and Development. Research and development expenses increased from
$3.6 million in 1997 to $6.6 million in 1998. The increase was due primarily to
the addition of nineteen personnel associated with product development
activities, which added approximately $2.7 million to expenses, and increased
use of technical contractors, which added approximately $291,000 to expenses.
As a percentage of total revenue, research and development expenses decreased
from 83% in 1997 to 56% in 1998.
General and Administrative. General and administrative expenses increased
from $1.1 million in 1997 to $2.7 million in 1998. The increase was due
primarily to the addition of seven management and financial personnel necessary
to support our growth. As a percentage of total revenue, general and
administrative expenses decreased from 24% in 1997 to 23% in 1998.
Interest and Other Income, Net
Interest and other income, net increased from $204,000 in 1997 to $598,000 in
1998. This increase was due primarily to interest income earned on higher
balances of cash and short-term investments resulting from our Series D
preferred stock financing in May 1998.
Comparison of Years Ended December 31, 1996 and 1997
Revenue
Total revenue increased from $1.5 million in 1996 to $4.4 million in 1997, an
increase of 193%.
License revenue increased from $1.2 million in 1996 to $2.7 million in 1997,
an increase of 130%. This increase in license revenue was due primarily to
increased sales generated by our expanded sales channel. License revenue
represented 79% of total revenue for 1996 and 62% of total revenue for the
1997.
Service revenue increased from $311,000 in 1996 to $1.7 million in 1997. This
increase in service revenue was due primarily to the customer implementations,
customization projects and maintenance contracts associated with the increase
in license sales described above. Service revenue represented 21% of total
revenue for 1996 and 38% of total revenue for 1997.
Cost of Revenue
Cost of license revenue decreased from $383,000 in 1996 to $125,000 in 1997.
As a percentage of license revenue, cost of license revenue was 32% in 1996 and
5% in 1997. The decrease in the cost of license revenue was due primarily to a
reduction in software fees of $293,000 paid to a subsidiary of SRI
International.
Cost of service revenue increased from $265,000 in 1996 to $1.0 million in
1997. The increase in cost of service revenue was attributable primarily to an
increase of six personnel dedicated to supporting our growing number of
customers. Cost of service revenue as a percentage of service revenue decreased
from 85% in 1996 to 63% in 1997.
Operating Expenses
Sales and Marketing. Sales and marketing expenses increased from $807,000 in
1996 to $2.3 million in 1997. The increase was due primarily to the addition of
six sales and marketing
25
<PAGE>
personnel which added approximately $1.0 million to expenses, increased sales
commissions related to increased revenue which added approximately $253,000 to
expenses, and increased marketing costs which added approximately $169,000 to
expenses. As a percentage of total revenue, sales and marketing expenses
decreased from 54% in 1996 to 52% in 1997.
Research and Development. Research and development expenses increased from
$2.7 million in 1996 to $3.6 million in 1997. The increase was attributable
primarily to the addition of nine personnel associated with product development
activities, which added approximately $855,000 to expenses, and increased use
of technical contractors, which added approximately $101,000 to expenses. As a
percentage of total revenue, research and development expenses decreased from
179% in 1996 to 83% in 1997.
General and Administrative. General and administrative expenses increased
from $657,000 in 1996 to $1.1 million in 1997. The increase was due primarily
to the addition of three management and financial personnel necessary to
support our growth, which added approximately $294,000 to expenses, and legal
and professional fees, which added approximately $120,000 to expenses. As a
percentage of total revenue, general and administrative expenses decreased from
44% in 1996 to 24% to 1997.
Interest and Other Income, Net
Interest and other income, net increased from $58,000 in 1996 to $204,000 in
1997. The increase was due primarily to an increase in interest income earned
on higher balances of cash and short-term investments resulting from our Series
C preferred stock financing in January 1997.
26
<PAGE>
Quarterly Results of Operations
The following tables set forth a summary of our unaudited quarterly operating
results for each of the seven quarters in the period ended September 30, 1999.
The information has been derived from our unaudited financial statements that,
in management's opinion, have been prepared on a basis consistent with the
audited consolidated financial statements contained elsewhere in this
prospectus and include all adjustments, consisting of only normal recurring
adjustments, necessary for a fair presentation of such information when read in
conjunction with our audited consolidated financial statements and associated
notes. The operating results for any quarter are not necessarily indicative of
results for any future period.
<TABLE>
<CAPTION>
Three Months Ended
---------------------------------------------------------------------------
March 31, June 30, Sept. 30, Dec. 31, March 31, June 30, Sept. 30,
1998 1998 1998 1998 1999 1999 1999
--------- -------- --------- -------- --------- -------- ---------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated Statement of Operations
Data:
Revenue:
License............................ $ 933 $ 2,283 $ 3,357 $ 1,519 $ 4,076 $ 2,501 $ 2,680
Service............................ 961 787 840 1,199 820 1,754 1,684
------- ------- ------- ------- ------- ------- -------
Total revenue...................... 1,894 3,070 4,197 2,718 4,896 4,255 4,364
------- ------- ------- ------- ------- ------- -------
Cost of revenue:
License............................ 48 77 389 10 124 -- --
Service............................ 324 656 690 1,029 1,182 1,390 1,259
------- ------- ------- ------- ------- ------- -------
Total cost of revenue.............. 372 733 1,079 1,039 1,306 1,390 1,259
------- ------- ------- ------- ------- ------- -------
Gross profit........................ 1,522 2,337 3,118 1,679 3,590 2,865 3,105
------- ------- ------- ------- ------- ------- -------
Operating expenses:
Sales and marketing................ 1,108 1,470 2,017 2,262 2,603 3,716 4,902
Research and development........... 1,141 1,441 1,789 2,244 2,145 2,531 3,077
General and administrative......... 483 636 692 909 688 842 859
------- ------- ------- ------- ------- ------- -------
Total operating expenses........... 2,732 3,547 4,498 5,415 5,436 7,089 8,838
------- ------- ------- ------- ------- ------- -------
Loss from operations................ (1,210) (1,210) (1,380) (3,736) (1,846) (4,224) (5,733)
Interest and other income, net...... 12 219 245 122 138 129 70
------- ------- ------- ------- ------- ------- -------
Net loss............................ $(1,198) $ (991) $(1,135) $(3,614) $(1,708) $(4,095) $(5,663)
======= ======= ======= ======= ======= ======= =======
As a Percentage of Total Revenue:
Revenue:
License............................ 49% 74% 80% 56% 83% 59% 61%
Service............................ 51 26 20 44 17 41 39
------- ------- ------- ------- ------- ------- -------
Total revenue...................... 100 100 100 100 100 100 100
------- ------- ------- ------- ------- ------- -------
Cost of revenue:
License............................ 3 3 9 0 3 0 0
Service............................ 17 21 17 38 24 33 29
------- ------- ------- ------- ------- ------- -------
Total cost of revenue.............. 20 24 26 38 27 33 29
------- ------- ------- ------- ------- ------- -------
Gross profit........................ 80 76 74 62 73 67 71
------- ------- ------- ------- ------- ------- -------
Operating expenses:
Sales and marketing................ 59 48 48 83 53 87 112
Research & development............. 60 47 43 83 44 59 71
General & administrative........... 25 20 16 33 14 20 20
------- ------- ------- ------- ------- ------- -------
Total operating expenses........... 144 115 107 199 111 166 203
------- ------- ------- ------- ------- ------- -------
Loss from operations................ (64) (39) (33) (137) (38) (99) (132)
Interest and other income, net...... 1 7 6 4 3 3 2
------- ------- ------- ------- ------- ------- -------
Net loss............................ (63)% (32)% (27)% (133)% (35)% (96)% (130)%
======= ======= ======= ======= ======= ======= =======
</TABLE>
27
<PAGE>
Our revenue and operating results are difficult to forecast and will
fluctuate, and we believe that period-to-period comparisons of our operating
results will not necessarily be meaningful. As a result, they should not be
relied upon as an indication of future performance.
License revenue has fluctuated from quarter to quarter, particularly in the
quarters ended June 30, 1998 through March 31, 1999, primarily due to the
license fees from one large transaction with Fidelity Investments. Revenue from
this transaction was $1.0 million in the quarter ended June 30, 1998, $1.9
million in the quarter ended September 30, 1998, $550,000 in the quarter ended
December 31, 1998 and $3.1 million in the quarter ended March 31, 1999. Service
revenue has fluctuated from quarter to quarter primarily as a result of the
uneven nature of project-oriented work. In the quarter ended March 31, 1999,
the completion of several projects did not occur as scheduled, causing revenue
recognition to be delayed until the following quarter.
Cost of revenue has generally increased from quarter to quarter, mainly due
to the addition of service employees. Cost of service revenue in the quarter
ended December 31, 1998 includes a provision for losses we incurred on two
projects.
Operating expenses have increased from quarter to quarter as we have added
employees in sales, marketing, engineering and administration required to
support actual and anticipated business activities. In the quarter ended
December 31, 1998, general and administrative expenses rose due to the costs of
a change in facilities, and research and development expenses were high as a
result of expenses associated with a large number of external consultants.
Provision for Income Taxes
We have incurred operating losses for all periods from inception through
September 30, 1999 and therefore have not recorded a provision for income
taxes. We have recorded a valuation allowance for the full amount of our gross
deferred tax assets, as the future realization of the tax benefit is uncertain.
As of December 31, 1998, we had federal net operating loss carryforwards of
approximately $12.0 million and state net operating loss carryforwards of
approximately $10.3 million. These federal and state loss carryforwards may be
available to reduce future taxable income. The federal loss carryforwards
expire at various dates into the year 2018. Under the provisions of the
Internal Revenue Code, substantial changes in our ownership may limit the
amount of net operating loss carryforwards that could be used annually in the
future to offset taxable income. It is possible that such a change may have
already occurred or could occur as a result of this offering. See note 10 of
notes to financial statements.
Liquidity and Capital Resources
Since inception, we have financed our operations primarily from private sales
of convertible preferred stock totaling $29.5 million through September 30,
1999 and, to a lesser extent, from lease financing. As of September 30, 1999,
we had cash and cash equivalents aggregating $1.6 million and short-term
investments totaling $4.4 million. Subsequent to September 30, 1999, we raised
an additional $40.5 million through the private sale of convertible preferred
stock.
Our operating activities used $2.6 million during 1996, $3.5 million during
1997, $2.7 million during 1998 and $9.1 million during the nine months ended
September 30, 1999. This negative operating cash flow resulted principally from
our net losses experienced during these periods as we invested in the
development of our products, expanded our sales force and expanded our
infrastructure to support our growth.
Our investing activities consist of purchases and maturities of short-term
investments, and purchases of computer equipment, furniture, fixtures and
leasehold improvements to support our growing number of employees. Investing
activities generated $3.5 million during 1996, used
28
<PAGE>
$2.8 million during 1997, used $13.1 million during 1998 and generated $7.6
million during the nine months ended September 30, 1999.
Our financing activities used $146,000 during 1996 and generated $7.1 million
during 1997, $15.4 million during 1998 and $1.5 million during the nine months
ended September 30, 1999. Of these financing activities, the issuance of
convertible preferred stock and common stock generated net proceeds of $7.1
million during 1997, $16.6 million during 1998 and $169,000 during the nine
months ended September 30, 1999. We had no proceeds from bank borrowings in
1996, proceeds of $372,000 in 1997 and no proceeds in 1998. In July 1999, we
signed a $2.0 million property and equipment line with Silicon Valley Bank that
is repayable ratably over a 36-month period, commencing January 2000. The loan
bears variable interest at the prime rate plus 0.75%, and is secured by
substantially all of our assets. As of September 30, 1999, we had borrowed $1.3
million under this term loan at an interest rate of 9.0%.
Our capital requirements depend on numerous factors. We expect to devote
substantial resources to continue our research and development efforts, expand
our sales, support, marketing and product development organizations, establish
additional facilities worldwide and build the infrastructure necessary to
support our growth. We have experienced substantial increases in our
expenditures since our inception consistent with growth in our operations and
personnel, and we anticipate that our expenditures will continue to increase in
the future. We believe that the proceeds of this offering, together with our
current cash and cash equivalents and our borrowing capacity, will be
sufficient to fund our activities for the next 24 months. Thereafter, we may
need to raise additional funds in order to fund more rapid expansion, including
significant increases in personnel and office facilities; to develop new or
enhance existing services or products; to respond to competitive pressures; or
to acquire or invest in complementary businesses, technologies, services or
products. In addition, in order to meet our long-term liquidity needs, we may
need to raise additional funds or seek other financing arrangements. Additional
funding may not be available on favorable terms or at all. In addition,
although there are no present understandings, commitments or agreements with
respect to any acquisition of other businesses, products or technologies, we
may, from time to time, evaluate potential acquisitions of other businesses,
products and technologies. Any additional equity or debt financing may be
dilutive to existing investors.
Recently Issued Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards, or SFAS, No. 133, Accounting for Derivative
Instruments and Hedging Activity. SFAS No. 133 establishes accounting methods
for derivative financial instruments and hedging activities related to those
instruments, as well as for other hedging activities. Because we do not
currently hold any derivative instruments and do not engage in hedging
activities, we expect that the adoption of SFAS No. 133 will not have a
material impact on our financial position or results of operations. In June
1999, the FASB issued SFAS No. 137, Accounting for Derivative Instruments and
Hedging Activities--Deferral of the Effective Date of FASB Statement No. 133,
which amends SFAS 133 to be effective for all quarters of any fiscal year
beginning after June 13, 2000. We will adopt SFAS No. 133 effective January 1,
2001.
The American Institute of Certified Public Accountants issued Statement of
Position, or SOP, No. 98-9, Modification of SOP No. 97-2, Software Revenue
Recognition with Respect to Certain Transactions. SOP No. 98-9 amends SOP No.
97-2 to require an entity to recognize revenue for multiple element
arrangements by means of the "residual method" when:
. vendor-specific evidence of fair value exists for all of the undelivered
elements that are not accounted for by means of long-term contract
accounting;
29
<PAGE>
. vendor specific evidence of fair value does not exist for one or more of
the delivered elements; and
. all revenue recognition criteria of SOP No. 97-2, other than the
requirement for vendor-specific evidence of the fair value of each
delivered element, are satisfied.
The adoption of SOP 98-9 in fiscal 1999 did not have a significant effect on
the Company's financial position or results of operations.
Year 2000 Disclosure
The year 2000 problem is the potential for system and processing failures of
date-related data arising from the use of two digits by computer-controlled
systems, rather than four digits, to define the applicable year. We completed
our year 2000 assessment in 1999 and, although January 1, 2000 has passed, we
have not experienced any disruption in our business as a result of the
transition to the year 2000. However, it is possible that problems have gone
undetected, or that other dates in the year 2000, such as February 29, may
further affect computer software and systems. While we believe that the year
2000 problem will not affect any of our systems, we cannot guarantee that we
will not discover a problem during 2000 that will require upgrade, modification
or replacement of our products or computer software or systems used in our
business. In addition, it is possible that the internal systems of our clients
or other parties with whom we do business have already been or will be
negatively affected by the year 2000 problem. Our business could suffer if we,
or any of our customers or other parties with whom we do business, experience
failures of software, computer technology or other systems as a result of
problems associated with the year 2000.
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BUSINESS
Nuance develops, markets and supports a voice interface software platform
that makes the information and services of enterprises, telecommunications
networks and the Internet accessible from any telephone.
Enterprises such as brokerages, banks, airlines and retailers use our
software platform to provide a voice user interface to applications including
stock quotes and trading, home banking, travel planning and shopping. An
example of spoken dialog for a brokerage application enabled by our software
is:
Computer: "What would you like to do?"
Caller: "Buy a hundred shares of IBM at one twelve and a quarter."
Computer: "Confirming, for the day, buy 100 shares of International
Business Machines
at 112 and 1/4. Is this correct?"
Caller: "Yeah."
Computer: "Your order is confirmed and pending."
Wireless and wireline telecommunications carriers use our software platform
to provide their subscribers with a variety of services having a voice user
interface. These voice-enabled services include dialing, directory assistance,
access to voicemail and email messages, access to personal contact information,
conference call set-up and calendar management. An example of spoken dialog for
a voice-activated dialing application enabled by our software is:
Computer: "Who would you like to call?"
Caller: "Get me Doug Johnson at work."
Computer: "Calling Douglas Johnson, office phone."
A voice portal is a new type of enhanced service provider that uses our
software platform to enable and expand its offerings. Voice portals offer
access to information and commerce over the telephone using a voice user
interface, similar to the way that web portals provide information and commerce
through a personal computer using a graphical user interface. An example of
spoken dialog for a voice portal's application enabled by our software is:
Computer: "Welcome to your voice portal homepage, how can I help you?
Caller: "I'd like a traffic report."
Computer: "For what road would you like the traffic report?"
Caller: "Highway 280, northbound."
Computer: "Highway 280 northbound is stop-and-go from the Sand Hill
Road exit to
Highway 92."
We sell our products to our customers both directly through our sales force
and indirectly through resellers that include:
. telephony infrastructure providers, such as Edify--a subsidiary of S1
Corporation, Mitel, Motorola, Periphonics--a Nortel Networks Company and
Syntellect;
. e-commerce software companies, such as BroadVision; and
. system integrators, such as BT Syncordia, IBM and Omron.
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As of December 31, 1999, over 150 businesses in a variety of industries
worldwide had licensed our software platform directly from us or through our
resellers. These businesses include:
. enterprises, including financial service companies such as Charles
Schwab & Co. and Fidelity Investments, banks such as Banco Itau (Brazil)
and Lloyds TSB (United Kingdom), airlines such as American Airlines and
Delta Airlines, and retailers such as The Home Shopping Network and
Sears, Roebuck and Co.;
. telecommunications carriers, such as British Telecom, CTBC Telecom
(Brazil), Telia (Italy) and US West; and
. enhanced service providers, such as General Magic, GoSolo Technologies,
U-Access and Webley Systems.
Industry Background
Companies are striving to create new and better means of communicating and
conducting business with their customers. Therefore, businesses are investing
significantly to build and improve their customer service infrastructure.
Historically, offering convenient, easy-to-use and cost-effective customer
support to all potential customers has been difficult. New voice user interface
technologies are emerging, however, that allow businesses to leverage the
Internet and telecommunications infrastructure in order to more effectively and
efficiently interact with their customers.
Growth of the Internet
The Internet has offered businesses a new global communications medium for
efficient sharing of electronic information and transactions. Businesses have
made massive investments over the last few years to enable their information to
be delivered and transactions to be conducted over the World Wide Web.
International Data Corporation, or IDC, estimates that there were 925 million
URLs on the web in 1998 and that this number is expected to grow to 13 billion
by 2003, representing a five-year compound annual growth rate of 70%. IDC also
estimates that there were approximately 200 million users of the Internet
worldwide at the end of 1999 and that the number of users will grow to over one
billion by 2005.
Widespread Accessibility of Wireless and Wireline Telecommunications Networks
While the number of users accessing the Internet is rapidly growing, the
telephone network is already widely accessible. The Yankee Group estimates that
in 1998 there were over 832 million telephone lines installed and 300 million
wireless subscribers worldwide. The recent rapid growth in the wireless market
is projected by The Yankee Group to continue, with over one billion subscribers
worldwide by 2003, representing a five-year compound annual growth rate of 29%.
The proliferation of the wireless phone has made access to the telephone
network even easier.
Although access to the Internet is becoming increasingly common, IDC
estimates that by 2002 only 47% of U.S. households will have access to the
Internet. Additionally, IDC estimates that, in 2002, the U.S. will represent
43% of the worldwide Internet user population. Thus, many people must obtain
information and services and conduct commerce by means other than a personal
computer connected to the Internet. Even those potential users who do have
Internet access are not always near their personal computers when they need
information or want to conduct commerce.
In contrast, the telephone is a more readily available information and
services access device. In comparison to personal computers, telephones are
simple to operate and use the most natural form of communication, the human
voice. Therefore, the telephone network holds a greater potential for
businesses to deliver their information to, and conduct transactions with, the
largest possible population.
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High Cost of Call Centers and Limitations of First-Generation Automated
Telephone Systems
Many enterprises have invested in call centers staffed by customer service
representatives to interact with customers over the telephone. In a call
center, a customer service representative listens to a caller's inquiry,
retrieves the information from a computer terminal, and communicates the
results to the caller. While these call centers are effective at delivering
services over the telephone, they are labor-intensive and expensive. The first
generation of systems designed to automate these customer interactions and
lower the cost of customer contact was deployed using touch-tone interfaces.
Using these systems, callers navigate through menus of touch-tone options and
press the keys that help them obtain information or conduct transactions. These
systems achieve some automation, but because of the limitations of the
telephone key pad, are generally regarded as difficult to use, limiting the
range of services that can be offered and customer acceptance rates. As a
result, enterprises continue to rely upon traditional call centers staffed by
customer service representatives to provide more sophisticated service and to
support customers who opt out of touch-tone systems by pressing zero. The Giga
Information Group estimates that in 1999, as many as 2.8 million people still
worked in 69,000 call centers in the United States and Datamonitor, a London-
based consultancy, estimates that in 1998 close to one million people worked in
approximately 12,000 call centers across Europe. The Giga Information Group
estimates that $191 billion was spent on call centers in 1999. As a result,
businesses continue to explore new alternatives for automating customer
interaction worldwide.
Changes in the Telecommunications Industry
Telecommunications carriers are searching for innovative ways to generate
revenue from new and existing customers. For both wireless and wireline
carriers, deregulation and technology advancements continue to spur increased
competition, driving down the average revenue per customer and decreasing
traditional customer loyalties. As a result, carriers are seeking to improve
customer retention by providing value-added network services such as voice
messaging, call waiting and directory services. While acceptance rates of these
services have been relatively high, customer turnover continues at a rate of
25% per year according to The Yankee Group. This customer turnover and pricing
pressures are driving carriers to offer new, higher-value, information-based
services. One of the challenges that the carriers face is delivering
sophisticated information-based services through the telephone. Even with the
evolution of telephones with small screen displays, the ability for the user to
input information is constrained, limiting the usability and sophistication of
services that can be made available.
The Market Opportunity
We believe there is a significant opportunity for a telephone-based voice
user interface capable of delivering information and conducting commerce in a
cost-effective, convenient and easy-to-use manner. These voice systems must
recognize and understand naturally spoken commands, while also authenticating
caller identities. Although basic speech recognition technology has existed for
a number of years and has succeeded certain specialized applications, such as
limited data entry and retrieval, its widespread use has been constrained by
technical limitations and the cost of processing power. Within the last few
years, however, the cost of computer processing power has declined
significantly and technical advancements have provided the opportunity for
speech technology to perform with a higher degree of recognition accuracy in
challenging conditions across telecommunications networks. We believe that
businesses will benefit from voice interface platforms that provide highly
accurate, cost-effective, scalable solutions for communicating and conducting
business with customers over the telephone.
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The Nuance Solution
Nuance develops, markets and supports a voice interface software platform
that makes the information and services of enterprises, telecommunications
networks and the Internet accessible from any telephone.
Our software platform consists of software servers that run on industry-
standard hardware and perform speech recognition, natural language
understanding and voice authentication. Speech recognition is used to recognize
what a person says, natural language understanding derives the meaning of what
is said and voice authentication verifies the identity of a speaker based on
the unique qualities of that speaker's voice. We offer a software developer
toolkit and software components to enable our customers and third parties to
develop voice interfaces that use our software platform. These software
components include the user interface for specific tasks, such as requesting a
telephone number, date or dollar amount. We also offer a range of consulting,
support and education services.
A new part of our solution is a voice browser which we recently announced and
demonstrated publicly. Our voice browser will provide a standard user interface
for telephone access to traditional telephony applications, voice portals and
voice-enabled Internet content. The functionality of our voice browser used via
the telephone is analogous to a web browser, which allows users to navigate the
World Wide Web via a personal computer. Our voice browser will allow
personalization through storage of user profile information and personal
bookmark lists. Our voice browser uses the speech recognition, natural language
understanding and voice authentication capabilities of our software platform to
deliver its standard user interface. The product is expected to be commercially
available in the second half of 2000.
We believe our products and services provide businesses with the following
benefits:
Increased Revenue Opportunities. By delivering their automated applications
over the telephone through a voice user interface, businesses are able to
increase their revenue opportunities by:
. exploiting the relative ubiquity of the telephone to provide an
increasingly mobile population of customers and employees with more
convenient access to products, services and information;
. reducing the number of callers that hang up because of the long wait to
speak with customer service representatives; and
. introducing new revenue-generating, value-added services such as voice
dialing, directory assistance, personal agents and voice portals.
Reduced Operational Costs. Our products and services reduce operating costs
for businesses by increasing the availability and efficiency of customer
contact. According to the Giga Information Group, the average cost of an
automated in-bound telephone call is between $0.10 and $0.32, compared to the
average cost of a call handled by a customer service representative, which
typically ranges from $1.95 to $5.00. Even for businesses which offer some
services through a touch-tone interface, we believe a voice user interface can
reduce the number of callers who elect to speak directly to a customer service
representative, thereby reducing overall customer contact costs.
Increased Customer Retention. Our products and services help businesses offer
personalized services such as voice dialing of numbers in stored personal
contact lists and access to stock portfolios and other customizable
information. Our software also provides enterprises and telecommunications
carriers with the ability to introduce new value-added services, allowing them
to better differentiate themselves from their competitors. By improving the
personalization and
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differentiation of their services, these businesses are able to improve
customer loyalty and increase customer retention.
Increased Customer Satisfaction. Because users can speak naturally to
systems using our software, they can obtain information or perform transactions
more quickly than by navigating through the menus of a touch-tone system.
Shorter calls allow businesses to handle more users, which in turn leads to
shorter hold times. Our software also reduces the need for callers to remember
personal identification numbers or passwords. Businesses will be able to offer
a consistent level of service that does not rely on training call center
customer service representatives.
Enhanced Security. Our voice authentication software allows businesses to
offer applications that are more secure, more personalized and more convenient
for end users than traditional security methods such as personal identification
numbers and account numbers. Just as individuals can be authenticated by their
fingerprints, they also can be authenticated by their voiceprints. Our software
can use a caller's voiceprint to authenticate his identity over the telephone
with high reliability. Unlike a password or a personal identification number,
an individual's voiceprint cannot be lost, stolen or shared. When implemented
together with our speech recognition capabilities, voice authentication also
increases the usability of an application by reducing the time and complexity
of identifying and authenticating a caller. A caller can simply speak his
telephone number or name and, while our speech recognition software recognizes
what has been spoken, our voice authentication software authenticates the
caller's identity.
Strategy
Our objective is to be the leading voice interface software platform for
applications used across enterprises, telecommunications networks and the
Internet. The key elements of our strategy are:
Facilitate the Development, Adoption and Usage of Voice User Interfaces to
Information and Services. We anticipate the formation of a web of voice sites,
similar to the World Wide Web, that uses a person's voice to access information
and services. We expect that this web will allow the inter-connectivity of
various Internet and telephony applications with voice interfaces. To
facilitate the rapid growth of this voice web and the adoption of our voice
interface software, we plan to invest in products that enable the development
and usage of voice sites, voice portals and Internet content that may be
accessed through a voice interface. We intend to continue investing in the
development of our voice browser and to market it to potential voice portal
companies, potential voice site companies and telecommunications carriers. We
also plan to invest in the development and marketing of new developer tools
that help businesses provide voice user interfaces to their applications.
Finally, we plan to continue to forge strategic relationships with companies
providing platforms, tools and services to these markets.
Facilitate Broad Acceptance and Deployment of Our Software Platform. By
leveraging our market leadership position and combining high-performance speech
recognition, natural language understanding and voice authentication
technologies in a scalable software platform, we believe that we have the
opportunity to establish our software as the de facto standard platform for
voice applications and services. We plan to continue to invest significant
resources to enhance our core technology, software architecture and developer
tools and to create new products and services that facilitate development and
deployment of applications having a voice user interface. By publishing
application programming interfaces and contributing to standards bodies, we are
helping establish industry standards so application developers can quickly and
cost-effectively create robust applications having a voice user interface.
Establish the De Facto Standard for Voice User Interfaces. We believe that,
by leveraging our user interface design experience, we are positioned to
establish a de facto standard for voice
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user interfaces. We believe that the existence of such a de facto standard will
facilitate third-party development and deployment of applications having a
voice user interface and leverage the capabilities of our software platform.
Standardization of interface design principles will also give end users
consistency in voice user interfaces across different applications, improving
the usability and effectiveness of these applications. To help accomplish this
goal, we intend to continue to invest in the development and marketing of our
voice browser. Our voice browser will provide end users with a consistent
interface for navigation and will provide developers with a standard interface
for presentation of their voice-enabled applications. We plan to continue to
invest in development of, and to encourage third parties to develop, software
components. We also intend to create and promote a developer's style guide for
voice interfaces and to continue to offer professional services for interface
design.
Leverage Strategic Relationships to Deliver Complete Solutions. We work
closely with third parties to deliver complete solutions. Our software is
currently integrated with a variety of leading telephony systems. We have also
established a number of relationships with application and integration
resellers serving both the telecommunications and enterprise markets and plan
to continue to forge more of these relationships. In 1999, we introduced the
Nuance Partner Alliance, a program for supporting our resellers and
integrators, and the Nuance Developer Network, a program for providing
developers of voice-enabled applications with tools and information. We intend
to continue to invest in the implementation of sales, marketing and support
programs to enhance the ability and motivation of third parties to aggressively
market, sell and implement solutions based on our software platform.
Further Develop Our Global Sales, Distribution, Service and Support
Capabilities and Related Product Offerings. We have established over 70
customer and partner relationships in seventeen countries outside the United
States. We expect the international market for our software to continue to grow
and intend to continue to expand our presence in strategic international
markets. To continue to address this global opportunity, we plan to accelerate
the hiring of sales, service and support personnel local to these markets and
to establish new relationships with resellers and integrators serving them. We
have products that recognize and understand eleven languages and dialects, and
we plan to continue to invest in the development of voice interface products
for additional languages and dialects.
Products and Services
Our product line consists of our software platform and our developer
productivity tools, which are both currently available, and our voice browser,
which we expect to be commercially available in the second half of 2000. We
also offer professional services to facilitate the development, implementation
and support of applications operating on our software platform.
Software Platform
Nuance 6. The Nuance 6 software server provides speech recognition and
natural language understanding capabilities, enabling recognition and
understanding of both simple responses, such as "yes" and "no," and complex
phrases, such as "buy 333 shares at 33 and 3/4." Nuance 6 is designed to
operate on standard CPU hardware architectures and operating systems such as
UNIX and Windows NT within a variety of leading telephony systems. The Nuance 6
software platform's distributed server architecture enables speech recognition
to be performed on a single hardware server or on multiple hardware servers in
a network. When used on multiple servers in a network, Nuance 6 efficiently
balances the load of speech recognition requests across available servers and
automatically compensates for a hardware or software failure on one or more of
these servers.
The speech recognition and natural language understanding technology of
Nuance 6 is available for eleven languages and dialects, including U.S.
English, U.K. English, Australian English, Latin
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American Spanish, Brazilian Portuguese, German, Canadian French, European
French, Japanese, Mandarin and Cantonese. We plan to continue to implement this
technology in additional European, Asian and Latin American languages and
dialects as we expand our presence in additional markets.
Nuance Express. We also offer a version of our Nuance 6 software server
called Nuance Express. Nuance Express provides a lower price point for
deployment of entry-level applications that recognize and understand spoken
numbers and a limited number of spoken phrases. Nuance Express customers
benefit from the scalability and accuracy of Nuance 6 and have a seamless path
to upgrade their applications when the full capabilities of Nuance 6 are
needed.
Nuance Verifier. The Nuance Verifier software server provides voice
authentication capabilities for verifying the identity of a speaker based on
his unique voice qualities. Users enroll their voiceprints by speaking
information requested by the application. Based on this speech, Nuance Verifier
creates a voiceprint of the caller's voice. The software is then able to
authenticate the caller's claimed identity by comparing his speech to the
previously enrolled voiceprint. Nuance Verifier is tightly integrated with
Nuance 6 and operates within the same architecture, allowing for the same
software scalability and robustness. This seamless integration provides a key
point of differentiation from our competitors' products, since users can be
recognized and authenticated simultaneously. For example, when a caller speaks
his telephone number, our software will understand what phone number was spoken
and use that same statement to authenticate the caller. We believe that Nuance
Verifier's technology delivers a high degree of accuracy for voice
authentication, which provides callers with high levels of security and
convenience.
Developer Productivity Tools
SpeechObjects. SpeechObjects are software components that developers can
combine to create the entire voice user interface for an application.
SpeechObjects have published application programming interfaces that define the
voice interface for specific tasks, such as the request for a spoken city name,
flight number or postal code. SpeechObjects encapsulate grammars, which are
lists of valid responses that a user might say at a particular point in the
dialog, prompts, which are messages played to a caller to elicit a response,
and a dialog framework, which governs these grammars and prompts. Because
SpeechObjects can be used across multiple applications and can be customized
for different applications, they help reduce the time and complexity to build
an application that uses a voice interface. For example, a SpeechObject that
understands a spoken date can be used for applications as diverse as travel
planning and bill payment. We facilitate third-party development of new
components by providing royalty-free licenses to the source code for a set of
SpeechObjects we call Foundation SpeechObjects. These Foundation SpeechObjects
capture commonly used information such as dates, times and dollar amounts.
Nuance Developer's Toolkit. The Nuance Developer's Toolkit facilitates the
prototyping, development, deployment and optimization of voice user interfaces
for applications. The toolkit provides application programming interfaces to
our software platform and also includes twenty-five Foundation SpeechObject
software components. Voice user interfaces developed with the Nuance
Developer's Toolkit can be integrated with telephony applications written in
C/C++ or Java or using one of the Nuance-supported third-party application
development software tools. In the next release of the Nuance Developer's
Toolkit, which is scheduled to be released in the first half of 2000, we also
intend to include a new tool, named V-Builder, that will provide developers
with the capability to map existing HTML content, such as that found on a web
site, to our SpeechObject application components.
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Nuance Voyager
In October 1999, we publicly announced and demonstrated our Voyager voice
browser, which we anticipate will be commercially available in the second half
of 2000. Our voice browser will provide a standard voice user interface for
access to traditional telephony applications, voice portals and voice-enabled
Internet content. The functionality of our voice browser used via the telephone
is analogous to a web browser, which allows users to navigate the World Wide
Web via a personal computer. For end users, the Voyager browser delivers a
consistent user interface experience with standardized navigation features,
such as voice-based hyperlinks, continuous connection from one call to the next
and standardized personalization features, such as voice-site bookmarks, stored
voiceprints and storage of user profile information. For developers of voice-
enabled applications, the Voyager browser offers a consistent framework for
presentation of these voice-enabled applications to end users. For the enhanced
service providers and telecommunications carriers who may deploy Voyager to
their customers, the product allows delivery of new types of voice-enabled
services and offers a variety of voice portal services customized to their
specific needs.
Voyager's user interface takes advantage of the speech recognition, natural
language understanding and voice authentication capabilities of the Nuance
software platform. A potential dialog using the Voyager browser could be as
follows:
Voyager: "Welcome to Voyager. How may I help you?"
Caller: "List my bookmarks."
Voyager: "You have the following bookmarks: Acme Airlines,
Discount Brokerage, Web Portal Address Book, XYZ
Shopping Network. . ."
Caller: "Go to Acme Airlines."
Voyager: "Going to Acme Airlines."
Airline voice site: "Welcome to Acme Airlines, how may I help you?"
Caller: "I want to fly from New York to San Francisco next
Friday in the afternoon."
Airline voice site: "Would you like to leave from JFK airport, LaGuardia
airport or Newark airport?"
Caller: "LaGuardia."
Airline voice site: "There is a flight leaving at 4:30 p.m. from
LaGuardia airport arriving at 7:15 p.m. for a fare of
$607.42. Would you like to book a ticket on this
flight using your preferred credit card, your home
mailing address and your frequent flyer number stored
in your Voyager profile?"
Caller: "Yup. . ."
Airline voice site: "Confirming. You are booked on a flight leaving at
4:30 . . ."
Caller: "Voyager."
Voyager recognizes caller's request and responds, disconnecting from Acme
Airlines.
Voyager: "How may I help you?"
Caller: "Go to Web Portal Address Book.
Address Book voice site: "Welcome to Web Portal Address Book. What would
you like
to do?"
Caller: "Call Mom at home."
Address Book voice site:
"Calling Mom. . ."
Mom:
"Hello?"
Caller:
"Hi Mom, I'm coming to visit. . ."
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Services
We offer a range of services for implementation of applications using our
software platform. We offer professional services for customer projects, and
believe that our experience in the design and deployment of voice interface
systems is of value to our customers and provides us with a competitive
advantage. We draw on this experience to provide professional services that
include prototype development, user interface design, grammar development,
system testing, performance optimization and end-user acceptance studies. We
also offer technical support services for customers and developers to assist
with development, integration and operation of our software products, as well
as developer education services.
Voice Technologies
Our core technologies are speech recognition, natural language understanding
and speaker verification.
Speech recognition. Our highly accurate speech recognition technology uses
advanced linguistic and statistical models to interpret and understand natural
human speech, enabling users to speak naturally to computers. To recognize
speech, we currently use Hidden Markov Models with Gaussian-mixture processing,
which are statistical models that incorporate linguistic rules and
automatically learn from recorded speech databases. Our approach to speech
recognition is based on dividing digitized speech into many short segments,
then using our statistical processes to analyze and interpret these segments.
Breaking the speech into these short segments creates a high-resolution view of
the speech, which results in a high degree of accuracy.
Natural language understanding. Once speech is recognized, our software
determines its meaning. The software extracts the relevant parts of the
recognized speech using rules established by the developer of the voice
interface. These rules allow it to discard extraneous words such as "uh" and
"please" and then map the remaining words to pre-defined associated meanings.
For example, if the recognized speech were to be "Big Blue," the application
developer could use our developer tools to associate the speech with the ticker
symbol "IBM."
Voice authentication. Our voice authentication software provides security for
applications through biometric speaker verification. Callers enroll their
voices by speaking information requested by the application. Based on this
speech, our technology creates a voiceprint, or a statistical model of the
caller's voice. Once a voiceprint is created, our software can authenticate a
caller's claimed identity by comparing his speech to the voiceprint created
during enrollment. Our voice authentication software takes into account the
acoustic differences between types of telephones and caller locations, which
may affect how a voice sounds. These acoustic differences are one of the key
technological challenges in producing robust voice authentication products. By
using our proprietary techniques, our voice authentication technology provides
a high degree of accuracy.
Customers
Our customers comprise a diverse, international group of organizations. The
following is a representative list of our customers who have purchased over
$100,000 of our software and services either directly from us or through our
resellers.
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Enterprises and Enterprise Service Providers
<TABLE>
<S> <C>
American Airlines HKStocks.com (China)
American Century Lloyds TSB (United Kingdom)
American Express Financial Advisors Merrill Lynch
Banco Itau (Brazil) Nissho Iwai Infocom (Japan)
Banco Mercantil (Venezuela) NTL Cable Group (United Kingdom)
Charles Schwab & Co. Odeon Cinemas (United Kingdom)
Cheap Tickets PFPC
Comdata Polaris Securities (Taiwan)
Commonwealth of Virginia Safilo
CTC Create (Japan) Sears, Roebuck and Co.
Dell Japan Sony Japan
Delta Airlines TAB Queensland (Australia)
Dreyfus Corporation Timemac (Australia)
Fidelity Investments TD Waterhouse (Canada)
Fingerhut United States Advanced Networks
General Electric Co. UPS
Hewitt Associates West Teleservices
Home Shopping Network
</TABLE>
Telecommunications Carriers
<TABLE>
<C> <S>
Bell Atlantic Southwestern Bell
British Telecom (United Kingdom) Telia (Sweden)
CTBC Telecom (Brazil) Telstra (Australia)
Deutsche Telekom (Germany) US West
</TABLE>
Enhanced Service Providers
<TABLE>
<C> <S>
BeVocal Star*Free
General Magic U-Access
GoSolo Technologies Webley Systems
</TABLE>
Customer Case Studies
American Airlines
American Airlines, one of the largest air carriers in the world, along with
its regional airline affiliate, American Eagle, provides service to nearly 50
countries and 240 cities worldwide. On an average day, American and American
Eagle operate more than 3,800 departures.
American is in the process of redesigning its call center technology to
enhance customer service and increase call handling efficiency. As part of this
redesign, American, Nuance and Periphonics, one of our value added resellers,
implemented our software to give American's customers access to certain
information and transactions through a natural voice interface. The first
voice-enabled application was deployed to allow American's AADVANTAGE customers
to speak their frequent flyer numbers, resulting in their membership
information appearing on the computer screen of the reservations
representative. Based on the success of this first application, American went
on to
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implement additional voice-enabled applications: AADVANTAGE upgrade requests
and retrieval of flight arrival and departure information. An example of the
dialog provided in this latter applications is as follows:
American system: "What is the departure city?"
End User: "San Jose."
American system: "What is the arrival city?"
End User: "Dallas."
American system: "Would you like departure or arrival?"
End User: "Um, arrival."
American system: "Please say the approximate arrival time."
End User: "Seven thirty p.m."
American system: "The flight is from San Jose, California to
Dallas Fort Worth International Airport,
arriving at approximately 7:30 p.m., on Monday,
January 31, 2000. Is this correct?"
End User: "Yes."
American system: "Flight 384 is scheduled to arrive at Dallas
Fort Worth International Airport at 7:42 p.m.,
terminal A, gate A38, baggage claim area A19."
By giving callers the ability to speak to the automated systems, American is
making it quicker and easier for their customers to get information and perform
transactions. The use of our voice interface platform is helping American to
differentiate itself from other airlines on the basis of service and to control
operating costs.
The Dreyfus Corporation
Dreyfus is one of the nation's largest mutual fund companies and a subsidiary
of Mellon Bank, NA. In 1999, Dreyfus managed more than $120 billion in more
than 160 mutual fund portfolios and offered a range of investment products and
customer services to help over one million investors manage and grow their
investments.
Dreyfus found that its existing call center infrastructure was limiting its
ability to provide investors with easy and convenient access to all of the
account information and transactions they desired. As a result, Dreyfus
believes that customer service representatives were handling calls that could
have been automated, lengthening call hold times for investors and increasing
Dreyfus's cost of providing service.
Dreyfus picked Nuance and one of our value added resellers, Syntellect, to
implement a full- featured mutual fund management application that gives
customers the ability to get quotes, make trades, check account balances, track
transactions and perform many other functions simply by speaking their requests
over the telephone. For example:
<TABLE>
<S> <C>
Dreyfus system: "Main menu. How can I help you?"
Caller: "What is the price on Dreyfus Appreciation Fund?"
Dreyfus system: "Dreyfus Appreciation Fund, last trade $47.25. What
else would you like?"
Caller: "The balance in my account."
Dreyfus system: "The balance on your Dreyfus Appreciation Fund
account as of the close of business on February 4,
2000 is $7,500. We're at the main menu. What would
you like next?"
Caller: "I want to hear my recent transactions."
Dreyfus system: "The most recent investment in your Dreyfus
Appreciation Fund account was. . ."
</TABLE>
41
<PAGE>
The Dreyfus system began taking customer calls in December 1999 and is
positioned to handle over 15,000 calls per day.
Home Shopping Network
Home Shopping Network is a global electronic retailer broadcasting to 70
million households via television. On an average day, Home Shopping Network
receives 200,000 calls and sells a wide range of retail items. Like most
retailers, one of Home Shopping Network's goals is to understand each
customer's buying behavior so that it can build stronger customer relationships
and target more effectively the marketing of other products or special
promotions. Because of its high call volume, Home Shopping Network also needs
to handle these customer interactions cost-effectively.
In July 1999, Home Shopping Network teamed with Nuance and our value added
reseller, Edify--a subsidiary of S1 Corporation, to automate and simplify
identifying and authenticating individual Home Shopping Network customers who
were calling to place orders. The system uses both Nuance 6 to recognize spoken
Home Shopping Network customer numbers and Nuance Verifier to authenticate the
callers' identities based on their voices.
The new system allows Home Shopping Network to increase personalization of
their service by tracking activity by individual customer instead of by
household. The system also automates and simplifies access to Home Shopping
Network offerings. With this system, Home Shopping Network customers only have
to say a single phrase and Home Shopping Network's automated system can
simultaneously recognize their speech and verify their identity with a high
degree of accuracy. Because the system is secured by voice authentication, Home
Shopping Network is able to let customers identify themselves by speaking their
telephone number instead of a Home Shopping Network-defined account number,
thereby reducing the number of customers that immediately opt out by pressing
zero to talk to a customer service representative because they cannot remember
their Home Shopping Network account number. An example of the new voice-enabled
customer identification and authentication dialog at Home Shopping Network is
as follows:
<TABLE>
<S> <C>
HSN system: "Please say your area code and telephone number
now."
Caller: "Six five oh, five five five, seven four one one."
HSN system: "Thank you. Your call will be transferred. . ."
</TABLE>
Nuance is helping Home Shopping Network with the implementation of additional
applications that will automate more of the customer interaction, further
reduce the average time customers spend on the line with operators and
ultimately reduce costs.
Sears, Roebuck and Co.
Sears, Roebuck and Co. is a leading U.S. retailer of apparel, home and
automotive products and services, with over 850 department stores and annual
revenue of more than $41 billion in 1999.
With so many locations, Sears found that the total cost of handling incoming
telephone calls across all the stores was significant and it was difficult to
adequately staff the function to provide callers with timely service. To
address these cost and service issues, Sears initiated a project in 1997 to
centralize call routing and other functions in a way that was transparent to
its customers. While this consolidation helped reduce costs and improve service
by moving much of the burden of calling routing out of the individual Sears
stores, staffing the centralized call center was still costly and growing call
volumes continued to stress the speed at which the calls could be handled,
especially during the holidays. Sears stores are typically open twelve hours a
day, seven days a week. Sears estimates that about 3,000 telephone switchboard
operators were required to handle these routine incoming customer calls. The
retail chain's challenge was to automate these calls and continue to improve
customer service.
42
<PAGE>
In 1997, Nuance, Sears and Edify--a subsidiary of S1 Corporation, one of our
value added resellers, implemented a system using our software to automate call
routing for customers calling their local Sears store. Callers are prompted to
speak the department with which they would like to be connected or the product
they are interested in, for example:
<TABLE>
<S> <C>
Sears system: "Please say the name of the department you wish to
reach."
Caller: "Uh, men's shoes."
Sears system: "Connecting to men's shoes . . ."
</TABLE>
The system has helped Sears improve customer service by eliminating long ring
times before a call is answered. As a result, the system has also helped reduce
the number of callers who hang up before their calls are answered. Now, calls
to Sears department store main numbers are handled by the Nuance-enabled system
which can support two to four calls per store simultaneously, depending upon
the size of the store, and on average 250,000 calls a day. Peak daily call
volumes during the 1999 holiday season approached 500,000 calls. Sears is now
working with Nuance and Edify to provide additional automated services over the
telephone for its customers.
Sales and Marketing
We sell our products both directly through a sales force and indirectly
through third-party value added resellers, original equipment manufacturers and
system integrators. We believe that our indirect distribution channel will
generate a significant amount of revenue in the foreseeable future.
Direct Sales
The primary function of our direct sales force is to generate demand for our
products that is fulfilled either directly or through channel resellers. As of
September 30, 1999, we had 58 persons in sales and marketing serving the United
States market and nine persons in sales and marketing serving international
markets. We have recently established European subsidiaries in France and the
United Kingdom to foster customer and reseller relationships throughout Europe.
We also have area managers based in Australia, Germany and China (Hong Kong).
The Central and Latin American markets are currently managed from our
headquarters in California.
Indirect Sales
We have developed a sales and fulfillment channel that is comprised of third-
party value added resellers, original equipment manufacturers and system
integrators. In addition, we have joint sales and marketing relationships with
a number of companies. We believe that, as the market for voice interface
solutions continues to develop, sales through our resellers will represent a
significant percentage of our sales.
Our resellers increase our sales coverage worldwide and address the broad
range of market and application opportunities for our software. In addition,
these resellers provide end users of our software platform with access to
additional resources to design, install and customize applications. Our five
largest resellers based on revenue in the nine months ended September 30, 1999
were Edify--a subsidiary of S1 Corporation, IBM, Omron Corporation,
Periphonics--a Nortel Networks Company and Syntellect.
Marketing
Our marketing programs are designed to create awareness for our products and
services and support our direct and indirect sales efforts. We have implemented
an integrated mix of marketing
43
<PAGE>
activities, including public relations, promotional events such as seminars and
an annual user conference, demonstration systems, web sites and channel
programs. Our channel programs include the Nuance Developer Network and the
Nuance Partner Alliance. The Nuance Developer Network is a program for
providing developers of voice-enabled applications with tools and information.
Members of the Nuance Developer Network receive our Developer Toolkit, training
discounts and access to our extranet system for additional information and
online support. The Nuance Partner Alliance is comprised of a select group of
our resellers and integrators. We screen applicants to the Nuance Partner
Alliance based on their commitments to sell and to market our software and
services and to provide relevant training to their employees. We perform joint
marketing activities with Nuance Partner Alliance members and we provide them
with introductions to prospective customers.
Research and Development
To remain competitive in the voice interface software industry, we must
continue to develop highly accurate and efficient speech recognition, natural
language understanding and voice authentication technologies. Our technologies
are based on over ten years of initial research activities by SRI
International. Since our formation, we have invested significantly in
developing and improving this core technology, the software architecture and
related products.
We have several significant products and product enhancements currently in
development. These products include the Voyager voice browser, additional
SpeechObject components, speech application development tools and new language
models. The product enhancements include improvements to recognition and
verification accuracy and continued enhancements to the Nuance 6 software
architecture to broaden functionality, improve software efficiency and expand
integration options.
Our research and development expenses were $2.7 million in 1996, $3.6 million
in 1997, $6.6 million in 1998 and $7.8 million in the nine months ended
September 30, 1999. As of September 30, 1999, we had 70 employees dedicated to
research and development. Because of the specialized nature of the core
technology, this staff included over 35 employees with Ph.D. degrees. We
believe that new and timely development of products and technologies are
important to our competitive position in the market and intend to continue to
invest in research and development activities.
Competition
A number of companies have developed, or are expected to develop, products
that compete with our products. Competitors in the voice interface software
market include IBM, ITT Industries, Lernout and Hauspie Speech Products, Locus
Dialogue, Lucent Technologies, Philips Electronics, SpeechWorks International
and T-NETIX. We expect additional competition from other companies such as
Microsoft, who has recently made investments in and acquired a voice interface
technology company. Furthermore, our competitors may combine with each other,
and other companies may enter our markets by acquiring or entering into
strategic relationships with our competitors. Current and potential competitors
have established, or may establish, cooperative relationships among themselves
or with third parties to increase the abilities of their advanced speech and
language technology products to address the needs of our prospective customers.
Many of our current and potential competitors have longer operating
histories, significantly greater financial, technical, product development and
marketing resources, greater name recognition and larger customer bases than we
do. Our present or future competitors may be able to develop products
comparable or superior to those we offer, adapt more quickly than we do to new
technologies, evolving industry trends and standards or customer requirements,
or devote greater resources to the development, promotion and sale of their
products than we do. Accordingly, we may not be able to compete effectively in
our markets, competition may intensify and future competition may harm our
business.
44
<PAGE>
We believe that the principal competitive factors affecting our market
include the breadth and depth of solutions, product quality and performance,
core technology, product scalability and reliability, product features,
customer service, the ability to implement solutions, the value of a given
solution, the creation of a base of referenceable customers and the strength
and breadth of reseller and developer relationships. Although we believe that
our solutions currently compete favorably with respect to these factors,
particularly with respect to product quality and performance, our market is
relatively new and is evolving rapidly.
Intellectual Property
We rely upon a combination of patent, copyright, trade secret and trademark
laws to protect our intellectual property. We currently have fifteen U.S.
patent applications pending and have taken steps to preserve our rights in
various foreign countries. In addition, we have two U.S. trademark
registrations and we have filed for additional U.S. trademark registrations.
Although we rely on patent, copyright, trade secret and trademark law to
protect our technology, we believe that factors such as the technological and
creative skills of our personnel, new product developments, frequent product
enhancements and reliable product maintenance are more essential to
establishing and maintaining a technology leadership position. We cannot
guarantee that others will not develop technologies that are similar or
superior to our technology.
To protect our trade secrets, technical know-how and other proprietary
information, our employees are required to enter into agreements providing for
the maintenance of confidentiality and assignment of rights to inventions made
by them while employed by us. We also enter into non-disclosure agreements to
protect our confidential information delivered to third parties and control
access to and distribution of our proprietary information. Despite our efforts
to protect our proprietary rights, unauthorized parties may attempt to copy or
otherwise to obtain and use our technology or to develop products with the same
functionality as our products. Monitoring unauthorized use of our proprietary
information and technology is difficult, and we cannot be certain that the
steps we have taken will prevent misappropriation of our technology,
particularly in foreign countries where the laws may not protect proprietary
rights as fully as do the laws of the United States. In addition, some of our
license agreements require us to place the source code for our products into
escrow.
The software industry is characterized by the existence of a large number of
patents and frequent litigation based on allegations of patent infringement and
the violation of intellectual property rights. Although we attempt to avoid
infringing known proprietary rights of third parties, we expect that we may be
subject to legal proceedings and claims for alleged infringement by us or our
licensees of third-party proprietary rights, such as patents, trade secrets,
trademarks or copyrights, from time to time in the ordinary course of business.
Any claims relating to the infringement of third-party proprietary rights, even
if not successful or meritorious, could result in costly litigation, divert
management's attention and resources or require us to enter into royalty or
license agreements which are not advantageous to us. In addition, parties
making these claims may be able to obtain injunctions, which could prevent us
from selling our products. Furthermore, former employers of these employees may
assert that our employees have improperly disclosed confidential or proprietary
information to us. Any of these results could harm our business. We may be
increasingly subject to infringement claims as the number of, and features of,
our products grow.
Employees
As of September 30, 1999, we had 201 full time employees. From time to time,
we also retain independent technical contractors and temporary employees. None
of our employees are subject to a collective bargaining agreement, and we
believe that our relations with our employees are good.
45
<PAGE>
Facilities
Our headquarters are located in Menlo Park, California in two office
buildings in which we lease an aggregate of 60,000 square feet. The lease on
one building expires in May 2001. The lease on the other building expires in
August 2004. We also lease 9,000 square feet of office space in Montreal,
Canada for our Canadian subsidiary under a lease which expires in June 2001. We
anticipate that we will require additional space within the next twelve months,
but we believe that suitable additional space will be available on commercially
reasonable terms. We do not own any real estate.
Legal Proceedings
We are not currently a party to any legal proceedings.
46
<PAGE>
MANAGEMENT
Executive Officers, Directors and Key Employees
Our current executive officers, directors and key employees, and their ages
as of February 1, 2000, are:
<TABLE>
<CAPTION>
Name Age Position
------------------------- --- ------------------------------------------------
<C> <C> <S>
Ronald Croen............. 45 President, Chief Executive Officer and Director
Brian Danella............ 30 Vice President and General Counsel
Bruce Dougherty.......... 61 Vice President, Strategic Initiatives
Steven Ehrlich........... 35 Vice President, Marketing
Lloyd Leanse............. 41 Vice President, Business Development
Eng Yew Lee.............. 39 Vice President, Technical Services
Matthew Lennig........... 48 Senior Vice President, Engineering
Paul Scott............... 46 Senior Vice President, Worldwide Sales
Vice President, Chief Financial Officer and
Graham Smith............. 39 Secretary
Vice President, Human Resources and Chief People
Donna Allen Taylor....... 51 Officer
Yogen Dalal(2)........... 49 Chairman of the Board
Curtis Carlson........... 54 Director
Vinton Cerf.............. 56 Director
Irwin Federman(1)........ 64 Director
Alan Herzig(1)........... 66 Director
Gary Morgenthaler(1)(2).. 51 Director
</TABLE>
- --------
(1) Member of audit committee.
(2) Member of compensation committee.
Ronald Croen, a co-founder of Nuance, has served as our President since July
1994, as our Chief Executive Officer since October 1995 and as one of our
directors since October 1995. From 1993 to 1994, Mr. Croen served as a
consultant to SRI International. From 1989 to 1993 Mr. Croen was an independent
management consultant in Paris, France. Prior to this, Mr. Croen served in
various positions at The Ultimate Corp. including Managing Director of European
Operations and as Vice President and General Counsel of The Ultimate Corp. Mr.
Croen holds a J.D. degree from the University of Pennsylvania Law School and a
B.A. from Tufts University.
Brian Danella has served as our Vice President and General Counsel since
November 1999. From July 1999 to September 1999, Mr. Danella served as the
Senior Director of Business Development of CD1.com, an online consumer lending
company. From May 1996 to July 1999, he served as an associate in the
Technology Transactions Group of Wilson Sonsini Goodrich & Rosati P.C., a
Silicon Valley law firm. From September 1994 to April 1996, he served as an
associate at Weil, Gotshal & Manges, a New York law firm. Mr. Danella holds a
J.D. degree from Syracuse University College of Law and an A.B. from Princeton
University.
Bruce Dougherty has served as our Vice President, Strategic Initiatives since
January 2000. From September 1997 to January 2000, Mr. Dougherty served as our
Vice President, Sales. From April 1996 to September 1997, Mr. Dougherty served
as our Vice President, Sales and Marketing. From January 1994 to April 1996, he
served as Vice President of, Solutions Marketing of Tandem Computers, a
computer hardware and software company. From 1984 to 1994, Mr. Dougherty held
other Vice President and Director positions at Tandem. Prior to this, Mr.
Dougherty served in various sales and marketing positions with IBM. Mr.
Dougherty holds a B.A. from Long Beach State College.
Steven Ehrlich has served as our Vice President, Marketing since October
1997. From January 1994 to September 1997, Mr. Ehrlich served as Senior
Director of Tools Product Marketing of Oracle Corporation. From 1993 to 1994,
Mr. Ehrlich served as Senior Director of Product
47
<PAGE>
Marketing for Tools Products of Oracle Corporation. From 1989 to 1993, Mr.
Ehrlich served as a Technical Support Manager of Oracle's Worldwide Support
organization. Prior to this, Mr. Ehrlich held several sales and technical
positions at Knowledge Systems International, the South African distributor of
Oracle's products. Mr. Ehrlich holds an Honors and a Commerce degree from the
University of the Witwatersrand in South Africa.
Lloyd Leanse has served as our Vice President, Business Development since
December 1999. From December 1997 to December 1999, Mr. Leanse served as our
Director of Business Development. From January 1996 to July 1997, Mr. Leanse
served as Vice President of Business Development of Vividus Corporation, a
consumer software company. From January 1995 to January 1996, he served as Vice
President of Business Affairs of OnLive! Technologies, an online software and
service company. From 1991 to 1993, he served as an independent consultant,
Vice President and Chief Financial Officer of PharmChem Laboratories, a
laboratory services company. Mr. Leanse holds a B.A. from Stanford University.
Eng Yew Lee has served as our Vice President, Technical Services since
February 2000. From May 1998 to February 2000, Mr. Lee served as our Director
of Technical Services. From August 1995 to June 1998, Mr. Lee served as
Director of Server Technologies Support of Oracle Corporation. From 1989 to
1994, Mr. Lee held a variety of manager positions with Oracle in the United
States and the United Kingdom. Mr. Lee holds an M.S. in Business Systems
Analysis and Design from the City University of London, England and a B.S. from
London University.
Matthew Lennig has served as our Senior Vice President, Engineering since
January 2000. From January 1996 to January 2000. Mr. Lenning served as our Vice
President, Engineering. From December 1989 to January 1996, Dr. Lennig served
as Senior Manager of Speech Technology & Applications of Bell-Northern
Research, the research and development subsidiary of Northern Telecom. Dr.
Lennig holds a Ph.D. in Linguistics from the University of Pennsylvania, a
M.Eng. from McGill University and an A.B. from Princeton University.
Paul Scott has served as our Senior Vice President, Worldwide Sales since
February 2000. From May 1996 to January 2000, Mr. Scott served as Senior Vice
President of Sales for the Octel Messaging Division of Lucent Technologies.
From June 1992 to April 1996, Mr. Scott served as Vice President of Sales of
Octel Communications Corporation, a voice-messaging company. Prior to this, Mr.
Scott held various sales management positions at Octel Communications. Mr.
Scott holds an M.A. and a B.A. from Northwestern University.
Graham Smith has served as our Vice President and Chief Financial Officer
since August 1998 and as our Secretary since November 1998. From April 1994 to
July 1998, Mr. Smith served as Director and then later Vice President of
Finance, of Worldwide Operations of Oracle Corporation. From 1987 to 1994, Mr.
Smith served as Chief Accountant of Oracle Corporation (UK) Ltd. Mr. Smith
holds a B.Sc. from Bristol University in England and is a member of the
Institute of Chartered Accountants in England and Wales.
Donna Allen Taylor has served as our Vice President, Human Resources and
Chief People Officer since January 2000. From September 1996 to December 1999,
Ms. Taylor served as Vice President of Human Resources of The Vantive
Corporation, a worldwide customer asset management applications software
company. From October 1995 to August 1996, Ms. Taylor served as a senior
consultant of Post Associates, an organizational consulting firm. From
September 1993 to September 1995, Ms. Taylor served as a Corporate Human
Resources Director of Intel Corporation. Prior to this, Ms. Taylor held several
senior Human Resource management positions with various divisions of Digital
Equipment Corporation, a computer hardware, software and services company. Ms.
Taylor holds a B.F.A. from Kansas University.
48
<PAGE>
Yogen Dalal has served as one of our directors since September 1995 and
Chairman of our Board since January 2000. Dr. Dalal has been a general partner
of Mayfield Fund, a venture capital firm, since 1992. Dr. Dalal also serves as
a director of BroadVision, Inc., a supplier of e-business applications, TIBCO
Software Inc., a software company, and several privately held companies. Dr.
Dalal holds a Ph.D. and an M.S. in Electrical Engineering from Stanford
University and a B.Tech. in Electrical Engineering from the Indian Institute of
Technology.
Curtis Carlson has served as one of our directors since December 1998. Dr.
Carlson has been President and Chief Executive Officer of SRI International
since December 1998. From April 1996 to November 1998, Dr. Carlson served as
Executive Vice President of Ventures and Licensing of the Sarnoff Corporation,
an information technology company and one of SRI's two wholly owned
subsidiaries. Prior to this, Dr. Carlson served as a technical Director at RCA
Laboratories. Dr. Carlson holds a Ph.D. and an M.S. from Rutgers University and
a B.S. from Worcester Polytechnic Institute.
Vinton Cerf has served as one of our directors since December 1999. Dr. Cerf
has been the Senior Vice President for Internet Architecture and Technology of
MCI WorldCom since February 1994. From 1986 to 1994, Dr. Cerf served as Vice
President of the Corporation for National Research Initiatives, a non-profit
research and development organization. Prior to this, Dr. Cerf held positions
with MCI Digital Information Services and the U.S. Department of Defense's
Advanced Research Projects Agency. Dr. Cerf serves as a director of several
privately held companies. Dr. Cerf holds a Ph.D. and an M.S. in computer
science from the University of California at Los Angeles and a B.S. from
Stanford University.
Irwin Federman has served as one of our directors since August 1995. Mr.
Federman has been a general partner of U.S. Venture Partners, a venture capital
firm, since 1990. From 1988 to 1990, Mr. Federman was a managing director of
Dillon, Read and Company, an investment bank. From 1981 to 1988, Mr. Federman
was President and Chief Executive Officer of Monolithic Memories, an integrated
circuit company. Mr. Federman also serves as a director of CheckPoint Software
Technologies, Inc., an Internet security company, Komag, Inc., a thin film
media disk manufacturer, MMC Networks, Inc., a developer and supplier of
network processors, Netro Corporation, a provider of broadband wireless access
systems, QuickLogic, Inc., a semiconductor company, SanDisk Corp., a computer
memory company, and several privately held companies. Mr. Federman holds a B.S.
from Brooklyn College.
Alan Herzig has served as one of our directors since October 1994. Mr. Herzig
has been President and Chief Executive Officer of SRI Holdings, Inc., a
subsidiary of SRI International, since April 1997. From April 1994 to April
1997, Mr. Herzig served in the Office of the Chairman of SRI International.
From 1987 to 1994, Mr. Herzig served as the President and Chief Executive
Officer of Robert Fleming Pacific, Inc., the U.S. investment banking arm of
Robert Fleming & Co., a U.K.-based merchant bank. From 1981 to 1987, Mr. Herzig
served as a Managing Director of L.F. Rothschild Unterberg Towbin, an
investment bank. Mr. Herzig also has served on the Board of Directors of
Sarnoff Corporation, a subsidiary of SRI International, and several privately
held companies. Mr. Herzig holds a B.A. from Yale University.
Gary Morgenthaler has served as one of our directors since January 1997. Mr.
Morgenthaler has been a general partner at Morgenthaler Ventures, a venture
capital firm, since 1989. From 1984 to 1988, Mr. Morgenthaler served as Chief
Executive Officer and Chairman of Ingres Corporation, a database company. Prior
to this, Mr. Morgenthaler held positions with McKinsey & Company, a consulting
company, Tymshare, Inc., a computer services company, and Stanford University's
Institute for Mathematical Studies in the Social Sciences. Mr. Morgenthaler
serves as a director of several privately held companies. Mr. Morgenthaler
holds an A.B. from Harvard University.
49
<PAGE>
Board Composition
We currently have seven directors. In accordance with the terms of our
certificate of incorporation, the terms of office of our board of directors
will be divided into three classes upon the closing of the offering: Class I,
whose term will expire at the annual meeting of stockholders to be held in
2000, Class II, whose term will expire at the annual meeting of stockholders to
be held in 2001 and Class III, whose term will expire at the annual meeting of
stockholders to be held in 2002. The Class I directors will be Mr. Croen, Mr.
Federman and Mr. Morgenthaler, the Class II directors will be Dr. Carlson and
Mr. Herzig and the Class III directors will be Dr. Dalal and Dr. Cerf. At each
annual meeting of stockholders after the initial classification, the successors
to directors whose terms will then expire will be elected to serve from the
time of election and qualification until the third annual meeting following
election. Any additional directorships resulting from an increase in the number
of directors will be distributed among the three classes so that, as nearly as
possible, each class will consist of one-third of our directors. This
classification of the board of directors may have the effect of delaying or
preventing changes in control of our company. Our directors may be removed for
cause by the affirmative vote of the holders of a majority of our outstanding
common stock. There are no family relationships among any of our directors,
officers or key employees.
Board Committees
Our board of directors has a compensation committee and an audit committee.
The compensation committee consists of Dr. Dalal and Mr. Morgenthaler. The
compensation committee makes recommendations regarding our stock option plans
and all matters concerning executive compensation. The audit committee consists
of Mr. Federman, Mr. Herzig and Mr. Morgenthaler. The audit committee approves
our independent auditors, reviews the results and scope of annual audits and
other accounting related services and evaluates our internal audit and control
functions. Each of these committees was established in January 2000.
Director Compensation
We do not pay any cash compensation to our directors for serving on the board
of directors. However, directors are entitled to reimbursement for reasonable
expenses incurred in attending meetings of the board of directors. The board of
directors also has the discretion to grant options and rights to directors
pursuant to our stock option plans. In December 1999, Dr. Cerf, one of our
directors, was granted a non-statutory option to purchase 50,000 shares of our
common stock with an exercise price of $8.50 per share. Employee directors are
also eligible to participate in our employee stock purchase plan. The "--
Employee Benefit Plans" section contains a description of these plans.
Compensation Committee Interlocks and Insider Participation
The compensation committee consists of Dr. Dalal and Mr. Morgenthaler. Each
is a member of the board of directors and neither is an employee. None of our
executive officers serve as a director or member of the compensation committee
or other board committee performing equivalent functions of another entity that
has one or more executive officers serving on our board of directors or
compensation committee.
50
<PAGE>
Executive Compensation
The following table sets forth information concerning the compensation that
we paid during the year ended December 31, 1999 to our Chief Executive Officer
and each of the other four most highly compensated executive officers who
earned more than $100,000 during the year ended December 31, 1999, who are also
referred to in this prospectus as our named executive officers.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
----------------------------- ------------
Number of
Securities
Name and Principal Other Annual Underlying Other
Position Salary Bonus Compensation Options Compensation
------------------ -------- ------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Ronald Croen............ $206,561 $20,000 -- 400,000 $527(3)
President and Chief
Executive Officer
Bruce Dougherty......... 177,375 62,486 $42,683(1) 25,000 2,149(3)
Vice President,
Strategic Initiatives
Graham Smith............ 197,840 22,333 22,446(2) 75,000 212(3)
Vice President and
Chief Financial Officer
Matthew Lennig.......... 171,040 52,250 -- 75,000 527(3)
Senior Vice President,
Engineering
Steven Ehrlich.......... 174,936 42,100 -- 75,000 176(3)
Vice President,
Marketing
</TABLE>
- --------
(1) Amount represents sales commissions paid to Mr. Dougherty during 1999 in
his capacity as Vice President, Sales. Mr. Dougherty assumed his current
position as Vice President, Strategic Initiatives in January 2000.
(2) Amount represents the forgiveness of principal and interest associated with
an interest bearing loan of $50,000 which Mr. Smith received in connection
with his employment with Nuance.
(3) Amount represents premiums paid for term life insurance.
In addition to the named executive officers,we currently employ other
officers we anticipate will qualify as named executive officers in future
years. These executives include Paul Scott, our Senior Vice President,
Worldwide Sales, who will receive an annual salary of $220,000, and Donna Allen
Taylor, our Vice President, Human Resources and Chief People Officer, who will
receive an annual salary of $185,000.
Option Grants in Last Year
The following table sets forth stock options granted to each of the named
executive officers during the year ended December 31, 1999. A total of
3,052,000 options were granted in 1999, pursuant to our 1998 Stock Plan.
Options were granted at an exercise price equal to the fair market value of our
common stock, as determined by the board of directors on the date of grant. In
making this determination, the board considered a number of factors, including:
. our historical and prospective future revenue and profitability;
. our cash balance and rate of cash consumption;
. the development and size of the market for our products;
. the status of our financing activities;
. the stability and tenure of our management team; and
. the breadth of our product offerings.
51
<PAGE>
The potential realizable values set forth in the table below represent
hypothetical gains over the ten-year term of the option at assumed compounded
annual appreciation rates of 5% and 10%.These assumed rates of appreciation are
mandated by rules of the Securities and Exchange Commission and do not reflect
our projections or estimates of our future common stock prices.
The options set forth in the following table were granted under our 1998
Stock Plan and provide for vesting as to 25% of the underlying common stock one
year after the date the options were granted, and then ratably over a period of
36 months thereafter, provided that the optionee remains our employee, a
consultant to Nuance or one of our directors. In addition, these options all
provide for acceleration of vesting under certain conditions, as described in
the "--Change of Control Agreements" section. No stock appreciation or stock
purchase rights were granted during 1999.
Option Grants in Year Ended December 31, 1999
<TABLE>
<CAPTION>
Individual Grants
----------------------------------------
Potential Realizable
Percent Values at Assumed
Number of of Total Annual Rate of Stock
Securities Options Exercise Price Appreciation
Underlying Granted Price for Option Term
Options to Per Expiration ---------------------
Name Granted Employees Share Date 5% 10%
- ---------------- ---------- --------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Ronald Croen.... 400,000 13.1% $8.50 12/16/09 $2,138,242 $5,418,724
Bruce
Dougherty...... 25,000 0.8 8.50 12/16/09 133,640 338,670
Graham Smith.... 75,000 2.5 8.50 12/16/09 400,920 1,016,011
Matthew Lennig.. 75,000 2.5 8.50 12/16/09 400,920 1,016,011
Steven Ehrlich.. 75,000 2.5 8.50 12/16/09 400,920 1,016,011
</TABLE>
Aggregate Option Exercises and Option Values
The following table presents information for each of our named executive
officers concerning the number of shares underlying both exercisable and
unexercisable stock options as of December 31, 1999 and the number of options
exercised during the year ended December 31, 1999. Also reported are values for
in-the-money options that represent the positive spread between the respective
exercise prices of outstanding stock options and $8.50, or the fair market
value of the underlying common stock as of December 31, 1999, as determined in
good faith by the board of directors. The underlying amount in the "Value
Realized" column below represents the difference between the fair market value
of the underlying common stock on the date of exercise and the exercise price
of the option.
Aggregate Option Exercises and Year-End Option Values as of December 31, 1999
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Number of Options at In-the-Money Options at
Shares Acquired December 31, 1999 December 31, 1999
on Exercise Value ------------------------- -------------------------
Name in 1999 Realized Exercisable Unexercisable Exercisable Unexercisable
---- --------------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Ronald Croen............ 93,750 $741,563 70,276 557,850 $ 518,526 $1,226,014
Bruce Dougherty......... -- -- 81,227 85,440 646,871 457,548
Graham Smith............ -- -- 66,667 208,333 426,669 853,331
Matthew Lennig.......... 1,800 11,988 122,761 135,439 1,032,420 508,292
Steven Ehrlich.......... 2,500 16,375 98,534 173,966 780,020 707,980
</TABLE>
52
<PAGE>
Employee Benefit Plans
1994 Flexible Stock Incentive Plan
Our 1994 Flexible Stock Incentive Plan was adopted by our board of directors
in October 1994 and approved by our stockholders in October 1994. The 1994
Flexible Stock Incentive Plan was amended in August 1998 and January 2000. As
of December 31, 1999, options to purchase 1,967,200 shares were outstanding,
and 1,288,575 shares of common stock had been purchased pursuant to exercises
of stock options and stock purchase rights. The 1994 Flexible Stock Incentive
Plan was terminated on September 1, 1999, without any changes to the rights or
obligations of any options previously granted under the 1994 Flexible Stock
Incentive Plan. As a result of the termination of the 1994 Flexible Stock
Incentive Plan, no options are available for future grant.
The 1994 Flexible Stock Incentive Plan provides for the grant of incentive
stock options, within the meaning of Section 422 of the Internal Revenue Code,
to our employees, and the grant of nonstatutory stock options and stock
purchase rights to our employees, directors and consultants. The 1994 Flexible
Stock Incentive Plan is administered by the board of directors, or a committee
appointed by the board of directors, which determines the terms of options and
stock purchase rights granted under the 1994 Flexible Stock Incentive Plan.
These terms, which are stated in the option agreement, include the exercise
price, the vesting and the exercisability, and the number of shares subject to
each option or stock purchase right. However, incentive stock options granted
under the 1994 Flexible Stock Incentive Plan must have an exercise price of at
least 100% of the fair market value of the common stock on the date of grant
and at least 110% of the fair market value in the case of an optionee who holds
more than 10% of the total voting power of all classes of our stock. Further,
no incentive stock options may be granted to an optionee, which when combined
with all other incentive stock options becoming exercisable in any calendar
year that are held by that person, would have an aggregate fair market value in
excess of $100,000. The term of an incentive stock option may not exceed ten
years and, in the case of an option granted to an optionee who owns more than
10% of our outstanding stock at the time of grant, the term of an option may
not exceed five years.
Options and stock purchase rights granted under the 1994 Flexible Stock
Incentive Plan are generally not transferable by the optionee except by will or
by the laws of descent or distribution. In addition, each option and stock
purchase right is exercisable during the lifetime of the optionee only by that
optionee. Options granted under the 1994 Flexible Stock Incentive Plan must
generally be exercised within three months after the end of optionee's status
as our employee, director or consultant, or within twelve months after the
optionee's termination by disability or death, to the extent the optionee is
vested on the date of termination. An option may not, however, be exercised
later than the expiration of the option's term.
The 1994 Flexible Stock Incentive Plan provides that in the event of a merger
of Nuance with or into another corporation, or a sale of substantially all of
our assets, each outstanding option and stock purchase right will terminate and
we will either repurchase outstanding restricted stock or each share of
restricted stock shall be reconveyed to us, unless assumed by the successor
corporation or its parent company.
1998 Stock Plan
Our 1998 Stock Plan was adopted by our board of directors in August 1998 and
approved by our stockholders in August 1998. The 1998 Stock Plan was amended in
January 2000. A total of 8,000,000 shares of common stock have been reserved
for issuance under our 1998 Stock Plan, as amended. As of December 31, 1999,
options to purchase 3,752,065 shares were outstanding, 44,935 shares of common
stock had been purchased pursuant to exercises of stock options and stock
53
<PAGE>
purchase rights and 4,203,000 shares remain available for future option grants.
The 1998 Stock Plan will terminate automatically in August 2008 unless
terminated earlier by our board of directors. Upon the closing of this
offering, no further grants will be made under the 1998 Stock Plan.
The 1998 Stock Plan provides for the grant of incentive stock options within
the meaning of Section 422 of the Internal Revenue Code, to our employees and
the grant of nonstatutory stock options and stock purchase rights to our
employees, directors and consultants. The 1998 Stock Plan is administered by
the board of directors, or a committee appointed by the board of directors,
which determines the terms of options and stock purchase rights granted under
the 1998 stock plan. These terms, which are set forth in the option agreement,
include the exercise price, the vesting and exercisability, and the number of
shares subject to each option or stock purchase right. However, incentive stock
options granted under the 1998 Stock Plan must have an exercise price of at
least 100% of the fair market value of the common stock on the date of grant
and at least 110% of the fair market value in the case of an optionee who holds
more than 10% of the total voting power of all classes of our stock. Further,
no incentive stock options may be granted to an optionee, which when combined
with all other incentive stock options becoming exercisable in any calendar
year that are held by that person, would have an aggregate fair market value in
excess of $100,000. The term of an incentive stock option may not exceed ten
years and, in the case of an option granted to an optionee who owns more than
10% of our outstanding stock at the time of grant, the term of an option may
not exceed five years. In the case of stock purchase rights, unless the
administrator determines otherwise, we will have a repurchase option
exercisable upon the voluntary or involuntary termination of the purchaser's
service with us for any reason. The purchase price for shares repurchased
pursuant to this option will be the original price paid by the purchaser. Our
repurchase option will lapse at a rate determined by the administrator.
Options and stock purchase rights granted under the 1998 Stock Plan are
generally not transferable by the optionee except by will or by the laws of
descent or distribution. In addition, each option and stock purchase right is
exercisable during the lifetime of the optionee only by that optionee. Options
granted under the 1998 Stock Plan must generally be exercised within three
months after the end of optionee's status as our employee, director or
consultant, or within twelve months after the optionee's termination by
disability or death, to the extent the optionee is vested on the date of
termination. An option may not, however, be exercised later than the expiration
of the option's term.
The 1998 Stock Plan provides that in the event of a merger of Nuance with or
into another corporation, or a sale of substantially all of our assets, each
outstanding option and stock purchase right must be assumed or an equivalent
option substituted for by the successor corporation or a parent or subsidiary
of the successor corporation. If the outstanding options and stock purchase
rights are not assumed or substituted for, the optionee will fully vest in and
have the right to exercise the option or stock purchase right as to all of the
stock subject to the option or stock purchase right, including shares as to
which it would not otherwise be exercisable. Our board or its committee will
notify each optionee that the option or stock purchase right shall be fully
exercisable for a period of fifteen days from the date of this notice, and the
option or stock purchase right will terminate upon the expiration of this
period.
2000 Stock Plan
Our 2000 Stock Plan was adopted by our board of directors in February 2000
and will be submitted for approval by our stockholders in February 2000. The
2000 Stock Plan will become effective on the completion of this offering. At
that time, the remaining shares reserved under the 1998 Stock Plan will be
transferred to the 2000 Stock Plan and no further grants will be made under the
1998 Plan. In addition, the number of shares reserved under the 2000 Stock Plan
will automatically be increased each year, beginning on January 1, 2001, in an
amount equal to the
54
<PAGE>
lesser of (a) 4,000,000 shares; (b) 6% of our shares outstanding on the last
day of the proceeding fiscal year; or (c) a lesser amount determined by the
board of directors. The 2000 Stock Plan will terminate automatically in January
2010, unless terminated earlier by our board of directors.
The 2000 Stock Plan provides for the grant of incentive stock options, within
the meaning of Section 422 of the Internal Revenue Code, to our employees and
for the grant of nonstatutory stock options and stock purchase rights to our
employees, directors and consultants. The 2000 Stock Plan is administered by
the board of directors or a committee of the board, which determines the terms
of options and stock purchase rights granted under the 2000 Stock Plan. These
terms, which are set forth in the option agreement, include the exercise price,
the vesting and exercisability, and the number of shares subject to the option
or stock purchase right. However, incentive stock options granted under the
2000 Stock Plan must have an exercise price of at least 100% of the fair market
value of the common stock on the date of grant and at least 110% of the fair
market value in the case of an optionee who holds more than 10% of the total
voting power of all classes of our stock. For nonstatutory stock options
intended to qualify as performance-based compensation within the meaning of
Section 162(m) of the Internal Revenue Codes, the exercise price must be at
least equal to the fair market value of the common stock on the date of grant.
Further, no incentive stock options may be granted to an optionee, which when
combined with all other incentive stock options becoming exercisable in any
calendar year that are held by that person, would have an aggregate fair market
value in excess of $100,000. The term of an incentive stock option may not
exceed ten years and, in the case of an option granted to an optionee who owns
more than 10% of our outstanding stock at the time of grant, the term of an
option may not exceed five years. In the case of stock purchase rights, unless
the administrator determines otherwise, we will have a repurchase option
exercisable upon the voluntary or involuntary termination of the purchaser's
service with us for any reason. The purchase price for shares repurchased
pursuant to this option will be the original price paid by the purchaser. Our
repurchase option will lapse at a rate determined by the administrator.
Options and stock purchase rights granted under the 2000 Stock Plan are
generally not transferable by the optionee, except by will or the laws of
descent or distribution. In addition, each option or stock purchase right is
exercisable during the lifetime of the optionee only by that optionee. Options
granted under the 2000 Stock Plan must generally be exercised within three
months after the end of optionee's status as an employee, director or
consultant of our company, or within twelve months after the optionee's
termination by disability or death, to the extent the optionee is vested on the
date of termination. However, an option may not be exercised later than the
expiration of the option's terms.
The 2000 Stock Plan provides that in the event of a merger of Nuance with or
into another corporation, or a sale of substantially all of our assets, each
outstanding option and stock purchase right must be assumed or an equivalent
option substituted for by the successor corporation or a parent or subsidiary
of the successor corporation. If the outstanding options and stock purchase
rights are not assumed or substituted for, the optionee will fully vest in and
have the right to exercise the option or stock purchase right as to all of the
stock subject to the option or stock purchase right, including shares as to
which it would not otherwise be exercisable. Our board or its committee will
notify each optionee that the option or stock purchase right shall be fully
exercisable for a period of fifteen days from the date of this notice, and the
option or stock purchase right will terminate upon the expiration of this
period.
2000 Employee Stock Purchase Plan
Our 2000 Employee Stock Purchase Plan was adopted by our board of directors
in February 2000 and will be submitted for approval by our stockholders in
February 2000. A total of 1,000,000
55
<PAGE>
shares of common stock has been reserved for issuance under the 2000 Employee
Stock Purchase Plan. In addition, the number of shares reserved under the 2000
Employee Stock Purchase Plan will automatically be increased each year,
beginning on January 1, 2001, in an amount equal to the lesser of (a) 1,500,000
shares; (b) 2% of our shares outstanding on the last day of the preceding
fiscal year; or (c) any lesser amount determined by our board of directors. The
2000 Employee Stock Purchase Plan will become effective on the completion of
this offering. The 2000 Employee Stock Purchase Plan will terminate in January
2010, unless terminated earlier by our board of directors.
The 2000 Employee Stock Purchase Plan, which is intended to qualify under
Section 423 of the Internal Revenue Code, contains successive, overlapping
twenty-four month offering periods. The offering periods, other than the first
offering period, generally start on the first trading day on or after May 1 and
November 1 of each year. Each offering period contains four six-month purchase
periods. The first offering period commences on the effective date of this
offering and ends on the last trading day on or after May 1, 2002.
Employees are eligible to participate if they are customarily employed by
Nuance or any participating subsidiary for at least twenty hours per week and
more than five months in any calendar year. However, an employee cannot be
granted an option under the 2000 Employee Stock Purchase Plan to the extent
that:
. immediately after the grant, the employee owns stock and/or options to
purchase stock representing 5% or more of the total combined voting
power or value of all classes of our capital stock; or
. the employee has rights to purchase stock under all of our employee
stock purchase plans that accrue at a rate which exceed $25,000 worth of
stock for each calendar year.
The 2000 Employee Stock Purchase Plan permits participants to purchase common
stock through payroll deductions of up to 15% of the participant's
compensation. Compensation is defined as the participant's base straight time
gross earnings, but exclusive of commissions, payments for overtime, shift
premium, incentive compensation, incentive payments, bonus, and any other
compensation. The maximum number of shares a participant may purchase during a
single purchase period is 2,000 shares.
Amounts deducted and accumulated for the participant's account are used to
purchase shares of common stock at the last trading day of each purchase period
at a price of 85% of the lesser of the fair market value of the common stock at
the beginning of the offering period and the fair market value at the end of
the purchase period. In the event the fair market value of our common stock on
any purchase date is less than the fair market value at the beginning of the
offering period, then all participants in that offering period will be
automatically withdrawn from such offering period and re-enrolled in the
immediately following offering period. Participants may end their participation
at any time during an offering period and they will be paid their payroll
deductions credited to their account without interest. Upon termination of
employment, a participant will be deemed to have elected to withdraw from the
2000 Employee Stock Purchase Plan.
Payroll deductions credited to a participant's account and any rights granted
under the 2000 Employee Stock Purchase Plan are not transferable by a
participant other than by will, the laws of descent and distribution, or as
otherwise provided under the 2000 Employee Stock Purchase Plan. The 2000
Employee Stock Purchase Plan provides that, in the event of a merger of Nuance
with or into another corporation or a sale of substantially all of our assets,
each outstanding option will be assumed or substituted for by the successor
corporation. If the successor corporation refuses to assume or substitute for
the outstanding options, the offering period then in progress will be shortened
and a new exercise date will be set.
56
<PAGE>
The board of directors has the authority to amend or terminate the 2000
Employee Stock Purchase Plan, except no termination can affect options
previously granted and no amendment may adversely affect any outstanding rights
of any participant.
401(k) Plan
We maintain a tax-qualified retirement and deferred savings plan for our
employees, commonly known as a 401(k) plan. The 401(k) plan provides that each
participant may contribute up to 25% of his or her pre-tax gross compensation
up to a statutory limit, which was $10,000 in calendar year 1999. We may not
make contributions to the 401(k) plan.
Change in Control Arrangements
We have entered into stock option agreements with all of our executive
officers which provide that, in the event the executive officer is
constructively terminated or terminated without cause within one year following
a change of control, the officer will receive accelerated vesting of 50% of all
of the officer's then unvested options, provided that the officer has also been
employed with us for at least one year prior to any change of control.
In addition, the stock option agreements entered into with Brian Danella, our
Vice President and General Counsel, Paul Scott, our Senior Vice President,
Worldwide Sales, and Donna Allen Taylor, our Vice President, Human Resources
and Chief People Officer, also provide that, even if these officers are not
employed for one year prior to any change of control and are involuntarily
terminated following a change of control, the vesting schedule of these options
will be changed from 25% after one year and 1/48 per month thereafter to 1/48
per month from the original vesting commencement date.
Limitation on Directors' Liability and Indemnification
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 personally liable for monetary damages for breach
of their fiduciary duties as directors, except liability for:
. breach of their duty of loyalty to our corporation or our 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 as provided in Section 174 of the Delaware General
Corporation Law; or
. any transaction from which the director derived an improper personal
benefit.
The limitation of liability in our certificate of incorporation does not
apply to liabilities arising under the federal or state securities laws and
does not affect the availability of equitable remedies such as injunctive
relief or rescission.
Our bylaws provide that we shall indemnify our directors, officers, employees
and agents to the maximum extent permitted by Delaware law. We believe that
indemnification under our bylaws covers at least negligence and gross
negligence on the part of indemnified parties. Our bylaws also permit us to
secure insurance on behalf of any current or former officer, director, employee
or other agent of our company, or of another enterprise if serving at our
request, for any liability arising out of his or her actions in that capacity,
regardless of whether we would have the power to indemnify him or her against
liability under Delaware law.
57
<PAGE>
Prior to the effective time of this offering, we intend to enter into
agreements to indemnify our directors and officers, in addition to the
indemnification provided for in our bylaws. These agreements require us to,
among other things, indemnify our directors and officers for any and all
expenses (including attorney fees), judgments, fines, penalties and amounts
paid in settlement (if such settlement is approved in advance by us, which
approval may not be unreasonably withheld), in connection with any action, suit
or proceeding arising out of the individual's status as a director or officer
of Nuance and to advance expenses incurred by the individual in connection with
any proceeding against the individual with respect to which he or she may be
entitled to indemnification by us. We believe that our certificate of
incorporation, bylaw provisions and indemnification agreements are necessary to
attract and retain qualified persons as directors and executive officers. Upon
the completion of this offering, we will also maintain directors' and officers'
liability insurance.
At present, we are not aware of any pending litigation or proceeding
involving a director or officer of our company in which indemnification is
required or permitted and we are not aware of any threatened litigation or
proceeding that may result in a claim for indemnification.
58
<PAGE>
CERTAIN TRANSACTIONS
The following is a description of transactions in the last three years to
which we have been a party, in which the amount involved in the transaction
exceeds $60,000 and in which any director, executive officer or holder of more
than 5% of our capital stock had or will have a direct or indirect material
interest other than compensation arrangements which are otherwise described
under "Management."
Equity Transactions
In January 1997, we issued 3,575,000 shares of Series C preferred stock to
investors at a price per share of $2.00 for an aggregate purchase price of
approximately $7.2 million. In March, April and May 1998, we issued 3,552,076
shares of Series D preferred stock to investors at a price per share of $4.69
for an aggregate purchase price of approximately $16.7 million. In October and
November 1999, we issued 4,499,964 shares of Series E preferred stock to
investors at a price per share of $9.00 for an aggregate purchase price of
approximately $40.5 million. Simultaneously with the consummation of this
offering, all shares of these series of preferred stock will be converted into
shares of common stock on a one-to-one basis. Listed below are those directors,
executive officers and stockholders who beneficially own 5% or more of our
securities who participated in these financings. We believe that the shares
issued in these transactions were sold at the then fair market value. The terms
of these transactions were no less favorable than we obtained from then-
unaffiliated third parties.
<TABLE>
<CAPTION>
Shares of Shares of Shares of
Series C Series D Series E
Preferred Preferred Preferred
Investor Stock Stock Stock
-------- --------- --------- ---------
<S> <C> <C> <C>
Entities Affiliated with Mayfield Fund........... 750,000 295,920 144,722
SRI International................................ -- -- --
Entities affiliated with U.S. Venture Partners... 750,000 106,610
Cisco Systems.................................... -- -- 2,150,000
Morgenthaler Venture Partners IV, L.P. .......... 1,575,000 164,471 222,222
Entities affiliated with Goldman Sachs & Co...... -- 1,492,537 --
Alan Herzig...................................... -- -- 12,000
</TABLE>
Entities affiliated with Mayfield Fund are together considered a 5%
stockholder of ours. Yogen Dalal, Chairman of our board of directors, is a
general partner of Mayfield Fund. SRI International is a 5% stockholder of
ours. Curtis Carlson, one of our directors, is the President and Chief
Executive Officer of SRI International. Alan Herzig, one of our directors, is
the President and Chief Executive Officer of SRI Holdings, a wholly owned
subisidiary of SRI International. Entities affiliated with U.S. Venture
Partners are together considered a 5% stockholder of ours. Irwin Federman, one
of our directors, is affiliated with U.S. Venture Partners. Cisco Systems is a
5% stockholder of ours. Morgenthaler Venture Partners IV, L.P. is a
5% stockholder of ours. Gary Morgenthaler, one of our directors, is a general
partner of Morgenthaler Venture Partners IV, L.P. Entities affiliated with
Goldman Sachs & Co. are together considered a 5% stockholder of ours.
Other Transactions
Nuance has entered into indemnification agreements with certain executive
officers and directors and plans to enter into an indemnification agreement
with each of its executive officers and directors.
59
<PAGE>
Holders of preferred stock are entitled to registration rights with respect
to the common stock issued or issuable upon conversion of preferred stock. The
"Description of Capital Stock--Registration Rights" section contains a
description of Nuance rights.
Goldman Sachs & Co., a principal stockholder of Nuance, is a managing
underwriter of this offering. The "Underwriting" section contains a description
of the compensation paid to Goldman, Sachs & Co. for its services as an
underwriter in connection with this offering.
The "Management--Change in Control Arrangements" section contains a
description of the stock option agreements with our officers that provide for
accelerated vesting under certain conditions.
In 1994, we entered into a license agreement with SRI International, one of
our 5% stockholders, under which SRI International granted us a license to
patents and other intellectual property relating to our technology.
In 1996, we entered into another agreement with SRI International under which
we agreed to jointly perform services with SRI. During 1997 and 1998, SRI
International received a percentage of the license and maintenance revenue we
earned under this contract. In 1997, we paid SRI International $150,000 under
this contract. In 1998, we paid SRI International $134,000 under this contract.
In 1997, we also leased facilities from SRI International. Our rent was
approximately $63,000.
In 1998, we entered into an agreement with SRI International under which we
agreed to pay royalties of up to a maximum of $400,000 to SRI International for
a technology licence from SRI International. During 1998, we paid SRI
International $400,000 in royalties under this agreement.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information known to us with respect to the
beneficial ownership of our common stock as of December 31, 1999, and as
adjusted to reflect the sale of shares of our common stock offered
hereby, by:
. each person known by us to own beneficially more than 5% of the
outstanding shares of our common stock;
. each of the named executive officers;
. each of our directors; and
. all of our directors and executive officers as a group.
Except as otherwise indicated, and subject to applicable community property
laws, to our knowledge the persons named below have sole voting and investment
power with respect to all shares of common stock held by them.
For the purposes of calculating percent ownership, as of December 31, 1999,
23,966,335 shares of our common stock were issued and outstanding, and,
immediately following the completion of this offering, shares were
issued and outstanding. Shares of common stock subject to options or warrants
that are presently exercisable or exercisable within 60 days of December 31,
1999 are deemed outstanding for the purpose of computing the percentage
ownership of the person or entity holding options or warrants, but are not
treated as outstanding for the purpose of computing the percentage ownership of
any other person or entity.
<TABLE>
<CAPTION>
Percentage of Shares
Beneficially Owned
Number of Shares ------------------------------
Name of Beneficial Owner Beneficially Owned Before Offering After Offering
------------------------ ------------------ --------------- --------------
<S> <C> <C> <C>
5% Stockholders:
Entities affiliated with
Mayfield Fund(1)........... 3,274,409 14.3%
2800 Sand Hill Road, Suite
250
Menlo Park, California
94025
Entities affiliated with
U.S. Venture Partners(2)... 2,931,556 12.8
2180 Sand Hill Road, Suite
300
Menlo Park, California
94025
SRI International........... 2,781,200 12.1
333 Ravenswood Avenue
Menlo Park, California
94025
Cisco Systems, Inc.(3)...... 2,150,000 9.4
170 West Tasman Drive
San Jose, California 95134
Morgenthaler Venture
Partners IV, L.P. ......... 1,961,693 8.5
2730 Sand Hill Road, Suite
280
Menlo Park, California
94025
Entities affiliated with The
Goldman Sachs Group(4)..... 1,492,537 6.5
85 Broad Street, 10th Floor
New York, New York 10004
Directors and Named
Executive Officers:
Ronald A. Croen(5).......... 750,021 3.3
Bruce Dougherty(6).......... 218,967 * *
Graham Smith(7)............. 75,000 * *
Matthew Lennig(8)........... 222,911 1.0
</TABLE>
61
<PAGE>
<TABLE>
<CAPTION>
Percentage of Shares
Beneficially Owned
Number of Shares ------------------------------
Name of Beneficial Owner Beneficially Owned Before Offering After Offering
------------------------ ------------------ --------------- --------------
<S> <C> <C> <C>
Steven Ehrlich(9)........................ 109,366 * *
Curtis Carlson........................... -- * *
Vinton Cerf.............................. -- * *
Yogen Dalal(10).......................... 3,151,632 13.7
Irwin Federman(11)....................... 2,931,556 12.8
Alan Herzig(12).......................... 90,370 * *
Gary Morgenthaler(13).................... 1,961,693 8.5
All directors and officers as a group (16
persons)(14)............................ 9,580,752 40.7
</TABLE>
- --------
* Less than 1%
(1) Consists of 2,973,202 shares held by Mayfield VII, 156,485 shares held by
Mayfield Associates Fund II and 144,722 shares held by Voice Trust. Seven
individuals, including Dr. Dalal, our Chairman, are the general partners
of Mayfield Associates Fund II and have shared voting and dispositive
authority over the shares held by Mayfield Associates Fund II. These same
seven individuals are the general partners of Mayfield VII Management
Partners, the general partner of Mayfield VII, and have shared voting and
dispositive authority over the shares held by Mayfield VII. These same
seven individuals, other than Dr. Dalal, are some of the general partners
of Voice Trust and share voting and dispositive authority over the shares
held by Voice Trust. These individuals disclaim beneficial ownership of
these shares except to the extent of their own pecuniary interest.
(2) Consists of 2,534,605 shares held by U.S. Venture Partners IV, L.P.,
308,740 shares held by Second Ventures II, L.P. and 88,211 shares held by
USVP Entrepreneur Partners II, L.P. Presidio Management Group IV, L.P. is
the general partner of U.S. Venture Partners IV, L.P, Second Ventures II,
L.P. and USVP Entrepreneur Partners II, L.P. and has voting and
dispositive authority over the shares held by each of these entities.
(3) These shares have subsequently been transferred to Coastdock & Co.
(4) Consists of 936,460 shares held by GS Capital Partners II, L.P., 372,282
shares held by GS Capital Partners II, Offshore, L.P., 100,470 shares held
by Stone Street Fund 1997, L.P., 48,784 shares held by Bridge Street Fund
1997, L.P. and 34,541 shares held by Goldman Sachs & Co. Verwaltungs GmbH.
The Goldman Sachs Group, of which Goldman Sachs & Co., an underwriter in
this offering, is an indirect wholly owned subsidiary, is either the
general partner, managing general partner or investment manager of each of
these entities and has voting and dispositive authority over the shares
held by these entities. The Goldman Sachs Group, Inc., disclaims
beneficial ownership of the shares owned by such investment partnerships
to the extent attributable to partnership interests therein held by
persons other than The Goldman Sachs Group and its affiliates. Each of
these investment partnerships share voting and investment power with
certain of its respective affiliates.
(5) Consists of 566,374 shares held by Ronald Croen, 38,750 shares held by
Ronald Croen, Trustee of The Croen 1999 Children's Trust IV, dated
November 9, 1999, 38,750 shares held by Ronald Croen, Trustee of The Croen
1999 Children's Trust III, dated November 9, 1999 and 14,000 shares held
by Ronald Croen, Trustee of The Croen 1999 Children's Trust II, dated
November 9, 1999. Also Includes 185,938 shares subject to an option
exercisable within 60 days of December 31, 1999 and 15,625 shares
exercised between December 31, 1999 and February 4, 2000. Mr. Croen has
sole voting and dispositive authority over the shares held by these
trusts. Mr. Croen disclaims beneficial ownership except to the extent of
his pecuniary interest therein.
(6) Consists of 126,283 shares held by the Dougherty Family Receivable Trust.
Also includes 92,684 shares subject to options exercisable within 60 days
of December 31, 1999. Mr. Dougherty has shared voting and dispositive
authority over the shares held by The Dougherty family Trust.
(7) Includes 23,500 shares subject to options exercisable within 60 days of
December 31, 1999 and 51,500 shares exercised between December 31, 1999
and February 4, 2000.
(8) Consists of 91,800 shares held by Mr. Lennig. Also includes 128,111 shares
subject to options exercisable within 60 days of December 31, 1999 and
3,000 shares exercised between December 31, 1999 and February 4, 2000.
(9) Consists of 2,500 shares held by Mr. Ehrlich. Also includes 16,866 shares
subject to options exercisable within 60 days of December 31, 1999 and
90,000 shares exercised between December 31, 1999 and February 4, 2000.
(10) Consists of 2,973,200 shares held by Mayfield VII, 156,485 shares held by
Mayfield Associates Fund II and 21,945 shares held by the Dalal Revocable
Trust. Dr. Dalal, our Chairman, is a general partner of Mayfield VII
Management Partners, the general partner of Mayfield VII, is a general
partner of Mayfield Associates Fund II and has shared voting and
dispositive authority over the shares held by these entities. Dr. Dalal
disclaims beneficial ownership of these shares except to the extent of his
pecuniary interest therein.
(11) Consists of 2,931,556 shares held by entities affiliated with U.S. Venture
Partners IV, L.P. Mr. Federman, one of our directors, is a general partner
of Presidio Management Group IV, L.P., the general partner of U.S. Venture
Partners IV, L.P., Second Ventures II, L.P. and USVP Entrepreneur Partners
II L.P. and has shared voting and dispositive authority over the shares
held by these entities. Mr. Federman disclaims beneficial ownership of
these shares except to the extent of his pecuniary interest therein.
(12) Consists of 90,370 shares held by Alan Herzig.
(13) Consists of 1,961,693 shares held by Morgenthaler Venture Partners IV,
L.P. Mr. Morgenthaler, one of our directors, is a general partner of
Morgenthaler Venture Partners IV, L.P. and shares voting and dispositive
authority over the shares held by Morgenthaler Venture Partners IV, L.P.
Mr. Morgenthaler disclaims beneficial ownership of these shares except to
the extent of his pecuniary interest therein.
(14) Includes 545,723 shares subject to options exercisable within 60 days of
December 31, 1999. Includes 108,625 shares exercised between December 31,
1999 and February 4, 2000. Includes 3,274,409 shares held by entities
affiliated with Mayfield Fund, 2,931,556 shares held by entities
affiliated with U.S. Venture Partners and 1,961,693 shares held by
Morgenthaler Venture Partners IV, L.P. Footnotes (1), (2) and (13) above
contain a description of the shares owned by these entities.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon the closing of this offering, our authorized capital stock will consist
of 250,000,000 shares of common stock, $0.001 par value per share, and
5,000,000 shares of undesignated preferred stock, $0.001 par value per share.
The following summary does not purport to be complete and is subject to, and
qualified in its entirety by, the provisions of our restated certificate of
incorporation, which is included as an exhibit to the registration statement of
which this prospectus is a part, and by the provisions of applicable law.
Common Stock
As of December 31, 1999, there were 22,966,335 shares of common stock
outstanding held of record by approximately 193 stockholders, assuming the
conversion of all outstanding shares of preferred stock into common stock.
After giving effect to the sale of common stock offered hereby, there will be
shares of common stock outstanding.
The holders of common stock are entitled to one vote for each share held of
record on all matters submitted to a vote of stockholders. Subject to
preferences that may be applicable to any outstanding preferred stock, the
holders of common stock are entitled to receive ratably any dividends that may
be declared from time to time by the board of directors out of funds legally
available for that purpose. In the event of our liquidation, dissolution or
winding up, the holders of common stock are entitled to share ratably in all
assets remaining after payment of liabilities, subject to prior distribution
rights of preferred stock then outstanding. There are no redemption or sinking
fund provisions applicable to the common stock. All outstanding shares of
common stock are fully paid and non-assessable, and the shares of common stock
to be issued upon completion of this offering will be fully paid and non-
assessable.
Preferred Stock
Upon the closing of this offering, our board of directors will have the
authority, without action by our stockholders, to designate and issue preferred
stock in one or more series. The board of directors may also designate the
rights, preferences and privileges of each series of preferred stock; any or
all of which may be superior to the rights of the common stock. It is not
possible to state the actual effect of the issuances of any shares of preferred
stock upon the rights of holders of the common stock until the board of
directors determines the specific rights of the holders of the preferred stock.
However, these effects might include:
. restricting dividends on the common stock;
. diluting the voting power of the common stock;
. impairing the liquidation rights of the common stock; and
. delaying or preventing a change in control of our company without
further action by the stockholders.
We have no present plans to issue any shares of preferred stock.
Warrants
Upon completion of the offering, we will have an outstanding warrant to
purchase up to 41,674 shares of common stock at an exercise price of $0.9598
per share that will expire on the later to occur of April 1, 2006 or five years
after the closing of this offering. In lieu of exercising the warrant for cash,
the warrant holder can elect a cashless exercise of the warrant. The warrant
holder is entitled to registration rights with respect to the shares issued
under the warrant.
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<PAGE>
Registration Rights of Stockholders
Assuming the conversion of all outstanding preferred stock into common stock
upon completion of this offering, the holders of 18,004,307 shares of common
stock and shares of common stock issuable upon the exercise of warrants or
securities convertible into common stock or their transferees are entitled to
require us to register their shares under the Securities Act of 1933, as
amended, immediately upon completion of this offering. These rights are
provided under the terms of an agreement between Nuance and the holders of
these securities. Subject to limitations in the agreement, these registration
rights include the following:
. Demand Registration Rights. The holders of at least 40% of the then
outstanding registrable securities may require, on three occasions
beginning six months after the date of this prospectus, that we use our
best efforts to register these securities for public resale, provided
that the anticipated aggregate offering price of such public resale
would exceed $10 million. We will be responsible for paying all expenses
other than underwriting discounts and commissions in connection with
three such registrations, and the holders selling their shares shall be
responsible for paying all selling expenses.
. Piggyback Registration Rights. If we register any of our common stock
either for our own account or for the account of other security holders,
the holders of these securities are entitled to include their shares of
common stock in that registration, subject to the ability of the
underwriters to limit the number of shares included in the offering,
provided that these holders may not be reduced below 30% of the total
number of shares included in the offering, unless the offering is our
initial public offering in which case the holders may be excluded if the
underwriters so determine. The underwriters have requested that no
registrable shares be registered in this offering. We will be
responsible for paying all registration expenses other than underwriting
discounts and commissions, and the holders selling their shares will be
responsible for paying all selling expenses.
. Form S-3 Registration Rights. The holders of these securities may also
require us, not more than once in any twelve month period, to register
all or a portion of these securities on Form S-3 when use of that form
becomes available to us, provided, among other limitations, that the
proposed aggregate selling price, net of any underwriters' discounts or
commissions, is at least $1 million. We will be responsible for paying
all registration expenses other than underwriting discounts and
commissions in connection with three such registrations, and the holders
selling their shares shall be responsible for paying all selling
expenses.
. Termination. The registration rights above will terminate on the first
to occur of five years after the date of our initial public offering or
the date on which the holder may sell all shares of his registrable
securities pursuant to the Rule 144 during any 90-day period, provided
that the aggregate of the shares held by the holder represent less than
2% of our then outstanding securities.
Anti-Takeover Effects of Some Provisions of Delaware Law and Our Charter
Documents
Delaware Law
We are subject to Section 203 of the Delaware General Corporation Law, an
anti-takeover law. In general, Section 203 prohibits a publicly held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years following the date the person became
an interested stockholder, unless:
. prior to the date of the transaction, the board of directors of the
corporation approved either the business combination or the transaction
which resulted in the stockholder becoming an interested stockholder;
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<PAGE>
. the stockholder owned at least 85% of the voting stock of the
corporation outstanding at the time the transaction commenced, excluding
for purposes of determining the number of shares outstanding (a) shares
owned by persons who are directors and also officers and (b) shares
owned by 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 of the transaction, the business
combination is approved by the board and authorized at an annual or
special meeting of stockholders, and not by written consent, by the
affirmative vote of at least 66 2/3% of the outstanding voting stock
which is not owned by the interested stockholder.
Generally, a "business combination" includes a merger, asset or stock sale,
or other transaction resulting in a financial benefit to the interested
stockholder. An "interested stockholder" is a person who, together with
affiliates and associates, owns or, within three years prior to the
determination of interested stockholder status, did own 15% or more of a
corporation's outstanding voting securities. We expect the existence of this
provision to have an anti-takeover effect with respect to transactions our
board of directors does not approve in advance. We also anticipate that Section
203 may also discourage attempts that might result in a premium over the market
price for the shares of common stock held by stockholders. A Delaware
corporation may opt out of Section 203 with an express provision in its
original certificate of incorporation or an express provision in its
certification of incorporation or bylaws resulting from amendments approved by
the holders of at least a majority of the corporation's outstanding voting
shares. We have not opted out of Section 203.
Charter Documents
Provisions of our charter and bylaws may have the effect of making it more
difficult for a third party to acquire, or of discouraging a third party from
attempting to acquire, control of us. These provisions are expected to
discourage coercive takeover practices and inadequate takeover bids and to
encourage persons seeking to acquire control of Nuance to first negotiate with
us. These provisions could limit the price investors might be willing to pay in
the future for our common stock. We believe that the benefits of increased
protection of our ability to negotiate with the proponent of an unfriendly or
unsolicited acquisition proposal outweigh the disadvantages of discouraging
these proposals because, among other things, negotiation will result in an
improvement of their terms. These provisions could limit the price that
investors might be willing to pay in the future for shares of our common stock.
These provisions include:
. the division of the board of directors into three separate classes;
. the elimination of cumulative voting in the election of directors;
. prohibitions on our stockholders from acting by written consent and
calling special meetings;
. procedures for advance notification of stockholder nominations and
proposals; and
. the ability of the board of directors to alter our bylaws without
stockholder approval.
In addition, subject to limitations prescribed by law, our board of directors
has the authority to issue up to 5,000,000 shares of preferred stock and to
determine the price, rights, preferences, privileges and restrictions,
including voting rights, of those shares without any further vote or action by
the stockholders. The issuance of preferred stock, while providing flexibility
in connection with possible financings or acquisitions or other corporate
purposes, could have the effect of making it more difficult for a third party
to acquire a majority of our outstanding voting stock.
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<PAGE>
These and other provisions contained in our charter and bylaws could have the
effect of delaying or preventing a change in control.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is ChaseMellon
Shareholder Services. ChaseMellon's address is 235 Montgomery Street, 23rd
Floor, San Francisco, California, 94109, and its telephone number is (800) 356-
2017.
66
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALES
Immediately prior to this offering, there was no public market for our common
stock. Future sales of substantial amounts of our common stock in the public
market following this offering could adversely affect the market price of our
common stock. As described below, no shares currently outstanding will be
available for sale immediately after this offering because of contractual
restrictions on resale. Sales of substantial amounts of our common stock in the
public market after the restrictions lapse, or are released, could adversely
affect the prevailing market price and impair our ability to raise equity
capital in the future.
Upon completion of this offering, we will have outstanding an aggregate of
shares of common stock, assuming the issuance of shares of
common stock offered hereby and no exercise of options or warrants after
December 31, 1999. All of the shares sold in this offering will be freely
tradable without restrictions or further registration under the Securities Act,
except for any shares purchased by our "affiliates" as that term is defined in
Rule 144 under the Securities Act. Shares purchased by our affiliates may
generally only be sold pursuant to an effective registration statement under
the Securities Act or in compliance with limitations of Rule 144 as described
below.
The remaining 22,966,335 shares of common stock held by existing stockholders
are restricted securities within the meaning of Rule 144 and were issued and
sold by us in reliance on exemptions from the registration requirements of 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 Rule
144, 144(k) or 701 promulgated under the Securities Act, which are summarized
below.
Our officers, directors, employees, and other stockholders, who collectively
hold an aggregate of restricted shares, and Goldman, Sachs & Co.
entered into lock-up agreements in connection with this offering. These lock-up
agreements provide that the directors, employees, and stockholders have agreed
not to offer, sell or otherwise dispose of any of the shares of common stock
owned by them for a period of 180 days after the date of this offering.
Goldman, Sachs & Co. may in its sole discretion, at any time without notice,
release all or any portion of the shares subject to these lock-up agreements.
Notwithstanding possible earlier eligibility for sale under the provisions of
Rules 144, 144(k) and 701, shares subject to lock-up agreements will not be
saleable until such agreements expire or are waived by Goldman, Sachs & Co.
Taking into account the lock-up agreements, the number of shares that will be
available for sale in the public market under the provisions of Rules 144,
144(k) and 701 will be as follows:
<TABLE>
<CAPTION>
Number
of
Days of Availability for Sale shares
----------------------------- ------
<C> <S>
180 days after the effective date of this
offering.......................................
At various times after October 1, 2000 upon
expiration of applicable holding periods.......
</TABLE>
Immediately after the completion of this offering, we intend to file a
registration statement on Form S-8 under the Securities Act to register all of
the shares of common stock issued or reserved for future issuance under our
stock option plans and our stock purchase plan. Based upon the number of shares
subject to outstanding options as of December 31, 1999 in our 1994 Flexible
Stock Incentive Plan, 1998 Stock Plan, 2000 Stock Plan and 2000 Employee Stock
Purchase Plan, and currently reserved for issuance under the 2000 Stock Plan
and 2000 Employee Stock Purchase Plan, this registration statement would cover
approximately 10,922,265 shares in addition to annual increases in the number
of shares available under the stock option plans and stock purchase plan
pursuant to the terms of such plans. Shares registered under the registrations
statement will generally be available for sale in the open market immediately
after the 180 lock-up agreements expire.
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<PAGE>
In addition, holders of 18,004,307 shares of our common stock, including
shares issuable upon conversion of preferred stock, will be entitled to certain
rights with respect to registration of these shares for sale in the public
market, subject to the lock-up restrictions described above. The "Description
of Capital Stock--Registration Rights" section contains a description of these
registration rights. Registration of these shares under the Securities Act
would result in these shares becoming freely tradable without restriction under
the Securities Act immediately upon effectiveness of the registration.
Rule 144
In general, under Rule 144 as currently in effect, after the expiration of
the lock-up agreements, a person who has beneficially owned restricted
securities for at least one year would be entitled to sell within any three-
month period a number of shares that does not exceed the greater of:
. 1% of the number of shares of common stock then outstanding which will
equal approximately shares immediately after this offering; or
. the average weekly trading volume of the common stock during the four
calendar weeks preceding the filing of a notice on Form 144 with respect
to such sale.
Sales under Rule 144 are generally subject to the availability of current
public information about Nuance.
Rule 144(k)
Under Rule 144(k), a person who is not deemed to have been our affiliate at
any time during the 90 days preceding a sale, and who has beneficially owned
the shares proposed to be sold for at least two years, is entitled to sell
these shares without having to comply with the manner of sale, public
information, volume limitation or notice filing provisions of Rule 144.
Therefore, 144(k) shares may be sold immediately upon expiration of the lock-up
agreements.
Rule 701
In general, under Rule 701, any of our employees, directors, officers, or
consultants who purchase shares from us in connection with a compensatory stock
or option plan or other written agreement before the effective date of this
offering is entitled to sell these shares 180 days after the effective date of
this offering in reliance on Rule 144. Rule 701 provides that affiliates may
sell their Rule 701 shares under Rule 144 without having to comply with the
holding period and notice filing requirements of Rule 144 and that non-
affiliates may sell these shares in reliance on Rule 144 without having to
comply with the holding period, public information, volume limitation or notice
filing requirements of Rule 144.
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<PAGE>
UNDERWRITING
Nuance and the underwriters named below have entered into an underwriting
agreement with respect to the shares being offered. Subject to certain
conditions, each underwriter has severally agreed to purchase the number of
shares indicated in the following table. Goldman, Sachs & Co., Thomas Weisel
Partners LLC, Dain Rauscher Incorporated, and SoundView Technology Group, Inc.
are the representatives of the underwriters.
<TABLE>
<CAPTION>
Underwriter Number of Shares
----------- ----------------
<S> <C>
Goldman, Sachs & Co.........................................
Thomas Weisel Partners LLC..................................
Dain Rauscher Incorporated..................................
SoundView Technology Group, Inc.............................
---
Total.....................................................
===
</TABLE>
If the underwriters sell more shares than the total number set forth in the
table above, the underwriters have an option to buy up to an additional
shares from Nuance to cover such sales. They may exercise that
option for 30 days. If any shares are purchased under this option, the
underwriters will severally purchase shares in approximately the same
proportion as set forth in the table above.
The following table shows the per share and total underwriting discounts and
commissions to be paid to the underwriters by Nuance. These amounts are shown
assuming both no exercise and full exercise of the underwriters' option to
purchase additional shares.
<TABLE>
<CAPTION>
Paid by Nuance No Exercise Full Exercise
-------------- ----------- -------------
<S> <C> <C>
Per Share.......................................... $ $
Total.............................................. $ $
</TABLE>
Shares sold by the underwriters to the public will initially be offered at
the initial public offering price set forth on the cover of this prospectus.
Any shares sold by the underwriters to securities dealers may be sold at a
discount of up to $ per share from the initial public offering price.
Any of these securities dealers may resell any shares purchased from the
underwriters to various other brokers or dealers at a discount of up to
$ per share from the initial public offering price. If all the shares
are not sold at the initial public offering price, the representatives may
change the offering price and the other selling terms.
Nuance has agreed with the underwriters not to offer, sell, contract to sell
or otherwise dispose of any of their common stock or securities convertible
into or exchangeable for shares of common stock during the period from the date
of this prospectus continuing through the date 180 days after the date of this
prospectus, except with the prior written consent of Goldman, Sachs & Co. This
restriction does not apply to any existing employee stock option plans,
provided that the recipients of such securities agree not to sell or otherwise
dispose of any of such securities for the same 180 day period. The "Shares
Eligible for Future Sale" section contains a discussion of transfer
restrictions.
In addition, Nuance's officers, directors and substantially all holders of
shares of Nuance's common and preferred stock have agreed that, subject to
limited exceptions, they will not offer to sell, sell, contract to sell,
pledge, grant any option to purchase, make any short sale or otherwise dispose
of any shares owned of record or beneficially prior to the offering or any
securities convertible into or exchangeable for shares of common stock for a
period of 180 days from the date of this prospectus without the prior written
consent of the representatives.
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<PAGE>
Prior to this offering, there has been no public market for the shares. The
initial public offering price will be negotiated among Nuance and the
representatives. Among the factors to be considered in determining the initial
public offering price of the shares, in addition to prevailing market
conditions, will be Nuance's historical performance, estimates of the business
potential and earnings prospects of Nuance, an assessment of Nuance's
management and the consideration of the above factors in relation to market
valuation of companies in related businesses.
Nuance will apply to list the shares of common stock offered by this
prospectus on The Nasdaq National Market under the symbol "NUAN."
In connection with the offering, the underwriters may purchase and sell
shares of common stock in the open market. These transaction may include short
sales, stabilizing transactions and purchases to cover positions created by
short sales. Short sales involve the sale by the underwriters of a greater
number of shares than they are required to purchase in the offering.
Stabilizing transactions consist of various bids or purchases made for the
purpose of preventing or retarding a decline in the market price of the common
stock while the offering is in progress.
The underwriters may also impose a penalty bid. This occurs when a particular
underwriter repays to the underwriters a portion of the underwriting discount
received by it because the representatives have repurchased shares sold by or
for the account of such underwriter in stabilizing or short covering
transactions.
These activities by the underwriters may stabilized, maintain or otherwise
affect the market price of the common stock. As a result, the price of the
common stock may be higher than the price that otherwise might exist in the
open market. If these activities are commenced, they may be discontinued by the
underwriters at any time. These transactions may be effected on The Nasdaq
National Market, in the over-the-counter market or otherwise.
Thomas Weisel Partners LLC, one of the representatives of the underwriters,
was organized and registered as a broker-dealer in December 1998. Since
December 1998, Thomas Weisel Partners has been named as a lead or co-manager on
115 filed public offerings of equity securities, of which 82 have been
completed, and has acted as a syndicate member in an additional 56 public
offerings of equity securities. Thomas Weisel Partners does not have any
material relationship with us or any of our officers, directors or other
controlling persons, except with respect to its contractual relationship with
us pursuant to the underwriting agreement entered into in connection with this
offering.
A prospectus in electronic format will be made available on an Internet web
sites maintained by one or more of the lead or co-managers of this offering and
may also be made available on web sites maintained by other underwriters. The
underwriters may agree to allocate a number of shares to underwriters for sale
to their online brokerage account holders. Internet distributions will be
allocated by the lead managers to underwriters that may make Internet
distributions on the same basis as other allocations.
Affiliates of The Goldman Sachs Group, L.P., an affiliate of Goldman Sachs &
Co., the lead manager of this offering, are the general partner, managing
general partner or investment manager of certain investment partnerships that
hold 1,492,537 preferred shares of Nuance which, upon the closing of this
offering, will automatically convert into 1,492,537 ordinary shares. Because of
the economic interest in Nuance based on the contributed capital of Goldman
Sachs and its employees in those investment partnerships, the aggregate
beneficial ownership interest (as determined in accordance with the Conduct
Rules of the National Association of Securities Dealers, Inc.) of Nuance
attributable to Goldman Sachs is approximately 6.5%.
70
<PAGE>
The underwriters do not expect sales to discretionary accounts to exceed five
percent of the total number of shares offered.
Nuance estimates that the total expenses of the offering, excluding
underwriting discounts and commissions, will be approximately $ .
Nuance has agreed to indemnify the several underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, or
contribute to payments which the underwriters may be required to make in that
respect.
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<PAGE>
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for us by
Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo Alto,
California. Certain legal matters in connection with this offering will be
passed upon for the underwriters by Shearman & Sterling, Menlo Park,
California.
EXPERTS
Our financial statements and financial statement schedules appearing in this
prospectus and registration statement as of December 31, 1997 and 1998 and for
each of the three years in the period ended December 31, 1998 have been audited
by Arthur Andersen LLP, independent public accountants, as indicated in their
related reports, and are included in this prospectus in reliance upon the
authority of this firm as experts in accounting and auditing.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the SEC a registration statement on Form S-1, including
exhibits, schedules and amendments filed with this registration statement,
under the Securities Act with respect to the common stock to be sold under this
prospectus. Prior to the offering we were not required to file reports with the
SEC. This prospectus does not contain all the information set forth in the
registration statement. For further information about our company and the
shares of common stock to be sold in the offering, please refer to the
registration statement. Statements made in this prospectus concerning the
contents of any contract, agreement or other document filed as an exhibit to
the registration statement are summaries of the terms of contract, agreements
or documents and are not necessarily complete. Complete exhibits have been
filed with the registration statement.
The registration statement and exhibits may be inspected, without charge, and
copies may be obtained at prescribed rates, at the SEC's Public Reference
facility maintained by the SEC, 450 Fifth Street, N.W., Washington, D.C. 20549.
The public may obtain information on the operation of the Public Reference Room
by calling the SEC at 1-800-SEC-0330. The registration statement and other
information filed with the SEC is available at the web site maintained by the
SEC on the worldwide web at http://www.sec.gov.
We intend to furnish our stockholders with annual reports containing
financial statements audited by our independent accountants.
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<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Public Accountants................................... F-2
Balance Sheets ............................................................ F-3
Statements of Operations................................................... F-4
Statements of Shareholders' Equity......................................... F-5
Statements of Cash Flows................................................... F-6
Notes to Financial Statements.............................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
After the reincorporation discussed in Note 14 to Nuance Communications'
financial statements, we expect to be in a position to render the following
audit report:
/s/ Arthur Andersen LLP
San Jose, California
February 3, 2000
- --------------------------------------------------------------------------------
To the Board of Directors of
Nuance Communications:
We have audited the accompanying balance sheets of Nuance Communications, a
California corporation, as of December 31, 1997 and 1998, and the related
statements of operations, shareholders' equity and cash flows for each of the
three years in the period ended December 31, 1998. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 Nuance Communications as of
December 31, 1997 and 1998, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1998, in
conformity with generally accepted accounting principles.
San Jose, California
February 3, 2000
F-2
<PAGE>
NUANCE COMMUNICATIONS
BALANCE SHEETS
(in thousands, except share amounts)
<TABLE>
<CAPTION>
Pro Forma
Shareholders'
December 31, Equity at
----------------- September 30, September 30,
1997 1998 1999 1999
------- -------- ------------- -------------
(unaudited)
<S> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents...... $ 2,056 $ 1,642 $ 1,622
Short-term investments......... 2,580 14,224 4,389
Accounts receivable, net of
allowance for doubtful
accounts of $60, $356 and
$517, respectively............ 807 1,835 3,595
Prepaid expenses and other
current assets................ 267 565 913
------- -------- --------
Total current assets.......... 5,710 18,266 10,519
Property and equipment, net..... 1,149 1,868 3,277
Other assets.................... 81 65 101
------- -------- --------
Total assets.................. $ 6,940 $ 20,199 $ 13,897
======= ======== ========
Liabilities and Shareholders'
Equity
Current liabilities:
Current portion of long-term
debt.......................... $ 389 $ -- $ 226
Accounts payable............... 354 1,402 1,865
Accrued liabilities............ 680 3,031 5,447
Deferred revenue............... 259 1,427 2,203
------- -------- --------
Total current liabilities..... 1,682 5,860 9,741
Long-term debt, less current
portion ...................... 815 -- 1,069
Other liabilities.............. 59 79 --
------- -------- --------
Total liabilities............. 2,556 5,939 10,810
------- -------- --------
Commitments
Shareholders' Equity:
Convertible preferred stock,
$.001 par value, aggregate
liquidation preference of
$29,559, 19,977,076 shares
authorized at September 30,
1999, 11,673,946 shares,
15,226,022 shares, and
15,226,022 shares issued and
outstanding actual,
respectively, no shares issued
and outstanding pro forma..... 12 15 15 $ --
Common stock, $.001 par value,
50,000,000 shares authorized
at September 30, 1999;
2,227,231 shares, 2,788,429
shares, and 3,069,283 shares
issued and outstanding actual,
respectively; 18,295,305
shares issued and outstanding
pro forma..................... 2 3 3 18
Additional paid-in capital..... 12,831 29,641 30,217 30,217
Deferred stock compensation.... -- -- (283) (283)
Accumulated deficit............ (8,461) (15,399) (26,865) (26,865)
------- -------- -------- -------
Total shareholders' equity.... 4,384 14,260 3,087 $ 3,087
------- -------- -------- =======
Total liabilities and
shareholders' equity......... $ 6,940 $ 20,199 $ 13,897
======= ======== ========
</TABLE>
The accompanying notes to financial statements are an integral part of these
financial statements.
F-3
<PAGE>
NUANCE COMMUNICATIONS
STATEMENTS OF OPERATIONS
(in thousands, except per share data)
<TABLE>
<CAPTION>
Nine Months
Year Ended Ended September
December 31, 30,
------------------------- -----------------
1996 1997 1998 1998 1999
------- ------- ------- ------- --------
(unaudited)
<S> <C> <C> <C> <C> <C>
Revenue:
License........................ $ 1,187 $ 2,726 $ 8,092 $ 6,573 $ 9,257
Service........................ 311 1,656 3,787 2,588 4,258
------- ------- ------- ------- --------
Total revenue................. 1,498 4,382 11,879 9,161 13,515
------- ------- ------- ------- --------
Cost of revenue:
License........................ 383 125 524 514 124
Service........................ 265 1,039 2,699 1,670 3,831
------- ------- ------- ------- --------
Total cost of revenue......... 648 1,164 3,223 2,184 3,955
------- ------- ------- ------- --------
Gross profit................... 850 3,218 8,656 6,977 9,560
------- ------- ------- ------- --------
Operating expenses:
Sales and marketing............ 807 2,264 6,857 4,595 11,221
Research and development....... 2,685 3,641 6,615 4,371 7,753
General and administrative..... 657 1,071 2,720 1,811 2,389
------- ------- ------- ------- --------
Total operating expenses...... 4,149 6,976 16,192 10,777 21,363
------- ------- ------- ------- --------
Loss from operations............ (3,299) (3,758) (7,536) (3,800) (11,803)
Interest and other income, net.. 58 204 598 476 337
------- ------- ------- ------- --------
Net loss...................... $(3,241) $(3,554) $(6,938) $(3,324) $(11,466)
======= ======= ======= ======= ========
Basic and diluted net loss per
share.......................... $ (2.78) $ (2.46) $ (3.19) $ (1.61) $ (3.95)
======= ======= ======= ======= ========
Shares used to compute basic and
diluted net loss per share..... 1,164 1,443 2,173 2,063 2,900
======= ======= ======= ======= ========
Pro forma basic net loss per
share (unaudited).............. $ (0.42) $ (0.20) $ (0.63)
======= ======= ========
Shares used to compute pro forma
basic net loss per share
(unaudited).................... 16,659 16,303 18,126
======= ======= ========
</TABLE>
The accompanying notes to financial statements are an integral part of these
financial statements.
F-4
<PAGE>
NUANCE COMMUNICATIONS
STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands, except share amounts)
<TABLE>
<CAPTION>
Convertible
Preferred Stock Common Stock Additional Deferred Total
----------------- ----------------- Paid-In Stock Accumulated Shareholders'
Shares Amount Shares Amount Capital Compensation Deficit Equity
---------- ------ --------- ------ ---------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1995................... 8,098,946 $ 8 1,948,750 $ 2 $ 5,698 $ -- $ (1,666) $ 4,042
Exercise of common stock
options for cash....... -- -- 6,000 -- -- -- -- --
Issuance of restricted
common stock for cash.. -- -- 6,500 -- -- -- -- --
Repurchase of common
stock.................. -- -- (14,584) -- -- -- -- --
Net loss................ -- -- -- -- -- -- (3,241) (3,241)
---------- ---- --------- ---- ------- ----- -------- -------
Balance, December 31,
1996................... 8,098,946 8 1,946,666 2 5,698 -- (4,907) 801
Issuance of Series C
convertible preferred
stock, net............. 3,575,000 4 -- -- 7,116 -- -- 7,120
Exercise of common stock
options for cash....... -- -- 282,065 -- 17 -- -- 17
Repurchase of common
stock.................. -- -- (1,500) -- -- -- -- --
Net loss................ -- -- -- -- -- -- (3,554) (3,554)
---------- ---- --------- ---- ------- ----- -------- -------
Balance, December 31,
1997................... 11,673,946 12 2,227,231 2 12,831 -- (8,461) 4,384
Issuance of Series D
convertible preferred
stock, net............. 3,552,076 3 -- -- 16,566 -- -- 16,569
Issuance of warrant to
purchase common stock.. -- -- -- -- 124 -- -- 124
Exercise of common stock
options for cash....... -- -- 561,198 1 63 -- -- 64
Issuance of common stock
options to consultants
and other non-
employees.............. -- -- -- -- 57 -- -- 57
Net loss................ -- -- -- -- -- -- (6,938) (6,938)
---------- ---- --------- ---- ------- ----- -------- -------
Balance, December 31,
1998................... 15,226,022 15 2,788,429 3 29,641 -- (15,399) 14,260
Issuance of warrant to
purchase common stock
(unaudited) ........... -- -- -- -- 124 -- -- 124
Issuance of restricted
common stock for cash
(unaudited)............ -- -- 6,423 -- -- -- -- --
Exercise of common stock
options for cash
(unaudited)............ -- -- 274,431 -- 169 -- -- 169
Deferred stock
compensation
(unaudited)............ -- -- -- -- 283 (283) -- --
Net loss (unaudited).... -- -- -- -- -- -- (11,466) (11,466)
---------- ---- --------- ---- ------- ----- -------- -------
Balance, September 30,
1999 (unaudited)....... 15,226,022 $ 15 3,069,283 $ 3 $30,217 $(283) $(26,865) $ 3,087
========== ==== ========= ==== ======= ===== ======== =======
</TABLE>
The accompanying notes to financial statements are an integral part of these
financial statements.
F-5
<PAGE>
NUANCE COMMUNICATIONS
STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Year Ended Nine Months Ended
December 31, September 30,
--------------------------- ------------------
1996 1997 1998 1998 1999
------- -------- -------- -------- --------
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net loss..................... $(3,241) $ (3,554) $ (6,938) $ (3,324) $(11,466)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Depreciation and
amortization............... 222 398 668 468 812
Allowance for doubtful
accounts................... -- 60 296 248 161
Net loss from sale of
property and equipment..... -- -- 63 -- --
Fair value of common stock
options and warrants....... -- -- 181 -- 124
Changes in operating assets
and liabilities:
Accounts receivable......... (167) (697) (1,324) (2,447) (2,862)
Prepaid expenses and other
assets..................... (71) (201) (281) (133) (384)
Accounts payable............ 271 (119) 1,048 398 4,746
Accrued liabilities......... 50 647 2,370 2,073 (1,946)
Deferred revenue............ 323 (68) 1,168 (657) 1,717
------- -------- -------- -------- --------
Net cash used in operating
activities................ (2,613) (3,534) (2,749) (3,374) (9,098)
------- -------- -------- -------- --------
Cash flows from investing
activities:
Purchase of marketable
securities.................. (1,750) (17,652) (42,562) (31,757) (25,418)
Maturities of marketable
securities.................. 5,451 15,072 30,918 21,040 35,254
Purchases of property and
equipment................... (173) (250) (1,450) (928) (2,222)
------- -------- -------- -------- --------
Net cash provided by (used
in) investing activities.. 3,528 (2,830) (13,094) (11,645) 7,614
------- -------- -------- -------- --------
Cash flows from financing
activities:
Proceeds from issuance of
preferred stock, net........ -- 7,120 16,569 16,569 --
Proceeds from issuance of
common stock................ -- 17 64 31 169
Proceeds from borrowings..... -- 372 -- -- 1,295
Repayment of borrowings...... (146) (372) (1,204) (1,204) --
------- -------- -------- -------- --------
Net cash provided by (used
in) financing activities.. (146) 7,137 15,429 15,396 1,464
------- -------- -------- -------- --------
Net increase (decrease) in
cash and cash equivalents... 769 773 (414) 377 (20)
Cash and cash equivalents,
beginning of period......... 514 1,283 2,056 2,056 1,642
------- -------- -------- -------- --------
Cash and cash equivalents,
end of period............... $ 1,283 $ 2,056 $ 1,642 $ 2,433 $ 1,622
======= ======== ======== ======== ========
Supplementary disclosures of
cash flow information:
Cash paid during the period
for:
Interest.................... $ 68 $ 94 $ 89 $ 62 $ 13
Income taxes................ $ 1 $ 1 $ 1 $ -- $ --
Noncash financing activities:
Equipment purchased under
capital lease.............. $ 377 $ 576 $ -- $ -- $ --
Equipment financed by
equipment line of credit... $ -- $ 104 $ -- $ -- $ --
</TABLE>
The accompanying notes to financial statements are an integral part of these
financial statements.
F-6
<PAGE>
NUANCE COMMUNICATIONS
NOTES TO FINANCIAL STATEMENTS
1. Organization and Operations:
Nuance Communications (the "Company") was incorporated on July 15, 1994, in
the state of California to develop, market and support a voice interface
software platform that makes the content and services of the Internet
telecommunications networks and enterprises accessible from any telephone. The
software platform consists of software servers that run on industry-standard
hardware and perform speech recognition, natural language understanding and
voice authentication. The Company sells its products through a combination of
value added resellers, original equipment manufacturers, systems integrators
and directly to the end users.
The Company is subject to a number of risks associated with companies in a
similar stage of development, including a history of net losses and the
expectation to continue to incur losses; volatility of and rapid change in the
voice interface software industry; potential competition from larger, more
established companies; and dependence on key employees for technology and
support.
2. Summary of Significant Accounting Policies:
Unaudited Interim Financial Statements
The unaudited interim financial statements for the nine-month periods ended
September 30, 1998 and 1999 have been prepared on the same basis as the audited
financial statements and, in the opinion of management, reflect all normal
recurring adjustments necessary to present fairly the financial information set
forth therein in accordance with generally accepted accounting principles.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period.
Actual results could differ from those estimates.
Cash and Cash Equivalents
For the purposes of the balance sheets and the statements of cash flows, the
Company considers all highly liquid investments with an original maturity of
three months or less to be cash equivalents.
Short-term Investments
Short-term investments primarily consist of U.S. Treasury bills having
maturities of less than one year. Such investments are classified as available-
for-sale and are held by one investment bank. The difference between the cost
basis and the market value of the Company's investments and unrealized gross
holding gains and losses was not material as of December 31, 1998. Realized
gains and losses are recorded on the specific identification method.
Property and Equipment
Property and equipment are stated at cost and are depreciated using the
straight-line method over the estimated useful lives (three to seven years) of
the assets. Leasehold improvements are amortized over the shorter of the term
of the related lease or the estimated useful life of the asset.
F-7
<PAGE>
NUANCE COMMUNICATIONS
NOTES TO FINANCIAL STATEMENTS--(Continued)
Revenue Recognition
The Company's revenues are derived from two sources, licenses and services.
Services include consulting, software maintenance and support, and training.
License revenue is recognized when delivery has occurred, evidence of an
arrangement exists, collection of the receivable is probable and the fee is
fixed or determinable. When an arrangement involves performance of significant
consulting services, license revenue is recognized upon system deployment
unless the arrangement includes acceptance criteria, in which case, revenue is
recognized on acceptance. License revenue from resellers is recognized when
their customers take delivery.
Service revenue consists of revenue from providing consulting, training,
maintenance updates and technical support. Consulting and training service
revenue is recognized as services are performed. Losses on service contracts,
if any, are recognized as soon as such losses become known. Revenue from
maintenance updates and technical support is recognized ratably over the term
of the applicable agreement.
Cost of license revenue consists primarily of royalties payable on third-
party software products. Cost of service revenue consists of compensation and
related overhead costs for personnel engaged in consulting, training and
maintenance for our customers.
Deferred Revenue
The Company records deferred revenue primarily as a result of payments from
customers received in advance of product deployment or performance of services.
Deferred revenue includes unearned license revenue and prepaid services that
will be recognized as revenue in the future as the Company delivers licenses
and perform services.
Software Development Costs
Under Statement of Financial Accounting Standards (SFAS) No. 86, "Accounting
for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed,"
costs incurred in the research and development of software products are
expensed as incurred until technological feasibility has been established. Once
established, these costs would be capitalized. The establishment of
technological feasibility and the ongoing assessment of the recoverability of
these costs requires considerable judgment by management with respect to
certain external factors, including, but not limited to, anticipated future
gross product revenues, estimated economic life and changes in software and
hardware technologies. Amounts that could have been capitalized under SFAS No.
86 were insignificant and, therefore, no costs have been capitalized to date.
Net Loss Per Share and Pro Forma Net Loss Per Share
Historical net loss per share has been calculated under SFAS No. 128,
"Earnings Per Share." Basic net loss per share on a historical basis is
computed using the weighted average number of shares of common stock
outstanding. Diluted net loss per share is equal to basic net loss per share
for all periods presented since potential common shares from conversion of the
convertible preferred stock, stock options and warrants are antidilutive. The
total number of shares excluded from diluted net loss per share relating to
these securities was 9,620,550 shares, 13,196,872 shares, 17,971,059 shares,
18,712,421 shares and 19,287,302 shares for fiscal years 1996, 1997 and 1998
and for the respective nine-month periods ended September 30, 1998 and 1999,
respectively.
Pursuant to the Securities and Exchange Commission Staff Accounting Bulletin
No. 98, convertible preferred stock and common stock issued or granted for
nominal consideration prior to
F-8
<PAGE>
NUANCE COMMUNICATIONS
NOTES TO FINANCIAL STATEMENTS--(Continued)
the anticipated effective date of the initial public offering must be included
in the calculation of basic and diluted net loss per common share as if they
had been outstanding for all periods presented. To date, the Company has not
had any issuances or grants for nominal consideration.
Pro forma basic net loss per share has been calculated assuming the
conversion of convertible preferred stock into an equivalent number of common
shares, as if the shares had converted on the dates of their issuance.
The following table presents the calculation of basic and pro forma basic net
loss per share (in thousands, except per share data):
<TABLE>
<CAPTION>
Year Ended Nine Months
December 31, Ended September 30,
------------------------- ---------------------
1996 1997 1998 1998 1999
------- ------- ------- --------- ----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Net Loss................. $(3,241) $(3,554) $(6,938) $ (3,324) $ (11,466)
======= ======= ======= ========= ==========
Basic:
Weighted average shares
of common stock
outstanding............. 1,943 1,960 2,422 2,345 2,946
Less: Weighted average
shares of common stock
subject to repurchase... (779) (517) (249) (282) (46)
------- ------- ------- --------- ----------
Weighted average shares
used in computing basic
net loss per share...... 1,164 1,443 2,173 2,063 2,900
======= ======= ======= ========= ==========
Basic net loss per
share................... $ (2.78) $ (2.46) $ (3.19) $ (1.61) $ (3.95)
======= ======= ======= ========= ==========
Net Loss................. $(6,938) $ (3,324) $ (11,466)
======= ========= ==========
Pro forma:
Shares used above........ 2,173 2,063 2,900
Pro forma adjustment to
reflect weighted average
effect of assumed
conversion of
convertible preferred
stock (unaudited)....... 14,486 14,240 15,226
------- --------- ----------
Weighted average shares
used in computing pro
forma basic net loss
per share (unaudited) .. 16,659 16,303 18,126
======= ========= ==========
Pro forma basic net loss
per share (unaudited)... $ (0.42) $ (0.20) $ (0.63)
======= ========= ==========
</TABLE>
Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board (FASB) issued SFAS No.
130, "Reporting Comprehensive Income," which requires companies to disclose
certain information regarding the nature and amounts of comprehensive income
included in the financial statements. As the Company has no material items of
other comprehensive income, SFAS No. 130 had no material impact on the
Company's financial statements.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 requires certain accounting
and reporting standards for derivative financial instruments and hedging
activities. In June 1999, the FASB issued SFAS No. 137,
F-9
<PAGE>
NUANCE COMMUNICATIONS
NOTES TO FINANCIAL STATEMENTS--(Continued)
"Accounting for Derivative Instruments and Hedging Activities--Deferral of the
Effective Date of FASB Statement No. 133," which amends SFAS No. 133 to be
effective for all fiscal quarters of all fiscal years beginning after June 15,
2000. The Statement will be effective for the Company on January 1, 2001.
Because the Company does not currently hold any derivative instruments and does
not engage in hedging activities, management does not believe that the adoption
of these statements will have a material impact on the Company's financial
position or results of operations.
In December 1998, the AICPA issued Statement of Position (SOP) 98-9,
"Software Revenue Recognition, With Respect to Certain Transactions." SOP 98-9
amends SOP 97-2 and SOP 98-4 by extending the deferral of the application of
certain provisions of SOP 97-2, amended by SOP 98-4, through fiscal years
beginning on or before March 15, 1999. All other provisions of SOP 98-9 are
effective for transactions entered into in fiscal years beginning after March
15, 1999. The Company's adoption of SOP 98-9 in 1999 did not have a significant
effect on the Company's financial position or results of operations.
3. Significant Concentrations:
Financial instruments that potentially subject the Company to concentrations
of credit risk consist principally of accounts receivable. The Company performs
periodic credit evaluations of its customers' financial condition and generally
does not require collateral. Five customers comprised approximately 33%, 63%
and 61% of the accounts receivable balance at December 31, 1997 and 1998, and
September 30, 1999, respectively.
For the years ended December 31, 1996, 1997 and 1998 and the nine-month
period ended September 30,1999, certain customers individually accounted for
more than 10% of revenue as follows:
<TABLE>
<CAPTION>
Year Ended December 31, Nine Months Ended
--------------------------- September 30,
1996 1997 1998 1999
------- ------- ------- -----------------
(unaudited)
<S> <C> <C> <C> <C>
Customer A................... 83% 16% * *
Customer B................... * 28% * *
Customer C................... * 11% 19% 29%
Customer D................... * 10% 15% 13%
Customer E................... * * 32% 29%
</TABLE>
- --------
*Represents less than 10% for the indicated period.
In 1998, 31% of the Company's revenue was achieved by indirect sales through
resellers. The percentage of revenue through indirect sales increased to 49% in
the first nine months of 1999. One reseller accounted for 19% of total revenue
in 1998 and 29% of total revenue in the first nine months of 1999.
F-10
<PAGE>
NUANCE COMMUNICATIONS
NOTES TO FINANCIAL STATEMENTS--(Continued)
4. Property and Equipment:
Property and equipment consisted of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
--------------
1997 1998
------ ------
<S> <C> <C>
Computer equipment and software............................... $1,334 $1,998
Furniture and fixtures........................................ 339 718
Leasehold improvements........................................ 98 149
------ ------
Total property and equipment................................ 1,771 2,865
Less: Accumulated depreciation and amortization............... (622) (997)
------ ------
$1,149 $1,868
====== ======
</TABLE>
5. Accrued Liabilities:
Accrued liabilities consisted of the following (in thousands):
<TABLE>
<CAPTION>
December
31,
-----------
1997 1998
---- ------
<S> <C> <C>
Accrued payroll and related benefits............................ $319 $1,414
Other accrued liabilities....................................... 361 1,617
---- ------
Total......................................................... $680 $3,031
==== ======
</TABLE>
6. Long-term Debt:
The Company's long-term debt obligations consisted of the following (in
thousands):
<TABLE>
<CAPTION>
December 31,
1997
------------
<S> <C>
Drawdown of equipment line of credit........................ $ 576
Capital lease obligation.................................... 628
-----
Total debt.................................................. 1,204
Less: current portion of debt............................... (389)
-----
Long-term debt.............................................. $ 815
=====
</TABLE>
In October 1997, the Company entered into a $1,000,000 equipment-based line
of credit agreement with a commercial bank. During 1998, the Company paid the
line of credit in full and the line of credit was terminated.
The Company leased computer equipment under a capital lease with terms that
expired in 1998. The lease obligation at December 31, 1997 was paid in full
during 1998.
In July 1999, the Company entered into a loan and security agreement with a
bank which provides for borrowings for purchases of property and equipment of
up to $2,000,000, and borrowings for cash management purposes of up to
$250,000. Amounts borrowed under the agreement bear interest at the bank's
prime rate plus 0.75% (9.0% at September 30, 1999). Borrowings for purchases of
property and equipment are payable in 36 equal installments beginning in
January 2000. Borrowings for cash management purposes mature March 31, 2000. At
September 30, 1999, $1,295,000 was outstanding under the property and equipment
line and none was outstanding under the cash management line.
F-11
<PAGE>
NUANCE COMMUNICATIONS
NOTES TO FINANCIAL STATEMENTS--(Continued)
The agreement requires the Company to maintain compliance with certain
financial and other covenants, including minimum tangible net worth and
liquidity coverage.
Principal payment requirements on the term loan are as follows for the years
ending December 31 (in thousands):
<TABLE>
<S> <C>
1999....................................... $ --
2000....................................... 432
2001....................................... 432
2002....................................... 431
------
$1,295
======
</TABLE>
7. Commitments:
The Company leases its facilities under a noncancellable operating lease
which expires in 2004. Future minimum lease payments relating to this agreement
are as follows (in thousands):
<TABLE>
<CAPTION>
Operating
Fiscal Year Lease
----------- ---------
<S> <C>
1999.......................................................... $ 806
2000.......................................................... 829
2001.......................................................... 842
2002.......................................................... 839
2003.......................................................... 859
Thereafter.................................................... 545
------
Total minimum lease payments.............................. $4,720
======
</TABLE>
Rent expense for the years ended December 31, 1996, 1997 and 1998, was
approximately $110,000, $313,000 and $486,000, respectively.
At December 31, 1998 and September 30, 1999, the Company had $320,000 and
$240,000, respectively, in a certificate of deposit with a commercial bank. The
amount fully secures a letter of credit issued by the bank in accordance with
the terms of the Company's facility lease agreement. The amount secured
decreases on a pro-rata basis over the term of the lease and is reported in
short-term investments on the balance sheets.
8. Convertible Preferred Stock:
As of December 31, 1998, the Company had issued 3,150,000 shares of Series A
Convertible Preferred Stock ("Series A"), 4,948,946 shares of Series B
Convertible Preferred Stock ("Series B"), 3,575,000 shares of Series C
Convertible Preferred Stock ("Series C") and 3,552,076 shares of Series D
Convertible Preferred Stock ("Series D"). The Company also has authorized but
unissued shares of Series A-1, B-1, C-1 and D-1.
The rights, restrictions and preferences of Convertible Preferred Stock are
as follows:
. Each share of Convertible Preferred Stock is convertible, at the right
and option of the shareholder, into one share of Common Stock. The
conversion ratio is subject to adjustment in the event of stock splits
and stock dividends. In addition, the conversion ratio of the Series A,
Series B, Series C and Series D is subject to adjustment in the event of
a dilutive issuance, or the issuance of additional securities at a price
less than the original purchase price of the Series A, Series B, Series
C or Series D, respectively.
F-12
<PAGE>
NUANCE COMMUNICATIONS
NOTES TO FINANCIAL STATEMENTS--(Continued)
. In the event the Company undertakes a dilutive issuance with respect to
the Series A, Series B, Series C or Series D and a holder of such series
does not participate up to its pro rata share in such dilutive issuance,
the holder's shares of Series A, Series B, Series C or Series D, as the
case may be, will be automatically converted, on the date of the
applicable dilutive issuance, into shares of Series A-1, Series B-1,
Series C-1 or Series D-1, respectively, and such Series A-1, Series B-1,
Series C-1 or Series D-1 will no longer be entitled to further
adjustments in any future dilutive issuances.
. Each shareholder of Convertible Preferred Stock is entitled to the
number of votes equal to the number of shares of common stock into which
the preferred stock can be converted.
. Each share of Convertible Preferred Stock will automatically convert
into common stock upon the earlier of the closing of an underwritten
public offering of the Company's Common Stock from which the Company
receives proceeds in excess of $20,000,000 and for which the offering
price is not less than $7.50 per share of common stock or the date
specified by written consent or agreement of the holders of two-thirds
of the then outstanding shares of such series of Convertible Preferred
Stock.
. Each shareholder of Convertible Preferred Stock is entitled to receive
annual dividends at the rates of $0.03, $0.09, $0.20 and $0.46 per share
of Series A or Series A-1, Series B or Series B-1, Series C or Series C-
1 and Series D or Series D-1, respectively, when and if declared by the
Board of Directors, prior to payment of dividends on common stock.
Dividends are non-cumulative, and no dividends have been declared to
date.
. In the event of any liquidation, dissolution, or winding up of the
Company, either voluntary or involuntary, each shareholder of
Convertible Preferred Stock shall be entitled to receive, prior and in
preference to any distribution of any assets or surplus funds to the
holders of Common Stock, an amount equal to $0.32 per share of Series A
or Series A-1, $0.96 per share of Series B or Series B-1, $2.00 per
share of Series C or Series C-1 and $4.69 per share of Series D or
Series D-1. If the full amount is not available for distribution,
amounts shall be paid out in proportion to the aggregate preferential
amounts owed.
Series B Convertible Preferred Stock Warrant
In April 1996, the Company entered into a series of equipment leases with an
aggregate credit limit of $800,000. In connection with these leases, the
Company issued a warrant to purchase 31,256 shares of Series B for $0.96 per
share. The warrant is exercisable at any time on or before the earlier of March
31, 2006 or five years from the date of the closing of an initial public
offering. The value of the warrants was not material.
Series D Convertible Preferred Stock Warrant
On May 26, 1998, in connection with a revenue transaction with a shareholder
of Series D, the Company issued a warrant to purchase 200,000 shares of Series
D for $5.00 per share. As of December 31, 1998, 66,667 shares were exercisable
under the terms of the warrant. The warrant expires, if not exercised earlier,
on the earliest to occur of: (i) May 26, 2001, (ii) an underwritten public
offering of the Company's common stock, or (iii) a consolidation or merger with
or into another corporation. In accordance with Emerging Issues Task Force 96-
18, the Company estimated the fair value of the warrant to be approximately
$248,000 on the date at which a commitment for performance was obtained, using
the Black-Scholes option pricing model with the following assumptions: risk-
free interest rate of 5.5%; expected dividend yields of zero; expected
volatility factor of the market price of the common stock of 50%; and an
expected life of the warrant of 1.25 years from the vest date.
F-13
<PAGE>
NUANCE COMMUNICATIONS
NOTES TO FINANCIAL STATEMENTS--(Continued)
The fair value of the warrant of $248,000 is being amortized as the Company
recognizes revenue under the related arrangement. As of December 31, 1998,
$124,000 had been amortized in the accompanying statement of operations. The
remaining $124,000 was amortized in the first quarter of 1999.
Unaudited Pro Forma Shareholders' Equity
In January 2000, the Company's Board of Directors authorized the filing of a
registration statement with the Securities and Exchange Commission to register
shares of its common stock in connection with a proposed initial public
offering (the "IPO"). If the IPO is consummated under the terms presently
anticipated, all of the currently outstanding shares of convertible preferred
stock as of September 30, 1999 will be converted into 15,226,022 shares of
common stock upon the closing of the IPO. The effect of the convertible
preferred stock conversion has been reflected as unaudited pro forma
stockholders' equity in the accompanying balance sheet as of September 30,
1999.
9. Common Stock:
As of December 31, 1998, 140,626 shares of common stock issued to certain
founders of the Company were subject to repurchase at original cost at the
option of the Company. As of September 30, 1999, all shares had been released
from such option.
As of December 31, 1998, the Company had reserved shares of its common stock
for future issuance as follows (in thousands):
<TABLE>
<S> <C>
Conversion of Series A preferred stock................................ 3,150
Conversion of Series B preferred stock................................ 4,949
Conversion of Series C preferred stock................................ 3,575
Conversion of Series D preferred stock................................ 3,552
Exercise of stock options............................................. 4,031
------
Total shares reserved............................................... 19,257
======
</TABLE>
Stock Options
As of December 31, 1998, the Company had reserved 4,880,833 shares of common
stock for issuance under the 1994 Incentive Stock Plan and the 1998 Stock Plan
(the "Plans"). Under the Plans, the Board of Directors may grant options to
purchase the Company's common stock to employees, directors, or consultants at
an exercise price of not less than 100% of the fair value of the Company's
common stock at the date of grant, as determined by the Board of Directors.
Options must be all granted by the tenth anniversary of the effective date of
the Plans. Options issued under the Plans have a term of 10 years from the date
of grant and generally vest 25% after one year, then ratably over the remaining
three years.
F-14
<PAGE>
NUANCE COMMUNICATIONS
NOTES TO FINANCIAL STATEMENTS--(Continued)
Option activity under the Plans is as follows (in thousands, except per share
data):
<TABLE>
<CAPTION>
Weighted
Shares Average
Available Outstanding Exercise
for Grant Options Price
--------- ----------- --------
<S> <C> <C> <C>
December 31, 1995................................ 902 278 $0.05
Authorized..................................... 1,000 -- --
Options granted................................ (1,259) 1,259 0.09
Options exercised.............................. -- (6) 0.02
Options cancelled.............................. 36 (36) 0.09
------ -----
December 31, 1996................................ 679 1,495 0.09
Authorized..................................... 1,200 -- --
Options granted................................ (777) 777 0.20
Options exercised.............................. -- (282) 0.08
Options cancelled.............................. 46 (46) 0.17
------ -----
December 31, 1997................................ 1,148 1,944 0.13
Authorized..................................... 1,500 -- --
Options granted................................ (1,879) 1,879 2.14
Options exercised.............................. -- (561) 0.13
Options cancelled.............................. 3 (3) 3.26
------ -----
December 31, 1998................................ 772 3,259 1.29
Authorized (unaudited)......................... 1,500 -- --
Options granted (unaudited).................... (821) 821 6.91
Options exercised (unaudited).................. -- (274) 5.83
Options cancelled (unaudited).................. 73 (73) 1.14
------ -----
September 30, 1999 (unaudited)................... 1,524 3,733 $2.59
====== =====
</TABLE>
The following table summarizes the stock options outstanding and exercisable
as of December 31, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------- -----------------------
Number
Weighted Weighted Exercisable as Weighted
Range of Amount at Average Average of Average
Contractual December 31, Remaining Exercise December 31, Exercise
Prices 1998 Contract Life Price 1998 Price
----------- -------------- ------------- -------- -------------- --------
(in thousands) (in thousands)
<S> <C> <C> <C> <C> <C>
$0.02 83 6.53 $0.02 68 $0.02
0.09 629 7.37 0.09 212 0.09
0.20 671 8.60 0.20 179 0.20
0.37-0.59 178 9.15 0.42 -- --
1.25 691 9.37 1.25 -- --
1.80-2.63 698 9.58 2.08 20 2.63
4.50-6.25 309 9.76 5.22 -- --
--------- ----- ---- ----- --- -----
$.02-6.25 3,259 8.84 $1.29 479 $0.23
===== ===
</TABLE>
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation," which establishes a fair value-based method of accounting for
stock-based compensation plans and requires additional disclosures for those
companies who elect not to adopt the new method of accounting. The Company
adopted SFAS No. 123 in fiscal 1996, and, in accordance with the
F-15
<PAGE>
NUANCE COMMUNICATIONS
NOTES TO FINANCIAL STATEMENTS--(Continued)
provisions of SFAS No. 123, the Company has elected to continue to apply APB
Opinion No. 25 and related interpretations in accounting for its stock option
plans. Had compensation cost for the Plans been determined consistent with SFAS
No. 123, the Company's net loss would have been $3,568,000 and $7,004,000 for
the years ended December 31, 1997 and 1998, respectively. The Company also
issues options to consultants and other non-employees. Stock options issued to
consultants and other non-employees are valued under the provisions of SFAS
No. 123. The compensation expense related to these options was approximately
$57,000 for the year ended December 31, 1998, and is included in operating
expenses in the accompanying statement of operations.
The weighted average fair value of options granted during 1997 and 1998 was
$0.03 and $3.43, respectively. The fair value of each option grant was
estimated on the date of grant using the Black-Scholes option pricing model
with the following assumptions used for grants in 1997 and 1998: risk-free
interest rates ranging from 5.5 to 7.7 percent; expected dividend yields of
zero; expected lives of 3 years beyond grant date; and expected volatility of
.01%. Because the Black-Scholes option valuation model requires the input of
subjective assumptions, the resulting pro forma compensation cost may not be
representative of that to be expected in future periods.
Deferred Stock Compensation
In connection with the grant of certain stock options to employees during
fiscal 1999, the Company recorded deferred stock compensation within
shareholders' equity of $283,000, representing the difference between the
estimated fair value of the common stock for accounting purposes and the option
exercise price of these options at the date of grant. Such amount is presented
as a reduction of shareholders' equity and will be amortized over the vesting
period of the applicable options using an accelerated method of amortization.
Under the accelerated method, each vested tranche of options is accounted for
as a separate option grant awarded for past services. Accordingly, the
compensation expense is recognized over the period during which the services
will be provided; however, the method results in a front-loading of the
compensation expense. The Company recorded no amortization of deferred
compensation through September 30, 1999.
The Company recorded additional deferred stock compensation of $5.1 million
relating to 2.2 million options with a weighted average exercise price of $8.30
granted during the three months ended December 31, 1999.
10. 401(k) Plan:
The Company has a defined contribution savings plan under Section 401(k) of
the Internal Revenue Code. The plan provides for tax-deferred salary deductions
and after-tax employee contributions.
11. Income Taxes:
Due to the Company's loss position, there was no provision for income taxes
for the years ended December 31, 1996, 1997 and 1998.
F-16
<PAGE>
NUANCE COMMUNICATIONS
NOTES TO FINANCIAL STATEMENTS--(Continued)
The components of the net deferred tax asset were as follows:
<TABLE>
<CAPTION>
December 31,
----------------
1997 1998
------- -------
<S> <C> <C>
Net operating losses.......................................... $ 2,965 $ 4,791
Tax credit carryforwards...................................... 456 769
Capitalized start-up costs.................................... 39 8
Accruals and reserves......................................... 262 1,105
------- -------
3,722 6,673
Valuation allowance........................................... (3,722) (6,673)
------- -------
Net deferred tax asset........................................ $ -- $ --
======= =======
</TABLE>
At December 31, 1998, the Company had net cumulative operating loss
carryforwards for Federal and state income tax reporting purposes of
approximately $11,994,000 and $10,310,000, respectively. The Federal net
operating loss carryforwards expire on various dates through 2018, while the
state net operating loss carryforwards expire during 2002. The Company also has
Federal and state tax credit carryforwards of approximately $480,000 and
$444,000, respectively. The Federal tax credit carryforwards expire on various
dates through 2018, while the state tax credits carry forward indefinitely.
The Company believes that, based on a number of factors, there is sufficient
uncertainty regarding the realizability of carryforwards and credits that a
full valuation allowance should be recorded against the net deferred tax asset.
These factors include a history of operating losses, recent increases in
expense levels to support the Company's growth, the competitive nature of the
Company's market and the lack of predictability of revenue. Management will
continue to assess the realizability of the tax benefits available to the
Company based on actual and forecasted operating results. The Tax Reform Act of
1986 contains provisions which may limit the net operating loss and research
and development credit carryforwards to be used in any given year upon the
occurrence of certain events, including a significant change in ownership.
12. Related Parties:
Related Party Transactions
In 1994, the Company entered into a license agreement with one of its Series
A preferred shareholders under which the Company has been granted a license to
patents and other intellectual property related to the Company's technology.
In 1998, the Company entered into a royalty arrangement with a Series A
preferred shareholder whereby the Company would remit royalties, up to a
maximum of $400,000, based on licensing of certain software. During 1998, the
Company remitted $400,000 to the shareholder as earned under the terms of the
agreement, and the amount is included in cost of licenses revenue in the
accompanying statement of operations.
In 1996, the Company entered into an agreement with an affiliate Series A
preferred shareholder to jointly perform services under a development contract,
whereby the Series A preferred shareholder would receive a percentage of
license and maintenance revenue recognized under this contract in 1997 and
1998. The total amount incurred under the agreement was approximately $200,000
and $154,000 in 1997 and 1998, respectively.
F-17
<PAGE>
NUANCE COMMUNICATIONS
NOTES TO FINANCIAL STATEMENTS--(Continued)
The Company also leased certain facilities from a Series A preferred
shareholder during 1997, under which a total of approximately $63,000 in rent
expense was remitted. As of December 31, 1997 and 1998, the Company owed
approximately $156,000 and $134,000, respectively, in trade payables to this
Series A preferred shareholder.
13. Segment Reporting
Segment Information
Effective January 1, 1998, the Company adopted the provisions of SFAS No.
131, "Disclosures about Segments of an Enterprise and Related Information."
SFAS No. 131 establishes standards for the way companies report information
about operating segments in financial statements. It also establishes standards
for related disclosures about products and services, geographic areas and major
customers. Operating segments are defined as components of an enterprise about
which separate financial information is available that is evaluated regularly
by the chief operating decision maker, or decision making group, in deciding
how to allocate resources and in assessing performance. The Company's chief
operating decision maker is the Chief Executive Officer of the Company.
The Company has two operating segments: licenses and services. Revenue and
cost of revenue for the segments are identical to those presented on the
accompanying statements of operations.
Sales of licenses and services through September 30, 1999 occurred through
partners and direct sales representatives located in the Company's headquarters
in Menlo Park, United States, and in other locations. These sales were
supported through the Menlo Park location. The Company does not separately
report costs by region internally. Additionally, long-lived assets in locations
other than Menlo Park are not significant for the three years ended December
31, 1998 and the nine months ended September 30, 1999.
International revenues are based on the country in which the end-user is
located. The following is a summary of international license and service
revenue by geographic region:
<TABLE>
<CAPTION>
Nine Months
Year Ended December Ended
31, September 30,
-------------------- -------------
1996 1997 1998 1998 1999
------ ------ ------ ------ ------
(unaudited)
<S> <C> <C> <C> <C> <C>
License revenue:
Americas................................... $1,134 $1,591 $7,651 $6,375 $8,609
Europe..................................... 53 1,125 215 73 443
Asia....................................... -- 10 226 125 205
------ ------ ------ ------ ------
Total.................................... $1,187 $2,726 $8,092 $6,573 $9,257
====== ====== ====== ====== ======
Service revenue:
Americas................................... $ 311 $1,514 $3,209 $2,104 $3,692
Europe..................................... -- 104 241 171 388
Asia....................................... -- 38 337 313 178
------ ------ ------ ------ ------
Total.................................... $ 311 $1,656 $3,787 $2,588 $4,258
====== ====== ====== ====== ======
</TABLE>
F-18
<PAGE>
NUANCE COMMUNICATIONS
NOTES TO FINANCIAL STATEMENTS--(Continued)
14. Subsequent Events:
Series E Financing
In November 1999, the Company completed the issuance of 4,499,964 shares of
Series E Convertible Preferred Stock ("Series E") at a price of $9.00 per
share, for proceeds of approximately $40.5 million, net of offering expenses.
The rights, restrictions and preferences of Series E are substantially the same
as the Company's previously issued shares of convertible preferred stock.
Reincorporation
In 2000, the Company was reincorporated in Delaware in connection
with the Company's proposed IPO.
F-19
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
No dealer, salesperson or other person is authorized to give any information
or to represent anything not contained in this prospectus. You must not rely
on any unauthorized information or representations. This prospectus is an
offer to sell only the shares offered hereby, but only under circumstances and
in jurisdictions where it is lawful to do so. The information contained in
this prospectus is current only as of its date.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 1
Risk Factors............................................................. 5
Special Note Regarding Forward-Looking Statements........................ 15
Use of Proceeds.......................................................... 16
Dividend Policy.......................................................... 16
Capitalization........................................................... 17
Dilution................................................................. 18
Selected Financial Data.................................................. 19
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 20
Business................................................................. 31
Management............................................................... 47
Certain Transactions..................................................... 59
Principal Stockholders................................................... 61
Description of Capital Stock............................................. 63
Shares Eligible for Future Sales......................................... 67
Underwriting............................................................. 69
Legal Matters............................................................ 72
Experts.................................................................. 72
Where You Can Find Additional Information................................ 72
Index to Financial Statements............................................ F-1
</TABLE>
---------------
Through and including , 2000, the 25th day after the date of
this prospectus, all dealers effecting transactions in these securities,
whether or not participating in this offering, may be required to deliver a
prospectus. This is in addition to a dealer's obligation to deliver a
prospectus when acting as an underwriter and with respect to an unsold
allotment or subscription.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Shares
Nuance Communications
Common Stock
---------------
---------------
Goldman, Sachs & Co.
Thomas Weisel Partners LLC
Dain Rauscher Wessels
Wit SoundView
Representatives of the Underwriters
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Registrant in connection
with the sale of common stock being registered. All amounts are estimates
except the registration fee, the NASD filing fee and the Nasdaq National Market
listing fee.
<TABLE>
<CAPTION>
Amount To
Be Paid
---------
<S> <C>
SEC Registration Fee............................................... $20,142
NASD Fee........................................................... 7,745
Nasdaq National Market Listing Fee................................. *
Legal Fees and Expenses............................................ *
Accounting Fees and Expenses....................................... *
Printing Expenses.................................................. *
Transfer Agent Fees................................................ *
Miscellaneous...................................................... *
-------
Total............................................................ $ *
=======
</TABLE>
- --------
* To be filed by amendment
Item 14. Indemnification of Directors and Officers
Registrant's Restated Certificate of Incorporation includes a provision that
eliminates the personal liability of its directors for monetary damages for
breach of their fiduciary duty as a director to the fullest extent permitted
under Delaware law. Registrant's Restated Certificate of Incorporation also
provides for the indemnification of its directors, officers and agents to the
fullest extent permissible under Delaware law.
In addition, as permitted by Section 145 of the Delaware General Corporation
Law, the Bylaws of Registrant provide that: (1) Registrant is required to
indemnify its directors and officers and persons serving in these capacities in
other business enterprises (including, for example, subsidiaries of Registrant)
at Registrant's request, to the fullest extent permitted by Delaware law,
including in those circumstances in which indemnification would otherwise be
discretionary; (2) Registrant may, in its discretion, indemnify its employees
and agents in those circumstances where indemnification is not required by law;
(3) the rights conferred in the Bylaws are not exclusive, and Registrant is
authorized to enter into indemnification agreements with its directors,
executive officers and employees; and (4) Registrant may not retroactively
amend the Bylaw provisions in a way that reduces the protections of the
directors, officers and employees who benefit from these provisions.
Effective upon Registrant's reincorporation from California into Delaware,
Registrant intends to enter into indemnification agreements with each of its
directors and executive officers that provide the maximum indemnity allowed
under Section 145 of the Delaware General Corporation Law and its Bylaws, as
well as certain additional procedural protections. In addition, these indemnity
agreements provide that parties to the indemnification agreements will be
indemnified to the fullest possible extent not prohibited by law against any
and all expenses (including any federal, state, local or foreign taxes imposed
on the Indemnitee as a result of the actual or deemed receipt of any payments
under the indemnification Agreement), judgments, fines, penalties and amounts
paid in settlement (if such settlement is approved in advance by Registrant,
which approval shall not be unreasonably withheld), actually and reasonably
incurred in relation to the Indemnitee's position as a director,
II-1
<PAGE>
officer, employee, agent or fiduciary of the Registrant, or any subsidiary of
the Registrant, or in relation to the Indemnitee's service at the request of
the Registrant as a director, officer, employee, agent or fiduciary of another
corporation, partnership, joint venture, trust or other enterprise or in
relation to Indemnitee's action or inaction while serving in such a capacity.
Registrant will not be obligated pursuant to the indemnity agreements to
indemnify or advance expenses to an indemnified party with respect to
proceedings or claims initiated by the indemnified party and not by way of
defense, counterclaim or crossclaim, except with respect to proceedings
specifically authorized by Registrant's Board of Directors or brought to
enforce a right to indemnification under the indemnity agreement, Registrant's
Bylaws or any statute or law. Under the agreements, Registrant is not obligated
to indemnify the indemnified party (1) for any expenses incurred by the
indemnified party with respect to any proceeding instituted by the indemnified
party to enforce or interpret the agreement, if a court of competent
jurisdiction determines that each of the material assertions made by the
indemnified party in such proceeding was not made in good faith or was
frivolous; (2) for any amounts paid in settlement of a proceeding unless
Registrant consents to such settlement; (3) on account of any suit in which
judgment is rendered against the indemnified party for an accounting of profits
made from the purchase or sale by the indemnified party of securities of
Registrant pursuant to the provisions of (S) 16(b) of the Securities Exchange
Act of 1934 and related laws; or (4) if a final decision by a court having
jurisdiction in the matter shall determine that such indemnification is not
lawful.
Reference is made to the following documents filed as 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
Amended and Restated Articles of Incorporation of Registrant, as
currently in effect.................................................. 3.1
Certificate of Incorporation of Registrant, to be in effect upon the
reincorporation of Registrant in Delaware............................ 3.2
Form of Restated Certificate of Incorporation of Registrant to be
filed upon closing of the offering................................... 3.3
Bylaws of Registrant, as amended, as currently in effect.............. 3.4
Bylaws of Registrant to be in effect upon the reincorporation of
Registrant in Delaware............................................... 3.5
Form of Indemnification Agreement to be entered into by Registrant
with each of its directors and executive officers.................... 10.1
</TABLE>
Item 15. Recent Sales of Unregistered Securities
During the past three years, Registrant has issued and sold the following
securities:
(a) During the past three years, the Registrant sold an aggregate of 1,333,933
shares of unregistered common stock to directors, officers, employees,
former employees and consultants at prices ranging from $0.0150 to $6.75
per share, for aggregate cash consideration of $408,186.008. These shares
were sold pursuant to the exercise of options or stock purchase rights
granted by the Board of Directors. As to each director, officer, employee,
former employee and consultant of Registrant who was issued these
securities, Registrant relied upon Rule 701 of the Securities Act of 1933,
as amended (the "Securities Act"). Each such person purchased securities of
Registrant pursuant to a written contract between such person and the
Registrant. In addition, Registrant met the conditions imposed under Rule
701(b).
(b) On January 6, 1997, Registrant sold in the aggregate 3,575,000 shares of
unregistered Series C Preferred Stock at a price per share of $2.00 to
eight venture capital funds for aggregate cash consideration of $7,150,000.
Registrant relied upon Section 4(2) of the Securities Act in connection
with the sale of these shares.
II-2
<PAGE>
(c) On March 27, 1998, Registrant sold in the aggregate 2,272,758 shares of
unregistered Series D Preferred Stock at a price per share of $4.69 to
fifteen venture capital funds for aggregate cash consideration of
$10,659,235.02. Registrant relied upon Section 4(2) of the Securities Act
in connection with the sale of these shares.
(d) On April 17, 1998, Registrant sold in the aggregate 639,659 shares of
unregistered Series D Preferred Stock at a price per share of $4.69 to a
corporation for aggregate cash consideration of $3,000,000.71. Registrant
relied upon Section 4(2) of the Securities Act in connection with the sale
of these shares.
(e) On May 8, 1998, Registrant sold in the aggregate 426,439 shares of
unregistered Series D Preferred Stock at a price per share of $4.69 to a
corporation for aggregate cash consideration of $1,999,998.91. Registrant
relied upon Section 4(2) of the Securities Act in connection with the sale
of these shares.
(f) On May 26, 1998, Registrant sold in the aggregate 213,220 shares of
unregistered Series D Preferred Stock at a price per share of $4.69 to a
corporation for aggregate cash consideration of $1,000,001.8. Registrant
relied upon Section 4(2) of the Securities Act in connection with the sale
of these shares.
(g) On May 26, 1998, Registrant issued a warrant to purchase up to 200,000
shares of unregistered Series D Preferred Stock to a corporation, at a
price per share of $5.00. Registrant relied upon Section 4(2) of the
Securities Act.
(h) On October 1, 1999, Registrant sold in the aggregate 2,956,488 shares of
unregistered Series E Preferred Stock at a price per share of $9.00 to six
corporations and one individual for aggregate cash consideration of
$26,608,392. Registrant relied upon Section 4(2) of the Securities Act in
connection with the sale of these shares.
(i) On October 4, 1999, Registrant sold in the aggregate 500,000 shares of
unregistered Series E Preferred Stock at a price per share of $9.00 to two
corporations for aggregate cash consideration of $4,500,002. Registrant
relied upon Section 4(2) of the Securities Act in connection with the sale
of these shares.
(j) On October 5, 1999, Registrant sold in the aggregate 81,150 shares of
unregistered Series E Preferred Stock at a price per share of $9.00 to one
corporation for aggregate cash consideration of $730,348. Registrant relied
upon Section 4(2) of the Securities Act in connection with the sale of
these shares.
(k) On November 5, 1999, Registrant sold in the aggregate 962,326 shares of
unregistered Series E Preferred Stock at a price per share of $9.00 to two
trust funds, two individuals, one corporation, one foundation, and six
venture capital funds for aggregate cash consideration of $8,660,934.
Registrant relied upon Section 4(2) of the Securities Act in connection
with the sale of these shares.
Appropriate legends were affixed to the share certificates issued in the
transactions described above. All recipients had adequate access, through their
relationships with Registrant, to information about Registrant.
II-3
<PAGE>
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits
<TABLE>
<C> <S>
1.1* Form of Underwriting Agreement.
3.1 Amended and Restated Articles of Incorporation of Registrant, as
currently in effect.
3.2 Form of Certificate of Incorporation of Registrant, to be in effect
upon the reincorporation of Registrant into Delaware.
3.3 Form of Restated Certificate of Incorporation of Registrant, to be
filed upon the closing of the offering.
3.4 Bylaws of Registrant, as amended, as currently in effect.
3.5 Bylaws of Registrant, to be in effect upon the reincorporation of
Registrant into Delaware and the closing of the offering.
4.1* Form of Registrant's Common Stock Certificate.
4.2 Amended and Restated Investors' Rights Agreement, dated as of October
1, 1999, among the Registrant and the parties named therein.
4.3 Warrant to Purchase Stock dated April 1, 1996 issued to Phoenix
Leasing.
5.1* Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation.
10.1 Form of Indemnification Agreement to be entered into by Registrant with
each of its directors and executive officers.
10.2 1994 Equity Incentive Plan.
10.3 1998 Stock Plan.
10.4 2000 Stock Plan.
10.5 2000 Employee Stock Purchase Plan and related subscription agreement.
10.6 Lease Agreement dated May 27, 1997, and related agreements by and
between Registrant and Lincoln Menlo IV & V Associates Limited.
10.7* Form of Stock Option Agreement, as amended, between Registrant and each
executive officer other than Brian Danella, Paul Scott and Donna Allen
Taylor.
10.8 Assignment and Assumption Agreement, and related agreements by and
between Registrant and CBT Systems USA, Ltd.
10.9 Memorandum of Agreement of Lease, 2000 Peel Street, Suite 900,
Montreal, Quebec, dated January 1, 2000, by and between Registrant and
Cite De L'Ile Development Inc.
10.10+ Value-Added Reseller Agreement dated March 12, 1998, by and between
Registrant and Periphonics Corporation.
10.11 Loan and Security Agreement dated June 23, 1999, between Registrant and
Silicon Valley Bank.
10.12+ License Agreement dated December 20, 1994, by and between Registrant
and SRI International.
10.13* Form of Stock Option Agreement entered into between Registrant and
Brian Danella, Paul Scott and Donna Allen Taylor.
11.1 Statement of computation of net loss per share and pro forma net loss
per share (included in Note 2 to Notes to Financial Statements).
21.1 Subsidiaries of the Registrant.
23.1 Consent of Wilson Sonsini Goodrich & Rosati, Professional Corporation
(included in Exhibit 5.1).
23.2 Consent of Arthur Andersen LLP, Independent Public Accountants.
</TABLE>
II-4
<PAGE>
<TABLE>
<C> <S>
24.1 Power of Attorney (see page II-6).
27.1 Financial Data Schedule.
</TABLE>
- --------
* To be supplied by amendment.
+ Confidential treatment has been requested for portions of this exhibit.
(b) Financial Statement Schedules
Schedules not listed above have been omitted because the information required
to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.
Item 17. Undertakings
The undersigned hereby undertakes to provide to the Underwriters at the
closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Registrant
pursuant to the provisions referenced in Item 14 of this Registration Statement
or otherwise, the Registrant has been advised that, in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the 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
hereunder, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication
of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Act, the
information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of Prospectus shall be deemed
to be a new Registration Statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this registration statement on Form S-1 to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Menlo
Park, State of California, on this 4th day of February, 2000.
Nuance Communications
/s/ Ronald Croen
By: _________________________________
Ronald Croen
President and Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints, jointly and severally, Ronald Croen and Graham
Smith and each one of them, his true and lawful attorney-in-fact and agents,
each with full power of substitution, for him and in his name, place and stead,
in any and all capacities, to sign any and all amendments (including post-
effective amendments) to this registration statement, and any registration
statement related to the offering contemplated by this registration statement
that is to be effective upon filing pursuant to Rule 462(b) under the
Securities Act of 1933 and to file the same, with all exhibits thereto and all
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that each of said attorneys-in-fact and agents or any of them,
or his or their substitute or substitutes, may lawfully do or cause to be done
or by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Ronald Croen President and Chief February 4, 2000
______________________________________ Executive Officer and
Ronald Croen Director (Principal
Executive Officer)
/s/ Graham Smith Vice President of Finance, February 4, 2000
______________________________________ Chief Financial Officer
Graham Smith and Secretary (Principal
Financial and Accounting
Officer)
/s/ Dr. Yogen Dalal Director and Chairman of February 4, 2000
______________________________________ the Board
Dr. Yogen Dalal
/s/ Dr. Curtis Carlson Director February 4, 2000
______________________________________
Dr. Curtis Carlson
/s/ Dr. Vinton Cerf Director February 4, 2000
______________________________________
Dr. Vinton Cerf
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Irwin Federman Director February 4, 2000
______________________________________
Irwin Federman
/s/ Alan Herzig Director February 4, 2000
______________________________________
Alan Herzig
/s/ Gary Morgenthaler Director February 4, 2000
______________________________________
Gary Morgenthaler
</TABLE>
II-7
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Title
------- -------------
<C> <S>
1.1* Form of Underwriting Agreement.
3.1 Amended and Restated Articles of Incorporation of Registrant, as
currently in effect.
3.2 Form of Certificate of Incorporation of Registrant, to be in effect
upon the reincorporation of Registrant into Delaware.
3.3 Form of Restated Certificate of Incorporation of Registrant, to be
filed upon the closing of the offering.
3.4 Bylaws of Registrant, as amended, as currently in effect.
3.5 Bylaws of Registrant, to be in effect upon the reincorporation of
Registrant into Delaware and the closing of the offering.
4.1* Form of Registrant's Common Stock Certificate.
4.2 Amended and Restated Investors' Rights Agreement, dated as of October
1, 1999, among the Registrant and the parties named therein.
4.3 Warrant to Purchase Stock dated April 1, 1996 issued to Phoenix
Leasing.
5.1* Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation.
10.1 Form of Indemnification Agreement to be entered into by Registrant
with each of its directors and executive officers.
10.2 1994 Equity Incentive Plan.
10.3 1998 Stock Plan.
10.4 2000 Stock Plan.
10.5 2000 Employee Stock Purchase Plan and related subscription agreement.
10.6 Lease Agreement dated May 27, 1997, as amended, by and between
Registrant and Lincoln Menlo IV & V Associates Limited.
10.7* Form of Stock Option Agreement, as amended, between Registrant and
each executive officer other than Brian Danella, Paul Scott and Donna
Allen Taylor.
10.8 Assignment and Assumption Agreement, dated July 1, 1999, by and
between Registrant and CBT Systems USA, Ltd.
10.9 Memorandum of Agreement of Lease, 2000 Peel Street, Suite 900,
Montreal, Quebec, dated January 1, 2000, by and between Registrant and
Cite De L'Ile Development Inc.
10.10+ Value-Added Reseller Agreement dated March 12, 1998, by and between
Registrant and Periphonics Corporation.
10.11 Loan and Security Agreement dated June 23, 1999, between Registrant
and Silicon Valley Bank.
10.12+ License Agreement dated December 20, 1994, by and between Registrant
and SRI International.
10.13* Form of Stock Option Agreement entered into between Registrant and
Brian Danella, Paul Scott and Donna Allen Taylor.
11.1 Statement of computation of net loss per share and pro forma net loss
per share (included in Note 2 to Notes to Financial Statements).
21.1 Subsidiaries of the Registrant.
23.1 Consent of Wilson Sonsini Goodrich & Rosati, Professional Corporation
(included in Exhibit 5.1).
23.2 Consent of Arthur Andersen LLP, Independent Public Accountants.
24.1 Power of Attorney (see page II-6).
27.1 Financial Data Schedule.
</TABLE>
- --------
* To be supplied by amendment.
+ Confidential treatment has been requested for portions of this exhibit.
<PAGE>
EXHIBIT 3.1
Amended and Restated
Articles of Incorporation of
Nuance Communications
The undersigned, Ronald A. Croen, hereby certifies that:
One. He is the duly elected and acting President and Secretary of Nuance
Communications, a California corporation.
Two. The Articles of Incorporation shall be amended and restated to read in
full as follows:
I.
The name of the corporation is Nuance Communications (the "Corporation").
II.
The purpose of the Corporation is to engage in any lawful act or activity
for which a corporation may be organized under the General Corporation Law of
California other than the banking business, the trust company business, or the
practice of a profession permitted to be incorporated by the California
Corporations Code.
III.
1. Designation. This Corporation is authorized to issue two classes of
-----------
shares designated respectively "Common Stock" and "Preferred Stock," and
referred to herein either as Common Stock or common shares and Preferred Stock
or preferred shares, respectively. The number of shares of Common Stock is
50,000,000 and the number of shares of Preferred Stock is 39,954,152. The
initial series of Preferred Stock shall comprise 3,150,000 shares and shall be
designated "Series A Preferred Stock." The second series of Preferred Stock
shall comprise 5,000,000 shares and shall be designated "Series B Preferred
Stock." The third series of Preferred Stock shall comprise 3,575,000 shares and
shall be designated "Series C Preferred Stock." The fourth series of Preferred
Stock shall comprise 3,752,076 shares and shall be designated "Series D
Preferred Stock." The fifth series of Preferred Stock shall comprise 4,500,000
shares and be designated "Series E Preferred Stock." The sixth series of
Preferred Stock shall comprise 3,150,000 shares and shall be designated "Series
A-1 Preferred Stock." The seventh series of Preferred Stock shall comprise
5,000,000 shares and shall be designated "Series B-1 Preferred Stock." The
eighth series of Preferred Stock shall comprise 3,575,000 shares and shall be
designated "Series C-1 Preferred Stock." The ninth series of Preferred Stock
shall comprise 3,752,076 shares and shall be designated "Series D-1 Preferred
Stock." The tenth series of Preferred Stock shall comprise 4,500,000 shares and
shall be designated "Series E-1 Preferred Stock." As used herein, the term
"Preferred Stock" without designation shall refer to shares of Series A
Preferred Stock, Series B Preferred Stock,
<PAGE>
Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock,
Series A-1 Preferred Stock, Series B-1 Preferred Stock, Series C-1 Preferred
Stock, Series D-1 Preferred Stock, and Series E-1 Preferred Stock or to shares
of any such series. The balance of the shares of authorized Preferred Stock may
be issued in any number of series, as determined by the Board of Directors. The
Board, by resolution, may fix the designation and number of shares of any
series, and may determine, alter, or revoke the rights, preferences, privileges
or restrictions pertaining to any wholly unissued series. The Board may
thereafter, in the same manner, increase or decrease the number of shares of any
series, but not below the number of shares of that series then outstanding. The
rights, preferences, privileges and restrictions granted to or imposed upon the
Preferred Stock and Common Stock are as specified in this Section III.
2. Dividend Provisions. Subject to the rights of series of Preferred
-------------------
Stock which may from time to time come into existence, the holders of Preferred
Stock shall be entitled to receive, when and as declared by the Board of
Directors of the Corporation, out of any assets legally available therefor,
dividends at the rate of $0.03 per share with respect to the Series A Preferred
Stock, $0.09 per share with respect to the Series B Preferred Stock, $0.20 per
share with respect to the Series C Preferred Stock, $0.46 per share with respect
to the Series D Preferred Stock, $0.90 per share with respect to the Series E
Preferred Stock, $0.03 per share with respect to the Series A-1 Preferred Stock,
$0.09 per share with respect to the Series B-1 Preferred Stock, $0.20 per share
with respect to the Series C-1 Preferred Stock, $0.46 per share with respect to
the Series D-1 Preferred Stock, $0.90 per share with respect to the Series E-1
Preferred Stock, or, if greater, at least as large per share (based on the
number of shares of Common Stock into which such share of Preferred Stock is
convertible) as those declared or paid with respect to the Common Stock, and in
preference to any dividends declared or paid with respect to the Common Stock.
All such dividends shall be non-cumulative.
3. Liquidation Preferences.
-----------------------
(a) In the event of any liquidation, dissolution or winding up of the
Corporation, the holders of the Series A Preferred Stock, the Series B Preferred
Stock, the Series C Preferred Stock, the Series D Preferred Stock, the Series E
Preferred Stock, the Series A-1 Preferred Stock, the Series B-1 Preferred Stock,
the Series C-1 Preferred Stock, the Series D-1 Preferred Stock, and the Series
E-1 Preferred Stock, shall be entitled to receive, prior and in preference to
any distribution of any of the assets or surplus funds of the Corporation to the
holders of the Common Stock by reason of their ownership of such stock, the sum
of $0.3175 per share with respect to the Series A Preferred Stock, $0.9598 per
share with respect to the Series B Preferred Stock, $2.00 per share with respect
to the Series C Preferred Stock, $4.69 per share with respect to the Series D
Preferred Stock, $9.00 per share with respect to the Series E Preferred Stock,
$0.3175 per share with respect to the Series A-1 Preferred Stock, $0.9598 per
share with respect to the Series B-1 Preferred Stock, $2.00 per share with
respect to the Series C-1 Preferred Stock, $4.69 per share with respect to the
Series D-1 Preferred Stock, and $9.00 per share with respect to the Series E-1
Preferred Stock, plus declared and unpaid dividends, if any, for each share of
Preferred Stock then held by them. If upon the occurrence of such event, the
assets and funds available for distribution among the holders of the
-2-
<PAGE>
Preferred Stock shall be insufficient to permit the payment to such holders of
the full preferential amounts, then the entire assets and funds of the
Corporation legally available for distribution to the shareholders shall be
distributed among the holders of the Preferred Stock pro rata to the full
preferential amount each such holder is entitled to receive.
(b) After payment has been made to the holders of the Preferred Stock
of the full preferential amounts as to which they shall be entitled as
aforesaid, then the holders of Common Stock shall be entitled to share ratably
in the remaining assets and funds of the Corporation legally available for
distribution, pro rata to the number of shares of Common Stock held by each
holder.
(c) (i) For purposes of this Section 3, a liquidation, dissolution or
winding up of this Corporation shall be deemed to be occasioned by, or to
include, (A) the acquisition of the Corporation by another entity by means of
any transaction or series of related transactions (including, without
limitation, any reorganization, merger or consolidation but, excluding any
merger effected exclusively for the purpose of changing the domicile of the
Corporation); or (B) a sale of all or substantially all of the assets of the
Corporation (the events described in clauses (A) and (B) are referred to
collectively as an "Acquisition"); unless the Corporation's shareholders of
------
record as constituted immediately prior to such Acquisition, immediately after
such Acquisition (by virtue of securities issued as consideration for the
Corporation's Acquisition or otherwise) hold at least 50% of the voting power of
the surviving or acquiring entity.
(ii) In any of such events, if the consideration received by the
Corporation is other than cash, its value will be deemed its fair market value.
Any securities shall be valued as follows:
(A) Securities not subject to investment letter or other
similar restrictions on free marketability:
(1) If traded on a securities exchange or through the
Nasdaq Stock Market, the value shall be deemed to be the average of the closing
prices of the securities on such exchange over the thirty-day period ending
three (3) days prior to the closing;
(2) If actively traded over-the-counter, the value shall
be deemed to be the average of the closing bid or sale prices (whichever is
applicable) over the thirty-day period ending three (3) days prior to the
closing; and
(3) If there is no active public market, the value shall
be the fair market value thereof, as mutually determined by the Corporation and
the holders of at least a majority of the voting power of all then outstanding
shares of Preferred Stock.
(B) The method of valuation of securities subject to
investment letter or other restrictions on free marketability (other than
restrictions arising solely by virtue of a stockholder's status as an affiliate
or former affiliate) shall be to make an appropriate discount from the market
value determined as above in (A)(1), (2) or (3) to reflect the approximate fair
market
-3-
<PAGE>
value thereof, as mutually determined by the Corporation and the holders of at
least a majority of the voting power of all then outstanding shares of Preferred
Stock.
(iii) In the event the requirements of this subsection 3(c) are
not complied with, this Corporation shall forthwith either:
(A) cause such closing to be postponed until such time as
the requirements of this Section 3 have been complied with; or
(B) cancel such transaction, in which event the rights,
preferences and privileges of the holders of Preferred Stock shall revert to and
be the same as such rights, preferences and privileges existing immediately
prior to the date of the first notice referred to in subsection 3(c)(iv) hereof.
(iv) The Corporation shall give each holder of record of
Preferred Stock written notice of such impending transaction not later than
twenty (20) days prior to the shareholders' meeting called to approve such
transaction, or twenty (20) days prior to the closing of such transaction,
whichever is earlier, and shall also notify such holders in writing of the final
approval of such transaction. The first of such notices shall describe the
material terms and conditions of the impending transaction and the provisions of
this Section 3, and the Corporation shall thereafter give such holders prompt
notice of any material changes. The transaction shall in no event take place
sooner than twenty (20) days after the Corporation has given the first notice
provided for herein or sooner than ten (10) days after the Corporation has given
notice of any material changes provided for herein; provided, however, that such
periods may be shortened upon the written consent of the holders of Preferred
Stock that are entitled to such notice rights or similar notice rights and that
represent at least a majority of the voting power of all then outstanding shares
of Preferred Stock.
4. Conversion. The holders of the Preferred Stock shall have conversion
----------
rights as follows (the "Conversion Rights"):
(a) Right to Convert. Each share of Preferred Stock shall be
----------------
convertible, at the option of the holder thereof, at any time after the date of
issuance of such share, at the office of this Corporation or any transfer agent
for such stock, into such number of fully paid and nonassessable shares of
Common Stock as is determined by dividing the per share price at which such
series was originally issued by the Conversion Price applicable to such share,
determined as hereinafter provided, in effect on the date that the certificate
is surrendered for conversion. The initial Conversion Price per share for
shares of Series A Preferred Stock and Series A-1 Preferred Stock shall be
$0.3175; provided, however, that the Conversion Price for the Series A Preferred
Stock and the Series A-1 Preferred Stock shall be subject to adjustment as set
forth in subsection 4(d). The initial conversion price per share for shares of
Series B Preferred Stock and Series B-1 Preferred Stock shall be $0.9598;
provided, however, that the Conversion Price for the Series B Preferred Stock
and Series B-1 Preferred Stock shall be subject to adjustment as set forth in
subsection 4(d). The initial Conversion Price per share for shares of Series C
Preferred Stock and Series C-1
-4-
<PAGE>
Preferred Stock shall be $2.00; provided, however, that the Conversion Price for
the Series C Preferred Stock and Series C-1 Preferred Stock shall be subject to
adjustment as set forth in subsection 4(d). The initial Conversion Price per
share for shares of Series D Preferred Stock and Series D-1 Preferred Stock
shall be $4.69; provided, however, that the Conversion Price for the Series D
Preferred Stock and Series D-1 Preferred Stock shall be subject to adjustment as
set forth in subsection 4(d). The initial Conversion Price per share for shares
of Series E Preferred Stock and Series E-1 Preferred Stock shall be $9.00;
provided, however, that the Conversion Price per share for shares of Series E
Preferred Stock and Series E-1 Preferred Stock shall be subject to adjustment as
set forth in subsection 4(d).
(b) Automatic Conversion. Each share of Preferred Stock shall
--------------------
automatically be converted into shares of Common Stock at the Conversion Price
at the time in effect for such series of Preferred Stock immediately upon the
earlier of (i) except as provided in subsection 4(c), the Corporation's sale of
its Common Stock in a firm commitment underwritten public offering pursuant to a
registration statement on Form S-1 under the Securities Act of 1933, as amended,
the public offering price of which was not less than $10.00 per share (adjusted
to reflect subsequent stock dividends, stock splits or recapitalization) and
$20,000,000 in the aggregate or (ii) the date specified by written consent or
agreement of the holders of at least two-thirds of the then outstanding shares
of such series of Preferred Stock.
(c) Mechanics of Conversion. Before any holder of Preferred Stock
-----------------------
shall be entitled to convert the same into shares of Common Stock, the holder
shall surrender the certificate or certificates therefor, duly endorsed, at the
office for this Corporation or any transfer agent for the Preferred Stock, and
shall give written notice to this Corporation at its principal corporate office,
of the election to convert the same and shall state therein the name or names in
which the certificate or certificates for shares of Common Stock are to be
issued. This Corporation shall, as soon as practicable thereafter, issue and
deliver at such office to such holder of Preferred Stock, or the nominee or
nominees of such holder, a certificate or certificates for the number of shares
of Common Stock to which such holder shall be entitled as aforesaid. Such
conversion shall be deemed to have been made immediately prior to the close of
business on the date of such surrender of the shares of Preferred Stock to be
converted, and the person or persons entitled to receive the shares of Common
Stock issuable upon such conversion shall be treated for all purposes as the
record holder or holders of such shares of Common Stock as of such date. If the
conversion is in connection with an underwritten offering of securities
registered pursuant to the Securities Act of 1933, as amended, the conversion
may, at the option of any holder tendering Preferred Stock for conversion, be
conditioned upon the closing with the underwriters of the sale of securities
pursuant to such offering, in which event the person(s) entitled to receive the
Common Stock upon such conversion of the Preferred Stock shall not be deemed to
have converted such Preferred Stock until immediately prior to the closing of
such sale of securities.
(d) Conversion Price Adjustments for Certain Dilutive Issuances,
------------------------------------------------------------
Splits and Combinations.
- -----------------------
-5-
<PAGE>
(i) Special Definitions. For purposes of this Section 4(d),
-------------------
the following definitions shall apply:
(A) "Options" shall mean rights, options or warrants to
-------
subscribe for, purchase or otherwise acquire either Common Stock or Convertible
Securities.
(B) "Original Issue Date" with respect to each series of
-------------------
Preferred Stock shall mean the date on which the first share of such series of
Preferred Stock was first issued.
(C) "Convertible Securities" shall mean any evidences of
----------------------
indebtedness, shares (other than the Common Stock) or other securities
convertible into or exchangeable for Common Stock.
(D) "Additional Stock" shall mean any shares of Common
----------------
Stock issued (or deemed to have been issued pursuant to subsection 4(d)(vii)(E))
by this Corporation after the Original Issue Date other than:
(1) shares issuable or issued pursuant to transactions
described in subsections 4(e), 4(f) and 4(g) hereof;
(2) shares issuable or issued to employees,
consultants, directors or vendors (if in transactions with primarily non-
financing purposes) of this Corporation or of SRI International, Inc. directly
or pursuant to a stock option plan, restricted stock plan, arrangement or
agreement approved by the Board of Directors of this Corporation;
(3) shares issued or issuable upon conversion of the
Preferred Stock;
(4) shares issued pursuant to the acquisition of
another corporation or entity by this Corporation by merger, purchase of
substantially all of the assets, or other reorganization;
(5) shares issued to financial institutions in
connection with the extension of credit to the Corporation or in connection with
the lease of equipment and in both cases for other than equity financing
purposes; or
(6) shares issued in connection with any stock split,
stock dividend, or recapitalization by the Corporation.
(E) "Pro Rata Share" with respect to each holder of
--------------
Preferred Stock shall mean that portion of the total dollar amount of the
Dilutive Issuance (as defined below) equal to (i) the amount of the Dilutive
Issuance actually offered to all holders of Preferred Stock by the Board of
Directors of the Corporation (ii) multiplied by a fraction, the numerator of
which is the
-6-
<PAGE>
number of shares of Preferred Stock then held by such holder, and the
denominator of which is the total number of shares of Preferred Stock then
outstanding.
(F) "Dilutive Issuance" with respect to each series of
-----------------
Preferred Stock shall mean an issuance of Additional Stock for a consideration
per share less than the Conversion Price of such series of Preferred Stock in
effect on the date of and immediately prior to such issuance.
(G) "Participating Investor" shall mean any holder of
----------------------
Preferred Stock that purchases at least its Pro Rata Share of a Dilutive
Issuance.
(H) "Nonparticipating Investor" shall mean any holder of
-------------------------
Preferred Stock that is not a Participating Investor.
(ii) Series A-1 Shadow Preferred.
---------------------------
(A) In the event the Corporation proposes to undertake a
Dilutive Issuance with respect to the Series A Preferred Stock, it shall give
each holder of Series A Preferred Stock a written notice (the "Series A Issuance
Notice") of its intention, describing the type of new securities, the price and
number of shares and the general terms upon which the Corporation proposes to
issue such new securities, at least thirty (30) days prior to the date of such
Dilutive Issuance. Each holder of Series A Preferred Stock may, within twenty
(20) days from the date of the Series A Issuance Notice, provide written notice
to the Corporation that such holder agrees to become a Participating Investor
for the price and upon the terms specified in the Series A Issuance Notice. In
the event that such holder fails to give such notice within the twenty (20) day
period, or fails to actually purchase its Pro Rata Share of the Dilutive
Issuance (other than as a result of the Corporation refusing to allow such
holder to so purchase its Pro Rata Share), such holder shall be deemed to be a
Nonparticipating Investor.
(B) To the extent of the percentage of the Pro Rata Share
not purchased (the "Series A Refused Percentage") by each Nonparticipating
Investor, that number of outstanding shares of Series A Preferred Stock held by
such Nonparticipating Investor equal to the product of (x) the number of shares
of such series held by the Nonparticipating Investor, times (y) the Series A
Refused Percentage, shall be converted automatically on the date (the "Series A-
1 Closing Date") of the applicable Dilutive Issuance (provided that the
Corporation gave the Series A Issuance Notice to such holder of Series A
Preferred Stock) into an equal number of fully-paid and nonassessable shares of
Series A-1 Preferred Stock; provided, however, that prior to the Series A-1
Closing Date each Nonparticipating Investor shall have the right to convert such
shares of Series A Preferred Stock into shares of Common Stock at the Conversion
Rate in effect for such series as of the date of such conversion.
(C) Upon the conversion of Series A Preferred Stock held by
a Nonparticipating Investor into Series A-1 Preferred Stock as set forth herein,
such shares of Series A Preferred Stock shall no longer be outstanding on the
books of the Corporation and may not be
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<PAGE>
reissued, and the Nonparticipating Investor shall be treated for all purposes as
the record holder of such shares of Series A-1 Preferred Stock on the Series A-1
Closing Date. No shares of Series A-1 Preferred Stock shall be issued except as
set forth in this Section 4(d)(ii) upon conversion of shares of Series A
Preferred Stock.
(D) No adjustment in the Conversion Price of the Series A-1
Preferred Stock shall be made in respect of the issuance of Additional Stock,
regardless of the issuance price of such shares, except for the issuance of such
shares as a stock dividend, stock split, or in connection with such other
transaction as provided in paragraph 4(e) hereof.
(E) In the event that any shares of Series A-1 Preferred
Stock are issued, concurrently with such issuance, the Corporation shall take
all such action as may be required, including amending the Articles of
Incorporation, (1) to cancel all authorized shares of Series A-1 Preferred Stock
that remain unissued after such issuance, (2) to create and reserve for issuance
upon any subsequent Dilutive Issuance a new series of Preferred Stock equal in
number to the number of shares of Series A-1 Preferred Stock so canceled and
designated Series A-2 Preferred Stock, with the designations, powers,
preferences and rights and the qualifications, limitations and restrictions
identical to those then applicable to the Series A Preferred Stock, except that
the Conversion Price for such shares of Series A-2 Preferred Stock once
initially issued shall be the Conversion Price in effect immediately prior to
such Dilutive Issuance and shall no longer be subject to adjustment in respect
of the issuance of Additional Stock, except for the issuance of such shares as a
stock dividend, stock split, or in connection with such other transaction as
provided in paragraph 4(e) hereof, and (3) to amend the provisions of this
Section 4 to provide that any subsequent conversion of Series A Preferred Stock
upon a Dilutive Issuance will be into shares of Series A-2 Preferred Stock
rather than Series A-1 Preferred Stock. The Corporation shall take the same
actions with respect to the Series A-2 Preferred Stock and each subsequently
authorized series of Preferred Stock upon initial issuance of shares of the last
such series to be authorized.
(iii) Series B-1 Shadow Preferred.
---------------------------
(A) In the event the Corporation proposes to undertake a
Dilutive Issuance with respect to the Series B Preferred Stock, it shall give
each holder of Series B Preferred Stock a written notice (the "Series B Issuance
Notice") of its intention, describing the type of new securities, the price and
number of shares and the general terms upon which the Corporation proposes to
issue such new securities, at least thirty (30) days prior to the date of such
Dilutive Issuance. Each holder of Series B Preferred Stock may, within twenty
(20) days from the date of the Series B Issuance Notice, provide written notice
to the Corporation that such holder agrees to become a Participating Investor
for the price and upon the terms specified in the Series B Issuance Notice. In
the event that such holder fails to give such notice within the twenty (20) day
period, or fails to actually purchase its Pro Rata Share of the Dilutive
Issuance (other than as a result of the Corporation refusing to allow such
holder to so purchase its Pro Rata Share), such holder shall be deemed to be a
Nonparticipating Investor.
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<PAGE>
(B) To the extent of the percentage of the Pro Rata Share
not purchased (the "Series B Refused Percentage") by each Nonparticipating
Investor, that number of outstanding shares of Series B Preferred Stock held by
such Nonparticipating Investor equal to the product of (x) the number of shares
of such series held by the Nonparticipating Investor, times (y) the Series B
Refused Percentage, shall be converted automatically on the date (the "Series B-
1 Closing Date") of the applicable Dilutive Issuance (provided that the
Corporation gave the Series B Issuance Notice to such holder of Series B
Preferred Stock) into an equal number of fully-paid and nonassessable shares of
Series B-1 Preferred Stock; provided, however, that prior to the Series B-1
Closing Date each Nonparticipating Investor shall have the right to convert such
shares of Series B Preferred Stock into shares of Common Stock at the Conversion
Rate in effect for such series as of the date of such conversion.
(C) Upon the conversion of Series B Preferred Stock held by
a Nonparticipating Investor into Series B-1 Preferred Stock as set forth herein,
such shares of Series B Preferred Stock shall no longer be outstanding on the
books of the Corporation and may not be reissued, and the Nonparticipating
Investor shall be treated for all purposes as the record holder of such shares
of Series B-1 Preferred Stock on the Series B-1 Closing Date. No shares of
Series B-1 Preferred Stock shall be issued except as set forth in this Section
4(d)(iii) upon conversion of shares of Series B Preferred Stock.
(D) No adjustment in the Conversion Price of the Series B-1
Preferred Stock shall be made in respect of the issuance of Additional Stock,
regardless of the issuance price of such shares, except for the issuance of such
shares as a stock dividend, stock split, or in connection with such other
transaction as provided in paragraph 4(e) hereof.
(E) In the event that any shares of Series B-1 Preferred
Stock are issued, concurrently with such issuance, the Corporation shall take
all such action as may be required, including amending the Articles of
Incorporation, (1) to cancel all authorized shares of Series B-1 Preferred Stock
that remain unissued after such issuance, (2) to create and reserve for issuance
upon any subsequent Dilutive Issuance a new series of Preferred Stock equal in
number to the number of shares of Series B-1 Preferred Stock so canceled and
designated Series B-2 Preferred Stock, with the designations, powers,
preferences and rights and the qualifications, limitations and restrictions
identical to those then applicable to the Series B Preferred Stock, except that
the Conversion Price for such shares of Series B-2 Preferred Stock once
initially issued shall be the Conversion Price in effect immediately prior to
such Dilutive Issuance and shall no longer be subject to adjustment in respect
of the issuance of Additional Stock, except for the issuance of such shares as a
stock dividend, stock split, or in connection with such other transaction as
provided in paragraph 4(e) hereof, and (3) to amend the provisions of this
Section 4 to provide that any subsequent conversion of Series B Preferred Stock
upon a Dilutive Issuance will be into shares of Series B-2 Preferred Stock
rather than Series B-1 Preferred Stock. The Corporation shall take the same
actions with respect to the Series B-2 Preferred Stock and each subsequently
authorized series of Preferred Stock upon initial issuance of shares of the last
such series to be authorized.
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<PAGE>
(iv) Series C-1 Shadow Preferred.
---------------------------
(A) In the event the Corporation proposes to undertake a
Dilutive Issuance with respect to the Series C Preferred Stock, it shall give
each holder of Series C Preferred Stock a written notice (the "Series C Issuance
Notice") of its intention, describing the type of new securities, the price and
number of shares and the general terms upon which the Corporation proposes to
issue such new securities, at least thirty (30) days prior to the date of such
Dilutive Issuance. Each holder of Series C Preferred Stock may, within twenty
(20) days from the date of the Series C Issuance Notice, provide written notice
to the Corporation that such holder agrees to become a Participating Investor
for the price and upon the terms specified in the Series C Issuance Notice. In
the event that such holder fails to give such notice within the twenty (20) day
period, or fails to actually purchase its Pro Rata Share of the Dilutive
Issuance (other than as a result of the Corporation refusing to allow such
holder to so purchase its Pro Rata Share), such holder shall be deemed to be a
Nonparticipating Investor.
(B) To the extent of the percentage of the Pro Rata Share
not purchased (the "Series C Refused Percentage") by each Nonparticipating
Investor, that number of outstanding shares of Series C Preferred Stock held by
such Nonparticipating Investor equal to the product of (x) the number of shares
of such series held by the Nonparticipating Investor, times (y) the Series C
Refused Percentage, shall be converted automatically on the date (the "Series C-
1 Closing Date") of the applicable Dilutive Issuance (provided that the
Corporation gave the Series C Issuance Notice to such holder of Series C
Preferred Stock) into an equal number of fully-paid and nonassessable shares of
Series C-1 Preferred Stock; provided, however, that prior to the Series C-1
Closing Date each Nonparticipating Investor shall have the right to convert such
shares of Series C Preferred Stock into shares of Common Stock at the Conversion
Rate in effect for such series as of the date of such conversion.
(C) Upon the conversion of Series C Preferred Stock held by
a Nonparticipating Investor into Series C-1 Preferred Stock as set forth herein,
such shares of Series C Preferred Stock shall no longer be outstanding on the
books of the Corporation and may not be reissued, and the Nonparticipating
Investor shall be treated for all purposes as the record holder of such shares
of Series C-1 Preferred Stock on the Series C-1 Closing Date. No shares of
Series C-1 Preferred Stock shall be issued except as set forth in this Section
4(d)(iv) upon conversion of shares of Series C Preferred Stock.
(D) No adjustment in the Conversion Price of the Series C-1
Preferred Stock shall be made in respect of the issuance of Additional Stock,
regardless of the issuance price of such shares, except for the issuance of such
shares as a stock dividend, stock split, or in connection with such other
transaction as provided in paragraph 4(e) hereof.
(E) In the event that any shares of Series C-1 Preferred
Stock are issued, concurrently with such issuance, the Corporation shall take
all such action as may be required, including amending the Articles of
Incorporation, (1) to cancel all authorized shares of
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<PAGE>
Series C-1 Preferred Stock that remain unissued after such issuance, (2) to
create and reserve for issuance upon any subsequent Dilutive Issuance a new
series of Preferred Stock equal in number to the number of shares of Series C-1
Preferred Stock so canceled and designated Series C-2 Preferred Stock, with the
designations, powers, preferences and rights and the qualifications, limitations
and restrictions identical to those then applicable to the Series C Preferred
Stock except that the Conversion Price for such shares of Series C-2 Preferred
Stock once initially issued shall be the Conversion Price in effect immediately
prior to such Dilutive Issuance and shall no longer be subject to adjustment in
respect of the issuance of Additional Stock, except for the issuance of such
shares as a stock dividend, stock split, or in connection with such other
transaction as provided in paragraph 4(e) hereof, and (3) to amend the
provisions of this Section 4 to provide that any subsequent conversion of Series
C Preferred Stock upon a Dilutive Issuance will be into shares of Series C-2
Preferred Stock rather than Series C-1 Preferred Stock. The Corporation shall
take the same actions with respect to the Series C-2 Preferred Stock and each
subsequently authorized series of Preferred Stock upon initial issuance of
shares of the last such series to be authorized.
(v) Series D-1 Shadow Preferred.
---------------------------
(A) In the event the Corporation proposes to undertake a
Dilutive Issuance with respect to the Series D Preferred Stock, it shall give
each holder of Series D Preferred Stock a written notice (the "Series D Issuance
Notice") of its intention, describing the type of new securities, the price and
number of shares and the general terms upon which the Corporation proposes to
issue such new securities, at least thirty (30) days prior to the date of such
Dilutive Issuance. Each holder of Series D Preferred Stock may, within twenty
(20) days from the date of the Series D Issuance Notice, provide written notice
to the Corporation that such holder agrees to become a Participating Investor
for the price and upon the terms specified in the Series D Issuance Notice. In
the event that such holder fails to give such notice within the twenty (20) day
period, or fails to actually purchase its Pro Rata Share of the Dilutive
Issuance (other than as a result of the Corporation refusing to allow such
holder to so purchase its Pro Rata Share), such holder shall be deemed to be a
Nonparticipating Investor.
(B) To the extent of the percentage of the Pro Rata Share
not purchased (the "Series D Refused Percentage") by each Nonparticipating
Investor, that number of outstanding shares of Series D Preferred Stock held by
such Nonparticipating Investor equal to the product of (x) the number of shares
of such series held by the Nonparticipating Investor, times (y) the Series D
Refused Percentage, shall be converted automatically on the date (the "Series D-
1 Closing Date") of the applicable Dilutive Issuance (provided that the
Corporation gave the Series D Issuance Notice to such holder of Series D
Preferred Stock ) into an equal number of fully-paid and nonassessable shares of
Series D-1 Preferred Stock; provided, however, that prior to the Series D-1
Closing Date each Nonparticipating Investor shall have the right to convert such
shares of Series D Preferred Stock into shares of Common Stock at the Conversion
Rate in effect for such series as of the date of such conversion.
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<PAGE>
(C) Upon the conversion of Series D Preferred Stock held by
a Nonparticipating Investor into Series D-1 Preferred Stock as set forth herein,
such shares of Series D Preferred Stock shall no longer be outstanding on the
books of the Corporation and may not be reissued, and the Nonparticipating
Investor shall be treated for all purposes as the record holder of such shares
of Series D-1 Preferred Stock on the Series D-1 Closing Date. No shares of
Series D-1 Preferred Stock shall be issued except as set forth in this Section
4(d)(v) upon conversion of shares of Series D Preferred Stock.
(D) No adjustment in the Conversion Price of the Series D-1
Preferred Stock shall be made in respect of the issuance of Additional Stock,
regardless of the issuance price of such shares, except for the issuance of such
shares as a stock dividend, stock split, or in connection with such other
transaction as provided in paragraph 4(e) hereof.
(E) In the event that any shares of Series D-1 Preferred
Stock are issued, concurrently with such issuance, the Corporation shall take
all such action as may be required, including amending the Articles of
Incorporation, (1) to cancel all authorized shares of Series D-1 Preferred Stock
that remain unissued after such issuance, (2) to create and reserve for issuance
upon any subsequent Dilutive Issuance a new series of Preferred Stock equal in
number to the number of shares of Series D-1 Preferred Stock so canceled and
designated Series D-2 Preferred Stock, with the designations, powers,
preferences and rights and the qualifications, limitations and restrictions
identical to those then applicable to the Series D Preferred Stock, except that
the Conversion Price for such shares of Series D-2 Preferred Stock once
initially issued shall be the Conversion Price in effect immediately prior to
such Dilutive Issuance and shall no longer be subject to adjustment in respect
of the issuance of Additional Stock, except for the issuance of such shares as a
stock dividend, stock split, or in connection with such other transaction as
provided in paragraph 4(e) hereof, and (3) to amend the provisions of this
Section 4 to provide that any subsequent conversion of Series D Preferred Stock
upon a Dilutive Issuance will be into shares of Series D-2 Preferred Stock
rather than Series D-1 Preferred Stock. The Corporation shall take the same
actions with respect to the Series D-2 Preferred Stock and each subsequently
authorized series of Preferred Stock upon initial issuance of shares of the last
such series to be authorized.
(vi) Series E-1 Shadow Preferred.
---------------------------
(A) In the event the Corporation proposes to undertake a
Dilutive Issuance with respect to the Series E Preferred Stock, it shall give
each holder of Series E Preferred Stock a written notice (the "Series E Issuance
Notice") of its intention, describing the type of new securities, the price and
number of shares and the general terms upon which the Corporation proposes to
issue such new securities, at least thirty (30) days prior to the date of such
Dilutive Issuance. Each holder of Series E Preferred Stock may, within twenty
(20) days from the date of the Series E Issuance Notice, provide written notice
to the Corporation that such holder agrees to become a Participating Investor
for the price and upon the terms specified in the Series E Issuance Notice. In
the event that such holder fails to give such notice within the twenty (20) day
period, or fails to actually purchase its Pro Rata Share of the Dilutive
Issuance (other than as a result of the
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<PAGE>
Corporation refusing to allow such holder to so purchase its Pro Rata Share),
such holder shall be deemed to be a Nonparticipating Investor.
(B) To the extent of the percentage of the Pro Rata Share not
purchased (the "Series E Refused Percentage") by each Nonparticipating Investor,
that number of outstanding shares of Series E Preferred Stock held by such
Nonparticipating Investor equal to the product of (x) the number of shares of
such series held by the Nonparticipating Investor, times (y) the Series E
Refused Percentage, shall be converted automatically on the date (the "Series E-
1 Closing Date") of the applicable Dilutive Issuance (provided that the
Corporation gave the Series E Issuance Notice to such holder of Series E
Preferred Stock) into an equal number of fully-paid and nonassessable shares of
Series E-1 Preferred Stock; provided, however, that prior to the Series E-1
Closing Date each Nonparticipating Investor shall have the right to convert such
shares of Series E Preferred Stock into shares of Common Stock at the Conversion
Rate in effect for such series as of the date of such conversion.
(C) Upon the conversion of Series E Preferred Stock held by a
Nonparticipating Investor into Series E-1 Preferred Stock as set forth herein,
such shares of Series E Preferred Stock shall no longer be outstanding on the
books of the Corporation and may not be reissued, and the Nonparticipating
Investor shall be treated for all purposes as the record holder of such shares
of Series E-1 Preferred Stock on the Series E-1 Closing Date. No shares of
Series E-1 Preferred Stock shall be issued except as set forth in this Section
4(d)(vi) upon conversion of shares of Series E Preferred Stock.
(D) No adjustment in the Conversion Price of the Series E-1 Preferred
Stock shall be made in respect of the issuance of Additional Stock, regardless
of the issuance price of such shares, except for the issuance of such shares as
a stock dividend, stock split, or in connection with such other transaction as
provided in paragraph 4(e) hereof.
(E) In the event that any shares of Series E-1 Preferred Stock are
issued, concurrently with such issuance, the Corporation shall take all such
action as may be required, including amending the Articles of Incorporation, (1)
to cancel all authorized shares of Series E-1 Preferred Stock that remain
unissued after such issuance, (2) to create and reserve for issuance upon any
subsequent Dilutive Issuance a new series of Preferred Stock equal in number to
the number of shares of Series E-1 Preferred Stock so canceled and designated
Series E-2 Preferred Stock, with the designations, powers, preferences and
rights and the qualifications, limitations and restrictions identical to those
then applicable to the Series E Preferred Stock, except that the Conversion
Price for such shares of Series E-2 Preferred Stock once initially issued shall
be the Conversion Price in effect immediately prior to such Dilutive Issuance
and shall no longer be subject to adjustment in respect of the issuance of
Additional Stock, except for the issuance of such shares as a stock dividend,
stock split, or in connection with such other transaction as provided in
paragraph 4(e) hereof, and (3) to amend the provisions of this Section 4 to
provide that any subsequent conversion of Series E Preferred Stock upon a
Dilutive Issuance will be into shares of Series E-2 Preferred Stock rather than
Series E-1 Preferred Stock. The Corporation shall take the
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<PAGE>
same actions with respect to the Series E-2 Preferred Stock and each
subsequently authorized series of Preferred Stock upon initial issuance of
shares of the last such series to be authorized.
(vii) Adjustments for Dilutive Issuance. The Conversion Price of
---------------------------------
the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock, Series D Preferred Stock, and Series E Preferred Stock shall be subject
to adjustment from time to time as follows:
(A) If the Corporation shall issue, after the Original Issue
Date of shares of Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock, or Series E Preferred Stock (the
"Purchase Date"), any Additional Stock without consideration or for a
consideration per share less than the Conversion Price for such series in effect
immediately prior to the issuance of such Additional Stock, the Conversion Price
for such series in effect immediately prior to each such issuance shall
forthwith (except as otherwise provided in this subsection 4(d)(vii)) be
adjusted to a price determined by multiplying such Conversion Price by a
fraction, the numerator of which shall be the number of shares of Common Stock
outstanding immediately prior to such issuance plus the number of shares of
Common Stock that the aggregate consideration received by the Corporation for
such issuance would purchase at the Conversion Price in effect prior to the
issuance of Additional Stock; and the denominator of which shall be the number
of shares of Common Stock outstanding immediately prior to such issuance plus
the number of shares of such Additional Stock. As provided in subsection
4(d)(vii)(E) below, Common Stock for purposes of this subsection 4(d)(vii) and
subsection 4(d)(i)(D) shall include all Common Stock issuable upon exercise of
outstanding options to purchase or rights to subscribe for Common Stock and all
Common Stock issuable upon conversion of all outstanding convertible or
exchangeable securities, including the Preferred Stock.
(B) No adjustment of the Conversion Price for the Preferred
Stock shall be made in an amount less than one cent ($0.01) per share, provided
that any adjustments which are not required to be made by reason of this
sentence shall be carried forward and shall be either taken into account in any
subsequent adjustment made prior to three (3) years from the date of the event
giving rise to the adjustment being carried forward. Except to the limited
extent provided for in subsections (E)(3) and (E)(4), no adjustment of such
Conversion Price pursuant to this subsection 4(d)(vii) shall have the effect of
increasing the Conversion Price above the Conversion Price in effect immediately
prior to such adjustment.
(C) In the case of the issuance of Common Stock for cash,
the consideration shall be deemed to be the amount of cash paid therefor before
deducting any reasonable discounts, commissions or other expenses allowed, paid
or incurred by this Corporation for any underwriting or otherwise in connection
with the issuance and sale thereof.
(D) In the case of the issuance of Common Stock for a
consideration in whole or in part other than cash, the consideration other than
cash shall be deemed to be the fair value thereof as determined by the Board of
Directors irrespective of any accounting treatment.
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<PAGE>
(E) In the case of the issuance (whether before, on or after the
Purchase Date) of options to purchase or rights to subscribe for Common Stock,
securities by their terms convertible into or exchangeable for Common Stock or
options to purchase or rights to subscribe for such convertible or exchangeable
securities, the following provisions shall apply for all purposes of this
subsection 4(d)(vii)(E):
(1) The aggregate maximum number of shares of Common Stock
deliverable upon exercise (assuming the satisfaction of any conditions to
exercisability, including without limitation, the passage of time, but without
taking into account potential antidilution adjustments) of such options to
purchase or rights to subscribe for Common Stock shall be deemed to have been
issued at the time such options or rights were issued and for a consideration
equal to the consideration (determined in the manner provided in subsections
4(d)(vii)(C) and 4(d)(vii)(D)), if any, received by the Corporation upon the
issuance of such options or rights plus the minimum exercise price provided in
such options or rights for the Common Stock covered thereby.
(2) The aggregate maximum number of shares of Common Stock
deliverable upon conversion of or in exchange (assuming the satisfaction of any
conditions to convertibility or exchangeability, including, without limitation,
the passage of time, but without taking into account potential antidilution
adjustments) for any such convertible or exchangeable securities or upon the
exercise of options to purchase or rights to subscribe for such convertible or
exchangeable securities and subsequent conversion or exchange thereof shall be
deemed to have been issued at the time such securities were issued or such
options or rights were issued and for a consideration equal to the
consideration, if any, received by the Corporation for any such securities and
related options or rights (excluding any cash received on account of accrued
interest or accrued dividends), plus the minimum additional consideration, if
any, to be received by the Corporation upon the conversion or exchange of such
securities or the exercise of any related options or rights (the consideration
in each case to be determined in the manner provided in subsections 4(d)(vii)(C)
and 4(d)(vii)(D)).
(3) In the event of any change in the number of shares of Common
Stock deliverable or in the consideration payable to this Corporation upon
exercise of such options or rights or upon conversion of or in exchange for such
convertible or exchangeable securities, including, but not limited to, a change
resulting from the antidilution provisions thereof, the Conversion Price of the
Preferred Stock, to the extent in any way affected by or computed using such
options, rights or securities, shall be recomputed to reflect such change, but
no further adjustment shall be made for the actual issuance of Common Stock or
any payment of such consideration upon the exercise of any such options or
rights or the conversion or exchange of such securities.
(4) Upon the expiration of any such options or rights, the
termination of any such rights to convert or exchange or the expiration of any
options or rights related to such convertible or exchangeable securities, the
Conversion Price of the Preferred Stock, to the extent in any way affected by or
computed using such options, rights or securities or options
-15-
<PAGE>
or rights related to such securities, shall be recomputed to reflect the
issuance of only the number of shares of Common Stock (and convertible or
exchangeable securities which remain in effect) actually issued upon the
exercise of such options or rights, upon the conversion or exchange of such
securities or upon the exercise of the options or rights related to such
securities.
(5) The number of shares of Common Stock deemed issued
and the consideration deemed paid therefor pursuant to subsections
4(d)(vii)(E)(1) or (2) shall be appropriately adjusted to reflect any change in
termination of expiration of the type described in like subsection
4(d)(vii)(E)(3) or (4).
(e) Adjustment of Conversion Price. The Conversion Price of each
------------------------------
series of Preferred Stock shall be subject to adjustment from time to time as
follows:
(i) In the event the Corporation should at any time or from time
to time after the Original Issue Date fix a record date for the effectuation of
a split or subdivision of the outstanding shares of Common Stock or the
determination of holders of Common Stock entitled to receive a dividend or other
distribution payable in additional shares of Common Stock or other securities or
rights convertible into, or entitling the holder thereof to receive directly or
indirectly, additional shares of Common Stock (hereinafter referred to as
"Common Stock Equivalents") without payment of any consideration by such holder
for the additional shares of Common Stock or the Common Stock Equivalents
(including the additional shares of Common Stock issuable upon conversion or
exercise thereof), then, as of such record date (or the date of such dividend
distribution, split or subdivision if no record date is fixed), the Conversion
Price of the Preferred Stock shall be appropriately decreased so that the number
of shares of Common Stock issuable on conversion of each share of such series
shall be increased in proportion to such increase of the aggregate of shares of
Common Stock outstanding and those issuable with respect to such Common Stock
Equivalents, with the number of shares issuable with respect to Common Stock
Equivalents determined from time to time in the manner provided for deemed
issuances in subsection 4(d)(vii)(E).
(ii) If the number of shares of Common Stock outstanding at any
time after the Original Issue Date is decreased by a combination of the
outstanding shares of Common Stock, then, following the record date of such
combination, the Conversion Price for the Preferred Stock shall be appropriately
increased so that the number of shares of Common Stock issuable on conversion of
each share of such series shall be decreased in proportion to such decrease in
outstanding shares.
(f) Other Distributions. In the event this Corporation shall declare
-------------------
a distribution payable in securities of other persons, evidences of indebtedness
issued by this Corporation or other persons, assets (including cash dividends)
or options or rights not referred to in subsection 4(d)(i)(D), then, in each
such case for the purpose of this subsection 4(f), the holders of the Preferred
Stock shall be entitled to a proportionate share of any such distribution as
though they were the holders of the number of shares of Common Stock of the
Corporation into which their shares of
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<PAGE>
Preferred Stock are convertible as of the record date fixed for the
determination of the holders of Common Stock of the Corporation entitled to
receive such distribution.
(g) Recapitalization. If at any time or from time to time there shall
----------------
be a recapitalization of the Common Stock (other than a subdivision, combination
or merger or sale of assets transaction provided for elsewhere in Section 3 or
this Section 4) provision shall be made so that the holders of the Preferred
Stock shall thereafter be entitled to receive upon conversion of the Preferred
Stock the number of shares of stock or other securities or property of the
Corporation or otherwise, to which a holder of Common Stock deliverable upon
conversion would have been entitled on such recapitalization. In any such case,
appropriate adjustment shall be made in the application of the provisions of
this Section 4 with respect to the rights of the holders of the Preferred Stock
after the recapitalization to the end that the provisions of this Section 4
(including adjustment of the Conversion Price then in effect and the number of
shares purchasable upon conversion of the Preferred Stock) shall be applicable
after that event as nearly equivalent as may be practicable.
(h) No Impairment. This Corporation will not, by amendment of its
-------------
Amended and Restated Articles of Incorporation or through any reorganization,
recapitalization, transfer of assets, consolidation, merger, dissolution, issue
or sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by this Corporation, but will at all times in good faith assist in the
carrying out of all the provisions of this Section 4 and in the taking of all
such action as may be necessary or appropriate in order to protect the
Conversion Rights of the holders of the Preferred Stock against impairment.
(i) No Fractional Shares and Certificate as to Adjustments.
------------------------------------------------------
(i) No fractional shares shall be issued upon conversion of any
share or shares of the Preferred Stock, and the number of shares of Common Stock
to be issued shall be rounded to the nearest whole share. Whether or not
fractional shares are issuable upon such conversion shall be determined on the
basis of the total number of shares of a series of Preferred Stock the holder is
at the time converting into Common Stock and the number of shares of Common
Stock issuable upon such aggregate conversion.
(ii) Upon the occurrence of each adjustment or readjustment of
the Conversion Price of Preferred Stock pursuant to this Section 4, this
Corporation, at its expense, shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and prepare and furnish to each
holder of Preferred Stock a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. This Corporation shall, upon the written request at any
time of any holder of Preferred Stock, furnish or cause to be furnished to such
holder a like certificate setting forth (A) such adjustment and readjustment,
(B) the Conversion Price for such series of Preferred Stock at the time in
effect, and
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<PAGE>
(C) the number of shares of Common Stock and the amount, if any, of other
property which at the time would be received upon the conversion of a share of
Preferred Stock.
(j) Notices of Record Date. In the event of any taking by this
----------------------
Corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right, this
Corporation shall mail to each holder of Preferred Stock, at least twenty (20)
days prior to the date specified therein, a notice specifying the date on which
any such record is to be taken for the purpose of such dividend, distribution or
right, and the amount and character of such dividend, distribution or right.
(k) Reservation of Stock Issuable Upon Conversion. This
---------------------------------------------
Corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the shares of the Preferred Stock, such number of its shares of
Common Stock as shall from time to time be sufficient to effect the conversion
of all outstanding shares of the Preferred Stock; and if at any time the number
of authorized but unissued shares of Common Stock shall not be sufficient to
effect the conversion of all then outstanding shares of the Preferred Stock,
this Corporation will take such corporate action as may, in the opinion of its
counsel, be necessary to increase its authorized but unissued shares of Common
Stock to such number of shares as shall be sufficient for such purposes,
including, without limitation, engaging in best efforts to obtain the requisite
shareholder approval of any necessary amendment to these Amended and Restated
Articles of Incorporation.
(l) Notices. Any notice required by the provisions of this
-------
Section 4 to be given to the holders of shares of Preferred Stock shall be
deemed given if deposited in the United States mail, postage prepaid, and
addressed to each holder of record at his address appearing on the books of this
Corporation.
5. Voting Rights.
-------------
(a) General. Except as otherwise required by law and except as
-------
required in Sections 5(b) and 6 hereof, the holders of Common Stock and
Preferred Stock shall vote together as a single class. Each holder of shares of
Common Stock shall be entitled to one vote for each share of Common Stock held
by such holder. Each holder of Preferred Stock shall be entitled to such number
of votes for the Preferred Stock held by it on the record date fixed for such
meeting, or on the effective date of such written consent, as shall be equal to
the whole number of shares of the Corporation's Common stock into which its
shares of Preferred Stock are convertible, in accordance with the terms of the
Corporation's Amended and Restated Articles of Incorporation, immediately after
the close of business on the record date fixed for such meeting or the effective
date of such written consent.
(b) Board Seats. The holders of the Common Stock, voting as a
-----------
separate class, shall be entitled to elect one (1) director of the Corporation.
The holders of the Series A Preferred
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<PAGE>
Stock, voting as a separate class, shall be entitled to elect two (2) directors
of the Corporation. The holders of the Series B Preferred Stock, voting as a
separate class, shall be entitled to elect two (2) directors of the Corporation.
The holders of the Series C Preferred Stock, voting as a separate class, shall
be entitled to elect one (1) director of the Corporation. The holders of
Preferred Stock and Common Stock, voting together as a single class and not as a
separate series, shall be entitled to elect any remaining directors of the
Corporation.
(c) Vacancies. In the case of any vacancy in the office of a
---------
director occurring among the directors elected by the holders of the Common
Stock, Series A Preferred Stock, Series B Preferred Stock, or Series C Preferred
Stock pursuant to Section 5(b), the holders of a majority of shares in such
class or the remaining director so elected by such class may by affirmative vote
of a majority thereof (or the remaining director so elected), elect a successor
or successors to hold office for the unexpired term of the director or directors
whose place or places shall be vacant. Any director who shall have been elected
by the holders of the Common Stock, the holders of the Series A Preferred Stock,
the holders of the Series B Preferred Stock, or the holders of the Series C
Preferred Stock or by any director so elected as provided in the next preceding
sentence hereof may be removed during the aforesaid term of office, either with
or without cause, by, and only by, the affirmative vote of the holders of a
majority of the shares of such class of stock who elected such director or
directors, given either at a special meeting of such shareholders duly called
for that purpose or pursuant to a written consent of shareholders, and any
vacancy thereby created may be filled by the holders of that class of stock
represented at such meeting or pursuant to such written consent.
6. Protective Provisions.
---------------------
(a) Except as otherwise required by law and subject to the rights
of series of Preferred Stock which may from time to time come into existence, so
long as shares of Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock, Series E Preferred Stock, Series A-1
Preferred Stock, Series B-1 Preferred Stock, Series C-1 Preferred Stock, Series
D-1 Preferred Stock, or Series E-1 Preferred Stock, are outstanding, this
Corporation shall not amend or repeal any provision of the Corporation's Amended
and Restated Articles of Incorporation if such action would materially and
adversely affect the rights, preferences, or privileges of any series of
Preferred Stock, without first obtaining the approval (by vote or written
consent, as provided by law) of the holders of at least a majority of the total
number of shares of such series of Preferred Stock materially and adversely
affected by such action.
(b) Except as otherwise required by law and subject to the rights
of series of Preferred Stock which may from time to time come into existence, so
long as shares of Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock, Series E Preferred Stock, Series A-1
Preferred Stock, Series B-1 Preferred Stock, Series C-1 Preferred Stock, Series
D-1 Preferred Stock, or Series E-1 Preferred Stock, are outstanding, this
Corporation shall not increase or decrease (other than by redemption or
conversion) the total number of authorized shares of any series of Preferred
Stock without first obtaining the approval (by vote or
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<PAGE>
written consent, as provided by law) of the holders of at least a majority of
the total number of shares of the series of Preferred Stock sought to be
increased or decreased.
(c) Except as otherwise required by law and subject to the
rights of series of Preferred Stock which may from time to time come into
existence, so long as shares of Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock, Series D Preferred Stock, Series E Preferred
Stock, Series A-1 Preferred Stock, Series B-1 Preferred Stock, Series C-1
Preferred Stock, Series D-1 Preferred Stock, or Series E-1 Preferred Stock are
outstanding, this Corporation shall not, without first obtaining the approval
(by vote or written consent, as provided by law) of the holders of at least a
majority of the total number of shares of Preferred Stock outstanding, undertake
any of the following actions:
(i) authorize or issue shares of any class of stock
having any preference or priority as to dividends or assets superior to, or on a
parity with, any series of Preferred Stock;
(ii) pay or declare any dividend on any securities junior
to the Preferred Stock with respect to dividends or assets;
(iii) sell, convey, liquidate, or otherwise dispose of or
encumber all or substantially all of its property or business or merge into or
consolidate with any other corporation (other than a wholly owned subsidiary
corporation) or effect any transaction or series of related transactions in
which more than fifty percent (50%) of the voting power of the Corporation is
disposed of; or.
(iv) increase or decrease (other than by redemption or
conversion) the total number of authorized shares of any series of Preferred
Stock.
7. Status of Converted Stock. In the event any shares of Preferred Stock
-------------------------
shall be converted pursuant to Section 4 hereof, the shares so converted or
redeemed shall be canceled and shall not be issuable by the Corporation. The
Amended and Restated Articles of Incorporation of this Corporation shall be
appropriately amended to effect the corresponding reduction in the Corporation's
authorized capital stock.
8. Repurchase of Shares. In connection with repurchases by this
--------------------
Corporation of its Common Stock pursuant to its agreements with certain of the
holders thereof, Sections 502 and 503 of the California General Corporation Law
shall not apply in whole or in part with respect to such repurchases.
IV.
1. The liability of the directors of the Corporation for monetary damages
shall be eliminated to the fullest extent permissible under California law.
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<PAGE>
2. The Corporation is authorized to provide indemnification of agents (as
defined in Section 317 of the California Corporations Code) through bylaw
provisions, agreements with the agents, vote of shareholders or disinterested
directors, or otherwise, in excess of the indemnification otherwise permitted by
Section 317 of the California Corporations Code, subject only to the limits set
forth in Section 204 of the California Corporations Code with respect to actions
for breach of duty to the Corporation or its shareholders. The Corporation is
further authorized to provide insurance for agents as set forth in Section 317
of the California Corporations Code, provided that, in cases where the
Corporation owns all or a portion of the shares of the company issuing the
insurance policy, the company and/or the policy must meet one of the two sets of
conditions set forth in Section 317, as amended.
3. Any repeal or modification of the foregoing provisions of this Section
IV by the shareholders of this Corporation shall not adversely affect any right
or protection of an agent of this Corporation existing at the time of such
repeal or modification.
Three. The foregoing amendment and restatement of the Articles of
Incorporation has been duly approved by the Board of Directors.
Four. The foregoing amendment and restatement of the Articles of
Incorporation has been duly approved by the required vote of the shareholders in
accordance with Sections 902 and 903 of the California Corporations Code. The
total number of outstanding shares of Common Stock of the Corporation is
3,017,448. The total number of outstanding shares of Preferred Stock of the
Corporation previously designated as Series A Preferred Stock is 3,150,000, the
total number of outstanding shares of Preferred Stock of the Corporation
previously designated as Series B Preferred Stock is 4,948,946, the total number
of outstanding shares of Preferred Stock of the Corporation previously
designated as Series C Preferred Stock is 3,575,000 and the total number of
outstanding shares of Preferred Stock of the Corporation previously designated
as Series D Preferred Stock is 3,552,076. There were no shares of Series A-1
Preferred Stock, Series B-1 Preferred Stock, Series C-1 Preferred Stock, or
Series D-1 Preferred Stock outstanding. The number of shares voting in favor of
the amendment equaled or exceeded the vote required, such required vote being a
majority
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<PAGE>
of the outstanding shares of Common Stock and a majority of the outstanding
shares of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock, and Series D Preferred Stock voting together as a single class.
[Remainder of Page Intentionally Left Blank]
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<PAGE>
I DECLARE under penalty of perjury under the laws of the State of California
that the matters set forth in this certificate are true and correct of my own
knowledge.
Executed at Menlo Park, California, this 24th day of September, 1999.
----
/s/ Ronald A. Croen
--------------------------
Ronald A. Croen, President and Secretary
<PAGE>
EXHIBIT 3.2
CERTIFICATE OF INCORPORATION
OF
NUANCE COMMUNICATIONS, INC.
---------------------------
(a Delaware corporation)
ARTICLE I
---------
The name of the Corporation is Nuance Communications, Inc. (the
"Corporation")..
ARTICLE II
----------
The address of the Corporation's registered office in the State of
Delaware is 1209 Orange Street, Wilmington, Delaware 19801, County of New
Castle. The name of its registered agent at such address is The Corporation
Trust Company.
ARTICLE III
-----------
The nature of the business or purposes to be conducted or promoted by
the Corporation is to engage in any lawful act or activity for which
corporations may be organized under the General Corporation Law of Delaware.
ARTICLE IV
----------
The name and mailing address for the incorporator is as follows:
Jill L. Nissen, Esq.
c/o Wilson Sonsini Goodrich & Rosati, P.C.
650 Page Mill Road
Palo Alto, CA 94304-1050
ARTICLE V
---------
A. Authorized Shares
-----------------
This Corporation is authorized to issue two classes of shares
designated respectively "Common Stock" and "Preferred Stock," and referred to
herein either as Common Stock or common shares and Preferred Stock or preferred
shares, respectively. The total number of shares of Common Stock this
Corporation shall have authority to issue is 50,000,000 with a par value of
$0.001 per share. The total number of shares of Preferred Stock this
Corporation shall have authority to issue is 39,954,152 with a par value of
$0.001 per share. The authority of the Board with respect to each series shall
include, but not be limited to, determination of the following:
<PAGE>
(a) the number of shares constituting that series and the distinctive
designation of that series;
(b) the dividend rate on the shares of that series, whether dividends
shall be cumulative and, if so, from which date or dates, and the relative
rights of priority, if any, of payment of dividends on shares of that series;
(c) whether that series shall have voting rights, in addition to the
voting rights provided by law and, if so, the terms of such voting rights;
(d) whether that series shall have conversion privileges and, if so, the
terms and conditions of such conversion, including provision for adjustment of
the conversion rate in such events as the Board of Directors shall determine;
(e) whether or not the shares of that series shall be redeemable and, if
so, the terms and conditions of such redemption, including the date or dates
upon or after which they shall be redeemable and the amount per share payable in
case of redemption, which amount may vary under different conditions and at
different redemption dates;
(f) whether that series shall have a sinking fund for the redemption or
purchase of shares of that series and, if so, the terms and amount of such
sinking fund; and
(g) the rights of the shares of that series in the event of voluntary or
involuntary liquidation, dissolution or winding up of the Corporation, and the
relative rights of priority, if any, of payment of shares of that series.
1. Designation. The initial series of Preferred Stock shall comprise
-----------
3,150,000 shares and shall be designated "Series A Preferred Stock." The second
series of Preferred Stock shall comprise 5,000,000 shares and shall be
designated "Series B Preferred Stock." The third series of Preferred Stock
shall comprise 3,575,000 shares and shall be designated "Series C Preferred
Stock." The fourth series of Preferred Stock shall comprise 3,752,076 shares
and shall be designated "Series D Preferred Stock." The fifth series of
Preferred Stock shall comprise 4,500,000 shares and be designated "Series E
Preferred Stock." The sixth series of Preferred Stock shall comprise 3,150,000
shares and shall be designated "Series A-1 Preferred Stock." The seventh series
of Preferred Stock shall comprise 5,000,000 shares and shall be designated
"Series B-1 Preferred Stock." The eighth series of Preferred Stock shall
comprise 3,575,000 shares and shall be designated "Series C-1 Preferred Stock."
The ninth series of Preferred Stock shall comprise 3,752,076 shares and shall be
designated "Series D-1 Preferred Stock." The tenth series of Preferred Stock
shall comprise 4,500,000 shares and shall be designated "Series E-1 Preferred
Stock." As used herein, the term "Preferred Stock" without designation shall
refer to shares of Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock, Series E Preferred Stock, Series A-1
Preferred Stock, Series B-1 Preferred Stock, Series C-1 Preferred Stock, Series
D-1 Preferred Stock, and Series E-1 Preferred Stock or to shares of any such
series. The balance of the shares of authorized Preferred Stock may be issued
in any number of series, as determined by the Board of Directors. The Board, by
resolution, may fix the designation and number of shares of any series, and may
determine, alter, or revoke the rights, preferences,
-2-
<PAGE>
privileges or restrictions pertaining to any wholly unissued series. The Board
may thereafter, in the same manner, increase or decrease the number of shares of
any series, but not below the number of shares of that series then outstanding.
The rights, preferences, privileges and restrictions granted to or imposed upon
the Preferred Stock and Common Stock are as specified in this Article V.
2. Dividend Provisions. Subject to the rights of series of Preferred Stock
------------------
which may from time to time come into existence, the holders of Preferred Stock
shall be entitled to receive, when and as declared by the Board of Directors of
the Corporation, out of any assets legally available therefor, dividends at the
rate of $0.03 per share with respect to the Series A Preferred Stock, $0.09 per
share with respect to the Series B Preferred Stock, $0.20 per share with respect
to the Series C Preferred Stock, $0.46 per share with respect to the Series D
Preferred Stock, $0.90 per share with respect to the Series E Preferred Stock,
$0.03 per share with respect to the Series A-1 Preferred Stock, $0.09 per share
with respect to the Series B-1 Preferred Stock, $0.20 per share with respect to
the Series C-1 Preferred Stock, $0.46 per share with respect to the Series D-1
Preferred Stock, $0.90 per share with respect to the Series E-1 Preferred Stock,
or, if greater, at least as large per share (based on the number of shares of
Common Stock into which such share of Preferred Stock is convertible) as those
declared or paid with respect to the Common Stock, and in preference to any
dividends declared or paid with respect to the Common Stock. All such dividends
shall be non-cumulative.
3. Liquidation Preferences.
-----------------------
(a) In the event of any liquidation, dissolution or winding up of the
Corporation, the holders of the Series A Preferred Stock, the Series B Preferred
Stock, the Series C Preferred Stock, the Series D Preferred Stock, the Series E
Preferred Stock, the Series A-1 Preferred Stock, the Series B-1 Preferred Stock,
the Series C-1 Preferred Stock, the Series D-1 Preferred Stock, and the Series
E-1 Preferred Stock, shall be entitled to receive, prior and in preference to
any distribution of any of the assets or surplus funds of the Corporation to the
holders of the Common Stock by reason of their ownership of such stock, the sum
of $0.3175 per share with respect to the Series A Preferred Stock, $0.9598 per
share with respect to the Series B Preferred Stock, $2.00 per share with respect
to the Series C Preferred Stock, $4.69 per share with respect to the Series D
Preferred Stock, $9.00 per share with respect to the Series E Preferred Stock,
$0.3175 per share with respect to the Series A-1 Preferred Stock, $0.9598 per
share with respect to the Series B-1 Preferred Stock, $2.00 per share with
respect to the Series C-1 Preferred Stock, $4.69 per share with respect to the
Series D-1 Preferred Stock, and $9.00 per share with respect to the Series E-1
Preferred Stock, plus declared and unpaid dividends, if any, for each share of
Preferred Stock then held by them. If upon the occurrence of such event, the
assets and funds available for distribution among the holders of the Preferred
Stock shall be insufficient to permit the payment to such holders of the full
preferential amounts, then the entire assets and funds of the Corporation
legally available for distribution to the stockholders shall be distributed
among the holders of the Preferred Stock pro rata to the full preferential
amount each such holder is entitled to receive.
(b) After payment has been made to the holders of the Preferred Stock
of the full preferential amounts as to which they shall be entitled as
aforesaid, then the holders of Common Stock shall be entitled to share ratably
in the remaining assets and funds of the Corporation legally available for
distribution, pro rata to the number of shares of Common Stock held by each
holder.
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<PAGE>
(c) (i) For purposes of this Section 3, a liquidation, dissolution
or winding up of this Corporation shall be deemed to be occasioned by, or to
include, (A) the acquisition of the Corporation by another entity by means of
any transaction or series of related transactions (including, without
limitation, any reorganization, merger or consolidation but, excluding any
merger effected exclusively for the purpose of changing the domicile of the
Corporation); or (B) a sale of all or substantially all of the assets of the
Corporation (the events described in clauses (A) and (B) are referred to
collectively as an "Acquisition"); unless the Corporation's stockholders of
------
record as constituted immediately prior to such Acquisition, immediately after
such Acquisition (by virtue of securities issued as consideration for the
Corporation's Acquisition or otherwise) hold at least 50% of the voting power of
the surviving or acquiring entity.
(ii) In any of such events, if the consideration received by the
Corporation is other than cash, its value will be deemed its fair market value.
Any securities shall be valued as follows:
(A) Securities not subject to investment letter or other
similar restrictions on free marketability:
1) If traded on a securities exchange or through
the NASDAQ Stock Market, the value shall be deemed to be the average of the
closing prices of the securities on such exchange over the thirty-day period
ending three (3) days prior to the closing;
2) If actively traded over-the-counter, the value
shall be deemed to be the average of the closing bid or sale prices (whichever
is applicable) over the thirty-day period ending three (3) days prior to the
closing; and
3) If there is no active public market, the value
shall be the fair market value thereof, as mutually determined by the
Corporation and the holders of at least a majority of the voting power of all
then outstanding shares of Preferred Stock.
(B) The method of valuation of securities subject to
investment letter or other restrictions on free marketability (other than
restrictions arising solely by virtue of a stockholder's status as an affiliate
or former affiliate) shall be to make an appropriate discount from the market
value determined as above in (A)(1), (2) or (3) to reflect the approximate fair
market value thereof, as mutually determined by the Corporation and the holders
of at least a majority of the voting power of all then outstanding shares of
Preferred Stock.
(iii) In the event the requirements of this subsection 3(c) are
not complied with, this Corporation shall forthwith either:
(A) cause such closing to be postponed until such time as
the requirements of this Section 3 have been complied with; or
(B) cancel such transaction, in which event the rights,
preferences and privileges of the holders of Preferred Stock shall revert to and
be the same as such rights, preferences and privileges existing immediately
prior to the date of the first notice referred to in subsection 3(c)(iv) hereof.
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<PAGE>
(iv) The Corporation shall give each holder of record of
Preferred Stock written notice of such impending transaction not later than
twenty (20) days prior to the stockholders' meeting called to approve such
transaction, or twenty (20) days prior to the closing of such transaction,
whichever is earlier, and shall also notify such holders in writing of the final
approval of such transaction. The first of such notices shall describe the
material terms and conditions of the impending transaction and the provisions of
this Section 3, and the Corporation shall thereafter give such holders prompt
notice of any material changes. The transaction shall in no event take place
sooner than twenty (20) days after the Corporation has given the first notice
provided for herein or sooner than ten (10) days after the Corporation has given
notice of any material changes provided for herein; provided, however, that such
periods may be shortened upon the written consent of the holders of Preferred
Stock that are entitled to such notice rights or similar notice rights and that
represent at least a majority of the voting power of all then outstanding shares
of Preferred Stock.
4. Conversion. The holders of the Preferred Stock shall have conversion
----------
rights as follows (the "Conversion Rights"):
(a) Right to Convert. Each share of Preferred Stock shall be
----------------
convertible, at the option of the holder thereof, at any time after the date of
issuance of such share, at the office of this Corporation or any transfer agent
for such stock, into such number of fully paid and nonassessable shares of
Common Stock as is determined by dividing the per share price at which such
series was originally issued by the Conversion Price applicable to such share,
determined as hereinafter provided, in effect on the date that the certificate
is surrendered for conversion. The initial Conversion Price per share for
shares of Series A Preferred Stock and Series A-1 Preferred Stock shall be
$0.3175; provided, however, that the Conversion Price for the Series A Preferred
Stock and the Series A-1 Preferred Stock shall be subject to adjustment as set
forth in subsection 4(d). The initial conversion price per share for shares of
Series B Preferred Stock and Series B-1 Preferred Stock shall be $0.9598;
provided, however, that the Conversion Price for the Series B Preferred Stock
and Series B-1 Preferred Stock shall be subject to adjustment as set forth in
subsection 4(d). The initial Conversion Price per share for shares of Series C
Preferred Stock and Series C-1 Preferred Stock shall be $2.00; provided,
however, that the Conversion Price for the Series C Preferred Stock and Series
C-1 Preferred Stock shall be subject to adjustment as set forth in subsection
4(d). The initial Conversion Price per share for shares of Series D Preferred
Stock and Series D-1 Preferred Stock shall be $4.69; provided, however, that the
Conversion Price for the Series D Preferred Stock and Series D-1 Preferred Stock
shall be subject to adjustment as set forth in subsection 4(d). The initial
Conversion Price per share for shares of Series E Preferred Stock and Series E-1
Preferred Stock shall be $9.00; provided, however, that the Conversion Price per
share for shares of Series E Preferred Stock and Series E-1 Preferred Stock
shall be subject to adjustment as set forth in subsection 4(d).
(b) Automatic Conversion. Each share of Preferred Stock shall
--------------------
automatically be converted into shares of Common Stock at the Conversion Price
at the time in effect for such series of Preferred Stock immediately upon the
earlier of (i) except as provided in subsection 4(c), the Corporation's sale of
its Common Stock in a firm commitment underwritten public offering pursuant to a
registration statement on Form S-1 under the Securities Act of 1933, as amended,
the public offering price of which was not less than $10.00 per share (adjusted
to reflect subsequent stock
-5-
<PAGE>
dividends, stock splits or recapitalization) and $20,000,000 in the aggregate or
(ii) the date specified by written consent or agreement of the holders of at
least two-thirds of the then outstanding shares of such series of Preferred
Stock.
(c) Mechanics of Conversion. Before any holder of Preferred Stock
-----------------------
shall be entitled to convert the same into shares of Common Stock, the holder
shall surrender the certificate or certificates therefor, duly endorsed, at the
office for this Corporation or any transfer agent for the Preferred Stock, and
shall give written notice to this Corporation at its principal corporate office,
of the election to convert the same and shall state therein the name or names in
which the certificate or certificates for shares of Common Stock are to be
issued. This Corporation shall, as soon as practicable thereafter, issue and
deliver at such office to such holder of Preferred Stock, or the nominee or
nominees of such holder, a certificate or certificates for the number of shares
of Common Stock to which such holder shall be entitled as aforesaid. Such
conversion shall be deemed to have been made immediately prior to the close of
business on the date of such surrender of the shares of Preferred Stock to be
converted, and the person or persons entitled to receive the shares of Common
Stock issuable upon such conversion shall be treated for all purposes as the
record holder or holders of such shares of Common Stock as of such date. If the
conversion is in connection with an underwritten offering of securities
registered pursuant to the Securities Act of 1933, as amended, the conversion
may, at the option of any holder tendering Preferred Stock for conversion, be
conditioned upon the closing with the underwriters of the sale of securities
pursuant to such offering, in which event the person(s) entitled to receive the
Common Stock upon such conversion of the Preferred Stock shall not be deemed to
have converted such Preferred Stock until immediately prior to the closing of
such sale of securities.
(d) Conversion Price Adjustments for Certain Dilutive Issuances,
------------------------------------------------------------
Splits and Combinations.
- -----------------------
(i) Special Definitions. For purposes of this Section 4(d),
-------------------
the following definitions shall apply:
(A) "Options" shall mean rights, options or warrants to
-------
subscribe for, purchase or otherwise acquire either Common Stock or Convertible
Securities.
(B) "Original Issue Date" with respect to each series of
-------------------
Preferred Stock shall mean the date on which the first share of such series of
Preferred Stock was first issued.
(C) "Convertible Securities" shall mean any evidences of
----------------------
indebtedness, shares (other than the Common Stock) or other securities
convertible into or exchangeable for Common Stock.
(D) "Additional Stock" shall mean any shares of Common
----------------
Stock issued (or deemed to have been issued pursuant to subsection 4(d)(vii)(E))
by this Corporation after the Original Issue Date other than:
1) shares issuable or issued pursuant to transactions
described in subsections 4(e), 4(f) and 4(g) hereof;
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<PAGE>
2) shares issuable or issued to employees, consultants,
directors or vendors (if in transactions with primarily non-financing purposes)
of this Corporation or of SRI International, Inc. directly or pursuant to a
stock option plan, restricted stock plan, arrangement or agreement approved by
the Board of Directors of this Corporation;
3) shares issued or issuable upon conversion of the
Preferred Stock;
4) shares issued pursuant to the acquisition of another
corporation or entity by this Corporation by merger, purchase of substantially
all of the assets, or other reorganization;
5) shares issued to financial institutions in
connection with the extension of credit to the Corporation or in connection with
the lease of equipment and in both cases for other than equity financing
purposes; or
6) shares issued in connection with any stock split,
stock dividend, or recapitalization by the Corporation.
(E) "Pro Rata Share" with respect to each holder of
--------------
Preferred Stock shall mean that portion of the total dollar amount of the
Dilutive Issuance (as defined below) equal to (i) the amount of the Dilutive
Issuance actually offered to all holders of Preferred Stock by the Board of
Directors of the Corporation (ii) multiplied by a fraction, the numerator of
which is the number of shares of Preferred Stock then held by such holder, and
the denominator of which is the total number of shares of Preferred Stock then
outstanding.
(F) "Dilutive Issuance" with respect to each series of
-----------------
Preferred Stock shall mean an issuance of Additional Stock for a consideration
per share less than the Conversion Price of such series of Preferred Stock in
effect on the date of and immediately prior to such issuance.
(G) "Participating Investor" shall mean any holder of
----------------------
Preferred Stock that purchases at least its Pro Rata Share of a Dilutive
Issuance.
(H) "Nonparticipating Investor" shall mean any holder of
-------------------------
Preferred Stock that is not a Participating Investor.
(ii) Series A-1 Shadow Preferred.
---------------------------
(A) In the event the Corporation proposes to undertake a
Dilutive Issuance with respect to the Series A Preferred Stock, it shall give
each holder of Series A Preferred Stock a written notice (the "Series A Issuance
Notice") of its intention, describing the type of new securities, the price and
number of shares and the general terms upon which the Corporation proposes to
issue such new securities, at least thirty (30) days prior to the date of such
Dilutive Issuance. Each holder of Series A Preferred Stock may, within twenty
(20) days from the date of the Series A Issuance Notice, provide written notice
to the Corporation that such holder agrees to become a Participating Investor
for the price and upon the terms specified in the Series A Issuance
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<PAGE>
Notice. In the event that such holder fails to give such notice within the
twenty (20) day period, or fails to actually purchase its Pro Rata Share of the
Dilutive Issuance (other than as a result of the Corporation refusing to allow
such holder to so purchase its Pro Rata Share), such holder shall be deemed to
be a Nonparticipating Investor.
(B) To the extent of the percentage of the Pro Rata Share not
purchased (the "Series A Refused Percentage") by each Nonparticipating Investor,
that number of outstanding shares of Series A Preferred Stock held by such
Nonparticipating Investor equal to the product of (x) the number of shares of
such series held by the Nonparticipating Investor, times (y) the Series A
Refused Percentage, shall be converted automatically on the date (the "Series A-
1 Closing Date") of the applicable Dilutive Issuance (provided that the
Corporation gave the Series A Issuance Notice to such holder of Series A
Preferred Stock) into an equal number of fully-paid and nonassessable shares of
Series A-1 Preferred Stock; provided, however, that prior to the Series A-1
Closing Date each Nonparticipating Investor shall have the right to convert such
shares of Series A Preferred Stock into shares of Common Stock at the Conversion
Rate in effect for such series as of the date of such conversion.
(C) Upon the conversion of Series A Preferred Stock held by a
Nonparticipating Investor into Series A-1 Preferred Stock as set forth herein,
such shares of Series A Preferred Stock shall no longer be outstanding on the
books of the Corporation and may not be reissued, and the Nonparticipating
Investor shall be treated for all purposes as the record holder of such shares
of Series A-1 Preferred Stock on the Series A-1 Closing Date. No shares of
Series A-1 Preferred Stock shall be issued except as set forth in this Section
4(d)(ii) upon conversion of shares of Series A Preferred Stock.
(D) No adjustment in the Conversion Price of the Series A-1 Preferred
Stock shall be made in respect of the issuance of Additional Stock, regardless
of the issuance price of such shares, except for the issuance of such shares as
a stock dividend, stock split, or in connection with such other transaction as
provided in paragraph 4(e) hereof.
(E) In the event that any shares of Series A-1 Preferred Stock are
issued, concurrently with such issuance, the Corporation shall take all such
action as may be required, including amending the Certificate of Incorporation,
(1) to cancel all authorized shares of Series A-1 Preferred Stock that remain
unissued after such issuance, (2) to create and reserve for issuance upon any
subsequent Dilutive Issuance a new series of Preferred Stock equal in number to
the number of shares of Series A-1 Preferred Stock so canceled and designated
Series A-2 Preferred Stock, with the designations, powers, preferences and
rights and the qualifications, limitations and restrictions identical to those
then applicable to the Series A Preferred Stock, except that the Conversion
Price for such shares of Series A-2 Preferred Stock once initially issued shall
be the Conversion Price in effect immediately prior to such Dilutive Issuance
and shall no longer be subject to adjustment in respect of the issuance of
Additional Stock, except for the issuance of such shares as a stock dividend,
stock split, or in connection with such other transaction as provided in
paragraph 4(e) hereof, and (3) to amend the provisions of this Section 4 to
provide that any subsequent conversion of Series A Preferred Stock upon a
Dilutive Issuance will be into shares of Series A-2 Preferred Stock rather than
Series A-1 Preferred Stock. The Corporation shall take the
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<PAGE>
same actions with respect to the Series A-2 Preferred Stock and each
subsequently authorized series of Preferred Stock upon initial issuance of
shares of the last such series to be authorized.
(iii) Series B-1 Shadow Preferred.
---------------------------
(A) In the event the Corporation proposes to undertake
a Dilutive Issuance with respect to the Series B Preferred Stock, it shall give
each holder of Series B Preferred Stock a written notice (the "Series B Issuance
Notice") of its intention, describing the type of new securities, the price and
number of shares and the general terms upon which the Corporation proposes to
issue such new securities, at least thirty (30) days prior to the date of such
Dilutive Issuance. Each holder of Series B Preferred Stock may, within twenty
(20) days from the date of the Series B Issuance Notice, provide written notice
to the Corporation that such holder agrees to become a Participating Investor
for the price and upon the terms specified in the Series B Issuance Notice. In
the event that such holder fails to give such notice within the twenty (20) day
period, or fails to actually purchase its Pro Rata Share of the Dilutive
Issuance (other than as a result of the Corporation refusing to allow such
holder to so purchase its Pro Rata Share), such holder shall be deemed to be a
Nonparticipating Investor.
(B) To the extent of the percentage of the Pro Rata
Share not purchased (the "Series B Refused Percentage") by each Nonparticipating
Investor, that number of outstanding shares of Series B Preferred Stock held by
such Nonparticipating Investor equal to the product of (x) the number of shares
of such series held by the Nonparticipating Investor, times (y) the Series B
Refused Percentage, shall be converted automatically on the date (the "Series B-
1 Closing Date") of the applicable Dilutive Issuance (provided that the
Corporation gave the Series B Issuance Notice to such holder of Series B
Preferred Stock) into an equal number of fully-paid and nonassessable shares of
Series B-1 Preferred Stock; provided, however, that prior to the Series B-1
Closing Date each Nonparticipating Investor shall have the right to convert such
shares of Series B Preferred Stock into shares of Common Stock at the Conversion
Rate in effect for such series as of the date of such conversion.
(C) Upon the conversion of Series B Preferred Stock
held by a Nonparticipating Investor into Series B-1 Preferred Stock as set forth
herein, such shares of Series B Preferred Stock shall no longer be outstanding
on the books of the Corporation and may not be reissued, and the
Nonparticipating Investor shall be treated for all purposes as the record holder
of such shares of Series B-1 Preferred Stock on the Series B-1 Closing Date. No
shares of Series B-1 Preferred Stock shall be issued except as set forth in this
Section 4(d)(iii) upon conversion of shares of Series B Preferred Stock.
(D) No adjustment in the Conversion Price of the Series
B-1 Preferred Stock shall be made in respect of the issuance of Additional
Stock, regardless of the issuance price of such shares, except for the issuance
of such shares as a stock dividend, stock split, or in connection with such
other transaction as provided in paragraph 4(e) hereof.
(E) In the event that any shares of Series B-1
Preferred Stock are issued, concurrently with such issuance, the Corporation
shall take all such action as may be required, including amending Certificate of
Incorporation, (1) to cancel all authorized shares of
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<PAGE>
Series B-1 Preferred Stock that remain unissued after such issuance, (2) to
create and reserve for issuance upon any subsequent Dilutive Issuance a new
series of Preferred Stock equal in number to the number of shares of Series B-1
Preferred Stock so canceled and designated Series B-2 Preferred Stock, with the
designations, powers, preferences and rights and the qualifications, limitations
and restrictions identical to those then applicable to the Series B Preferred
Stock, except that the Conversion Price for such shares of Series B-2 Preferred
Stock once initially issued shall be the Conversion Price in effect immediately
prior to such Dilutive Issuance and shall no longer be subject to adjustment in
respect of the issuance of Additional Stock, except for the issuance of such
shares as a stock dividend, stock split, or in connection with such other
transaction as provided in paragraph 4(e) hereof, and (3) to amend the
provisions of this Section 4 to provide that any subsequent conversion of Series
B Preferred Stock upon a Dilutive Issuance will be into shares of Series B-2
Preferred Stock rather than Series B-1 Preferred Stock. The Corporation shall
take the same actions with respect to the Series B-2 Preferred Stock and each
subsequently authorized series of Preferred Stock upon initial issuance of
shares of the last such series to be authorized.
(iv) Series C-1 Shadow Preferred.
---------------------------
(A) In the event the Corporation proposes to undertake a
Dilutive Issuance with respect to the Series C Preferred Stock, it shall give
each holder of Series C Preferred Stock a written notice (the "Series C Issuance
Notice") of its intention, describing the type of new securities, the price and
number of shares and the general terms upon which the Corporation proposes to
issue such new securities, at least thirty (30) days prior to the date of such
Dilutive Issuance. Each holder of Series C Preferred Stock may, within twenty
(20) days from the date of the Series C Issuance Notice, provide written notice
to the Corporation that such holder agrees to become a Participating Investor
for the price and upon the terms specified in the Series C Issuance Notice. In
the event that such holder fails to give such notice within the twenty (20) day
period, or fails to actually purchase its Pro Rata Share of the Dilutive
Issuance (other than as a result of the Corporation refusing to allow such
holder to so purchase its Pro Rata Share), such holder shall be deemed to be a
Nonparticipating Investor.
(B) To the extent of the percentage of the Pro Rata Share
not purchased (the "Series C Refused Percentage") by each Nonparticipating
Investor, that number of outstanding shares of Series C Preferred Stock held by
such Nonparticipating Investor equal to the product of (x) the number of shares
of such series held by the Nonparticipating Investor, times (y) the Series C
Refused Percentage, shall be converted automatically on the date (the "Series C-
1 Closing Date") of the applicable Dilutive Issuance (provided that the
Corporation gave the Series C Issuance Notice to such holder of Series C
Preferred Stock) into an equal number of fully-paid and nonassessable shares of
Series C-1 Preferred Stock; provided, however, that prior to the Series C-1
Closing Date each Nonparticipating Investor shall have the right to convert such
shares of Series C Preferred Stock into shares of Common Stock at the Conversion
Rate in effect for such series as of the date of such conversion.
(C) Upon the conversion of Series C Preferred Stock held
by a Nonparticipating Investor into Series C-1 Preferred Stock as set forth
herein, such shares of Series C Preferred Stock shall no longer be outstanding
on the books of the Corporation and may not be reissued, and the
Nonparticipating Investor shall be treated for all purposes as the record holder
of
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<PAGE>
such shares of Series C-1 Preferred Stock on the Series C-1 Closing Date. No
shares of Series C-1 Preferred Stock shall be issued except as set forth in this
Section 4(d)(iv) upon conversion of shares of Series C Preferred Stock.
(D) No adjustment in the Conversion Price of the
Series C-1 Preferred Stock shall be made in respect of the issuance of
Additional Stock, regardless of the issuance price of such shares, except for
the issuance of such shares as a stock dividend, stock split, or in connection
with such other transaction as provided in paragraph 4(e) hereof.
(E) In the event that any shares of Series C-1 Preferred
Stock are issued, concurrently with such issuance, the Corporation shall take
all such action as may be required, including amending the Certificate of
Incorporation, (1) to cancel all authorized shares of Series C-1 Preferred Stock
that remain unissued after such issuance, (2) to create and reserve for issuance
upon any subsequent Dilutive Issuance a new series of Preferred Stock equal in
number to the number of shares of Series C-1 Preferred Stock so canceled and
designated Series C-2 Preferred Stock, with the designations, powers,
preferences and rights and the qualifications, limitations and restrictions
identical to those then applicable to the Series C Preferred Stock except that
the Conversion Price for such shares of Series C-2 Preferred Stock once
initially issued shall be the Conversion Price in effect immediately prior to
such Dilutive Issuance and shall no longer be subject to adjustment in respect
of the issuance of Additional Stock, except for the issuance of such shares as a
stock dividend, stock split, or in connection with such other transaction as
provided in paragraph 4(e) hereof, and (3) to amend the provisions of this
Section 4 to provide that any subsequent conversion of Series C Preferred Stock
upon a Dilutive Issuance will be into shares of Series C-2 Preferred Stock
rather than Series C-1 Preferred Stock. The Corporation shall take the same
actions with respect to the Series C-2 Preferred Stock and each subsequently
authorized series of Preferred Stock upon initial issuance of shares of the last
such series to be authorized.
(v) Series D-1 Shadow Preferred.
---------------------------
(A) In the event the Corporation proposes to undertake a
Dilutive Issuance with respect to the Series D Preferred Stock, it shall give
each holder of Series D Preferred Stock a written notice (the "Series D Issuance
Notice") of its intention, describing the type of new securities, the price and
number of shares and the general terms upon which the Corporation proposes to
issue such new securities, at least thirty (30) days prior to the date of such
Dilutive Issuance. Each holder of Series D Preferred Stock may, within twenty
(20) days from the date of the Series D Issuance Notice, provide written notice
to the Corporation that such holder agrees to become a Participating Investor
for the price and upon the terms specified in the Series D Issuance Notice. In
the event that such holder fails to give such notice within the twenty (20) day
period, or fails to actually purchase its Pro Rata Share of the Dilutive
Issuance (other than as a result of the Corporation refusing to allow such
holder to so purchase its Pro Rata Share), such holder shall be deemed to be a
Nonparticipating Investor.
(B) To the extent of the percentage of the Pro Rata Share
not purchased (the "Series D Refused Percentage") by each Nonparticipating
Investor, that number of outstanding shares of Series D Preferred Stock held by
such Nonparticipating Investor equal to the product of (x) the number of shares
of such series held by the Nonparticipating Investor, times
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<PAGE>
(y) the Series D Refused Percentage, shall be converted automatically on the
date (the "Series D-1 Closing Date") of the applicable Dilutive Issuance
(provided that the Corporation gave the Series D Issuance Notice to such holder
of Series D Preferred Stock ) into an equal number of fully-paid and
nonassessable shares of Series D-1 Preferred Stock; provided, however, that
prior to the Series D-1 Closing Date each Nonparticipating Investor shall have
the right to convert such shares of Series D Preferred Stock into shares of
Common Stock at the Conversion Rate in effect for such series as of the date of
such conversion.
(C) Upon the conversion of Series D Preferred Stock held by
a Nonparticipating Investor into Series D-1 Preferred Stock as set forth herein,
such shares of Series D Preferred Stock shall no longer be outstanding on the
books of the Corporation and may not be reissued, and the Nonparticipating
Investor shall be treated for all purposes as the record holder of such shares
of Series D-1 Preferred Stock on the Series D-1 Closing Date. No shares of
Series D-1 Preferred Stock shall be issued except as set forth in this Section
4(d)(v) upon conversion of shares of Series D Preferred Stock.
(D) No adjustment in the Conversion Price of the Series D-1
Preferred Stock shall be made in respect of the issuance of Additional Stock,
regardless of the issuance price of such shares, except for the issuance of such
shares as a stock dividend, stock split, or in connection with such other
transaction as provided in paragraph 4(e) hereof.
(E) In the event that any shares of Series D-1 Preferred
Stock are issued, concurrently with such issuance, the Corporation shall take
all such action as may be required, including amending the Certificate of
Incorporation, (1) to cancel all authorized shares of Series D-1 Preferred Stock
that remain unissued after such issuance, (2) to create and reserve for issuance
upon any subsequent Dilutive Issuance a new series of Preferred Stock equal in
number to the number of shares of Series D-1 Preferred Stock so canceled and
designated Series D-2 Preferred Stock, with the designations, powers,
preferences and rights and the qualifications, limitations and restrictions
identical to those then applicable to the Series D Preferred Stock, except that
the Conversion Price for such shares of Series D-2 Preferred Stock once
initially issued shall be the Conversion Price in effect immediately prior to
such Dilutive Issuance and shall no longer be subject to adjustment in respect
of the issuance of Additional Stock, except for the issuance of such shares as a
stock dividend, stock split, or in connection with such other transaction as
provided in paragraph 4(e) hereof, and (3) to amend the provisions of this
Section 4 to provide that any subsequent conversion of Series D Preferred Stock
upon a Dilutive Issuance will be into shares of Series D-2 Preferred Stock
rather than Series D-1 Preferred Stock. The Corporation shall take the same
actions with respect to the Series D-2 Preferred Stock and each subsequently
authorized series of Preferred Stock upon initial issuance of shares of the last
such series to be authorized.
(vi) Series E-1 Shadow Preferred.
---------------------------
(A) In the event the Corporation proposes to undertake a
Dilutive Issuance with respect to the Series E Preferred Stock, it shall give
each holder of Series E Preferred Stock a written notice (the "Series E Issuance
Notice") of its intention, describing the type of new securities, the price and
number of shares and the general terms upon which the Corporation proposes to
issue such new securities, at least thirty (30) days prior to the date of such
Dilutive
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<PAGE>
Issuance. Each holder of Series E Preferred Stock may, within twenty (20) days
from the date of the Series E Issuance Notice, provide written notice to the
Corporation that such holder agrees to become a Participating Investor for the
price and upon the terms specified in the Series E Issuance Notice. In the event
that such holder fails to give such notice within the twenty (20) day period, or
fails to actually purchase its Pro Rata Share of the Dilutive Issuance (other
than as a result of the Corporation refusing to allow such holder to so purchase
its Pro Rata Share), such holder shall be deemed to be a Nonparticipating
Investor.
(B) To the extent of the percentage of the Pro Rata Share
not purchased (the "Series E Refused Percentage") by each Nonparticipating
Investor, that number of outstanding shares of Series E Preferred Stock held by
such Nonparticipating Investor equal to the product of (x) the number of shares
of such series held by the Nonparticipating Investor, times (y) the Series E
Refused Percentage, shall be converted automatically on the date (the "Series E-
1 Closing Date") of the applicable Dilutive Issuance (provided that the
Corporation gave the Series E Issuance Notice to such holder of Series E
Preferred Stock) into an equal number of fully-paid and nonassessable shares of
Series E-1 Preferred Stock; provided, however, that prior to the Series E-1
Closing Date each Nonparticipating Investor shall have the right to convert such
shares of Series E Preferred Stock into shares of Common Stock at the Conversion
Rate in effect for such series as of the date of such conversion.
(C) Upon the conversion of Series E Preferred Stock held by
a Nonparticipating Investor into Series E-1 Preferred Stock as set forth herein,
such shares of Series E Preferred Stock shall no longer be outstanding on the
books of the Corporation and may not be reissued, and the Nonparticipating
Investor shall be treated for all purposes as the record holder of such shares
of Series E-1 Preferred Stock on the Series E-1 Closing Date. No shares of
Series E-1 Preferred Stock shall be issued except as set forth in this Section
4(d)(vi) upon conversion of shares of Series E Preferred Stock.
(D) No adjustment in the Conversion Price of the Series E-1
Preferred Stock shall be made in respect of the issuance of Additional Stock,
regardless of the issuance price of such shares, except for the issuance of such
shares as a stock dividend, stock split, or in connection with such other
transaction as provided in paragraph 4(e) hereof.
(E) In the event that any shares of Series E-1 Preferred
Stock are issued, concurrently with such issuance, the Corporation shall take
all such action as may be required, including amending the Certificate of
Incorporation, (1) to cancel all authorized shares of Series E-1 Preferred Stock
that remain unissued after such issuance, (2) to create and reserve for issuance
upon any subsequent Dilutive Issuance a new series of Preferred Stock equal in
number to the number of shares of Series E-1 Preferred Stock so canceled and
designated Series E-2 Preferred Stock, with the designations, powers,
preferences and rights and the qualifications, limitations and restrictions
identical to those then applicable to the Series E Preferred Stock, except that
the Conversion Price for such shares of Series E-2 Preferred Stock once
initially issued shall be the Conversion Price in effect immediately prior to
such Dilutive Issuance and shall no longer be subject to adjustment in respect
of the issuance of Additional Stock, except for the issuance of such shares as a
stock dividend, stock split, or in connection with such other transaction as
provided in paragraph 4(e) hereof, and (3) to amend the provisions of this
Section 4 to provide that any
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<PAGE>
subsequent conversion of Series E Preferred Stock upon a Dilutive Issuance will
be into shares of Series E-2 Preferred Stock rather than Series E-1 Preferred
Stock. The Corporation shall take the same actions with respect to the Series E-
2 Preferred Stock and each subsequently authorized series of Preferred Stock
upon initial issuance of shares of the last such series to be authorized.
(vii) Adjustments for Dilutive Issuance. The Conversion Price of
---------------------------------
the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock, Series D Preferred Stock, and Series E Preferred Stock shall be subject
to adjustment from time to time as follows:
(A) If the Corporation shall issue, after the Original
Issue Date of shares of Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock, or Series E Preferred Stock
(the "Purchase Date"), any Additional Stock without consideration or for a
consideration per share less than the Conversion Price for such series in effect
immediately prior to the issuance of such Additional Stock, the Conversion Price
for such series in effect immediately prior to each such issuance shall
forthwith (except as otherwise provided in this subsection 4(d)(vii)) be
adjusted to a price determined by multiplying such Conversion Price by a
fraction, the numerator of which shall be the number of shares of Common Stock
outstanding immediately prior to such issuance plus the number of shares of
Common Stock that the aggregate consideration received by the Corporation for
such issuance would purchase at the Conversion Price in effect prior to the
issuance of Additional Stock; and the denominator of which shall be the number
of shares of Common Stock outstanding immediately prior to such issuance plus
the number of shares of such Additional Stock. As provided in subsection
4(d)(vii)(E) below, Common Stock for purposes of this subsection 4(d)(vii) and
subsection 4(d)(i)(D) shall include all Common Stock issuable upon exercise of
outstanding options to purchase or rights to subscribe for Common Stock and all
Common Stock issuable upon conversion of all outstanding convertible or
exchangeable securities, including the Preferred Stock.
(B) No adjustment of the Conversion Price for the Preferred
Stock shall be made in an amount less than one cent ($0.01) per share, provided
that any adjustments which are not required to be made by reason of this
sentence shall be carried forward and shall be either taken into account in any
subsequent adjustment made prior to three (3) years from the date of the event
giving rise to the adjustment being carried forward. Except to the limited
extent provided for in subsections (E)(3) and (E)(4), no adjustment of such
Conversion Price pursuant to this subsection 4(d)(vii) shall have the effect of
increasing the Conversion Price above the Conversion Price in effect immediately
prior to such adjustment.
(C) In the case of the issuance of Common Stock for cash,
the consideration shall be deemed to be the amount of cash paid therefor before
deducting any reasonable discounts, commissions or other expenses allowed, paid
or incurred by this Corporation for any underwriting or otherwise in connection
with the issuance and sale thereof.
(D) In the case of the issuance of Common Stock for a
consideration in whole or in part other than cash, the consideration other than
cash shall be deemed to be the fair value thereof as determined by the Board of
Directors irrespective of any accounting treatment.
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<PAGE>
(E) In the case of the issuance (whether before, on or
after the Purchase Date) of options to purchase or rights to subscribe for
Common Stock, securities by their terms convertible into or exchangeable for
Common Stock or options to purchase or rights to subscribe for such convertible
or exchangeable securities, the following provisions shall apply for all
purposes of this subsection 4(d)(vii)(E):
1) The aggregate maximum number of shares of Common
Stock deliverable upon exercise (assuming the satisfaction of any conditions to
exercisability, including without limitation, the passage of time, but without
taking into account potential antidilution adjustments) of such options to
purchase or rights to subscribe for Common Stock shall be deemed to have been
issued at the time such options or rights were issued and for a consideration
equal to the consideration (determined in the manner provided in subsections
4(d)(vii)(C) and 4(d)(vii)(D)), if any, received by the Corporation upon the
issuance of such options or rights plus the minimum exercise price provided in
such options or rights for the Common Stock covered thereby.
2) The aggregate maximum number of shares of Common
Stock deliverable upon conversion of or in exchange (assuming the satisfaction
of any conditions to convertibility or exchangeability, including, without
limitation, the passage of time, but without taking into account potential
antidilution adjustments) for any such convertible or exchangeable securities or
upon the exercise of options to purchase or rights to subscribe for such
convertible or exchangeable securities and subsequent conversion or exchange
thereof shall be deemed to have been issued at the time such securities were
issued or such options or rights were issued and for a consideration equal to
the consideration, if any, received by the Corporation for any such securities
and related options or rights (excluding any cash received on account of accrued
interest or accrued dividends), plus the minimum additional consideration, if
any, to be received by the Corporation upon the conversion or exchange of such
securities or the exercise of any related options or rights (the consideration
in each case to be determined in the manner provided in subsections 4(d)(vii)(C)
and 4(d)(vii)(D)).
3) In the event of any change in the number of shares
of Common Stock deliverable or in the consideration payable to this Corporation
upon exercise of such options or rights or upon conversion of or in exchange for
such convertible or exchangeable securities, including, but not limited to, a
change resulting from the antidilution provisions thereof, the Conversion Price
of the Preferred Stock, to the extent in any way affected by or computed using
such options, rights or securities, shall be recomputed to reflect such change,
but no further adjustment shall be made for the actual issuance of Common Stock
or any payment of such consideration upon the exercise of any such options or
rights or the conversion or exchange of such securities.
4) Upon the expiration of any such options or rights,
the termination of any such rights to convert or exchange or the expiration of
any options or rights related to such convertible or exchangeable securities,
the Conversion Price of the Preferred Stock, to the extent in any way affected
by or computed using such options, rights or securities or options or rights
related to such securities, shall be recomputed to reflect the issuance of only
the number of shares of Common Stock (and convertible or exchangeable securities
which remain in effect)
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<PAGE>
actually issued upon the exercise of such options or rights, upon the conversion
or exchange of such securities or upon the exercise of the options or rights
related to such securities.
5) The number of shares of Common Stock deemed issued
and the consideration deemed paid therefor pursuant to subsections
4(d)(vii)(E)(1) or (2) shall be appropriately adjusted to reflect any change in
termination of expiration of the type described in like subsection
4(d)(vii)(E)(3) or (4).
(e) Adjustment of Conversion Price. The Conversion Price of each
------------------------------
series of Preferred Stock shall be subject to adjustment from time to time as
follows:
(i) In the event the Corporation should at any time or from
time to time after the Original Issue Date fix a record date for the
effectuation of a split or subdivision of the outstanding shares of Common Stock
or the determination of holders of Common Stock entitled to receive a dividend
or other distribution payable in additional shares of Common Stock or other
securities or rights convertible into, or entitling the holder thereof to
receive directly or indirectly, additional shares of Common Stock (hereinafter
referred to as "Common Stock Equivalents") without payment of any consideration
by such holder for the additional shares of Common Stock or the Common Stock
Equivalents (including the additional shares of Common Stock issuable upon
conversion or exercise thereof), then, as of such record date (or the date of
such dividend distribution, split or subdivision if no record date is fixed),
the Conversion Price of the Preferred Stock shall be appropriately decreased so
that the number of shares of Common Stock issuable on conversion of each share
of such series shall be increased in proportion to such increase of the
aggregate of shares of Common Stock outstanding and those issuable with respect
to such Common Stock Equivalents, with the number of shares issuable with
respect to Common Stock Equivalents determined from time to time in the manner
provided for deemed issuances in subsection 4(d)(vii)(E).
(ii) If the number of shares of Common Stock outstanding at
any time after the Original Issue Date is decreased by a combination of the
outstanding shares of Common Stock, then, following the record date of such
combination, the Conversion Price for the Preferred Stock shall be appropriately
increased so that the number of shares of Common Stock issuable on conversion of
each share of such series shall be decreased in proportion to such decrease in
outstanding shares.
(f) Other Distributions. In the event this Corporation shall
-------------------
declare a distribution payable in securities of other persons, evidences of
indebtedness issued by this Corporation or other persons, assets (including cash
dividends) or options or rights not referred to in subsection 4(d)(i)(D), then,
in each such case for the purpose of this subsection 4(f), the holders of the
Preferred Stock shall be entitled to a proportionate share of any such
distribution as though they were the holders of the number of shares of Common
Stock of the Corporation into which their shares of Preferred Stock are
convertible as of the record date fixed for the determination of the holders of
Common Stock of the Corporation entitled to receive such distribution.
(g) Recapitalization. If at any time or from time to time there
----------------
shall be a recapitalization of the Common Stock (other than a subdivision,
combination or merger or sale of
-16-
<PAGE>
assets transaction provided for elsewhere in Section 3 or this Section 4)
provision shall be made so that the holders of the Preferred Stock shall
thereafter be entitled to receive upon conversion of the Preferred Stock the
number of shares of stock or other securities or property of the Corporation or
otherwise, to which a holder of Common Stock deliverable upon conversion would
have been entitled on such recapitalization. In any such case, appropriate
adjustment shall be made in the application of the provisions of this Section 4
with respect to the rights of the holders of the Preferred Stock after the
recapitalization to the end that the provisions of this Section 4 (including
adjustment of the Conversion Price then in effect and the number of shares
purchasable upon conversion of the Preferred Stock) shall be applicable after
that event as nearly equivalent as may be practicable.
(h) No Impairment. This Corporation will not, by amendment of its
-------------
Certificate of Incorporation or through any reorganization, recapitalization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed hereunder by this
Corporation, but will at all times in good faith assist in the carrying out of
all the provisions of this Section 4 and in the taking of all such action as may
be necessary or appropriate in order to protect the Conversion Rights of the
holders of the Preferred Stock against impairment.
(i) No Fractional Shares and Certificate as to Adjustments.
------------------------------------------------------
(i) No fractional shares shall be issued upon conversion of
any share or shares of the Preferred Stock, and the number of shares of Common
Stock to be issued shall be rounded to the nearest whole share. Whether or not
fractional shares are issuable upon such conversion shall be determined on the
basis of the total number of shares of a series of Preferred Stock the holder is
at the time converting into Common Stock and the number of shares of Common
Stock issuable upon such aggregate conversion.
(ii) Upon the occurrence of each adjustment or readjustment of
the Conversion Price of Preferred Stock pursuant to this Section 4, this
Corporation, at its expense, shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and prepare and furnish to each
holder of Preferred Stock a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. This Corporation shall, upon the written request at any
time of any holder of Preferred Stock, furnish or cause to be furnished to such
holder a like certificate setting forth (A) such adjustment and readjustment,
(B) the Conversion Price for such series of Preferred Stock at the time in
effect, and (C) the number of shares of Common Stock and the amount, if any, of
other property which at the time would be received upon the conversion of a
share of Preferred Stock.
(j) Notices of Record Date. In the event of any taking by this
----------------------
Corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right, this
Corporation shall mail to each holder of Preferred Stock, at least twenty (20)
days prior to the date specified therein, a notice specifying the
-17-
<PAGE>
date on which any such record is to be taken for the purpose of such dividend,
distribution or right, and the amount and character of such dividend,
distribution or right.
(k) Reservation of Stock Issuable Upon Conversion. This
---------------------------------------------
Corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the shares of the Preferred Stock, such number of its shares of
Common Stock as shall from time to time be sufficient to effect the conversion
of all outstanding shares of the Preferred Stock; and if at any time the number
of authorized but unissued shares of Common Stock shall not be sufficient to
effect the conversion of all then outstanding shares of the Preferred Stock,
this Corporation will take such corporate action as may, in the opinion of its
counsel, be necessary to increase its authorized but unissued shares of Common
Stock to such number of shares as shall be sufficient for such purposes,
including, without limitation, engaging in best efforts to obtain the requisite
stockholder approval of any necessary amendment to this Certificate of
Incorporation.
(l) Notices. Any notice required by the provisions of this
-------
Section 4 to be given to the holders of shares of Preferred Stock shall be
deemed given if deposited in the United States mail, postage prepaid, and
addressed to each holder of record at his address appearing on the books of this
Corporation.
5. Voting Rights
-------------
(a) General. Except as otherwise required by law and except as
-------
required in Sections 5(b) and 6 hereof, the holders of Common Stock and
Preferred Stock shall vote together as a single class. Each holder of shares of
Common Stock shall be entitled to one vote for each share of Common Stock held
by such holder. Each holder of Preferred Stock shall be entitled to such number
of votes for the Preferred Stock held by it on the record date fixed for such
meeting, or on the effective date of such written consent, as shall be equal to
the whole number of shares of the Corporation's Common stock into which its
shares of Preferred Stock are convertible, in accordance with the terms of the
Corporation's Certificate of Incorporation, immediately after the close of
business on the record date fixed for such meeting or the effective date of such
written consent.
(b) Board Seats. The holders of the Common Stock, voting as a
-----------
separate class, shall be entitled to elect one (1) director of the Corporation.
The holders of the Series A Preferred Stock, voting as a separate class, shall
be entitled to elect two (2) directors of the Corporation. The holders of the
Series B Preferred Stock, voting as a separate class, shall be entitled to elect
two (2) directors of the Corporation. The holders of the Series C Preferred
Stock, voting as a separate class, shall be entitled to elect one (1) director
of the Corporation. The holders of Preferred Stock and Common Stock, voting
together as a single class and not as a separate series, shall be entitled to
elect any remaining directors of the Corporation.
(c) Vacancies. In the case of any vacancy in the office of a
---------
director occurring among the directors elected by the holders of the Common
Stock, Series A Preferred Stock, Series B Preferred Stock, or Series C Preferred
Stock pursuant to Section 5(b), the holders of a majority of shares in such
class or the remaining director so elected by such class may by affirmative vote
of a majority thereof (or the remaining director so elected), elect a successor
or successors to hold office
-18-
<PAGE>
for the unexpired term of the director or directors whose place or places shall
be vacant. Any director who shall have been elected by the holders of the Common
Stock, the holders of the Series A Preferred Stock, the holders of the Series B
Preferred Stock, or the holders of the Series C Preferred Stock or by any
director so elected as provided in the next preceding sentence hereof may be
removed during the aforesaid term of office, either with or without cause, by,
and only by, the affirmative vote of the holders of a majority of the shares of
such class of stock who elected such director or directors, given either at a
special meeting of such stockholders duly called for that purpose or pursuant to
a written consent of stockholders, and any vacancy thereby created may be filled
by the holders of that class of stock represented at such meeting or pursuant to
such written consent.
6. Protective Provisions
---------------------
(a) Except as otherwise required by law and subject to the rights
of series of Preferred Stock which may from time to time come into existence, so
long as shares of Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock, Series E Preferred Stock, Series A-1
Preferred Stock, Series B-1 Preferred Stock, Series C-1 Preferred Stock, Series
D-1 Preferred Stock, or Series E-1 Preferred Stock, are outstanding, this
Corporation shall not amend or repeal any provision of the Corporation's
Certificate of Incorporation if such action would materially and adversely
affect the rights, preferences, or privileges of any series of Preferred Stock,
without first obtaining the approval (by vote or written consent, as provided by
law) of the holders of at least a majority of the total number of shares of such
series of Preferred Stock materially and adversely affected by such action.
(b) Except as otherwise required by law and subject to the rights
of series of Preferred Stock which may from time to time come into existence, so
long as shares of Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock, Series E Preferred Stock, Series A-1
Preferred Stock, Series B-1 Preferred Stock, Series C-1 Preferred Stock, Series
D-1 Preferred Stock, or Series E-1 Preferred Stock, are outstanding, this
Corporation shall not increase or decrease (other than by redemption or
conversion) the total number of authorized shares of any series of Preferred
Stock without first obtaining the approval (by vote or written consent, as
provided by law) of the holders of at least a majority of the total number of
shares of the series of Preferred Stock sought to be increased or decreased.
(c) Except as otherwise required by law and subject to the rights
of series of Preferred Stock which may from time to time come into existence, so
long as shares of Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock, Series E Preferred Stock, Series A-1
Preferred Stock, Series B-1 Preferred Stock, Series C-1 Preferred Stock, Series
D-1 Preferred Stock, or Series E-1 Preferred Stock are outstanding, this
Corporation shall not, without first obtaining the approval (by vote or written
consent, as provided by law) of the holders of at least a majority of the total
number of shares of Preferred Stock outstanding, undertake any of the following
actions:
(i) authorize or issue shares of any class of stock having any
preference or priority as to dividends or assets superior to, or on a parity
with, any series of Preferred Stock;
-19-
<PAGE>
(ii) pay or declare any dividend on any securities junior to
the Preferred Stock with respect to dividends or assets;
(iii) sell, convey, liquidate, or otherwise dispose of or
encumber all or substantially all of its property or business or merge into or
consolidate with any other corporation (other than a wholly owned subsidiary
corporation) or effect any transaction or series of related transactions in
which more than fifty percent (50%) of the voting power of the Corporation is
disposed of; or.
(iv) increase or decrease (other than by redemption or
conversion) the total number of authorized shares of any series of Preferred
Stock.
7. Status of Converted Stock. In the event any shares of Preferred Stock
-------------------------
shall be converted pursuant to Section 4 hereof, the shares so converted or
redeemed shall be canceled and shall not be issuable by the Corporation. The
Certificate of Incorporation of this Corporation shall be appropriately amended
to effect the corresponding reduction in the Corporation's authorized capital
stock.
ARTICLE VI
----------
The Corporation is to have perpetual existence.
ARTICLE VII
-----------
Section 1. The management of the business and the conduct of the affairs
of the Corporation shall be vested in the Board of Directors. The number of
directors which shall constitute the whole Board of Directors shall be fixed in
the manner designated in the Bylaws of the Corporation.
Section 2. In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized to make, alter, amend or
repeal the Bylaws of the Corporation.
Section 3. Elections of directors need not be by written ballot unless a
stockholder demands election by written ballot at the meeting and before voting
begins or unless the Bylaws of the Corporation shall so provide.
ARTICLE VIII
------------
Section 1. To the fullest extent permitted by the Delaware General
Corporation Law as the same exists or as may hereafter be amended, a director of
the Corporation shall not be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director.
Section 2. The Corporation may indemnify to the fullest extent permitted
by law any person made or threatened to be made a party to an action or
proceeding, whether criminal, civil, administrative or investigative, by reason
of the fact that he, his testator or intestate is or was a
-20-
<PAGE>
director, officer, employee or agent of the Corporation or any predecessor of
the Corporation or serves or served at any other enterprise as a director,
officer, employee or agent at the request of the Corporation or any predecessor
to the Corporation.
Section 3. Neither any amendment nor repeal of this Article VIII, nor the
adoption of any provision of this Corporation's Certificate of Incorporation
inconsistent with this Article VIII, shall eliminate or reduce the effect of
this Article VIII, in respect of any matter occurring, or any action or
proceeding accruing or arising or that, but for this Article VIII, would accrue
or arise, prior to such amendment, repeal or adoption of an inconsistent
provision.
ARTICLE IX
----------
Meetings of stockholders may be held within or without the State of
Delaware, as the Bylaws may provide. The books of the Corporation may be kept
(subject to any provision contained in the statutes) outside of the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the Bylaws of the Corporation.
ARTICLE X
---------
Vacancies created by newly created directorships, created in accordance
with the Bylaws of this Corporation, may be filled by the vote of a majority,
although less than a quorum, of the directors then in office, or by a sole
remaining director.
ARTICLE XI
----------
Section 1. At any time following the closing of the first sale of Common
Stock of the Corporation pursuant to a registration statement declared effective
by the Securities and Exchange Corporation under the Securities Act of 1933, as
amended ("Initial Public Offering"), stockholders of the Corporation may not
take any action by written consent in lieu of a meeting and any action
contemplated by stockholders after such time must be taken at a duly called
annual or special meeting of stockholders.
Section 2. Advance notice of new business and stockholder nominations for
the election of directors shall be given in the manner and to the extent
provided in the Bylaws of the Corporation.
ARTICLE XII
-----------
The Corporation reserves the right to amend, alter, change or repeal any
provision contained in this Certificate of Incorporation, in the manner now or
hereafter prescribed by statute, and all rights conferred upon stockholders
herein are granted subject to this reservation.
-21-
<PAGE>
I, THE UNDERSIGNED, being the incorporator hereinbefore named, for the
purposes of forming a Corporation pursuant to the Corporation Law of the State
of Delaware, do make this certificate, hereby declaring and certifying, under
penalties of perjury, that this is my act and deed and the facts herein stated
are true, and accordingly have hereunto set my hand on November 18, 1999.
/s/ Jill L. Nissen
________________________________________
Jill L. Nissen
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<PAGE>
Exhibit 3.3
RESTATED
CERTIFICATE OF INCORPORATION
OF
NUANCE COMMUNICATIONS, INC.
Nuance Communications, Inc. (the "Corporation"), a corporation organized
and existing under the laws of the State of Delaware, hereby certifies as
follows:
1. The name of the Corporation is Nuance Communications, Inc. The original
Certificate of Incorporation of the Corporation was filed with the Secretary of
State of the State of Delaware on November 18, 1999.
2. Pursuant to Sections 242 and 245 of the General Corporation Law of the
State of Delaware, this Restated Certificate of Incorporation restates and
integrates and further amends the provisions of the Corporation's Certificate of
Incorporation.
3. The terms and provisions of this Restated Certificate of Incorporation
have been duly approved by written consent of the required number of shares of
outstanding stock of the Corporation pursuant to Subsection 228(a) of the
General Corporation Law of the State and written notice pursuant to Subsection
228(d) of the General Corporation Law of the State has been given to those
stockholders whose written consent has not been obtained.
4. The text of the Restated Certificate of Incorporation reads in its
entirety as follows:
FIRST. The name of the Corporation is Nuance Communications, Inc.
-----
SECOND. The address of the Corporation's registered office in the State of
------
Delaware is Corporation Trust Center, 1209 Orange St., Wilmington, County of New
Castle, Delaware 19801. The name of its registered agent at such address is The
Corporation Trust Company.
THIRD. The purpose of the Corporation is to engage in any lawful act or
-----
activity for which corporations may be organized under the General Corporation
Law of Delaware.
FOURTH. This Corporation is authorized to issue two classes of shares to
------
be designated, respectively, Common Stock ("Common") and Preferred Stock
("Preferred"). The total number of shares of Common this Corporation shall have
authority to issue is 250,000,000 with a par value of $0.001 per share. The
total number of shares of Preferred this Corporation shall have authority to
issue is 5,000,000 with a par value of $0.001 per share.
The Board of Directors is authorized, subject to limitations prescribed by
law, to provide for the issuance of the shares of Preferred in series and, by
filing a certificate pursuant to the applicable law of the State of Delaware, to
establish from time to time the number of shares to be included in such series,
and to fix the designation, powers, preferences and rights of the shares of each
such series and the qualifications, limitations or restrictions thereof.
<PAGE>
The authority of the Board with respect to each series shall include, but
not be limited to, determination of the following:
(a) the number of shares constituting that series and the distinctive
designation of that series;
(b) the dividend rate on the shares of that series, whether dividends
shall be cumulative and, if so, from which date or dates, and the relative
rights of priority, if any, of payment of dividends on shares of that series;
(c) whether that series shall have voting rights, in addition to the
voting rights provided by law and, if so, the terms of such voting rights;
(d) whether that series shall have conversion privileges and, if so, the
terms and conditions of such conversion, including provision for adjustment of
the conversion rate in such events as the Board of Directors shall determine;
(e) whether or not the shares of that series shall be redeemable and, if
so, the terms and conditions of such redemption, including the date or dates
upon or after which they shall be redeemable and the amount per share payable in
case of redemption, which amount may vary under different conditions and at
different redemption dates;
(f) whether that series shall have a sinking fund for the redemption or
purchase of shares of that series and, if so, the terms and amount of such
sinking fund; and
(g) the rights of the shares of that series in the event of voluntary or
involuntary liquidation, dissolution or winding up of the Corporation, and the
relative rights of priority, if any, of payment of shares of that series.
FIFTH.
-----
A. The management of the business and the conduct of the affairs of
the Corporation shall be vested in the Board of Directors. Prior to the closing
of the first sale of Common Stock of the Corporation pursuant to a registration
statement declared effective by the Securities and Exchange Corporation under
the Securities Act of 1933, as amended, the number of directors which shall
constitute the whole Board of Directors shall be fixed in the manner designated
in the Bylaws of the Corporation.
B. At any time following the closing of the first sale of Common
Stock of the Corporation pursuant to a registration statement declared effective
by the Securities and Exchange Corporation under the Securities Act of 1933, as
amended, the number of directors which constitute the whole Board of Directors
of the Corporation shall be fixed exclusively by one or more resolutions adopted
from time to time by the Board of Directors. The Board of Directors shall be
divided into three classes designated as Class I, Class II, and Class III,
respectively. Directors shall be assigned to each class in accordance with a
resolution or resolutions adopted by the Board of Directors. At the first annual
meeting of stockholders following the date hereof, the term of office of the
Class I directors shall expire and Class I directors shall be elected for a full
term of three years.
-2-
<PAGE>
At the second annual meeting of stockholders following the date hereof, the term
of office of the Class II directors shall expire and Class II directors shall be
elected for a full term of three years. At the third annual meeting of
stockholders following the date hereof, the term of office of the Class III
directors shall expire and Class III directors shall be elected for a full term
of three years. At each succeeding annual meeting of stockholders, directors
shall be elected for a full term of three years to succeed the directors of the
class whose terms expire at such annual meeting.
C. In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized to make, alter, amend or
repeal the Bylaws of the Corporation.
D. Elections of directors need not be by written ballot except and to
the extent provided in the Bylaws of the corporation.
E. Vacancies created by newly created directorships, created in
accordance with the Bylaws of this Corporation, may be filled by the vote of a
majority, although less than a quorum, of the directors then in office, or by a
sole remaining director
SIXTH.
-----
A. To the fullest extent permitted by the Delaware General
Corporation Law as the same exists or as may hereafter be amended, a director of
the Corporation shall not be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director.
B. The Corporation may indemnify to the fullest extent permitted by
law any person made or threatened to be made a party to an action or proceeding,
whether criminal, civil, administrative or investigative, by reason of the fact
that he, his testator or intestate is or was a director, officer, employee or
agent of the Corporation or any predecessor of the Corporation or serves or
served at any other enterprise as a director, officer, employee or agent at the
request of the Corporation or any predecessor to the Corporation.
C. Neither any amendment nor repeal of this Article SIXTH, nor the
adoption of any provision of this Corporation's Certificate of Incorporation
inconsistent with this Article SIXTH, shall eliminate or reduce the effect of
this Article SIXTH, in respect of any matter occurring, or any action or
proceeding accruing or arising or that, but for this Article SIXTH, would accrue
or arise, prior to such amendment, repeal or adoption of an inconsistent
provision.
SEVENTH. The Corporation is to have perpetual existence.
-------
EIGHTH.
------
A. Meetings of stockholders may be held within or without the State
of Delaware, as the Bylaws may provide. The books of the Corporation may be
kept (subject to any provision contained in the statutes) outside of the State
of Delaware at such place or places as may be designated from time to time by
the Board of Directors or in the Bylaws of the Corporation.
-3-
<PAGE>
B. At any time following the closing of the first sale of Common
Stock of the Corporation pursuant to a registration statement declared effective
by the Securities and Exchange Corporation under the Securities Act of 1933, as
amended, stockholders of the Corporation may not take any action by written
consent in lieu of a meeting and any action contemplated by stockholders after
such time must be taken at a duly called annual or special meeting of
stockholders.
C. Advance notice of new business and stockholder nominations for the
election of directors shall be given in the manner and to the extent provided in
the Bylaws of the Corporation.
NINTH. The Corporation reserves the right to amend, alter, change or
-----
repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation.
-4-
<PAGE>
IN WITNESS WHEREOF, this Certificate has been signed this __ day of ______,
2000.
NUANCE COMMUNICATIONS, INC.
___________________________________________
Ron Croen, Chief Executive Officer
ATTEST:
___________________________
Graham Smith, Secretary
<PAGE>
Exhibit 3.4
CERTIFICATE OF AMENDMENT
OF BYLAWS OF
NUANCE COMMUNICATIONS
Section 3.2 of the Bylaws of this corporation was amended, effective March
3, 1997, by the Board of Directors and a majority of the shareholders to provide
in its entirety as follows:
"ARTICLE III
BOARD OF DIRECTORS
3.2 Number and Qualification of Directors.
-------------------------------------
The number of directors of the corporation shall not be less than five (5)
nor more than nine (9) until changed by amendment of the Articles of
Incorporation or by a Bylaw amending this Section 3.2 duly adopted by the vote
or written consent of holders of a majority of the outstanding shares, provided
that if the minimum number of directors is five or more, any proposal to reduce
the minimum number of directors to a number less than five cannot be adopted if
the votes cast against its adoption at a meeting, or the shares not consenting
in the case of an Action by Written Consent, are equal to more than sixteen and
two-thirds percent (16-2/3%) of the outstanding shares entitled to vote. The
exact number of directors shall be fixed from time to time within the limits
specified in the Articles of Incorporation or in this Section 3.2, by a Bylaw or
amendment thereof duly adopted by the vote of a majority of the shares entitled
to vote represented at a duly held meeting at which a quorum is present, or by
the written consent of the holders of a majority of the outstanding shares
entitled to vote, or by the Board of Directors.
Subject to the foregoing provisions for changing the number of directors,
the number of directors of the Corporation has been fixed at eight (8)."
Dated: March 3, 1997
/s/ Ronald A. Croen
____________________________________
Ronald A. Croen, Secretary
<PAGE>
AMENDED AND RESTATED BYLAWS
OF
NUANCE COMMUNICATIONS
A California corporation
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
ARTICLE I - OFFICES....................................................... 1
Section 1.1 Principal Executive Office............................ 1
Section 1.2 Other Offices......................................... 1
ARTICLE II - MEETINGS OF SHAREHOLDERS..................................... 1
Section 2.1 Place of Meetings..................................... 1
Section 2.2 Annual Meeting........................................ 1
Section 2.3 Notice of Annual Meeting.............................. 1
Section 2.4 Special Meetings...................................... 3
Section 2.5 Notice of Special Meetings............................ 3
Section 2.6 Quorum................................................ 3
Section 2.7 Adjourned Meeting and Notice.......................... 3
Section 2.8 Record Date........................................... 4
Section 2.9 Voting................................................ 4
Section 2.10 Proxies............................................... 5
Section 2.11 Validation of Defectively Called or Noticed Meetings.. 6
Section 2.12 Action Without Meeting................................ 6
Section 2.13 Inspectors of Election................................ 7
ARTICLE III - BOARD OF DIRECTORS.......................................... 8
Section 3.1 Powers; Approval of Loans to Officers................. 8
Section 3.2 Number and Qualification of Directors................. 9
Section 3.3 Election and Term of Office........................... 9
Section 3.4 Vacancies............................................. 9
Section 3.5 Time and Place of Meetings............................ 10
Section 3.6 Notice of Special Meetings............................ 10
Section 3.7 Action at a Meeting: Quorum and Required Vote......... 11
Section 3.8 Action Without a Meeting.............................. 11
Section 3.9 Adjourned Meeting and Notice.......................... 11
Section 3.10 Fees and Compensation................................. 12
Section 3.11 Appointment of Executive and Other Committees......... 12
ARTICLE IV - OFFICERS..................................................... 13
Section 4.1 Officers.............................................. 13
Section 4.2 The Chairman of the Board............................. 13
Section 4.3 The President......................................... 14
Section 4.4 Vice-Presidents....................................... 14
</TABLE>
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TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
Page
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<S> <C>
Section 4.5 The Secretary......................................... 14
Section 4.6 The Treasurer......................................... 15
Section 4.7 The Controller........................................ 15
ARTICLE V - EXECUTION OF CORPORATE INSTRUMENTS, RATIFICATION, AND VOTING
OF STOCKS OWNED BY THE CORPORATION............................ 16
Section 5.1 Execution of Corporate Instruments.................... 16
Section 5.2 Ratification by Shareholders.......................... 16
Section 5.3 Voting of Stocks Owned by the Corporation............. 16
ARTICLE VI - ANNUAL AND OTHER REPORTS..................................... 17
Section 6.1 Reports to Shareholders............................... 17
Section 6.2 Report of Shareholder Vote............................ 18
Section 6.3 Reports to the Secretary of State..................... 18
ARTICLE VIII - Inspection of Corporate Records............................ 19
Section 8.1 General Records....................................... 19
Section 8.2 Inspection of Bylaws.................................. 20
ARTICLE IX - INDEMNIFICATION OF OFFICERS, DIRECTORS, EMPLOYEES AND
AGENTS ...................................................... 20
Section 9.1 Right to Indemnification.............................. 20
Section 9.2 Authority to Advance Expenses......................... 21
Section 9.3 Right of Claimant to Bring Suit....................... 21
Section 9.4 Provisions Nonexclusive............................... 22
Section 9.5 Authority to Insure................................... 22
Section 9.6 Survival of Rights.................................... 22
Section 9.7 Settlement of Claims.................................. 22
Section 9.8 Effect of Amendment................................... 22
Section 9.9 Subrogation........................................... 22
Section 9.10 No Duplication of Payments............................ 23
ARTICLE X - AMENDMENTS.................................................... 23
Section 10.1 Power of Shareholders................................. 23
</TABLE>
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<PAGE>
TABLE OF CONTENTS
(continued)
<TABLE>
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Section 10.2 Power of Directors.................................... 23
ARTICLE XI - DEFINITIONS.................................................. 23
ARTICLE XII - RIGHT OF FIRST REFUSAL...................................... 24
Section 12.1 Right of First Refusal................................ 24
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AMENDED AND RESTATED BYLAWS
OF
NUANCE CORPORATION
a California corporation
ARTICLE I
OFFICES
Section 1.1 Principal Executive Office.
--------------------------
The principal executive office of the corporation is hereby fixed and
located at: 333 Ravenswood Avenue, Menlo Park, California 94025. The Board of
Directors is hereby granted full power and authority to change said principal
executive office from one location to another. Any such change shall be noted on
these Bylaws by the Secretary, opposite this Section, or this Section may be
amended to state the new location.
Section 1.2 Other Offices.
-------------
Other business offices may at any time be established at any place or
places specified by the Board of Directors.
ARTICLE II
MEETINGS OF SHAREHOLDERS
Section 2.1 Place of Meetings.
-----------------
All meetings of shareholders shall be held at the principal executive
office of the corporation, or at any other place, within or without the State of
California, specified by the Board of Directors.
Section 2.2 Annual Meeting.
--------------
The annual meeting of the shareholders, after the year 1994, shall be held
at the time and date in each year fixed by the Board of Directors. At the annual
meeting directors shall be elected, reports of the affairs of the corporation
shall be considered, and any other business may be transacted that is within the
power of the shareholders.
Section 2.3 Notice of Annual Meeting.
------------------------
Written notice of each annual meeting shall be given to each shareholder
entitled to vote, either personally or by first-class mail, or, if the
corporation has outstanding shares held of record by
<PAGE>
500 or more persons (determined in accordance with Section 605 of the General
Corporation Law) on the record date for the meeting, by third-class mail, or by
other means of written communication, charges prepaid, addressed to such
shareholder at the shareholder's address appearing on the books of the
corporation or given by such shareholder to the corporation for the purpose of
notice. If any notice or report addressed to the shareholder at the address of
such shareholder appearing on the books of the corporation is returned to the
corporation by the United States Postal Service marked to indicate that the
United States Postal Service is unable to deliver the notice or report to the
shareholder at such address, all future notices or reports shall be deemed to
have been duly given without further mailing if the same shall be available for
the shareholder upon written demand of the shareholder at the principal
executive office of the corporation for a period of one year from the date of
the giving of the notice or report to all other shareholders. If a shareholder
gives no address, notice shall be deemed to have been given to such shareholder
if addressed to the shareholder at the place where the principal executive
office of the corporation is situated, or if published at least once in some
newspaper of general circulation in the county in which said principal executive
office is located.
All such notices shall be given to each shareholder entitled thereto not
less than ten (10) days (or, if sent by third-class mail, thirty (30) days) nor
more than sixty (60) days before each annual meeting. Any such notice shall be
deemed to have been given at the time when delivered personally or deposited in
the mail or sent by other means of written communication. An affidavit of
mailing of any such notice in accordance with the foregoing provisions, executed
by the Secretary, Assistant Secretary or any transfer agent of the corporation
shall be prima facie evidence of the giving of the notice.
Such notice shall specify:
(a) the place, the date, and the hour of such meeting;
(b) those matters that the Board of Directors, at the time of
the mailing of the notice, intends to present for action by the shareholders
(but, subject to the provisions of subsection (d) below, any proper matter may
be presented at the meeting for such action);
(c) if directors are to be elected, the names of nominees
intended at the time of the notice to be presented by the Board of Directors for
election;
(d) the general nature of a proposal, if any, to take action
with respect to approval of (i) a contract or other transaction with an
interested director, (ii) amendment of the Articles of Incorporation, (iii) a
reorganization of the corporation as defined in Section 181 of the General
Corporation Law, (iv) voluntary dissolution of the corporation, or (v) a
distribution in dissolution other than in accordance with the rights of
outstanding preferred shares, if any; and
(e) such other matters, if any, as may be expressly required by
statute.
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Section 2.4 Special Meetings.
----------------
Special meetings of the shareholders for any purpose or purposes whatsoever
may be called at any time by the Chairman of the Board (if there be such an
officer appointed), by the President, by the Board of Directors, or by one or
more shareholders entitled to cast not less than ten percent (10%) of the votes
at the meeting.
Section 2.5 Notice of Special Meetings.
--------------------------
Upon request in writing that a special meeting of shareholders be called
for any proper purpose, directed to the Chairman of the Board (if there be such
an officer appointed), President, Vice President or Secretary by any person
(other than the Board of Directors) entitled to call a special meeting of
shareholders, the officer forthwith shall cause notice to be given to the
shareholders entitled to vote that a meeting will be held at a time requested by
the person or persons calling the meeting, not less than thirty-five (35) nor
more than sixty (60) days after the receipt of the request. Except in special
cases where other express provision is made by statute, notice of any special
meeting of shareholders shall be given in the same manner as for annual meetings
of shareholders. In addition to the matters required by Section 2.3(a) and, if
applicable, Section 2.3(c) of these Bylaws, notice of any special meeting shall
specify the general nature of the business to be transacted, and no other
business may be transacted at such meeting.
Section 2.6 Quorum.
------
The presence in person or by proxy of persons entitled to vote a majority
of the voting shares at any meeting shall constitute a quorum for the
transaction of business. If a quorum is present, the affirmative vote of a
majority of the shares represented and voting at the meeting (which shares
voting affirmatively also constitute at least a majority of the required quorum)
shall be the act of the shareholders, unless the vote of a greater number or
voting by classes is required by the General Corporation Law or the Articles of
Incorporation. Any meeting of shareholders, whether or not a quorum is present,
may be adjourned from time to time by the vote of the holders of a majority of
the shares present in person or represented by proxy thereat and entitled to
vote, but in the absence of a quorum no other business may be transacted at such
meeting, except that the shareholders present or represented by proxy at a duly
called or held meeting, at which a quorum is present, may continue to transact
business until adjournment, notwithstanding the withdrawal of enough
shareholders to leave less than a quorum, if any action taken (other than
adjournment) is approved by at least a majority of the shares required to
constitute a quorum.
Section 2.7 Adjourned Meeting and Notice.
----------------------------
When any shareholders' meeting, either annual or special, is adjourned for
more than forty-five (45) days, or if after adjournment a new record date is
fixed for the adjourned meeting, notice of the adjourned meeting shall be given
as in the case of an original meeting. Except as provided above, it shall not be
necessary to give any notice of the time and place of the adjourned
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meeting or of the business to be transacted thereat, other than by announcement
of the time and place thereof at the meeting at which such adjournment is taken.
Section 2.8 Record Date.
-----------
(a) The Board of Directors may fix a time in the future as a
record date for the determination of the shareholders entitled to notice of and
to vote at any meeting of shareholders or entitled to give consent to corporate
action in writing without a meeting, to receive any report, to receive any
dividend or other distribution, or allotment of any rights, or to exercise
rights in respect of any other lawful action. The record date so fixed shall be
not more than sixty (60) days nor less than ten (10) days prior to the date of
such meeting, nor more than sixty (60) days prior to any other action. A
determination of shareholders of record entitled to notice of or to vote at a
meeting of shareholders shall apply to any adjournment of the meeting unless the
Board of Directors fixes a new record date for the adjourned meeting, but the
Board of Directors shall fix a new record date if the meeting is adjourned for
more than forty-five (45) days from the date set for the original meeting. When
a record date is so fixed, only shareholders of record at the close of business
on that date are entitled to notice of and to vote at any such meeting, to give
consent without a meeting, to receive any report, to receive the dividend,
distribution, or allotment of rights, or to exercise the rights, as the case may
be, notwithstanding any transfer of any shares on the books of the corporation
after the record date, except as otherwise provided in the Articles of
Incorporation or these Bylaws.
(b) If no record date is fixed:
(1) The record date for determining shareholders entitled
to notice of or to vote at a meeting of shareholders shall be at the close of
business on the business day next preceding the day on which notice is given or,
if notice is waived, at the close of business on the business day preceding the
day on which the meeting is held.
(2) The record date for determining shareholders entitled
to give consent to corporate action in writing without a meeting, when no prior
action by the Board of Directors has been taken, shall be the day on which the
first written consent is given.
(3) The record date for determining shareholders for any
other purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating thereto, or the sixtieth (60th) day
prior to the date of such other action, whichever is later.
Section 2.9 Voting.
------
(a) Except as provided below with respect to cumulative voting
and except as may be otherwise provided in the Articles of Incorporation, each
outstanding share, regardless of class, shall be entitled to one vote on each
matter submitted to a vote of shareholders. Any holders of shares entitled to
vote on any matter may vote part of the shares in favor of the proposal and
refrain from voting the remaining shares or vote them against the proposal,
other than elections to
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office, but, if the shareholder fails to specify the number of shares such
shareholder is voting affirmatively, it will be conclusively presumed that the
shareholder's approving vote is with respect to all shares such shareholder is
entitled to vote.
(b) Subject to the provisions of Sections 702 through 704 of the
General Corporation Law (relating to voting of shares held by a fiduciary,
receiver, pledgee, or minor, in the name of a corporation, or in joint
ownership), persons in whose names shares entitled to vote stand on the stock
records of the corporation at the close of business on the record date shall be
entitled to vote at the meeting of shareholders. Such vote may be viva voce or
---- ----
by ballot; provided, however, that all elections for directors must be by ballot
upon demand made by a shareholder at any election and before the voting begins.
Shares of this corporation owned by a corporation more than twenty-five percent
(25%) of the voting power of which is owned directly by this corporation, or
indirectly through one or more majority-owned subsidiaries of this corporation,
shall not be entitled to vote on any matter.
(c) Subject to the requirements of the next sentence, every
shareholder entitled to vote at any election for directors shall have the right
to cumulate such shareholder's votes and give one candidate a number of votes
equal to the number of directors to be elected multiplied by the number of votes
to which such shareholder's shares are normally entitled, or to distribute votes
on the same principle among as many candidates as such shareholder thinks fit.
No shareholder shall be entitled to cumulate votes unless such candidate's name
or candidates' names have been placed in nomination prior to the voting and the
shareholder has given notice at the meeting, prior to the voting, of the
shareholder's intention to cumulate such shareholder's votes. If any one
shareholder has given such notice, all shareholders may cumulate their votes for
candidates in nomination. The candidates receiving the highest number of
affirmative votes of shares entitled to be voted for teem, up to the number of
directors to be elected by such shares, shall be elected. Votes against a
director and votes withheld shall have no legal effect.
Section 2.10 Proxies.
-------
(a) Every person entitled to vote shares (including voting by
written consent) may authorize another person or other persons to act by proxy
with respect to such shares. "Proxy" means a written authorization signed by a
shareholder or the shareholder's attorney-in-fact giving another person or
persons power to vote with respect to the shares of such shareholder. "Signed"
for the purpose of this Section means the placing of the shareholder's name on
the proxy (whether by manual signature, typewriting, telegraphic transmission or
otherwise) by the shareholder or the shareholder's attorney-in-fact. Any proxy
duly executed is not revoked and continues in full force and effect until (i) a
written instrument revoking it is filed with the Secretary of the corporation
prior to the vote pursuant thereto, (ii) a subsequent proxy executed by the
person executing the prior proxy is presented to the meeting, (iii) the person
executing the proxy attends the meeting and votes in person, or (iv) written
notice of the death or incapacity of the maker of such proxy is received by the
corporation before the vote pursuant thereto is counted; provided that no such
proxy shall be valid after the expiration of eleven (11) months from the date of
its execution, unless otherwise
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provided in the proxy. Notwithstanding the foregoing sentence, a proxy that
states that it is irrevocable, is irrevocable for the period specified therein
to the extent permitted by Section 705(e) and (f) of the General Corporation
Law. The dates contained on the forms of proxy presumptively determine the order
of execution, regardless of the postmark dates on the envelopes in which they
are mailed.
(b) As long as no outstanding class of securities of the
corporation is registered under Section 12 of the Securities Exchange Act of
1934, or is not exempted from such registration by Section 12(g)(2) of such Act,
any form of proxy or written consent distributed to ten (10) or more
shareholders of the corporation when outstanding shares of the corporation are
held of record by 100 or more persons shall afford an opportunity on the proxy
or form of written consent to specify a choice between approval and disapproval
of each matter or group of related matters intended to be acted upon at the
meeting for which the proxy is solicited or by such written consent, other than
elections to office, and shall provide, subject to reasonable specified
conditions, that where the person solicited specifies a choice with respect to
any such matter the shares will be voted in accordance therewith. In any
election of directors, any form of proxy in which the directors to be voted upon
are named therein as candidates and which is marked by a shareholder "withhold"
or otherwise marked in a manner indicating that the authority to vote for the
election of directors is withheld shall not be voted for the election of a
director.
Section 2.11 Validation of Defectively Called or Noticed Meetings.
----------------------------------------------------
The transactions of any meeting of shareholders, however called and
noticed, and wherever held, are as valid as though had at a meeting duly held
after regular call and notice, if a quorum is present either in person or by
proxy, and if, either before or after the meeting, each of the persons entitled
to vote, not present in person or by proxy, signs a written waiver of notice or
a consent to the holding of the meeting or an approval of the minutes thereof.
All such waivers, consents and approvals shall be filed with the corporate
records or made a part of the minutes of the meeting. Attendance of a person at
a meeting shall constitute a waiver of notice of and presence at such meeting,
except when the person objects, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened and except that attendance at a meeting is not a waiver of any right to
object to the consideration of matters required by these Bylaws or by the
General Corporation Law to be included in the notice if such objection is
expressly made at the meeting. Neither the business to be transacted at nor the
purpose of any regular or special meeting of shareholders need be specified in
any written waiver of notice, consent to the holding of the meeting or approval
of the minutes thereof, unless otherwise provided in the Articles of
Incorporation or these Bylaws, or unless the meeting involves one or more
matters specified in Section 2.3(d) of these Bylaws.
Section 2.12 Action Without Meeting.
----------------------
(a) Directors may be elected without a meeting by a consent in
writing, setting forth the action so taken, signed by all of the persons who
would be entitled to vote for the election of directors, provided that, without
notice except as hereinafter set forth, a director may be elected at
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any time to fill a vacancy not filled by the directors (other than a vacancy
created by removal of a director) by the written consent of persons holding a
majority of the outstanding shares entitled to vote for the election of
directors.
Any other action that may be taken at a meeting of the shareholders, may be
taken without a meeting, and without prior notice except as hereinafter set
forth, if a consent in writing, setting forth the action so taken, is signed by
the holders of outstanding shares having not less than the minimum number of
votes that would be necessary to authorize or take such action at a meeting at
which all shares entitled to vote thereon were present and voted.
(b) Unless the consents of all shareholders entitled to vote
have been solicited in writing:
(1) notice of any proposed shareholder approval of (i) a
contract or other transaction with an interested director, (ii) indemnification
of an agent of the corporation, (iii) a reorganization of the corporation as
defined in Section 181 of the General Corporation Law, or (iv) a distribution in
dissolution other than in accordance with the rights of outstanding preferred
shares, if any, without a meeting by less than unanimous written consent, shall
be given at least ten (10) days before the consummation of the action authorized
by such approval; and
(2) prompt notice shall be given of the taking of any other
corporate action approved by shareholders without a meeting by less than
unanimous written consent to those shareholders entitled to vote who have not
consented in writing. Such notices shall be given in the manner provided in
Section 2.3 of these Bylaws.
(c) Any shareholder giving a written consent, or the
shareholder's proxyholders, or a transferee of the shares or a personal
representative of the shareholder or their respective proxyholders, may revoke
the consent by a writing received by the corporation prior to the time that
written consents of the number of shares required to authorize the proposed
action have been filed with the Secretary of the corporation, but may not do so
thereafter. Such revocation is effective upon its receipt by the Secretary of
the corporation.
Section 2.13 Inspectors of Election.
----------------------
(a) In advance of any meeting of shareholders, the Board of
Directors may appoint inspectors of election to act at the meeting and any
adjournment thereof. If inspectors of election are not so appointed, or if any
persons so appointed fail to appear or refuse to act, the chairman of any such
meeting may, and on the request of any shareholder or the holder of such
shareholder's proxy shall, appoint inspectors of election (or persons to replace
those who so fail or refuse) at the meeting. The number of inspectors shall be
either one or three. If inspectors are appointed at a meeting on the request of
one or more shareholders or holders of proxies, the majority of shares
represented in person or by proxy shall determine whether one inspector or three
inspectors are to be appointed.
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(b) The inspectors of election shall determine the number of
shares outstanding and the voting power of each, the shares represented at the
meeting, the existence of a quorum and the authenticity, validity and effect of
proxies; receive votes, ballots or consents; hear and determine all challenges
and questions in any way arising in connection with the right to vote; count and
tabulate all votes or consents; determine when the polls shall close; determine
the result; and do such acts as may be proper to conduct the election or vote
with fairness to all shareholders.
(c) The inspectors of election shall perform their duties
impartially, in good faith, to the best of their ability and as expeditiously as
is practical. If there are three inspectors of election, the decision, act or
certificate of a majority is effective in all respects as the decision, act or
certificate of all. Any report or certificate made by the inspectors of election
is prima facie evidence of the facts stated therein.
ARTICLE III
BOARD OF DIRECTORS
Section 3.1 Powers; Approval of Loans to Officers.
-------------------------------------
(a) Subject to the provisions of the General Corporation Law and
any limitations in the Articles of Incorporation relating to action required to
be approved by the shareholders or by the outstanding shares, the business and
affairs of the corporation shall be managed and all corporate powers shall be
exercised by or under the direction of the Board of Directors. The Board of
Directors may delegate the management of the day-to-day operation of the
business of the corporation to a management company or other person provided
that the business and affairs of the corporation shall be managed and all
corporate powers shall be exercised under the ultimate direction of the Board of
Directors.
(b) The corporation may, upon approval of the Board of Directors
alone, make loans of money or property to, or guarantee the obligations of, any
officer (whether or not a director) of the corporation or of its parent, or
adopt an employee benefit plan authorizing such loans or guaranties provided
that:
(1) the Board of Directors determines that such a loan,
guaranty, or plan may reasonably be expected to benefit the corporation;
(2) the corporation has outstanding shares held of record
by 100 or more persons (determined as provided in Section 605 of the General
Corporation Law) on the date of approval by the Board of Directors;
(3) the approval by the Board of Directors is by a vote
sufficient without counting the vote of any interested director(s); and
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(4) the loan is otherwise made in compliance with Section
315 of the General Corporation Law.
Section 3.2 Number and Qualification of Directors.
-------------------------------------
The number of directors of the corporation shall not be less than four (4)
nor more than seven (7) until changed by amendment of the Articles of
Incorporation or by a Bylaw amending this Section 3.2 duly adopted by the vote
or written consent of holders of a majority of the outstanding shares, provided
that if the minimum number of directors is five or more, any proposal to reduce
the minimum number of directors to a number less than five cannot be adopted if
the votes cast against its adoption at a meeting, or the shares not consenting
in the case of action by written consent, are equal to more than sixteen and
two-thirds percent (16-2/3%) of the outstanding shares entitled to vote. The
exact number of directors shall be fixed from time to time within the limits
specified in the Articles of Incorporation or in this Section 3.2, by a bylaw or
amendment thereof duly adopted by the vote of a majority of the shares entitled
to vote represented at a duly held meeting at which a quorum is present, or by
the written consent of the holders of a majority of the outstanding shares
entitled to vote, or by the Board of Directors.
Subject to the foregoing provisions for changing the number of directors,
the number of directors of the corporation has been fixed at seven (7).
Section 3.3 Election and Term of Office.
---------------------------
The directors shall be elected at each annual meeting of shareholders, but,
if any such annual meeting is not held or the directors are not elected thereat,
the directors may be elected at any special meeting of shareholders held for
that purpose. Each director, including a director elected to fill a vacancy,
shall hold office until the expiration of the term for which elected and until a
successor has been elected and qualified.
Section 3.4 Vacancies.
---------
A vacancy in the Board of Directors shall be deemed to exist in case of the
death, resignation or removal of any director, if a director has been declared
of unsound mind by order of court or convicted of a felony, if the authorized
number of directors is increased, if the incorporator or incorporators have
failed to appoint the authorized number of directors in any resolution for
appointment of directors upon the initial organization of the corporation, or if
the shareholders fail, at any annual or special meeting of shareholders at which
any director or directors are elected, to elect the full authorized number of
directors to be voted for at that meeting.
Vacancies in the Board of Directors, except for a vacancy created by the
removal of a director, may be filled by a majority of the directors present at a
meeting at which a quorum is present, or if the number of directors then in
office is less than a quorum, (a) by the unanimous written consent of the
directors then in office, (b) by the vote of a majority of the directors then in
office at a meeting held pursuant to notice or waivers of notice in compliance
with these Bylaws, or
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(c) by a sole remaining director. Each director so elected shall hold office
until his or her successor is elected at an annual or a special meeting of the
shareholders. A vacancy in the Board of Directors created by the removal of a
director may be filled only by the vote of a majority of the shares entitled to
vote represented at a duly held meeting at which a quorum is present, or by the
written consent of all of the holders of the outstanding shares.
The shareholders may elect a director or directors at any time to fill any
vacancy or vacancies not filled by the directors. Any such election by written
consent other than to fill a vacancy created by removal shall require the
consent of holders of a majority of the outstanding shares entitled to vote. Any
such election by written consent to fill a vacancy created by removal shall
require the unanimous written consent of all shares entitled to vote for the
election of directors.
Any director may resign effective upon giving written notice to the
Chairman of the Board (if there be such an officer appointed), the President,
the Secretary or the Board of Directors of the corporation, unless the notice
specifies a later time for the effectiveness of such resignation. If the
resignation is effective at a future time, a successor may be elected to take
office when the resignation becomes effective.
No reduction of the authorized number of directors shall have the effect of
removing any director prior to the expiration of the director's term of office.
Section 3.5 Time and Place of Meetings.
--------------------------
The Board of Directors shall hold a regular meeting immediately after the
meeting of shareholders at which it is elected and at the place where such
meeting is held, or at such other place as shall be fixed by the Board of
Directors, for the purpose of organization, election of officers of the
corporation and the transaction of other business. Notice of such meeting is
hereby dispensed with. Other regular meetings of the Board of Directors shall be
held without notice at such times and places as are fixed by the Board of
Directors. Special meetings of the Board of Directors may be held at any time
whenever called by the Chairman of the Board (if there be such an officer
appointed), the President, any Vice-President, the Secretary or any two
directors.
Except as hereinabove provided in this Section 3.5, all meetings of the
Board of Directors may be held at any place within or without the State of
California that has been designated by resolution of the Board of Directors as
the place for the holding of regular meetings, or by written consent of all
directors. In the absence of such designation, meetings of the Board of
Directors shall be held at the principal executive office of the corporation.
Special meetings of the Board of Directors may be held either at a place so
designated or at the principal executive office of the corporation.
Section 3.6 Notice of Special Meetings.
--------------------------
Notice of the time and place of special meetings shall be delivered
personally to each director or communicated to each director by telephone,
telegraph or mail, charges prepaid, addressed to the
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director at the director's address as it is shown upon the records of the
corporation or, if it is not so shown on such records or is not readily
ascertainable, at the place at which the meetings of the directors are regularly
held. In case such notice is mailed, it shall be deposited in the United States
mail at least four (4) days prior to the time of the holding of the meeting. In
case such notice is delivered personally or by telephone or telegraph, as above
provided, it shall be so delivered at least forty-eight (48) hours prior to the
time of the holding of the meeting. Such mailing, telegraphing or delivery,
personally or by telephone, as above provided, shall be due, legal and personal
notice to such director.
Notice of a meeting need not be given to any director who signs a waiver of
notice or a consent to holding the meeting or an approval of the minutes
thereof, whether before or after the meeting, or who attends the meeting without
protesting, prior thereto or at its commencement, the lack of notice to such
director. All such waivers, consents and approvals shall be filed with the
corporate records or made a part of the minutes of the meetings.
Section 3.7 Action at a Meeting: Quorum and Required Vote.
---------------------------------------------
Presence of a majority of the authorized number of directors at a meeting
of the Board of Directors constitutes a quorum for the transaction of business,
except as hereinafter provided. Members of the Board of Directors may
participate in a meeting through use of conference telephone or similar
communications equipment, so long as all members participating in such meeting
can hear one another. Participation in a meeting as permitted in the preceding
sentence constitutes presence in person at such meeting. Every act or decision
done or made by a majority of the directors present at a meeting duly held at
which a quorum is present is the act of the Board of Directors, unless a greater
number, or the same number after disqualifying one or more directors from
voting, is required by law, by the Articles of Incorporation, or by these
Bylaws. A meeting at which a quorum is initially present may continue to
transact business notwithstanding the withdrawal of directors, if any action
taken is approved by at least a majority of the required quorum for such
meeting.
Section 3.8 Action Without a Meeting.
------------------------
Any action required or permitted to be taken by the Board of Directors may
be taken without a meeting, if all members of the Board of Directors shall
individually or collectively consent in writing to such action. Such written
consent or consents shall be filed with the minutes of the proceedings of the
Board of Directors. Such action by written consent shall have the same force and
effect as a unanimous vote of such directors.
Section 3.9 Adjourned Meeting and Notice.
----------------------------
A majority of the directors present, whether or not a quorum is present,
may adjourn any meeting to another time and place. [f the meeting is adjourned
for more than twenty-four (24) hours, notice of any adjournment to another time
or place shall be given prior to the time of the adjourned meeting to the
directors who were not present at the time of the adjournment.
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Section 3.10 Fees and Compensation.
---------------------
Directors and members of committees may receive such compensation, if any,
for their services, and such reimbursement for expenses, as may be fixed or
determined by resolution of the Board of Directors.
Section 3.11 Appointment of Executive and Other Committees.
---------------------------------------------
The Board of Directors may, by resolution adopted by a majority of the
authorized number of directors, designate one or more committees, each
consisting of two or more directors, to serve at the pleasure of the Board of
Directors. The Board of Directors may designate one or more directors as
alternate members of any committee, who may replace any absent member at any
meeting of the committee. The appointment of members or alternate members of a
committee requires the vote of a majority of the authorized number of directors.
Any such committee, to the extent provided in the resolution of the Board of
Directors or in these Bylaws, shall have all the authority of the Board of
Directors, except with respect to:
(a) The approval of any action for which the General Corporation
Law also requires shareholders' approval or approval of the outstanding shares.
(b) The filling of vacancies on the Board of Directors or in any
committee.
(c) The firing of compensation of the directors for serving on
the Board of Directors or on any committee.
(d) The amendment or repeal of these Bylaws or the adoption of
new Bylaws.
(e) The amendment or repeal of any resolution of the Board of
Directors that by its express terms is not so amendable or repealable.
(f) A distribution to the shareholders of the corporation,
except at a rate, in a periodic amount or within a price range determined by the
Board of Directors.
(g) The appointment of other committees of the Board of
Directors or the members thereof.
The provisions of Sections 3.5 through 3.9 of these Bylaws apply also to
committees of the Board of Directors and action by such committees, mutatis
mutandis (with the necessary changes having been made in the language thereof.
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ARTICLE IV
OFFICERS
Section 4.1 Officers.
--------
The officers of the corporation shall consist of the President, the
Secretary and the Treasurer, and each of them shall be appointed by the Board of
Directors. The corporation may also have a Chairman of the Board, one or more
Vice-Presidents, a Controller, one or more Assistant Secretaries and Assistant
Treasurers, and such other officers as may be appointed by the Board of
Directors, or with authorization from the Board of Directors by the President.
The order of the seniority of the Vice-Presidents shall be in the order of their
nomination, unless otherwise determined by the Board of Directors. Any two or
more of such offices may be held by the same person. The Board of Directors
shall designate one officer as the chief financial officer of the corporation.
In the absence of such designation, the Treasurer shall be the chief financial
officer. The Board of Directors may appoint, and may empower the President to
appoint, such other officers as the business of the corporation may require,
each of whom shall have such authority and perform such duties as are provided
in these Bylaws or as the Board of Directors may from time to time determine.
All officers of the corporation shall hold office from the date appointed
to the date of the next succeeding regular meeting of the Board of Directors
following the meeting of shareholders at which the Board of Directors is
elected, and until their successors are elected; provided that all officers, as
well as any other employee or agent of the corporation, may be removed at any
time at the pleasure of the Board of Directors, or, except in the case of an
officer chosen by the Board of Directors, by any officer upon whom such power of
removal may be conferred by the Board of Directors, and upon the removal,
resignation, death or incapacity of any officer, the Board of Directors or the
President, in cases where he or she has been vested by the Board of Directors
with power to appoint, may declare such office vacant and fill such vacancy.
Nothing in these Bylaws shall be construed as creating any kind of contractual
right to employment with the corporation.
Any officer may resign at any time by giving written notice to the Board of
Directors, the President, or the Secretary of the corporation, without
prejudice, however, to the rights, if any, of the corporation under any contract
to which such officer is a party. Any such resignation shall take effect at the
date of the receipt of such notice or at any later time specified therein; and,
unless otherwise specified therein, the acceptance of such resignation shall not
be necessary to make it effective.
The salary and other compensation of the officers shall be fixed from time
to time by resolution of or in the manner determined by the Board of Directors.
Section 4.2 The Chairman of the Board.
-------------------------
The Chairman of the Board (if there be such an officer appointed) shall,
when present, preside at all meetings of the Board of Directors and shall
perform all the duties commonly incident to that office. The Chairman of the
Board shall have authority to execute in the name of the
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corporation bonds, contracts, deeds, leases and other written instruments to be
executed by the corporation (except where by law the signature of the President
is required), and shall perform such other duties as the Board of Directors may
from time to time determine.
Section 4.3 The President.
-------------
Unless otherwise determined by the Board of Directors, the President shall
be the chief executive officer of the corporation and shall perform all the
duties commonly incident to that office. The President shall have authority to
execute in the name of the corporation bonds, contracts, deeds, leases and other
written instruments to be executed by the corporation. The President shall
preside at all meetings of the shareholders and, in the absence of the Chairman
of the Board or if there is none, at all meetings of the Board of Directors, and
shall perform such other duties as the Board of Directors may from time to time
determine.
Section 4.4 Vice-Presidents.
---------------
The Vice-Presidents (if there be such officers appointed), in the order of
their seniority (unless otherwise established by the Board of Directors), may
assume and perform the duties of the President in the absence or disability of
the President or whenever the offices of the Chairman of the Board and President
are vacant. The Vice-Presidents shall have such titles, perform such other
duties, and have such other powers as the Board of Directors, the President or
these Bylaws may designate from time to time.
Section 4.5 The Secretary.
-------------
The Secretary shall record or cause to be recorded, and shall keep or cause
to be kept, at the principal executive office and such other place as the Board
of Directors may order, a book of minutes of actions taken at all meetings of
directors and committees thereof and of shareholders, with the time and place of
holding, whether regular or special, and, if special, how authorized, the notice
thereof given, the names of those present at directors' meetings, the number of
shares present or represented at shareholders' meetings, and the proceedings
thereof.
The Secretary shall keep, or cause to be kept, at the principal executive
office or at the office of the corporation's transfer agent, a share register or
a duplicate share register in a form capable of being converted into written
form, showing the names of the shareholders and their addresses, the number and
classes of shares held by each, the number and date of certificates issued for
the same, and the number and date of cancellation of every certificate
surrendered for cancellation.
The Secretary shall give, or cause to be given, notice of all the meetings
of the shareholders and of the Board of Directors and committees thereof
required by these Bylaws or by law to be given, and shall have such other powers
and perform such other duties as may be prescribed by the Board of Directors or
by these Bylaws.
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The President may direct any Assistant Secretary to assume and perform the
duties of the Secretary in the absence or disability of the Secretary, and each
Assistant Secretary shall perform such other duties and have such other powers
as the Board of Directors or the President may designate from time to time.
Section 4.6 The Treasurer.
-------------
The Treasurer shall keep and maintain, or cause to be kept and maintained,
adequate and correct accounts of the properties and business transactions of the
corporation. The books of account shall at all reasonable times be open to
inspection by any director.
The Treasurer shall deposit all moneys and other valuables in the name and
to the credit of the corporation with such depositaries as may be designated by
the Board of Directors. The Treasurer shall disburse the funds of the
corporation as may be ordered by the Board of Directors, shall render to the
President and directors, whenever they request it, an account of all of the
Treasurer's transactions as Treasurer and of the financial condition of the
corporation, and shall have such other powers and perform such other duties as
may be prescribed by the Board of Directors or these Bylaws.
The President may direct any Assistant Treasurer to assume and perform the
duties of the Treasurer in the absence or disability of the Treasurer, and each
Assistant Treasurer shall perform such other duties and have such other powers
as the Board of Directors or the President may designate from time to time.
Section 4.7 The Controller.
--------------
The Controller (if there be such an officer appointed) shall be responsible
for the establishment and maintenance of accounting and other systems required
to control and account for the assets of the corporation and provide safeguards
therefor, and to collect information required for management purposes, and shall
perform such other duties and have such other powers as the Board of Directors
or the President may designate from time to time. The President may direct any
Assistant Controller to assume and perform the duties of the Controller, in the
absence or disability of the Controller, and each Assistant Controller shall
perform such other duties and have such other powers as the Board of Directors,
the Chairman of the Board (if there be such an officer appointed) or the
President may designate from time to time.
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ARTICLE V
EXECUTION OF CORPORATE INSTRUMENTS, RATIFICATION,
AND VOTING OF STOCKS OWNED BY THE CORPORATION
Section 5.1 Execution of Corporate Instruments.
----------------------------------
In its discretion, the Board of Directors may determine the method and
designate the signatory officer or officers or other person or persons, to
execute any corporate instrument or document, or to sign the corporate name
without limitation, except where otherwise provided by law, and such execution
or signature shall be binding upon the corporation.
All checks and drafts drawn on banks or other depositaries on funds to the
credit of the corporation, or in special accounts of the corporation, shall be
signed by such person or persons as the Board of Directors shall authorize to do
so.
The Board of Directors shall designate an officer who personally, or
through his representative, shall vote shares of other corporations standing in
the name of this corporation. The authority to vote shares shall include the
authority to execute a proxy in the name of the corporation for purposes of
voting the shares.
Section 5.2 Ratification by Shareholders.
----------------------------
In its discretion, the Board of Directors may submit any contract or act
for approval or ratification of the shareholders at any annual meeting of
shareholders, or at any special meeting of shareholders called for that purpose;
and any contract or act that shall be approved or ratified by the holders of a
majority of the voting power of the corporation shall be as valid and binding
upon the corporation and upon the shareholders thereof as though approved or
ratified by each and every shareholder of the corporation, unless a greater vote
is required by law for such purpose.
Section 5.3 Voting of Stocks Owned by the Corporation.
-----------------------------------------
All stock of other corporations owned or held by the corporation for
itself, or for other parties in any capacity, shall be voted, and all proxies
with respect thereto shall be executed, by the person authorized to do so by
resolution of the Board of Directors, or in the absence of such authorization,
by the Chairman of the Board (if there be such an officer appointed), the
President or any Vice-President, or by any other person authorized to do so by
the Chairman of the Board, the President or any Vice President.
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ARTICLE VI
ANNUAL AND OTHER REPORTS
Section 6.1 Reports to Shareholders.
-----------------------
The Board of Directors of the corporation shall cause an annual report to
be sent to the shareholders not later than 120 days after the close of the
fiscal year, and at least fifteen (15) days (or, if sent by third-class mail,
thirty-five (35) days) prior to the annual meeting of shareholders to be held
during the next fiscal year. This report shall contain a balance sheet as of the
end of that fiscal year and an income statement and statement of changes in
financial position for that fiscal year, accompanied by any report thereon of
independent accountants or, if there is no such report, the certificate of an
authorized officer of the corporation that the statements were prepared without
audit from the books and records of the corporation. This report shall also
contain such other matters as required by Section 1501(b) of the General
Corporation Law, unless the corporation is subject to the reporting requirements
of Section 13 of the Securities Exchange Act of 1934, and is not exempted
therefrom under Section 12(g)(2) thereof. As long as the corporation has less
than 100 holders of record of its shares (determined as provided in Section 605
of the General Corporation Law), the foregoing requirement of an annual report
is hereby waived.
If no annual report for the last fiscal year has been sent to shareholders,
the corporation shall, upon the written request of any shareholder made more
than 120 days after the close of such fiscal year, deliver or mail to the person
making the request within thirty (30) days thereafter the financial statements
for such year as required by Section 1501(a) of the General Corporation Law. A
shareholder or shareholders holding at least five percent (5%) of the
outstanding shares of any class of the corporation may make a written request to
the corporation for an income statement of the corporation for the three-month,
six-month or nine-month period of the current fiscal year ended more than thirty
(30) days prior to the date of the request and a balance sheet of the
corporation as of the end of such period and, in addition, if no annual report
for the last fiscal year has been sent to shareholders, the annual report for
the last fiscal year, unless such report has been waived under these Bylaws. The
statements shall be delivered or mailed to the person making the request within
thirty (30) days thereafter. A copy of any such statements shall be kept on file
in the principal executive office of the corporation for twelve (12) months, and
they shall be exhibited at all reasonable times to any shareholder demanding an
examination of the statements, or a copy shall be mailed to the shareholder.
The quarterly income statements and balance sheets referred to in this
Section shall be accompanied by the report thereon, if any, of any independent
accountants engaged by the corporation or the certificate of an authorized
officer of the corporation that the financial statements were prepared without
audit from the books and records of the corporation.
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Section 6.2 Report of Shareholder Vote.
--------------------------
For a period of sixty (60) days following the conclusion of an annual,
regular, or special meeting of shareholders, the corporation shall, upon written
request from a shareholder, forthwith inform the shareholder of the result of
any particular vote of shareholders taken at the meeting, including the number
of shares voting for, the number of shares voting against, and the number of
shares abstaining or withheld from voting. If the matter voted on was the
election of directors, the corporation shall report the number of shares (or
votes if voted cumulatively) cast for each nominee for director. If more than
one class or series of shares voted, the report shall state the appropriate
numbers by class and series of shares.
Section 6.3 Reports to the Secretary of State.
---------------------------------
(a) Every year, during the calendar month in which the original
articles of incorporation were filed with the California Secretary of State, or
during the preceding five calendar months, the corporation shall file a
statement with the Secretary of State on the prescribed form, setting forth the
authorized number of directors; the names and complete business and residence
addresses of all incumbent directors; the names and complete business or
resident addresses of the chief executive officer, the secretary, and the chief
financial officer; the street address of the corporation's principal executive
office or principal business office in this state; a statement of the general
type of business constituting the principal business activity of the
corporation; and a designation of the agent of the corporation for the purpose
of service of process, all in compliance with Section 1502 of the Corporations
Code of California.
(b) Notwithstanding the provisions of paragraph (a) of this
section, if there has been no change in the information contained in the
corporation's last annual statement on file in the Secretary of State's office,
the corporation may, in lieu of filing the annual statement described in
paragraph (a) of this section, advise the Secretary of State, on the appropriate
form, that no changes in the required information have occurred during the
applicable period.
ARTICLE VII
SHARES OF STOCK
Every holder of shares in the corporation shall be entitled to have a
certificate signed in the name of the corporation by the Chairman or Vice
Chairman of the Board (if there be such officers appointed) or the President or
a Vice-President and by the chief financial officer or any Assistant Treasurer
or the Secretary or any Assistant Secretary, certifying the number of shares and
the class or series of shares owned by the shareholder. Any of the signatures on
the certificate may be a facsimile. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed upon a
certificate has ceased to be such officer, transfer agent or registrar before
such certificate is issued, it may be issued by the corporation with the same
effect as if such person were an officer, transfer agent or registrar at the
date of issue.
Any such certificate shall also contain such legends or other statements as
may be required by Sections 417 and 418 of the General Corporation Law, the
Corporate Securities Law of 1968, federal or other state securities laws, and
any agreement between the corporation and the issuee of the certificate.
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Certificates for shares may be issued prior to full payment, under such
restrictions and for such purposes as the Board of Directors or these Bylaws may
provide; provided, however, that the certificate issued to represent any such
partly paid shares shall state on the face thereof the total amount of the
consideration to be paid therefor, the amount remaining unpaid and the terms of
payment.
No new certificate for shares shall be issued in lieu of an old certificate
unless the latter is surrendered and cancelled at the same time; provided,
however, that a new certificate will be issued without the surrender and
cancellation of the old certificate if (1) the old certificate is lost,
apparently destroyed or wrongfully taken; (2) the request for the issuance of
the new certificate is made within a reasonable time after the owner of the old
certificate has notice of its loss, destruction, or theft; (3) the request for
the issuance of a new certificate is made prior to the receipt of notice by the
corporation that the old certificate has been acquired by a bona fide purchaser;
(4) the owner of the old certificate files a sufficient indemnity bond with or
provides other adequate security to the corporation; and (5) the owner satisfies
any other reasonable requirement imposed by the corporation. In the event of the
issuance of a new certificate, the rights and liabilities of the corporation,
and of the holders of the old and new certificates, shall be governed by the
provisions of Sections 8104 and 8405 of the California Commercial Code.
ARTICLE VIII
INSPECTION OF CORPORATE RECORDS
Section 8.1 General Records.
---------------
The accounting books and records and the minutes of proceedings of the
shareholders, the Board of Directors and committees thereof of the corporation
and any subsidiary of the corporation shall be open to inspection upon the
written demand on the corporation of any shareholder or holder of a voting trust
certificate at any reasonable time during usual business hours, for a purpose
reasonably related to such holder's interests as a shareholder or as the holder
of such voting trust certificate. Such inspection by a shareholder or holder of
a voting trust certificate may be made in person or by agent or attorney, and
the right of inspection includes the right to copy and make extracts. Minutes of
proceedings of the shareholders, Board, and committees thereof shall be kept in
written form. Other books and records shall be kept either in written form or in
any other form capable of being converted into written form.
A shareholder or shareholders holding at least five percent (5~O) in the
aggregate of the outstanding voting shares of the corporation or who hold at
least one percent (1 %) of such voting
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shares and have filed a Schedule 14B with the United States Securities and
Exchange Commission relating to the election of directors of the corporation
shall have (in person, or by agent or attorney) the right to inspect and copy
the record of shareholders' names and addresses and shareholdings during usual
business hours upon five (5) business days' prior written demand upon the
corporation or to obtain from the transfer agent for the corporation, upon
written demand and upon the tender of its usual charges for such list, a list of
the shareholders' names and addresses, who are entitled to vote for the election
of directors, and their shareholdings, as of the most recent record date for
which it has been compiled or as of a date specified by the shareholder
subsequent to the date of demand. The list shall be made available on or before
the later of five (5) business days after the demand is received or the date
specified therein as the date as of which the list is to be compiled.
Every director shall have the absolute right at any reasonable time to
inspect and copy all books, records and documents of every kind and to inspect
the physical properties of the corporation and its subsidiaries. Such inspection
by a director may be made in person or by agent or attorney, and the right of
inspection includes the right to copy and make extracts.
Section 8.2 Inspection of Bylaws.
--------------------
The corporation shall keep at its principal executive office in California,
or if its principal executive office is not in California, then at its principal
business office in California (or shall otherwise provide upon written request
of any shareholder if it has no such office in California) the original or a
copy of these Bylaws as amended to date, which shall be open to inspection by
the shareholders at all reasonable times during office hours.
ARTICLE IX
INDEMNIFICATION OF OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS
Section 9.1 Right to Indemnification.
------------------------
Each person who was or is a party or is threatened to be made a party to or
is involved (as a party, witness, or otherwise), in any threatened, pending, or
completed action, suit, or proceeding, whether civil, criminal, administrative,
or investigative (hereafter a "Proceeding"), by reason of the fact that he, or a
person of whom he is the legal representative, is or was a director, officer,
employee, or agent of the corporation or is or was serving at the request of the
corporation as a director, officer, employee, or agent of another foreign or
domestic corporation, partnership, joint venture, trust, or other enterprise, or
was a director, officer, employee, or agent of a foreign or domestic corporation
that was a predecessor corporation of the corporation or of another enterprise
at the request of such predecessor corporation, including service with respect
to employee benefit plans, whether the basis of the Proceeding is alleged action
in an official capacity as a director, officer, employee, or agent or in any
other capacity while serving as a director, officer, employee, or agent
(hereafter an "Agent"), shall be indemnified and held harmless by the
corporation to the fullest extent authorized by statutory and decisional law, as
the same exists or may hereafter be interpreted
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or amended (but, in the case of any such amendment or interpretation, only to
the extent that such amendment or interpretation permits the corporation to
provide broader indemnification rights than were permitted prior thereto)
against all expenses, liability, and loss (including attorneys' fees, judgments,
fines, ER1SA excise taxes and penalties, amounts paid or to be paid in
settlement, any interest, assessments, or other charges imposed thereon, and any
federal, state, local, or foreign taxes imposed on any Agent as a result of the
actual or deemed receipt of any payments under this Article) [reasonably]
incurred or suffered by such person in connection with investigating, defending,
being a witness in, or participating in (including on appeal), or preparing for
any of the foregoing in, any Proceeding (hereafter "Expenses"); provided,
however, that except as to actions to enforce indemnification rights pursuant to
Section 9.3 of these Bylaws, the corporation shall indemnify any Agent seeking
indemnification in connection with a Proceeding (or part thereof) initiated by
such person only if the Proceeding (or part thereof) was authorized by the Board
of Directors of the corporation. The right to indemnification conferred in this
Article shall be a contract right. It is the corporation's intention that these
bylaws provide indemnification in excess of that expressly permitted by Section
317 of the California General Corporation Law, as authorized by the
corporation's Articles of Incorporation.
Section 9.2 Authority to Advance Expenses.
-----------------------------
Expenses incurred by an officer or director (acting in his capacity as
such) in defending a Proceeding shall be paid by the corporation in advance of
the final disposition of such Proceeding, provided, however, that if required by
the California General Corporation Law, as amended, such Expenses shall be
advanced only upon delivery to the corporation of an undertaking by or on behalf
of such director or officer to repay such amount if it shall ultimately be
determined that he is not entitled to be indemnified by the corporation as
authorized in this Article or otherwise. Expenses incurred by other Agents of
the corporation (or by the directors or officers not acting in their capacity as
such, including service with respect to employee benefit plans) may be advanced
upon the receipt of a similar undertaking, if required by law, and upon such
other terms and conditions as the Board of Directors deems appropriate. Any
obligation to reimburse the corporation for Expense advances shall be unsecured
and no interest shall be charged thereon.
Section 9.3 Right of Claimant to Bring Suit.
-------------------------------
If a claim under Section 9.1 or 9.2 of these Bylaws is not paid in full by
the corporation within thirty (30) days after a written claim has been received
by the corporation, the claimant may at any time thereafter bring suit against
the corporation to recover the unpaid amount of the claim and, if successful in
whole or in part, the claimant shall be entitled to be paid also the expense
(including attorneys' fees) of prosecuting such claim. It shall be a defense to
any such action (other than an action brought to enforce a claim for expenses
incurred in defending a Proceeding in advance of its final disposition where the
required undertaking has been tendered to the corporation) that the claimant has
not met the standards of conduct that make it permissible under the California
General Corporation Law for the corporation to indemnify the claimant for the
amount claimed. The burden of proving such a defense shall be on the
corporation. Neither the failure of the corporation (including its Board of
Directors, independent legal counsel, or its stockholders) to have made a
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determination prior to the commencement of such action that indemnification of
the claimant is proper under the circumstances because he has met the applicable
standard of conduct set forth in the California General Corporation Law, nor an
actual determination by the corporation {including its Board of Directors,
independent legal counsel, or its stockholders) that the claimant had not met
such applicable standard of conduct, shall be a defense to the action or create
a presumption that claimant has not met the applicable standard of conduct.
Section 9.4 Provisions Nonexclusive.
-----------------------
The rights conferred on any person by this Article shall not be exclusive
of any other rights that such person may have or hereafter acquire under any
statute, provision of the Articles of Incorporation, agreement, vote of
stockholders or disinterested directors, or otherwise, both as to action in an
official capacity and as to action in another capacity while holding such
office. To the extent that any provision of the Articles, agreement, or vote of
the stockholders or disinterested directors is inconsistent with these bylaws,
the provision, agreement, or vote shall take precedence.
Section 9.5 Authority to Insure.
-------------------
The corporation may purchase and maintain insurance to protect itself and
any Agent against any Expense asserted against or incurred by such person,
whether or not the corporation would have the power to indemnify the Agent
against such Expense under applicable law or the provisions of this Article,
provided that, in cases where the corporation owns all or a portion of the
shares of the company issuing the insurance policy, the company and/or the
policy must meet one of the two sets of conditions set forth in Section 317 of
the California General Corporation Law, as amended.
Section 9.6 Survival of Rights.
------------------
The rights provided by this Article shall continue as to a person who has
ceased to be an Agent and shall inure to the benefit of the heirs, executors,
and administrators of such person.
Section 9.7 Settlement of Claims.
--------------------
The corporation shall not be liable to indemnify any Agent under this
Article (a) for any amounts paid in settlement of any action or claim effected
without the corporation's written consent, which consent shall not be
unreasonably withheld; or (b) for any judicial award, if the corporation was not
given a reasonable and timely opportunity, at its expense, to participate in the
defense of such action.
Section 9.8 Effect of Amendment.
-------------------
Any amendment, repeal, or modification of this Article shall not adversely
affect any right or protect~on of any Agent existing at the time of such
amendment, repeal, or modification.
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Section 9.9 Subrogation.
-----------
In the event of payment under this Article, the corporation shall be
subrogated to the extent of such payment to all of the rights of recovery of the
Agent, who shall execute all papers required and shall do everything that may be
necessary to secure such rights, including the execution of such documents
necessary to enable the corporation effectively to bring suit to enforce such
rights.
Section 9.10 No Duplication of Payments.
--------------------------
The corporation shall not be liable under this Article to make any payment
in connection with any claim made against the Agent to the extent the Agent has
otherwise actually received payment (under any insurance policy, agreement,
vote, or otherwise) of the amounts otherwise indemnifiable hereunder.
ARTICLE X
AMENDMENTS
Section 10.1 Power of Shareholders.
---------------------
New bylaws may be adopted or these Bylaws may be amended or repealed by the
affirmative vote of a majority of the outstanding shares entitled to vote, or by
the written assent of shareholders entitled to vote such shares, except as
otherwise provided by law or by the Articles of Incorporation.
Section 10.2 Power of Directors.
------------------
Subject to the right of shareholders as provided in Section 10.1 of this
Article X to adopt, amend or repeal these Bylaws, these Bylaws (other than a
bylaw or amendment thereof providing for the approval by the Board, acting
alone, of a loan or guarantee to any officer or an employee benefit plan
providing for the same) may be adopted, amended or repealed by the Board of
Directors; provided, however, that the Board of Directors may adopt a bylaw or
amendment thereof changing the authorized number of directors only for the
purpose of fixing the exact number of directors within the limits specified in
the Articles of Incorporation or in Section 3.2 of these Bylaws.
ARTICLE XI
DEFINITIONS
Unless the context otherwise requires, the general provisions, rules of
construction and definitions contained in the General Corporation Law as amended
from time to time shall govern the construction of these Bylaws. Without
limiting the generality of the foregoing, the masculine gender
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includes the feminine and neuter, the singular number includes the plural and
the plural number includes the singular, and the term "person" includes a
corporation as well as a natural person.
ARTICLE XII
RIGHT OF FIRST REFUSAL
Section 12.1 Right of First Refusal.
----------------------
No shareholder shall sell, assign, pledge, or in any manner transfer any of
the shares of Common Stock of the corporation or any right or interest therein,
whether voluntarily or by operation of law, or by gift or otherwise, except by a
transfer which meets the requirements hereinafter set forth in this bylaw;
provided however, that shares of Common Stock received upon conversion of any
convertible securities of the corporation shall not be subject to this right of
first refusal:
(a) If the shareholder receives from anyone a bona fide offer
acceptable to the shareholder to purchase any of his shares of Common Stock,
then the shareholder shall first give written notice thereof to the corporation.
The notice shall name the proposed transferee and state the number of shares to
be transferred, the price per share and all other terms and conditions of the
offer.
(b) For fifteen (15) days following receipt of such notice, the
corporation or its assigns shall have the option to purchase all or, with the
consent of the shareholder, any lesser part of the shares specified in the
notice at the price and upon the terms set forth in such bona fide offer. In the
event the corporation elects to purchase all or, as agreed by the shareholder, a
lesser part, of the shares, it shall give written notice to the selling
shareholder of its election and settlement for said shares shall be made as
provided below in paragraph (c).
(c) In the event the corporation elects to acquire any of the
shares of the selling shareholder as specified in said selling shareholder's
notice, the Secretary of the corporation shall so notify the selling shareholder
and settlement thereof shall be made in cash within thirty (30) days after the
Secretary of the corporation receives said selling shareholder's notice;
provided that if the terms of payment set forth in said selling shareholder's
notice were other than cash against delivery, the corporation shall pay for said
shares on the same terms and conditions set forth in said selling shareholder's
notice.
(d) In the event the corporation does not elect to acquire all
of the~ shares specified in the selling shareholder's notice, said selling
shareholder may, within the sixty (60) day period following the expiration of
the option rights granted to the corporation, sell elsewhere the shares
specified in said selling shareholder's notice which were not acquired by the
corporation, in accordance with the provisions of paragraph (c) of this bylaw,
provided that said sale shall not be on terms and conditions more favorable to
the purchaser than those contained in the bona fide offer set forth in said
selling shareholder's notice. All shares so sold by said selling shareholder
shall continue to be subject to the provisions of this bylaw in the same manner
as before said transfer.
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<PAGE>
(e) Anything to the contrary contained herein notwithstanding,
the following transactions shall be exempt from the provisions of this bylaw:
(1) A shareholder's transfer of any or all shares held
either during such shareholder's lifetime or on death by will or intestacy to
such shareholder's immediate family. "Immediate family" as used herein shall
mean spouse, lineal descendent, father, mother, brother, or sister of the
shareholder making such transfer.
(2) A shareholder's bona fide pledge or mortgage of any
shares of Common Stock with a commercial lending institution, provided that any
subsequent transfer of said shares by said institution shall be conducted in the
manner set forth in this bylaw.
(3) A shareholder's transfer of any or all of such
shareholder's shares of Common Stock to any other shareholder of the
corporation.
(4) A shareholder's transfer of any or all of such
shareholders shares of Common Stock to a person who, at the time of such
transfer, is an officer or director of the corporation.
(5) A corporate shareholder's transfer of any or all of its
shares of Common Stock pursuant to and in accordance with the terms of any
merger, consolidation, reclassification of shares or capital reorganization of
the corporate shareholder, or pursuant to a sale of all or substantially all of
the stock or assets of a corporate shareholder.
(6) A corporate shareholder's transfer of any or all of its
shares of Common Stock to any or all of its shareholders.
(7) A transfer by a shareholder which is a limited or
general partnership to any or all of its partners.
In any such case, the transferee, assignee, or other recipient shall
receive and hold such stock subject to the provisions of this bylaw, and there
shall be no further transfer of such stock except in accord with this bylaw.
(f) The provisions of this bylaw may be waived with respect to
any transfer either by the corporation, upon duly authorized action of its Board
of Directors, or by the shareholders, upon the express written consent of the
owners of a majority of the voting power of the corporation (excluding the votes
represented by those shares to be sold by the selling shareholder). This bylaw
may be amended or repealed either by a duly authorized action of the Board of
Directors or by the shareholders, upon the express written consent of the owners
of a majority of the voting power of the corporation.
-25-
<PAGE>
(g) Any sale or transfer, or purported sale or transfer, of
securities of the corporation shall be null and void unless the terms,
conditions, and provisions of this bylaw are strictly observed and followed.
(h) The foregoing right of first refusal shall terminate on
either of the following dates, whichever shall first occur:
(1) On August 1, 2004,
(2) Upon the date securities of the corporation are first
offered to the public pursuant to a registration statement filed with, and
declared effective by, the Securities and Exchange Commission under the
Securities Act of 1933, as amended.
(i) The certificates representing shares of Common Stock of the
corporation shall bear on their face the following legend so long as the
foregoing right of first refusal remains in effect:
"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A RIGHT OF FIRST
REFUSAL OPTION IN FAVOR OF THE CORPORATION, AS PROVIDED IN THE BYLAWS OF THE
CORPORATION."
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<PAGE>
CERTIFICATE OF SECRETARY
The undersigned, Secretary of Nuance Communications, a California
corporation, hereby certifies that the foregoing is a full, true and correct
copy of the Bylaws of the corporation with all amendments to date of this
Certificate.
WITNESS the signature of the undersigned this 23rd day of August, 1995.
/s/ Ronald A. Croen
-------------------
Ronald A. Croen
Secretary
<PAGE>
EXHIBIT 3.5
AMENDED AND RESTATED
BYLAWS
OF
NUANCE COMMUNICATIONS, INC.
AS AMENDED ON JANUARY 19, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I CORPORATE OFFICES............................................... 1
1.1 REGISTERED OFFICE.............................................. 1
1.2 OTHER OFFICES.................................................. 1
ARTICLE II MEETINGS OF STOCKHOLDERS....................................... 1
2.1 PLACE OF MEETINGS.............................................. 1
2.2 ANNUAL MEETING................................................. 1
2.3 SPECIAL MEETING................................................ 2
2.4 NOTICE OF STOCKHOLDERS' MEETINGS............................... 2
2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE................... 2
2.6 QUORUM......................................................... 2
2.7 ADJOURNED MEETING; NOTICE...................................... 2
2.8 VOTING......................................................... 3
2.9 WAIVER OF NOTICE............................................... 3
2.10 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING........ 3
2.11 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING CONSENTS.... 4
2.12 PROXIES........................................................ 5
2.13 LIST OF STOCKHOLDERS ENTITLED TO VOTE.......................... 5
2.14 NOMINATIONS AND PROPOSALS...................................... 6
ARTICLE III DIRECTORS..................................................... 7
3.1 POWERS......................................................... 7
3.2 NUMBER OF DIRECTORS............................................ 7
3.3 ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS........ 7
3.4 RESIGNATION AND VACANCIES...................................... 7
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE....................... 8
3.6 FIRST MEETINGS................................................. 8
3.7 REGULAR MEETINGS............................................... 9
3.8 SPECIAL MEETINGS; NOTICE....................................... 9
3.9 QUORUM......................................................... 9
3.10 WAIVER OF NOTICE............................................... 9
3.11 ADJOURNED MEETING; NOTICE...................................... 10
3.12 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING.............. 10
3.13 FEES AND COMPENSATION OF DIRECTORS............................. 10
3.14 APPROVAL OF LOANS TO OFFICERS.................................. 10
3.15 REMOVAL OF DIRECTORS........................................... 10
ARTICLE IV COMMITTEES..................................................... 11
4.1 COMMITTEES OF DIRECTORS........................................ 11
</TABLE>
-i-
<PAGE>
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
Page
----
<S> <C>
4.2 COMMITTEE MINUTES.............................................. 11
4.3 MEETINGS AND ACTION OF COMMITTEES.............................. 11
ARTICLE V OFFICERS........................................................ 12
5.1 OFFICERS....................................................... 12
5.2 ELECTION OF OFFICERS........................................... 12
5.3 SUBORDINATE OFFICERS........................................... 12
5.4 REMOVAL AND RESIGNATION OF OFFICERS............................ 12
5.5 VACANCIES IN OFFICES........................................... 13
5.6 CHAIRMAN OF THE BOARD.......................................... 13
5.7 PRESIDENT...................................................... 13
5.8 VICE PRESIDENT................................................. 13
5.9 SECRETARY...................................................... 13
5.10 CHIEF FINANCIAL OFFICER........................................ 14
5.11 ASSISTANT SECRETARY............................................ 14
5.12 ASSISTANT FINANCIAL OFFICER.................................... 14
5.13 AUTHORITY AND DUTIES OF OFFICERS............................... 15
ARTICLE VI INDEMNITY...................................................... 15
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS...................... 15
6.2 INDEMNIFICATION OF OTHERS...................................... 15
6.3 INSURANCE...................................................... 15
6.4 AMENDMENT AND SCOPE............................................ 16
ARTICLE VII RECORDS AND REPORTS........................................... 16
7.1 MAINTENANCE AND INSPECTION OF RECORDS.......................... 16
7.2 INSPECTION BY DIRECTORS........................................ 17
7.3 ANNUAL STATEMENT TO STOCKHOLDERS............................... 17
7.4 REPRESENTATION OF SHARES OF OTHER CORPORATIONS................. 17
ARTICLE VIII GENERAL MATTERS.............................................. 17
8.1 CHECKS......................................................... 17
8.2 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS............... 17
8.3 STOCK CERTIFICATES; PARTLY PAID SHARES......................... 18
8.4 SPECIAL DESIGNATION ON CERTIFICATES............................ 18
8.5 LOST CERTIFICATES.............................................. 19
8.6 CONSTRUCTION; DEFINITIONS...................................... 19
8.7 DIVIDENDS...................................................... 19
8.8 FISCAL YEAR.................................................... 19
8.9 SEAL........................................................... 19
</TABLE>
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<PAGE>
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
Page
----
<S> <C>
8.10 TRANSFER OF STOCK.............................................. 20
8.11 STOCK TRANSFER AGREEMENTS...................................... 20
8.12 REGISTERED STOCKHOLDERS........................................ 20
ARTICLE IX AMENDMENTS..................................................... 20
ARTICLE X DISSOLUTION..................................................... 20
ARTICLE XI CUSTODIAN...................................................... 21
11.1 APPOINTMENT OF A CUSTODIAN IN CERTAIN CASES.................... 21
11.2 DUTIES OF CUSTODIAN............................................ 22
</TABLE>
-iii-
<PAGE>
BYLAWS
------
OF
--
NUANCE COMMUNICATIONS, INC.
---------------------------
(As adopted on November 22, 1999)
(As amended on January 19, 2000)
ARTICLE I
CORPORATE OFFICES
-----------------
1.1 REGISTERED OFFICE
-----------------
The address of the corporation's registered office in the State of Delaware
is 1209 Orange Street, Wilmington, Delaware 19801, County of New Castle. The
name of its registered agent at such address is The Corporation Trust Company.
1.2 OTHER OFFICES
-------------
The board of directors may at any time establish other offices at any place
or places where the corporation is qualified to do business.
ARTICLE II
MEETINGS OF STOCKHOLDERS
------------------------
2.1 PLACE OF MEETINGS
-----------------
Meetings of stockholders shall be held at any place, within or outside the
State of Delaware, designated by the board of directors. In the absence of any
such designation, stockholders' meetings shall be held at the registered office
of the corporation.
2.2 ANNUAL MEETING
--------------
The annual meeting of stockholders shall be held each year on a date and at
a time designated by the board of directors. At the meeting, directors shall be
elected and any other proper business may be transacted.
<PAGE>
2.3 SPECIAL MEETING
---------------
A special meeting of the stockholders may be called at any time by the
board of directors, or by the chairman of the board, or by the president, or so
long as the corporation is subject to the provisions of Section 2115 of the
California General Corporation Law, by one or more stockholders holding shares
in the aggregate entitled to cast not less than ten percent (10%) of the votes
at that meeting.
2.4 NOTICE OF STOCKHOLDERS' MEETINGS
--------------------------------
All notices of meetings with stockholders shall be in writing and shall be
sent or otherwise given in accordance with Section 2.5 of these bylaws not less
than ten (10) nor more than sixty (60) days before the date of the meeting to
each stockholder entitled to vote at such meeting. The notice shall specify the
place, date, and hour of the meeting, and, in the case of a special meeting, the
purpose or purposes for which the meeting is called.
2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE
--------------------------------------------
Written notice of any meeting of stockholders, if mailed, is given when
deposited in the United States mail, postage prepaid, directed to the
stockholder at his address as it appears on the records of the corporation. An
affidavit of the secretary or an assistant secretary or of the transfer agent of
the corporation that the notice has been given shall, in the absence of fraud,
be prima facie evidence of the facts stated therein.
2.6 QUORUM
------
The holders of a majority of the stock issued and outstanding and entitled
to vote thereat, present in person or represented by proxy, shall constitute a
quorum at all meetings of the stockholders for the transaction of business
except as otherwise provided by statute or by the certificate of incorporation.
If, however, such quorum is not present or represented at any meeting of the
stockholders, then the stockholders entitled to vote thereat, present in person
or represented by proxy, shall have power to adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum is
present or represented. At such adjourned meeting at which a quorum is present
or represented, any business may be transacted that might have been transacted
at the meeting as originally noticed.
2.7 ADJOURNED MEETING; NOTICE
-------------------------
When a meeting is adjourned to another time or place, unless these bylaws
otherwise require, notice need not be given of the adjourned meeting if the time
and place thereof are announced at the meeting at which the adjournment is
taken. At the adjourned meeting the corporation may transact any business that
might have been transacted at the original meeting. If the adjournment is for
more than thirty (30) days, or if after the adjournment a new record date is
fixed for the adjourned meeting, a notice of the adjourned meeting shall be
given to each stockholder of record entitled to vote at the meeting.
-2-
<PAGE>
2.8 VOTING
------
The stockholders entitled to vote at any meeting of stockholders shall be
determined in accordance with the provisions of Section 2.11 of these bylaws,
subject to the provisions of Sections 217 and 218 of the General Corporation Law
of Delaware (relating to voting rights of fiduciaries, pledgors and joint owners
of stock and to voting trusts and other voting agreements).
At a stockholders' meeting at which directors are to be elected, or at
elections held under special circumstances, each stockholder shall be entitled
to one vote for each share of Common Stock held by such stockholder and to the
number of votes equal to the number of shares of Common Stock into which their
Preferred Stock is convertible on the appropriate record date. There shall be no
cumulative voting.
2.9 WAIVER OF NOTICE
----------------
Whenever notice is required to be given under any provision of the General
Corporation Law of Delaware or of the certificate of incorporation or these
bylaws, a written waiver thereof, signed by the person entitled to notice,
whether before or after the time stated therein, shall be deemed equivalent to
notice. Attendance of a person at a meeting shall constitute a waiver of notice
of such meeting, except when the person attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the stockholders need be specified in any written waiver of notice unless so
required by the certificate of incorporation or these bylaws.
2.10 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING
-------------------------------------------------------
Unless otherwise provided in the certificate of incorporation, any action
required by this chapter to be taken at any annual or special meeting of
stockholders of the corporation, or any action that may be taken at any annual
or special meeting of such stockholders, may be taken without a meeting, without
prior notice, and without a vote if a consent in writing, setting forth the
action so taken, is signed by the holders of outstanding stock having not less
than the minimum number of votes that would be necessary to authorize or take
such action at a meeting at which all shares entitled to vote thereon were
present and voted.
Not withstanding the foregoing, effective upon the registration of any
class of securities of the Corporation pursuant to the requirements of the
Securities Exchange Act of 1934, as amended, the stockholders of the Corporation
may not take action by written consent without a meeting duly called.
Prompt notice of the taking of the corporate action without a meeting by
less than unanimous written consent shall be given to those stockholders who
have not consented in writing. If the action which is consented to is such as
would have required the filing of a certificate under any section of the General
Corporation Law of Delaware if such action had been voted on by stockholders at
a meeting thereof, then the certificate filed under such section shall state, in
lieu of any statement
-3-
<PAGE>
required by such section concerning any vote of stockholders, that written
notice and written consent have been given as provided in Section 228 of the
General Corporation Law of Delaware.
In the event of the delivery, in the manner provided hereby, to the
corporation of the requisite written consent or consents to take corporate
action and/or any related revocation or revocations, the corporation may engage
independent inspectors of elections for the purpose of performing promptly a
ministerial review of the validity of the consents and revocations. For the
purpose of permitting the inspectors to perform such review, in the event such
inspectors are appointed, no action by written consent without a meeting shall
be effective until such date as such appointed independent inspectors certify to
the corporation that the consents delivered to the corporation in accordance
herewith represent at least the minimum number of votes that would be necessary
to take the corporate action. Nothing contained in these Bylaws shall in any way
be construed to suggest or imply that the board of directors or any stockholder
shall not be entitled to contest the validity of any consent or revocation
thereof, whether before or after any certification by any independent
inspectors, or to take any other action (including, without limitation, the
commencement, prosecution or defense of any litigation with respect thereto, and
the seeking of injunctive relief in such litigation).
Every written consent shall bear the date of signature of each stockholder
who signs the consent and no written consent shall be effective to take the
corporate action referred to therein unless, within sixty (60) days of the
earliest dated written consent received in accordance herewith, a written
consent or consents signed by a sufficient number of holders to take such action
are delivered to the corporation in the manner prescribed herein.
2.11 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING CONSENTS
-----------------------------------------------------------
(i) Actions other than Written Consent. For the purpose of
----------------------------------
determining the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or entitled to receive payment of any
dividend or other distribution or the allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion, or exchange of stock,
or other lawful purpose (other than the expression of consent to corporate
action in writing without a meeting) the directors may fix, in advance, a record
date, which, in the case of a meeting of stockholders, shall not be more than 60
days nor less than 10 days before the date of such meeting. If no record date is
fixed, the record date for determining stockholders entitled to notice of or to
vote at a meeting of stockholders shall be at the close of business on the day
next preceding the day on which notice is given, or, if notice is waived, at the
close of business on the day next preceding the day on which the meeting is held
and the record date for determining stockholders for any other purpose pursuant
to this Section 2.11(i) shall be at the close of business on the day on which
the board of directors adopts the resolution relating thereto. A determination
of stockholders of record entitled to notice of or to vote at any meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
that the board of directors may fix a new record date for the adjourned meeting.
-4-
<PAGE>
(ii) Action by Written Consent. In order that the corporation may
-------------------------
determine the stockholders entitled to consent to corporate action in writing
without a meeting, the board of directors may fix a record date, which record
date shall not precede the date upon which the resolution fixing the record date
is adopted by the board of directors. Any stockholder of record seeking to have
the stockholders authorize or take corporate action by written consent shall, by
written notice to the secretary, request the board of directors to fix a record
date. The board of directors may, at any time within ten (10) days after the
date on which such a request is received, adopt a resolution fixing the record
date (unless a record date has previously been fixed by the first sentence of
this Section 2.11(ii)). If no record date has been fixed by the board of
directors pursuant to the first sentence of this Section 2.11(ii) or otherwise
within ten (10) days of the date on which such a request is received, the record
date for determining stockholders entitled to consent to corporate action in
writing without a meeting, when no prior action by the board of directors is
required by applicable law, shall be the first date on which a signed written
consent setting forth the action taken or proposed to be taken is delivered to
the corporation by delivery to its registered office in Delaware, its principal
place of business, or to any officer or agent of the corporation having custody
of the book in which proceedings of meetings of stockholders are recorded.
Delivery shall be by hand or by certified or registered mail, return receipt
requested. If no record date has been fixed by the board of directors and prior
action by the board of directors is required by applicable law, the record date
for determining stockholders entitled to consent to corporate action in writing
without a meeting shall be at the close of business on the date on which the
board of directors adopts the resolution taking such prior action.
2.12 PROXIES
-------
Each stockholder entitled to vote at a meeting of stockholders or to
express consent or dissent to corporate action in writing without a meeting may
authorize another person or persons to act for him by a written proxy, signed by
the stockholder and filed with the secretary of the corporation, but no such
proxy shall be voted or acted upon after three (3) years from its date, unless
the proxy provides for a longer period. A proxy shall be deemed signed if the
stockholder's name is placed on the proxy (whether by manual signature,
typewriting, telegraphic transmission or otherwise) by the stockholder or the
stockholder's attorney-in-fact. The revocability of a proxy that states on its
face that it is irrevocable shall be governed by the provisions of Section
212(c) of the General Corporation Law of Delaware.
2.13 LIST OF STOCKHOLDERS ENTITLED TO VOTE
-------------------------------------
The officer who has charge of the stock ledger of the corporation shall
prepare and make, 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
-5-
<PAGE>
the time and place of the meeting during the whole time thereof, and may be
inspected by any stockholder who is present.
2.14 NOMINATIONS AND PROPOSALS
-------------------------
Nominations of persons for election to the board of directors of the
corporation and the proposal of business to be considered by the stockholders
may be made at any meeting of stockholders only (a) pursuant to the
corporation's notice of meeting, (b) by or at the direction of the board of
directors or (c) by any stockholder of the corporation who was a stockholder of
record at the time of giving of notice provided for in these bylaws, who is
entitled to vote at the meeting and who complies with the notice procedures set
forth in this Section 2.14.
For nominations or other business to be properly brought before a
stockholders meeting by a stockholder pursuant to clause (c) of the preceding
sentence, the stockholder must have given timely notice thereof in writing to
the secretary of the corporation and such other business must otherwise be a
proper matter for stockholder action. To be timely, a stockholder's notice shall
be delivered to the secretary at the principal executive offices of the
corporation not later than the close of business on the 60th day nor earlier
than the close of business on the 90th day prior to the meeting; provided,
however, that in the event that less than 65 days notice of the meeting is given
to stockholders, notice by the stockholder to be timely must be so delivered not
earlier than the close of business on the seventh (7th) day following the day on
which the notice of meeting was mailed. In no event shall the public
announcement of an adjournment of a stockholders meeting commence a new time
period for the giving of a stockholder's notice as described above. Such
stockholder's notice shall set forth (a) as to each person whom the stockholder
proposes to nominate for election or reelection as a director all information
relating to such person that is required to be disclosed in solicitations of
proxies for election of directors in an election contest, or is otherwise
required, in each case pursuant to Regulation 14A under the Securities Exchange
Act of 1934, as amended (or any successor thereto) and Rule 14a-11 thereunder
(or any successor thereto) (including such person's written consent to being
named in the proxy statement as a nominee and to serving as a director if
elected); (b) as to any other business that the stockholder proposes to bring
before the meeting, a brief description of the business desired to be brought
before the meeting, the reasons for conducting such business at the meeting and
any material interest in such business of such stockholder and the beneficial
owner, if any, on whose behalf the proposal is made; and (c) as to the
stockholder giving the notice and the beneficial owner, if any, on whose behalf
the nomination or proposal is made (i) the name and address of such stockholder,
as they appear on the corporation's books, and of such beneficial owner, and
(ii) the class and number of shares of the corporation which are owned
beneficially and of record by such stockholder and such beneficial owner.
Notwithstanding any provision herein to the contrary, no business shall be
conducted at a stockholders meeting except in accordance with the procedures set
forth in this Section 2.14.
-6-
<PAGE>
ARTICLE III
DIRECTORS
---------
3.1 POWERS
------
Subject to the provisions of the General Corporation Law of Delaware and
any limitations in the certificate of incorporation or these bylaws relating to
action required to be approved by the stockholders or by the outstanding shares,
the business and affairs of the corporation shall be managed and all corporate
powers shall be exercised by or under the direction of the board of directors.
3.2 NUMBER OF DIRECTORS
-------------------
Subject to any contrary provisions in the certificate of incorporation, the
authorized number of directors shall be eight (8). This number may be changed by
a duly adopted amendment to the certificate of incorporation or by an amendment
to this bylaw adopted by the vote or written consent of the holders of a
majority of the stock issued and outstanding and entitled to vote or by
resolution of a majority of the board of directors.
No reduction of the authorized number of directors shall have the effect of
removing any director before that director's term of office expires.
3.3 ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS
-------------------------------------------------------
Except as provided in the certificate of incorporation and Section 3.4 of
these bylaws, directors shall be elected at each annual meeting of stockholders
to hold office until the next annual meeting. Directors need not be stockholders
unless so required by the certificate of incorporation or these bylaws, wherein
other qualifications for directors may be prescribed. Each director, including a
director elected to fill a vacancy, shall hold office until his successor is
elected and qualified or until his earlier resignation or removal.
Elections of directors need not be by written ballot.
3.4 RESIGNATION AND VACANCIES
-------------------------
Any director may resign at any time upon written notice to the corporation.
When one or more directors so resigns and the resignation is effective at a
future date, a majority of the directors then in office, including those who
have so resigned, shall have power to fill such vacancy or vacancies, the vote
thereon to take effect when such resignation or resignations shall become
effective, and each director so chosen shall hold office as provided in this
section in the filling of other vacancies.
Unless otherwise provided in the certificate of incorporation or these
bylaws:
-7-
<PAGE>
(i) Vacancies and newly created directorships resulting from any
increase in the authorized number of directors elected by all of the
stockholders having the right to vote as a single class may be filled by a
majority of the directors then in office, although less than a quorum, or by a
sole remaining director.
(ii) Whenever the holders of any class or classes of stock or
series thereof are entitled to elect one or more directors by the provisions of
the certificate of incorporation, vacancies and newly created directorships of
such class or classes or series may be filled by a majority of the directors
elected by such class or classes or series thereof then in office, or by a sole
remaining director so elected.
If at any time, by reason of death or resignation or other cause, the
corporation should have no directors in office, then any officer or any
stockholder or an executor, administrator, trustee or guardian of a stockholder,
or other fiduciary entrusted with like responsibility for the person or estate
of a stockholder, may call a special meeting of stockholders in accordance with
the provisions of the certificate of incorporation or these bylaws, or may apply
to the Court of Chancery for a decree summarily ordering an election as provided
in Section 211 of the General Corporation Law of Delaware.
If, at the time of filling any vacancy or any newly created directorship,
the directors then in office constitute less than a majority of the whole board
(as constituted immediately prior to any such increase), then the Court of
Chancery may, upon application of any stockholder or stockholders holding at
least ten (10) percent of the total number of the shares at the time outstanding
having the right to vote for such directors, summarily order an election to be
held to fill any such vacancies or newly created directorships, or to replace
the directors chosen by the directors then in office as aforesaid, which
election shall be governed by the provisions of Section 211 of the General
Corporation Law of Delaware as far as applicable.
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE
----------------------------------------
The board of directors of the corporation may hold meetings, both regular
and special, either within or outside the State of Delaware.
Unless otherwise restricted by the certificate of incorporation or these
bylaws, members of the board of directors, or any committee designated by the
board of directors, may participate in a meeting of the board of directors, or
any committee, by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and such participation in a meeting shall constitute presence in
person at the meeting.
3.6 FIRST MEETINGS
--------------
The first meeting of each newly elected board of directors shall be held at
such time and place as shall be fixed by the vote of the stockholders at the
annual meeting and no notice of such meeting shall be necessary to the newly
elected directors in order legally to constitute the meeting, provided a quorum
shall be present. In the event of the failure of the stockholders to fix the
time or
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place of such first meeting of the newly elected board of directors, or in the
event such meeting is not held at the time and place so fixed by the
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, or as shall be specified in a written waiver signed by all
of the directors.
3.7 REGULAR MEETINGS
----------------
Regular meetings of the board of directors may be held without notice at
such time and at such place as shall from time to time be determined by the
board.
3.8 SPECIAL MEETINGS; NOTICE
------------------------
Special meetings of the board of directors for any purpose or purposes may
be called at any time by the chairman of the board, the president, any vice
president, the secretary or any two (2) directors.
Notice of the time and place of special meetings shall be delivered
personally or by telephone to each director or sent by first-class mail or
telegram, charges prepaid, addressed to each director at that director's address
as it is shown on the records of the corporation. If the notice is mailed, it
shall be deposited in the United States mail at least four (4) days before the
time of the holding of the meeting. If the notice is delivered personally or by
telephone or by telegram, it shall be delivered personally or by telephone or to
the telegraph company at least forty-eight (48) hours before the time of the
holding of the meeting. Any oral notice given personally or by telephone may be
communicated either to the director or to a person at the office of the director
who the person giving the notice has reason to believe will promptly communicate
it to the director. The notice need not specify the purpose or the place of the
meeting, if the meeting is to be held at the principal executive office of the
corporation.
3.9 QUORUM
------
At all meetings of the board of directors, a majority of the authorized
number of directors shall constitute a quorum for the transaction of business
and the act of a majority of the directors present at any meeting at which there
is a quorum shall be the act of the board of directors, except as may be
otherwise specifically provided by statute or by the certificate of
incorporation. If a quorum is not present at any meeting of the board of
directors, then the directors present thereat may adjourn the meeting from time
to time, without notice other than announcement at the meeting, until a quorum
is present.
3.10 WAIVER OF NOTICE
----------------
Whenever notice is required to be given under any provision of the General
Corporation Law of Delaware or of the certificate of incorporation or these
bylaws, a written waiver thereof, signed by the person entitled to notice,
whether before or after the time stated therein, shall be deemed equivalent to
notice. Attendance of a person at a meeting shall constitute a waiver of notice
of such meeting, except when the person attends a meeting for the express
purpose of objecting, at the
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beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened. Neither the business to be transacted at,
nor the purpose of, any regular or special meeting of the directors, or members
of a committee of directors, need be specified in any written waiver of notice
unless so required by the certificate of incorporation or these bylaws.
3.11 ADJOURNED MEETING; NOTICE
-------------------------
If a quorum is not present at any meeting of the board of directors, then
the directors present thereat may adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum is present.
3.12 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING
-------------------------------------------------
Unless otherwise restricted by the certificate of incorporation or these
bylaws, any action required or permitted to be taken at any meeting of the board
of directors, or of any committee thereof, may be taken without a meeting if all
members of the board or committee, as the case may be, consent thereto in
writing and the writing or writings are filed with the minutes of proceedings of
the board or committee.
3.13 FEES AND COMPENSATION OF DIRECTORS
----------------------------------
Unless otherwise restricted by the certificate of incorporation or these
bylaws, the board of directors shall have the authority to fix the compensation
of directors.
3.14 APPROVAL OF LOANS TO OFFICERS
-----------------------------
The corporation may lend money to, or guarantee any obligation of, or
otherwise assist any officer or other employee of the corporation or of its
subsidiary, including any officer or employee who is a director of the
corporation or its subsidiary, whenever, in the judgment of the directors, such
loan, guaranty or assistance may reasonably be expected to benefit the
corporation. The loan, guaranty or other assistance may be with or without
interest and may be unsecured, or secured in such manner as the board of
directors shall approve, including, without limitation, a pledge of shares of
stock of the corporation. Nothing contained in this section shall be deemed to
deny, limit or restrict the powers of guaranty or warranty of the corporation at
common law or under any statute.
3.15 REMOVAL OF DIRECTORS
--------------------
Unless otherwise restricted by statute, by the certificate of incorporation
or by these bylaws, any director or the entire board of directors may be
removed, with cause, by the holders of a majority of the shares then entitled to
vote at an election of directors.
No reduction of the authorized number of directors shall have the effect of
removing any director prior to the expiration of such director's term of office.
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ARTICLE IV
COMMITTEES
----------
4.1 COMMITTEES OF DIRECTORS
-----------------------
The board of directors may, by resolution passed by a majority of the whole
board, designate one or more committees, with 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 or
disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not 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 or in the bylaws of the corporation, shall have and may
exercise all the powers and authority of the board of directors in the
management of the business and affairs of the corporation, and may authorize the
seal of the corporation to be affixed to all papers that may require it; but no
such committee shall have the power or authority to (i) amend the certificate of
incorporation (except that a committee may, to the extent authorized in the
resolution or resolutions providing for the issuance of shares of stock adopted
by the board of directors as provided in Section 151(a) of the General
Corporation Law of Delaware, fix any of the preferences or rights of such shares
relating to dividends, redemption, dissolution, any distribution of assets of
the corporation or the conversion into, or the exchange of such shares for,
shares of any other class or classes or any other series of the same or any
other class or classes of stock of the corporation), (ii) adopt an agreement of
merger or consolidation under Sections 251 or 252 of the General Corporation Law
of Delaware, (iii) recommend to the stockholders the sale, lease or exchange of
all or substantially all of the corporation's property and assets, (iv)
recommend to the stockholders a dissolution of the corporation or a revocation
of a dissolution, or (v) amend the bylaws of the corporation; and, unless the
board resolution establishing the committee, the bylaws or the certificate of
incorporation expressly so provide, no such committee shall have the power or
authority to declare a dividend, to authorize the issuance of stock, or to adopt
a certificate of ownership and merger pursuant to Section 253 of the General
Corporation Law of Delaware.
4.2 COMMITTEE MINUTES
-----------------
Each committee shall keep regular minutes of its meetings and report the
same to the board of directors when required.
4.3 MEETINGS AND ACTION OF COMMITTEES
---------------------------------
Meetings and actions of committees shall be governed by, and held and taken
in accordance with, the provisions of Article III of these bylaws, Section 3.5
(place of meetings and meetings by telephone), Section 3.7 (regular meetings),
Section 3.8 (special meetings and notice), Section 3.9 (quorum), Section 3.10
(waiver of notice), Section 3.11 (adjournment and notice of adjournment),
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and Section 3.12 (action without a meeting), with such changes in the context of
those bylaws as are necessary to substitute the committee and its members for
the board of directors and its members; provided, however, that the time of
regular meetings of committees may also be called by resolution of the board of
directors and that notice of special meetings of committees shall also be given
to all alternate members, who shall have the right to attend all meetings of the
committee. The board of directors may adopt rules for the government of any
committee not inconsistent with the provisions of these bylaws.
ARTICLE V
OFFICERS
--------
5.1 OFFICERS
--------
The officers of the corporation shall be a president, one or more vice
presidents, a secretary, and a treasurer. The corporation may also have, at the
discretion of the board of directors, a chairman of the board, one or more
assistant vice presidents, assistant secretaries, assistant treasurers, and any
such other officers as may be appointed in accordance with the provisions of
Section 5.3 of these bylaws. Any number of offices may be held by the same
person.
5.2 ELECTION OF OFFICERS
--------------------
The officers of the corporation, except such officers as may be appointed
in accordance with the provisions of Sections 5.3 or 5.5 of these bylaws, shall
be chosen by the board of directors, subject to the rights, if any, of an
officer under any contract of employment.
5.3 SUBORDINATE OFFICERS
--------------------
The board of directors may appoint, or empower the president to appoint,
such other officers and agents as the business of the corporation may require,
each of whom shall hold office for such period, have such authority, and perform
such duties as are provided in these bylaws or as the board of directors may
from time to time determine.
5.4 REMOVAL AND RESIGNATION OF OFFICERS
-----------------------------------
Subject to the rights, if any, of an officer under any contract of
employment, any officer may be removed, either with or without cause, by an
affirmative vote of the majority of the board of directors at any regular or
special meeting of the board or, except in the case of an officer chosen by the
board of directors, by any officer upon whom such power of removal may be
conferred by the board of directors.
Any officer may resign at any time by giving written notice to the
corporation. Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified in
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that notice; and, unless otherwise specified in that notice, the acceptance of
the resignation shall not be necessary to make it effective. Any resignation is
without prejudice to the rights, if any, of the corporation under any contract
to which the officer is a party.
5.5 VACANCIES IN OFFICES
--------------------
Any vacancy occurring in any office of the corporation shall be filled by
the board of directors.
5.6 CHAIRMAN OF THE BOARD
---------------------
The chairman of the board, if such an officer be elected, shall, if
present, preside at meetings of the board of directors and exercise and perform
such other powers and duties as may from time to time be assigned to him by the
board of directors or as may be prescribed by these bylaws. If there is no
president, then the chairman of the board shall also be the chief executive
officer of the corporation and shall have the powers and duties prescribed in
Section 5.7 of these bylaws.
5.7 PRESIDENT
---------
Subject to such supervisory powers, if any, as may be given by the board of
directors to the chairman of the board, if there be such an officer, the
president shall be the chief executive officer of the corporation and shall,
subject to the control of the board of directors, have general supervision,
direction, and control of the business and the officers of the corporation. He
shall preside at all meetings of the stockholders and, in the absence or
nonexistence of a chairman of the board, at all meetings of the board of
directors. He shall have the general powers and duties of management usually
vested in the office of president of a corporation and shall have such other
powers and duties as may be prescribed by the board of directors or these
bylaws.
5.8 VICE PRESIDENT
--------------
In the absence or disability of the president, the vice presidents, if any,
in order of their rank as fixed by the board of directors or, if not ranked, a
vice president designated by the board of directors, shall perform all the
duties of the president and when so acting shall have all the powers of, and be
subject to all the restrictions upon, the president. The vice presidents shall
have such other powers and perform such other duties as from time to time may be
prescribed for them respectively by the board of directors, these bylaws, the
president or the chairman of the board.
5.9 SECRETARY
---------
The secretary shall keep or cause to be kept, at the principal executive
office of the corporation or such other place as the board of directors may
direct, a book of minutes of all meetings and actions of directors, committees
of directors, and stockholders. The minutes shall show the time and place of
each meeting, whether regular or special (and, if special, how authorized and
the notice given), the names of those present at directors' meetings or
committee meetings, the number of shares present or represented at stockholders'
meetings, and the proceedings thereof.
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The secretary shall keep, or cause to be kept, at the principal executive
office of the corporation or at the office of the corporation's transfer agent
or registrar, as determined by resolution of the board of directors, a share
register, or a duplicate share register, showing the names of all stockholders
and their addresses, the number and classes of shares held by each, the number
and date of certificates evidencing such shares, and the number and date of
cancellation of every certificate surrendered for cancellation.
The secretary shall give, or cause to be given, notice of all meetings of
the stockholders and of the board of directors required to be given by law or by
these bylaws. He shall keep the seal of the corporation, if one be adopted, in
safe custody and shall have such other powers and perform such other duties as
may be prescribed by the board of directors or by these bylaws.
5.10 CHIEF FINANCIAL OFFICER
-----------------------
The chief financial officer shall keep and maintain, or cause to be kept
and maintained, adequate and correct books and records of accounts of the
properties and business transactions of the corporation, including accounts of
its assets, liabilities, receipts, disbursements, gains, losses, capital,
retained earnings, and shares. The books of account shall at all reasonable
times be open to inspection by any director.
The chief financial officer shall deposit all money and other valuables in
the name and to the credit of the corporation with such depositaries as may be
designated by the board of directors. He shall disburse the funds of the
corporation as may be ordered by the board of directors, shall render to the
president and directors, whenever they request it, an account of all of his
transactions as chief financial officer and of the financial condition of the
corporation, and shall have such other powers and perform such other duties as
may be prescribed by the board of directors or these bylaws.
5.11 ASSISTANT SECRETARY
-------------------
The assistant secretary, or, if there is more than one, the assistant
secretaries in the order determined by the stockholders or board of directors
(or if there be no such determination, then in the order of their election)
shall, in the absence of the secretary or in the event of his or her inability
or refusal to act, 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 or the stockholders may from time to time prescribe.
5.12 ASSISTANT FINANCIAL OFFICER
---------------------------
The assistant financial officer, or, if there is more than one, the
assistant financial officers, in the order determined by the stockholders or
board of directors (or if there be no such determination, then in the order of
their election), shall, in the absence of the chief financial officer or in the
event of his or her inability or refusal to act, perform the duties and exercise
the powers of the chief financial officer and shall perform such other duties
and have such other powers as the board of directors or the stockholders may
from time to time prescribe.
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<PAGE>
5.13 AUTHORITY AND DUTIES OF OFFICERS
--------------------------------
In addition to the foregoing authority and duties, all officers of the
corporation shall respectively have such authority and perform such duties in
the management of the business of the corporation as may be designated from time
to time by the board of directors or the stockholders.
ARTICLE VI
INDEMNITY
---------
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS
-----------------------------------------
The corporation shall, to the maximum extent and in the manner permitted by
the General Corporation Law of Delaware, indemnify each of its directors and
officers against expenses (including attorneys' fees), judgments, fines,
settlements, and other amounts actually and reasonably incurred in connection
with any proceeding, arising by reason of the fact that such person is or was an
agent of the corporation. For purposes of this Section 6.1, a "director" or
"officer" of the corporation includes any person (i) who is or was a director or
officer of the corporation, (ii) who is or was serving at the request of the
corporation as a director or officer of another corporation, partnership, joint
venture, trust or other enterprise, or (iii) who was a director or officer of a
corporation which was a predecessor corporation of the corporation or of another
enterprise at the request of such predecessor corporation.
6.2 INDEMNIFICATION OF OTHERS
-------------------------
The corporation shall have the power, to the extent and in the manner
permitted by the General Corporation Law of Delaware, to indemnify each of its
employees and agents (other than directors and officers) against expenses
(including attorneys' fees), judgments, fines, settlements, and other amounts
actually and reasonably incurred in connection with any proceeding, arising by
reason of the fact that such person is or was an agent of the corporation. For
purposes of this Section 6.2, an "employee" or "agent" of the corporation (other
than a director or officer) includes any person (i) who is or was an employee or
agent of the corporation, (ii) who is or was serving at the request of the
corporation as an employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, or (iii) who was an employee or agent of a
corporation which was a predecessor corporation of the corporation or of another
enterprise at the request of such predecessor corporation.
6.3 INSURANCE
---------
The corporation may purchase and maintain insurance on behalf of any person
who is or was a director, officer, employee or agent of the corporation, or is
or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against any liability asserted against him and incurred by him
in any such capacity, or arising out of his status as such, whether or not the
corporation would have the
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power to indemnify him against such liability under the provisions of the
General Corporation Law of Delaware.
6.4 AMENDMENT AND SCOPE.
-------------------
The rights conferred in these bylaws are not exclusive, and the corporation
is authorized to enter into indemnification agreements with its directors,
executive officers and employees. Neither any amendment nor repeal of this
Article VI nor the adoption of any provision of these bylaws inconsistent with
this Article VI shall eliminate or reduce the effect of this Article VI, in
respect of any matter occurring, or any action or proceeding accruing or arising
or that, but for this Article VI, would accrue or arise, prior to such
amendment, repeal or adoption of an inconsistent provision.
ARTICLE VII
RECORDS AND REPORTS
-------------------
7.1 MAINTENANCE AND INSPECTION OF RECORDS
-------------------------------------
The corporation shall, either at its principal executive office or at such
place or places as designated by the board of directors, keep a record of its
stockholders listing their names and addresses and the number and class of
shares held by each stockholder, a copy of these bylaws as amended to date,
accounting books, and other records.
Any stockholder of record, in person or by attorney or other agent, shall,
upon written demand under oath stating the purpose thereof, have the right
during the usual hours for business to inspect for any proper purpose the
corporation's stock ledger, a list of its stockholders, and its other books and
records and to make copies or extracts therefrom. A proper purpose shall mean a
purpose reasonably related to such person's interest as a stockholder. In every
instance where an attorney or other agent is the person who seeks the right to
inspection, the demand under oath shall be accompanied by a power of attorney or
such other writing that authorizes the attorney or other agent to so act on
behalf of the stockholder. The demand under oath shall be directed to the
corporation at its registered office in Delaware or at its principal place of
business.
The officer who has charge of the stock ledger of the corporation shall
prepare and make, 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.
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7.2 INSPECTION BY DIRECTORS
-----------------------
Any director shall have the right to examine the corporation's stock
ledger, a list of its stockholders, and its other books and records for a
purpose reasonably related to his position as a director. The Court of Chancery
is hereby vested with the exclusive jurisdiction to determine whether a director
is entitled to the inspection sought. The Court may summarily order the
corporation to permit the director to inspect any and all books and records, the
stock ledger, and the stock list and to make copies or extracts therefrom. The
Court may, in its discretion, prescribe any limitations or conditions with
reference to the inspection, or award such other and further relief as the Court
may deem just and proper.
7.3 ANNUAL STATEMENT TO STOCKHOLDERS
--------------------------------
The board of directors shall present at each annual meeting, and at any
special meeting of the stockholders when called for by vote of the stockholders,
a full and clear statement of the business and condition of the corporation.
7.4 REPRESENTATION OF SHARES OF OTHER CORPORATIONS
----------------------------------------------
The chairman of the board, the president, any vice president, the chief
financial officer, the secretary or assistant secretary of this corporation, or
any other person authorized by the board of directors or the president or a vice
president, is authorized to vote, represent, and exercise on behalf of this
corporation all rights incident to any and all shares of any other corporation
or corporations standing in the name of this corporation. The authority granted
herein may be exercised either by such person directly or by any other person
authorized to do so by proxy or power of attorney duly executed by such person
having the authority.
ARTICLE VIII
GENERAL MATTERS
---------------
8.1 CHECKS
------
From time to time, the board of directors shall determine by resolution
which person or persons may sign or endorse all checks, drafts, other orders for
payment of money, notes or other evidences of indebtedness that are issued in
the name of or payable to the corporation, and only the persons so authorized
shall sign or endorse those instruments.
8.2 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS
------------------------------------------------
The board of directors, except as otherwise provided in these bylaws, may
authorize any officer or officers, or agent or agents, to enter into any
contract or execute any instrument in the name of and on behalf of the
corporation; such authority may be general or confined to specific
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instances. Unless so authorized or ratified by the board of directors or within
the agency power of an officer, no officer, agent or employee shall have any
power or authority to bind the corporation by any contract or engagement or to
pledge its credit or to render it liable for any purpose or for any amount.
8.3 STOCK CERTIFICATES; PARTLY PAID SHARES
--------------------------------------
The shares of the corporation shall be represented by certificates,
provided that the board of directors of the corporation may provide by
resolution or resolutions that some or all of any or all classes or series of
its stock shall be uncertificated shares. Any such resolution shall not apply
to shares represented by a certificate until such certificate is surrendered to
the corporation. Notwithstanding the adoption of such a resolution by the board
of directors, every holder of stock represented by certificates and upon request
every holder of uncertificated shares shall be entitled to have a certificate
signed by, or in the name of the corporation by the chairman or vice-chairman of
the board of directors, or the president or vice-president, and by the chief
financial officer or an assistant financial officer, or the secretary or an
assistant secretary of such corporation representing the number of shares
registered in certificate form. Any or all of the signatures on the certificate
may be a facsimile. In case any officer, transfer agent or registrar who has
signed or whose facsimile signature has been placed upon a certificate has
ceased to be such officer, transfer agent or registrar before such certificate
is issued, it may be issued by the corporation with the same effect as if he
were such officer, transfer agent or registrar at the date of issue.
The corporation may issue the whole or any part of its shares as partly
paid and subject to call for the remainder of the consideration to be paid
therefor. Upon the face or back of each stock certificate issued to represent
any such partly paid shares, upon the books and records of the corporation in
the case of uncertificated partly paid shares, the total amount of the
consideration to be paid therefor and the amount paid thereon shall be stated.
Upon the declaration of any dividend on fully paid shares, the corporation shall
declare a dividend upon partly paid shares of the same class, but only upon the
basis of the percentage of the consideration actually paid thereon.
8.4 SPECIAL DESIGNATION ON CERTIFICATES
-----------------------------------
If the corporation is authorized to issue more than one class of stock or
more than one series of any class, then the powers, the designations, the
preferences, and the relative, participating, optional or other special rights
of each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate that the corporation shall
issue to represent such class or series of stock; provided, however, that,
except as otherwise provided in Section 202 of the General Corporation Law of
Delaware, in lieu of the foregoing requirements there may be set forth on the
face or back of the certificate that the corporation shall issue to represent
such class or series of stock a statement that the corporation will furnish
without charge to each stockholder who so requests the powers, the designations,
the preferences, and the relative, 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.
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8.5 LOST CERTIFICATES
-----------------
Except as provided in this Section 8.5, no new certificates for shares
shall be issued to replace a previously issued certificate unless the latter is
surrendered to the corporation and cancelled at the same time. The corporation
may issue a new certificate of stock or uncertificated shares in the place of
any certificate theretofore issued by it, alleged to have been lost, stolen or
destroyed, and the corporation may require the owner of the lost, stolen or
destroyed certificate, or his legal representative, to give the corporation a
bond sufficient to indemnify it against any claim that may be made against it on
account of the alleged loss, theft or destruction of any such certificate or the
issuance of such new certificate or uncertificated shares.
8.6 CONSTRUCTION; DEFINITIONS
-------------------------
Unless the context requires otherwise, the general provisions, rules of
construction, and definitions in the Delaware General Corporation Law shall
govern the construction of these bylaws. Without limiting the generality of
this provision, the singular number includes the plural, the plural number
includes the singular, and the term "person" includes both a corporation and a
natural person.
8.7 DIVIDENDS
---------
The directors of the corporation, subject to any restrictions contained in
the certificate of incorporation, may declare and pay dividends upon the shares
of its capital stock pursuant to the General Corporation Law of Delaware.
Dividends may be paid in cash, in property, or in shares of the corporation's
capital stock.
The directors of the corporation may set apart out of any of the funds of
the corporation available for dividends a reserve or reserves for any proper
purpose and may abolish any such reserve. Such purposes shall include but not be
limited to equalizing dividends, repairing or maintaining any property of the
corporation, and meeting contingencies.
8.8 FISCAL YEAR
-----------
The fiscal year of the corporation shall be fixed by resolution of the
board of directors and may be changed by the board of directors.
8.9 SEAL
----
This corporation may have a corporate seal, which may be adopted or altered
at the pleasure of the board of directors, and may use the same by causing it or
a facsimile thereof, to be impressed or affixed or in any other manner
reproduced.
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8.10 TRANSFER OF STOCK
-----------------
Upon surrender to the corporation or the transfer agent of the corporation
of a certificate for shares duly endorsed or accompanied by proper evidence of
succession, assignation or authority to transfer, it shall be the duty of the
corporation to issue a new certificate to the person entitled thereto, cancel
the old certificate, and record the transaction in its books.
8.11 STOCK TRANSFER AGREEMENTS
-------------------------
The corporation shall have power to enter into and perform any agreement
with any number of stockholders of any one or more classes of stock of the
corporation to restrict the transfer of shares of stock of the corporation of
any one or more classes owned by such stockholders in any manner not prohibited
by the General Corporation Law of Delaware.
8.12 REGISTERED STOCKHOLDERS
-----------------------
The corporation shall be entitled to recognize the exclusive right of a
person registered on its books as the owner of shares to receive dividends and
to vote as such owner, shall be entitled to hold liable for calls and
assessments the person registered on its books as the owner of shares, and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of another person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware.
ARTICLE IX
AMENDMENTS
----------
The original or other bylaws of the corporation may be adopted, amended or
repealed by the stockholders entitled to vote; provided, however, that the
corporation may, in its certificate of incorporation, confer the power to adopt,
amend or repeal bylaws upon the directors. The fact that such power has been so
conferred upon the directors shall not divest the stockholders of the power, nor
limit their power to adopt, amend or repeal bylaws.
ARTICLE X
DISSOLUTION
-----------
If it should be deemed advisable in the judgment of the board of directors
of the corporation that the corporation should be dissolved, the board, after
the adoption of a resolution to that effect by a majority of the whole board at
any meeting called for that purpose, shall cause notice to be mailed
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to each stockholder entitled to vote thereon of the adoption of the resolution
and of a meeting of stockholders to take action upon the resolution.
At the meeting a vote shall be taken for and against the proposed
dissolution. If a majority of the outstanding stock of the corporation entitled
to vote thereon votes for the proposed dissolution, then a certificate stating
that the dissolution has been authorized in accordance with the provisions of
Section 275 of the General Corporation Law of Delaware and setting forth the
names and residences of the directors and officers shall be executed,
acknowledged, and filed and shall become effective in accordance with Section
103 of the General Corporation Law of Delaware. Upon such certificate's
becoming effective in accordance with Section 103 of the General Corporation Law
of Delaware, the corporation shall be dissolved.
Whenever all the stockholders entitled to vote on a dissolution consent in
writing, either in person or by duly authorized attorney, to a dissolution, no
meeting of directors or stockholders shall be necessary. The consent shall be
filed and shall become effective in accordance with Section 103 of the General
Corporation Law of Delaware. Upon such consent's becoming effective in
accordance with Section 103 of the General Corporation Law of Delaware, the
corporation shall be dissolved. If the consent is signed by an attorney, then
the original power of attorney or a photocopy thereof shall be attached to and
filed with the consent. The consent filed with the Secretary of State shall
have attached to it the affidavit of the secretary or some other officer of the
corporation stating that the consent has been signed by or on behalf of all the
stockholders entitled to vote on a dissolution; in addition, there shall be
attached to the consent a certification by the secretary or some other officer
of the corporation setting forth the names and residences of the directors and
officers of the corporation.
ARTICLE XI
CUSTODIAN
---------
11.1 APPOINTMENT OF A CUSTODIAN IN CERTAIN CASES
-------------------------------------------
The Court of Chancery, upon application of any stockholder, may appoint one
or more persons to be custodians and, if the corporation is insolvent, to be
receivers, of and for the corporation when:
(i) at any meeting held for the election of directors the
stockholders are so divided that they have failed to elect successors to
directors whose terms have expired or would have expired upon qualification of
their successors; or
(ii) the business of the corporation is suffering or is threatened
with irreparable injury because the directors are so divided respecting the
management of the affairs of the corporation that the required vote for action
by the board of directors cannot be obtained and the stockholders are unable to
terminate this division; or
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(iii) the corporation has abandoned its business and has failed within
a reasonable time to take steps to dissolve, liquidate or distribute its assets.
11.2 DUTIES OF CUSTODIAN
-------------------
The custodian shall have all the powers and title of a receiver appointed
under Section 291 of the General Corporation Law of Delaware, but the authority
of the custodian shall be to continue the business of the corporation and not to
liquidate its affairs and distribute its assets, except when the Court of
Chancery otherwise orders and except in cases arising under Sections 226(a)(3)
or 352(a)(2) of the General Corporation Law of Delaware.
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Certificate by Secretary of Adoption
------------------------------------
The undersigned hereby certifies that he is the duly elected, qualified,
and acting Secretary of Nuance Communications, Inc. and that the foregoing
bylaws, comprising 22 pages, were amended on January 19, 2000, by the Board of
Directors of the Corporation pursuant to Section 109 of the Delaware General
Corporation Law and Article VII, Section 2 of the Certificate of Incorporation
of Nuance Communications, Inc.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and affixed
the corporate seal this 21 day of January, 2000.
/s/ Graham Smith, Secretary
---------------------------
Graham Smith, Secretary
<PAGE>
Exhibit 4.2
- --------------------------------------------------------------------------------
NUANCE COMMUNICATIONS
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
OCTOBER 1, 1999
- --------------------------------------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
----
<C> <S> <C>
1. Registration Rights................................................ 1
1.1 Definitions.................................................. 1
1.2 Request for Registration..................................... 3
1.3 Company Registration......................................... 4
1.4 Obligations of the Company................................... 4
1.5 Furnish Information.......................................... 6
1.6 Expenses of Demand Registration.............................. 6
1.7 Expenses of Company Registration............................. 7
1.8 Underwriting Requirements.................................... 7
1.9 Delay of Registration........................................ 8
1.10 Indemnification.............................................. 8
1.11 Reports Under Securities Exchange Act of 1934................ 10
1.12 Form S-3 Registration........................................ 11
1.13 Assignment of Registration Rights............................ 12
1.14 Limitations on Subsequent Registration Rights................ 12
1.15 "Market Stand-Off" Agreement................................. 12
1.16 Termination of Registration Rights........................... 13
2. Covenants of the Company........................................... 13
2.1 Delivery of Financial Statements............................. 13
2.2 Right of First Refusal....................................... 14
2.3 Right of First Refusal on Secondary Sale of Common Stock..... 16
2.4 Inspection Rights............................................ 16
2.5 Proprietary Agreements....................................... 16
3. Miscellaneous...................................................... 16
3.1 Successors and Assigns....................................... 17
3.2 Governing Law................................................ 17
3.3 Counterparts................................................. 17
3.4 Titles and Subtitles......................................... 17
3.5 Notices...................................................... 17
3.6 Expenses..................................................... 17
3.7 Amendments and Waivers....................................... 17
3.8 Severability................................................. 17
3.9 Aggregation of Stock......................................... 18
3.10 Entire Agreement............................................. 18
</TABLE>
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AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
THIS AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT (the "Agreement") is
made and entered into as of the 1st day of October, 1999 (the "Closing"), by and
among Nuance Communications, a California corporation (the "Company"), and the
investors listed on Schedule A (each an "Investor" and collectively, the
----------
"Investors").
RECITALS
--------
WHEREAS, the Company and certain investors first entered into an Investor
Rights Agreement on December 20, 1994 providing for, among other things, certain
registration rights, rights to financial information and rights of first
refusal; and
WHEREAS, the Company and certain investors agreed to amend and restate such
Investor Rights Agreement on August 29, 1995, January 6, 1997, and on March 27,
1998, and such parties now desire to amend and restate such Investor Rights
Agreement again; and
WHEREAS, the Company and certain Investors listed on Schedule A have
entered into agreements for sale by the Company and purchase by such Investors
of shares of Series E Preferred Stock issued by the Company; and
WHEREAS, in connection with the purchase and sale of such Series E
Preferred Stock, the Company and the Investors desire to provide the purchasers
of the Company's Series E Preferred Stock the rights set forth herein;
NOW, THEREFORE, THE PRIOR INVESTOR RIGHTS AGREEMENT IS HEREBY AMENDED AND
RESTATED IN ITS ENTIRETY AS FOLLOWS:
1. Registration Rights. The Company covenants and agrees as follows:
1.1 Definitions. For purposes of this Agreement:
(a) The term "Act" means the Securities Act of 1933, as
amended.
(b) The term "Affiliate" of a Holder (as defined below), means
any stockholder, parent or subsidiary of any Holder which is not a natural
person.
(c) The term "Form S-3" means such form under the Act as in
effect on the date hereof or any registration form under the Act subsequently
adopted by the SEC (as defined
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<PAGE>
below) which permits inclusion or incorporation of substantial information by
reference to other documents filed by the Company with the SEC.
(d) The term "Holder" (and collectively, "Holders") means any
person owning or having the right to acquire Registrable Securities or any
assignee thereof in accordance with Section 1.13 hereof;
(e) The term "Initial Public Offering" shall mean the closing
of a bona fide, firm commitment underwritten public offering of the Company's
securities registered under the Securities Act.
(f) The term "1934 Act" shall mean the Securities Exchange Act
of 1934, as amended.
(g) The term "Preferred Stock" shall mean shares of the
Company's issued and outstanding Series A Preferred Stock, Series A-1 Preferred
Stock, Series B Preferred Stock, Series B-1 Preferred Stock, Series C Preferred
Stock, Series C-1 Preferred Stock, Series D Preferred Stock, Series D-1
Preferred Stock, Series E Preferred Stock, and Series E-1 Preferred Stock.
(h) The term "register," "registered," and "registration" refer
to a registration effected by preparing and filing a registration statement or
similar document in compliance with the Act, and the declaration or ordering of
effectiveness of such registration statement or document.
(i) The term "Registrable Securities" means (i) the Common
Stock issuable or issued upon conversion of the Preferred Stock and (ii) any
Common Stock of the Company issued as (or issuable upon the conversion or
exercise of any warrant, right or other security which is issued as) a dividend
or other distribution with respect to, or in exchange for or in replacement of
the shares referenced in (i) above, excluding in all cases, however, any
Registrable Securities sold by a person in a transaction in which such person's
rights under this Section 1 are not assigned in accordance with Section 1.13.
(j) The number of shares of "Registrable Securities then
outstanding" shall be determined by the number of shares of Common Stock
outstanding which are, and the number of shares of Common Stock issuable
pursuant to then exercisable or convertible securities which are, Registrable
Securities.
(k) The term "SEC" shall mean the Securities and Exchange
Commission.
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<PAGE>
1.2 Request for Registration
(a) If the Company shall receive (i) at any time after March 6,
2001, a written request from the Holders of at least 40% of the Registrable
Securities that the Company file a registration statement under the Act pursuant
to which the aggregate offering price to the public would exceed $5,000,000,
(ii) at any time after the date of the first sale to the public pursuant to a
registration statement of the Company filed under the Act and after the market
stand-off time period specified in Section 1.15, a written request from the
Holders of Registrable Securities that the Company file a registration statement
under the Act pursuant to which the aggregate offering price to the public would
exceed $10,000,000, or (iii) at any time after one year anniversary of the date
of the first sale to the public pursuant to a registration statement of the
Company filed under the Act, a written request from the Holders of Registrable
Securities that the Company file a registration statement under the Act pursuant
to which the aggregate offering price to the public would exceed $5,000,000 then
the Company shall:
(i) within ten (10) days of the receipt thereof, give
written notice of such request to all Holders; and
(ii) effect, as soon as practicable, and in any event
within 60 days of the receipt of such request, the registration under the Act of
all of the Registrable Securities which the Holders request to be registered,
subject to the limitations of this Section 1.2.
(b) If the Holders initiating the registration request
hereunder ( "Initiating Holders") intend to distribute the Registrable
Securities covered by their request by means of an underwriting, they shall so
advise the Company as a part of their request made pursuant to subsection 1.2(a)
hereof, and the Company shall include such information in the written notice
referred to in said subsection. The underwriter will be selected by the Company
and shall be reasonably acceptable to a majority in interest of the Initiating
Holders. In such event, the right of any Holder to include his Registrable
Securities in such registration shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting (unless otherwise mutually agreed by
a majority in interest of the Initiating Holders and such Holder) to the extent
provided herein. All Holders proposing to distribute their securities through
such underwriting shall, together with the Company as provided in subsection
1.4(e), enter into an underwriting agreement in customary form with the
underwriter or underwriters selected for such underwriting. Notwithstanding any
other provision of this Section 1.2, if the underwriter advises the Initiating
Holders and the Company in writing that marketing factors require a limitation
of the number of shares to be underwritten, then the Company shall so advise all
Holders of Registrable Securities which would otherwise be underwritten pursuant
hereto, and the number of shares of Registrable Securities that may be included
in the underwriting shall be allocated among all Holders thereof, including the
Initiating Holders, in proportion (as nearly as practicable) to the amount of
Registrable Securities of the Company owned by each Holder; provided, however,
-------- -------
that the number of shares of Registrable Securities to be included in
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<PAGE>
such underwriting shall not be reduced unless all other securities are first
entirely excluded from the underwriting.
(c) Notwithstanding the foregoing, if the Company shall furnish
to Holders requesting a registration statement pursuant to this Section 1.2, a
certificate signed by the President of the Company stating that in the good
faith judgment of the Board of Directors of the Company, it would be seriously
detrimental to the Company and its shareholders for such registration statement
to be filed and it is therefore essential to defer the filing of such
registration statement, the Company shall have the right to defer taking action
with respect to such filing for a period of not more than 120 days after receipt
of the request of the Initiating Holders; provided, however, that the Company
may not utilize this right more than once in any twelve-month period.
(d) In addition, the Company shall not be obligated to effect,
or to take any action to effect, any registration pursuant to this Section 1.2:
(i) After the Company has effected a total of three (3)
registrations pursuant to Section 1.2(a) hereof and such registrations have been
declared or ordered effective;
(ii) During the period starting with the date sixty (60)
days prior to the Company's good faith estimate of the date of filing of, and
ending on a date one hundred eighty (180) days after the effective date of, a
registration subject to Section 1.3 hereof; provided that the Company is
actively employing in good faith all reasonable efforts to cause such
registration statement to become effective; or
(iii) Prior to March 6, 2001.
1.3 Company Registration. If (but without any obligation to do so)
the Company proposes to register (including for this purpose a registration
effected by the Company for shareholders other than the Holders) any of its
stock or other securities under the Act in connection with the public offering
of such securities solely for cash (other than a registration relating solely to
the sale of securities to participants in a Company stock plan, a registration
relating to an acquisition or similar transaction or a registration in which the
only Common Stock being registered is Common Stock issuable upon conversion of
debt securities which are also being registered), the Company shall, at such
time, promptly give each Holder written notice of such registration. Upon the
written request of each Holder given within twenty (20) days after mailing of
such notice by the Company in accordance with Section 3.5, the Company shall,
subject to the provisions of Section 1.8, cause to be registered under the Act
all of the Registrable Securities that each such Holder has requested to be
registered.
1.4 Obligations of the Company. Whenever required under this
Section 1 to effect the registration of any Registrable Securities, the Company
shall, as expeditiously as reasonably possible:
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<PAGE>
(a) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use its best efforts to cause such
registration statement to become effective, and, upon the request of the Holders
of a majority of the Registrable Securities registered thereunder, keep such
registration statement effective for a period of up to one hundred twenty (120)
days or until the distribution contemplated in the Registration Statement has
been completed; provided, however, that (i) such 120-day period shall be
-------- -------
extended for a period of time equal to the period the Holder refrains from
selling any securities included in such registration at the request of an
underwriter of Common Stock (or other securities) of the Company; and (ii) in
the case of any registration of Registrable Securities on Form S-3 which are
intended to be offered on a continuous or delayed basis, such 120-day period
shall be extended, if necessary, to keep the registration statement effective
until all such Registrable Securities are sold, provided that Rule 415, or any
successor rule under the Act, permits an offering on a continuous or delayed
basis, and provided further that applicable rules under the Act governing the
obligation to file a post-effective amendment permit, in lieu of filing a post-
effective amendment which (i) includes any prospectus required by Section
10(a)(3) of the Act or (ii) reflects facts or events representing a material or
fundamental change in the information set forth in the registration statement,
the incorporation by reference of information required to be included in (i) and
(ii) above to be contained in periodic reports filed pursuant to Section 13 or
15(d) of the 1934 Act in the registration statement.
(b) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Act with respect to the disposition of all securities covered
by such registration statement.
(c) Furnish to the Holders such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Act, and such other documents as they may reasonably request
in order to facilitate the disposition of Registrable Securities owned by them.
(d) Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue Sky
laws of such jurisdictions as shall be reasonably requested by the Holders;
provided that the Company shall not be required in connection therewith or as a
condition thereto to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions.
(e) In the event of any underwritten public offering, enter
into and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
(f) Notify each Holder of Registrable Securities covered by
such registration statement at any time when a prospectus relating thereto is
required to be delivered under the Act of the happening of any event as a result
of which the prospectus included in such
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<PAGE>
registration statement, as then in effect, includes an untrue statement of a
material fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in the light of the
circumstances then existing.
(g) Cause all such Registrable Securities registered pursuant
hereunder to be listed on each securities exchange on which similar securities
issued by the Company are then listed.
(h) Provide a transfer agent and registrar for all Registrable
Securities registered pursuant hereunder and a CUSIP number for all such
Registrable Securities, in each case not later than the effective date of such
registration.
(i) Use its best efforts to furnish, at the request of any
Holder requesting registration of Registrable Securities pursuant to this
Section 1, on the date that such Registrable Securities are delivered to the
underwriters for sale in connection with a registration pursuant to this Section
1, if such securities are being sold through underwriters, on the date that the
registration statement with respect to such securities becomes effective, (i) an
opinion, dated such date, of the counsel representing the Company for the
purposes of such registration, in form and substance as is customarily given to
underwriters in an underwritten public offering, addressed to the underwriters
and (ii) a letter dated such, from the independent certified public accountants
of the Company, in form and substance as is customarily given by independent
certified public accountants to underwriters in an underwritten public offering,
addressed to the underwriters.
1.5 Furnish Information
(a) It shall be a condition precedent to the obligations of the
Company to take any action pursuant to this Section 1 with respect to the
Registrable Securities of any selling Holder that such Holder shall furnish to
the Company such information regarding itself, the Registrable Securities held
by it, and the intended method of disposition of such securities as shall be
required to effect the registration of such Holder's Registrable Securities.
(b) The Company shall have no obligation with respect to any
registration requested pursuant to Section 1.2 or Section 1.12 if, due to the
operation of subsection 1.5(a), the number of shares or the anticipated
aggregate offering price of the Registrable Securities to be included in the
registration does not equal or exceed the number of shares or the anticipated
aggregate offering price required to originally trigger the Company's obligation
to initiate such registration as specified in subsection 1.2(a) or subsection
1.12(b)(2), whichever is applicable.
1.6 Expenses of Demand Registration. The Company shall pay all
expenses other than underwriting discounts and commissions incurred in
connection with up to three (3) registrations, filings or qualifications
pursuant to Section 1.2, including, without limitation, all registration, filing
and qualification fees, printers' and accounting fees, fees and disbursements of
counsel for the Company (including fees and disbursements of counsel for the
Company in its
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<PAGE>
capacity as counsel to the selling Holders hereunder; if Company counsel does
not make itself available for this purpose, the Company will pay the reasonable
fees and disbursements of one counsel for the selling Holders) but excluding all
underwriting discounts and commissions associated with Registrable Securities;
provided, however, that the Company shall not be required to pay for any of
- -------- -------
expenses any registration proceeding begun pursuant to Section 1.2(a) if the
registration request is subsequently withdrawn at the request of the Holders of
a majority of the Registrable Securities to be registered (in which case all
participating Holders shall bear such expenses pro rata), unless the Holders of
a majority of the Registrable Securities agree to forfeit their right to one
demand registration; provided further however, that if at the time of such
-------- ------- -------
withdrawal, the Holders have learned of a material adverse change in the
condition, business, or prospects of the Company from that known to the Holders
at the time of their request and have withdrawn the request with reasonable
promptness following disclosure by the Company of such material adverse change,
then the Holders shall not be required to pay any of such expenses and shall
retain their rights pursuant to Section 1.2.
1.7 Expenses of Company Registration. The Company shall bear and
pay all expenses incurred in connection with any registration, filing or
qualification of Registrable Securities with respect to the registrations
pursuant to Section 1.3 for each Holder (which right may be assigned as provided
in Section 1.13), including (without limitation) all registration, filing, and
qualification fees, printers and accounting fees relating or apportionable
thereto and the fees and disbursements of counsel for the Company (including
fees and disbursements of counsel for the Company in its capacity as counsel to
the selling Holders hereunder; if Company counsel does not make itself available
for this purpose, the Company will pay the reasonable fees and disbursements of
one counsel for the selling Holders), but excluding underwriting discounts and
commissions associated with Registrable Securities.
1.8 Underwriting Requirements. In connection with any offering
involving an underwriting of shares of the Company's capital stock, the Company
shall not be required under Section 1.3 to include any of the Holders'
securities in such underwriting unless they accept the terms of the underwriting
as agreed upon between the Company and the underwriters selected by it (or by
other persons entitled to select the underwriters), and then only in such
quantity as the underwriters determine in their sole discretion will not
jeopardize the success of the offering by the Company. If the total amount of
securities, including Registrable Securities, requested by shareholders to be
included in such offering exceeds the amount of securities sold other than by
the Company that the underwriters determine in their sole discretion is
compatible with the success of the offering, then the Company shall be required
to include in the offering only that number of such securities, including
Registrable Securities, which the underwriters determine in their sole
discretion will not jeopardize the success of the offering (the securities so
included to be apportioned pro rata among the selling shareholders according to
the total amount of securities entitled to be included therein owned by each
selling shareholder or in such other proportions as shall mutually be agreed to
by such selling shareholders) but in no event shall (i) the amount of securities
of the selling Holders, to the extent that such securities include Registrable
Securities, be reduced below thirty percent
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<PAGE>
(30%) of the total amount of securities included in such offering, unless such
offering is the initial public offering of the Company's securities in which
case the selling shareholders may be excluded if the underwriters make the
determination described above and no other shareholder's securities are included
or (ii) notwithstanding (i) above, any shares being sold by a shareholder
exercising a demand registration right similar to that granted in Section 1.2 be
excluded from such offering. For purposes of the preceding parenthetical
concerning apportionment, for any selling shareholder which is a Holder of
Registrable Securities and which is a partnership or corporation, the partners,
retired partners and shareholders of such holder, or the estates and family
members of any such partners and retired partners and any trusts for the benefit
of any of the foregoing persons shall be deemed to be a single "selling
shareholder," and any pro-rata reduction with respect to such "selling
shareholder" shall be based upon the aggregate amount of shares carrying
registration rights owned by all entities and individuals included in such
"selling shareholder," as defined in this sentence.
1.9 Delay of Registration. No Holder shall have any right to obtain
or seek an injunction restraining or otherwise delaying any such registration as
the result of any controversy that might arise with respect to the
interpretation or implementation of this Section 1.
1.10 Indemnification. In the event any Registrable Securities are
included in a registration statement under this Section 1:
(a) To the extent permitted by law, the Company will indemnify
and hold harmless each Holder, any underwriter (as defined in the Act) for such
Holder and each person, if any, who controls such Holder or underwriter within
the meaning of the Act or the 1934 Act, against any losses, claims, damages, or
liabilities joint or several to which they may become subject under the Act, the
1934 Act or other federal or state law, insofar as such losses, claims, damages,
or liabilities (or actions in respect thereof) arise out of or are based upon
any of the following statements, omissions or violations (collectively a
"Violation"): (i) any untrue statement or alleged untrue statement of a material
fact contained in such registration statement, including any preliminary
prospectus or final prospectus contained therein or any amendments or
supplements thereto (ii) the omission or alleged omission to state therein a
material fact required to be stated therein, or necessary to make the statements
therein not misleading, or (iii) any violation or alleged violation by the
Company of the Act, the 1934 Act, any state securities law or any rule or
regulation promulgated under the Act, the 1934 Act or any state securities law;
and the Company will pay to each such Holder, underwriter or controlling person,
as incurred, any legal or other expenses reasonably incurred by them in
connection with investigating or defending any such loss, claim, damage,
liability, or action; provided, however, that the indemnity agreement contained
in this subsection 1.10(a) shall not apply to amounts paid in settlement of any
such loss, claim, damage, liability, or action if such settlement is effected
without the consent of the Company (which consent shall not be unreasonably
withheld), nor shall the Company be liable in any such case for any such loss,
claim, damage, liability, or action to the extent that it arises out of or is
based upon a Violation which occurs in reliance upon and in conformity with
written information furnished expressly for use in connection with such
registration by any such Holder, underwriter or controlling person.
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<PAGE>
(b) To the extent permitted by law, each selling Holder will
indemnify and hold harmless the Company, each of its directors, each of its
officers, each person, if any, who controls the Company within the meaning of
the Act or the 1934 Act, any underwriter, any other Holder selling securities in
such registration statement and any controlling person of any such underwriter
or other Holder, against any losses, claims, damages, or liabilities (joint or
several) to which any of the foregoing persons may become subject, under the
Act, the 1934 Act or other federal or state law, insofar as such losses, claims,
damages, or liabilities (or actions in respect thereto) arise out of or are
based upon any Violation, in each case to the extent (and only to the extent)
that such Violation occurs in reliance upon and in conformity with written
information furnished by such Holder expressly for use in connection with such
registration; and each such Holder will pay any legal or other expenses as
reasonably incurred by any person intended to be indemnified pursuant to this
subsection 1.10(b), in connection with investigating or defending any such loss,
claim, damage, liability, or action; provided, however, that the indemnity
agreement contained in this subsection 1.10(b) shall not apply to amounts paid
in settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Holder, which consent shall
not be unreasonably withheld; provided, that, in no event shall any indemnity
under this subsection 1.10(b) exceed the gross proceeds from the offering
received by such Holder.
(c) Promptly after receipt by an indemnified party under this
Section 1.10 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 1.10, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party
(together with all other indemnified parties which may be represented without
conflict by one counsel) shall have the right to retain one separate counsel,
with the fees and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential differing
interests between such indemnified party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action, if prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this Section
1.10, but the omission so to deliver written notice to the indemnifying party
will not relieve it of any liability that it may have to any indemnified party
otherwise than under this Section 1.10.
(d) If the indemnification provided for in this Section 1.10 is
held by a court of competent jurisdiction to be unavailable to an indemnified
party with respect to any loss liability, claim, damage, or expense referred to
therein, then the indemnifying party, in lieu of indemnifying such indemnified
party hereunder, shall contribute to the amount paid or payable by such
indemnified party as a result of such loss, liability, claim, damage, or expense
in such proportion as is appropriate to reflect the relative fault of the
indemnifying party on the one hand and
-9-
<PAGE>
of the indemnified party on the other in connection with the statements or
omissions that resulted in such loss, liability, claim, damage, or expense as
well as any other relevant equitable considerations. The relative fault of the
indemnifying party and of the indemnified party shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or the omission to state a material fact relates to information
supplied by the indemnifying party or by the indemnified party and the parties'
relative intent, knowledge, access to information, and opportunity to correct or
prevent such statement or omission.
(e) Notwithstanding the foregoing, to the extent that the
provisions on indemnification and contribution contained in the underwriting
agreement entered into in connection with the underwritten public offering are
in conflict with the foregoing provisions, the provisions in the underwriting
agreement shall control.
(f) The obligations of the Company and Holders under this
Section 1.10 shall survive the completion of any offering of Registrable
Securities in a registration statement under this Section 1, and otherwise.
1.11 Reports Under Securities Exchange Act of 1934. With a view to
making available to the Holders the benefits of Rule 144 promulgated under the
Act and any other rule or regulation of the SEC that may at any time permit a
Holder to sell securities of the Company to the public without registration or
pursuant to a registration on Form S-3, the Company agrees to:
(a) make and keep public information available, as those terms
are understood and defined in SEC Rule 144, at all times after ninety (90) days
after the effective date of the first registration statement filed by the
Company for the offering of its securities to the general public;
(b) take such action, including the voluntary registration of
its Common Stock under Section 12 of the 1934 Act, as is necessary to enable the
Holders to utilize Form S-3 for the sale of their Registrable Securities, such
action to be taken as soon as practicable after the end of the fiscal year in
which the first registration statement filed by the Company for the offering of
its securities to the general public is declared effective;
(c) file with the SEC in a timely manner all reports and other
documents required of the Company under the Act and the 1934 Act; and
(d) furnish to any Holder, so long as the Holder owns any
Registrable Securities, forthwith upon request (i) a written statement by the
Company that it has complied with the reporting requirements of SEC Rule 144 (at
any time after ninety (90) days after the effective date of the first
registration statement filed by the Company), the Act and the 1934 Act (at any
time after it has become subject to such reporting requirements), or that it
qualifies as a registrant whose securities may be resold pursuant to Form S-3
(at any time after it so qualifies), (ii) a copy of the most recent annual or
quarterly report of the Company and such other reports and documents so filed
-10-
<PAGE>
by the Company, and (iii) such other information as may be reasonably requested
in availing any Holder of any rule or regulation of the SEC which permits the
selling of any such securities without registration or pursuant to such form.
1.12 Form S-3 Registration. In case the Company shall receive from
any Holder or Holders a written request or requests that the Company effect a
registration on Form S-3 and any related qualification or compliance with
respect to all or a part of the Registrable Securities owned by such Holder or
Holders, the Company will:
(a) promptly give written notice of the proposed registration,
and any related qualification or compliance, to all other Holders; and
(b) as soon as practicable, use its best efforts to cause such
registration and all such qualifications and compliances as may be so requested
and as would permit or facilitate the sale and distribution of all or such
portion of such Holder's or Holders' Registrable Securities as are specified in
such request, together with all or such portion of the Registrable Securities of
any other Holder or Holders joining in such request as are specified in a
written request given within fifteen (15) days after receipt of such written
notice from the Company; provided, however, that the Company shall not be
-------- -------
obligated to effect any such registration, qualification or compliance, pursuant
to this section 1.12: (1) if Form S-3 is not available for such offering by the
Holders; (2) if the Holders, together with the holders of any other securities
of the Company entitled to inclusion in such registration, propose to sell
Registrable Securities and such other securities (if any) at an aggregate price
to the public (net of any underwriters' discounts or commissions) of less than
$1,000,000; (3) if the Company shall furnish to the Holders a certificate signed
by the President of the Company stating that in the good faith judgment of the
Board of Directors of the Company it would be seriously detrimental to the
Company and its shareholders for such Form S-3 Registration to be effected at
such time, in which event the Company shall have the right to defer the filing
of the Form S-3 registration statement for a period of not more than sixty (60)
days after receipt of the request of the Holder or Holders under this Section
1.12; provided, however, that the Company shall not utilize this right more than
once in any twelve (12) month period; (4) if the Company has, within the twelve
(12) month period preceding the date of such request, already effected one (1)
registration on Form S-3 for the Holders pursuant to this Section 1.12; or (5)
in any particular jurisdiction in which the Company would be required to qualify
to do business or to execute a general consent to service of process in
effecting such registration, qualification or compliance.
(c) Subject to the foregoing, the Company shall file a
registration statement covering Registrable Securities and other securities so
requested to be registered as soon as practicable after receipt of the request
or requests of the Holders. The Company shall bear all expenses incurred in
connection with up to three (3) registrations requested pursuant to Section
1.12, including, without limitation, all registration, filing, qualification,
printer's and accounting fees and the reasonable fees and disbursements of
counsel for the selling Holder or Holders and counsel for the Company, but
excluding all underwriters' discounts or commissions associated with Registrable
-11-
<PAGE>
Securities. All expenses incurred in connection with subsequent registrations
requested pursuant to Section 1.12, including, without limitation, all
registration, filing, qualification, printer's and accounting fees and the
reasonable fees and disbursements of counsel for the selling holder or holders
and counsel for the Company, but excluding any underwriters' discounts or
commissions associated with Registrable Securities, shall be borne pro rata by
the Holder or Holders participating in the Form S-3 Registration. Registrations
effected pursuant to this Section 1.12 shall not be counted as demands for
registration or registrations effected pursuant to Sections 1.2 or 1.3,
respectively.
1.13 Assignment of Registration Rights. The rights to cause the
Company to register Registrable Securities pursuant to this Section 1 may be
assigned (but only with all related obligations) by a Holder to any Affiliate of
such Holder or any transferee or assignee of such securities who, after such
assignment or transfer, holds at least twenty percent (20%) of the aggregate
Registrable Securities held by such Holder immediately following the Closing (or
a lesser percentage if all shares of Registrable Securities then held by a
Holder are transferred) (subject to appropriate adjustment for stock splits,
stock dividends, combinations and other recapitalizations); provided that: (a)
-------- ----
the Company is, within a reasonable time after such transfer furnished with
written notice of the name and address of such transferee or assignee and the
securities with respect to which such registration rights are being assigned;
(b) such transferee or assignee agrees in writing to be bound by and subject to
the terms and conditions of this Agreement, including without limitation, the
provisions of Section 1.15 below; and (c) such assignment shall be effective
only if immediately following such transfer the further disposition of such
securities by the transferee or assignee is restricted under the Act. For the
purposes of determining the number of shares of Registrable Securities held by a
transferee or assignee, the holdings of transferees and assignees of a
partnership who are partners or retired partners of such partnership (including
spouses and ancestors, lineal descendants and siblings of such partners or
spouses who acquire Registrable Securities by gift, will or intestate
succession) shall be aggregated together and with the partnership; provided that
all assignees and transferees who would not qualify individually for assignment
of registration rights shall have a single attorney-in-fact for the purpose of
exercising any rights, receiving notices or taking any action under this Section
1.
1.14 Limitations on Subsequent Registration Rights. From and after
the date of this Agreement, the Company shall not, without the prior written
consent of the Holders of a majority of the outstanding Registrable Securities,
enter into any agreement with any holder or prospective holder of any securities
of the Company which would grant such holder or prospective holder any or all of
the registration rights contemplated herein.
1.15 "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, following the date of the first
sale to the public pursuant to a registration statement of the Company filed
under the Act, 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
-12-
<PAGE>
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 such market
stand-off time period shall not exceed one hundred eighty (180) days; provided
further however, that the obligations under this Section 1.15 are conditioned
upon the officers and the directors of the Company entering into similar
agreements.
In order to enforce the foregoing covenant, the Company may impose
stop-transfer instructions with respect to the Registrable Securities of the
Holder (and the shares or securities of every other person subject to the
foregoing restriction) until the end of such period.
Notwithstanding the foregoing, the obligations described in this
Section 1.15 shall not apply to a registration relating solely to employee
benefit plans on Form S-1 or Form S-8 or similar forms which may be promulgated
in the future, or a registration relating solely to a SEC Rule 145 transaction
on Form S-4 or similar forms which may be promulgated in the future.
1.16 Termination of Registration Rights
(a) No Holder shall be entitled to exercise any right provided
for in this Section 1 after five (5) years following the consummation of the
Initial Public Offering.
(b) In addition, the right of any Holder to request
registration or inclusion in any registration pursuant to Section 1 shall
terminate on the closing of the first Initial Public Offering if all shares of
Registrable Securities held or entitled to be held upon conversion by such
Holder may immediately be sold under Rule 144 during any 90-day period, or on
such date after the closing of the first Initial Public Offering as all shares
of Registrable Securities held or entitled to be held upon conversion by such
Holder may immediately be sold under Rule 144 during any 90-day period;
provided, however, that the provisions of this Section 1.16(b) shall not apply
to any Holder who owns more than two percent (2%) of the Company's outstanding
stock until such time as such Holder owns less than two percent (2%) of the
outstanding stock of the Company.
2. Covenants of the Company. All investors listed on Schedule A, with
----
the exception of Phoenix Leasing Incorporated, shall be entitled to the
- ---------------------------------------------
following:
2.1 Delivery of Financial Statements. The Company shall deliver:
-13-
<PAGE>
(a) as soon as practicable, but in any event within sixty (60)
days after the end of each fiscal year of the Company, commencing with fiscal
year ending December 31, 1999, to each Holder who continues to hold Registrable
Securities; an income statement for such fiscal year, a balance sheet of the
Company and statement of shareholder's equity as of the end of such year, and a
schedule as to the sources and applications of funds for such year, such year-
end financial reports to be in reasonable detail, prepared in accordance with
generally accepted accounting principles ( "GAAP"), and audited and certified by
nationally recognized independent public accountants approved by the Board of
Directors of the Company; and
(b) as soon as practicable, but in any event within thirty (30)
days after the end of each of the first three (3) quarters of each fiscal year
of the Company and after the end of each month an unaudited profit or loss
statement, schedule as to the sources and application of funds for such fiscal
quarter and an unaudited balance sheet as of the end of such fiscal quarter; and
(c) as soon as practicable, but in any event within thirty (30)
days after the end of each fiscal year, to each Holder who holds not less than
10% of the total Common Stock issued or issuable upon conversion of the Series E
Preferred, not less than 10% of the total Common Stock issued or issuable upon
conversion of the Series D Preferred, not less than 10% of the total Common
Stock issued or issuable upon conversion of the Series C Preferred, not less
than 10% of the total Common Stock issued or issuable upon conversion of the
Series B Preferred, or not less than 10 % of the total Common Stock issued or
issuable upon conversion of the Series A Preferred, a budget and business plan
for the next fiscal year, prepared on a monthly basis, including balance sheets
and sources and applications of funds statements for such months and, as soon as
prepared, any other budgets or revised budgets prepared by the Company; and
(d) The covenants set forth in this Section 2.1 shall terminate
as to an Holder and be of no further force or effect upon an Initial Public
Offering or when the Company first becomes subject to the periodic reporting
requirements of Sections 12(g) or 15(d) of the 1934 Act, whichever event shall
first occur.
2.2 Right of First Refusal. Subject to the terms and conditions
specified in this Section 2.2, the Company hereby grants to each holder of
Preferred Stock (an "Eligible Holder") a right of first refusal with respect to
future sales by the Company of its Shares (as hereinafter defined). For purposes
of this Section 2.2, the term "Eligible Holder" includes any general partners
and affiliates of an Eligible Holder. The Eligible Holder shall be entitled to
apportion the right of first refusal hereby granted it among itself and its
partners and affiliates in such proportions as it deems appropriate.
Each time the Company proposes to offer any shares of, or securities
convertible into or exercisable for any shares of, any class of its capital
stock ( "Shares"), the Company shall first make an offering of such Shares to
each Eligible Holder in accordance with the following provisions:
-14-
<PAGE>
(a) The Company shall deliver a notice by certified mail (
"Notice") to each Eligible Holder(s) stating (i) its bona fide intention to
offer such Shares, (ii) the number of such Shares to be offered, and (iii) the
price and terms, if any, upon which it proposes to offer such Shares.
(b) By written notification received by the Company within
twenty (20) calendar days after giving of the Notice, each Eligible Holder may
elect to purchase or obtain, at the price and on the terms specified in the
Notice, up to that portion of such Shares which equals the proportion that the
number of Registrable Securities then held by such Eligible Holder bears to the
total number of shares of Common Stock of the Company then outstanding (assuming
full conversion and exercise of all convertible or exercisable securities).
(c) If all Shares which Eligible Holders are entitled to obtain
pursuant to Section 2.2(b) are not elected to be obtained as provided in
subsection 2.2(b) hereof, the Company may, during the 90-day period following
the expiration of the period provided in Section 2.2(b) hereof, offer the
remaining unsubscribed portion of such Shares to any person or persons at a
price not less than, and upon terms no more favorable to the offeree than those
specified in the Notice. If the Company does not enter into an agreement for the
sale of the Shares within such period, or if such agreement is not consummated
within 90 days of the execution thereof, the right provided hereunder shall be
deemed to be revived and such Shares shall not be offered unless first reoffered
to the Eligible Holders in accordance herewith.
(d) The right of first refusal in this Section 2.2 shall not be
applicable to (i) the issuance or sale of shares of Common Stock (or options
therefor) to employees, consultants, directors, or vendors (if in transactions
with primarily nonfinancing purposes) of the Company or SRI International, Inc.,
pursuant to a plan, arrangement or agreement approved by the Board of Directors
of the Company, (ii) to or after consummation of a bona fide, firmly
underwritten public offering of shares of common stock, registered under the
Act, at an offering price of at least $10.00 per share (appropriately adjusted
for any stock split, dividend, combination or other recapitalization) and
$20,000,000 in the aggregate (the "Qualifying IPO"), (iii) the issuance of
securities pursuant to the conversion or exercise of convertible or exercisable
securities, (iv) the issuance of securities in connection with a bona fide
business acquisition of or by the Company, whether by merger, consolidation,
sale of assets, sale or exchange of stock or otherwise approved by the Company's
Board of Directors, (v) the issuance of stock, warrants or other securities or
rights to persons or entities for the purposes of equipment lease financings
approved by the Company's Board of Directors, (vi) the Series E Preferred Stock
and all other securities currently issued and outstanding.
(e) The right of first refusal granted under this section may
be assigned by each Eligible Holder to a transferee or assignee of the Eligible
Holder's shares of the Company's stock. In the event that the Eligible Holder
shall assign its right of first refusal pursuant to this Section 2.2(e) in
connection with the transfer of less than all of its shares of the Company's
stock, the Eligible Holder shall also retain its right of first refusal.
-15-
<PAGE>
(f) The covenants contained in this Section 2.2 shall terminate
and be of no further force or effect upon the consummation of the sale of
securities pursuant to a registration statement filed by the Company under the
Act in connection with a Qualifying IPO.
2.3 Right of First Refusal on Secondary Sale of Common Stock. In
the event the Company is unable to, or elects not to, exercise its right of
first refusal to repurchase shares of Common Stock issued to employees or
consultants, the Eligible Holders shall have a right of first refusal,
subordinate to the Company's right, to purchase any shares of Common Stock
proposed to be resold at any time prior to the Company's initial public
offering. This subordinate right of first refusal shall be shared pro rata
amongst the Eligible Holders based on the number of shares of Common Stock held
(including, for such purpose Common Stock issuable upon conversion of the
outstanding Preferred Stock). The notice and other procedural requirements of
Section 2.2(a) and (b) shall apply to the rights under this Section 2.3.
2.4 Inspection Rights. The Company shall permit each Holder, as
long as such Holder holds not less than 10% of the total Series E Preferred
Stock issued at the Closing (or 10% of the Common Stock issued upon conversion
of the Series E Preferred Stock, or a combination of such conversion stock and
Series E Preferred Stock), not less than 10% of the total Series D Preferred
Stock outstanding at the Closing (or 10% of the Common Stock issued upon
conversion of the Series D Preferred Stock, or a combination of such conversion
stock and Series D Preferred Stock), not less than 10% of the total Series C
Preferred Stock outstanding at the Closing (or 10% of the Common Stock issued
upon conversion of the Series C Preferred Stock, or a combination of such
conversion stock and Series C Preferred Stock), not less than 10% of the total
Series B Preferred Stock outstanding as of the Closing (or 10% of the Common
Stock issued upon conversion of the Series B Preferred Stock, or a combination
of such conversion stock and Series B Preferred Stock), or not less than 10% of
the total Series A Preferred Stock outstanding as of the Closing (or 10% of the
Common Stock issued upon conversion of the Series A Preferred Stock, or a
combination of such conversion stock and Series A Preferred Stock) at the
Holder's expense, to visit and inspect the Company's properties, to examine its
books of account and records and to discuss the Company's affairs, finances and
accounts with its officers all at such reasonable times as may be requested by
the Holder; provided, however, that the Company shall not be obligated pursuant
to this Section 2.4 to provide any information which it reasonably considers to
be a trade secret or confidential information. The rights of a Holder under this
Section 2.4 may not be assigned as part of such Holder's sale of any of the
Registrable Securities except with the consent of the Company, which consent
will not be unreasonably withheld.
2.5 Proprietary Agreements. All key employees of and consultants to
the Company with access to confidential technology of the Company shall execute
the Company's standard form of confidentiality and assignment of inventions
agreement.
3. Miscellaneous
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<PAGE>
3.1 Successors and Assigns. Except as otherwise provided herein,
the terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective successors and assigns of the parties (including
transferees of any shares of Registrable Securities). Nothing in this Agreement,
express or implied, is intended to confer upon any party other than the parties
hereto or their respective successors and assigns any rights, remedies,
obligations, or liabilities under or by reason of this Agreement, except as
expressly provided in this Agreement.
3.2 Governing Law. This Agreement shall be governed by and
construed under the laws of the State of California as applied to agreements
among California residents entered into and to be performed entirely within
California.
3.3 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
3.4 Titles and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
3.5 Notices. Unless otherwise provided, any notice required or
permitted under this Agreement shall be given in writing and shall be deemed
effectively given upon personal delivery to the party to be notified or upon
deposit with the United States Post Office, by registered or certified mall,
postage prepaid and addressed to the party to be notified at the address
indicated for such party on the signature page hereof, or at such other address
as such party may designate by ten (10) days' advance written notice to the
other parties.
3.6 Expenses. If any action at law or in equity is necessary to
enforce or interpret the terms of this Agreement, the prevailing party shall be
entitled to reasonable attorneys' fees, costs and necessary disbursements in
addition to any other relief to which such party may be entitled.
3.7 Amendments and Waivers. Any term of this Agreement may be
amended and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the holders of
a majority of the Registrable Securities then outstanding, provided however,
that any amendment that would adversely affect the rights of an individual
Holder or Holders of a specific series of the Company's Preferred Stock in a
manner different than it affects the rights of other Holders shall require the
consent of such affected Holder or Holders of such affected series of Preferred
Stock. Any amendment or waiver effected in accordance with this paragraph shall
be binding upon each holder of any Registrable Securities then outstanding, each
future holder of all such Registrable Securities, and the Company.
3.8 Severability. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, such provision shall be excluded
from this Agreement and the
-17-
<PAGE>
balance of the Agreement shall be interpreted as if such provision were so
excluded and shall be enforceable in accordance with its terms.
3.9 Aggregation of Stock. All shares of Registrable Securities held
or acquired by affiliated entities or persons shall be aggregated together for
the purpose of determining the availability of any rights under this Agreement.
3.10 Entire Agreement. This Agreement (including the Exhibits
hereto, if any) constitutes the full and entire understanding and agreement
between the parties with regard to the subjects hereof and thereof.
-18-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
COMPANY:
NUANCE COMMUNICATIONS
By: /s/ Ronald A. Croen, President
------------------------------
Ronald A. Croen, President
Address: 1005 Hamilton Court
Menlo Park, California 94025
INVESTORS:
By:____________________________________
Name:__________________________________
Title:_________________________________
Address:_______________________________
_______________________________
_______________________________
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
COMPANY:
NUANCE COMMUNICATIONS
By:____________________________________
Ronald A. Croen, President
Address: 1005 Hamilton Court
Menlo Park, California 94025
INVESTORS:
SRI INTERNATIONAL
By: /s/ Donald L. Andrews
-----------------------------------
Name: Donald L. Andrews
----------------------------------
Title: Treasurer
---------------------------------
Address: 333 Ravenswood Avenue
Menlo Park, California 94025
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
COMPANY:
NUANCE COMMUNICATIONS
By:____________________________________
Ronald A. Croen, President
Address: 1005 Hamilton Court
Menlo Park, California 94025
INVESTORS:
MAYFIELD ASSOCIATES FUND II
By: /s/ Yogen K. Dalai
-----------------------------------
Name: Yogen K. Dalai
----------------------------------
Title:_________________________________
Address: 2800 Sand Hill Road, Suite 250
Menlo Park, California 94025
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
COMPANY:
NUANCE COMMUNICATIONS
By:____________________________________
Ronald A. Croen, President
Address: 1005 Hamilton Court
Menlo Park, California 94025
INVESTORS:
MAYFIELD VII
By: /s/ Yogen K. Dalai
-----------------------------------
Name: Yogen K. Dalai
----------------------------------
Title:_________________________________
Address: 2800 Sand Hill Road, Suite 250
Menlo Park, California 94025
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
COMPANY:
NUANCE COMMUNICATIONS
By:____________________________________
Ronald A. Croen, President
Address: 1005 Hamilton Court
Menlo Park, California 94025
INVESTORS:
SECOND VENTURES II, L.P.
By: /s/ Michael P. Maher
-----------------------------------
Name: Michael P. Maher
---------------------------------
Title: Attorney-in-Fact
--------------------------------
Address: 2180 Sand Hill Road
Menlo Park, California 94025
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
COMPANY:
NUANCE COMMUNICATIONS
By:____________________________________
Ronald A. Croen, President
Address: 1005 Hamilton Court
Menlo Park, California 94025
INVESTORS:
US VENTURE PARTNERS IV, L.P.
By: /s/ Michael P. Maher
----------------------------------
Name: Michael P. Maher
--------------------------------
Title: Attorney-in-Fact
--------------------------------
Address: 2180 Sand Hill Road
Menlo Park, California 94025
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
COMPANY:
NUANCE COMMUNICATIONS
By:____________________________________
Ronald A. Croen, President
Address: 1005 Hamilton Court
Menlo Park, California 94025
INVESTORS:
USVP ENTREPRENEUR PARTNERS, II, L.P.
By: /s/ Michael P. Maher
-----------------------------------
Name: Michael P. Maher
---------------------------------
Title: Attorney-in-Fact
--------------------------------
Address: 2180 Sand Hill Road
Menlo Park, California 94025
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
COMPANY:
NUANCE COMMUNICATIONS
By:____________________________________
Ronald A. Croen, President
Address: 1005 Hamilton Court
Menlo Park, California 94025
INVESTORS:
VISA INTERNATIONAL SERVICE ASSOCIATION
By: /s/ Cynthia Hendricks
-----------------------------------
Name: Cynthia Hendricks
---------------------------------
Title: Vice President
--------------------------------
Address: 900 Metro Center Blvd.
Foster City, California 94404
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
COMPANY:
NUANCE COMMUNICATIONS
By:____________________________________
Ronald A. Croen, President
Address: 1005 Hamilton Court
Menlo Park, California 94025
INVESTORS:
ASSET MANAGEMENT ASSOCIATES 1996, L.P.
By: /s/ W. Ferrell Sanders
-----------------------------------
Name: W. Ferrell Sanders
---------------------------------
Title: General Partner of AMC Partners
-------------------------------
96, L.P. The General Partner of
-------------------------------
Asset Management Associates
--------------------------------
1996, L.P.
--------------------------------
Address: 480 Cowper Street
Palo Alto, California 94301
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
COMPANY:
NUANCE COMMUNICATIONS
By:____________________________________
Ronald A. Croen, President
Address: 1005 Hamilton Court
Menlo Park, California 94025
INVESTORS:
MORGENTHALER VENTURE PARTNERS IV
By: Morgenthaler Management Partners IV
Its Managing Partner
/s/ Gary J. Morgenthaler
--------------------------------------
Gary J. Morgenthaler, General Partner
Address: 2730 Sand Hill Road, Suite 280
Menlo Park, California 94025
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
COMPANY:
NUANCE COMMUNICATIONS
By:____________________________________
Ronald A. Croen, President
Address: 1005 Hamilton Court
Menlo Park, California 94025
INVESTORS:
2180 ASSOCIATES FUND
By: /s/ Michael P. Maher
-----------------------------------
Name: Michael P. Maher
----------------------------------
Title: Attorney-in-Fact
---------------------------------
Address: 2180 Sand Hill Road, Suite 300
Menlo Park, California 94025
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
COMPANY:
NUANCE COMMUNICATIONS
By:____________________________________
Ronald A. Croen, President
Address: 1005 Hamilton Court
Menlo Park, California 94025
INVESTORS:
PHOENIX LEASING INCORPORATED
By: /s/ V.H. Nelson
------------------------------------
Name: V.H. Nelson
----------------------------------
Title: Vice President
---------------------------------
Address: 2401 Kerner Boulevard
San Rafael, California 94901
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
COMPANY:
NUANCE COMMUNICATIONS
By:____________________________________
Ronald A. Croen, President
Address: 1005 Hamilton Court
Menlo Park, California 94025
INVESTORS:
ATTRACTOR LP
By: /s/ Harvey Allison
------------------------------------
Harvey Allison, MM of its GP
Address: 1110 Burlingame Avenue
Suite 211
Burlingame, California 94010
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
COMPANY:
NUANCE COMMUNICATIONS
By:____________________________________
Ronald A. Croen, President
Address: 1005 Hamilton Court
Menlo Park, California 94025
INVESTORS:
ATTRACTOR INSTITUTIONAL LP
By: /s/ Harvey Allison
------------------------------------
Harvey Allison, MM of its GP
Address: 1110 Burlingame Avenue
Suite 211
Burlingame, California 94010
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
COMPANY:
NUANCE COMMUNICATIONS
By:____________________________________
Ronald A. Croen, President
Address: 1005 Hamilton Court
Menlo Park, California 94025
INVESTORS:
ATTRACTOR QP LP
By: /s/ Harvey Allison
------------------------------------
Harvey Allison, MM of its GP
Address: 1110 Burlingame Avenue
Suite 211
Burlingame, California 94010
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
COMPANY:
NUANCE COMMUNICATIONS
By:____________________________________
Ronald A. Croen, President
Address: 1005 Hamilton Court
Menlo Park, California 94025
INVESTORS:
ATTRACTOR OFFSHORE LTD.
By: /s/ Harvey Allison
____________________________________
Harvey Allison, President
Attractor Investment Management, its
Investment Manager
Address: 1110 Burlingame Avenue
Suite 211
Burlingame, California 94010
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
COMPANY:
NUANCE COMMUNICATIONS
By:____________________________________
Ronald A. Croen, President
Address: 1005 Hamilton Court
Menlo Park, California 94025
INVESTORS:
ATTRACTOR VENTURES LLC
By: /s/ Harvey Allison
------------------------------------
Harvey Allison, MM
Address: 1110 Burlingame Avenue
Suite 211
Burlingame, California 94010
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
COMPANY:
NUANCE COMMUNICATIONS
By:____________________________________
Ronald A. Croen, President
Address: 1005 Hamilton Court
Menlo Park, California 94025
INVESTORS:
FIDELITY INVESTORS II LIMITED PARTNERSHIP
By: /s/ Donald S. Heaton
------------------------------------
Name: Donald S. Heaton
----------------------------------
Title: Vice President
---------------------------------
Address: 82 Devonshire Street
Boston, Massachusetts 02109
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
COMPANY:
NUANCE COMMUNICATIONS
By:____________________________________
Ronald A. Croen, President
Address: 1005 Hamilton Court
Menlo Park, California 94025
INVESTORS:
GOLDMAN, SACHS & CO. VERWALTUNGS GMBH
By: /s/ Eve M. Gerriets
------------------------------------
Name: Eve M. Gerriets
----------------------------------
Title: Vice President
---------------------------------
Address: 85 Broad Street, 10th Floor
New York, New York 10004
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
COMPANY:
NUANCE COMMUNICATIONS
By:____________________________________
Ronald A. Croen, President
Address: 1005 Hamilton Court
Menlo Park, California 94025
INVESTORS:
BRIDGE STREET FUND 1997, L.P.
By: /s/ Eve M. Gerriets
------------------------------------
Name: Eve M. Gerriets
----------------------------------
Title: Vice President
---------------------------------
Address: 85 Broad Street, 10th Floor
New York, New York 10004
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
COMPANY:
NUANCE COMMUNICATIONS
By:____________________________________
Ronald A. Croen, President
Address: 1005 Hamilton Court
Menlo Park, California 94025
INVESTORS:
GS CAPITAL PARTNERS II OFFSHORE, L.P.
By: /s/ Eve M. Gerriets
------------------------------------
Name: Eve M. Gerriets
----------------------------------
Title: Vice President
---------------------------------
Address: 85 Broad Street, 10th Floor
New York, New York 10004
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
COMPANY:
NUANCE COMMUNICATIONS
By:____________________________________
Ronald A. Croen, President
Address: 1005 Hamilton Court
Menlo Park, California 94025
INVESTORS:
GS CAPITAL PARTNERS II, L.P.
By: /s/ Eve M. Gerriets
------------------------------------
Name: Eve M. Gerriets
----------------------------------
Title: Vice President
---------------------------------
Address: 85 Broad Street, 10th Floor
New York, New York 10004
<PAGE>
In Witness Whereof, the parties have executed this Agreement as of the date
first above written.
COMPANY:
Nuance Communications
By:____________________________________
Ronald A. Croen, President
Address: 1005 Hamilton Court
Menlo Park, California 94025
INVESTORS:
Stone Street Fund 1997, L.P.
By: /s/ Eve M. Gerriets
------------------------------------
Name: Eve M. Gerriets
----------------------------------
Title: Vice President
---------------------------------
Address: 85 Broad Street, 10th Floor
New York, New York 10004
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
COMPANY:
NUANCE COMMUNICATIONS
By:____________________________________
Ronald A. Croen, President
Address: 1005 Hamilton Court
Menlo Park, California 94025
INVESTORS:
CISCO SYSTEMS, INC.
By: /s/ Judith Estrin
------------------------------------
Name: Judith Estrin
----------------------------------
Title: Chief Technology Officer
---------------------------------
Address: 300 East Tasman Drive
San Jose, CA 95134
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
COMPANY:
NUANCE COMMUNICATIONS
By:____________________________________
Ronald A. Croen, President
Address: 1005 Hamilton Court
Menlo Park, California 94025
INVESTORS:
INTEL CORPORATION
By: /s/ Noel Lazo
------------------------------------
Name: Noel Lazo
----------------------------------
Title: Assistant Treasurer
---------------------------------
Address: 2200 Mission College Blvd.
Santa Clara, California 95052
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
COMPANY:
NUANCE COMMUNICATIONS
By:____________________________________
Ronald A. Croen, President
Address: 1005 Hamilton Court
Menlo Park, California 94025
INVESTORS:
MACARTHUR FOUNDATION
By: Illegible Signature
-----------------------------------
Title:_________________________________
Address: 140 South Dearborn Street
10th Floor
Chicago, IL 60603
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
COMPANY:
NUANCE COMMUNICATIONS
By:____________________________________
Ronald A. Croen, President
Address: 1005 Hamilton Court
Menlo Park, California 94025
INVESTORS:
DALAL REVOCABLE TRUST, UDT 7/31/90
By:/s/ Yogen K. Dalal
-----------------------------------
Yogen K. Dalal, Trustee
Address: 2800 Sand Hill Rd.
-----------------------------
Menlo Park, CA 94025
-----------------------------
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
COMPANY:
NUANCE COMMUNICATIONS
By:____________________________________
Ronald A. Croen, President
Address: 1005 Hamilton Court
Menlo Park, California 94025
INVESTORS:
VOICE TRUST
By: /s/ George Pavlov
-----------------------------------
George Pavlov
Title: Authorized Signatory
--------------------------------
Address: 2800 Sand Hill Road
------------------------------
Menlo Park, CA 94025
------------------------------
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
COMPANY:
NUANCE COMMUNICATIONS
By:____________________________________
Ronald A. Croen, President
Address: 1005 Hamilton Court
Menlo Park, California 94025
INVESTORS:
NTT SOFTWARE CORPORATION
By: /s/ Seishiro Tsuruho
---------------------------------
Seishiro Tsuruho
Title: Representative Director and President
Address: 223-1 Yamashita-cho Naka-ku
Yokohama-shi
Kanagawa, 231-8554, Japan
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
COMPANY:
NUANCE COMMUNICATIONS
By:____________________________________
Ronald A. Croen, President
Address: 1005 Hamilton Court
Menlo Park, California 94025
INVESTORS:
OMRON CORPORATION
By: /s/ Tatsuro Ichihara
-----------------------------------
Tatsuro Ichihara
Title: Director Executive Vice President
Address: Shimokainji Nagoakakyo-City
Kyoto, 617-8510 Japan
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
COMPANY:
NUANCE COMMUNICATIONS
By:____________________________________
Ronald A. Croen, President
Address: 1005 Hamilton Court
Menlo Park, California 94025
INVESTORS:
SUN MICROSYSTEMS, INC
By: /s/ John McFarlane
---------------------------------
John McFarlane
Title: President, Network Service
Provider Division
Address: 901 San Antonia Road
Palo Alto, CA 94403
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
COMPANY:
NUANCE COMMUNICATIONS
By:____________________________________
Ronald A. Croen, President
Address: 1005 Hamilton Court
Menlo Park, California 94025
INVESTORS:
SCIENCE APPLICATIONS INTERNATIONAL
CORPORATION
By: /s/ Douglas M. Schrier
---------------------------------
Douglas M. Schrier
Title: Senior Vice President, Acquisitions
Address: 888 Prospect Street Suite 320
La Jolla, CA 92037
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
COMPANY:
NUANCE COMMUNICATIONS
By:____________________________________
Ronald A. Croen, President
Address: 1005 Hamilton Court
Menlo Park, California 94025
INVESTORS:
TCI CLUB
By: /s/ Shozo Okuda
-----------------------------------
Shozo Okuda
Title: General Partner
Address: 777 108th Avenue NE, Suite 2300
Bellevue, WA 98004
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
COMPANY:
NUANCE COMMUNICATIONS
By:____________________________________
Ronald A. Croen, President
Address: 1005 Hamilton Court
Menlo Park, California 94025
INVESTORS:
TRANS COSMOS USA, INC.
By: /s/ Shozo Okuda
-----------------------------------
Shozo Okuda
Title: Chairman
Address: 777 108th Avenue NE, Suite 2300
Bellevue, WA 98004
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
COMPANY:
NUANCE COMMUNICATIONS
By:____________________________________
Ronald A. Croen, President
Address: 1005 Hamilton Court
Menlo Park, California 94025
INVESTORS:
FTT VENTURES, INC.
By: /s/ Donald S. Heaton
------------------------------------
Name: Donald S. Heaton
----------------------------------
Title: Vice President
---------------------------------
Address: 82 Devonshire Street
Boston, Massachusetts 02109
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
COMPANY:
NUANCE COMMUNICATIONS
By:____________________________________
Ronald A. Croen, President
Address: 1005 Hamilton Court
Menlo Park, California 94025
INVESTORS:
By: /s/ Arthur Chait
------------------------------------
Arthur Chait
Title:_________________________________
Address: 1151 Sherman Avenue
Menlo Park, California 94025
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
COMPANY:
NUANCE COMMUNICATIONS
By:____________________________________
Ronald A. Croen, President
Address: 1005 Hamilton Court
Menlo Park, California 94025
INVESTORS:
By: /s/ Paul Cook
------------------------------------
Paul Cook
Title:_________________________________
Address: 360 Old La Honda Road
Woodside, California 94062
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
COMPANY:
NUANCE COMMUNICATIONS
By:____________________________________
Ronald A. Croen, President
Address: 1005 Hamilton Court
Menlo Park, California 94025
INVESTORS:
By: /s/ James Gibbons
------------------------------------
James Gibbons
Title:_________________________________
Address: 320 Tennyson
Palo Alto, California 94301
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
COMPANY:
NUANCE COMMUNICATIONS
By:____________________________________
Ronald A. Croen, President
Address: 1005 Hamilton Court
Menlo Park, California 94025
INVESTORS:
By: /s/ Alan Herzig
------------------------------------
Alan Herzig
Title:_________________________________
Address: 190 Fox Hollow Road
Woodside, California 94062
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
COMPANY:
NUANCE COMMUNICATIONS
By:____________________________________
Ronald A. Croen, President
Address: 1005 Hamilton Court
Menlo Park, California 94025
INVESTORS:
By: /s/ John McHenry
------------------------------------
John McHenry
Title:_________________________________
Address: 416 West Oakwood Blvd.
Redwood City, California 94061
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
COMPANY:
NUANCE COMMUNICATIONS
By:____________________________________
Ronald A. Croen, President
Address: 1005 Hamilton Court
Menlo Park, California 94025
INVESTORS:
By: /s/ Donald Nielson
------------------------------------
Donald Nielson
Title:_________________________________
Address: 850 Miranda Green
Palo Alto, California 94306-3716
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
COMPANY:
NUANCE COMMUNICATIONS
By:____________________________________
Ronald A. Croen, President
Address: 1005 Hamilton Court
Menlo Park, California 94025
INVESTORS:
By: /s/ John Oakson
------------------------------------
John Oakson
Title:_________________________________
Address: 12983 La Barranca
Los Altos Hills, California 94022
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
COMPANY:
NUANCE COMMUNICATIONS
By:____________________________________
Ronald A. Croen, President
Address: 1005 Hamilton Court
Menlo Park, California 94025
INVESTORS:
By: /s/ William Sommers
------------------------------------
William Sommers
Title:_________________________________
Address: 24717 Harbour View Drive
Ponte Vedra Beach, FL 32082
<PAGE>
SCHEDULE A
----------
HOLDERS
Series A Preferred
- ------------------
Arthur Chait
Paul Cook
James Gibbons
Alan Herzig
John McHenry
Don Nielson
John Oakson
William Sommers
SRI International
Series B Preferred
- ------------------
Mayfield Associates Fund II
Mayfield VII
Second Ventures II, L.P.
U.S. Venture Partners IV, L.P.
USVP Entrepreneur Partners, II, L.P.
Visa International Service Association
2180 Associates Fund
Series C Preferred
- ------------------
Alloy Ventures
Mayfield Associates Fund II
Mayfield VII
Morgenthaler Venture Partners IV, L.P.
Second Ventures II, L.P.
U.S. Venture Partners IV, L.P.
USVP Entrepreneur Partners, II, L.P.
2180 Associates Fund
Series D Preferred
- ------------------
Attractor L.P.
Attractor Institutional LP
Attractor Ventures LLC
Bridge Street Fund 1997, L.P.
Fidelity Investors II Limited Partnership
FTT Ventures, Inc.
<PAGE>
GS Capital Partners II Offshore, L.P.
2180 Associates Fund
Goldman, Sachs & Co. Verwaltungs GmbH
GS Capital Partners II, L.P.
Intel Corporation
MacArthur Foundation The Northern Trust Company
Mayfield Associates Fund II
Mayfield VII
Morgenthaler Venture Partners IV, L.P.
Motorola, Inc.
Second Ventures II, L.P.
Stone Street Fund 1997, L.P.
U.S. Venture Partners IV, L.P.
USVP Entrepreneur Partners, II, L.P.
Series E Preferred
- ------------------
Cisco Systems, Inc.
Science Applications International Corporation
Sun Microsystems, Inc.
TCI Club
Trans Cosmos USA, Inc.
Siebel Systems, Inc.
NTT Software Corporation
Omron Corporation
Morgenthaler Venture Partners IV, L.P.
Intel Corporation
Attractor LP
Attractor Institutional LP
Attractor LP QP
Attractor Offshore Ltd.
Attractor Ventures
Dalal Revocable Trust, UDT 7/31/90
Voice Trust
Macarthur Foundation
Donald Nielson
William Sommers
Alan Herzig
<PAGE>
Exhibit 4.3
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED. NO SALE OR DISPOSITION OF SUCH SECURITIES
MAY BE EFFECTED WITHOUT (i) AN EFFECTIVE REGISTRATION STATEMENT RELATING
THERETO, (ii) AN OPINION OF COUNSEL FOR THE HOLDER, REASONABLY SATISFACTORY TO
THE COMPANY, THAT SUCH REGISTRATION IS NOT REQUIRED, (iii) RECEIPT OF A NO-
ACTION LETTER FROM THE SECURITIES AND EXCHANGE COMMISSION, OR (iv) OTHERWISE
COMPLYING WITH THE PROVISIONS OF ARTICLE III OF THIS WARRANT.
WARRANT
TO PURCHASE SHARES OF SERIES B PREFERRED STOCK
AS HEREIN DESCRIBED
Dated April 1, 1996
This certifies that for value received:
PHOENIX LEASING INCORPORATED
or registered assigns, is entitled, subject to the terms set forth herein, to
purchase from NUANCE COMMUNICATIONS, a California corporation (the "Company"),
-------
up to the Initial Number, as defined herein, of fully paid and non-assessable
shares of the Company's Series B Preferred Stock, at the Initial Exercise Price,
as defined herein, per share; provided, however, that the Initial Number of
-------- -------
shares of Series B Preferred Stock purchasable hereunder shall be increased by
the Additional Number, without any action by the Company or the Holder, as of
the date that the Company has leased in excess of Six Hundred Thousand Dollars
($600,000) of equipment pursuant to the Master Equipment Lease, dated as of the
date hereof, between Phoenix Leasing Incorporated and the Company. The Initial
Number is the number obtained by dividing Thirty Thousand Dollars ($30,000) by
the Initial Exercise Price; if such number includes a fraction, the fraction
shall be adjusted down to the closest integral number. The Additional Number is
the number obtained by dividing Ten Thousand Dollars ($10,000) by the Initial
Exercise Price; if such number includes a fraction, the fraction shall be
adjusted down to the closest integral number. The Initial Exercise Price is the
price per share at which the Company sells shares of stock in its most current
bona fide equity financing; if such financing does not occur within sixty (60)
days of the date hereof, it shall be the price per share at which the Company
sold shares of stock in the last bona fide equity financing which closed prior
to the date hereof. The Initial Exercise Price per share and the number of
shares purchasable hereunder are subject to adjustment in certain events, all as
more fully set forth under Article IV herein.
<PAGE>
ARTICLE I
DEFINITIONS
-----------
"Articles of Incorporation" means the Amended and Restated Articles of
-------------------------
Incorporation of the Company, as filed with the California Secretary of State on
August 29, 1995, as amended by Certificate of Amendment of Articles of
Incorporation of the Company, as filed with the California Secretary of State on
November 14, 1995.
"Closing Date" means April 1, 1996.
------------
"Commission" means the Securities and Exchange Commission, or any other
----------
federal agency then administering the Exchange Act or the Securities Act, as
defined herein.
"Common Stock" means the Company's Common Stock, any stock into which such
------------
stock shall have been changed or any stock resulting from any reclassification
of such stock, and any other capital stock of the Company of any class or series
now or hereafter authorized having the right to share in distributions either of
earnings or assets of the Company without limit as to amount or percentage.
"Company" means NUANCE COMMUNICATIONS, a California corporation, and any
-------
successor corporation.
"Convertible Securities" means evidences of indebtedness, shares of stock
----------------------
or other securities which are convertible into or exchangeable for, with or
without payment of additional consideration, shares of Common Stock, either
immediately or upon the arrival of a specified date or the happening of a
specified event or both.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, or
------------
any successor federal statute, and the rules and regulations of the Commission
promulgated thereunder, all as the same shall be in effect from time to time.
"Exercise Period" means the period commencing on the Closing Date and
---------------
terminating at the later to occur of: (i) 5:00 p.m., Pacific Time on the tenth
(10th) anniversary of the Closing Date, or (ii) 5:00 p.m., Pacific Time on the
fifth (5th) anniversary of the closing of the Company's initial sale and
issuance of shares of Common Stock in an underwritten public offering, pursuant
to a Registration.
"Exercise Price" means the price per share of Series B Preferred Stock set
--------------
forth in the Preamble to this Warrant, as such price may be adjusted pursuant to
Article IV hereof.
"Fair Market Value" means
-----------------
(i) If shares of Series B Preferred Stock or Common Stock, as the
case may be, are being sold pursuant to a Registration and Fair Market Value is
being determined as of the closing
-2-
<PAGE>
of the public offering, the "price to public" specified for such shares in the
final prospectus for such public offering;
(ii) If shares of Series B Preferred Stock or Common Stock, as the
case may be, are then listed or admitted to trading on any national securities
exchange or traded on any national market system and Fair Market Value is not
being determined as of the date described in clause (i) of this definition, the
average of the daily closing prices for the thirty (30) trading days before such
date, excluding any trades which are not bona fide, arm's length transactions.
The closing price for each day shall be the last sale price on such date or, if
no such sale takes place on such date, the average of the closing bid and asked
prices on such date, in each case as officially reported on the principal
national securities exchange or national market system on which such shares are
then listed, admitted to trading or traded;
(iii) If no shares of Series B Preferred Stock or Common Stock, as
the case may be, are then listed or admitted to trading on any national
securities exchange or traded on any national market system or being offered to
the public pursuant to a Registration, the average of the reported closing bid
and asked prices thereof on such date in the over-the-counter market as shown by
the National Association of Securities Dealers automated quotation system or, if
such shares are not then quoted in such system, as published by the National
Quotation Bureau, Incorporated or any similar successor organization, and in
either case as reported by any member firm of the New York Stock Exchange
selected by the Holder;
(iv) If no shares of Series B Preferred Stock of Common Stock, as
the case may be, are then listed or admitted to trading on any national exchange
or traded on any national market system, if no closing bid and asked prices
thereof are then so quoted or published in the over-the-counter market and if no
such shares are being offered to the public pursuant to a Registration, the Fair
Market Value of a share of Series B Preferred Stock or Common Stock, as the case
may be, shall be as mutually agreed by the Company and the Holder; provided,
--------
however, that if the Company and the Holder are unable to mutually agree upon
- -------
the Fair Market Value, and the value asserted by the Holder is not greater than
one hundred ten percent (110%) of the value asserted by the Company, then the
Fair Market Value shall be the sum of (1) the value asserted by the Company and
(2) fifty percent (50%) of the difference between the value asserted by the
Company and the value asserted by the Holder; provided further, however, that if
-------- ------- -------
the Company and the Holder are unable to mutually agree upon the Fair Market
Value and the immediately preceding proviso is not operative, the Company and
such Holder shall, within five (5) days from the date that either party
determines that they cannot agree or the value asserted by the Holder is greater
than one hundred ten percent (110%) of the value asserted by the Company,
jointly retain a valuation firm satisfactory to each of them. If the Company
and the Holder are unable to agree on the selection of such a firm within such
five (5) day period, the Company and the Holder shall, within twenty (20) days
after expiration of such five day period, each retain a separate independent
valuation firm. If either the Company or the Holder fail to retain such a
valuation firm during such twenty (20) day period, then the valuation firm
retained by the Holder or the Company, as the case may be, shall alone take the
actions described below. Such firms shall determine within thirty (30) days of
being retained the Fair Market Value of a share of Series B Preferred Stock or
Common Stock, as the case may be, and deliver their opinion
-3-
<PAGE>
in writing to the Company and to the Holder as to the fair value. If such firms
cannot jointly agree upon the Fair Market Value, then, unless otherwise directed
in writing by both the Company and the Holder, such firms, in their sole
discretion, shall choose another firm independent of the Company and the Holder,
which firm shall make such determination and render such an opinion as promptly
as practicable. In either case, the determination so made shall be conclusive
and binding on the Company and the Holder. The fees and expenses for such
determination made by such firms shall be paid by the Company. In the
determination of the Fair Market Value of a share of Series B Preferred Stock or
Common Stock, as the case may be, there shall not be taken into consideration
any premium for shares representing control of the Company or any discount
related to shares representing a minority interest therein or related to any
illiquidity or lack of marketability of shares arising from restrictions on
transfer under federal and applicable state securities laws or otherwise.
"Fiscal Year" means the fiscal year of the Company.
-----------
"Holder" means the person in whose name this Warrant is registered on the
------
books of the Company maintained for such purpose.
"Option" means any right, warrant or option to subscribe for or purchase
------
shares of Common Stock or Convertible Securities.
"Person" means and includes natural persons, corporations, limited
------
partnerships, general partnerships, joint stock companies, joint ventures,
associations, companies, trusts, banks, trust companies, land trusts, business
trusts, government entities and authorities and other organizations, whether or
not legal entities.
"Preferred Stock" means the Preferred Stock of the Company, as defined in
---------------
the Articles of Incorporation.
"Principal Executive Office" means the Company's office at 333 Ravenswood
--------------------------
Avenue, Building 110, Menlo Park, California 94025, or such other office as
designated in writing to the Holder by the Company.
"Register," "Registered" and "Registration" refer to a registration
-------- ---------- ------------
effected by preparing and filing a registration statement in compliance with the
Securities Act, and the declaration or ordering of the effectiveness of such
registration statement.
"Rights Agreement" means the Investor Rights Agreement, dated as of August
----------------
29, 1995, by and among the Company and the shareholders of the Company named
therein, attached hereto as Exhibit "E".
-----------
"Rule 144" means Rule 144 as promulgated by the Commission under the
--------
Securities Act, as such Rule may be amended from time to time, or any similar
successor rule that the Commission may promulgate.
-4-
<PAGE>
"Securities Act" means the Securities Act of 1933, as amended, or any
--------------
successor federal statute, and the rules and regulations of the Commission
promulgated thereunder, all as the same shall be in effect from time to time.
"Series B Preferred Stock" means the Series B Preferred Stock of the
------------------------
Company, as defined in the Articles of Incorporation.
"Shareholder" means a holder of one or more Warrant Shares or shares of
-----------
Common Stock acquired upon conversion of Warrant Shares.
"Warrant" means the warrant dated as of Closing Date issued to Holder and
-------
all warrants issued upon the partial exercise, transfer or division of or in
substitution for any Warrant.
"Warrant Shares" means the shares of Series B Preferred Stock issuable upon
--------------
the exercise of this Warrant provided that if under the terms hereof there shall
be a change such that the securities purchasable hereunder shall be issued by an
entity other than the Company or there shall be a change in the type or class of
securities purchasable hereunder, then the term shall mean the securities
issuable upon the exercise of the rights granted hereunder.
ARTICLE II
EXERCISE
--------
2.1 Exercise Right; Manner of Exercise. The purchase rights represented
----------------------------------
by this Warrant may be exercised by the Holder, in whole or in part, at any time
and from time to time during the Exercise Period upon (i) surrender of this
Warrant, together with an executed Notice of Exercise, substantially in the form
of Exhibit "A" attached hereto, at the Principal Executive Office, and (ii)
-----------
payment to the Company of the aggregate Exercise Price for the number of Warrant
Shares specified in the Notice of Exercise (such aggregate Exercise Price the
"Total Exercise Price"). The Total Exercise Price shall be paid by check;
--------------------
provided, however, that if the Warrant Shares are acquired in conjunction with a
- -------- -------
Registration of such Warrant Shares or the Common Stock acquirable upon
conversion of such Warrant Shares, then Holder may arrange for the aggregate
Exercise Price for such Warrant Shares to be paid to the Company from the
proceeds of the sale of such Warrant Shares or the Common Stock acquirable upon
conversion of such Warrant Shares pursuant to such Registration. The Person or
Person(s) in whose name(s) any certificate(s) representing the Warrant Shares
which are issuable upon exercise of this Warrant shall be deemed to become the
holder(s) of, and shall be treated for all purposes as the record holder(s) of,
such Warrant Shares, and such Warrant Shares shall be deemed to have been
issued, immediately prior to the close of business on the date on which this
Warrant and Notice of Exercise are presented and payment made for such Warrant
Shares, notwithstanding that the stock transfer books of the Company shall then
be closed or that certificates representing such Warrant Shares shall not then
be actually delivered to such Person or Person(s). Certificates for the Warrant
Shares so purchased shall be delivered to the Holder within a reasonable time,
not exceeding fifteen (15) days after this Warrant is exercised. If this
Warrant is exercised in part only, the Company shall, upon surrender of this
Warrant for cancellation, deliver a new Warrant evidencing the rights of the
Holder to purchase this balance of the Warrant Shares which Holder is entitled
to purchase hereunder. The issuance of Warrant Shares
-5-
<PAGE>
upon exercise of this Warrant shall be made without charge to the Holder for any
issuance tax with respect thereto or any other cost incurred by the Company in
connection with the exercise of this Warrant and the related issuance of Warrant
Shares.
2.2 Conversion of Warrant.
---------------------
(a) Right to Convert. In addition to, and without limiting, the other
----------------
rights of the Holder hereunder, the Holder shall have the right (the "Conversion
----------
Right") to convert this Warrant or any part hereof into Warrant Shares at any
- -----
time and from time to time during the term hereof. Upon exercise of the
Conversion Right with respect to a particular number of Warrant Shares (the
"Converted Warrant Shares"), the Company shall deliver to the Holder, without
------------------------
payment by the Holder of any Exercise Price or any cash or other consideration,
that number of Warrant Shares computed using the following formula:
X = B-A
---
Y
Where: X= The number of Warrant Shares to be issued to the Holder
Y= The Fair Market Value of one Warrant Share as of the Conversion
Date
B= The Aggregate Fair Market Value (i.e., Fair Market Value x
----
Converted Warrant Shares)
A= The Aggregate Exercise Price (i.e., Exercise Price x Converted
----
Warrant Shares)
(b) Method of Exercise. The Conversion Right may be exercised by the
-----------------
Holder by the surrender of this Warrant at the Principal Executive Office,
together with a written statement (the "Conversion Statement") specifying that
--------------------
the Holder intends to exercise the Conversion Right and indicating the number of
Warrant Shares to be acquired upon exercise of the Conversion Right. Such
conversion shall be effective upon the Company's receipt of this Warrant,
together with the Conversion Statement, or on such later date as is specified in
the Conversion Statement (the "Conversion Date") and, at the Holder's election,
---------------
may be made contingent upon the closing of the consummation of the sale of
Common Stock pursuant to a Registration. Certificates for the Warrant Shares so
acquired shall be delivered to the Holder within a reasonable time, not
exceeding fifteen (15) days after the Conversion Date. If applicable, the
Company shall, upon surrender of this Warrant for cancellation, deliver a new
Warrant evidencing the rights of the Holder to purchase the balance of the
Warrant Shares which Holder is entitled to purchase hereunder. The issuance of
Warrant Shares upon exercise of this Warrant shall be made without charge to the
Holder for any issuance tax with respect thereto or any other cost incurred by
the Company in connection with the conversion of this Warrant and the related
issuance of Warrant Shares.
(c) Automatic Conversion. If, as of the last day of the Exercise
--------------------
Period, this Warrant has not been fully exercised, then as of such date this
Warrant shall be automatically
-6-
<PAGE>
converted, in full, in accordance with this Section 2.2, without any action or
notice by Holder. For purposes of such automatic conversion, the date of
automatic conversion shall be the Conversion Date.
2.3 Fractional Shares. The Company shall not issue fractional shares of
-----------------
Series B Preferred Stock or Common Stock or scrip representing fractional shares
of Series B Preferred Stock or Common Stock upon any exercise or conversion of
this Warrant. As to any fractional share of Series B Preferred Stock or Common
Stock which the Holder would otherwise be entitled to purchase from the Company
upon such exercise or conversion, the Company shall purchase from the Holder
such fractional share at a price equal to an amount calculated by multiplying
such fractional share (calculated to the nearest 1/100/th/ of a share) by the
fair market value of a share of Series B Preferred Stock or Common Stock, as
applicable, on the date of the Notice of Exercise or the Conversion Date, as
applicable, as determined in good faith by the Company's Board of Directors.
Payment of such amount shall be made in cash or by check payable to the order of
the Holder at the time of delivery of any certificate or certificates arising
upon such exercise or conversion.
2.4 Continued Validity. A Shareholder shall be entitled to all rights to
------------------
which a Holder of this Warrant is entitled pursuant to the provisions of this
Warrant, except rights which by their terms apply only to a Warrant. The
Company shall, at the time of the exercise of this Warrant, in whole or in part,
upon the request of a Shareholder, acknowledge in writing, in form reasonably
satisfactory to the Shareholder, its continuing obligation to afford to the
Shareholder all rights to which the Shareholder is entitled in accordance with
the provisions of this Warrant; provided, however, that if the Shareholder fails
-------- -------
to make any such request, such failure shall not affect the continuing
obligation of the Company to afford to the Shareholder all such rights.
ARTICLE III
TRANSFER, EXCHANGE AND REPLACEMENT
----------------------------------
3.1 Restrictions on Transfers.
-------------------------
(a) Compliance with Securities Act. The Holder, by acceptance hereof,
------------------------------
agrees that this Warrant, the Series B Preferred Stock to be issued upon
exercise hereof and the shares of Common Stock to be issued upon conversion of
such shares of Series B Preferred Stock are being acquired for investment,
solely for the Holder's own account and not as a nominee for any other Person,
and that the Holder will not offer, sell or otherwise dispose of this Warrant,
any such shares of Series B Preferred Stock or any such shares of Common Stock
except under circumstances which will not result in a violation of the
Securities Act or the restrictions on transfer of this Warrant set forth in
Section 8.8 hereof. Upon exercise of this Warrant, the Holder shall confirm in
writing, by executing the form attached as Exhibit "B" hereto, that the shares
-----------
if Series B Preferred Stock or Common Stock purchased thereby are being acquired
for investment, solely for the Holder's own account and not as a nominee for any
other Person, and not with a view toward distribution or resale.
(b) Certificate Legends. This Warrant, all shares of Series B
-------------------
Preferred Stock issued upon exercise of this Warrant (unless Registered under
the Securities Act), and all shares of Common Stock issued upon conversion of
such shares of Series B Preferred Stock (unless
-7-
<PAGE>
Registered under the Securities Act) shall be stamped or imprinted with a legend
in substantially the following form (in addition to any legends required by
applicable state securities laws):
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED. NO SALE OR DISPOSITION OF SUCH
SECURITIES MAY BE EFFECTED WITHOUT (i) AN EFFECTIVE REGISTRATION STATEMENT
RELATING THERETO, (ii) AN OPINION OF COUNSEL FOR THE HOLDER, REASONABLY
SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATION IS NOT REQUIRED, (iii)
RECEIPT OF A NO-ACTION LETTER FROM THE SECURITIES AND EXCHANGE COMMISSION,
OR (iv) OTHERWISE COMPLYING WITH THE PROVISIONS OF ARTICLE III OF THE
WARRANT UNDER WHICH THIS SECURITY WAS ISSUED.
(c) Disposition of Warrant or Shares. With respect to any offer, sale
--------------------------------
or other disposition of this Warrant, any shares of Series B Preferred Stock
issued upon exercise of this Warrant or shares of Common Stock acquired pursuant
to conversion of such shares of Series B Preferred Stock prior to Registration
of such shares, the Holder or the Shareholder, as the case may be, agrees to
give written notice to the Company prior to thereto, describing briefly the
manner thereof, together with a written opinion of the Holder's or Shareholder's
counsel, if reasonably requested by the Company, to the effect that such offer,
sale or other disposition may be effected without Registration under the
Securities Act or qualification under any applicable state securities laws of
this Warrant or such shares, as the case may be, and indicating whether or not
under the Securities Act certificates for this Warrant or such shares, as the
case may be, to be sold or otherwise disposed of require any restrictive legend
as to applicable restrictions on transferability in order to insure compliance
with the Securities Act. Promptly upon receiving such written notice and
reasonably satisfactory opinion, if so requested, the Company, as promptly as
practicable, shall notify the Holder or the Shareholder, as the case may be,
that it may sell or otherwise dispose of this Warrant or such shares, as the
case may be, all in accordance with the terms of the notice delivered to the
Company. If a determination has been made pursuant to this subsection (c) that
the opinion of counsel for the Holder of the Shareholder, as the case may be, is
not reasonably satisfactory to the Company, the Company shall so notify the
Holder or the Shareholder, as the case may be, promptly after such determination
has been made and shall specify the legal analysis supporting any such
conclusion. Notwithstanding the foregoing, this Warrant or such shares, as the
case may be, may be offered, sold or otherwise disposed of in accordance with
Rule 144, provided that the Company shall have been furnished with such
information as the Company may reasonably request to provide reasonable
assurance that the provisions of Rule 144 have been satisfied. Each certificate
representing this Warrant or the shares thus transferred (except a transfer
pursuant to Rule 144) shall bear a legend as to the applicable restrictions on
transferability in order to insure compliance with the Securities Act, unless in
the aforesaid reasonably satisfactory opinion of counsel for the Holder or the
Shareholder, as the case may be, such legend is not necessary in order to insure
compliance with the Securities Act. The Company may issue stop transfer
instructions to its transfer agent in connection with such restrictions.
-8-
<PAGE>
(d) Warrant Transfer Procedure. Transfer of this Warrant to a third
--------------------------
party, following compliance with the preceding subsections of this Section 3.1
and compliance with the transfer restrictions set forth in Section 8.8, shall be
effect by execution of the Assignment Form attached hereto as Exhibit "C", and
-----------
surrender for registration of transfer of this Warrant at the Principal
Executive Officer, together with funds sufficient to pay any applicable transfer
tax. Upon receipt of the duly executed Assignment Form and the necessary
transfer tax funds, if any, the Company, at its expense, shall execute and
deliver, in the name of the designated transferee or transferees, one or more
new Warrants representing the right to purchase a like aggregate number of
shares of Series B Preferred Stock.
(e) Termination of Restrictions. The restrictions imposed under this
---------------------------
Section 3.1 upon the transferability of the Warrant, the shares of Series B
Preferred Stock acquired upon the exercise of this Warrant and the shares of
Common Stock issuable upon conversion of such shares of Series B Preferred Stock
shall cease when (i) a registration statement covering all shares of Common
Stock issued or issuable upon conversion of the Series B Preferred Stock becomes
effective under the Securities Act, (ii) the Company is presented with an
opinion of counsel reasonably satisfactory to the Company that such restrictions
are no longer required in order to insure compliance with the Securities Act or
with a Commission "no-action" letter stating that future transfers of such
securities by the transferor or the contemplated transferee would be exempt from
registration under the Securities Act, or (iii) such securities may be
transferred in accordance with Rule 144(k). When such restrictions terminate,
the Company shall, or shall instruct its transfer agent to, promptly, and
without expense to the Holder or the Shareholder, as the case may be, issue new
securities in the name of the Holder and/or the Shareholder, as the case may be,
not bearing the legends required under subsection (b) of this Section 3.1. In
addition, new securities shall be issued without such legends if such legends
may be properly removed under the terms of Rule 144(k).
3.2 Exchange. At the Holder's option, this Warrant may be exchanged for
--------
other Warrants representing the right to purchase a like aggregate number of
shares of Series B Preferred Stock upon surrender of this Warrant at the
Principal Executive Office. Whenever this Warrant is so surrendered to the
Company at the Principal Executive Office for exchange, the Company shall
execute and deliver the Warrants which the Holder is entitled to receive. All
Warrants issued upon any registration of transfer or exchange of Warrants shall
be the valid obligations of the Company, evidencing the same rights, and
entitled to the same benefits, as the Warrants surrendered upon such
registration of transfer or exchange. No service charge shall be made for any
exchange of this Warrant.
3.3 Replacement. Upon receipt of evidence reasonably satisfactory to the
-----------
Company of the loss, theft, destruction or mutilation of this Warrant and (i) in
the case of any such loss theft or destruction, upon delivery of indemnity
reasonably satisfactory to the Company in form and amount, or (ii) in the case
of any such mutilation, upon surrender of such Warrant for cancellation at the
Principal Executive Office, the Company, at its expense, shall execute and
deliver, in lieu thereof, a new Warrant.
-9-
<PAGE>
ARTICLE IV
ANTIDILUTION PROVISIONS
-----------------------
4.1 Conversion of Series B Preferred Stock. If all of the Series B
--------------------------------------
Preferred Stock is converted into shares of Common Stock in connection with a
Registration, then this Warrant shall automatically become exercisable for that
number of shares of Common Stock equal to the number of shares of Common Stock
that would have been received if this Warrant had been exercised in full and the
shares of Series B Preferred Stock received thereupon had been simultaneously
converted into shares of Common Stock immediately prior to such event, and the
Exercise Price shall be automatically adjusted to equal the amount obtained by
dividing (i) the aggregate Exercise Price of the shares of Series B Preferred
Stock for which this Warrant was exercisable immediately prior to such
conversion, by (ii) the number of shares of Common Stock for which this Warrant
is exercisable immediately after such conversion.
4.2 Reorganization, Reclassification or Recapitalization of the Company.
-------------------------------------------------------------------
In case of (1) a capital reorganization, reclassification or recapitalization of
the Company's capital stock (other than in the cases referred to in Section 4.4
hereof), (2) the Company's consolidation or merger with or into another
corporation in which the Company is not the surviving entity, or a reverse
triangular merger in which the Company is the surviving entity but the shares of
the Company's capital stock outstanding immediately prior to the merger are
converted, by virtue of the merger, into other property, whether in the form of
securities, cash or otherwise, or (3) the sale or transfer of the Company's
property as an entirety or substantially as an entirety, then, as part of such
reorganization, reclassification, recapitalization, merger, consolidation, sale
or transfer, lawful provision shall be made so that there shall thereafter be
deliverable upon the exercise of this Warrant or any portion thereof (in lieu of
or in addition to the number of shares of Series B Preferred Stock theretofore
deliverable, as appropriate), and without payment of any additional
consideration, the number of shares of stock or other securities or property to
which the holder of the number of shares of Series B Preferred Stock which would
otherwise have been deliverable upon the exercise of this Warrant or any portion
thereof at the time of such reorganization, reclassification, recapitalization,
consolidation, merger, sale or transfer would have been entitled to receive in
such reorganization, reclassification, recapitalization, consolidation, merger,
sale or transfer. This Section 4.2 shall apply to successive reorganizations,
reclassifications, recapitalizations, consolidations, mergers, sales and
transfers and to the stock or securities of any other corporation that are at
the time receivable upon the exercise of this Warrant. If the per-share
consideration payable to the Holder for shares of Series B Preferred Stock in
connection with any transaction described in this Section 4.2 is in a form other
than cash or marketable securities, then the value of such consideration shall
be determined in good faith by the Company's Board of Directors.
4.3 Splits and Combinations. If the Company at any time subdivides any of
-----------------------
its outstanding shares of Series B Preferred Stock into a greater number of
shares, the Exercise Price in effect immediately prior to such subdivision shall
be proportionately reduced, and, conversely if the outstanding shares of Series
B Preferred Stock are combined into a smaller number of shares, the Exercise
Price in effect immediately prior to such combination shall be proportionately
increased. Upon any adjustment of the Exercise Price under this Section 4.3,
the number of shares of Series B
-10-
<PAGE>
Preferred Stock issuable upon exercise of this Warrant shall equal the number of
shares determined by dividing (i) the aggregate Exercise Price payable for the
purchase of all shares issuable upon exercise of this Warrant immediately prior
to such adjustment by (ii) the Exercise Price per share in effect immediately
after such adjustment.
4.4 Reclassifications. If the Company changes any of the securities as to
-----------------
which purchase rights under this Warrant exist into the same or a different
number of securities of any other class or classes, this Warrant shall
thereafter represent the right to acquire such number and kind of securities as
would have been issuable as the result of such change with respect to the
securities that were subject to the purchase rights under this Warrant
immediately prior to such reclassification or other change and the Exercise
Price therefor shall be appropriately adjusted. No adjustment shall be made
pursuant to this Section 4.4 upon any conversion described in Section 4.1
hereof.
4.5 Dividends and Distributions. If the Company declares a dividend or
---------------------------
other distribution on the Series B Preferred Stock or if a dividend or other
distribution on the Series B Preferred Stock occurs pursuant to the Articles of
Incorporation (other than a cash dividend or distribution), then, as part of
such dividend or distribution, lawful provision shall be made so that there
shall thereafter be deliverable upon the exercise of this Warrant or any portion
thereof, in addition to the number of shares of Series B Preferred Stock
receivable thereupon and without payment of any additional consideration, the
amount of the dividend or other distribution to which the holder of the number
of shares of Series B Preferred Stock obtained upon exercise hereof would have
been entitled to receive had the exercise occurred as of the record date for
such dividend or distribution.
4.6 Liquidation; Dissolution. If the Company shall dissolve, liquidate or
------------------------
wind up its affairs, the Holder shall have the right, but not the obligation, to
exercise this Warrant effective as of the date of such dissolution, liquidation
or winding up. If any such dissolution, liquidation or winding up results in
any cash distribution to the Holder in excess of the aggregate Exercise Price
for the shares of Series B Preferred Stock for which this Warrant is exercised,
then the Holder may, at its option, exercise this Warrant without making payment
of such aggregate Exercise Price and, in such case, the Company shall, upon
distribution to the Holder, consider such aggregate Exercise Price to have been
paid in full, and in making such settlement to the Holder, shall deduct an
amount equal to such aggregate Exercise Price from the amount payable to the
Holder.
4.7 Maximum Exercise Price. At no time shall the Exercise Price exceed
----------------------
the amount set forth in the Preamble to this Warrant, unless the Exercise Price
is adjusted pursuant to Section 4.3 hereof.
4.8 Other Dilutive Events. If any event occurs as to which the other
---------------------
provisions of this Article IV are not strictly applicable but the failure to
make any adjustment would not fairly protect the purchase rights represented by
this Warrant in accordance with the essential intent and principles hereof,
then, in each such case, the Company shall appoint a firm of independent public
accountants of recognized national standing (which may be the Company's regular
auditors) which shall give their opinion upon the adjustment, if any, on a basis
consistent with the essential intent and principles established in this Article
IV, necessary to preserve, without dilution, the purchase rights
-11-
<PAGE>
represented by this Warrant. Upon receipt of such opinion, the Company shall
promptly mail a copy thereof to the Holder and shall make the adjustments
described therein.
4.9 Amendment of Articles of Incorporation. If (i) the Warrant is
--------------------------------------
outstanding and (ii) no shares of Series B Preferred Stock are issued and
outstanding, then the Company shall not amend, or otherwise take any action that
would affect, Article III, Section 4(d) of the Articles of Incorporation with
respect to the Series B Preferred Stock, without the prior written consent of
the Holder, given in its sole discretion. If the Articles of Incorporation are
amended in violation of this Section 4.9, then the provisions of this Article IV
shall be adjusted so that the Holder shall receive with respect to the shares of
Common Stock received upon conversion of the shares of Series B Preferred Stock
obtained upon exercise of this Warrant thereafter, what would have been received
had the Articles of Incorporation not been so amended, upon payment of the same
amount as would have been required had the Articles of Incorporation not been so
amended.
4.10 Certificates and Notices.
------------------------
(a) Adjustment Certificates. Upon any adjustment of the Exercise
-----------------------
Price and/or the number of shares of Series B Preferred Stock purchasable upon
exercise of this Warrant, a certificate, signed by (i) the Company's President
and Chief Financial Officer, or (ii) any independent firm of certified public
accountants of recognized national standing the Company selects at its own
expense, setting forth in reasonable detail the events requiring the adjustment
and the method by which such adjustment was calculated, shall be mailed to the
Holder and shall specify the adjusted Exercise Price and the number of shares of
Series B Preferred Stock purchasable upon exercise of the Warrant after giving
effect to the adjustment.
(b) Extraordinary Corporate Events. If the Company, after the date
------------------------------
hereof, proposes to effect (i) any transaction described in Sections 4.2 or 4.4
hereof, (ii) a liquidation, dissolution or winding up of the Company described
in Section 4.6 hereof, or (iii) any payment of a dividend or distribution with
respect to Series B Preferred Stock or Common Stock, then, in each such case,
the Company shall mail to the Holder a notice describing such proposed action
and specifying the date on which the Company's books shall close, or a record
shall be taken, for determining the holders of Series B Preferred Stock or
Common Stock, as appropriate, entitled to participate in such action, or the
date on which such reorganization, reclassification, consolidation, merger,
sale, transfer, liquidation, dissolution or winding up shall take place or
commence, as the case may be, and the date as of which it is expected that
holders of Series B Preferred Stock and Common Stock of record shall be entitled
to receive securities and/or other property deliverable upon such action, if any
such date is to be fixed. Such notice shall be mailed to the Holder at least
twenty (20) days prior to the record date for such action in the case of any
action described in clause (i) or clause (ii) above, and in the case of any
action described in clause (ii) above, at least twenty (20) days prior to the
date on which the action described is to take place and at least twenty (20)
days prior to the record date for determining holders of Series B Preferred
Stock or Common Stock, as appropriate, entitled to receive securities and/or
other property in connection with such action.
4.11 No Impairment. The Company shall not, by amendment of the Articles of
-------------
Incorporation or through any reorganization, recapitalization, transfer of
assets, consolidation,
-12-
<PAGE>
merger, dissolution, issued 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 Company, but shall at all times in good
faith assist in the carrying out of all the provisions of this Article IV and in
the taking of all such action as may be necessary or appropriate in order to
protect the rights of the Holder against impairment.
4.12 Application. Except as otherwise provided herein, all sections of
-----------
this Article IV are intended to operate independently of one another. If an
event occurs that requires the application of more than one section, all
applicable sections shall be given independent effect.
ARTICLE V
REGISTRATION RIGHTS
-------------------
Concurrent with the execution and delivery of this Warrant, the Company
shall cause the Holder to become a party to the Rights Agreement and the Holder
shall be deemed a "Holder", as defined in the Rights Agreement, for purposes of
the Rights Agreement and shall be entitled to all the rights, and be subject to
all the obligations, of a Holder under the Rights Agreement, the Warrant Shares
shall be deemed "Series B Preferred Stock", as defined in the Rights Agreement,
and the Common Stock issuable upon conversion of the Warrant Shares shall be
deemed "Registrable Securities", as defined in the Rights Agreement, for
purposes of the Rights Agreement. Such actions shall be effected by the Company
executing and delivering to the Holder a fully-executed Amendment to Rights
Agreement substantially in the form of Exhibit "F" hereto.
-----------
ARTICLE VI
INFORMATION
-----------
6.1 Financial Information. The Company shall deliver to the Holder,
---------------------
concurrent with delivery to any of the Investors, as defined in the Rights
Agreement, all information delivered to any of the Investors pursuant to Section
2.1 of the Rights Agreement and all other information delivered to any of the
Investors from time to time pursuant to the Rights Agreement as in effect from
time to time during the term hereof. If the Rights Agreement is terminated for
any reason, and for so long as the Company is not subject to the periodic
reporting requirements of Sections 12(g) or 15(d) of the Exchange Act, the
Company shall deliver to the Holder all information that was required to be
delivered to any of the Investors, as defined in the Rights Agreement, pursuant
to Section 2.1 of the Rights Agreement, as in effect on the date hereof.
6.2 Inspection. The Company shall permit the Holder, at the Holder's
----------
expense, to visit and inspect the Company's properties, to examine its books of
account and records and to discuss the Company's affairs, finances and accounts
with its officers, all at such reasonable times as may be requested by the
Holder.
-13-
<PAGE>
ARTICLE VII
REPRESENTATIONS, WARRANTIES AND COVENANTS OF COMPANY
----------------------------------------------------
7.1 Representations and Warranties. The Company represents and warrants
------------------------------
that:
(a) Legal Status; Qualification. The Company is a corporation duly
---------------------------
organized, validly existing and in good standing under the laws of the State of
California and is qualified or licensed to do business in all other countries,
states and provinces in which the laws thereof require the Company to qualify
and/or be licensed, except where failure to qualify or be licensed would not
have a material adverse effect on the business or assets of the Company taken as
a whole;
(b) Capitalization. The Company's authorized capital stock consists
--------------
of: (i) 10,000,000 shares of Preferred Stock, of which (A) 3,150,000 shares are
designated as Series A Preferred Stock, of which series 3,150,000 shares are
issued and outstanding, and (B) 5,500,000 shares are designated as Series B
Preferred Stock, of which series 4,948,946 shares are issued and outstanding;
and (ii) 15,000,000 shares of Common Stock, of which 1,905,416 shares are issued
and outstanding;
(c) Options. Except as described in Exhibit "D" hereto there are no
------- -----------
options, warrants or similar rights to acquire from the Company, or agreements
or other obligations by the Company, absolute or contingent, to issue or sell
Common Stock, whether on conversion or exchange of Convertible Securities or
otherwise;
(d) Preemptive Rights. Except as described in Exhibit "D", no
----------------- -----------
shareholder of the Company has any preemptive rights to subscribe for shares of
Common Stock;
(e) Authority. The Company has the right and power, and is duly
---------
authorized and empowered, to enter into, execute, deliver and perform this
Warrant;
(f) Binding Effect. This Warrant has been duly authorized, executed
--------------
and delivered and constitutes a valid and binding obligation of the Company
enforceable in accordance with its terms;
(g) No Conflict. The execution, delivery and/or performance by the
-----------
Company of this Warrant shall not, by the lapse of time, the giving of notice or
otherwise, constitute a violation of any applicable law or a breach of any
provision contained in the Company's Articles of Incorporation or By-laws or
contained in any agreement, instrument, or document to which the Company is a
party or by which it is bound;
(h) Consents. No consent, approval, authorization or other order of
--------
any court, regulatory body, administrative agency or other governmental body is
required for the valid issuance of the Warrant or for the performance of any of
the Company's obligations hereunder, except for the filing pursuant to Section
25102(f) of the California Corporate Securities Law of 1968, as amended,
-14-
<PAGE>
and the rules promulgated thereunder, which filing will be effected in
accordance with such section and rules;
(i) Offering. Neither the Company nor any agent acting on its behalf
--------
has, either directly or indirectly, sold, offered for sale or disposed of, or
attempted or offered to dispose of, this Warrant or any part hereof, or any
similar obligation of the Company, to, or has solicited any offers to buy any
thereof from, any person or persons other than the Holder. Neither the Company
nor any agent acting on its behalf will sell or offer for sale or dispose of, or
attempt or offer to dispose of, this Warrant or any part thereof to, or solicit
any offers to buy any warrant of like tenor from, or otherwise approach or
negotiate in respect thereof, with, any Person or Persons so as thereby to bring
the issuance of this Warrant within the provisions of Section 5 of the
Securities Act;
(j) Registration. It is not necessary in connection with the issuance
------------
and sale of this Warrant to the Holder to Register this Warrant under the
Securities Act; and
(k) Overall Representations and Warranties. The representations and
--------------------------------------
warranties of the Company contained in this Warrant, and the other provisions of
this Warrant, do not contain any untrue statement of material fact or omit any
material fact necessary to make the statements contained herein, in view of the
circumstances under which they were made, not misleading.
7.2 Covenants. The Company covenants that:
---------
(a) Authorized Shares. The Company will take all reasonable actions
-----------------
necessary to authorize, and reserve for the purpose of issue or transfer upon
exercise of the rights evidenced by this Warrant, a sufficient number of shares
of Series B Preferred Stock to provide for the exercise of the rights
represented by this Warrant (for purposes of determining compliance with this
covenant, the shares of Series B Preferred Stock issuable upon exercise of all
other options and warrants shall be deemed issued and outstanding), and a
sufficient number of shares of Common Stock to provide for the conversion into
Common Stock of all the shares of Series B Preferred Stock issued and issuable
upon the exercise of this Warrant but theretofore unconverted (for purposes of
determining compliance with this covenant, the shares of Common Stock issuable
upon exercise of all options and warrants to acquire Common Stock and upon
conversion of all instruments convertible into Common Stock shall be deemed
issued and outstanding);
(b) Proper Issuance. The Company, at its expense, will take all such
---------------
action as may be necessary to assure that the Series B Preferred Stock issuable
upon the exercise of this Warrant, and the Common Stock issuable upon the
conversion of such Series B Preferred Stock, may be so issued without violation
of any applicable law or regulation, or of any requirements of any domestic
securities exchange upon which any capital stock of the Company may be listed.
Such action may include, but not be limited to, causing such shares to be duly
registered or approved or listed on relevant domestic securities exchanges; and
(c) Fully Paid Shares. The Company will take all actions necessary or
-----------------
appropriate to validly and legally issue (i) fully paid and non-assessable
shares of Series B Preferred Stock upon exercise of this Warrant and (ii) fully
paid and non-assessable shares of Common Stock
-15-
<PAGE>
upon conversion of such shares of Series B Preferred Stock. All such shares will
be free from all taxes, liens and charges with respect to the issuance thereof,
other than any stock transfer taxes in respect to any transfer occurring
contemporaneously with such issuance.
ARTICLE VIII
MISCELLANEOUS
-------------
8.1 Certain Expenses. The Company shall pay all expenses in connection
----------------
with, and all taxes (other than stock transfer taxes) and other governmental
charges that may be imposed in respect of, the issuance, sale and delivery of
the Warrant, the Warrant Shares and the shares of Common Stock issuable upon
conversion of the Warrant Shares.
8.2 Holder Not a Shareholder. Prior to the exercise of this Warrant as
------------------------
hereinbefore provided, the Holder shall not be entitled to any of the rights of
a shareholder of the Company including, without limitation, the right as a
shareholder (i) to vote on or consent to any proposed action of the Company or
(ii) except as provided herein, to receive (a) dividends or any other
distributions made to shareholders, (b) notice of or attend any meetings of
shareholders of the Company, or (c) notice of any other proceedings of the
Company. Notwithstanding the foregoing, the Company shall provide to the Holder
the information delivered to shareholders as required pursuant to Section 6.1(d)
hereof.
8.3 Like Tenor. All Warrants shall at all times be substantially
----------
identical except as to the Preamble.
8.4 Remedies. The Company stipulates that the remedies at law of the
--------
Holder in the event of any default or threatened default by the Company in the
performance of or compliance with any of the terms of this Warrant are not and
will not be adequate to the fullest extent permitted by law, and that such terms
may be specifically enforced by a decree for the specific performance of any
agreement contained herein or by an injunction against a violation of any of the
terms hereof or otherwise.
8.5 Enforcement Costs. If any party to, or beneficiary of, this Warrant
-----------------
seeks to enforce its rights hereunder by legal proceedings or otherwise, then
the non-prevailing party shall pay all reasonable costs and expenses incurred by
the prevailing party, including, without limitation, all reasonable attorneys'
fees (including the allocable costs of in-house counsel).
8.6 Nonwaiver; Cumulative Remedies. No course of dealing or any delay or
------------------------------
failure to exercise any right hereunder on the part of the Holder and/or any
Shareholder shall operate as a waiver of such right or otherwise prejudice the
rights, powers or remedies of the Holder or such Shareholder. No single or
partial waiver by the Holder and/or any Shareholder of any provision of this
Warrant or of any breach or default hereunder or of any right or remedy shall
operate as a waiver of any other provision, breach, default right or remedy or
of the same provision, breach, default, right or remedy on a future occasion.
The rights and remedies provided in this Warrant are cumulative and are in
addition to all rights and remedies which the Holder and each Shareholder may
have in law or in equity or by statute or otherwise.
-16-
<PAGE>
8.7 Notices. Any notice, demand or delivery to be made pursuant to this
-------
Warrant will be sufficiently given or made if sent by first class mail, postage
prepaid, addressed to (a) the Holder and the Shareholders at their last known
addresses appearing on the books of the Company maintained for such purpose or
(b) the Company at its Principal Executive Office. The Holder, the Shareholders
and the Company may each designate a different address by notice to the other
pursuant to this Section 8.7. A notice shall be deemed effective upon the
earlier of (i) receipt or (ii) the third day after mailing in accordance with
the terms of this Section 8.7.
8.8 Successors and Assigns.
----------------------
(a) The Holder may transfer all or part of this Warrant to another
Person without the Company's consent, so long as such Person is not a competitor
or potential competitor of the Company at the time of transfer, as reasonably
determined by the Company's Board of Directors.
(b) This Warrant shall be binding upon the Company and any Person
succeeding the Company by merger, consolidation or acquisition of all or
substantially all of the Company's assets, and all of the obligations of the
Company with respect to the shares of Series B Preferred Stock issuable upon
exercise of this Warrant and the shares of Common Stock issuable upon the
conversion of such shares of Series B Preferred Stock, shall survive the
exercise, expiration or termination of this Warrant and all of the covenants and
agreements of the Company shall inure to the benefit of the Holder, each
Shareholder and their respective permitted successors and assigns. The Company
shall, at the time of exercise of this Warrant, in whole or in part, upon
request of the Holder or any Shareholder but at the Company's expense,
acknowledge in writing its continuing obligations hereunder with respect to
rights of the Holder or such Shareholder to which it shall continue to be
entitled after such exercise in accordance with the terms hereof; provided that
the failure of the Holder or any Shareholder to make any such request shall not
affect the continuing obligation of the Company to the Holder or such
Shareholder in respect of such rights.
8.9 Modification; Severability.
--------------------------
(a) If, in any action before any court or agency legally empowered to
enforce any term, any term is found to be unenforceable, then such term shall be
deemed modified to the extent necessary to make it enforceable by such court or
agency.
(b) If any term is not curable as set forth in subsection (a) above,
the unenforceability of such term shall not affect the other provisions of this
Warrant but this Warrant shall be construed as if such unenforceable term had
never been contained herein.
8.10 Integration. This Warrant replaces all prior and contemporaneous
-----------
agreements and supersedes all prior and contemporaneous negotiations between the
parties with respect to the transactions contemplated herein and constitutes the
entire agreement of the parties with respect to the transactions contemplated
herein.
-17-
<PAGE>
8.11 Survival of Representations and Warranties. The representations and
------------------------------------------
warranties of the Company in this Warrant shall survive the execution and
delivery of this Warrant for a period of six (6) months, notwithstanding any
investigation by the Holder or its agents.
8.12 Amendment. This Warrant may not be modified or amended except by
---------
written agreement of the Company, the Holder and the Shareholder(s), if any.
8.13 Headings. The headings of the Articles and Sections of this Warrant
--------
are for the convenience of reference only and shall not, for any purpose, be
deemed a part of this Warrant.
8.14 Meanings. Whenever used in this Warrant, any noun or pronoun shall be
--------
deemed to include both the singular and plural and to cover all genders; and the
words "herein," "hereof" and "hereunder" and words of similar import shall refer
to this instrument as a whole, including any amendments hereto.
8.15 Governing Law. This Warrant shall be governed by, and construed in
-------------
accordance with, the laws of the State of California applicable to contracts
entered into and to be performed wholly within California by California
residents.
-18-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by
its duly authorized officer as of April 1, 1996.
NUANCE COMMUNICATIONS
By:__________________________
Title:_______________________
-19-
<PAGE>
SCHEDULE OF EXHIBITS
--------------------
EXHIBIT "A"- Notice of Exercise (Section 2.1)
EXHIBIT "B"- Investment Representation Certificate (Section 3.1(a))
EXHIBIT "C"- Assignment Form (Section 3.1(d))
EXHIBIT "D"- Schedule of Options and Preemptive Rights (Sections 7.1(c) and
7.1(d))
EXHIBIT "E"- Rights Agreement (Article I)
EXHIBIT "F"- Amendment to Rights Agreement (Article V)
-20-
<PAGE>
EXHIBIT "A"
-----------
NOTICE OF EXERCISE FORM
-----------------------
(To be executed only upon partial or full
exercise of the within Warrant)
The undersigned registered Holder of the within Warranty hereby irrevocably
exercises the within Warrant for and purchases shares of Series B Preferred
Stock of NUANCE COMMUNICATIONS and herewith makes payment therefor in the amount
of $_________, all at the price and on the terms and conditions specified in the
within Warrant and requests that a certificate (or ____ certificates in
denominations of shares) for the shares of Series B Preferred Stock of NUANCE
COMMUNICATIONS hereby purchased be issued in the name of and delivered to
(choose one) (a) the undersigned or (b) [NAME], whose address is and, if such
shares of Series B Preferred Stock shall not include all the shares of Series B
Preferred Stock issuable as provided in the within Warrant, that a new Warrant
of like tenor for the number of shares of Series B Preferred Stock of NUANCE
COMMUNICATIONS not being purchased hereunder be issued in the name of and
delivered to (choose one) (a) the undersigned or (b) [NAME], whose address is
___________________.
Dated: ___________________, 199__
Signature Guaranteed
_________________________________________
_________________________________________
By:______________________________________
(Signature of Registered Holder)
Title:___________________________________
NOTICE: The signature to this Notice of Exercise must correspond with the name
as written upon the face of the within Warrant in every particular,
without alteration or enlargement or any change whatever.
The signature to this Notice of Exercise must be guaranteed by a
commercial bank or trust company in the United States or a member firm
of the New York Stock Exchange.
-21-
<PAGE>
EXHIBIT "B"
-----------
INVESTMENT REPRESENTATION CERTIFICATE
-------------------------------------
Purchaser:
Company: NUANCE COMMUNICATIONS
Security: Series B Preferred Stock
Amount:
Date:
In connection with the purchase of the above-listed securities (the
"Securities"), the undersigned (the "Purchaser") represents to the Company as
---------- ---------
follows:
(a) The Purchaser is aware of the Company's business affairs and financial
condition, and has acquired sufficient information about the Company to reach an
informed and knowledgeable decision to acquire the Securities. The Purchaser is
purchasing the Securities for its own account for investment purposes only and
not with a view to, or for the resale in connection with, any "distribution"
thereof for purposes of the Securities Act of 1933, as amended (the "Securities
----------
Act");
- ---
(b) The Purchaser understands that the Securities have not been registered
under the Securities Act in reliance upon a specific exemption therefor, which
exemption depends upon, among other things, the bona fide nature of the
Purchaser's investment intent as expressed herein. In this connection, the
Purchaser understands that, in the view of the Securities and Exchange
Commission ("SEC"), the statutory basis for such exemption may be unavailable if
---
the Purchaser's representation was predicted solely upon a present intention to
hold these Securities for the minimum capital gains period specified under tax
statutes, for a deferred sale, for or until an increase or decrease in the
market price of the Securities, or for a period of one year or any other fixed
period in the future;
(c) The Purchaser further understands that the Securities must be held
indefinitely unless subsequently registered under the Securities Act or unless
an exemption from registration is otherwise available. Moreover, the Purchaser
understands that the Company is under no obligation to register the Securities.
In addition, the Purchaser understands that the certificate evidencing the
Securities will be imprinted with the legend referred to in the Warrant under
which the Securities are being purchased;
(d) The Purchaser is aware of the provisions of Rule 144, promulgated under
the Securities Act, which, in substance, permit limited public resale of
"restricted securities" acquired, directly or indirectly, from the issuer
thereof (or from an affiliate of such issuer), in a non-public offering subject
to the satisfaction of certain conditions, if applicable, including, among other
things: (i) the availability of certain public information about the Company;
(ii) the resale occurring not less
-22-
<PAGE>
than two (2) years after the party has purchased and paid for the securities to
be sold; (iii) the sale being made through a broker in an unsolicited "broker's
transaction" or in transactions directly with a market maker (as said term is
defined under the Securities Exchange Act of 1934) and the amount of securities
being sold during any three-month period not exceeding the specified limitations
stated therein;
(e) The Purchaser further understands that at the time it wishes to sell
the Securities there may be no public market upon which to make such a sale, and
that, even if such a public market upon which to make such a sale then exists,
the Company may not be satisfying the current public information requirements of
Rule 144, and that, in such event, the Purchaser may be precluded from selling
the Securities under Rule 144 even if the two-year minimum holding period had
been satisfied; and
(f) The Purchaser further understands that in the event all of the
requirements of Rule 144 are not satisfied, registration under the Securities
Act, compliance with Regulation A, or some other registration exemption will be
required; and that, notwithstanding the fact that Rule 144 is not exclusive, the
staff of the SEC has expressed its opinion that persons proposing to sell
private placement securities other than in a registered offering and otherwise
than pursuant to Rule 144 will have a substantial burden of proof in
establishing that an exemption from registration is available for such offers or
sales, and that such persons and their respective brokers who participate in
such transactions do so at their own risk.
Date: ________________, 199___
PURCHASER:
_____________________________________
-23-
<PAGE>
EXHIBIT "C"
-----------
ASSIGNMENT FORM
---------------
(To be executed only upon the assignment of
the within Warrant)
FOR VALUE RECEIVED, the undersigned registered Holder of the within Warrant
hereby sells, assigns and transfers unto _____, whose address is ____________
all of the rights of the undersigned under the within Warrant, with respect to
shares of Series B Preferred Stock of NUANCE COMMUNICATIONS and, if such shares
of Series B Preferred Stock shall not include all the shares of Series B
Preferred Stock issuable as provided in the within Warrant, that a new Warrant
of like tenor for the number of shares of Series B Preferred Stock of NUANCE
COMMUNICATIONS not being transferred hereunder be issued in the name of and
delivered to the undersigned, and does hereby irrevocably constitute and appoint
_____________ attorney to register such transfer on the books of NUANCE
COMMUNICATIONS maintained for the purpose, with full power of substitution in
the premises.
Dated: _____________, 199__
Signature Guaranteed
____________________________________
____________________________________
By:_________________________________
(Signature of Registered Holder)
Title:______________________________
NOTICE: The signature to this Assignment must correspond with the name upon
the face of the within Warrant in every particular, without alteration
or enlargement or any change whatever.
The signature to this Notice of Assignment must be guaranteed by a
commercial bank or trust company in the United States or a member firm
of the New York Stock Exchange.
-24-
<PAGE>
EXHIBIT "D"
-----------
OUTSTANDING OPTIONS AND PREEMPTIVE RIGHTS
-----------------------------------------
(Sections 7.1(c) and 7.1(d))
-25-
<PAGE>
EXHIBIT "E"
-----------
RIGHTS AGREEMENT
----------------
(Article I)
-26-
<PAGE>
EXHIBIT "F"
-----------
AMENDMENT TO RIGHTS AGREEMENT
-----------------------------
(Article V)
-27-
<PAGE>
EXHIBIT 10.1
NUANCE COMMUNICATIONS, INC.
INDEMNIFICATION AGREEMENT
This Indemnification Agreement ("Agreement") is effective as of _____ 2000
by and between Nuance Communications, Inc., a Delaware corporation (the
"Company"), and the indemnitee listed on the signature page hereto
("Indemnitee").
WHEREAS, the Company desires to attract and retain the services of highly
qualified individuals, such as Indemnitee, to serve the Company and its related
entities;
WHEREAS, in order to induce Indemnitee to continue to provide services to
the Company, the Company wishes to provide for the indemnification of, and the
advancement of expenses to, Indemnitee to the maximum extent permitted by law;
WHEREAS, the Company and Indemnitee recognize the continued difficulty in
obtaining liability insurance for the Company's directors, officers, employees,
agents and fiduciaries, the significant increases in the cost of such insurance
and the general reductions in the coverage of such insurance;
WHEREAS, the Company and Indemnitee further recognize the substantial
increase in corporate litigation in general, subjecting directors, officers,
employees, agents and fiduciaries to expensive litigation risks at the same time
as the availability and coverage of liability insurance has been severely
limited;
WHEREAS, the Company and Indemnitee desire to continue to have in place the
additional protection provided by an indemnification agreement and to provide
indemnification and advancement of expenses to the Indemnitee to the maximum
extent permitted by Delaware law; and
WHEREAS, in view of the considerations set forth above, the Company and
Indemnitee desire to amend and restate the Prior Agreement as set forth herein;
NOW, THEREFORE, the Company and Indemnitee hereby agree as follows: 1.
1. Certain Definitions.
-------------------
(a) "Change in Control" shall mean, and shall be deemed to have
occurred if, on or after the date of this Agreement, (i) any "person" (as such
term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934,
as amended), other than a trustee or other fiduciary holding securities under an
employee benefit plan of the Company acting in such capacity or a corporation
owned directly or indirectly by the stockholders of the Company in substantially
the same proportions as their ownership of stock of the Company, becomes the
"beneficial owner" (as defined in Rule 13d-3 under said Act), directly or
indirectly, of securities of the Company representing more
<PAGE>
than 50% of the total voting power represented by the Company's then outstanding
Voting Securities, (ii) during any period of two consecutive years, individuals
who at the beginning of such period constitute the Board of Directors of the
Company and any new director whose election by the Board of Directors or
nomination for election by the Company's stockholders was approved by a vote of
at least two thirds (2/3) of the directors then still in office who either were
directors at the beginning of the period or whose election or nomination for
election was previously so approved, cease for any reason to constitute a
majority thereof, or (iii) the stockholders of the Company approve a merger or
consolidation of the Company with any other corporation other than a merger or
consolidation which would result in the Voting Securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into Voting Securities of the
surviving entity) at least 80% of the total voting power represented by the
Voting Securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation, or the stockholders of the
Company approve a plan of complete liquidation of the Company or an agreement
for the sale or disposition by the Company of (in one transaction or a series of
related transactions) all or substantially all of the Company's assets.
(b) "Claim" shall mean with respect to a Covered Event: any threatened,
pending or completed action, suit, proceeding or alternative dispute resolution
mechanism, or any hearing, inquiry or investigation that Indemnitee in good
faith believes might lead to the institution of any such action, suit,
proceeding or alternative dispute resolution mechanism, whether civil, criminal,
administrative, investigative or other.
(c) References to the "Company" shall include, in addition to Nuance
Communications, any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger to which Nuance
Communications (or any of its wholly owned subsidiaries) is a party which, if
its separate existence had continued, would have had power and authority to
indemnify its directors, officers, employees, agents or fiduciaries, so that if
Indemnitee is or was a director, officer, employee, agent or fiduciary of such
constituent corporation, or is or was serving at the request of such constituent
corporation as a director, officer, employee, agent or fiduciary of another
corporation, partnership, joint venture, employee benefit plan, trust or other
enterprise, Indemnitee shall stand in the same position under the provisions of
this Agreement with respect to the resulting or surviving corporation as
Indemnitee would have with respect to such constituent corporation if its
separate existence had continued.
(d) "Covered Event" shall mean any event or occurrence related to the
fact that Indemnitee is or was a director, officer, employee, agent or fiduciary
of the Company, or any subsidiary of the Company, or is or was serving at the
request of the Company as a director, officer, employee, agent or fiduciary of
another corporation, partnership, joint venture, trust or other enterprise, or
by reason of any action or inaction on the part of Indemnitee while serving in
such capacity.
(e) "Expenses" shall mean any and all expenses (including attorneys'
fees and all other costs, expenses and obligations incurred in connection with
investigating, defending, being a witness in or participating in (including on
appeal), or preparing to defend, to be a witness in or to
-2-
<PAGE>
participate in, any action, suit, proceeding, alternative dispute resolution
mechanism, hearing, inquiry or investigation), judgments, fines, penalties and
amounts paid in settlement (if such settlement is approved in advance by the
Company, which approval shall not be unreasonably withheld), actually and
reasonably incurred, of any Claim and any federal, state, local or foreign taxes
imposed on the Indemnitee as a result of the actual or deemed receipt of any
payments under this Agreement.
(f) "Expense Advance" shall mean a payment to Indemnitee pursuant to
Section 3 of Expenses in advance of the settlement of or final judgement in any
action, suit, proceeding or alternative dispute resolution mechanism, hearing,
inquiry or investigation which constitutes a Claim.
(g) "Independent Legal Counsel" shall mean an attorney or firm of
attorneys, selected in accordance with the provisions of Section 2(d) hereof,
who shall not have otherwise performed services for the Company or Indemnitee
within the last three years (other than with respect to matters concerning the
rights of Indemnitee under this Agreement, or of other indemnitees under similar
indemnity agreements).
(h) References to "other enterprises" shall include employee benefit
plans; references to "fines" shall include any excise taxes assessed on
Indemnitee with respect to an employee benefit plan; and references to "serving
at the request of the Company" shall include any service as a director, officer,
employee, agent or fiduciary of the Company which imposes duties on, or involves
services by, such director, officer, employee, agent or fiduciary with respect
to an employee benefit plan, its participants or its beneficiaries; and if
Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to
be in the interest of the participants and beneficiaries of an employee benefit
plan, Indemnitee shall be deemed to have acted in a manner "not opposed to the
best interests of the Company" as referred to in this Agreement.
(i) "Reviewing Party" shall mean, subject to the provisions of Section
2(d), any person or body appointed by the Board of Directors in accordance with
applicable law to review the Company's obligations hereunder and under
applicable law, which may include a member or members of the Company's Board of
Directors, Independent Legal Counsel or any other person or body not a party to
the particular Claim for which Indemnitee is seeking indemnification.
(j) "Section" refers to a section of this Agreement unless otherwise
indicated.
(k) "Voting Securities" shall mean any securities of the Company that
vote generally in the election of directors.
2. Indemnification.
---------------
(a) Indemnification of Expenses. Subject to the provisions of Section
---------------------------
2(b) below, the Company shall indemnify Indemnitee for Expenses to the fullest
extent permitted by law if Indemnitee was or is or becomes a party to or witness
or other participant in, or is threatened to be made a party to or witness or
other participant in, any Claim (whether by reason of or arising in part
-3-
<PAGE>
out of a Covered Event), including all interest, assessments and other charges
paid or payable in connection with or in respect of such Expenses.
(b) Review of Indemnification Obligations. Notwithstanding the
-------------------------------------
foregoing, in the event any Reviewing Party shall have determined (in a written
opinion, in any case in which Independent Legal Counsel is the Reviewing Party)
that Indemnitee is not entitled to be indemnified hereunder under applicable
law, (i) the Company shall have no further obligation under Section 2(a) to make
any payments to Indemnitee not made prior to such determination by such
Reviewing Party, and (ii) the Company shall be entitled to be reimbursed by
Indemnitee (who hereby agrees to reimburse the Company) for all Expenses
theretofore paid in indemnifying Indemnitee; provided, however, that if
-------- -------
Indemnitee has commenced or thereafter commences legal proceedings in a court of
competent jurisdiction to secure a determination that Indemnitee is entitled to
be indemnified hereunder under applicable law, any determination made by any
Reviewing Party that Indemnitee is not entitled to be indemnified hereunder
under applicable law shall not be binding and Indemnitee shall not be required
to reimburse the Company for any Expenses theretofore paid in indemnifying
Indemnitee until a final judicial determination is made with respect thereto (as
to which all rights of appeal therefrom have been exhausted or lapsed).
Indemnitee's obligation to reimburse the Company for any Expenses shall be
unsecured and no interest shall be charged thereon.
(c) Indemnitee Rights on Unfavorable Determination; Binding Effect. If
--------------------------------------------------------------
any Reviewing Party determines that Indemnitee substantively is not entitled to
be indemnified hereunder in whole or in part under applicable law, Indemnitee
shall have the right to commence litigation seeking an initial determination by
the court or challenging any such determination by such Reviewing Party or any
aspect thereof, including the legal or factual bases therefor, and, subject to
the provisions of Section 15, the Company hereby consents to service of process
and to appear in any such proceeding. Absent such litigation, any determination
by any Reviewing Party shall be conclusive and binding on the Company and
Indemnitee.
(d) Selection of Reviewing Party; Change in Control. If there has not
-----------------------------------------------
been a Change in Control, any Reviewing Party shall be selected by the Board of
Directors, and if there has been such a Change in Control (other than a Change
in Control which has been approved by a majority of the Company's Board of
Directors who were directors immediately prior to such Change in Control), any
Reviewing Party with respect to all matters thereafter arising concerning the
rights of Indemnitee to indemnification of Expenses under this Agreement or any
other agreement or under the Company's Certificate of Incorporation or Bylaws as
now or hereafter in effect, or under any other applicable law, if desired by
Indemnitee, shall be Independent Legal Counsel selected by Indemnitee and
approved by the Company (which approval shall not be unreasonably withheld).
Such counsel, among other things, shall render its written opinion to the
Company and Indemnitee as to whether and to what extent Indemnitee would be
entitled to be indemnified hereunder under applicable law and the Company agrees
to abide by such opinion. The Company agrees to pay the reasonable fees of the
Independent Legal Counsel referred to above and to indemnify fully such counsel
against any and all expenses (including attorneys' fees), claims, liabilities
and damages arising out of or relating to this Agreement or its engagement
pursuant hereto. Notwithstanding any other provision of this Agreement, the
Company shall not be required to pay Expenses of more than
-4-
<PAGE>
one Independent Legal Counsel in connection with all matters concerning a single
Indemnitee, and such Independent Legal Counsel shall be the Independent Legal
Counsel for any or all other Indemnitees unless (i) the Company otherwise
determines or (ii) any Indemnitee shall provide a written statement setting
forth in detail a reasonable objection to such Independent Legal Counsel
representing other Indemnitees.
(e) Mandatory Payment of Expenses. Notwithstanding any other provision
-----------------------------
of this Agreement other than Section 10 hereof, to the extent that Indemnitee
has been successful on the merits or otherwise, including, without limitation,
the dismissal of an action without prejudice, in defense of any Claim,
Indemnitee shall be indemnified against all Expenses incurred by Indemnitee in
connection therewith.
3. Expense Advances.
----------------
(a) Obligation to Make Expense Advances. Upon receipt of a written
-----------------------------------
undertaking by or on behalf of the Indemnitee to repay such amounts if it shall
ultimately be determined that the Indemnitee is not entitled to be indemnified
therefor by the Company, the Company shall make Expense Advances to Indemnitee.
(b) Form of Undertaking. Any written undertaking by the Indemnitee to
-------------------
repay any Expense Advances hereunder shall be unsecured and no interest shall be
charged thereon.
(c) Determination of Reasonable Expense Advances. The parties agree
--------------------------------------------
that for the purposes of any Expense Advance for which Indemnitee has made
written demand to the Company in accordance with this Agreement, all Expenses
included in such Expense Advance that are certified by affidavit of Indemnitee's
counsel as being reasonable shall be presumed conclusively to be reasonable.
4. Procedures for Indemnification and Expense Advances.
---------------------------------------------------
(a) Timing of Payments. All payments of Expenses (including without
------------------
limitation Expense Advances) by the Company to the Indemnitee pursuant to this
Agreement shall be made to the fullest extent permitted by law as soon as
practicable after written demand by Indemnitee therefor is presented to the
Company, but in no event later than forty-five (45) business days after such
written demand by Indemnitee is presented to the Company, except in the case of
Expense Advances, which shall be made no later than twenty (20) business days
after such written demand by Indemnitee is presented to the Company.
(b) Notice/Cooperation by Indemnitee. Indemnitee shall, as a condition
--------------------------------
precedent to Indemnitee's right to be indemnified or Indemnitee's right to
receive Expense Advances under this Agreement, give the Company notice in
writing as soon as practicable of any Claim made against Indemnitee for which
indemnification will or could be sought under this Agreement. Notice to the
Company shall be directed to the Chief Executive Officer of the Company at the
address shown on the signature page of this Agreement (or such other address as
the Company shall designate in
-5-
<PAGE>
writing to Indemnitee). In addition, Indemnitee shall give the Company such
information and cooperation as it may reasonably require and as shall be within
Indemnitee's power.
(c) No Presumptions; Burden of Proof. For purposes of this Agreement,
--------------------------------
the termination of any Claim by judgment, order, settlement (whether with or
without court approval) or conviction, or upon a plea of nolo contendere, or its
---------------
equivalent, shall not create a presumption that Indemnitee did not meet any
particular standard of conduct or have any particular belief or that a court has
determined that indemnification is not permitted by this Agreement or applicable
law. In addition, neither the failure of any Reviewing Party to have made a
determination as to whether Indemnitee has met any particular standard of
conduct or had any particular belief, nor an actual determination by any
Reviewing Party that Indemnitee has not met such standard of conduct or did not
have such belief, prior to the commencement of legal proceedings by Indemnitee
to secure a judicial determination that Indemnitee should be indemnified under
this Agreement or applicable law, shall be a defense to Indemnitee's claim or
create a presumption that Indemnitee has not met any particular standard of
conduct or did not have any particular belief. In connection with any
determination by any Reviewing Party or otherwise as to whether the Indemnitee
is entitled to be indemnified hereunder, the burden of proof shall be on the
Company to establish that Indemnitee is not so entitled.
(d) Notice to Insurers. If, at the time of the receipt by the Company
------------------
of a notice of a Claim pursuant to Section 4(b) hereof, the Company has
liability insurance in effect which may cover such Claim, the Company shall give
prompt notice of the commencement of such Claim to the insurers in accordance
with the procedures set forth in the respective policies. The Company shall
thereafter take all necessary or desirable action to cause such insurers to pay,
on behalf of the Indemnitee, all amounts payable as a result of such Claim in
accordance with the terms of such policies.
(e) Selection of Counsel. In the event the Company shall be obligated
--------------------
hereunder to provide indemnification for or make any Expense Advances with
respect to the Expenses of any Claim, the Company, if appropriate, shall be
entitled to assume the defense of such Claim with counsel approved by Indemnitee
(which approval shall not be unreasonably withheld) upon the delivery to
Indemnitee of written notice of the Company's election to do so. After delivery
of such notice, approval of such counsel by Indemnitee and the retention of such
counsel by the Company, the Company will not be liable to Indemnitee under this
Agreement for any fees or expenses of separate counsel subsequently employed by
or on behalf of Indemnitee with respect to the same Claim; provided that, (i)
Indemnitee shall have the right to employ Indemnitee's separate counsel in any
such Claim at Indemnitee's expense and (ii) if (A) the employment of separate
counsel by Indemnitee has been previously authorized by the Company, (B)
Indemnitee shall have reasonably concluded that there may be a conflict of
interest between the Company and Indemnitee in the conduct of any such defense,
or (C) the Company shall not continue to retain such counsel to defend such
Claim, then the fees and expenses of Indemnitee's separate counsel shall be
Expenses for which Indemnitee may receive indemnification or Expense Advances
hereunder.
5. Additional Indemnification Rights; Nonexclusivity.
-------------------------------------------------
-6-
<PAGE>
(a) Scope. The Company hereby agrees to indemnify the Indemnitee to the
-----
fullest extent permitted by law, notwithstanding that such indemnification is
not specifically authorized by the other provisions of this Agreement, the
Company's Certificate of Incorporation, the Company's Bylaws or by statute. In
the event of any change after the date of this Agreement in any applicable law,
statute or rule which expands the right of a Delaware corporation to indemnify a
member of its board of directors or an officer, employee, agent or fiduciary, it
is the intent of the parties hereto that Indemnitee shall enjoy by this
Agreement the greater benefits afforded by such change. In the event of any
change in any applicable law, statute or rule which narrows the right of a
Delaware corporation to indemnify a member of its board of directors or an
officer, employee, agent or fiduciary, such change, to the extent not otherwise
required by such law, statute or rule to be applied to this Agreement, shall
have no effect on this Agreement or the parties' rights and obligations
hereunder except as set forth in Section 10(a) hereof.
(b) Nonexclusivity. The indemnification and the payment of Expense
--------------
Advances provided by this Agreement shall be in addition to any rights to which
Indemnitee may be entitled under the Company's Certificate of Incorporation, its
Bylaws, any other agreement, any vote of stockholders or disinterested
directors, the General Corporation Law of the State of Delaware, or otherwise.
The indemnification and the payment of Expense Advances provided under this
Agreement shall continue as to Indemnitee for any action taken or not taken
while serving in an indemnified capacity even though subsequent thereto
Indemnitee may have ceased to serve in such capacity.
6. No Duplication of Payments. The Company shall not be liable under this
--------------------------
Agreement to make any payment in connection with any Claim made against
Indemnitee to the extent Indemnitee has otherwise actually received payment
(under any insurance policy, provision of the Company's Certificate of
Incorporation, Bylaws or otherwise) of the amounts otherwise payable hereunder.
7. Partial Indemnification. If Indemnitee is entitled under any provision
-----------------------
of this Agreement to indemnification by the Company for some or a portion of
Expenses incurred in connection with any Claim, but not, however, for all of the
total amount thereof, the Company shall nevertheless indemnify Indemnitee for
the portion of such Expenses to which Indemnitee is entitled.
8. Mutual Acknowledgement. Both the Company and Indemnitee acknowledge that
----------------------
in certain instances, federal law or applicable public policy may prohibit the
Company from indemnifying its directors, officers, employees, agents or
fiduciaries under this Agreement or otherwise. Indemnitee understands and
acknowledges that the Company has undertaken or may be required in the future to
undertake with the Securities and Exchange Commission to submit the question of
indemnification to a court in certain circumstances for a determination of the
Company's right under public policy to indemnify Indemnitee.
9. Liability Insurance. To the extent the Company maintains liability
-------------------
insurance applicable to directors, officers, employees, agents or fiduciaries,
Indemnitee shall be covered by such policies in such a manner as to provide
Indemnitee the same rights and benefits as are provided
-7-
<PAGE>
to the most favorably insured of the Company's directors, if Indemnitee is a
director; or of the Company's officers, if Indemnitee is not a director of the
Company but is an officer; or of the Company's key employees, agents or
fiduciaries, if Indemnitee is not an officer or director but is a key employee,
agent or fiduciary.
10. Exceptions. Notwithstanding any other provision of this Agreement, the
----------
Company shall not be obligated pursuant to the terms of this Agreement:
(a) Excluded Action or Omissions. To indemnify Indemnitee for Expenses
----------------------------
resulting from acts, omissions or transactions for which Indemnitee is
prohibited from receiving indemnification under this Agreement or applicable
law; provided, however, that notwithstanding any limitation set forth in this
-------- -------
Section 10(a) regarding the Company's obligation to provide indemnification,
Indemnitee shall be entitled under Section 3 to receive Expense Advances
hereunder with respect to any such Claim unless and until a court having
jurisdiction over the Claim shall have made a final judicial determination (as
to which all rights of appeal therefrom have been exhausted or lapsed) that
Indemnitee has engaged in acts, omissions or transactions for which Indemnitee
is prohibited from receiving indemnification under this Agreement or applicable
law.
(b) Claims Initiated by Indemnitee. To indemnify or make Expense
------------------------------
Advances to Indemnitee with respect to Claims initiated or brought voluntarily
by Indemnitee and not by way of defense, counterclaim or crossclaim, except (i)
with respect to actions or proceedings brought to establish or enforce a right
to indemnification under this Agreement or any other agreement or insurance
policy or under the Company's Certificate of Incorporation or Bylaws now or
hereafter in effect relating to Claims for Covered Events, (ii) in specific
cases if the Board of Directors has approved the initiation or bringing of such
Claim, or (iii) as otherwise required under Section 145 of the Delaware General
Corporation Law, regardless of whether Indemnitee ultimately is determined to be
entitled to such indemnification or insurance recovery, as the case may be.
(c) Lack of Good Faith. To indemnify Indemnitee for any Expenses
------------------
incurred by the Indemnitee with respect to any action instituted (i) by
Indemnitee to enforce or interpret this Agreement, if a court having
jurisdiction over such action determines as provided in Section 13 that each of
the material assertions made by the Indemnitee as a basis for such action was
not made in good faith or was frivolous, or (ii) by or in the name of the
Company to enforce or interpret this Agreement, if a court having jurisdiction
over such action determines as provided in Section 13 that each of the material
defenses asserted by Indemnitee in such action was made in bad faith or was
frivolous.
(d) Claims Under Section 16(b). To indemnify Indemnitee for expenses
--------------------------
and the payment of profits arising from the purchase and sale by Indemnitee of
securities in violation of Section 16(b) of the Securities Exchange Act of 1934,
as amended, or any similar successor statute; provided, however, that
notwithstanding any limitation set forth in this Section 10(d) regarding the
Company's obligation to provide indemnification, Indemnitee shall be entitled
under Section 3 to receive Expense Advances hereunder with respect to any such
Claim unless and until a court having
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<PAGE>
jurisdiction over the Claim shall have made a final judicial determination (as
to which all rights of appeal therefrom have been exhausted or lapsed) that
Indemnitee has violated said statute.
11. Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall constitute an original.
12. Binding Effect; Successors and Assigns. This Agreement shall be binding
--------------------------------------
upon and inure to the benefit of and be enforceable by the parties hereto and
their respective successors, assigns (including any direct or indirect successor
by purchase, merger, consolidation or otherwise to all or substantially all of
the business or assets of the Company), spouses, heirs and personal and legal
representatives. The Company shall require and cause any successor (whether
direct or indirect, and whether by purchase, merger, consolidation or otherwise)
to all, substantially all, or a substantial part, of the business or assets of
the Company, by written agreement in form and substance satisfactory to
Indemnitee, expressly to assume and agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to perform if
no such succession had taken place. This Agreement shall continue in effect
regardless of whether Indemnitee continues to serve as a director, officer,
employee, agent or fiduciary (as applicable) of the Company or of any other
enterprise at the Company's request.
13. Expenses Incurred in Action Relating to Enforcement or Interpretation.
---------------------------------------------------------------------
In the event that any action is instituted by Indemnitee under this Agreement or
under any liability insurance policies maintained by the Company to enforce or
interpret any of the terms hereof or thereof, Indemnitee shall be entitled to be
indemnified for all Expenses incurred by Indemnitee with respect to such action
(including without limitation attorneys' fees), regardless of whether Indemnitee
is ultimately successful in such action, unless as a part of such action a court
having jurisdiction over such action makes a final judicial determination (as to
which all rights of appeal therefrom have been exhausted or lapsed) that each of
the material assertions made by Indemnitee as a basis for such action was not
made in good faith or was frivolous; provided, however, that until such final
judicial determination is made, Indemnitee shall be entitled under Section 3 to
receive payment of Expense Advances hereunder with respect to such action. In
the event of an action instituted by or in the name of the Company under this
Agreement to enforce or interpret any of the terms of this Agreement, Indemnitee
shall be entitled to be indemnified for all Expenses incurred by Indemnitee in
defense of such action (including without limitation costs and expenses incurred
with respect to Indemnitee's counterclaims and cross-claims made in such
action), unless as a part of such action a court having jurisdiction over such
action makes a final judicial determination (as to which all rights of appeal
therefrom have been exhausted or lapsed) that each of the material defenses
asserted by Indemnitee in such action was made in bad faith or was frivolous;
provided, however, that until such final judicial determination is made,
Indemnitee shall be entitled under Section 3 to receive payment of Expense
Advances hereunder with respect to such action.
14. Notice. All notices, requests, demands and other communications under
------
this Agreement shall be in writing and shall be deemed duly given (i) if
delivered by hand and signed for by the party addressed, on the date of such
delivery, or (ii) if mailed by domestic certified or registered mail with
postage prepaid, on the third business day after the date postmarked. Addresses
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<PAGE>
for notice to either party are as shown on the signature page of this Agreement,
or as subsequently modified by written notice.
15. Consent to Jurisdiction. The Company and Indemnitee each hereby
-----------------------
irrevocably consent to the jurisdiction of the courts of the State of Delaware
for all purposes in connection with any action or proceeding which arises out of
or relates to this Agreement and agree that any action instituted under this
Agreement shall be commenced, prosecuted and continued only in the Court of
Chancery of the State of Delaware in and for New Castle County, which shall be
the exclusive and only proper forum for adjudicating such a claim.
16. Severability. The provisions of this Agreement shall be severable in
------------
the event that any of the provisions hereof (including any provision within a
single section, paragraph or sentence) are held by a court of competent
jurisdiction to be invalid, void or otherwise unenforceable, and the remaining
provisions shall remain enforceable to the fullest extent permitted by law.
Furthermore, to the fullest extent possible, the provisions of this Agreement
(including without limitation each portion of this Agreement containing any
provision held to be invalid, void or otherwise unenforceable, that is not
itself invalid, void or unenforceable) shall be construed so as to give effect
to the intent manifested by the provision held invalid, illegal or
unenforceable.
17. Choice of Law. This Agreement, and all rights, remedies, liabilities,
-------------
powers and duties of the parties to this Agreement, shall be governed by and
construed in accordance with the laws of the State of Delaware without regard to
principles of conflicts of laws.
18. Subrogation. In the event of payment under this Agreement, the Company
-----------
shall be subrogated to the extent of such payment to all of the rights of
recovery of Indemnitee, who shall execute all documents required and shall do
all acts that may be necessary to secure such rights and to enable the Company
effectively to bring suit to enforce such rights.
19. Amendment and Termination. No amendment, modification, termination or
-------------------------
cancellation of this Agreement shall be effective unless it is in writing signed
by both the parties hereto. No waiver of any of the provisions of this Agreement
shall be deemed to be or shall constitute a waiver of any other provisions
hereof (whether or not similar), nor shall such waiver constitute a continuing
waiver.
20. Integration and Entire Agreement. This Agreement sets forth the entire
--------------------------------
understanding between the parties hereto and supersedes and merges all previous
written and oral negotiations, commitments, understandings and agreements
relating to the subject matter hereof between the parties hereto.
21. No Construction as Employment Agreement. Nothing contained in this
---------------------------------------
Agreement shall be construed as giving Indemnitee any right to be retained in
the employ of the Company or any of its subsidiaries or affiliated entities.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Indemnification
Agreement as of the date first above written.
NUANCE COMMUNICATIONS, INC.
By:_________________________________________
Name:_______________________________________
Title:______________________________________
Address: Nuance Communications, Inc.
1005 Hamilton Court
Menlo Park, California 94025
AGREED TO AND ACCEPTED
______________________________
(Signature)
______________________________
(Print Name)
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<PAGE>
Exhibit 10.2
NUANCE COMMUNICATIONS
1994 FLEXIBLE STOCK INCENTIVE PLAN
----------------------------------
1. Establishment, Purpose, and Definitions.
---------------------------------------
(a) There is hereby adopted the 1994 Flexible Stock Incentive Plan
(the "Plan") of NUANCE COMMUNICATIONS (the "Company").
(b) The purpose of the Plan is to provide a means whereby eligible
individuals (as defined in paragraph 4 below) can acquire Common Stock of the
Company (the "Stock"). The Plan provides employees (including officers and
directors who are employees) of the Company and of its Affiliates an opportunity
to purchase shares of Stock pursuant to options which may qualify as incentive
stock options (referred to as "incentive stock options") under Section 422 of
the Internal Revenue Code of 1986, as amended (the "Code"), and employees,
officers, directors, independent contractors, and consultants of the Company and
of its Affiliates an opportunity to purchase shares of Stock pursuant to options
which are not described in Sections 422 or 423 of the Code (referred to as
"nonqualified stock options"). The Plan also provides for the sale of Stock to
eligible individuals in connection with the performance of services for the
Company or its Affiliates.
(c) The term "Affiliates" as used in the Plan means parent or
subsidiary corporations, as defined in Sections 424(e) and (f) of the Code (but
substituting "the Company" for "employer corporation"), including parents or
subsidiaries which become such after adoption of the Plan.
2. Administration of the Plan.
--------------------------
(a) The Plan shall be administered by the Board of Directors of the
Company (the "Board"). The Board may delegate the responsibility for
administering the Plan to a committee, under such terms and conditions as the
Board shall determine (the "Committee"). In the event that the Company shall be
subject to Rule 16b-3 promulgated under the Securities Act of 1934, as amended
("Rule 16b-3"): (1) the Committee shall consist of two or more members of the
Board or such lesser number of members of the Board as permitted by Rule 16b-3,
and (ii) none of the members of the Committee shall receive, while serving on
the Committee, or during the one-year period preceding appointment to the
Committee, a grant or award of equity securities under (x) the Plan or (y) any
other plan of the Company or its Affiliates under which the participants are
entitled to acquire Stock (including restricted Stock), stock options, stock
bonuses, related rights or stock appreciation rights of the Company or any of
its Affiliates, other than pursuant to transactions in any such other plan which
do not disqualify a director from being a disinterested
1
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person under Rule 16b-3. The limitations set forth in this Section 2(a) shall
automatically incorporate any additional requirements that may in the future be
necessary for the Plan to comply with Rule 16b-3. Members of the Committee shall
serve at the pleasure of the Board. The Committee shall select one of its
members as chairman, and shall hold meetings at such times and places as it may
determine. A majority of the Committee shall constitute a quorum and acts of the
Committee at which a quorum is present, or acts reduced to or approved in
writing by all the members of the Committee, shall be the valid acts of the
Committee. For purposes of the Plan, the term "Administrator" shall mean the
Board or, in the event that the Board shall delegate the responsibility for
administering the Plan to a Committee, such Committee.
(b) The Administrator shall determine which eligible individuals (as
defined in paragraph 4, below) shall be granted options under the Plan, the
timing of such grants, the terms thereof (including any restrictions on the
Stock), and the number of shares subject to such options.
(c) The Administrator may amend the terms of any outstanding option
granted under this Plan, but any amendment which would adversely affect the
Optionee's rights under an outstanding option shall not be made without the
Optionee's written consent. The Administrator may, with the Optionee's written
consent, cancel any outstanding stock option or accept any outstanding stock
option in exchange for a new option.
(d) The Administrator shall also determine which eligible individuals
(as defined in paragraph 4, below) shall be issued Stock under the Plan, the
timing of such grants, the terms thereof (including any restrictions), and the
number of shares to be granted. The Stock shall be issued for such consideration
(if any) as the Administrator deems appropriate. Stock issued subject to
restrictions shall be evidenced by a written agreement (the "Restricted Stock
Purchase Agreement"). The Administrator may amend any Restricted Stock Purchase
Agreement, but any amendment which would adversely affect the shareholder's
rights to the Stock shall not be made without his or her written consent.
(e) The Administrator shall have the sole authority, in its absolute
discretion to adopt, amend, and rescind such rules and regulations as, in its
opinion, may be advisable for the administration of the Plan, to construe and
interpret the Plan, the rules and the regulations, and the instruments
evidencing options or Stock granted under the Plan and to make all other
determinations deemed necessary or advisable for the administration of the Plan.
All decisions, determinations, and interpretations of the Administrator shall be
binding on all participants.
2
<PAGE>
(f) Without limitation of the foregoing, the Administrator shall have
the right, with the Optionee's consent, to terminate the restrictions applicable
to any stock issued pursuant to the Plan.
3. Stock Subject to the Plan.
-------------------------
(a) An aggregate of not more than 3,380,000 shares of Stock shall be
available for the grant of stock options or the issuance of Stock under the
Plan. If an option is surrendered (except surrender for shares of Stock) or for
any other reason ceases to be exercisable in whole or in part, the shares which
were subject to such option but as to which the option had not been exercised
shall continue to be available under the Plan. Any Stock which is retained by
the Company upon exercise of an option in order to satisfy the exercise price
for such option or any withholding taxes due with respect to such option
exercise shall be treated as issued to the Optionee and will thereafter not be
available under the Plan.
(b) If there is any change in the Stock subject to the Plan, a Stock
Option Agreement or a Restricted Stock Purchase Agreement through merger,
consolidation, reorganization, recapitalization, reincorporation, stock split,
stock dividend, or other change in the capital structure of the Company,
appropriate adjustments shall be made by the Administrator in order to preserve
but not to increase the benefits to the individual, including adjustments to the
aggregate number, kind and price per share of shares subject to the Plan, a
Stock Option Agreement or a Restricted Stock Purchase Agreement.
4. Eligible Individuals. Individuals who shall be eligible to have
--------------------
granted to them the options or Stock provided for by the Plan shall be such
employees, officers, directors, independent contractors and consultants of the
Company or an Affiliate as the Administrator, in its discretion, shall designate
from time to time. Notwithstanding the foregoing, only employees of the Company
or an Affiliate (including officers and directors who are bona fide employees)
shall be eligible to receive incentive stock options.
5. The Option Price. The exercise price of the Stock covered by each
----------------
incentive stock option shall be not less than the per share fair market value of
such Stock on the date the option is granted. The exercise price of the Stock
covered by each nonqualified stock option shall be as determined by the
Administrator. Notwithstanding the foregoing, in the case of an incentive stock
option granted to a person possessing more than ten percent of the combined
voting power of the Company or an Affiliate, the exercise price shall be not
less than 110 percent of the fair market value of the Stock on the date the
option is granted. The exercise price of an option shall be subject to
adjustment to the extent provided in paragraph 3(b), above.
3
<PAGE>
6. Terms and Conditions of Options.
-------------------------------
(a) Each option granted pursuant to the Plan will be evidenced by a
written Stock Option Agreement executed by the Company and the person to whom
such option is granted.
(b) The Administrator shall determine the term of each option granted
under the Plan; provided, however, that the term of an incentive stock option
-------- -------
shall not be for more than ten (10) years and that, in the case of an incentive
stock option granted to a person possessing more than ten percent of the
combined voting power of the Company or an Affiliate, the term shall be for no
more than five (5) years.
(c) In the case of incentive stock options, the aggregate fair market
value (determined as of the time such option is granted) of the Stock with
respect to which incentive stock options are exercisable for the first time by
an eligible employee in any calendar year (under this Plan and any other plans
of the Company or its Affiliates) shall not exceed $100,000.
(d) The Stock Option Agreement may contain such other terms,
provisions and conditions consistent with this Plan as may be determined by the
Administrator. If an option, or any part thereof is intended to qualify as an
incentive stock option, the Stock Option Agreement shall contain those terms and
conditions which are necessary to so qualify it.
7. Terms and Conditions of Stock Purchases.
---------------------------------------
(a) Each sale or grant of stock pursuant to the Plan will be evidenced
by a written Restricted Stock Purchase Agreement executed by the Company and the
person to whom such stock is sold or granted.
(b) The Restricted Stock Purchase Agreement may contain such other
terms, provisions and conditions consistent with this Plan as may be determined
by the Administrator, including not by way of limitation, restrictions on
transfer, forfeiture provisions, repurchase provisions and vesting provisions.
8. Use of Proceeds. Cash proceeds realized from the sale of Stock under
---------------
the Plan shall constitute general funds of the Company.
9. Amendment, Suspension, or Termination of the Plan.
-------------------------------------------------
(a) The Board may at any time amend, suspend or terminate the Plan as
it deems advisable; provided that such amendment, suspension or termination
complies with all applicable requirements of state and federal law,
4
<PAGE>
including any applicable requirement that the Plan or an amendment to the Plan
be approved by the Company's shareholders, and provided further that, except as
provided in paragraph 3(b), above, the Board shall in no event amend the Plan in
the following respects without the consent of shareholders then sufficient to
approve the Plan in the first instance:
(i) To increase the maximum number of shares subject to incentive
stock options issued under the Plan; or
(ii) To change the designation or class of persons eligible to
receive incentive stock options under the Plan.
(b) No option may be granted nor any Stock issued under the Plan
during any suspension or after the termination of the Plan, and no amendment,
suspension or termination of the Plan shall, without the affected individual's
consent, alter or impair any rights or obligations under any option previously
granted under the Plan. The Plan shall terminate with respect to the grant of
incentive stock options on September _____, 2004, unless previously terminated
by the Board pursuant to this paragraph 9.
10. Assignability. Each option granted pursuant to this Plan shall, during
-------------
optionee's lifetime, be exercisable only by such optionee, and neither the
option nor any right hereunder shall be transferable by optionee by operation of
law or otherwise other than by will or the laws of descent and distribution.
Stock subject to a Restricted Stock Purchase Agreement shall be transferable
only as provided in such Agreement.
11. Payment Upon Exercise of Options.
--------------------------------
(a) Payment of the purchase price upon exercise of any option granted
under this Plan shall be made in cash; provided, however, that the
Administrator, in its sole discretion, may permit an optionee to pay the option
price in whole or in part (i) with shares of Stock owned by the Optionee; (ii)
by delivery on a form prescribed by the Administrator of an irrevocable
direction to a securities broker approved by the Administrator to sell shares
and deliver all or a portion of the proceeds to the Company in payment for the
Stock; (iii) by delivery of the optionee's promissory note with such recourse,
interest, security, and redemption provisions as the Administrator in its
discretion determines appropriate; or (iv) in any combination of the foregoing.
Any Stock used to exercise options shall be valued at its fair market value on
the date of the exercise of the option. In addition, the Administrator, in its
sole discretion, may authorize the surrender by an optionee of all or part of an
unexercised option and authorize a payment in consideration thereof of an amount
equal to the difference between the aggregate fair market value of the Stock
subject to such option and the aggregate option price of such Stock. In the
Administrator's
5
<PAGE>
discretion, such payment may be made in cash, shares of Stock with a fair market
value on the date of surrender equal to the payment amount, or some combination
thereof.
(b) In the event that the exercise price is satisfied by the
Administrator retaining from the shares of Stock otherwise to be issued to
Optionee shares of Stock having a value equal to the exercise price, the
Administrator may issue Optionee an additional option, with terms identical to
this option agreement, entitling Optionee to purchase additional Stock in an
amount equal to the number of shares so retained.
12. Withholding Taxes.
-----------------
(a) No Stock shall be granted or sold under the Plan to any
participant until the participant has made arrangements acceptable to the
Administrator for the satisfaction of federal, state, and local income and
social security tax withholding obligations, including without limitation
obligations incident to the receipt of Stock under the Plan, the lapsing of
restrictions applicable to such Stock, the failure to satisfy the conditions for
treatment as incentive stock options under applicable tax law, or the receipt of
cash payments. Upon exercise of a stock option or lapsing or restriction on
stock issued under the Plan, the Company may satisfy its withholding obligations
by withholding from the Optionee or requiring the shareholder to surrender
shares of the Company's Stock sufficient to satisfy federal, state, and local
income and social security tax withholding obligations.
(b) In the event that such withholding is satisfied by the Company or
the Optionee's employer retaining from the shares of Stock otherwise to be
issued to Optionee shares of Stock having a value equal to such withholding tax,
the Administrator may issue Optionee an additional option, with terms identical
to the option agreement under which the option was received, entitling Optionee
to purchase additional Stock in an amount equal to the number of shares so
retained.
13. Restrictions on Transfer of Shares. The Stock acquired pursuant to the
----------------------------------
Plan shall be subject to such restrictions and agreements regarding sale,
assignment, encumbrances or other transfer as are in effect among the
shareholders of the Company at the time such Stock is acquired, as well as to
such other restrictions as the Administrator shall deem advisable.
14. Corporate Transaction.
---------------------
(a) For purposes of this Section 15, a "Corporate Transaction" shall
include any of the following shareholder-approved transactions to which the
Company is a party:
6
<PAGE>
(i) a merger or consolidation in which the Company is not the
surviving entity, except for (1) a transaction the principal purpose of
which is to change the state of the Company's incorporation, or (2) a
transaction in which the Company's shareholders immediately prior to such
merger or consolidation hold (by virtue of securities received in exchange
for their shares in the Company) securities of the surviving entity
representing more than fifty percent (50%) of the total voting power of
such entity immediately after such transaction;
(ii) the sale, transfer or other disposition of all or
substantially all of the assets of the Company unless the Company's
shareholders immediately prior to such sale, transfer or other disposition
hold (by virtue of securities received in exchange for their shares in the
Company) securities of the purchaser or other transferee representing more
than fifty percent (50%) of the total voting power of such entity
immediately after such transaction; or
(iii) any reverse merger in which the Company is the surviving
entity but in which the Company's shareholders immediately prior to such
merger do not hold (by virtue of their shares in the Company held
immediately prior to such transaction) securities of the Company
representing more than fifty percent (50%) of the total voting power of the
Company immediately after such transaction.
(b) In the event of any Corporate Transaction, any option shall
terminate and any restricted stock shall be reconveyed to or repurchased by the
Company immediately prior to the specified effective date of the Corporate
Transaction unless assumed by the successor corporation or its parent company,
pursuant to options or restricted stock agreements providing substantially equal
value and having substantially equivalent provisions as the options or
restricted stock granted pursuant to this Plan.
15. Shareholder Approval. This Plan shall only become effective with
--------------------
regard to incentive stock options upon its approval by a majority of the
shareholders voting (in person or by proxy) at a shareholders' meeting held
within 12 months of the Board's adoption of the Plan. The Administrator may
grant incentive stock options under the Plan prior to the shareholders' meeting,
but until shareholder approval of the Plan is obtained, no incentive stock
option shall be exercisable.
7
<PAGE>
EXHIBIT 10.3
NUANCE COMMUNICATIONS
1998 STOCK PLAN
AS AMENDED ON JANUARY 19, 2000
1. Purposes of the Plan. The purposes of this Stock Plan are to attract
--------------------
and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to Employees, Directors and
Consultants and to promote the success of the Company's business. Options
granted under the Plan may be Incentive Stock Options or Nonstatutory Stock
Options, as determined by the Administrator at the time of grant. Stock
Purchase Rights may also be granted under the Plan.
2. Definitions. As used herein, the following definitions shall apply:
-----------
(a) "Administrator" means the Board or any of its Committees as shall
-------------
be administering the Plan in accordance with Section 4 hereof.
(b) "Applicable Laws" means the requirements relating to the
---------------
administration of stock option plans under U.S. state corporate laws, U.S.
federal and state securities laws, the Code, any stock exchange or quotation
system on which the Common Stock is listed or quoted and the applicable laws of
any other country or jurisdiction where Options or Stock Purchase Rights are
granted under the Plan.
(c) "Board" means the Board of Directors of the Company.
-----
(d) "Code" means the Internal Revenue Code of 1986, as amended.
----
(e) "Committee" means a committee of Directors appointed by the
---------
Board in accordance with Section 4 hereof.
(f) "Common Stock" means the Common Stock of the Company.
------------
(g) "Company" means Nuance Communications, a California corporation.
-------
(h) "Consultant" means any person who is engaged by the Company or
----------
any Parent or Subsidiary to render consulting or advisory services to such
entity.
(i) "Director" means a member of the Board of Directors of the
--------
Company.
(j) "Disability" means total and permanent disability as defined in
----------
Section 22(e)(3) of the Code.
<PAGE>
(k) "Employee" means any person, including Officers and Directors,
--------
employed by the Company or any Parent or Subsidiary of the Company. A Service
Provider shall not cease to be an Employee in the case of (i) any leave of
absence approved by the Company or (ii) transfers between locations of the
Company or between the Company, its Parent, any Subsidiary, or any successor.
For purposes of Incentive Stock Options, no such leave may exceed ninety days,
unless reemployment upon expiration of such leave is guaranteed by statute or
contract. If reemployment upon expiration of a leave of absence approved by the
Company is not so guaranteed, on the 181st day of such leave any Incentive Stock
Option held by the Optionee shall cease to be treated as an Incentive Stock
Option and shall be treated for tax purposes as a Nonstatutory Stock Option.
Neither service as a Director nor payment of a director's fee by the Company
shall be sufficient to constitute "employment" by the Company.
(l) "Exchange Act" means the Securities Exchange Act of 1934, as
------------
amended.
(m) "Fair Market Value" means, as of any date, the value of Common
-----------------
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day prior to the time of determination, as reported in
The Wall Street Journal or such other source as the Administrator deems
reliable;
(ii) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market Value
shall be the mean between the high bid and low asked prices for the Common Stock
on the last market trading day prior to the day of determination; or
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Administrator.
(n) "Incentive Stock Option" means an Option intended to qualify as
----------------------
an incentive stock option within the meaning of Section 422 of the Code.
(o) "Nonstatutory Stock Option" means an Option not intended to
-------------------------
qualify as an Incentive Stock Option.
(p) "Officer" means a person who is an officer of the Company within
-------
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(q) "Option" means a stock option granted pursuant to the Plan.
------
<PAGE>
(r) "Option Agreement" means a written or electronic agreement
----------------
between the Company and an Optionee evidencing the terms and conditions of an
individual Option grant. The Option Agreement is subject to the terms and
conditions of the Plan.
(s) "Option Exchange Program" means a program whereby outstanding
-----------------------
Options are exchanged for Options with a lower exercise price.
(t) "Optioned Stock" means the Common Stock subject to an Option or a
--------------
Stock Purchase Right.
(u) "Optionee" means the holder of an outstanding Option or Stock
--------
Purchase Right granted under the Plan.
(v) "Parent" means a "parent corporation," whether now or hereafter
------
existing, as defined in Section 424(e) of the Code.
(w) "Plan" means this 1998 Stock Plan.
----
(x) "Restricted Stock" means shares of Common Stock acquired pursuant
----------------
to a grant of a Stock Purchase Right under Section 11 below.
(y) "Service Provider" means an Employee, Director or Consultant.
----------------
(z) "Share" means a share of the Common Stock, as adjusted in
-----
accordance with Section 12 below.
(aa) "Stock Purchase Right" means a right to purchase Common Stock
--------------------
pursuant to Section 11 below.
(bb) "Subsidiary" means a "subsidiary corporation," whether now or
----------
hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 12 of
-------------------------
the Plan, the maximum aggregate number of Shares which may be subject to option
and sold under the Plan is 8,000,000 Shares. The Shares may be authorized but
unissued, or reacquired Common Stock.
If an Option or Stock Purchase Right expires or becomes unexercisable
without having been exercised in full, or is surrendered pursuant to an Option
Exchange Program, the unpurchased Shares which were subject thereto shall become
available for future grant or sale under the Plan (unless the Plan has
terminated). However, Shares that have actually been issued under the Plan,
upon exercise of either an Option or Stock Purchase Right, shall not be returned
to the Plan and shall not become available for future distribution under the
Plan, except that if Shares of Restricted
<PAGE>
Stock are repurchased by the Company at their original purchase price, such
Shares shall become available for future grant under the Plan.
4. Administration of the Plan.
--------------------------
(a) Administrator. The Plan shall be administered by the Board or a
-------------
Committee appointed by the Board, which Committee shall be constituted to comply
with Applicable Laws.
(b) Powers of the Administrator. Subject to the provisions of the
---------------------------
Plan and, in the case of a Committee, the specific duties delegated by the Board
to such Committee, and subject to the approval of any relevant authorities, the
Administrator shall have the authority in its discretion:
(i) to determine the Fair Market Value;
(ii) to select the Service Providers to whom Options and Stock
Purchase Rights may from time to time be granted hereunder;
(iii) to determine the number of Shares to be covered by each
such award granted hereunder;
(iv) to approve forms of agreement for use under the Plan;
(v) to determine the terms and conditions, of any Option or
Stock Purchase Right granted hereunder. Such terms and conditions include, but
are not limited to, the exercise price, the time or times when Options or Stock
Purchase Rights may be exercised (which may be based on performance criteria),
any vesting acceleration or waiver of forfeiture restrictions, and any
restriction or limitation regarding any Option or Stock Purchase Right or the
Common Stock relating thereto, based in each case on such factors as the
Administrator, in its sole discretion, shall determine;
(vi) to determine whether and under what circumstances an Option
may be settled in cash under subsection 9(e) instead of Common Stock;
(vii) to reduce the exercise price of any Option to the then
current Fair Market Value if the Fair Market Value of the Common Stock covered
by such Option has declined since the date the Option was granted;
(viii) to initiate an Option Exchange Program;
(ix) to prescribe, amend and rescind rules and regulations
relating to the Plan, including rules and regulations relating to sub-plans
established for the purpose of qualifying for preferred tax treatment under
foreign tax laws;
<PAGE>
(x) to allow Optionees to satisfy withholding tax obligations by
electing to have the Company withhold from the Shares to be issued upon exercise
of an Option or Stock Purchase Right that number of Shares having a Fair Market
Value equal to the amount required to be withheld. The Fair Market Value of the
Shares to be withheld shall be determined on the date that the amount of tax to
be withheld is to be determined. All elections by Optionees to have Shares
withheld for this purpose shall be made in such form and under such conditions
as the Administrator may deem necessary or advisable; and
(xi) to construe and interpret the terms of the Plan and awards
granted pursuant to the Plan.
(c) Effect of Administrator's Decision. All decisions, determinations
----------------------------------
and interpretations of the Administrator shall be final and binding on all
Optionees.
5. Eligibility.
-----------
(a) Nonstatutory Stock Options and Stock Purchase Rights may be
granted to Service Providers. Incentive Stock Options may be granted only to
Employees.
(b) Each Option shall be designated in the Option Agreement as either
an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designation, to the extent that the aggregate Fair Market
Value of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by the Optionee during any calendar year (under
all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such
Options shall be treated as Nonstatutory Stock Options. For purposes of this
Section 5(b), Incentive Stock Options shall be taken into account in the order
in which they were granted. The Fair Market Value of the Shares shall be
determined as of the time the Option with respect to such Shares is granted.
(c) Neither the Plan nor any Option or Stock Purchase Right shall
confer upon any Optionee any right with respect to continuing the Optionee's
relationship as a Service Provider with the Company, nor shall it interfere in
any way with his or her right or the Company's right to terminate such
relationship at any time, with or without cause.
6. Term of Plan. The Plan shall become effective upon its adoption by
------------
the Board. It shall continue in effect for a term of ten (10) years unless
sooner terminated under Section 15 of the Plan.
7. Term of Option. The term of each Option shall be stated in the Option
--------------
Agreement; provided, however, that the term shall be no more than ten (10) years
from the date of grant thereof. In the case of an Incentive Stock Option
granted to an Optionee who, at the time the Option is granted, owns stock
representing more than ten percent (10%) of the voting power of all classes of
stock of the Company or any Parent or Subsidiary, the term of the Option shall
be five (5) years from the date of grant or such shorter term as may be provided
in the Option Agreement.
<PAGE>
8. Option Exercise Price and Consideration.
---------------------------------------
(a) The per share exercise price for the Shares to be issued upon
exercise of an Option shall be such price as is determined by the Administrator,
but shall be subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time of grant of such
Option, owns stock representing more than ten percent (10%) of the voting power
of all classes of stock of the Company or any Parent or Subsidiary, the exercise
price shall be no less than 110% of the Fair Market Value per Share on the date
of grant .
(B) granted to any other Employee, the per Share exercise
price shall be no less than 100% of the Fair Market Value per Share on the date
of grant.
(ii) In the case of a Nonstatutory Stock Option
(A) granted to a Service Provider who, at the time of grant
of such Option, owns stock representing more than ten percent (10%) of the
voting power of all classes of stock of the Company or any Parent or Subsidiary,
the exercise price shall be no less than 110% of the Fair Market Value per Share
on the date of grant.
(B) granted to any other Service Provider, the per Share
exercise price shall be no less than 85% of the Fair Market Value per Share on
the date of grant.
(iii) Notwithstanding the foregoing, Options may be granted with
a per Share exercise price other than as required above pursuant to a merger or
other corporate transaction.
(b) The consideration to be paid for the Shares to be issued upon
exercise of an Option, including the method of payment, shall be determined by
the Administrator (and, in the case of an Incentive Stock Option, shall be
determined at the time of grant). Such consideration may consist of (1) cash,
(2) check, (3) promissory note, (4) other Shares which (x) in the case of Shares
acquired upon exercise of an Option, have been owned by the Optionee for more
than six months on the date of surrender, and (y) have a Fair Market Value on
the date of surrender equal to the aggregate exercise price of the Shares as to
which such Option shall be exercised, (5) consideration received by the Company
under a cashless exercise program implemented by the Company in connection with
the Plan, or (6) any combination of the foregoing methods of payment. In making
its determination as to the type of consideration to accept, the Administrator
shall consider if acceptance of such consideration may be reasonably expected to
benefit the Company.
9. Exercise of Option.
------------------
<PAGE>
(a) Procedure for Exercise; Rights as a Shareholder. Any Option
-----------------------------------------------
granted hereunder shall be exercisable according to the terms hereof at such
times and under such conditions as determined by the Administrator and set forth
in the Option Agreement. Except in the case of Options granted to Officers,
Directors and Consultants, Options shall become exercisable at a rate of no less
than 20% per year over five (5) years from the date the Options are granted.
Unless the Administrator provides otherwise, vesting of Options granted
hereunder to Officers and Directors shall be tolled during any unpaid leave of
absence. An Option may not be exercised for a fraction of a Share.
An Option shall be deemed exercised when the Company receives: (i)
written or electronic notice of exercise (in accordance with the Option
Agreement) from the person entitled to exercise the Option, and (ii) full
payment for the Shares with respect to which the Option is exercised. Full
payment may consist of any consideration and method of payment authorized by the
Administrator and permitted by the Option Agreement and the Plan. Shares issued
upon exercise of an Option shall be issued in the name of the Optionee or, if
requested by the Optionee, in the name of the Optionee and his or her spouse.
Until the Shares are issued (as evidenced by the appropriate entry on the books
of the Company or of a duly authorized transfer agent of the Company), no right
to vote or receive dividends or any other rights as a shareholder shall exist
with respect to the Shares, notwithstanding the exercise of the Option. The
Company shall issue (or cause to be issued) such Shares promptly after the
Option is exercised. No adjustment will be made for a dividend or other right
for which the record date is prior to the date the Shares are issued, except as
provided in Section 12 of the Plan.
Exercise of an Option in any manner shall result in a decrease in the
number of Shares thereafter available, both for purposes of the Plan and for
sale under the Option, by the number of Shares as to which the Option is
exercised.
(b) Termination of Relationship as a Service Provider. If an Optionee
-------------------------------------------------
ceases to be a Service Provider, such Optionee may exercise his or her Option
within such period of time as is specified in the Option Agreement (of at least
thirty (30) days) to the extent that the Option is vested on the date of
termination (but in no event later than the expiration of the term of the Option
as set forth in the Option Agreement). In the absence of a specified time in
the Option Agreement, the Option shall remain exercisable for three (3) months
following the Optionee's termination. If, on the date of termination, the
Optionee is not vested as to his or her entire Option, the Shares covered by the
unvested portion of the Option shall revert to the Plan. If, after termination,
the Optionee does not exercise his or her Option within the time specified by
the Administrator, the Option shall terminate, and the Shares covered by such
Option shall revert to the Plan.
(c) Disability of Optionee. If an Optionee ceases to be a Service
----------------------
Provider as a result of the Optionee's Disability, the Optionee may exercise his
or her Option within such period of time as is specified in the Option Agreement
(of at least six (6) months) to the extent the Option is vested on the date of
termination (but in no event later than the expiration of the term of such
Option
<PAGE>
as set forth in the Option Agreement). In the absence of a specified time in the
Option Agreement, the Option shall remain exercisable for twelve (12) months
following the Optionee's termination. If, on the date of termination, the
Optionee is not vested as to his or her entire Option, the Shares covered by the
unvested portion of the Option shall revert to the Plan. If, after termination,
the Optionee does not exercise his or her Option within the time specified
herein, the Option shall terminate, and the Shares covered by such Option shall
revert to the Plan.
(d) Death of Optionee. If an Optionee dies while a Service Provider,
-----------------
the Option may be exercised within such period of time as is specified in the
Option Agreement (of at least six (6) months) to the extent that the Option is
vested on the date of death (but in no event later than the expiration of the
term of such Option as set forth in the Option Agreement) by the Optionee's
estate or by a person who acquires the right to exercise the Option by bequest
or inheritance. In the absence of a specified time in the Option Agreement, the
Option shall remain exercisable for twelve (12) months following the Optionee's
termination. If, at the time of death, the Optionee is not vested as to the
entire Option, the Shares covered by the unvested portion of the Option shall
immediately revert to the Plan. If the Option is not so exercised within the
time specified herein, the Option shall terminate, and the Shares covered by
such Option shall revert to the Plan.
(e) Buyout Provisions. The Administrator may at any time offer to buy
-----------------
out for a payment in cash or Shares, an Option previously granted, based on such
terms and conditions as the Administrator shall establish and communicate to the
Optionee at the time that such offer is made.
10. Non-Transferability of Options and Stock Purchase Rights. The Options
--------------------------------------------------------
and Stock Purchase Rights may not be sold, pledged, assigned, hypothecated,
transferred, or disposed of in any manner other than by will or by the laws of
descent or distribution and may be exercised, during the lifetime of the
Optionee, only by the Optionee.
11. Stock Purchase Rights.
---------------------
(a) Rights to Purchase. Stock Purchase Rights may be issued either
------------------
alone, in addition to, or in tandem with other awards granted under the Plan
and/or cash awards made outside of the Plan. After the Administrator determines
that it will offer Stock Purchase Rights under the Plan, it shall advise the
offeree in writing or electronically of the terms, conditions and restrictions
related to the offer, including the number of Shares that such person shall be
entitled to purchase, the price to be paid, and the time within which such
person must accept such offer. The terms of the offer shall comply in all
respects with Section 260.140.42 of Title 10 of the California Code of
Regulations. The offer shall be accepted by execution of a Restricted Stock
purchase agreement in the form determined by the Administrator.
(b) Repurchase Option. Unless the Administrator determines otherwise,
-----------------
the Restricted Stock purchase agreement shall grant the Company a repurchase
option exercisable upon the voluntary or involuntary termination of the
purchaser's service with the Company for any reason (including death or
disability). The purchase price for Shares repurchased pursuant to the
Restricted
<PAGE>
Stock purchase agreement shall be the original price paid by the purchaser and
may be paid by cancellation of any indebtedness of the purchaser to the Company.
The repurchase option shall lapse at such rate as the Administrator may
determine. Except with respect to Shares purchased by Officers, Directors and
Consultants, the repurchase option shall in no case lapse at a rate of less than
20% per year over five (5) years from the date of purchase.
(c) Other Provisions. The Restricted Stock purchase agreement shall
----------------
contain such other terms, provisions and conditions not inconsistent with the
Plan as may be determined by the Administrator in its sole discretion.
(d) Rights as a Shareholder. Once the Stock Purchase Right is
-----------------------
exercised, the purchaser shall have rights equivalent to those of a shareholder
and shall be a shareholder when his or her purchase is entered upon the records
of the duly authorized transfer agent of the Company. No adjustment shall be
made for a dividend or other right for which the record date is prior to the
date the Stock Purchase Right is exercised, except as provided in Section 12 of
the Plan.
12. Adjustments Upon Changes in Capitalization, Merger or Asset Sale.
----------------------------------------------------------------
(a) Changes in Capitalization. Subject to any required action by the
-------------------------
shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Option or Stock Purchase Right, and the number of shares of
Common Stock which have been authorized for issuance under the Plan but as to
which no Options or Stock Purchase Rights have yet been granted or which have
been returned to the Plan upon cancellation or expiration of an Option or Stock
Purchase Right, as well as the price per share of Common Stock covered by each
such outstanding Option or Stock Purchase Right, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued shares of Common Stock effected without receipt
of consideration by the Company. The conversion of any convertible securities
of the Company shall not be deemed to have been "effected without receipt of
consideration." Such adjustment shall be made by the Board, whose determination
in that respect shall be final, binding and conclusive. Except as expressly
provided herein, no issuance by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or price
of shares of Common Stock subject to an Option or Stock Purchase Right.
(b) Dissolution or Liquidation. In the event of the proposed
--------------------------
dissolution or liquidation of the Company, the Administrator shall notify each
Optionee as soon as practicable prior to the effective date of such proposed
transaction. The Administrator in its discretion may provide for an Optionee to
have the right to exercise his or her Option or Stock Purchase Right until
fifteen (15) days prior to such transaction as to all of the Optioned Stock
covered thereby, including Shares as to which the Option or Stock Purchase Right
would not otherwise be exercisable. In addition, the Administrator may provide
that any Company repurchase option applicable to any Shares purchased
<PAGE>
upon exercise of an Option or Stock Purchase Right shall lapse as to all such
Shares, provided the proposed dissolution or liquidation takes place at the time
and in the manner contemplated. To the extent it has not been previously
exercised, an Option or Stock Purchase Right will terminate immediately prior to
the consummation of such proposed action.
(c) Merger or Asset Sale. In the event of a merger of the Company
--------------------
with or into another corporation, or the sale of substantially all of the assets
of the Company, each outstanding Option and Stock Purchase Right shall be
assumed or an equivalent option or right substituted by the successor
corporation or a Parent or Subsidiary of the successor corporation. In the
event that the successor corporation refuses to assume or substitute for the
Option or Stock Purchase Right, the Optionee shall fully vest in and have the
right to exercise the Option or Stock Purchase Right as to all of the Optioned
Stock, including Shares as to which it would not otherwise be vested or
exercisable. If an Option or Stock Purchase Right becomes fully vested and
exercisable in lieu of assumption or substitution in the event of a merger or
sale of assets, the Administrator shall notify the Optionee in writing or
electronically that the Option or Stock Purchase Right shall be fully
exercisable for a period of fifteen (15) days from the date of such notice, and
the Option or Stock Purchase Right shall terminate upon the expiration of such
period. For the purposes of this paragraph, the Option or Stock Purchase Right
shall be considered assumed if, following the merger or sale of assets, the
option or right confers the right to purchase or receive, for each Share of
Optioned Stock subject to the Option or Stock Purchase Right immediately prior
to the merger or sale of assets, the consideration (whether stock, cash, or
other securities or property) received in the merger or sale of assets by
holders of Common Stock for each Share held on the effective date of the
transaction (and if holders were offered a choice of consideration, the type of
consideration chosen by the holders of a majority of the outstanding Shares);
provided, however, that if such consideration received in the merger or sale of
assets is not solely common stock of the successor corporation or its Parent,
the Administrator may, with the consent of the successor corporation, provide
for the consideration to be received upon the exercise of the Option or Stock
Purchase Right, for each Share of Optioned Stock subject to the Option or Stock
Purchase Right, to be solely common stock of the successor corporation or its
Parent equal in fair market value to the per share consideration received by
holders of Common Stock in the merger or sale of assets.
13. Time of Granting Options and Stock Purchase Rights. The date of grant
--------------------------------------------------
of an Option or Stock Purchase Right shall, for all purposes, be the date on
which the Administrator makes the determination granting such Option or Stock
Purchase Right, or such other date as is determined by the Administrator.
Notice of the determination shall be given to each Service Provider to whom an
Option or Stock Purchase Right is so granted within a reasonable time after the
date of such grant.
14. Amendment and Termination of the Plan.
-------------------------------------
(a) Amendment and Termination. The Board may at any time amend,
-------------------------
alter, suspend or terminate the Plan.
<PAGE>
(b) Shareholder Approval. The Board shall obtain shareholder approval
--------------------
of any Plan amendment to the extent necessary and desirable to comply with
Applicable Laws.
(c) Effect of Amendment or Termination. No amendment, alteration,
----------------------------------
suspension or termination of the Plan shall impair the rights of any Optionee,
unless mutually agreed otherwise between the Optionee and the Administrator,
which agreement must be in writing and signed by the Optionee and the Company.
Termination of the Plan shall not affect the Administrator's ability to exercise
the powers granted to it hereunder with respect to Options granted under the
Plan prior to the date of such termination.
15. Conditions Upon Issuance of Shares.
----------------------------------
(a) Legal Compliance. Shares shall not be issued pursuant to the
----------------
exercise of an Option unless the exercise of such Option and the issuance and
delivery of such Shares shall comply with Applicable Laws and shall be further
subject to the approval of counsel for the Company with respect to such
compliance.
(b) Investment Representations. As a condition to the exercise of an
--------------------------
Option, the Administrator may require the person exercising such Option to
represent and warrant at the time of any such exercise that the Shares are being
purchased only for investment and without any present intention to sell or
distribute such Shares if, in the opinion of counsel for the Company, such a
representation is required.
16. Inability to Obtain Authority. The inability of the Company to obtain
-----------------------------
authority from any regulatory body having jurisdiction, which authority is
deemed by the Company's counsel to be necessary to the lawful issuance and sale
of any Shares hereunder, shall relieve the Company of any liability in respect
of the failure to issue or sell such Shares as to which such requisite authority
shall not have been obtained.
17. Reservation of Shares. The Company, during the term of this Plan,
---------------------
shall at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
18. Shareholder Approval. The Plan shall be subject to approval by the
--------------------
shareholders of the Company within twelve (12) months after the date the Plan is
adopted. Such shareholder approval shall be obtained in the degree and manner
required under Applicable Laws.
19. Information to Optionees and Purchasers. The Company shall provide to
---------------------------------------
each Optionee and to each individual who acquires Shares pursuant to the Plan,
not less frequently than annually during the period such Optionee or purchaser
has one or more Options or Stock Purchase Rights outstanding, and, in the case
of an individual who acquires Shares pursuant to the Plan, during the period
such individual owns such Shares, copies of annual financial statements. The
<PAGE>
Company shall not be required to provide such statements to key employees whose
duties in connection with the Company assure their access to equivalent
information.
<PAGE>
Exhibit 10.4
NUANCE COMMUNICATIONS, INC.
2000 STOCK PLAN
AS ADOPTED ON FEBRUARY 1, 2000
1. Purposes of the Plan. The purposes of this 2000 Stock Plan are:
--------------------
. to attract and retain the best available personnel for positions
of substantial responsibility,
. to provide additional incentive to Employees, Directors and
Consultants, and
. to promote the success of the Company's business.
Options granted under the Plan may be Incentive Stock Options or
Nonstatutory Stock Options, as determined by the Administrator at the time of
grant. Stock Purchase Rights may also be granted under the Plan.
2. Definitions. As used herein, the following definitions shall apply:
-----------
(a) "Administrator" means the Board or any of its Committees as shall
-------------
be administering the Plan, in accordance with Section 4 of the Plan.
(b) "Applicable Laws" means the requirements relating to the
---------------
administration of stock option plans under U. S. state corporate laws, U.S.
federal and state securities laws, the Code, any stock exchange or quotation
system on which the Common Stock is listed or quoted and the applicable laws of
any foreign country or jurisdiction where Options or Stock Purchase Rights are,
or will be, granted under the Plan.
(c) "Board" means the Board of Directors of the Company.
-----
(d) "Code" means the Internal Revenue Code of 1986, as amended.
----
(e) "Committee" means a committee of Directors appointed by the Board
---------
in accordance with Section 4 of the Plan.
(f) "Common Stock" means the common stock of the Company.
------------
(g) "Company" means Nuance Communications, Inc., a Delaware
-------
corporation.
(h) "Consultant" means any person, including an advisor, engaged by
----------
the Company or a Parent or Subsidiary to render services to such entity.
<PAGE>
(i) "Director" means a member of the Board.
--------
(j) "Disability" means total and permanent disability as defined in
----------
Section 22(e)(3) of the Code.
(k) "Employee" means any person, including Officers and Directors,
--------
employed by the Company or any Parent or Subsidiary of the Company. A Service
Provider shall not cease to be an Employee in the case of (i) any leave of
absence approved by the Company or (ii) transfers between locations of the
Company or between the Company, its Parent, any Subsidiary, or any successor.
For purposes of Incentive Stock Options, no such leave may exceed ninety days,
unless reemployment upon expiration of such leave is guaranteed by statute or
contract. If reemployment upon expiration of a leave of absence approved by the
Company is not so guaranteed, on the 181st day of such leave any Incentive Stock
Option held by the Optionee shall cease to be treated as an Incentive Stock
Option and shall be treated for tax purposes as a Nonstatutory Stock Option.
Neither service as a Director nor payment of a director's fee by the Company
shall be sufficient to constitute "employment" by the Company.
(l) "Exchange Act" means the Securities Exchange Act of 1934, as
------------
amended.
(m) "Fair Market Value" means, as of any date, the value of Common
-----------------
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day prior to the time of determination, as reported in
The Wall Street Journal or such other source as the Administrator deems
reliable;
(ii) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market Value of
a Share of Common Stock shall be the mean between the high bid and low asked
prices for the Common Stock on the last market trading day prior to the day of
determination, as reported in The Wall Street Journal or such other source as
the Administrator deems reliable; or
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value shall be determined in good faith by the
Administrator.
(n) "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.
(o) "Nonstatutory Stock Option" means an Option not intended to
-------------------------
qualify as an Incentive Stock Option.
-2-
<PAGE>
(p) "Notice of Grant" means a written or electronic notice evidencing
---------------
certain terms and conditions of an individual Option or Stock Purchase Right
grant. The Notice of Grant is part of the Option Agreement.
(q) "Officer" means a person who is an officer of the Company within
-------
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(r) "Option" means a stock option granted pursuant to the Plan.
------
(s) "Option Agreement" means an agreement between the Company and an
----------------
Optionee evidencing the terms and conditions of an individual Option grant. The
Option Agreement is subject to the terms and conditions of the Plan.
(t) "Option Exchange Program" means a program whereby outstanding
-----------------------
Options are surrendered in exchange for Options with a lower exercise price.
(u) "Optioned Stock" means the Common Stock subject to an Option or
--------------
Stock Purchase Right.
(v) "Optionee" means the holder of an outstanding Option or Stock
--------
Purchase Right granted under the Plan.
(w) "Parent" means a "parent corporation," whether now or hereafter
------
existing, as defined in Section 424(e) of the Code.
(x) "Plan" means this 2000 Stock Plan.
----
(y) "Restricted Stock" means shares of Common Stock acquired pursuant
----------------
to a grant of Stock Purchase Rights under Section 11 of the Plan.
(z) "Restricted Stock Purchase Agreement" means a written agreement
-----------------------------------
between the Company and the Optionee evidencing the terms and restrictions
applying to stock purchased under a Stock Purchase Right. The Restricted Stock
Purchase Agreement is subject to the terms and conditions of the Plan and the
Notice of Grant.
(aa) "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any
----------
successor to Rule 16b-3, as in effect when discretion is being exercised with
respect to the Plan.
(bb) "Section 16(b) " means Section 16(b) of the Exchange Act.
-------------
(cc) "Service Provider" means an Employee, Director or Consultant.
----------------
(dd) "Share" means a share of the Common Stock, as adjusted in
-----
accordance with Section 13 of the Plan.
-3-
<PAGE>
(ee) "Stock Purchase Right" means the right to purchase Common Stock
--------------------
pursuant to Section 11 of the Plan, as evidenced by a Notice of Grant.
(ff) "Subsidiary" means a "subsidiary corporation", whether now or
----------
hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 13 of
-------------------------
the Plan, the maximum aggregate number of Shares that may be optioned and sold
under the Plan is __________ Shares plus an annual increase to be added on the
first day of the Company's fiscal year beginning in 2001 equal to the lesser of
(i) 4,000,000 shares, (ii) 6% of the outstanding shares on such date or (iii) a
lesser amount determined by the Board. The Shares may be authorized, but
unissued, or reacquired Common Stock.
If an Option or Stock Purchase Right expires or becomes unexercisable
without having been exercised in full, or is surrendered pursuant to an Option
Exchange Program, the unpurchased Shares which were subject thereto shall become
available for future grant or sale under the Plan (unless the Plan has
terminated); provided, however, that Shares that have actually been issued under
--------
the Plan, whether upon exercise of an Option or Right, shall not be returned to
the Plan and shall not become available for future distribution under the Plan,
except that if Shares of Restricted Stock are repurchased by the Company at
their original purchase price, such Shares shall become available for future
grant under the Plan.
4. Administration of the Plan.
--------------------------
(a) Procedure.
---------
(i) Multiple Administrative Bodies. The Plan may be
------------------------------
administered by different Committees with respect to different groups of Service
Providers.
(ii) Section 162(m). To the extent that the Administrator
--------------
determines it to be desirable to qualify Options granted hereunder as
"performance-based compensation" within the meaning of Section 162(m) of the
Code, the Plan shall be administered by a Committee of two or more "outside
directors" within the meaning of Section 162(m) of the Code.
(iii) Rule 16b-3. To the extent desirable to qualify
----------
transactions hereunder as exempt under Rule 16b-3, the transactions contemplated
hereunder shall be structured to satisfy the requirements for exemption under
Rule 16b-3.
(iv) Other Administration. Other than as provided above, the
--------------------
Plan shall be administered by (A) the Board or (B) a Committee, which committee
shall be constituted to satisfy Applicable Laws.
(b) Powers of the Administrator. Subject to the provisions of the
---------------------------
Plan, and in the case of a Committee, subject to the specific duties delegated
by the Board to such Committee, the Administrator shall have the authority, in
its discretion:
-4-
<PAGE>
(i) to determine the Fair Market Value;
(ii) to select the Service Providers to whom Options and
Stock Purchase Rights may be granted hereunder;
(iii) to determine the number of shares of Common Stock to be
covered by each Option and Stock Purchase Right granted hereunder;
(iv) to approve forms of agreement for use under the Plan;
(v) to determine the terms and conditions, not inconsistent
with the terms of the Plan, of any Option or Stock Purchase Right granted
hereunder. Such terms and conditions include, but are not limited to, the
exercise price, the time or times when Options or Stock Purchase Rights may be
exercised (which may be based on performance criteria), any vesting acceleration
or waiver of forfeiture restrictions, and any restriction or limitation
regarding any Option or Stock Purchase Right or the shares of Common Stock
relating thereto, based in each case on such factors as the Administrator, in
its sole discretion, shall determine;
(vi) to reduce the exercise price of any Option or Stock
Purchase Right to the then current Fair Market Value if the Fair Market Value of
the Common Stock covered by such Option or Stock Purchase Right shall have
declined since the date the Option or Stock Purchase Right was granted;
(vii) to institute an Option Exchange Program;
(viii) to construe and interpret the terms of the Plan and
awards granted pursuant to the Plan;
(ix) to prescribe, amend and rescind rules and regulations
relating to the Plan, including rules and regulations relating to sub-plans
established for the purpose of qualifying for preferred tax treatment under
foreign tax laws;
(x) to modify or amend each Option or Stock Purchase Right
(subject to Section 15(c) of the Plan), including the discretionary authority to
extend the post-termination exercisability period of Options longer than is
otherwise provided for in the Plan;
(xi) to allow Optionees to satisfy withholding tax
obligations by electing to have the Company withhold from the Shares to be
issued upon exercise of an Option or Stock Purchase Right that number of Shares
having a Fair Market Value equal to the amount required to be withheld. The Fair
Market Value of the Shares to be withheld shall be determined on the date that
the amount of tax to be withheld is to be determined. All elections by an
Optionee to have Shares withheld for this purpose shall be made in such form and
under such conditions as the Administrator may deem necessary or advisable;
-5-
<PAGE>
(xii) to authorize any person to execute on behalf of the
Company any instrument required to effect the grant of an Option or Stock
Purchase Right previously granted by the Administrator;
(xiii) to make all other determinations deemed necessary or
advisable for administering the Plan.
(c) Effect of Administrator's Decision. The Administrator's
----------------------------------
decisions, determinations and interpretations shall be final and binding on all
Optionees and any other holders of Options or Stock Purchase Rights.
5. Eligibility. Nonstatutory Stock Options and Stock Purchase Rights may
-----------
be granted to Service Providers. Incentive Stock Options may be granted only to
Employees.
6. Limitations.
-----------
(a) Each Option shall be designated in the Option Agreement as either
an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designation, to the extent that the aggregate Fair Market
Value of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by the Optionee during any calendar year (under
all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such
Options shall be treated as Nonstatutory Stock Options. For purposes of this
Section 6(a), Incentive Stock Options shall be taken into account in the order
in which they were granted. The Fair Market Value of the Shares shall be
determined as of the time the Option with respect to such Shares is granted.
(b) Neither the Plan nor any Option or Stock Purchase Right shall
confer upon an Optionee any right with respect to continuing the Optionee's
relationship as a Service Provider with the Company, nor shall they interfere in
any way with the Optionee's right or the Company's right to terminate such
relationship at any time, with or without cause.
(c) The following limitations shall apply to grants of Options:
(i) No Service Provider shall be granted, in any fiscal year of
the Company, Options to purchase more than 100,000 Shares.
(ii) In connection with his or her initial service, a Service
Provider may be granted Options to purchase up to an additional 250,000 Shares
which shall not count against the limit set forth in subsection (i) above.
(iii) The foregoing limitations shall be adjusted proportionately
in connection with any change in the Company's capitalization as described in
Section 13.
(iv) If an Option is cancelled in the same fiscal year of the
Company in which it was granted (other than in connection with a transaction
described in Section 13), the cancelled Option will be counted against the
limits set forth in subsections (i) and (ii) above. For
-6-
<PAGE>
this purpose, if the exercise price of an Option is reduced, the transaction
will be treated as a cancellation of the Option and the grant of a new Option.
7. Term of Plan. Subject to Section 19 of the Plan, the Plan shall
------------
become effective upon its adoption by the Board. It shall continue in effect
for a term of ten (10) years unless terminated earlier under Section 15 of the
Plan.
8. Term of Option. The term of each Option shall be stated in the Option
--------------
Agreement. In the case of an Incentive Stock Option, the term shall be ten (10)
years from the date of grant or such shorter term as may be provided in the
Option Agreement. Moreover, in the case of an Incentive Stock Option granted to
an Optionee who, at the time the Incentive Stock Option is granted, owns stock
representing more than ten percent (10%) of the total combined voting power of
all classes of stock of the Company or any Parent or Subsidiary, the term of the
Incentive Stock Option shall be five (5) years from the date of grant or such
shorter term as may be provided in the Option Agreement.
9. Option Exercise Price and Consideration.
---------------------------------------
(a) Exercise Price. The per share exercise price for the Shares to be
--------------
issued pursuant to exercise of an Option shall be determined by the
Administrator, subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time the Incentive
Stock Option is granted, owns stock representing more than ten percent (10%) of
the voting power of all classes of stock of the Company or any Parent or
Subsidiary, the per Share exercise price shall be no less than 110% of the Fair
Market Value per Share on the date of grant.
(B) granted to any Employee other than an Employee
described in paragraph (A) immediately above, the per Share exercise price shall
be no less than 100% of the Fair Market Value per Share on the date of grant.
(ii) In the case of a Nonstatutory Stock Option, the per Share
exercise price shall be determined by the Administrator. In the case of a
Nonstatutory Stock Option intended to qualify as "performance-based
compensation" within the meaning of Section 162(m) of the Code, the per Share
exercise price shall be no less than 100% of the Fair Market Value per Share on
the date of grant.
(iii) Notwithstanding the foregoing, Options may be granted with
a per Share exercise price of less than 100% of the Fair Market Value per Share
on the date of grant pursuant to a merger or other corporate transaction.
(b) Waiting Period and Exercise Dates. At the time an Option is
---------------------------------
granted, the Administrator shall fix the period within which the Option may be
exercised and shall determine any conditions that must be satisfied before the
Option may be exercised.
-7-
<PAGE>
(c) Form of Consideration. The Administrator shall determine the
---------------------
acceptable form of consideration for exercising an Option, including the method
of payment. In the case of an Incentive Stock Option, the Administrator shall
determine the acceptable form of consideration at the time of grant. Such
consideration may consist entirely of:
(i) cash;
(ii) check;
(iii) promissory note;
(iv) other Shares which (A) in the case of Shares acquired upon
exercise of an option, have been owned by the Optionee for more than six months
on the date of surrender, and (B) have a Fair Market Value on the date of
surrender equal to the aggregate exercise price of the Shares as to which said
Option shall be exercised;
(v) consideration received by the Company under a cashless
exercise program implemented by the Company in connection with the Plan;
(vi) a reduction in the amount of any Company liability to the
Optionee, including any liability attributable to the Optionee's participation
in any Company-sponsored deferred compensation program or arrangement;
(vii) any combination of the foregoing methods of payment; or
(viii) such other consideration and method of payment for the
issuance of Shares to the extent permitted by Applicable Laws.
10. Exercise of Option.
------------------
(a) Procedure for Exercise; Rights as a Shareholder. Any Option
-----------------------------------------------
granted hereunder shall be exercisable according to the terms of the Plan and at
such times and under such conditions as determined by the Administrator and set
forth in the Option Agreement. Unless the Administrator provides otherwise,
vesting of Options granted hereunder shall be tolled during any unpaid leave of
absence. An Option may not be exercised for a fraction of a Share.
An Option shall be deemed exercised when the Company receives: (i)
written or electronic notice of exercise (in accordance with the Option
Agreement) from the person entitled to exercise the Option, and (ii) full
payment for the Shares with respect to which the Option is exercised. Full
payment may consist of any consideration and method of payment authorized by the
Administrator and permitted by the Option Agreement and the Plan. Shares issued
upon exercise of an Option shall be issued in the name of the Optionee or, if
requested by the Optionee, in the name of the Optionee and his or her spouse.
Until the Shares are issued (as evidenced by the appropriate entry on the books
of the Company or of a duly authorized transfer agent of the Company), no right
to vote or receive dividends or any other rights as a shareholder shall exist
with respect to the
-8-
<PAGE>
Optioned Stock, notwithstanding the exercise of the Option. The Company shall
issue (or cause to be issued) such Shares promptly after the Option is
exercised. No adjustment will be made for a dividend or other right for which
the record date is prior to the date the Shares are issued, except as provided
in Section 13 of the Plan.
Exercising an Option in any manner shall decrease the number of
Shares thereafter available, both for purposes of the Plan and for sale under
the Option, by the number of Shares as to which the Option is exercised.
(b) Termination of Relationship as a Service Provider. If an Optionee
-------------------------------------------------
ceases to be a Service Provider, other than upon the Optionee's death or
Disability, the Optionee may exercise his or her Option within such period of
time as is specified in the Option Agreement to the extent that the Option is
vested on the date of termination (but in no event later than the expiration of
the term of such Option as set forth in the Option Agreement). In the absence of
a specified time in the Option Agreement, the Option shall remain exercisable
for three (3) months following the Optionee's termination. If, on the date of
termination, the Optionee is not vested as to his or her entire Option, the
Shares covered by the unvested portion of the Option shall revert to the Plan.
If, after termination, the Optionee does not exercise his or her Option within
the time specified by the Administrator, the Option shall terminate, and the
Shares covered by such Option shall revert to the Plan.
(c) Disability of Optionee. If an Optionee ceases to be a Service
----------------------
Provider as a result of the Optionee's Disability, the Optionee may exercise his
or her Option within such period of time as is specified in the Option Agreement
to the extent the Option is vested on the date of termination (but in no event
later than the expiration of the term of such Option as set forth in the Option
Agreement). In the absence of a specified time in the Option Agreement, the
Option shall remain exercisable for twelve (12) months following the Optionee's
termination. If, on the date of termination, the Optionee is not vested as to
his or her entire Option, the Shares covered by the unvested portion of the
Option shall revert to the Plan. If, after termination, the Optionee does not
exercise his or her Option within the time specified herein, the Option shall
terminate, and the Shares covered by such Option shall revert to the Plan.
(d) Death of Optionee. If an Optionee dies while a Service Provider,
-----------------
the Option may be exercised within such period of time as is specified in the
Option Agreement (but in no event later than the expiration of the term of such
Option as set forth in the Notice of Grant), by the Optionee's estate or by a
person who acquires the right to exercise the Option by bequest or inheritance,
but only to the extent that the Option is vested on the date of death. In the
absence of a specified time in the Option Agreement, the Option shall remain
exercisable for twelve (12) months following the Optionee's termination. If, at
the time of death, the Optionee is not vested as to his or her entire Option,
the Shares covered by the unvested portion of the Option shall immediately
revert to the Plan. The Option may be exercised by the executor or administrator
of the Optionee's estate or, if none, by the person(s) entitled to exercise the
Option under the Optionee's will or the laws of descent or distribution. If the
Option is not so exercised within the time specified herein, the Option shall
terminate, and the Shares covered by such Option shall revert to the Plan.
-9-
<PAGE>
(e) Buyout Provisions. The Administrator may at any time offer to buy
-----------------
out for a payment in cash or Shares an Option previously granted based on such
terms and conditions as the Administrator shall establish and communicate to the
Optionee at the time that such offer is made.
11. Stock Purchase Rights.
---------------------
(a) Rights to Purchase. Stock Purchase Rights may be issued either
------------------
alone, in addition to, or in tandem with other awards granted under the Plan
and/or cash awards made outside of the Plan. After the Administrator determines
that it will offer Stock Purchase Rights under the Plan, it shall advise the
offeree in writing or electronically, by means of a Notice of Grant, of the
terms, conditions and restrictions related to the offer, including the number of
Shares that the offeree shall be entitled to purchase, the price to be paid, and
the time within which the offeree must accept such offer. The offer shall be
accepted by execution of a Restricted Stock Purchase Agreement in the form
determined by the Administrator.
(b) Repurchase Option. Unless the Administrator determines otherwise,
-----------------
the Restricted Stock Purchase Agreement shall grant the Company a repurchase
option exercisable upon the voluntary or involuntary termination of the
purchaser's service with the Company for any reason (including death or
Disability). The purchase price for Shares repurchased pursuant to the
Restricted Stock Purchase Agreement shall be the original price paid by the
purchaser and may be paid by cancellation of any indebtedness of the purchaser
to the Company. The repurchase option shall lapse at a rate determined by the
Administrator.
(c) Other Provisions. The Restricted Stock Purchase Agreement shall
----------------
contain such other terms, provisions and conditions not inconsistent with the
Plan as may be determined by the Administrator in its sole discretion.
(d) Rights as a Shareholder. Once the Stock Purchase Right is
-----------------------
exercised, the purchaser shall have the rights equivalent to those of a
shareholder, and shall be a shareholder when his or her purchase is entered upon
the records of the duly authorized transfer agent of the Company. No adjustment
will be made for a dividend or other right for which the record date is prior to
the date the Stock Purchase Right is exercised, except as provided in Section 13
of the Plan.
12. Non-Transferability of Options and Stock Purchase Rights. Unless
--------------------------------------------------------
determined otherwise by the Administrator, an Option or Stock Purchase Right may
not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any
manner other than by will or by the laws of descent or distribution and may be
exercised, during the lifetime of the Optionee, only by the Optionee. If the
Administrator makes an Option or Stock Purchase Right transferable, such Option
or Stock Purchase Right shall contain such additional terms and conditions as
the Administrator deems appropriate.
13. Adjustments Upon Changes in Capitalization, Dissolution, Merger or
------------------------------------------------------------------
Asset Sale.
- ----------
(a) Changes in Capitalization. Subject to any required action by the
-------------------------
shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Option and
-10-
<PAGE>
Stock Purchase Right, and the number of shares of Common Stock which have been
authorized for issuance under the Plan but as to which no Options or Stock
Purchase Rights have yet been granted or which have been returned to the Plan
upon cancellation or expiration of an Option or Stock Purchase Right, as well as
the price per share of Common Stock covered by each such outstanding Option or
Stock Purchase Right, shall be proportionately adjusted for any increase or
decrease in the number of issued shares of Common Stock resulting from a stock
split, reverse stock split, stock dividend, combination or reclassification of
the Common Stock, or any other increase or decrease in the number of issued
shares of Common Stock effected without receipt of consideration by the Company;
provided, however, that conversion of any convertible securities of the Company
shall not be deemed to have been "effected without receipt of consideration."
Such adjustment shall be made by the Board, whose determination in that respect
shall be final, binding and conclusive. Except as expressly provided herein, no
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of shares
of Common Stock subject to an Option or Stock Purchase Right.
(b) Dissolution or Liquidation. In the event of the proposed
--------------------------
dissolution or liquidation of the Company, the Administrator shall notify each
Optionee as soon as practicable prior to the effective date of such proposed
transaction. The Administrator in its discretion may provide for an Optionee to
have the right to exercise his or her Option until ten (10) days prior to such
transaction as to all of the Optioned Stock covered thereby, including Shares as
to which the Option would not otherwise be exercisable. In addition, the
Administrator may provide that any Company repurchase option applicable to any
Shares purchased upon exercise of an Option or Stock Purchase Right shall lapse
as to all such Shares, provided the proposed dissolution or liquidation takes
place at the time and in the manner contemplated. To the extent it has not been
previously exercised, an Option or Stock Purchase Right will terminate
immediately prior to the consummation of such proposed action.
(c) Merger or Asset Sale. In the event of a merger of the Company
--------------------
with or into another corporation, or the sale of substantially all of the assets
of the Company, each outstanding Option and Stock Purchase Right shall be
assumed or an equivalent option or right substituted by the successor
corporation or a Parent or Subsidiary of the successor corporation. In the event
that the successor corporation refuses to assume or substitute for the Option or
Stock Purchase Right, the Optionee shall fully vest in and have the right to
exercise the Option or Stock Purchase Right as to all of the Optioned Stock,
including Shares as to which it would not otherwise be vested or exercisable. If
an Option or Stock Purchase Right becomes fully vested and exercisable in lieu
of assumption or substitution in the event of a merger or sale of assets, the
Administrator shall notify the Optionee in writing or electronically that the
Option or Stock Purchase Right shall be fully vested and exercisable for a
period of fifteen (15) days from the date of such notice, and the Option or
Stock Purchase Right shall terminate upon the expiration of such period. For the
purposes of this paragraph, the Option or Stock Purchase Right shall be
considered assumed if, following the merger or sale of assets, the option or
right confers the right to purchase or receive, for each Share of Optioned Stock
subject to the Option or Stock Purchase Right immediately prior to the merger or
sale of assets, the consideration (whether stock, cash, or other securities or
property) received in the
-11-
<PAGE>
merger or sale of assets by holders of Common Stock for each Share held on the
effective date of the transaction (and if holders were offered a choice of
consideration, the type of consideration chosen by the holders of a majority of
the outstanding Shares); provided, however, that if such consideration received
in the merger or sale of assets is not solely common stock of the successor
corporation or its Parent, the Administrator may, with the consent of the
successor corporation, provide for the consideration to be received upon the
exercise of the Option or Stock Purchase Right, for each Share of Optioned Stock
subject to the Option or Stock Purchase Right, to be solely common stock of the
successor corporation or its Parent equal in fair market value to the per share
consideration received by holders of Common Stock in the merger or sale of
assets.
14. Date of Grant. The date of grant of an Option or Stock Purchase Right
-------------
shall be, for all purposes, the date on which the Administrator makes the
determination granting such Option or Stock Purchase Right, or such other later
date as is determined by the Administrator. Notice of the determination shall be
provided to each Optionee within a reasonable time after the date of such grant.
15. Amendment and Termination of the Plan.
-------------------------------------
(a) Amendment and Termination. The Board may at any time amend,
-------------------------
alter, suspend or terminate the Plan.
(b) Shareholder Approval. The Company shall obtain shareholder
--------------------
approval of any Plan amendment to the extent necessary and desirable to comply
with Applicable Laws.
(c) Effect of Amendment or Termination. No amendment, alteration,
----------------------------------
suspension or termination of the Plan shall impair the rights of any Optionee,
unless mutually agreed otherwise between the Optionee and the Administrator,
which agreement must be in writing and signed by the Optionee and the Company.
Termination of the Plan shall not affect the Administrator's ability to exercise
the powers granted to it hereunder with respect to Options granted under the
Plan prior to the date of such termination.
16. Conditions Upon Issuance of Shares.
----------------------------------
(a) Legal Compliance. Shares shall not be issued pursuant to the
----------------
exercise of an Option or Stock Purchase Right unless the exercise of such Option
or Stock Purchase Right and the issuance and delivery of such Shares shall
comply with Applicable Laws and shall be further subject to the approval of
counsel for the Company with respect to such compliance.
(b) Investment Representations. As a condition to the exercise of an
--------------------------
Option or Stock Purchase Right, the Company may require the person exercising
such Option or Stock Purchase Right to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required.
-12-
<PAGE>
17. Inability to Obtain Authority. The inability of the Company to obtain
-----------------------------
authority from any regulatory body having jurisdiction, which authority is
deemed by the Company's counsel to be necessary to the lawful issuance and sale
of any Shares hereunder, shall relieve the Company of any liability in respect
of the failure to issue or sell such Shares as to which such requisite authority
shall not have been obtained.
18. Reservation of Shares. The Company, during the term of this Plan,
---------------------
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
19. Shareholder Approval. The Plan shall be subject to approval by the
--------------------
shareholders of the Company within twelve (12) months after the date the Plan is
adopted. Such shareholder approval shall be obtained in the manner and to the
degree required under Applicable Laws.
-13-
<PAGE>
Exhibit 10.5
NUANCE COMMUNICATIONS, INC.
2000 EMPLOYEE STOCK PURCHASE PLAN
AS ADOPTED ON FEBRUARY 1, 2000
The following constitute the provisions of the 2000 Employee Stock
Purchase Plan of Nuance Communications.
1. Purpose. The purpose of the Plan is to provide employees of the
-------
Company and its Designated Subsidiaries with an opportunity to purchase Common
Stock of the Company through accumulated payroll deductions. It is the intention
of the Company to have the Plan qualify as an "Employee Stock Purchase Plan"
under Section 423 of the Internal Revenue Code of 1986, as amended. The
provisions of the Plan, accordingly, shall be construed so as to extend and
limit participation in a manner consistent with the requirements of that section
of the Code.
2. Definitions.
-----------
(a) "Board" shall mean the Board of Directors of the Company or any
-----
committee thereof designated by the Board of Directors of the Company in
accordance with Section 14 of the Plan.
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended.
----
(c) "Common Stock" shall mean the common stock of the Company.
------------
(d) "Company" shall mean Nuance Communications, Inc. and any
-------
Designated Subsidiary of the Company.
(e) "Compensation" shall mean all base straight time gross earnings,
------------
but exclusive of commissions and payments for overtime, shift premium, incentive
compensation, incentive payments, bonuses and other compensation.
(f) "Designated Subsidiary" shall mean any Subsidiary that has been
---------------------
designated by the Board from time to time in its sole discretion as eligible to
participate in the Plan.
(g) "Employee" shall mean any individual who is an Employee of the
--------
Company for tax purposes whose customary employment with the Company is at least
twenty (20) hours per week and more than five (5) months in any calendar year.
For purposes of the Plan, the employment relationship shall be treated as
continuing intact while the individual is on sick leave or other leave of
absence approved by the Company. Where the period of leave exceeds 90 days and
the individual's right to reemployment is not guaranteed either by statute or by
contract, the employment relationship shall be deemed to have terminated on the
91st day of such leave.
(h) "Enrollment Date" shall mean the first Trading Day of each
---------------
Offering Period.
<PAGE>
(i) "Exercise Date" shall mean the first Trading Day on or after May 1
-------------
and November 1 of each year.
(j) "Fair Market Value" shall mean, as of any date, the value of
-----------------
Common Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system on
the date of determination, as reported in The Wall Street Journal or such other
source as the Board deems reliable;
(ii) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market Value
shall be the mean of the closing bid and asked prices for the Common Stock on
the date of determination, as reported in The Wall Street Journal or such other
source as the Board deems reliable;
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Board; or
(iv) For purposes of the Enrollment Date of the first Offering
Period under the Plan, the Fair Market Value shall be the initial price to the
public as set forth in the final prospectus included within the registration
statement in Form S-1 filed with the Securities and Exchange Commission for the
initial public offering of the Company's Common Stock (the "Registration
Statement").
(k) "Offering Periods" shall mean the periods of approximately twenty-
----------------
four (24) months during which an option granted pursuant to the Plan may be
exercised, commencing on the first Trading Day on or after May 1 and November 1
of each year and terminating on the first Trading Day on or after the May 1 and
November 1 Offering Period commencement date approximately twenty-four months
later; provided, however, that the first Offering Period under the Plan shall
commence with the first Trading Day on or after the date on which the Securities
and Exchange Commission declares the Company's Registration Statement effective
and ending on the first Trading Day on or after May 1, 2002. The duration and
timing of Offering Periods may be changed pursuant to Section 4 of this Plan.
(l) "Plan" shall mean this 2000 Employee Stock Purchase Plan.
----
(m) "Purchase Period" shall mean the approximately six month period
---------------
commencing on one Exercise Date and ending with the next Exercise Date, except
that the first Purchase Period of any Offering Period shall commence on the
Enrollment Date and end with the next Exercise Date.
(n) "Purchase Price" shall mean 85% of the Fair Market Value of a
--------------
share of Common Stock on the Enrollment Date or on the Exercise Date, whichever
is lower; provided however, that the Purchase Price may be adjusted by the Board
pursuant to Section 20.
-2-
<PAGE>
(o) "Reserves" shall mean the number of shares of Common Stock covered
--------
by each option under the Plan which have not yet been exercised and the number
of shares of Common Stock which have been authorized for issuance under the Plan
but not yet placed under option.
(p) "Subsidiary" shall mean a corporation, domestic or foreign, of
----------
which not less than 50% of the voting shares are held by the Company or a
Subsidiary, whether or not such corporation now exists or is hereafter organized
or acquired by the Company or a Subsidiary.
(q) "Trading Day" shall mean a day on which national stock exchanges
-----------
and the Nasdaq System are open for trading.
3. Eligibility.
-----------
(a) Any Employee who shall be employed by the Company on a given
Enrollment Date shall be eligible to participate in the Plan.
(b) Any provisions of the Plan to the contrary notwithstanding, no
Employee shall be granted an option under the Plan (i) to the extent that,
immediately after the grant, such Employee (or any other person whose stock
would be attributed to such Employee pursuant to Section 424(d) of the Code)
would own capital stock of the Company and/or hold outstanding options to
purchase such stock possessing five percent (5%) or more of the total combined
voting power or value of all classes of the capital stock of the Company or of
any Subsidiary, or (ii) to the extent that his or her rights to purchase stock
under all employee stock purchase plans of the Company and its subsidiaries
accrues at a rate which exceeds Twenty-Five Thousand Dollars ($25,000) worth of
stock (determined at the fair market value of the shares at the time such option
is granted) for each calendar year in which such option is outstanding at any
time.
4. Offering Periods. The Plan shall be implemented by consecutive,
----------------
overlapping Offering Periods with a new Offering Period commencing on the first
Trading Day on or after May 1 and November 1 each year, or on such other date as
the Board shall determine, and continuing thereafter until terminated in
accordance with Section 20 hereof; provided, however, that the first Offering
Period under the Plan shall commence with the first Trading Day on or after the
date on which the Securities and Exchange Commission declares the Company's
Registration Statement effective and ending on the first Trading Day on or after
May 1, 2002. The Board shall have the power to change the duration of Offering
Periods (including the commencement dates thereof) with respect to future
offerings without shareholder approval if such change is announced at least five
(5) days prior to the scheduled beginning of the first Offering Period to be
affected thereafter.
5. Participation.
-------------
(a) An eligible Employee may become a participant in the Plan by
completing a subscription agreement authorizing payroll deductions in the form
of Exhibit A to this Plan and filing it with the Company's payroll office prior
---------
to the applicable Enrollment Date.
(b) Payroll deductions for a participant shall commence on the first
payroll following the Enrollment Date and shall end on the last payroll in the
Offering Period to which such authorization is applicable, unless sooner
terminated by the participant as provided in Section 10 hereof.
-3-
<PAGE>
6. Payroll Deductions.
------------------
(a) At the time a participant files his or her subscription agreement,
he or she shall elect to have payroll deductions made on each pay day during the
Offering Period in an amount not exceeding 15% of the Compensation which he or
she receives on each pay day during the Offering Period; provided, however, that
should a pay day occur on an Exercise Date, a participant shall have the payroll
deductions made on such day applied to his or her account under the new Offering
Period or Purchase Period, as the case may be.
(b) All payroll deductions made for a participant shall be credited to
his or her account under the Plan and shall be withheld in whole percentages
only. A participant may not make any additional payments into such account.
(c) A participant may discontinue his or her participation in the Plan
as provided in Section 10 hereof, or may increase or decrease the rate of his or
her payroll deductions during the Offering Period by completing or filing with
the Company a new subscription agreement authorizing a change in payroll
deduction rate. The Company may, in its discretion, limit the nature and/or
number of participation rate changes during any Offering Period, and may
establish such other conditions or limitations as it deems appropriate for
proper Plan administration. The change in rate shall be effective with the first
full payroll period following five (5) business days after the Company's receipt
of the new subscription agreement unless the Company elects to process a given
change in participation more quickly. A participant's subscription agreement
shall remain in effect for successive Offering Periods unless terminated as
provided in Section 10 hereof.
(d) Notwithstanding the foregoing, to the extent necessary to comply
with Section 423(b)(8) of the Code and Section 3(b) hereof, a participant's
payroll deductions may be decreased to zero percent (0%) at any time during a
Purchase Period. Payroll deductions shall recommence at the rate provided in
such participant's subscription agreement at the beginning of the first Purchase
Period which is scheduled to end in the following calendar year, unless
terminated by the participant as provided in Section 10 hereof.
(e) At the time the option is exercised, in whole or in part, or at
the time some or all of the Company's Common Stock issued under the Plan is
disposed of, the participant must make adequate provision for the Company's
federal, state, or other tax withholding obligations, if any, which arise upon
the exercise of the option or the disposition of the Common Stock. At any time,
the Company may, but shall not be obligated to, withhold from the participant's
compensation the amount necessary for the Company to meet applicable withholding
obligations, including any withholding required to make available to the Company
any tax deductions or benefits attributable to sale or early disposition of
Common Stock by the Employee.
7. Grant of Option. On the Enrollment Date of each Offering Period, each
---------------
eligible Employee participating in such Offering Period shall be granted an
option to purchase on each Exercise Date during such Offering Period (at the
applicable Purchase Price) up to a number of shares of the Company's Common
Stock determined by dividing such Employee's payroll deductions accumulated
prior to such Exercise Date and retained in the Participant's account as of the
Exercise Date by the applicable Purchase Price; provided that in no event shall
an Employee be permitted to purchase during each Purchase Period more than 2,000
shares of the Company's Common Stock
-4-
<PAGE>
(subject to any adjustment pursuant to Section 19), and provided further that
such purchase shall be subject to the limitations set forth in Sections 3(b) and
12 hereof. The Board may, for future Offering Periods, increase or decrease, in
its absolute discretion, the maximum number of shares of the Company's Common
Stock an Employee may purchase during each Purchase Period of such Offering
Period. Exercise of the option shall occur as provided in Section 8 hereof,
unless the participant has withdrawn pursuant to Section 10 hereof. The option
shall expire on the last day of the Offering Period.
8. Exercise of Option.
------------------
(a) Unless a participant withdraws from the Plan as provided in
Section 10 hereof, his or her option for the purchase of shares shall be
exercised automatically on the Exercise Date, and the maximum number of full
shares subject to option shall be purchased for such participant at the
applicable Purchase Price with the accumulated payroll deductions in his or her
account. No fractional shares shall be purchased; any payroll deductions
accumulated in a participant's account which are not sufficient to purchase a
full share shall be retained in the participant's account for the subsequent
Purchase Period or Offering Period, subject to earlier withdrawal by the
participant as provided in Section 10 hereof. Any other monies left over in a
participant's account after the Exercise Date shall be returned to the
participant. During a participant's lifetime, a participant's option to purchase
shares hereunder is exercisable only by him or her.
(b) If the Board determines that, on a given Exercise Date, the number
of shares with respect to which options are to be exercised may exceed (i) the
number of shares of Common Stock that were available for sale under the Plan on
the Enrollment Date of the applicable Offering Period, or (ii) the number of
shares available for sale under the Plan on such Exercise Date, the Board may in
its sole discretion (x) provide that the Company shall make a pro rata
allocation of the shares of Common Stock available for purchase on such
Enrollment Date or Exercise Date, as applicable, in as uniform a manner as shall
be practicable and as it shall determine in its sole discretion to be equitable
among all participants exercising options to purchase Common Stock on such
Exercise Date, and continue all Offering Periods then in effect, or (y) provide
that the Company shall make a pro rata allocation of the shares available for
purchase on such Enrollment Date or Exercise Date, as applicable, in as uniform
a manner as shall be practicable and as it shall determine in its sole
discretion to be equitable among all participants exercising options to purchase
Common Stock on such Exercise Date, and terminate any or all Offering Periods
then in effect pursuant to Section 20 hereof. The Company may make pro rata
allocation of the shares available on the Enrollment Date of any applicable
Offering Period pursuant to the preceding sentence, notwithstanding any
authorization of additional shares for issuance under the Plan by the Company's
shareholders subsequent to such Enrollment Date.
9. Delivery. As promptly as practicable after each Exercise Date on
--------
which a purchase of shares occurs, the Company shall arrange the delivery to
each participant, as appropriate, of a certificate representing the shares
purchased upon exercise of his or her option.
10. Withdrawal.
----------
-5-
<PAGE>
(a) A participant may withdraw all but not less than all the payroll
deductions credited to his or her account and not yet used to exercise his or
her option under the Plan at any time by giving written notice to the Company in
the form of Exhibit B to this Plan. All of the participant's payroll deductions
---------
credited to his or her account shall be paid to such participant promptly after
receipt of notice of withdrawal and such participant's option for the Offering
Period shall be automatically terminated, and no further payroll deductions for
the purchase of shares shall be made for such Offering Period. If a participant
withdraws from an Offering Period, payroll deductions shall not resume at the
beginning of the succeeding Offering Period unless the participant delivers to
the Company a new subscription agreement.
(b) A participant's withdrawal from an Offering Period shall not have
any effect upon his or her eligibility to participate in any similar plan which
may hereafter be adopted by the Company or in succeeding Offering Periods which
commence after the termination of the Offering Period from which the participant
withdraws.
11. Termination of Employment.
-------------------------
Upon a participant's ceasing to be an Employee, for any reason, he or
she shall be deemed to have elected to withdraw from the Plan and the payroll
deductions credited to such participant's account during the Offering Period but
not yet used to exercise the option shall be returned to such participant or, in
the case of his or her death, to the person or persons entitled thereto under
Section 15 hereof, and such participant's option shall be automatically
terminated. The preceding sentence notwithstanding, a participant who receives
payment in lieu of notice of termination of employment shall be treated as
continuing to be an Employee for the participant's customary number of hours per
week of employment during the period in which the participant is subject to such
payment in lieu of notice.
12. Interest. No interest shall accrue on the payroll deductions of a
--------
participant in the Plan.
13. Stock.
-----
(a) Subject to adjustment upon changes in capitalization of the
Company as provided in Section 19 hereof, the maximum number of shares of the
Company's Common Stock which shall be made available for sale under the Plan
shall be one million (1,000,000) shares plus an annual increase to be added on
the first day of the Company's fiscal year beginning in 2001, equal to the
lesser of (i) 1,500,000 shares, (ii) 2% of the outstanding shares on such date
or (iii) a lesser amount determined by the Board.
(b) The participant shall have no interest or voting right in shares
covered by his option until such option has been exercised.
(c) Shares to be delivered to a participant under the Plan shall be
registered in the name of the participant or in the name of the participant and
his or her spouse.
14. Administration. The Plan shall be administered by the Board or a
--------------
committee of members of the Board appointed by the Board. The Board or its
committee shall have full and exclusive discretionary authority to construe,
interpret and apply the terms of the Plan, to determine
-6-
<PAGE>
eligibility and to adjudicate all disputed claims filed under the Plan. Every
finding, decision and determination made by the Board or its committee shall, to
the full extent permitted by law, be final and binding upon all parties.
15. Designation of Beneficiary.
--------------------------
(a) A participant may file a written designation of a beneficiary who
is to receive any shares and cash, if any, from the participant's account under
the Plan in the event of such participant's death subsequent to an Exercise Date
on which the option is exercised but prior to delivery to such participant of
such shares and cash. In addition, a participant may file a written designation
of a beneficiary who is to receive any cash from the participant's account under
the Plan in the event of such participant's death prior to exercise of the
option. If a participant is married and the designated beneficiary is not the
spouse, spousal consent shall be required for such designation to be effective.
(b) Such designation of beneficiary may be changed by the participant
at any time by written notice. In the event of the death of a participant and in
the absence of a beneficiary validly designated under the Plan who is living at
the time of such participant's death, the Company shall deliver such shares
and/or cash to the executor or administrator of the estate of the participant,
or if no such executor or administrator has been appointed (to the knowledge of
the Company), the Company, in its discretion, may deliver such shares and/or
cash to the spouse or to any one or more dependents or relatives of the
participant, or if no spouse, dependent or relative is known to the Company,
then to such other person as the Company may designate.
16. Transferability. Neither payroll deductions credited to a
---------------
participant's account nor any rights with regard to the exercise of an option or
to receive shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 15 hereof) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be without
effect, except that the Company may treat such act as an election to withdraw
funds from an Offering Period in accordance with Section 10 hereof.
17. Use of Funds. All payroll deductions received or held by the Company
------------
under the Plan may be used by the Company for any corporate purpose, and the
Company shall not be obligated to segregate such payroll deductions.
18. Reports. Individual accounts shall be maintained for each participant
-------
in the Plan. Statements of account shall be given to participating Employees at
least annually, which statements shall set forth the amounts of payroll
deductions, the Purchase Price, the number of shares purchased and the remaining
cash balance, if any.
19. Adjustments Upon Changes in Capitalization, Dissolution, Liquidation,
--------------------------------------------------------------------
Merger or Asset Sale.
- --------------------
(a) Changes in Capitalization. Subject to any required action by the
-------------------------
shareholders of the Company, the Reserves, the maximum number of shares each
participant may purchase each Purchase Period (pursuant to Section 7), the
number of shares that may be added annually to the shares reserved under the
Plan (pursuant to Section 13(a)(i)), as well as the price per share and the
number of shares of Common Stock covered by each option under the Plan which has
not yet been
-7-
<PAGE>
exercised shall be proportionately adjusted for any increase or decrease in the
number of issued shares of Common Stock resulting from a stock split, reverse
stock split, stock dividend, combination or reclassification of the Common
Stock, or any other increase or decrease in the number of shares of Common Stock
effected without receipt of consideration by the Company; provided, however,
that conversion of any convertible securities of the Company shall not be deemed
to have been "effected without receipt of consideration." Such adjustment shall
be made by the Board, whose determination in that respect shall be final,
binding and conclusive. Except as expressly provided herein, no issuance by the
Company of shares of stock of any class, or securities convertible into shares
of stock of any class, shall affect, and no adjustment by reason thereof shall
be made with respect to, the number or price of shares of Common Stock subject
to an option.
(b) Dissolution or Liquidation. In the event of the proposed
--------------------------
dissolution or liquidation of the Company, the Offering Period then in progress
shall be shortened by setting a new Exercise Date (the "New Exercise Date"), and
shall terminate immediately prior to the consummation of such proposed
dissolution or liquidation, unless provided otherwise by the Board. The New
Exercise Date shall be before the date of the Company's proposed dissolution or
liquidation. The Board shall notify each participant in writing, at least ten
(10) business days prior to the New Exercise Date, that the Exercise Date for
the participant's option has been changed to the New Exercise Date and that the
participant's option shall be exercised automatically on the New Exercise Date,
unless prior to such date the participant has withdrawn from the Offering Period
as provided in Section 10 hereof.
(c) Merger or Asset Sale. In the event of a proposed sale of all or
--------------------
substantially all of the assets of the Company, or the merger of the Company
with or into another corporation, each outstanding option shall be assumed or an
equivalent option substituted by the successor corporation or a Parent or
Subsidiary of the successor corporation. In the event that the successor
corporation refuses to assume or substitute for the option, any Purchase Periods
then in progress shall be shortened by setting a new Exercise Date (the "New
Exercise Date") and any Offering Periods then in progress shall end on the New
Exercise Date. The New Exercise Date shall be before the date of the Company's
proposed sale or merger. The Board shall notify each participant in writing, at
least ten (10) business days prior to the New Exercise Date, that the Exercise
Date for the participant's option has been changed to the New Exercise Date and
that the participant's option shall be exercised automatically on the New
Exercise Date, unless prior to such date the participant has withdrawn from the
Offering Period as provided in Section 10 hereof.
20. Amendment or Termination.
------------------------
(a) The Board of Directors of the Company may at any time and for any
reason terminate or amend the Plan. Except as provided in Section 19 hereof, no
such termination can affect options previously granted, provided that an
Offering Period may be terminated by the Board of Directors on any Exercise Date
if the Board determines that the termination of the Offering Period or the Plan
is in the best interests of the Company and its shareholders. Except as provided
in Section 19 and this Section 20 hereof, no amendment may make any change in
any option theretofore granted which adversely affects the rights of any
participant. To the extent necessary to comply with Section 423 of the Code (or
any successor rule or provision or any other applicable law, regulation or stock
exchange rule), the Company shall obtain shareholder approval in such a manner
and to such a degree as required.
-8-
<PAGE>
(b) Without shareholder consent and without regard to whether any
participant rights may be considered to have been "adversely affected," the
Board (or its committee) shall be entitled to change the Offering Periods, limit
the frequency and/or number of changes in the amount withheld during an Offering
Period, establish the exchange ratio applicable to amounts withheld in a
currency other than U.S. dollars, permit payroll withholding in excess of the
amount designated by a participant in order to adjust for delays or mistakes in
the Company's processing of properly completed withholding elections, establish
reasonable waiting and adjustment periods and/or accounting and crediting
procedures to ensure that amounts applied toward the purchase of Common Stock
for each participant properly correspond with amounts withheld from the
participant's Compensation, and establish such other limitations or procedures
as the Board (or its committee) determines in its sole discretion advisable
which are consistent with the Plan.
(c) In the event the Board determines that the ongoing operation of
the Plan may result in unfavorable financial accounting consequences, the Board
may, in its discretion and, to the extent necessary or desirable, modify or
amend the Plan to reduce or eliminate such accounting consequence including, but
not limited to:
(i) altering the Purchase Price for any Offering Period
including an Offering Period underway at the time of the change in Purchase
Price;
(ii) shortening any Offering Period so that Offering Period ends
on a new Exercise Date, including an Offering Period underway at the time of the
Board action; and
(iii) allocating shares.
Such modifications or amendments shall not require stockholder approval or the
consent of any Plan participants.
21. Notices. All notices or other communications by a participant to the
-------
Company under or in connection with the Plan shall be deemed to have been duly
given when received in the form specified by the Company at the location, or by
the person, designated by the Company for the receipt thereof.
22. Conditions Upon Issuance of Shares. Shares shall not be issued with
----------------------------------
respect to an option unless the exercise of such option and the issuance and
delivery of such shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, the rules and regulations promulgated thereunder, and the requirements
of any stock exchange upon which the shares may then be listed, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.
As a condition to the exercise of an option, the Company may require
the person exercising such option to represent and warrant at the time of any
such exercise that the shares are being purchased only for investment and
without any present intention to sell or distribute such shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned applicable provisions of law.
-9-
<PAGE>
23. Term of Plan. The Plan shall become effective upon the earlier to
------------
occur of its adoption by the Board of Directors or its approval by the
shareholders of the Company. It shall continue in effect for a term of ten (10)
years unless sooner terminated under Section 20 hereof.
24. Automatic Transfer to Low Price Offering Period. To the extent
-----------------------------------------------
permitted by any applicable laws, regulations, or stock exchange rules if the
Fair Market Value of the Common Stock on any Exercise Date in an Offering Period
is lower than the Fair Market Value of the Common Stock on the Enrollment Date
of such Offering Period, then all participants in such Offering Period shall be
automatically withdrawn from such Offering Period immediately after the exercise
of their option on such Exercise Date and automatically re-enrolled in the
immediately following Offering Period.
-10-
<PAGE>
EXHIBIT A
---------
NUANCE COMMUNICATIONS, INC.
2000 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
_____ Original Application Enrollment Date:___________
_____ Change in Payroll Deduction Rate
_____ Change of Beneficiary(ies)
1. ____________________ hereby elects to participate in the Nuance
Communications, Inc. Employee Stock Purchase Plan (the "Employee Stock
Purchase Plan") and subscribes to purchase shares of the Company's Common
Stock in accordance with this Subscription Agreement and the Employee Stock
Purchase Plan.
2. I hereby authorize payroll deductions from each paycheck in the amount of
____% of my Compensation on each payday (from 0 to 15 %) during the
Offering Period in accordance with the Employee Stock Purchase Plan.
(Please note that no fractional percentages are permitted.)
3. I understand that said payroll deductions shall be accumulated for the
purchase of shares of Common Stock at the applicable Purchase Price
determined in accordance with the Employee Stock Purchase Plan. I
understand that if I do not withdraw from an Offering Period, any
accumulated payroll deductions will be used to automatically exercise my
option.
4. I have received a copy of the complete Employee Stock Purchase Plan. I
understand that my participation in the Employee Stock Purchase Plan is in
all respects subject to the terms of the Plan. I understand that my ability
to exercise the option under this Subscription Agreement is subject to
shareholder approval of the Employee Stock Purchase Plan.
5. Shares purchased for me under the Employee Stock Purchase Plan should be
issued in the name(s) of (Employee or Employee and Spouse only).
6. I understand that if I dispose of any shares received by me pursuant to the
Plan within 2 years after the Enrollment Date (the first day of the
Offering Period during which I purchased such shares) or one year after the
Exercise Date, I will be treated for federal income tax purposes as having
received ordinary income at the time of such disposition in an amount equal
to the excess of the fair market value of the shares at the time such
shares were purchased by me over the price which I paid for the shares. I
-
hereby agree to notify the Company in writing within 30 days after the date
---------------------------------------------------------------------------
of any disposition of my shares and I will make adequate provision for
----------------------------------------------------------------------
Federal, state or other tax withholding obligations, if any, which arise
------------------------------------------------------------------------
upon the
--------
<PAGE>
disposition of the Common Stock. The Company may, but will not be
-------------------------------
obligated to, withhold from my compensation the amount necessary to meet
any applicable withholding obligation including any withholding necessary
to make available to the Company any tax deductions or benefits
attributable to sale or early disposition of Common Stock by me. If I
dispose of such shares at any time after the expiration of the 2-year
and 1-year holding periods, I understand that I will be treated for federal
income tax purposes as having received income only at the time of such
disposition, and that such income will be taxed as ordinary income only to
the extent of an amount equal to the lesser of (1) the excess of the fair
market value of the shares at the time of such disposition over the
purchase price which I paid for the shares, or (2) 15% of the fair market
value of the shares on the first day of the Offering Period. The remainder
of the gain, if any, recognized on such disposition will be taxed as
capital gain.
7. I hereby agree to be bound by the terms of the Employee Stock Purchase
Plan. The effectiveness of this Subscription Agreement is dependent upon my
eligibility to participate in the Employee Stock Purchase Plan.
8. In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all payments and shares due me under the
Employee Stock Purchase Plan:
NAME: (Please print)_____________________________________________________
(First) (Middle) (Last)
_________________________ ____________________________________________
Relationship
____________________________________________
(Address)
<PAGE>
Employee's Social
Security Number: ________________________________________
Employee's Address: ________________________________________
________________________________________
________________________________________
I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT SHALL REMAIN IN EFFECT THROUGHOUT
SUCCESSIVE OFFERING PERIODS UNLESS TERMINATED BY ME.
Dated:____________________ ________________________________________
Signature of Employee
Spouse's Signature (If beneficiary other than
spouse)
<PAGE>
EXHIBIT B
---------
NUANCE COMMUNICATIONS, INC.
2000 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
The undersigned participant in the Offering Period of the Nuance
Communications, Inc. Employee Stock Purchase Plan which began on ____________,
______ (the "Enrollment Date") hereby notifies the Company that he or she hereby
withdraws from the Offering Period. He or she hereby directs the Company to pay
to the undersigned as promptly as practicable all the payroll deductions
credited to his or her account with respect to such Offering Period. The
undersigned understands and agrees that his or her option for such Offering
Period will be automatically terminated. The undersigned understands further
that no further payroll deductions will be made for the purchase of shares in
the current Offering Period and the undersigned shall be eligible to participate
in succeeding Offering Periods only by delivering to the Company a new
Subscription Agreement.
Name and Address of Participant:
_________________________________
_________________________________
_________________________________
Signature:
_________________________________
Date:____________________________
<PAGE>
EXHIBIT 10.6
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 August 7, 1997, by and between LINCOLN MENLO IV&V
ASSOCIATES LIMITED, a CALIFORNIA LIMITED PARTNERSHIP ("LANDLORD"), AND NUANCE
COMMUNICATIONS, INC., A CALIFORNIA CORPORATION ("TENANT"), with reference to the
following facts.
RECITALS
A. Landlord and Tenant have entered into that certain Lease Agreement dated
May 29, 1997 (the "Lease"), for the leasing of certain premises containing
approximately 33,792 rentable square feet of space located at 1380 Willow
Road, Menlo Park, 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. Commencement Date: The Commencement Date of the Lease shall be
-----------------
September 15, 1997
3. Expiration Date: The last day of the Term of the Lease (the
---------------
"Expiration Date") shall be September 14, 2004.
4. Early Occupancy Period: Tenant shall have the right to occupy the
----------------------
Premises on August 15, 1997 ("Occupancy Date") through September 14,
2004 ("Early Occupancy Period"), subject to the terms and conditions
of the Early Occupancy Agreement dated May 29, 1997 (Addendum 2 of the
Lease), except that Landlord shall not be required to complete the
construction Work described in Exhibit B of the Lease prior to the
Occupancy Date or the commencement of the Early Occupancy Period.
5. Base Rent: The dates on which the Base Rent will be adjusted are:
---------
for the period September 15, 1997 to September 14, 1998 the monthly
Base Rent shall be $62,515.20,
for the period September 15, 1998 to September 14, 1999 the monthly
Base Rent shall be $64,204.80,
for the period September 15, 1999 to September 14, 2000 the monthly
Base Rent shall be $65,894.40,
for the period September 15, 2000 to September 14, 2001 the monthly
Base Rent shall be $67,584.00,
for the period September 15, 2001 to September 14, 2002 the monthly
Base Rent shall be $69,273.60,
for the period September 15, 2002 to September 14, 2003 the monthly
Base Rent shall be $70,963.20; and
for the period September 15, 2003 to September 14, 2004 the monthly
Base Rent shall be $72,652.80
6. 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.
7. Definitions: Unless otherwise defined in this Amendment, all terms not
-----------
defined in this Amendment shall have the meaning set forth in the
Lease.
8. 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.
1
<PAGE>
9 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:
Nuance Communications, Inc.,
a California corporation
By: /s/ Signature Illegible
Its: PRESIDENT
Date: _____________________________
LANDLORD:
LINCOLN MENLO IV & V ASSOCIATES LIMITED,
a California limited partnership
By: Lincoln Property Company Management Services, Inc.,
As Manager and Agent for Landlord
By: _________________________
Vice President
Date: ________________________
2
<PAGE>
LEASE AGREEMENT
(NNN)
BASIC LEASE INFORMATION
LEASE DATE: May 29, 1997
LANDLORD: LINCOLN MENLO IV & V ASSOCIATES LIMITED,
a California limited partnership
LANDLORD'S ADDRESS: c/o Lincoln Property Company Management Services, Inc.
101 Lincoln Centre Drive, Fourth Floor
Foster City, California 94404-1167
TENANT: Nuance Communications, Inc.,
a California corporation
TENANT'S ADDRESS: 1380 Willow Road
Menlo Park, CA 94025
PREMISES: Approximately 33,792 rentable square feet as shown on
Exhibit A
---------
PREMISES ADDRESS: 1380 Willow Road
Menlo Park, CA 94025
BUILDING Q: Approximately 33,792
rentable square feet
LOT (BUILDING'S TAX PARCEL): (055-440-300) APN
PARK: WILLOW PARK: Approximately 984,954
rentable square feet
PHASE V OF THE PARK: Approximately 60,192
rentable square feet
TERM: August 15, 1997 ("Commencement Date"), through
August 14, 2004 ("Expiration Date"), for a total of 84
months
BASE RENT (PARAGRAPH3): Sixty-two thousand five hundred fifteen and 20/100
Dollars ($62,515.20) per month
ADJUSTMENTS TO BASE
RENT: August 15, 1998 $64,204.80
August 15, 1999 $65,894.40
August 15, 2000 $67,584.00
August 15, 2001 $69,273.60
August 15, 2002 $70,963.20
August 15, 2003 $72,652.80
SECURITY DEPOSIT
(PARAGRAPH4): Sixty-two thousand two hundred nineteen and 00/100
Dollars ($62,219.00), plus a stand-by Letter of Credit
(Second Security Deposit) in the initial amount of four
hundred thousand and 00/100 Dollars ($400,000.00).
*TENANT'S SHARE OF OPERATING EXPENSES (PARAGRAPH6.1): 56.14% of the Phase
V
*TENANT'S SHARE OF TAX EXPENSES (PARAGRAPH6.2): 100% of the Lot
*TENANT'S SHARE OF COMMON AREA UTILITY COSTS (PARAGRAPH7): 56.14% of the Phase
V
*TENANT'S SHARE OF UTILITY EXPENSES (PARAGRAPH7): 100% of the Building
Q
*The amount of Tenant's Share of the expenses as referenced above shall be
subject to modification as set forth in this Lease.
PERMITTED USES (PARAGRAPH9): Administrative offices, sales, research and
development, shipping and receiving for speech
recognition and language understanding software, but
only to the extent permitted by the City of Menlo Park
and all agencies and governmental authorities having
jurisdiction thereof
UNRESERVED
PARKING SPACES: One hundred one (101) non-exclusive and non-designated
spaces
BROKER (PARAGRAPH38): Catalyst Real Estate Group for Tenant Cornish and Carey
Commercial for Landlord.
EXHIBITS: Exhibit A - Premises, Building, Lot and/or Park
Exhibit B - Tenant Improvements
Exhibit C - Rules and Regulations
Exhibit D - Covenants, Conditions and Restrictions
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 (Intentionally omitted)
Exhibit I - Subordination, Non Disturbance, and
Attornment Agreement and Tenant Estoppel
Certificate
Exhibit J - Improvements by Tenant
ADDENDA: Addendum 1: Option to Extend Lease
Addendum 2: Early Occupancy agreement
1
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
SECTION PAGE
- ------- ----
<S> <C>
1. PREMISES 3
2. ADJUSTMENT OF COMMENCEMENT DATE; CONDITION OF THE PREMISES 3
3. RENT 3
4. SECURITY DEPOSIT 4
5. TENANT IMPROVEMENTS 5
6. ADDITIONAL RENT 5
7. UTILITIES 8
8. LATE CHARGES 8
9. USE OF PREMISES 9
10. ALTERATIONS AND ADDITIONS; AND SURRENDER OF PREMISES 10
11. REPAIRS AND MAINTENANCE 11
12. INSURANCE 12
13. WAIVER OF SUBROGATION 13
14. LIMITATION OF LIABILITY AND INDEMNITY 13
15. ASSIGNMENT AND SUBLEASING 14
16. AD VALOREM TAXES 15
17. SUBORDINATION 15
18. RIGHT OF ENTRY 16
19. ESTOPPEL CERTIFICATE 16
20. TENANT'S DEFAULT 17
21. REMEDIES FOR TENANT'S DEFAULT 17
22. HOLDING OVER 18
23. LANDLORD'S DEFAULT 19
24. PARKING 19
25. SALE OF PREMISES 19
26. WAIVER 19
27. CASUALTY DAMAGE ?
28. CONDEMNATION 20
29. ENVIRONMENTAL MATTERS/HAZARDOUS MATERIALS 20
30. FINANCIAL STATEMENTS 23
31. GENERAL PROVISIONS 23
32. SIGNS 25
33. MORTGAGEE PROTECTION 25
34. QUITCLAIM 25
35. MODIFICATIONS FOR LENDER 25
36. WARRANTIES OF TENANT 25
37. COMPLIANCE WITH AMERICANS WITH DISABILITIES ACT 26
38. BROKERAGE COMMISSION 26
39. QUIET ENJOYMENT 26
40. LANDLORD'S ABILITY TO PERFORM TENANT'S UNPERFORMED OBLIGATIONS 27
</TABLE>
2
<PAGE>
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 modifications to
any of the foregoing by Landlord, and Tenant's Share shall accordingly change.
2. ADJUSTMENT OF COMMENCEMENT DATE; CONDITION OF THE PREMISES:
----------------------------------------------------------
2.1 Notwithstanding anything to the contrary contained in this Lease, the
Commencement Date (and the date upon which tenant's obligation to pay Rent
hereunder commences) shall be the later to occur of (i) August 15, 1997; or (ii)
substantial completion of the Tenant Improvements as defined in Exhibit B,
---------
attached hereto and incorporated by reference herein. 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 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 Basic 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 and the date on which Tenant is to commence paying Rent. The
word "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.
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 In the event Landlord permits Tenant to occupy the Premises prior to
the Commencement Date, such occupancy shall be at Tenant's sole risk and subject
to all the provisions of this Lease, including, but not limited to, the
requirement to pay Rent and the Security Deposit, and to obtain the insurance
required pursuant to this Lease and to deliver insurance certificates as
required herein. In addition to the foregoing, Landlord shall have the right to
impose such additional conditions on Tenant's early entry as Landlord shall deem
appropriate. 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
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 described 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, as well as the Administrative Expenses.
Tenant shall also pay to Landlord as Additional Rent hereunder, immediately on
Landlord's 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, reasonable attorneys' fees, expert fees, court
3
<PAGE>
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 Additional Rent
and Tenant shall otherwise perform all other obligations of Tenant required
hereunder. 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. SECURITY DEPOSIT:
----------------
4.1 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 beyond applicable cure periods, 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. At any time after Tenant has
defaulted hereunder, Landlord may require an increase in the amount of the
Security Deposit required hereunder, not to exceed the sum equal to six (6)
month's Base rent payable during the last year of the Lease Term, and Tenant
shall, immediately on demand, pay to Landlord additional sums in the amount of
such increase As soon as practicable after the termination of this Lease,
Landlord shall return the Security Deposit to Tenant, less such amounts as are
reasonably necessary, as determined solely but reasonably 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, except as otherwise
provided in the Lease. 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 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.
4.2 SECOND SECURITY DEPOSIT: On or before occupancy, Tenant shall deliver
-----------------------
to Landlord, as a second security deposit (the "Second Security Deposit") for
the full and faithful performance by Tenant of all of its obligations under this
Lease, an irrevocable negotiable letter of credit, in the form and containing
the terms required herein, payable in the City of Foster City, 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 amount of four hundred thousand and 00/100 dollars
($400,000.00) (the "Letter of Credit"). The Letter of Credit shall be (a) at
sight and irrevocable (b) maintained in declining amounts stated below, whether
through replacement, renewal or extension, until the sixth anniversary of the
Lease. Provided, however if Tenant is or has been in default, beyond applicable
cure periods, of any provision of the Lease at the fifth anniversary of the
Lease, the Second Security Deposit shall be maintained as described herein
throughout the Term of the Lease. (the "Letter of Credit Expiration Date") and
Tenant shall deliver 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 (1983-Rev)
International Chamber of Commerce Publication #400, and (d) acceptable to
Landlord in its sole but reasonable discretion. The Letter of Credit amount
shall decline and be renewed or extended as follows:
<TABLE>
<CAPTION>
Origination or
Renewal/Extension Date Expiration Date Amount
---------------------- --------------- ---------
<S> <C> <C>
Lease Execution August 14, 1998 (First Anniversary) $400,000.00
August 15, 1998 August 14, 1999 (Second Anniversary) $320,000.00
August 15, 1999 August 14, 2000 (Third Anniversary) $240,000.00
August 15, 2000 August 14, 2001 (Fourth Anniversary) $160,000.00
August 15, 2001 August 14, 2002 (Fifth Anniversary) $ 80,000.00
</TABLE>
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 sole
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
4
<PAGE>
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
amount is due to Landlord under the terms and conditions of this Lease, it being
understood that if Landlord or its managing agent be 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); (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; (3) in the event of a transfer of
Landlord's interest in any of the Buildings of which the Premises are a part,
Landlord shall have the right to 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 such security, the amount
secured by the Letter of Credit shall be less than four hundred thousand and
00/100 dollars ($400,000.00) or the required Letter of Credit amount for the
corresponding dates above, Tenant shall forthwith provide Landlord with
additional letter(s) of credit or cash in an amount equal to the deficiency and
each such additional letter of credit shall comply with all of the provisions of
this Section 4.2. Tenant further covenants and warrants that it will not 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 thirty (30) days prior to the expiration thereof), irrevocable
and automatically renewable as above provided through the Letter of Credit
Expiration Date upon the same terms as the expiring letter of credit. However,
if the Letter of Credit is not timely renewed or a substitute letter of credit
or cash is not timely received, or if Tenant fails to maintain the Letter of
Credit in the amount and terms set forth in this Section 4.2, Tenant, at least
thirty (30) days prior to the expiration of the Letter of Credit, or immediately
upon its failure to comply with each and every term of this Section 4.2, must
deposit with Landlord cash security in the amounts required by, and to be held
subject to and in accordance with, all of the terms and conditions set forth
this Section 4.2 and all other applicable provisions of this Lease, failing
which the Landlord may present such Letter of Credit to the bank in accordance
with the terms of this Section 4.2, and the entire sum secured thereby shall be
paid to Landlord, to be held by Landlord as provided in this Section 4.2. If
Tenant is in default beyond applicable cure periods, Landlord may, but without
obligation to do so, use the Second 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 Second Security Deposit so applied or used so as to replenish
the amount of the Second Security Deposit held to increase such deposit to the
amount initially deposited with Landlord.
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 made 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. Notwithstanding anything to
the contrary contained in this Lease, on the Commencement Date the roof and the
heating, ventilating and air conditioning ("HVAC") system, and the electrical,
plumbing, sewer, life safety and, if applicable, security systems (collectively,
"Building Systems") serving the Premises shall be in good working order and
repair. If, during the first thirty (30) days of the Term, the roof or any
Building System is not in the condition required by the foregoing sentence,
Tenant shall notify Landlord of the need for repair, and the repair shall be
completed at no cost to Tenant.
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").
6.1 OPERATING EXPENSES: In addition to the Base Rent set forth in Section
3, Tenant shall pay Tenant's Share, which is specified in the Basic Lease
Information, of all Operating Expenses as Additional Rent. The term "Operating
Expenses" as used herein shall mean the total amounts paid or
5
<PAGE>
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
Areas" shall mean all areas and facilities within the Park exclusive of
the Premises 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, rail spurs, 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, (ii)
reasonably necessary replacement improvements to the Building, the
Common Areas and/or the Park after the Lease 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 but reasonable
discretion; provided, however, that the cost for such items deemed to
be capital items in accordance with typical commercial real estate
accounting practices shall be amortized over the useful life of the
item in accordance with generally accepted real estate accounting
principles, and Tenant shall pay to landlord on a monthly basis
Tenant's Share of such costs falling due during the Term.
6.1.5 If Landlord 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, 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 Landlord's establishment of reasonable reserves for
replacements and/or repairs of Common Area improvements, equipment and
supplies;
6.1.8 Landlord's cost for the maintenance and repair of any
rail spur and rail crossing, and for the creation and negotiation of,
and pursuant to, any rail spur or track agreements, licenses, easements
or other similar undertakings;
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; and
6.1.10 Landlord's cost for the repairs and maintenance items
set forth in Section 11.2 below.
Notwithstanding anything to the contrary contained in this
Lease, Operating Expenses shall not include. (i) costs occasioned by
the act, omission or violation of law by Landlord, any other occupant
of the Project, or their respective agents, employees or contractors,
or costs to correct any construction defect in the Premises or the
Building; (ii) costs occasioned by fire, acts of God or other
casualties, or by the exercise of the power of eminent domain; (iii)
costs which Tenant pays directly to a third person or for which
Landlord has a right of reimbursement from others; (iv) costs (A)
arising from the disproportionate use of any utility or service
supplied by Landlord to any other occupant of the Project, or (B)
associated with utilities with utilities and services of a type not
provided to Tenant; (v) costs incurred in connection with negotiations
or disputes with other occupant(s) of the Project, and costs arising
from the violation by Landlord or any occupant of the Project (other
than Tenant) of the terms and conditions of any lease or
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other agreement; (vi) depreciation, amortization or other expense
reserves, or mortgage or ground lease payments.
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 sole but 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 Tenant. The term
"Tax Expenses" shall mean and include, without limitation, any form of tax and
assessment (general, special, supplemental, ordinary or extraordinary),
commercial rental tax, payments 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, gift or excess profits tax imposed upon
Landlord.
6.3 ADMINISTRATIVE EXPENSES: The Administrative Expenses set forth in
this Section 6.3 are considered part of Additional Rent. In addition to the Base
Rent set forth in Section 3 hereof, Tenant shall pay Landlord, without prior
notice or demand, commencing on the Commencement Date and continuing thereafter
on the first (1st) day of each month throughout the balance of the Term of this
Lease, as compensation to Landlord for accounting and management services
rendered on behalf of the Building and/or the Park, one-twelfth (1/12th) of an
amount equal to ten percent (10%) of the estimated amount of the aggregate of
the Tenant's Share of (i) the total Operating Expenses and Tax Expenses as
described in Sections 6.1 and 6.2 above, respectively, and (ii) all Common Area
Utility Costs for the Park and Utility Expenses for the Premises as described in
Section 7 below (collectively, the "Administrative Expenses"). Any
reconciliation of the Administrative Expenses shall be substantially in the same
manner as specified in Section 6.5 below, to the extent such provisions are
applicable. Tenant's obligation to pay such Administrative Expenses shall
survive the expiration or earlier termination of this Lease.
6.4 PAYMENT OF EXPENSES: Landlord shall 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.
6.5 ANNUAL RECONCILIATION: By June 30th of each calendar year, or
as soon thereafter as reasonably possible Landlord shall endeavor to 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. 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. If
Landlord reasonably determines that an overpayment has been made by Tenant,
Landlord shall refund said overpayment to Tenant as soon as practicable
thereafter. Notwithstanding the foregoing, failure of Landlord to accurately
estimate Tenant's Share of such expenses or to otherwise perform such
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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 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.
6.6 AUDIT: After delivery to Landlord of at least thirty (30) 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.
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 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 any 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, 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 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 in Section 6.5 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 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.
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, Administrative 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
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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 when due, Tenant shall promptly pay to Landlord all
of the following, as applicable: (a) an additional sum equal to ten percent
(10%) 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 the 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:
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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 or delayed so long as the proposed use (i) does not
involve the use of Hazardous Materials other than as expressly permitted 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"). Notwithstanding anything to the contrary contained in this Lease,
Tenant shall not be required to comply with any rule or regulation unless the
same applies non-discriminatorily to all occupants of the Project, and does not
unreasonably interfere with tenant's use of the Premises or Tenant's parking
rights. 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 other tenants 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
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nuisance in, on or about the Premises, Building, Park and/or the Common Areas,
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 any other items or goods outside of
the Premises for any period of time. Tenant shall not permit any 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, 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, elects 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 shall not be
unreasonably withheld or delayed. If any such alteration or addition is
expressly permitted by Landlord, Tenant shall deliver at least twenty (20) 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 deliver a copy of same to Landlord. All
alterations and additions shall be installed by a licensed contractor reasonably
approved by Landlord, at Tenant's sole expense in compliance with all applicable
Laws (including, but not limited to, the ADA as defined herein), Recorded
Matters, and Rules and Regulations. At the time of Landlord's approval of such
alteration or addition, if requested in writing by Tenant, Landlord shall notify
Tenant if Landlord will require Tenant to remove such alterations or additions
upon termination of this Lease. 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. As a condition to Landlord's consent to the installation of any
fixtures, additions or other improvements, Landlord may require Tenant to post
and obtain a completion and indemnity bond for up to one hundred twenty-five
percent (125%) of the cost of the work.
Notwithstanding anything to the contrary contained herein, Tenant may
install, make and permit to be made improvements, alterations and additions to
the Premises without first obtaining Landlord's written consent thereto,
provided that such improvements, alterations or additions to the Premises (a)
are not structural and do not affect the structural integrity of the Premises
and/or the Building, and/or (b) do not requires the issuance of a building
permit by the City of Menlo Park, and/or (c) do not involve electrical and/or
plumbing improvements, additions or alterations, and/or (d) do not require
penetrations to the roof of the Building, and provided further that the
cumulative cost of all such improvements, alterations and additions does not
exceed fifteen thousand and 00/100 dollars ($15,000.00) in the aggregate over
each twelve month period of the Term ("Permitted Improvements") In all events,
Tenant shall be required to submit to Landlord, at least ten (10) business days
prior to commencement of any improvements, written notification of Tenant's
intention to complete improvements along with all plans, specifications, or
construction drawings of such improvements or alterations, Tenant shall cause
all Permitted Improvements to be installed by a licensed contractor and 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. Upon Landlord's request, at
Tenant's sole expense, all such Permitted Improvements installed by Tenant shall
be removed and the Premises shall be restored to its original condition at the
expiration or earlier termination of this Lease
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 the Commencement Date, except for 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
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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, excluding the improvements
installed by Tenant in Exhibit J, 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 and the adjacent dock and staging areas 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
mechanical systems, heating, ventilation and air conditioning systems
exclusively serving the Premises, (b) all plumbing, electrical wiring and
equipment serving the Premises, (c) all interior lighting (including, without
limitation, light bulbs and/or ballasts) and exterior lighting serving the
Premises or adjacent to the Premises, (d) all glass, windows, window frames,
window casements, skylights, interior and exterior doors, door frames and door
closers, (e) all roll-up doors, ramps and dock equipment, including without
limitation, dock bumpers, dock plates, dock seals, dock levelers and dock
lights, (f) all tenant signage, (g) lifts for disabled persons serving the
Premises, (h) sprinkler systems, fire protection systems and security systems
serving the Premises, (i) all partitions, fixtures, equipment, interior
painting, and interior walls and floors of the Premises and every part thereof
(including, without limitation, any demising walls contiguous to any portion of
the Premises). Notwithstanding the foregoing sentence, Tenant shall be
responsible for the cost of replacement of capital expenditures described in
this subparagraph 11.1 only on a pro-rata basis corresponding to the portion of
the useful life of the capital expenditure that will be exhausted during the
remainder of the Term.
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 the plumbing
and mechanical systems exterior to the Premises, any rail spur and rail
crossing, 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 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. Unless otherwise notified
by Landlord, in writing, that Landlord has elected to procure and maintain the
following described contract(s), Tenant shall procure and maintain (a) the
heating, ventilation and air conditioning systems preventative maintenance and
repair contract(s); such contract(s) to be on a bi-monthly or quarterly basis,
as reasonably determined by Landlord, and (b) the fire and sprinkler protection
services and preventative maintenance and repair contract(s) (including, without
limitation, monitoring services); such contract(s) to be on a bi-monthly or
quarterly basis, as reasonably determined by Landlord. Landlord reserves the
right, but without the obligation to do so, to procure and maintain (i) the
heating, ventilation and air conditioning systems preventative maintenance and
repair contract(s), and/or (ii) the fire and sprinkler protection services and
preventative maintenance and repair contract(s) (including, without limitation,
monitoring services). If Landlord so elects to procure and maintain any such
contract(s), Tenant will reimburse Landlord for the cost thereof in accordance
with the provisions of Section 6 above. If Tenant procures and maintains any of
such contract(s), Tenant will promptly deliver to Landlord a true and complete
copy of each such contract and any and all renewals or extensions thereof, and
each service report or other summary received by Tenant pursuant to or in
connection with such contract(s).
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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 sole discretion.
11.4 TENANT'S FAILURE TO PERFORM REPAIRS AND MAINTENANCE OBLIGATIONS:
Except for normal maintenance and repair of the items described above. 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 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:
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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 issued by a carrier or carriers reasonably
acceptable to Landlord and its lender(s) 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, on 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; 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; "all risk" or "special purpose" property
insurance, including without limitation, sprinkler leakage, boiler and machinery
comprehensive form, if applicable, covering damage to or loss of any personal
property, trade fixtures, inventory, fixtures and equipment located in, on or
about the Premises, and in addition, coverage for flood, and business
interruption of Tenant, together with, if the property of Tenant's invitees is
to be kept in the Premises, warehouser's legal liability or bailee customers
insurance for the full replacement cost of the property belonging to invitees
and located in the Premises. 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 reasonably deems necessary and prudent or as may otherwise be required
by any of Landlord's lenders or joint venture partners.
12.2 INSURANCE POLICIES: Insurance required to be maintained by Tenant
shall be written by companies (i) licensed to do business in the State of
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
required by a lender having a lien on the Premises) as set forth in the most
current issue of "A.M. Best's Rating Guides." Any deductible amounts under any
of the insurance policies required hereunder shall not exceed One Thousand
Dollars ($1,000). 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 at the time of execution
of this Lease by Tenant. 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
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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.
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 to 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 areas of the Park. It is not
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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.
12.4 FAILURE OF TENANT TO PURCHASE AND MAINTAIN INSURANCE: In the
event Tenant does not purchase the insurance required in this Lease or keep the
same in full force and effect throughout the Term of this Lease (including any
renewals or extensions), Landlord may, but without obligation to do so, purchase
the necessary insurance and pay the premiums therefor. If Landlord so elects to
purchase such insurance, Tenant shall promptly pay to Landlord as Additional
Rent, the amount so paid by Landlord, upon Landlord's demand therefor In
addition, Landlord may recover from Tenant and Tenant agrees to pay, as
Additional Rent, any and all Enforcement Expenses and damages which Landlord may
sustain by reason of Tenant's failure to obtain and maintain such insurance. If
Tenant fails to maintain any insurance required in this Lease, Tenant shall be
liable for all losses, damages and costs resulting from such failure.
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 uncollectible.
14. LIMITATION OF LIABILITY AND INDEMNITY: Except to the extent of damage
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resulting from the active gross negligence or willful misconduct of Landlord or
its authorized representatives, Tenant agrees to protect, defend (with counsel
reasonably 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 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 the 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.
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Except to the extent of damage resulting from the active 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 any 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 the 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 for 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: Except as expressly set forth herein with respect to a
Related Entity, 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 consent shall not be
unreasonably withheld 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 deliver 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) or a form provided by Tenant and reasonably
acceptable to Landlord, 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 and 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 excluding Tenant's initial potential
sublease of all or a portion of the first floor of the Premises or a sublease or
assignment to a Related Entity (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, 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 or assignment
space, or, if the proposed sublease or assignment space covers all the Premises,
it shall serve to terminate the entire term of this Lease in either case, as of
the Proposed Effective Date. However, no termination of this Lease with respect
to part or all of the Premises shall become effective without the prior written
consent, where necessary, of the holder of each deed of trust encumbering the
Premises or any part thereof. If this Lease is terminated pursuant to the
foregoing with respect to less than the entire Premises, the Rent shall be
adjusted on the basis of the 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,
including without limitation, a Related Entity, 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 the 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
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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 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 of its rights hereunder nor shall
any voluntary relinquishment of such rights be inferred therefrom. For purposes
hereof, and except with respect to a Related Entity, 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 for a permissible assignment to a
Related Entity, any and all options, 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. Notwithstanding anything to the contrary contained herein, 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 Landlord approves, in writing, of any change in the proposed use of
the subject portion of the Premises, then Tenant may assign this Lease or
sublease any portion of the Premises (X) to any Related Entity, or (Y) 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 controls, is controlled by or is under
common control with Tenant, as all of such terms are customarily used in the
industry, and with an equal or greater net worth as Tenant has as of the Lease
commencement date.
15.2 EXCESS SUBLEASE RENTAL OR ASSIGNMENT CONSIDERATION: In the event 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, seventy-five
percent (75%) of the excess of each such payment of rent or other consideration
in excess of the Rent called for hereunder, after deducting therefrom Tenant's
reasonable costs to effect the assignment or sublet, including, without
limitation, brokerage commissions, legal fees and refurbishment costs.
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.
For purposes of this Lease, a sale of Tenant's capital stock through any
public exchange shall not be deemed an assignment, subletting or other transfer
of this Lease or the Premises requiring Landlord's consent.
16. AD VALOREM TAXES: Prior to delinquency, Tenant shall pay all taxes and
----------------
assessments levied upon trade fixtures, alterations, additions, improvements,
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 may now exist
or hereafter be executed in
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any amount for 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, attorn to and become the Tenant of the
successor in interest to Landlord, and 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, beyond applicable cure periods, 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 or 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 convenants and agrees to execute
(and acknowledge if required by Landlord, any lender or ground lessor) and
deliver, within five (5) business days of receipt of demand or request by
Landlord and in the 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 or consequential, 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.
Notwithstanding the foregoing to the contrary, Landlord shall obtain the
signature of Aetna Casualty and Surety Company to the Subordination, Non-
Disturbance and attornment Agreement attached hereto as Exhibit I.
18. RIGHT OF ENTRY: Upon twenty-four (24) hours' prior notice when possible,
--------------
and otherwise upon reasonable prior notice, except in the case of emergency,
Tenant grants Landlord or its agents the right to enter the Premises at all
reasonable times for purposes of inspection, exhibition, posting of 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 during the last nine (9) months of the Term. 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
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any lender or ground lessor) and deliver to Landlord, within five (5) business
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 encumbrancer 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 or consequential, 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.
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20. TENANT'S DEFAULT: The occurrence of any one or more of the following events
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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 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 or 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 within three (3) days after receipt of written notice
from Landlord that hereunder on the date said payment is due. 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 or law now or hereafter in effect;
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 the
time period required under the provisions of this Lease, or, if no time period
is required, within fifteen (15) days. If such failure is susceptible of cure
but cannot reasonably be cured within the aforementioned time period (if any),
as determined solely but reasonably 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 fifteen (15) days to complete any such
cure, unless otherwise expressly agreed to in writing by Landlord (in Landlord's
sole discretion), unless the nature of such cure shall require more than fifteen
(15) days and Tenant commences the cure within the fifteen (15) day period and
thereafter diligently prosecutes the cure to completion.
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 by 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; 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 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, Administrative 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,
Administrative Expenses, Common Area Utility Costs, Utility Expenses, and all
other sums due under this Lease. Any and all of the Reletting Costs shall
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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 receives 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.
Acts 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 (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 provisions of this Lease,
provided the monthly Base Rent during such hold over period shall be 150% 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 fifty percent (50%) 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
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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 the 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.
24. PARKING: Tenant shall have a license to use the number of non-designated
-------
and non-exclusive 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 the Premises by Landlord or
----------------
the cessation otherwise of Landlord's interest therein, Landlord shall be and is
hereby entirely released from any and all of its obligations to perform or
further perform under this Lease, to the extent such obligations arose from and
after the date of such sale, 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 the
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 owner does not
disturb Tenant's use, occupancy or quiet enjoyment of the Premises so long as
Tenant is not in default, beyond applicable cure periods, 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. 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.
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27.1 CASUALTY. If the Premises or any part thereof (excluding any
alterations or improvements installed by or for the benefit of Tenant) shall be
damaged or destroyed by fire or other casualty, Tenant shall give immediate
written notice thereof to Landlord. Within thirty (30) days after receipt by
Landlord of such notice, Landlord shall notify Tenant, in writing, whether the
necessary repairs can reasonably be made: (a) within ninety (90) days; (b) in
more than ninety (90) days but in less than one hundred eighty (180) days; or
(c) in more than one hundred eighty (180) days, from the date of such notice.
27.1.1 MINOR INSURED DAMAGE. If the Premises are damaged only to
such extent that repairs, rebuilding and/or restoration can be reasonably
completed within ninety (90) days, this Lease shall not terminate and, provided
that insurance proceeds are available to fully repair the damage, Landlord shall
repair the Premises to substantially the same condition that existed prior to
the occurrence of such casualty, except Landlord shall not be required to
rebuild, repair, or replace any alterations or improvements installed by or for
the benefit of Tenant or any part of Tenant's furniture, furnishings or fixtures
and equipment removable by Tenant. The Rent payable hereunder shall be abated
proportionately from the date Tenant vacates the Premises only to the extent
rental abatement insurance proceeds are
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received by Landlord and the Premises are unfit for occupancy and/or the
operation of Tenant's business, in Landlord's and Tenant's reasonable
estimation.
27.1.2 INSURED DAMAGE REQUIRING MORE THAN 90 DAYS TO REPAIR. If the
Premises are damaged only to such extent that repairs, rebuilding and/or
restoration can be reasonably completed in more than ninety (90) days but in
less than one hundred eighty (180) days, then Landlord shall have the option of:
(a) terminating the Lease effective upon the occurrence of such damage, in which
event the Rent shall be abated from the date Tenant vacates the Premises, or (b)
electing to repair the Premises to substantially the same condition that existed
prior to the occurrence of such casualty, provided insurance proceeds are
available to fully repair the damage (except that Landlord shall not be required
to rebuild, repair, or replace any alterations or improvements installed by or
for the benefit of Tenant or any part of Tenant's furniture, furnishings or
fixtures and equipment removable by Tenant). The Rent payable hereunder shall be
abated proportionately from the date Tenant vacates the Premises only to the
extent rental abatement insurance proceeds are received by Landlord and the
Premises are unfit for occupancy and/or the operation of Tenant's business in
Landlord's and Tenant's reasonable estimation. If Landlord should fail to
substantially complete such repairs within one hundred eighty (180) days after
the date on which Landlord is notified by Tenant of the occurrence of such
casualty (such 180-day period to be extended for delays caused by Tenant or any
force majeure events), Tenant may within twenty (20) days after expiration of
such one hundred eighty (180) day period (as same may be extended), terminate
this Lease by delivering written notice to Landlord as Tenant's exclusive
remedy, whereupon all rights of Tenant hereunder shall cease and terminate
twenty (20) days after Landlord's receipt of such notice.
27.1.3 MAJOR INSURED DAMAGE. If the Premises are damaged to such
extent that repairs, rebuilding and/or restoration cannot be reasonably
completed within one hundred eighty (180) days, then either Landlord or Tenant
may terminate this Lease by giving written notice within twenty (20) days after
notice from Landlord regarding the time period of repair. If either party
notifies the other of its intention to so terminate the Lease, then this Lease
shall terminate and the Rent shall be abated from the date Tenant vacates the
Premises. If neither party elects to terminate this Lease, Landlord shall
promptly commence and diligently prosecute to completion the repairs to the
Premises, provided insurance proceeds are available to fully repair the damage
(except that Landlord shall not be required to rebuild, repair, or replace any
alterations or improvements installed by or for the benefit of Tenant or any
part of Tenant's furniture, furnishings or fixtures and equipment removable by
Tenant). During the time when Landlord is prosecuting such repairs to
completion, the Rent payable hereunder shall be abated proportionately from the
date Tenant vacates the Premises only to the extent rental abatement insurance
proceeds are received by Landlord and only during the time period that the
Premises are unfit for occupancy and/or the operation of Tenant's business in
Landlord's and Tenant's reasonable estimation.
27.1.4 DAMAGE NEAR END OF TERM. Notwithstanding anything to the
contrary contained in this Lease, if the damage or destruction occurs during the
last twelve (12) months of the Term, during the first thirty (30) days following
such damage or destruction, upon ten (10) days' prior written notice to the
other party, Tenant or Landlord shall have the right to terminate this Lease,
and all rights hereunder shall cease and terminate ten (10) days after receipt
of the other parties such notice.
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. Notwithstanding anything to the contrary
contained in this Lease, Tenant shall entitled to any separate award made to it
by the condemning authority, including, without limitation, an award for moving
expenses, relocation costs, loss of goodwill and the unamortized cost of any
improvements installed by or at the cost of Tenant. 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, 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
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(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 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 Notwithstanding
anything to the contrary contained in this Lease, landlord hereby consents to
the use by Tenant of ordinary office and cleaning products in amounts customary
for Tenant's permitted use of the Premises. 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 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 at all
times during the Term of this Lease, upon reasonable prior 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 finds a violation of Environmental Law by Tenant or Tenant's
representatives, or existence or use by Tenant or Tenant's representative of any
Hazardous Materials not included on Tenant's Hazardous Materials Disclosure
Certificate. 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
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other remediation shall only be performed after Tenant has obtained Landlord's
prior written consent, which consent shall not be unreasonably withheld so long
as such actions would not potentially have a material adverse 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 with respect to the use, storage, disposal or remediation
of Hazardous Materials by Tenant or Tenant's Representatives. 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 so 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.
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 reasonable 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, reasonable
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 of 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.
Tenant shall not be liable for nor otherwise obligated to Landlord under
any provision of the Lease with respect to (i) any claim, remediation
obligation, investigation obligation, liability, cause of action, attorney's
fees, consultants' cost, expense or damage resulting from any Hazardous Material
present in, on or about the Premises or any of the Buildings in Phase V to the
extent not caused nor otherwise permitted, directly or indirectly, by Tenant or
Tenant's Representatives, including without limitation, any residual Hazardous
Materials which are present in, on or about the Premises, the Building or the
Lot as of the Lease Date including any residual hazardous substances referred to
in section 29.7 below; or (ii) the removal, investigation, monitoring or
remediation of any Hazardous Material present in, on or about the Premises or
the Building caused by any source, including third parties other than Tenant and
Tenant's Representatives, as a result of or in connection with the acts or
omissions of persons 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 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. At Tenant's written request, Landlord shall make
available for review by Tenant in Landlord's offices any environmental reports,
evaluations or information bearing on the environmental condition of the
Premises, any of the Buildings in Phase I or the Park to the extent same is in
Landlord's possession at Landlord's offices and to the extent not otherwise
treated as confidential or otherwise protected under any attorney-client
privilege, attorney work-product privilege or similar 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's environmental
consultants in concurrence with Tenant's environmental consultants (both
environmental consultants to act reasonably and in good faith) 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 provisions of this Lease due to the acts
or omissions of Tenant or any of Tenant's Representatives with respect to
Hazardous Materials, including without limitation any violation of applicable
Environmental Laws at the expiration or earlier termination of this Lease, then
in Landlord's sole 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
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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
circumstance and will otherwise be subject to the provisions of Section 22 of
this Lease.
29.7 DISCLOSURE: The land described herein contains residual hazardous
----------
substances such condition renders the land and the owner, Tenant or other
possessor of the land subject to requirements, restrictions, provisions, and
liabilities contained in Chapter 6.5 and Chapter 6.8 of division 20 of the
Health and Safety Code, as same may be amended from time, and any successor
statutes thereof. This statement is not a declaration that a hazard to public
health, safety and welfare exists.
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 portion thereof, or any prospective purchaser of the Building or the
Park or any portion thereof, within ten (10) days after receipt of 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 the 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.
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 without 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 or the Project,
and Tenant agrees to look solely to the Premises, Building or Project 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.
23
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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
31.8 ENTIRE AGREEMENT. This Lease supersedes 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 Tenant executes this Lease,
Tenant shall deliver to Landlord an original certificate of status for Tenant
issued by the California Secretary of State or statement of partnership for
Tenant recorded in the county in which the Premises are located, as applicable,
and such other documents as Landlord may reasonably request with regard to the
lawful existence of Tenant Each person executing this Lease on behalf of a 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 States mail, certified and postage prepaid, or (ii)
by personal delivery to any employee or agent of Tenant over the age of eighteen
(18) years of age, or (iii) 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. Except as expressly set forth in this Lease, 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 provision 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 Park, and/or any
claim of injury, loss or damage
31.14 COUNTERCLAIMS. In the event Landlord commences any proceedings for
nonpayment of Rent, Additional Rent, or any other sums or amounts due hereunder,
Tenant shall not interpose any counterclaim of whatever nature or description in
any such proceedings, provided, however, nothing contained herein shall be
deemed or construed as a waiver of the Tenant's right to assert such claims in
any separate action brought by Tenant or the right to offset the amount of any
final judgment owed by Landlord to Tenant.
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 or 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.
24
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32. SIGNS: All signs and graphics of every kind visible in or from public view
-----
or corridors or the exterior of the Premises shall be subject to Landlord's
prior written approval which shall not be unreasonably withheld, but, will be
based on the signage guidelines and practices within the Park, 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. Notwithstanding
---------
anything to the contrary contained in this Lease, Tenant shall have the right to
display its corporate name and logo on the existing Building monument sign,
Building entrance glass door (but only one corporate name may appear on the
Building entrance glass door if Tenant subleases a portion of the Premises)
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 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) sign(s) 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 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),
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 have 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 any obligation to determine 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 its consent thereto, provided such
modifications do not materially adversely affect Tenant's rights, materially
increase Tenant's obligations or require Tenant to pay additional sums hereunder
or adversely affect 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, except as otherwise expressly
provided in this Lease. 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,
25
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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.
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
requirements 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 of 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 with 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, losses, 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 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 shall 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. In no event shall Tenant be responsible for payment
of a brokerage commission to Landlord's broker for any renewal or extension of
the initial Term. 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.
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 periods that Tenant is not otherwise in
default, beyond applicable cure periods, 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
26
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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, provisions, 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.
IN WITNESS WHEREOF, this Lease is executed by the parties as of the Lease
Date referenced on Page 1 of this Lease.
TENANT:
Nuance Communications, Inc.,
a California corporation
By: /s/ Signature Illegible
------------------------------
Its: PRESIDENT
Date: 6/9/97
LANDLORD:
LINCOLN MENLO IV & V ASSOCIATES LIMITED,
a California limited partnership
By: Lincoln Property Company Management Services, Inc.,
As Manager and Agent for Landlord
By: /s/ Signature Illegible
---------------------------
Vice President
Date: ___________________________
27
<PAGE>
EXHIBIT A - PREMISES
This exhibit, entitled "Premises", is and shall constitute EXHIBIT A to that
certain Lease Agreement dated May 29, 1997 (the "Lease"), by and between LINCOLN
MENLO IV & V ASSOCIATES LIMITED, a California limited partnership ("Landlord")
and Nuance Communications, Inc., a California corporation ("Tenant") for the
leasing of certain premises located in the Willow Park at Building Q. 1380
Willow Road, Menlo Park, 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 Project.
[CHART OMITTED]
INITIALS:
- --------
TENANT: /s/ Signature Illegible
LANDLORD: /s/ Signature Illegible
<PAGE>
EXHIBIT B TO LEASE AGREEMENT
TENANT IMPROVEMENTS
This exhibit, entitled "Tenant Improvements", is and shall constitute EXHIBIT B
to that certain Lease Agreement dated May 29, 1997 (the "Lease"), by and between
LINCOLN MENLO IV & V ASSOCIATES LIMITED, a California limited partnership
("Landlord") and Nuance Communications, Inc., a California corporation
("Tenant") for the leasing of certain premises located in the Willow Park at
Building Q, 1380 Willow Road, Menlo Park, 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 Section 2 below
and pursuant to the terms of this EXHIBIT B.
---------
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 only those interior improvements to be made to the Premises as
specified in this Section 2 below. Such work, as set forth below shall be
hereinafter referred to as the "Work". Landlord shall not be obligated to pay
for any improvements which are not expressly set forth herein below. The Tenant
Improvements shall consist of the following Work:
(a) Painting interior of Premises
(b) Install building standard base board and carpet
(c) Professionally clean the interior of the Premises
3. 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;
(b) All costs of obtaining building permits and other necessary
authorizations and approvals from the City of Menlo Park 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 Improvement 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
five percent (5%) of all direct and indirect costs of procuring, constructing
and installing the Tenant Improvements in the Premises and the Building.
4. Building Standard Work. Landlord shall provide that the Tenant Improvements
----------------------
be at least equal, in quality, ??o Landlord's building standard materials,
quantities and procedures then in use by Landlord ("Building Standards")
attached hereto as Exhibit B-1, and shall consist of improvements which are
generic in nature. Tenant shall have the right to select the color of the carpet
and paint from among Landlord's Building Standard colors.
1
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5. Landlord shall not be obligated to pay for any Tenant Improvements which
are not specifically set forth in Section 2 above.
6. Completion. The Commencement Date of the Lease shall not occur, and Tenant
----------
shall not be obligated to pay Rent under the Lease, until substantial completion
of the Tenant Improvements. "Substantial completion" shall be the date by which
all of the following have occurred: (i) Landlord has substantially completed the
Work as provided herein; (ii) there remains no incomplete or defective item of
Work that would adversely affect Tenant's intended use of the Premises; (iii)
Landlord has delivered legal possession of the Premises to Tenant; and (iv)
Landlord has obtained all approvals and permits, if any, from the appropriate
governmental authorities required for the legal occupancy of the Premises and
the completion of the Work.
At Landlord's sole cost and expense, Landlord shall construct the Work in
accordance with all rules, regulations, statutes, ordinances, laws and building
codes (including, without limitation, the ADA) applicable thereto, in a good and
workmanlike manner, free of defects and using new materials and equipment of
good quality.
Within thirty (30) days after the Commencement Date, Tenant shall have the
right to submit a written "punch list" to Landlord, setting forth any defective
item of construction, and Landlord shall promptly cause such items to be
corrected. Notwithstanding anything to the contrary contained in this Exhibit,
Tenant's acceptance of the Premises or submission of a "punch list" shall not be
deemed a waiver of Tenant's right to have defects in the Tenant Improvements
repaired at no cost to Tenant.
7. 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.
INITIALS:
- --------
TENANT. /s/ Signature Illegible
LANDLORD: /s/ Signature Illegible
2
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EXHIBIT B-1
BUILDING STANDARDS
OFFICE AREA
DEMISING PARTITION AND CORRIDOR WALLS:
A. 6" 20-gauge metal studs at 24" O.C. (or as required by code for span)
framed full height from finish floor to structure above
B. One (1) layer 5/8" drywall Type "X" both sides of wall, fire taped
only
INTERIOR PARTITIONS:
A. 3 5/8" 25-gauge metal studs at 24" O.C. to bottom of T-bar ceiling
grid approximately 9' - 0' high
B. Top track to be pre-formed slotted aluminum taped in
C. One (1) layer 5/8" drywall both sides of wall, taped texture ready
for paint
D. 3 5/8" metal studs including all lateral bracing as required by code
PERIMETER DRYWALL (AT OFFICE AREAS):
A. One (1) layer 5/8" Type "X" drywall taped texture ready for paint
B. Provide alternate to texture concrete in lieu of furring walls
COLUMN FURRING:
A. Furring channel all sides
B. One (1) layer 5/8" drywall taped texture and ready for paint
C. Provide deductive alternate for texturing columns where there are no
pipes to furred out
ACOUSTICAL CEILINGS:
A. 2' x 4' standard white T-bar grid system as manufactured by Chicago
Metallic or equal
B. 2' x 4' x 5/8" white, fissured, non-directional acoustical title to be
Cortega as manufactured by Armstrong or equal
PAINTING:
A. Sheetrock walls to receive two (2) coats of interior latex paint as
manufactured by Kelly Moore or equal. Some portions of second coat to
be single accent color.
B. Provide a deductive alternate for not painting warehouse walls
WINDOW COVERING:
A. 1" aluminum mmi-blinds as manufactured by Levelor or equal, color to
be selected by Lincoln Property Company
B. Blinds to be sized to fit window module
VCT:
VCT to be 1/8" x 12" x 12" as manufactured by Armstrong - Excelon Series or
equal
LIGHT FIXTURES:
2' x 4' T-bar lay in 3-tube energy efficient fixture with cool white
fluorescent tubes with prismatic acrylic lens as manufactured by Lithonia
or equal
LIGHT SWITCHES:
A. Double switching as required by Title 24
B. Switch assembly to be Leviton, color - Ivory
ELECTRICAL OUTLET:
1
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A. 110-V duplex outlet in demising or interior partitions only, as
manufactured by Leviton, color to be Ivory
B. Eight (8) outlets per circuit, spacing to meet code (2 per office)
C. Transformers to be a minimum of 20% or over required capacity
D. Contractors to inspect electric room and to include all necessary
metering costs
E. No aluminum wiring is acceptable
TELEPHONE OUTLET:
A. One (1) single outlet box in wall with pullwire from outlet box to
area above T-bar ceiling per office
B. Cover plate for phone outlets to be included
FIRE SPRINKLERS:
As required by fire codes
TOPSET BASE:
A. 4" rubber base as manufactured by Burke or equal, standard colors only
B. 4" rubber base at VCT areas
TOILET AREAS:
Wet walls to receive marlite up to 48". Floors to receive sheetvinyl and
cove base as required by code
CARPET:
Minimum 30 ounce, commercial grade, level loop, UM44-C. Type 1 Class 1.
100% continuous filament. 5-year wear guarantee. Glue down, no pad.
WOOD DOORS:
Shall be 3'-0" x 7'-0" x 1 3/4" (unless otherwise specified) solid core,
prefinished birch "Cal-Wood" B-3 or equal if approved by owner
DOOR FRAMES:
Shall be ACI or equal, 3 3/4" or 4 7/8" throat, aluminum, dark bronze
anodized, snap-on trim
HARDWARE:
Shall be "Schlage", a lever type "Levon" D series, dark bronze 613 finish,
2 3/4" backset. Closers (where required) shall be Duro X PA X SN-1
INSULATION:
By Title 24 insulation
PLUMBING:
A. Shall comply with all local codes and handicapped code requirements.
Fixtures shall be either "American Standard", "Koher" or "Norris". All
toilet accessories and grab bars shall be "Bobrick" or equal and
approved by owner
B. Plumbing bid shall include 5 gallon minimum, or insta hot with mixer
valve electric water heater
TOILET PARTITIONS:
Shall be as manufactured by Fiat, global or equal if approved by owner.
Color shall be chosen by tenant
2
<PAGE>
HVAC:
Five (5) year warranty provided on all HVAC compressor units. All
penetrations and sleeper supports to be hot mopped to LPC standard. Provide
alternate price for electric heat pumps at conditioned spaces. Provide time
overlay switch at compressors.
WAREHOUSE AREAS:
Floor - sealed concrete
Fire Extinguishers - 2A 10 BC surface mount by code x by S.F.
Lighting - 1x8 strip lighting single tube chain hung 25ft.
Draft stops - by code UBC 198 Edition
Service electrical outlets - HVAC or heaters at tenant cost
(400 W metal halide lighting are acceptable in lieu of strip lighting at
warehouse minimum 15 F.C.)1
INITIALS.
- --------
TENANT: /s/ signature Illegible
LANDLORD: /s/ signature Illegible
3
<PAGE>
EXHIBIT B-1
BUILDING STANDARDS
OUTLINE SPECIFICATION FOR
NEW OFFICE BUILD-OUT IN INDUSTRIAL BUILDINGS
OFFICE AREA
DEMISING PARTITION AND CORRIDOR WALLS:
Note: One hr. rated walls where required based on occupancy group.
A. 6" 20-gage metal studs at 24" O.C. (or as required by code based on roof
height) framed full height from finish floor to surface above.
B. One (1) LAYER 5/8" drywall Type "X" both sides of wall, fire taped only.
INTERIOR PARTITIONS:
A. 3 5/8" 25 gage metal studs at 24" O.C. to bottom of T-Bar ceiling grid
approximately 9' 0' high.
B. One (1) layer 5/8" drywall both sides of wall, smooth ready for paint.
C. 3 5/8" metal studs including all lateral bracing as required by code.
PERIMETER DRYWALL (AT OFFICE AREAS):
A. 3 5/8" metal studs @ 24" O.C. to 12'0" above finished floor. (or as
required by Title-24 for full height envelope then use demising wall spec.)
B. One (1) layer 5/8" Type "X" drywall taped smooth and ready for paint.
COLUMN FURRING:
A. Furring channel all sides of 2 1/2" metal studs per details.
B. One (1) layer 5/8" drywall taped smooth and ready for paint.
C. Columns within walls shall be furred-out.
ACOUSTICAL CEILINGS:
Note: Gyp. Bd ceiling at all restrooms Typ.
A. 2' X 4" standard white T-Bar grid system as manufactured by Chicago
Metallic of equal.
B. 2' X 4' X 5/8" white, fissured, no-directional acoustical tile to be
Cortega as manufactured by Armstrong or equal.
PAINTING:
A. Sheetrock walls within office to receive two (2) coats of interior latex
paint as manufactured by Kelly Moore or equal. Some portions of second coat
to be single accent color.
B. Semigloss paint all restrooms and lunch rooms.
WINDOW COVERING:
A. 1 "aluminum mini-blinds as manufactured by Levelor, Bali or equal, color to
be selected by Lincoln Property Company.
B. Blinds to be sized to fit window module.
VCT:
A. VCT to be 1/8" x 12" x 12" as manufactured by Armstrong -Excelon Series or
equal.
B. Slabs shall be water proofed per manufacturer recommendations, at sheet
vinyl or VCT areas.
LIGHT FIXTURES:
A. 2" X 4" T-bar lay in 3-tube energy efficient fixture with cool white
fluorescent tubes with prismatic acrylic lens as manufactured by Lithonia
or equal. (Approximately 50 F.C.)
1
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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 May 29, 1997 (the "Lease"), by and between
LINCOLN MENLO IV & V ASSOCIATES LIMITED, a California limited partnership
("Landlord") and Nuance Communications, Inc., a California corporation
("Tenant") for the leasing of certain premises located in the Willow Park at
Building Q, 1380 Willow Road, Menlo Park, 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 consent of Landlord.
7. 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.
8. Tenant shall not disturb, solicit or canvas any occupant of the Building or
Park and shall cooperate to prevent same.
9. No person shall go on the roof without Landlord's permission.
10. 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.
11. 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.
12. Tractor trailers which must be unhooked or parked with dollary 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
13. Forklifts which operate on asphalt paving areas shall not have solid rubber
tires and shall only use tires that do not damage the asphalt
14. 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.
15. 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.
16. 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.
17. 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.
INITIALS:
- --------
TENANT: /s/ Signature Illegible
LANDLORD: /s/ Signature Illegible
1
<PAGE>
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 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 provisions of
Section 29 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 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
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:
Landlord: _________________________________________________________________
_________________________________________________________________
c/o Lincoln Property Company Management Services, Inc.
101 Lincoln Centre Drive, Fourth Floor
Foster City, California 94404
Attn: ________________________________
Phone: (415) 571-2200
Name of (Prospective) Tenant:
________________________________________________________________________________
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 tenants should describe any proposed changes
to on-going operations
___________________________________________________________________________
___________________________________________________________________________
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
1
<PAGE>
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 biennial or quarterly reports as a hazardous
waste generator? Existing tenants should describe any new reports
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.
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.
2
<PAGE>
If yes, please describe. Existing tenants should describe any such
problems or complaints not already disclosed to Landlord 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
emissions 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 Landlord 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) Landlord'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.
(PROSPECTIVE) TENANT:
By: _____________________________________
Title: _____________________________________
Date: _____________________________________
INITIALS:
TENANT: /s/ Signature Illegible
LANDLORD: ______________________
4
<PAGE>
EXHIBIT F
FIRST AMENDMENT TO LEASE AGREEMENT
CHANGE OF COMMENCEMENT DATE
This First Amendment to Lease Agreement (the "Amendment") is made and entered
into 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.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the date and
year first above written.
[PROPERTY MANAGER: PLEASE PROVIDE TENANT INFORMATION AND WORD PROCESSING WILL
COMPLETE THE SIGNATURE BLOCK]
INITIALS:
- --------
TENANT: /s/ Signature Illegible
LANDLORD: _______________________
<PAGE>
EXHIBIT I
SUBORDINATION, NON-DISTURBANCE, AND ATTORNMENT AGREEMENT
AND TENANT ESTOPPEL CERTIFICATE
THIS AGREEMENT is dated the 29th day of May, 1997, and is made between AETNA
CASUALTY AND SURETY COMPANY or one or more of its affiliates or designees,
("Mortgagee"), and Nuance Communications, Inc. ("Tenant").
RECITALS
(a) Tenant has entered into a certain lease ("Lease") dated May 29, 1997
with Lincoln Menlo IV and V Associates Limited as lessor ("Landlord"), covering
certain premises known as ________________, California.
(b) Mortgagee has agreed to make a mortgage loan in the amount of
_______________ (the "Mortgage") to the Landlord, secured by the Demised
Premises, and the parties desire to set forth their agreement herein.
NOW, THEREFORE, in consideration of the Demised Premises and of the sum of
one and 00/100 dollar ($1.00) by each party in hand paid to the other, the
receipt of which is hereby acknowledged, the parties hereby agree as follows:
1. Said Lease is and shall be subject and subordinate to the Mortgage
insofar as it affects the real property of which the Demised Premises form a
part, and to all renewals, modifications, consolidations, replacements and
extensions thereof, to the full extent of amounts secured thereby and interest
thereon.
2. Tenant agrees that it will attorn to and recognize any purchaser at a
foreclosure sale under the Mortgage, any transferee who acquires the Demised
Premises by deed in lieu of foreclosure, and the successors and assigns of such
purchaser(s), as its landlord for the unexpired balance (and any extensions, if
exercised) of the term of said Lease upon the same terms and conditions set
forth in said Lease.
3. If it becomes necessary to foreclose the Mortgage, Mortgagee will not
terminate said Lease nor join Tenant in summary or foreclosure proceedings so
long as Tenant is not in default under any of the terms, covenants, or
conditions of said Lease
4. If Mortgagee succeeds to the interest of Landlord under the Lease,
Mortgagee shall not be:
a. liable for any act or omissions of any prior landlord (including
Landlord); or
b. liable for the return of any security deposit unless actually
received by Mortgagee; or
c. subject to any offsets or defenses which Tenant might have
against any prior landlord (including Landlord), or
d. bound by any rent or additional rent which Tenant might have paid
for more than the current month to any prior landlord (including
Landlord); or
e. bound by any amendment or modification of the Lease made without
its consent; or
f. bound by any representation or warranty made by any prior
landlord (including Landlord).
5. This Agreement shall be binding upon and shall inure to the benefit of
the parties hereto and their successors and assigns.
6. Tenant agrees to give Mortgagee, by registered mail, a copy of any
notice of default served upon the Landlord, to be sent to the address of such
Mortgagee indicated following Mortgagee's signature line below. Tenant further
agrees that if Landlord shall have failed to cure such defaults within the time
provided for in this Lease, then the Mortgagee shall have an additional sixty
(60) days within which to cure such defaults or if such default cannot be cured
within that time, then such additional time as may be necessary to cure such
default shall be granted if within such sixty (60) days Mortgagee has commenced
and is diligently pursuing the remedies necessary to cure such default
(including, but not limited to, commencement of foreclosure proceedings, if
necessary to
<PAGE>
effect such cure), in which event the Lease shall not be terminated while such
remedies are being so diligently pursued.
IN WITNESS WHEREOF, the parties hereto have executed these presents as of
the day and year first above written.
_____________________ MORTGAGEE
Date
AETNA CASUALTY AND SURETY COMPANY
By: _______________________________
Its: _______________________________
Address. c/o AETNA INVESTMENT GROUP
151 Farmington Avenue, 1G4J
Hartford, CT 06156
_____________________ TENANT:
Date
Nuance communications, Inc.,
a California corporation
By: /s/ Signature Illegible
Its: PRESIDENT
1
<PAGE>
with the terms of the Lease unless and until the Tenant is notified
otherwise in writing by /Etna or its successors or assigns.
It is particularly noted that:
(a) Under the provisions of this assignment, the Lease cannot be
terminated (either directly or by the exercise of any option which
could lead to termination) or modified in any of its terms, or consent
be given to the release of any party having liability thereon, without
the prior written consent of /Etna or its successors or assigns, and
without such consent, no rent may be collected or accepted more than
two (2) months in advance
(b) The interest of the Landlord in the Lease has been assigned to /Etna
for the purposes specified in the assignment. /Etna, or its successors
or assigns, assumes no duty, liability or obligation whatever under
the Lease or any extension or renewal thereof.
(c) Any notices sent to /Etna or its affiliates should be sent by
registered mail and addressed to 242 Trumbull Street (IG4H), Hartford,
Connecticut 06103, Attention: /Etna Real Estate Investment Group.
16. Tenant agrees to give any Mortgagee and/or Trust Deed Holders
("Mortgagee"), by registered mail, a copy of any notice of default served
upon the Landlord, to be sent to such Mortgagee addressed to 242 Trumbull
Street, Hartford, Connecticut 06156, Attention: Real Estate Investments.
Tenant further agrees that if Landlord shall have failed to cure such
default within the time provided for in this Lease, then the Mortgagee
shall have an additional sixty (60) days within which to cure such default
or if such default cannot be cured within that time, then such additional
time as may be necessary to cure such default shall be granted if within
such sixty (60) days Mortgagee has commenced and is diligently pursuing the
remedies necessary to cure such default (including, but not limited to,
commencement of foreclosure proceedings, if necessary to effect such cure),
in which event the Lease shall not be terminated while such remedies are
being so diligently pursued
17. This certificate is made to induce /Etna to make certain fundings, knowing
that /Etna relies upon the truth of this certification in disbursing said
funds.
18. The undersigned is authorized to execute this Tenant Estoppel Certificate
on behalf of the Tenant
Dated this _________ day of ________, 19_____
/s/ Signature Illegible (TENANT)
By: /s/ Signature Illegible
Date: _________ Its: PRESIDENT
The undersigned hereby certifies that the certifications set forth above are
true as of the date hereof.
__________________________ (OWNER) (LANDLORD)
By: ______________________
Date: __________ Its: _____________________
3
<PAGE>
EXHIBIT J
IMPROVEMENTS BY TENANT
This exhibit, entitled "Improvements", is and shall constitute EXHIBIT J to that
certain Lease Agreement dated May 29, 1997 (the "Lease"), by and between LINCOLN
MENLO IV & V ASSOCIATES LIMITED, a California limited partnership ("Landlord"),
and Nuance Communications, Inc., a California corporation ("Tenant"), for the
leasing of certain premises located at 1380 Willow Road, Menlo Park, 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 TO CONSTRUCT IMPROVEMENTS. Subject to the provisions below, Tenant
--------------------------------
shall be solely responsible for the planning, construction and completion of the
interior improvements ("Work") to the Premises in accordance with the terms and
conditions of this Exhibit J. The Work shall not include any of Tenant's
personal property, trade fixtures, furnishings, equipment or similar items, and
shall be similar to the initial plans attached as Exhibit J-3.
2. TENANT IMPROVEMENT PLANS.
-------------------------
A. PRELIMINARY PLANS AND SPECIFICATIONS. Tenant shall retain a licensed,
------------------------------------
insured (if reasonably required by Landlord) architect ("Architect") to prepare
preliminary working architectural and engineering plans and specifications
("Preliminary Plans and Specifications") for the Work. Tenant shall deliver the
Preliminary Plans and Specifications to Landlord. The Preliminary Plans and
Specifications shall be in sufficient detail to show locations, types and
requirements for all heat loads, people loads, floor loads, power and plumbing,
regular and special HVAC needs, telephone communications, telephone and
electrical outlets, lighting, lighting fixtures and related power, and
electrical and telephone switches. Landlord shall reasonably approve or
disapprove the Preliminary Plans and Specifications within five (5) days after
Landlord receives the Preliminary Plans and Specifications and, if disapproved,
Landlord shall return the Preliminary Plans and Specifications to Tenant, who
shall make all necessary revisions within ten (10) days after Tenant's receipt
thereof. This procedure shall be repeated until Landlord approves the
Preliminary Plans and Specifications. The approved Preliminary Plans and
Specifications, as modified, shall be deemed the "Final Preliminary Plans and
Specifications"
B. FINAL PLANS AND SPECIFICATIONS. After the Final Preliminary Plans and
------------------------------
Specifications are approved by Landlord and are deemed to be the Final
Preliminary Plans and Specifications, Tenant shall cause the Architect to
prepare in twenty (20) days following Landlord's approval of the Final
Preliminary Plans and Specifications the final working architectural and
engineering plans, specifications and drawings, ("Final Plans and
Specifications") for the Work. Tenant shall then deliver the Final Plans and
Specifications to Landlord. Landlord shall reasonably approve or disapprove the
Final Plans and Specifications within five (5) days after Landlord receives the
Final Plans and Specifications and, if disapproved, Landlord shall return the
Final Plans and Specifications to Tenant who shall make all necessary revisions
within ten (10) days after Tenant's receipt thereof. This procedure shall be
repeated until Landlord approves, in writing, the Final Plans and
Specifications. The approved Final Plans and Specifications, as modified, shall
be deemed the "Construction Documents".
C. MISCELLANEOUS. All deliveries of the Preliminary Plans and
-------------
Specifications, the Final Preliminary Plans and Specifications, the Final Plans
and Specifications, and the Construction Documents shall be delivered by
messenger service, by personal hand delivery or by overnight parcel service.
While Landlord has the right to approve the Preliminary Plans and
Specifications, the Final Preliminary Plans and Specifications, the Final Plans
and Specifications, and the Construction Documents, Landlord's interest in doing
so is to protect the Premises, the Building and Landlord's interest.
Accordingly, Tenant shall not rely upon Landlord's approvals and Landlord shall
not be the guarantor of, nor responsible for, the adequacy and correctness or
accuracy of the Preliminary Plans and Specifications, the Final Preliminary
Plans and Specifications, the Final Plans and Specifications, and the
Construction Documents, or the compliance thereof with applicable laws, and
Landlord shall incur no liability of any kind by reason of granting such
approvals.
D. BUILDING STANDARD WORK. The Construction Documents shall provide that
----------------------
the Work to be constructed in accordance therewith must be at least equal, in
quality, to Landlord's building standard materials, quantities and procedures
then in use by Landlord ("Building Standards") attached hereto as Exhibit J-2,
and shall consist of improvements which are generic in nature.
3. PERMITS. Tenant at its sole cost and expense (subject to the provisions of
-------
Paragraph 5 below) shall obtain all governmental approvals of the Construction
Documents to the full extent necessary for the issuance of a building permit for
the Tenant Improvements based upon such Construction Documents. Tenant at its
sole cost and expense shall also cause to be obtained all other necessary
approvals and permits from all governmental agencies having jurisdiction or
authority for the construction and installation of the Work in accordance with
the approved Construction Documents. Tenant at its sole cost and expense shall
undertake all steps necessary to insure that the construction of the Work is
accomplished in strict compliance with all statutes, laws, ordinances, codes,
rules, and regulations applicable to the construction
1
<PAGE>
I. Landlord reserves the right to establish reasonable rules and
regulations for the use of the Building during the course of construction of the
Work, including, but not limited to, construction parking, storage of materials,
hours of work, use of elevators, and clean-up of construction related debris.
J. Upon completion of the Work, Tenant shall deliver to Landlord the
following, all of which shall be to Landlord's reasonable satisfaction:
(i) Any certificates required for occupancy, including a permanent
and complete Certificate of Occupancy issued by the City of Menlo Park.
(ii) A Certificate of Completion signed by the Architect who prepared
the Construction Documents, reasonably approved by Landlord.
(iii) A cost breakdown itemizing all expenses for the Work, together
with invoices and receipts for the same or other evidence of payment.
(iv) Final and unconditional mechanic's lien waivers for all the
Work.
(v) A Notice of Completion for execution by Landlord, which
certificate once executed by Landlord shall be recorded by Tenant in the
official records of the county of San Mateo, and Tenant shall then deliver to
Landlord a true and correct copy of the recorded Notice of Completion.
(vi) Redline version of the Construction Documents.
(vii) A true and complete copy of all as-built plans and drawings for
the Work.
5. Termination. If the Lease is terminated prior to the date on which the Work
-----------
are completed, 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 Work to the extent planned, installed and/or constructed as
of such date of termination, including, but not limited to, any costs related to
the removal of all or any portion of the Work and restoration costs related
thereto. Upon the expiration or earlier termination of the Lease, Tenant shall
not be required to remove the Work it being the intention of the parties that
the Work is to be considered incorporated into the Building.
6. Lease Provisions; Conflict. The terms and provisions of the Lease, insofar
--------------------------
as they are applicable, in whole or in part, to this EXHIBIT J, 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 J, the terms of this EXHIBIT J 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.
3
<PAGE>
EXHIBIT J-1
CONSTRUCTION INSURANCE REQUIREMENTS
Before commencing work, the contractor shall procure and maintain at its sole
cost and expense until completion and final acceptance of the work, at least the
following minimum levels of insurance.
A. Workers' Compensation in statutory amounts and Employers Liability
Insurance in the minimum amounts of $100,000 each accident for bodily
injury by accident and $100,000 each employee for bodily injury by disease
with a $500,000 policy limit, covering each and every worker used in
connection with the contract work.
B. Comprehensive General Liability Insurance on an occurrence basis including,
but not limited to, protection for Premises/Operations Liability, Broad
Form Contractual Liability, Owner's and Contractor's Protective, and
Products/Completed Operations Liability*, in the following minimum limits
of liability.
Bodily Injury, Property Damage, and
Personal Injury Liability $2,000,000/each occurrence
$3,000,000/aggregate
* Products/Completed Operations Liability Insurance is to be provided for
a period of at least one (1) year after completion of work.
Coverage should include protection for Explosion, Collapse and Underground
Damage.
C. Comprehensive Automobile Liability Insurance with the following minimum
limits of liability.
Bodily Injury and Property $1,000,000/each occurrence
Damage Liability $2,000,000/aggregate
This insurance will apply to all owned, non-owned or hired automobiles to
be used by the Contractor in the completion of the work.
D. Umbrella Liability Insurance in a minimum amount of five million dollars
($5,000,000), providing excess coverage on a following-form basis over the
Employer's Liability limit in Paragraph A and the liability coverages
outlined in Paragraphs B and C.
E. Equipment and Installation coverages in the broadest form available
covering Contractor's tools and equipment and material not accepted by
Tenant.
All policies of insurance, duplicates thereof or certificates evidencing
coverage shall be delivered to Landlord prior to commencement of any work and
shall name Landlord, and its partners and lenders as additional insureds as
their interests may appear. All insurance policies shall (1) be issued by a
company or companies licensed to be business in the state of California, (2)
provide that no cancellation, non-renewal or material modification shall be
effective without thirty (30) days prior written notice provided to Landlord,
(3) provide no deductible greater than $ 15,000 per occurrence, (4) contain a
waiver to subrogation clause in favor of Landlord, and its partners and lenders,
and (5) comply with the requirements of Sections 12.2, 12.3 and 12.4 of the
Lease to the extent such requirements are applicable.
<PAGE>
A. 110-v duplex outlet in demising or interior partitious only, as
manufactured by Leviton, color to be Ivory.
B. Eight (8) outlets per circuit, spacing to meet code (2 per office)
C. Transformers to be a minimum of 20% or over required capacity
D. Contractors to inspect electric room and to include all necessary
metering costs
E. No aluminum wiring is acceptable
TELEPHONE OUTLET:
A. One (1) single outlet box in wall with pullwire from outlet box to
area above T-bar ceiling per office
B. Cover plate for phone outlets to be included
FIRE SPRINKLERS:
As required by fire codes
TOPSET BASE:
A. 4" rubber base as manufactured by Burke or equal, standard colors only
B 4" rubber base at VCT areas
TOILET AREAS:
Wet walls to receive marlite up to 48" Floors to receive sheetvinyl and
cove base as required by code
CARPET:
Minimum 30 ounce, commercial grade, level loop, UM44-C. Type 1 Class 1.
100% continuous filament. 5-year wear guarantee. Glue down, no pad.
WOOD DOORS:
Shall be 3'-0" x 7'-0" x 1 3/4" (unless otherwise specified) solid core,
prefinished birch "Cal-Wood" B-3 or equal if approved by owner
DOOR FRAMES:
Shall be ACI or equal, 3 3/4" or 4 7/8" throat, aluminum, dark bronze
anodized, snap-on trim
HARDWARE:
Shall be "Schlage", a lever type "Levon" D series, dark bronze 613 finish,
2 3/4" backset. Closers (where required) shall be Duro X PA X SN-1
INSULATION:
By Title 24 insulation
PLUMBING:
A. Shall comply with all local codes and handicapped code requirements.
Fixtures shall be either "American Standard", "Koher" or "Norris". All
toilet accessories and grab bars shall be "Bobrick" or equal and
approved by owner
B. Plumbing bid shall include 5 gallon minimum, or insta hot with mixer
value electric water heater
TOILET PARTITIONS:
Shall be as manufactured by Fiat, global or equal if approved by owner.
Color shall be chosen by tenant
2
<PAGE>
EXHIBIT J-2
BUILDING STANDARDS
OFFICE AREA
DEMISING PARTITION AND CORRIDOR WALLS:
A. 6" 20-gauge metal studs at 24" O C. (or as required by code for span)
framed full height from finish floor to structure above
B One (1) layer 5/8" drywall Type "X" both sides of wall, fire taped
only
INTERIOR PARTITIONS:
A. 3 5/8" 25-gauge metal studs at 24" O C. to bottom of T-bar ceiling
grid approximately 9' - 0' high
B Top track to be pre-formed slotted aluminum taped in
C. One (1) layer 5/8" drywall both sides of wall, taped texture ready for
paint
D 3 5/8" metal studs including all lateral bracing as required by code
PERIMETER DRYWALL (A1 OFFICE AREAS):
A. One (1) layer 5/8" Type "X" drywall taped texture ready for paint
B Provide alternate to texture concrete in lieu of furring walls
COLUMN FURRING:
A. Furring channel all sides
B. One (1) layer 5/8" drywall taped texture and ready for paint
C. Provide deductive alternate for texturing columns where there are no
pipes to furred out
ACOUSTICAL CEILINGS:
A. 2' x 4' standard white T-bar grid system as manufactured by Chicago
Metallic or equal
B. 2' x 4' x 5/8" white, fissured, non-directional acoustical tile to be
Cortega as manufactured by Armstrong or equal
PAINTING:
A. Sheetrock walls to receive two (2) coats of interior latex paint as
manufactured by Kelly Moore or equal. Some portions of second coat to
be single accent color.
B. Provide a deductive alternate for not painting warehouse walls
WINDOW COVERING:
A. 1" aluminum mini-blinds as manufactured by Levelor or equal, color to
be selected by Lincoln Property Company
B. Blinds to be sized to fit window module
VCT:
VCT to be 1/8" x 12" x 12" as manufactured by Armstrong - Excelon Series or
equal
LIGHT FIXTURES:
2' x 4' T-bar lay in 3-tube energy efficient fixture with cool white
fluorescent tubes with prismatic acrylic lens as manufactured by Lithonia
or equal
LIGHT SWITCHES:
A. Double switching as required by Title 24
B. Switch assembly to be Leviton, color - Ivory
ELECTRICAL OUTLET:
1
<PAGE>
EXHIBIT J-3
INITIAL IMPROVEMENT PLAN
[CHART OMITTED]
INITIALS:
- ---------
TENANT: /s/ Signature Illegible
LANDLORD: /s/ Signature Illegible
1
<PAGE>
ADDENDUM 1
OPTION TO EXTEND THE LEASE
This Addendum 1 is incorporated as a part of that certain Lease Agreement dated
May 29, 1997 (the "Lease"), by and between Nuance Communications, Inc., a
California corporation ("Tenant"), and LINCOLN MENLO IV & V ASSOCIATES LIMITED,
a California limited partnership ("Landlord"), for the leasing of those certain
premises located at 1380 Willow Road, Menlo Park, California 94025 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, limitations and
-------------------------
conditions set forth in Paragraph 5 below, Tenant shall have an Option
("Option") to extend the term of the Lease for five (5) years (the "Extended
Term")
2. TENANT'S OPTION NOTICE. If Landlord does not receive written notice from
----------------------
Tenant of its exercise of this Option on a date which is not more than three
hundred sixty (360) days nor less than three hundred (300) days prior to the end
of the initial term of the Lease (the "Option Notice"), all rights under this
Option shall automatically terminate and shall be of no further force or effect.
3. ESTABLISHING THE INITIAL MONTHLY BASE RENT FOR THE EXTENDED TERM. The
----------------------------------------------------------------
initial monthly Base Rent for the Extended Term shall be the then current market
rent for the highest and best use for similar space within the competitive
market area of the Premises (the "Fair Rental Value"). "Fair Rental Value" of
the Premises means the fair 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 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 as reasonably determined by Landlord.
Neither Landlord nor Tenant shall have the right to have a court or any other
third party entity establish the Fair Rental Value. If Landlord and Tenant are
unable to agree on the Fair Rental Value for the Extended Term within thirty
(30) days of receipt by Landlord of the Option Notice, Landlord and Tenant being
obligated only to act in good faith, this Option shall automatically terminate
and the Lease shall terminate at the end of its initial term.
In no event shall the monthly Base Rent for any period of the Extended Term be
less than the highest monthly Base Rent charged during the initial term of the
Lease. Upon determination of the initial monthly Base Rent for the Extended Term
in accordance with the terms outlined above, Landlord and Tenant shall
immediately execute, at Landlord's sole option, either the standard lease
agreement then in use by Landlord, or an Amendment to this Lease. Such new lease
agreement or amendment, as the case may be, 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. Tenant shall have no other right
to extend the term of the Lease under this Addendum 1 unless Landlord and Tenant
otherwise agree in writing.
4. CONDITION OF PREMISES AND BROKERAGE COMMISSIONS FOR THE EXTENDED TERM. If
---------------------------------------------------------------------
Tenant timely and properly exercises this Option, in strict 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 be solely responsible for any and all brokerage commissions and finder's
fees payable to any broker now or hereafter procured or hired by Tenant or who
otherwise claims a commission based on any act or statement of Tenant ("Tenant's
Broker") in connection with the 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. This Option is
---------------------------------------------------
personal to Tenant and may not be assigned, voluntarily or involuntarily, except
in the case of a Related Entity separate from or as part of the Lease. 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 default at any time during the
initial term of the Lease, or is currently in default of any provision of the
Lease; and/or (2) Tenant has assigned its rights and obligations under all or
part of the Lease or Tenant has subleased all or part of the Premises; except
for the Initial Sublease, unless the Initial Sublease is still occupying a
portion of the Premises, in which case all rights of Tenant shall terminate
and/or (3) Tenant's financial condition is unacceptable to Landlord at the time
the Option Notice is delivered to Landlord: and/or (4) Tenant has failed to
properly exercise this Option in a timely manner in strict accordance with the
provisions of this Addendum 1; and/or (5) Tenant no longer has possession of all
or any part of the Premises under the Lease, or if the Lease has been terminated
earlier, pursuant to the terms of the Lease.
1
<PAGE>
ADDENDUM 2
EARLY OCCUPANCY AGREEMENT
PAGE 1 OF 1
LEASE AGREEMENT DATED MAY 29, 1997, BETWEEN
NUANCE COMMUNICATIONS, INC.,
A CALIFORNIA CORPORATION
("TENANT"),
AND
LINCOLN MENLO IV & V ASSOCIATES LIMITED,
A CALIFORNIA LIMITED PARTNERSHIP,
("LANDLORD")
This Addendum No. 2 ("Addendum") is incorporated as a part of that certain Lease
Agreement dated May 29, 1997 (the "Lease"), by and between Nuance
Communications, Inc., a California corporation ("Tenant"), and LINCOLN MENLO IV
& V ASSOCIATES LIMITED, a California limited partnership ("Landlord"), of the
premises located at 1380 Willow Road, Menio Park, California 94025 (the
"Premises") All defined terms used in this Addendum not defined herein shall
have the same meaning and definition given them in the Lease.
Notwithstanding anything in the Lease to the contrary, Tenant shall have the
right to occupy the Premises (i) after this Lease has been fully executed; and
(ii) after Landlord's construction of the Work described in Exhibit B of the
Lease, but prior to the Commencement Date, on July 15, 1997 ("Occupancy Date")
through August 15, 1997 ("Early Occupancy Period").
All terms and conditions of the Lease shall be in full force and effect during
the Early Occupancy Period except the obligation to pay the Base Rent referenced
in Paragraph 3 of the Lease. Tenant shall be responsible for the payment of all
Utilities during the Early Occupancy Period.
Tenant's right, as granted herein, to occupy the Premises on the Occupancy Date,
is subject to the following:
1. Landlord shall receive from Tenant a certificate of general liability
insurance as specified in the Lease, naming Landlord as additional
insured;
2. By entry, Tenant accepts the Premises as being in good order,
condition and repair subject to Paragraph 5 of the Lease and Exhibit B
thereof; and
3. The monthly Base Rent waived during the Early Occupancy Period shall
be payable at the rate of sixty-two thousand five hundred fifteen and
20/100 dollars ($62,515.20) per month if an event of default beyond
applicable cure periods under the Lease occurs at any time during the
term of the Lease or the Early Occupancy Period. Such an event of
default shall cause all Base Rent for the Early Occupancy Period to
become immediately due and payable by Tenant to Landlord.
If for any reason whatsoever, Landlord cannot deliver occupancy of the Premises
to Tenant on the Occupancy Date, the Lease shall not be void or voidable, nor
shall Landlord, or Landlord's agents, be liable to Tenant for any loss or damage
resulting therefrom; provided, however, Tenant shall not be obligated to pay
monthly Base Rent for the Premises for thirty (30) days after Landlord delivers
possession and occupancy of the Premises to Tenant. In this event, Tenant and
Landlord shall execute a written amendment to this Lease wherein the parties
shall specify the actual Occupancy Date, Commencement Date, Expiration Date and
the date on which Tenant is to commence paying Base Rent.
INITIALS:
- --------
TENANT: /s/ Signature Illegible
LANDLORD: /s/ Signature Illegible
1
<PAGE>
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 [ ]
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.
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)
2
<PAGE>
______ 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.
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 [ ]
3
<PAGE>
If yes, please describe. Existing tenants should describe any such
problems or complaints not already disclosed to Landlord 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
emissions 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 Landlord 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) Landlord'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.
(PROSPECTIVE) TENANT:
By: _____________________________
Title:_____________________________
Date: _____________________________
4
<PAGE>
ADDENDUM 1
OPTION TO EXTEND THE LEASE
This Addendum 1 ("Addendum") is incorporated as a part of that certain Lease
Agreement dated September 30, 1998 (the "Lease"), by and between AMB Property,
L.P., a Delaware limited partnership ("Landlord") and Nuance Communications,
Inc., a California corporation ("Tenant"), for the leasing of those certain
premises located at 961 Hamilton Avenue, Menlo Park, California 94025 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, limitations and
-------------------------
conditions set forth in Paragraph 5 below, Tenant shall have an Option
("Option") to extend the term of the Lease for approximately an additional three
(3) years expiring on September 14, 2004 (the "Extended Term").
2. TENANT'S OPTION NOTICE. If Landlord does not receive written notice from
----------------------
Tenant of its exercise of this Option on a date which is not more than two
hundred seventy (270) days nor less than two hundred forty (240) days prior to
the end of the initial term of the Lease (the "Option Notice"), all rights under
this Option shall automatically terminate and shall be of no further force or
effect.
3. ESTABLISHING THE INITIAL MONTHLY BASE RENT FOR THE EXTENDED TERM. The
----------------------------------------------------------------
initial 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"). "Fair Rental Value" of the Premises means the fair 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 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 as reasonably
determined by Landlord.
Neither Landlord nor Tenant shall have the right to have a court or any other
third party entity establish the Fair Rental Value. If Landlord and Tenant are
unable to agree on the Fair Rental Value for the Extended Term within twenty
(20) days of receipt by Landlord of the Option Notice, Landlord and Tenant being
obligated only to act in good faith, this Option shall automatically terminate
and the Lease shall terminate at the end of its initial term.
In no event shall the monthly Base Rent for any period of the Extended Term be
less than the highest monthly Base Rent charged during the initial term of the
Lease. Upon determination of the initial monthly Base Rent for the Extended Term
in accordance with the terms outlined above, Landlord and Tenant shall
immediately execute, at Landlord's sole option, either the standard lease
agreement then in use by Landlord, or an amendment to this Lease. Such new lease
agreement or amendment, as the case may be, 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. Tenant shall have no other right
to extend the term of the Lease under this Addendum 1 unless Landlord and Tenant
otherwise agree in writing.
4. CONDITION OF PREMISES AND BROKERAGE COMMISSIONS FOR THE EXTENDED TERM. If
---------------------------------------------------------------------
Tenant timely and properly exercises this Option, in strict 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 be solely responsible for any and all brokerage commissions and finder's
fees payable to any broker now or hereafter procured or hired by Tenant or who
otherwise claims a commission based on any act or statement of Tenant ("Tenant's
Broker") in connection with the 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. This Option is
---------------------------------------------------
personal to Tenant and may not be assigned, voluntarily or involuntarily, except
to a Related Entity, as defined in the Lease, separate from or as part of the
Lease. 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 default at any
time during the initial term of the Lease, or is currently in default of any
provision of the Lease; and/or (2) Tenant has assigned its rights and
obligations under all or part of the Lease or Tenant has subleased all or part
of the Premises; and/or (3) Tenant's financial condition is unacceptable to
Landlord at the time the Option Notice is delivered to Landlord, and/or (4)
Tenant has failed to properly exercise this Option in a timely manner in strict
accordance with the provisions of this Addendum 1; and/or (5) Tenant no longer
has possession of all or any part 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 described in this Addendum.
5
<PAGE>
EXHIBIT 10.8
ASSIGNMENT AND ASSUMPTION AGREEMENT
THIS ASSIGNMENT AND ASSUMPTION OF LEASE ("Agreement") is made and entered into
to be effective as of July 1, 1999 ("Assignment Date"), by and between CBT
Systems USA, Ltd., a Delaware corporation ("Assignor") and Nuance
Communications, Inc., a California corporation (Assignee"), with reference to
the following facts:
RECITALS
--------
A. Willow Park Holding Co. II, LLC succession in interest to ??
Assignor is the existing tenant under that certain Lease Agreement dated March
4, 1996 by and between Lincoln Menlo VIII Limited Partnership, a California
Limited Partnership, as landlord ("Landlord") and Assignor, as tenant, (the
"Lease") pursuant to which Landlord leased to Assignor, and Assignor leased from
Landlord, those certain premises located at 1005 Hamilton Court, Menlo Park,
California, 94025, as more particularly described in the Lease ("Premises")
B. Assignor desires to assign all of its right, title and interest in,
and obligations under, the Lease to Assignee, and Assignee desires to accept
such assignment and assume such obligations, all on the terms and conditions set
forth below.
C. Landlord agrees to consent to the proposed assignment on the
conditions set forth below.
NOW, THEREFORE, in consideration of the foregoing and for other good
and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereto agree as follows:
1. RECITALS. Assignor and Assignee hereby agree that each of such parties
--------
are informed and believe that the recitals set forth hereinabove are the true
and correct and are incorporated into this Agreement.
2. ASSIGNMENT AND ASSUMPTION. Effective as of the Assignment Date,
-------------------------
Assignor hereby grants, transfers, assigns and delegates to Assignee all of its
right, title and interest and obligations of Assignor under the Lease, and
Assignee accepts such assignment and delegation above, assumes the Lease, agrees
to pay all rent and other charges accruing under the Lease from and after the
Assignment date and agrees to observe and perform directly to Landlord, all of
the other covenants, agreements and obligations to be observed and/or performed
by the tenant under the Lease from and after the Assignment date. Assignee has
inspected the Premises and knows the present condition thereof and confirms that
neither Landlord nor any officer, director, employee, agent or beneficiary of
Landlord has made any representation or warranty to Assignee concerning the
Premises, or otherwise, expressed or implied, and that Assignee does not accept
the Premises in reliance upon any such representation or warranty.
Notwithstanding anything to the contrary contained in this Agreement, on the
Assignment Date the heating, ventilating and air conditioning ("HVAC") system,
and the electrical, plumbing, sewer, life safety and, if applicable, security
systems (collectively, "Building Systems") serving the Premises for which
Assignor has maintenance and repair responsibility under the Lease shall be in
good working order and repair. If, during the first thirty (30) days after the
Assignment Date, any Building System is not in the condition required by the
foregoing sentence, Assignee shall notify Assignor of the need for repair, and
the repair promptly shall be completed at no cost to Assignee.
3. REPRESENTATIONS AND WARRANTIES. Assignor represents and warrants for
------------------------------
the benefit of Assignee and to Landlord that:
<PAGE>
a. Attached hereto as Exhibit A is a true, correct and complete copy
---------
of the Lease and all amendments and assignments thereto and there are no further
modifications, amendments, supplements or understandings, oral or written,
amending, supplementing or changing the terms of the Lease.
b. The Lease is in full force and effect, has been duly executed and
delivered by Assignor and is a valid, legal and binding obligation of Assignor
and Assignee, as assignee of Assignor, enforceable against Assignor in
accordance with its express terms;
c. To the best of Assignor's knowledge, there exists no default,
breach, failure of condition or event of default under the Lease, nor any event
or condition which, with notice or the passage of time or both, would constitute
a default, breach, failure of condition or event of default thereunder, and
Assignor has, as of the date hereof, complied with all of the terms and
conditions of the Lease.
d. There exists no liability or obligation of Assignor or any other
person which Assignor could offset against or otherwise use to reduce the rental
payments due thereunder; and
e. Neither Assignor nor Assignee has entered into any sublease,
assignment or other agreement transferring any of its interest in the Lease
except as provided herein.
4. ASSIGNMENT CONSIDERATION. As additional consideration for Assignor
------------------------
assigning the Lease to Assignee, Assignee in addition to performing the tenant's
obligations under the Lease (such as the payment of Base Rent to Landlord) shall
pay $331,372.16 payable in 23 monthly installments, consisting of: (a) 12 equal
monthly payments of $14,106.40 commencing on July 1, 1999, and continuing on the
1st of each month thereafter for the next 11 months, (b) 10 equal monthly
payments of $15,388.80 commencing on July 1, 2000, and continuing on the 1st of
each month thereafter for the next 9 months and (c) 1 installment of $8,207.36
on May 1, 2001. Assignor shall pay Landlord its share of net assignment
considerations as required by the lease.
5. SECURITY DEPOSIT. The parties acknowledge that Landlord now holds the
----------------
sum of $36,000.00 as a Security Deposit under the Lease. Landlord may retain
such deposit until the end of the initial Lease term in accordance with the
provisions of the Lease to secure Assignor's performance of its obligations
thereunder. Assignee (Nuance Communications) hereby assigns all of its rights,
title and interest to the Security Deposit upon termination of the Lease to
Assignor (CBT). Assignee shall instruct the Landlord to pay such amount directly
to the Assignor and shall sign any documents reasonably necessary to effect the
same. Upon Assignee's execution of this Assignment, Assignee shall deliver to
Assignor, as a security deposit for the performance by Assignor of its
obligations under this Assignment, the sum of $150,040.80 in cash to be held by
Assignor for its benefit and to secure Assignee's performance of its obligations
to Assignor hereunder (the Assignor/Assignee Deposit). If Assignee shall pay all
rent and otherwise observe and perform all of the terms, covenants, and
conditions of the Lease from and after the Assignment date, Assignor shall
return the Assignor/Assignee Deposit to Assignee, or so much of such deposit as
is not required to cure any default of Assignee, within thirty (30) days after
the expiration or earlier termination of the Lease.
6. INDEMNIFICATION BY ASSIGNOR. Assignor agrees to protect, hold
---------------------------
harmless, defend and indemnify Assignee from and against any and all claims,
judgments, damages, liabilities, costs and expenses, including, without
limitation, reasonable attorney's fees and costs, accruing under the Lease prior
to the Assignment Date in connection with the obligations of Assignor
thereunder.
7. INDEMNIFICATION BY ASSIGNEE. Assignee agrees to protect, hold
---------------------------
harmless, defend and indemnify Assignor from and against any and all claims,
judgments, damages, liabilities, costs and
<PAGE>
expenses, including, without limitation, reasonable attorneys' fees and costs,
accruing under the Lease on or after the Assignment Date in connection with the
obligations of Assignee thereunder.
8. ASSIGNOR'S AND ASSIGNEE'S CONTINUING OBLIGATIONS TO LANDLORD. Assignor
------------------------------------------------------------
hereby covenants, warrants and agrees for the benefit of Landlord that
notwithstanding the assignment made herein, Assignor shall in all events and
circumstances remain liable to Landlord for and not be released or discharged
from the performance of the tenant's obligations under the Lease (whether past,
present or future), all of which liabilities and obligations Assignor agrees to
pay and perform promptly, and Assignor and Assignee hereby covenant and warrant
to Landlord that after the Assignment Date Assignor and Assignee shall be
jointly and severally liable under the Lease for all of the tenant's obligations
under the Lease. Assignor and Assignee hereby further covenant and warrant that
Landlord's consent to this assignment shall not in any manner affect Landlord's
ability to proceed against Assignor and Assignee, both jointly and severally,
for any failure by Assignee or Assignor to perform any of its obligations under
the Lease, nor shall any such consent be construed as a waiver by Landlord of
any of its rights or remedies under the Lease. In the event of any conflict or
dispute between Assignor and Assignee with respect to each of their obligations
under the Lease, Landlord shall not be affected, impaired or otherwise adversely
affected thereby, and Assignor and Assignee, jointly and severally, shall
protect, hold harmless, defend and indemnify Landlord from and against any and
all claims, damages, judgements, liabilities, losses, costs and expenses,
including, without limitation, reasonable attorneys' fees and costs, arising
from or related to this Agreement, any brokerage commissions or fees asserted
against or incurred by Assignor and/or Assignee, and any disputes or conflicts
between Assignor and Assignee with respect to the Lease, this Agreement, the
Premises or any other matters affecting Landlord.
9. ATTORNEY'S FEES COUNTERPARTS. If Assignor or Assignee bring any action
----------------------------
against the other for the enforcement or interpretation of this Agreement, the
losing party shall pay to the prevailing party a reasonable sum for attorneys'
fees and costs. This Agreement may be executed in counterparts, each of which
shall be deemed an original, and all of which shall together be deemed one
document.
10. GENERAL PROVISIONS.
------------------
a. Time is of the essence in the performance of the parties' respective
obligations set forth in this Agreement.
b. Assignee's and Assignor's addresses for notices shall be as follows
unless changed in accordance with the Lease:
Assignee:
Nuance Communications, Inc.
1005 Hamilton Court
Menlo Park, CA 94025
Attn: Chief Financial Officer
Assignor:
CBT Systems USA, Ltd.
900 Chesapeake Drive
Redwood City, CA 94063
Attention: Vice President of Operations
With a copy to:
CBT Systems USA, Ltd.
900 Chesapeak Drive
Redwood City, CA 94063
<PAGE>
Attention: Corporate Counsel
c. Assignor and Assignee hereby ratify and affirm the terms and
provisions of the Lease and further agree that the Lease is in full force and
effect, and that the terms and provisions of the Lease shall remain unchanged
except as specifically set forth in this Agreement. Assignor and Assignee intend
that Landlord shall benefit as a third party from the terms of this Agreement
and that Landlord shall be a third party beneficiary of this Agreement.
d. In the event of any conflict or inconsistency between the terms and
provisions of the Lease and the terms and provisions of this Agreement, the
terms and provisions of this Agreement shall prevail.
e. This Agreement shall inure to the benefit of and be binding upon the
parties to this Agreement and their respective successors and assigns.
f. If for any reason, any provision of this Agreement shall be held to be
unenforceable, it shall not affect the validity or enforceability of any other
provision of this Agreement and to the extent any provision of this Agreement is
not determined to be unenforceable, such provision, or portion thereof, shall
be, and remain, in full force and effect.
g. This Agreement shall be governed by and construed in accordance with
the laws of the State of California.
h. This Agreement, including addends, if any, expresses the entire
agreement of the parties and supersedes any and all previous agreements between
the parties with regard to the subject terms, and there are no warranties or
representations of any kind or nature whatsoever, either expressed or implied,
except as may be set forth herein. Any and al future modifications of this
Agreement or the Lease will be effective only if they are in writing and signed
by the parties hereto. The terms and conditions of any and all future
modifications of this Agreement shall supersede and replace any inconsistent
provisions of this Agreement.
i. Assignor agrees to deliver the Premises to Assignee in "broom clean"
condition. Assignor shall have the right to enter the Premises during normal
business hours upon twenty-four (24) hours prior notice to Assignee for the
purposes of inspecting the Premises and removing any of Assignor's property;
provided that, in the case of an emergency, CBT may enter with lesser notice or
after regular business hours after making reasonable attempts to contact
Assignee.
j. Not withstanding anything to the contrary contained in this Agreement,
with respect Section 10.2 of the Lease regarding the surrender of the Premises,
Assignee shall only have responsibility for removing those fixtures,
alterations, furniture, furnishings, trade fixtures additions or other
improvements installed by Assignee from and after the Assignment Date and
required to be removed by Landlord.
k. Counterparts/Facsimile. This Assignment may be executed by facsimile
and in one or more counterparts, which taken together shall constitute one and
the same instrument, enforceable in accordance with its terms.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the Assignment Date.
<PAGE>
ASSIGNOR:
CBT SYSTEMS USA, LTD., A
DELAWARE CORPORATION
By: /s/ Signature Illegible
Lyn Jenson
Vice President of Operations
ASIGNEE:
NUANCE COMMUNICATIONS, INC.,
A CALIFORNIA CORPORATION
By: /s/ Signature Illegible
Its: VPL CFO
<PAGE>
CONSENT OF LANDLORD TO ASSIGNMENT AND ASSUMPTION AGREEMENT:
Landlord hereby consents to the Agreement and assignment, acceptance and
assumption made therein: provided, that notwithstanding such consent:
(i) Assignor is not and shall not be released or discharged from
any liability or obligation of the tenant under the Lease,
whether past, present or future arising or accruing during the
initial term of the Lease ending May 16, 2001 (but expressly not
including liabilities and obligations arising or accruing during
any renewal or extended term of the Lease which renewal option by
the term of the ?? is not assignment ?? or with respect to any
expansion space hereafter included in the Premises, or with
respect to any amendments or modifications made to the Lease
after the date hereof without the consent of Assignor).
(ii) Landlord does not waive any claims, rights, suits or actions against
Assignor under the Lease;
(iii) No addition, alteration or improvement shall be made to the Premises
by Assignor or Assignee without the prior written consent of Landlord
and any such addition, alteration or improvement shall be made
subject to Section 10 of the Lease, except for matters consented to
in writing by the Landlord; and
(iv) Such consent is limited to the assignment and assumption herein made
and shall not relieve Assignor and Assignee from their obligation to
obtain the consent of Landlord to (x) any future assignment, in whole
or in part, of the interest of the tenant under the Lease, (y) any
future sublease of the Premises, or any part thereof, or (z) any
amendment, modification or change to the Agreement.
LANDLORD:
LINCOLN MENLO VIII LIMITED PARTNERSHIP
A CALIFORNIA LIMITED PARTNERSHIP
By: /s/ Signature Illegible
By:
Its:
<PAGE>
LEASE AGREEMENT
(Net)
Basic Lease Information
LEASE DATE: March 4, 1996
LANDLORD: LINCOLN MENLO VIII LIMITED PARTNERSHIP
A CALIFORNIA LIMITED PARTNERSHIP
LANDLORD'S ADDRESS: c/o Lincoln Property Company Management Services, Inc.
101 Lincoln Centre Drive, Fourth Floor
Foster City, California 94404-1167
TENANT: CBT Systems USA, Ltd.,
a Maryland corporation
Attention: Chief Financial Officer/Greg Priest
TENANT'S ADDRESS: 1005 Hamilton Court
Menlo Park, CA 94025
PREMISES: Approximately 25,648 rentable square feet as shown on
Exhibit A
---------
PREMISES ADDRESS: 1005 Hamilton Court
Menlo Park, CA 94025
Building E: (Phase VIII) 54,586 square feet
Lot (Building's tax parcel): APN 055-440-050
Park: Willow Park 984,954 square feet
TERM: May 17, 1996 ("Commencement Date"), through
------------
May 16, 2001 ("Expiration Date")
------------
BASE RENT (3): Thirty thousand seven hundred seventy-seven and 60/100
dollars ($30,777.60) per month
ADJUSTMENTS TO BASE RENT: Effective as of November 17, 1998, and through the
-----------------
balance of the Term the monthly Base Rent shall be
thirty-five thousand nine hundred seven and 20/100
dollars ($35,907.20).
SECURITY DEPOSIT (4.1): Thirty-six thousand and 00/100 dollars ($36,000.00)
*TENANT'S SHARE OF OPERATING EXPENSES (6.1): 47% OF THE PHASE VIII
*TENANT'S SHARE OF TAX EXPENSES (6.2): 47% OF THE BUILDING/LOT
*TENANT'S SHARE OF COMMON AREA UTILITY COSTS (7): 47% OF THE PHASE VIII
*The amount of Tenant's Share of the expenses as referenced above shall be
subject to modification as set forth in this Lease.
PERMITTED USES: General office, administration, training, sales and
distribution of for interactive software, but only to
the extent permitted by the City of Menlo Park and any
and all entities having jurisdiction.
UNRESERVED
PARKING SPACES: One hundred two (102) nonexclusive and undesignated
spaces
BROKER (38): The Galbreath Company (Tenant's Broker)
Cornish & Carey Commercial (Landlord's Broker)
EXHIBITS: Exhibit A - Premises, Building, Lot and/or Park
Exhibit B - Tenant Improvements
Exhibit C - Rules and Regulations
Exhibit D - Covenants, Conditions and Restrictions
Exhibit E - Hazardous Materials Disclosure Certificate
Exhibit F - Change of Commencement Date - Example
Exhibit G - Sign Criteria (Intentionally Omitted)
Exhibit H - Subordination, Non-Disturbance and
Attornment Agreement
ADDENDA: Addendum 1: Early Occupancy Agreement
Addendum 2: Option to Extent the Lease
1
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
SECTION PAGE
- ------- ----
<S> <C>
1. PREMISES 3
2. ADJUSTMENT OF COMMENCEMENT DATE; CONDITION OF THE PREMISES 3
3. RENT 4
4. SECURITY DEPOSIT 5
5. TENANT IMPROVEMENTS 5
6. ADDITIONAL RENT 5
7. UTILITIES 8
8. LATE CHARGES 9
9. USE OF PREMISES 9
10. ALTERATIONS AND ADDITIONS; AND SURRENDER OF PREMISES 10
11. REPAIRS AND MAINTENANCE 11
12. INSURANCE 12
13. WAIVER OF SUBROGATION 13
14. LIMITATION OF LIABILITY AND INDEMNITY 13
15. ASSIGNMENT AND SUBLEASING 14
16. AD VALOREM TAXES 15
17. SUBORDINATION 15
18. RIGHT OF ENTRY 16
19. ESTOPPEL CERTIFICATE 17
20. TENANT'S DEFAULT 17
21. REMEDIES FOR TENANT'S DEFAULT 18
22. HOLDING OVER 19
23. LANDLORD'S DEFAULT 19
24. PARKING 19
25. SALE OF PREMISES 19
26. WAIVER 20
27. CASUALTY DAMAGE 20
28. CONDEMNATION 20
29. ENVIRONMENTAL MATTERS/HAZARDOUS MATERIALS 21
30. FINANCIAL STATEMENTS 23
31. GENERAL PROVISIONS 23
32. SIGNS 24
33. MORTGAGEE PROTECTION 25
34. QUITCLAIM 25
35. MODIFICATIONS FOR LENDER 25
36. WARRANTIES OF TENANT 25
37. COMPLIANCE WITH AMERICANS WITH DISABILITIES ACT 26
38. BROKERAGE COMMISSION 26
39. QUIET ENJOYMENT 26
40. LANDLORD'S ABILITY TO PERFORM TENANT'S UNPERFORMED OBLIGATIONS 27
</TABLE>
2
<PAGE>
LEASE AGREEMENT
DATE: This Lease is made and entered into as of the Lease Date defined 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 an irrevocable
license (except if Tenant is in material default beyond applicable cure periods,
in which event the license may be revoked until such time as the default is
cured) for the right to use, on a non-exclusive basis, parking areas and
ancillary facilities located within the Common Area 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 set forth in the Basic Lease Information on Page 1. Tenant further
agrees that the number of rentable square feet of the Premises, the Building,
the Lot and the Park may subsequently change after the Lease Date commensurate
with any modifications to any of the foregoing.
2. ADJUSTMENT OF COMMENCEMENT DATE: CONDITION OF THE PREMISES: 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 in the condition required by this Lease and
the Expiration Date shall be extended by a period of time equal to the period
computed from the Commencement Date to the date possession is tendered by
Landlord to Tenant. In the event the commencement date and/or the expiration
date of this Lease is other than the Commencement Date and/or Expiration Date
provided on Page 1, 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
and the date on which Tenant is to commence paying Rent. In the event that
Landlord permits Tenant to occupy the Premises prior to the Commencement Date,
such occupancy shall be subject to the provisions of Addendum 1 of this Lease,
By taking possession of the Premises, Tenant shall be deemed to have accepted
the Premises in a good, clean and completed condition and state of repair, in
compliance with all applicable laws, codes, regulations, administrative orders
and ordinances, and subject to all matters of record. Notwithstanding the
foregoing to the contrary, Tenant's acceptance of the Premises and preparation
of a "punch-list" shall not be deemed a waiver of Tenant's right to have defects
in the Tenant Improvements or Building Improvements repaired at Landlord's
expense or relieve Landlord of its responsibilities to construct the Tenant
Improvements and the Building Improvements (as such term is defined in Exhibit
-------
B) in accordance with Exhibit B, so long as the defects are discovered within
- - ------- -
the first twelve (12) months after the Commencement Date of the Lease and are
submitted in writing by Tenant to Landlord. 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, and that neither Landlord nor Landlord's
agents or representatives has agreed to undertake any alterations or construct
any Tenant Improvements to the Premises except as expressly provided in this
Lease.
Notwithstanding the foregoing to the contrary. (A) in the event that
for reasons other than the occurrence of a Force Majeure Delay (as hereinafter
defined) or a Tenant Delay (as hereinafter defined) the Commencement Date has
not occurred by the date which is one hundred twenty (120) days after the date
that Landlord has obtained the last permit necessary to construct the Tenant
Improvements, (as that term is defined in Exhibit B ("Last Occupancy Date"), or
------- -
(B) in the event the Commencement Date has not occurred by the date which is two
hundred ten (210) days after the Last Occupancy Date for reason of Force Majeure
Delay, Tenant may elect to terminate the Lease. Termination of the Lease by
Tenant as provided for herein shall be the sole and exclusive remedy of Tenant
for Landlord's failure to deliver the Premises. Tenant shall exercise the right
to terminate provided for herein by giving Landlord written notice of its intent
to so terminate ("Termination Notice"). The Termination Notice shall be given,
if at all, on or before the date which is five (5) days after the Last Occupancy
Date. Termination of the Lease shall be effective sixty (60) days after
Landlord's receipt of the Termination Notice. In the event that Tenant gives the
Termination Notice, and in the further event that during such sixty (60) day
period, the
3
<PAGE>
Commencement Date occurs, the Tenant shall not be entitled to terminate the
Lease as provided for herein. For purposes of this paragraph the term "Force
Majeure Delay" shall mean any actual delay beyond the reasonable control of
Landlord in completion of the Tenant Improvements which is not a Tenant Delay
and which is caused by, with limitation, any one or more of the following: (a)
wars; (b) fire; (c) earthquake, flood or other natural disaster, (d) unusual and
unforeseeable delay not within the reasonable control of Landlord; (e)
casualties; (f) other acts of God; or (g) governmental action or inaction
(including failure, refusal or delay in issuing permits, approvals and/or
authorizations), or injunction, permit appeal or court order requiring cessation
of construction taking place in the Premises. The Term "Tenant Delay" shall mean
any delay in completion of the Tenant Improvements resulting from any or all of
the following: (i) Tenant's failure to timely perform any of its obligations
under the Lease, including any failure to complete on or before the date due
thereof, any actual item which is Tenant's responsibility to complete or
perform; (ii) Tenant's delay in approving plans, specifications, drawings, and
any other documents setting forth and/or describing the Tenant Improvements,
including, without limitation, the Final Drawings, beyond those periods of time
permitted by the terms of the Lease; (iii) Tenant's changes to Landlord and
Tenant approved plans, specifications, drawings or any other documents
describing and/or depicting the Tenant Improvements; (iv) Tenant's request for
materials, finishes, or installations which are not readily available or which
are incompatible with Landlord's standard materials, finishes or installations
for the Premises; (v) Tenant's use or occupancy of the Premises during the
construction of the Tenant Improvements or any act or failure to act by Tenant
in connection with its use or occupancy of the Premises during the construction
of the Tenant Improvements, Upon termination of the Lease by Tenant pursuant to
the terms of this paragraph, Landlord shall promptly return the Security Deposit
to Tenant.
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
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 described on Page 1, payable in
advance at Landlord's address shown on Page 1 on the first day of each month
throughout the term of the Lease. In addition to the Base Rent set forth on Page
1, Tenant shall pay Landlord in advance and on the first (1st) day of each month
throughout the term of this Lease (including any extensions of such term), as
Additional Rent Tenant's share, as set forth on Page 1, of Operating Expenses,
Tax Expenses, Common Area Utility Costs, and Utility Expenses, and
Administrative Expenses all in the manner as specified in Sections 6.1, 6.2,
6.3, 6.4 and 7 of this Lease, respectively. Additionally, Tenant shall pay to
Landlord as Additional Rent hereunder, immediately on Landlord's demand
therefor, any and all reasonable and actual costs and expenses incurred by
Landlord to enforce the provisions of this Lease, including, but not limited to,
costs associated with any proposed assignment or subletting of all or any
portion of the Premises by Tenant, 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. Except as otherwise provided in Addendum 1. 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 hereunder, including, but not limited to paying to
Landlord any and all amounts considered additional rent, such as Tenant's share
of Operating Expenses, Tax Expenses, Common Area Utility Costs, and Utility
Expenses, and Administrative Expenses. If, at any time, Tenant is in default of
or otherwise breaches 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 waived
by Landlord. 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. SECURITY DEPOSIT:
----------------
4.1 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 described on Page 1. 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.
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As soon as practicable 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 the condition required by
Section 10.2 hereof 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.
5. TENANT IMPROVEMENTS: Landlord shall construct the Building and Tenant
-------------------
Improvements as described and in accordance with the terms, conditions, criteria
and provisions set forth in Exhibit B, attached and incorporated herein by this
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reference. Tenant acknowledges that neither Landlord nor any of Landlord's
agents, representatives or employees has made any representations as to the
suitability or fitness of the Premises for the conduct of Tenant's business,
including, without limitation, any storage incidental thereto, or for any other
purpose, and that neither Landlord nor any of Landlord's agents, representatives
or employees has agreed to undertake any alterations or construct any Tenant
Improvements to the Premises except as expressly provided in Exhibit B to this
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Lease.
6. ADDITIONAL RENT: The costs and expenses described in this Section 6 and
---------------
all other sums, charges, costs and expenses specified in this Lease to be paid
by Tenant other than Base Rent, including, but not limited to, Utility Expenses,
Tenant's share of Common Area Utility Costs, Late Charges and Enforcement
Expenses are to be paid by Tenant to Landlord as additional rent (collectively,
"Additional Rent"). 6.1 Operating Expenses: In addition to the Base Rent set
forth in Section 3, Tenant shall pay its share, which is defined on Page 1, 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 on Page 1.
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 as
reasonably determined by Landlord. Tenant's Share of Operating Expense relating
to the Building, Lot and Park shall be a fraction, the numerator of which shall
be the rentable square feet in the
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Premises and the denominator of which shall be the number of rentable square
feet in the Building, the Lot and the Park, respectively. 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
(excluding structural portions of the roof);
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
Premises and the other portions of the Park leased exclusively to other
tenants. The Common Area includes, but is 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"
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 Area), 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 commercially
reasonable deductible provided, however, any deductible applicable to
earthquake coverage shall be amortized over the then remaining balance
of -the term of this lease and the Extended Term (at an interest rate
reasonably determined by Landlord) and Tenant shall pay its pro rata
share of the monthly amortized portion of such costs (including
interest charges) as part of Operating Expenses. If Tenant elects not
to exercise its option, then the amortization of the deductible
applicable to the Extended Term shall be paid by Tenant in one lump sum
upon the expiration of this Lease;
6.1.4 Landlord's cost of modifications to the Building, the
Common Area and/or the Park occasioned by any rules, laws or
regulations effective subsequent to the date on which the Building was
originally constructed; provided, however if there are modifications
necessitated by any such rules, laws or regulations or there are
replacement improvements which are required to be made to the Building,
the Common Area and/or the Park which are in the nature of capital
improvements whether or not required by any such rules, laws or
regulations then the costs of such modifications and replacement
improvements shall be amortized over a reasonable period which shall
not be less than the lesser of fifteen (15) years or the reasonably
estimated useful life of the modifications or replacement improvements
in question (at an interest rate as reasonably determined by Landlord)
and Tenant shall pay its pro rata share of the monthly amortized
portion of such costs (including interest charges) as part of the
Operating Expenses;
6.1.5 Landlord's cost of modifications to the Building, the
Common Area and/or the Park occasioned by any rules, laws or
regulations arising from Tenant's particular use of the Premises
regardless of when such rules, laws or regulations became effective;
6.1.6 If Landlord 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, and trash or
refuse collection;
6.1.7 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;
6.1.10 Landlord's cost of supplies, equipment, rental equipment
and other similar items used in the operation and/or maintenance of
the Park; and
6.1.11 Landlord's cost for the repairs and maintenance items set
forth in Section 11.2 below.
Notwithstanding the foregoing, for purposes of this Lease, the
term "Operating Expenses" shall not include the following:
(a) Leasing commissions, cost disbursements, and other expenses
incurred for leasing, renovating, or improving space for tenants other
than Tenant;
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(b) Depreciation and amortization except on materials, tools,
supplies and vendor-type equipment purchased by Landlord to supply services for
which Landlord might otherwise contract with third parties or such depreciation
and amortization which otherwise have already been included in the charge for
such third party services;
(c) Interest on debt or amortization payments on mortgages or deeds
of trust or any other debts for borrowed money;
(d) Costs for which Landlord has received reimbursement from others,
or costs and services which Tenant reimburses Landlord or pays third parties or
that Landlord provided selectively to one or more tenants of the Building, other
than Tenant, without reimbursement;
(e) Legal fees, brokerage commissions, advertising costs or other
related expenses incurred by Landlord in connection with leasing of space to
other tenants and for the financing of the Building. Lot, or Premises, except as
required pursuant to the provisions of Paragraph 21 hereof;
(f) Subject to the provisions of Section 27 below, costs of repairs
or other work necessitated by fire, windstorm or other casualty to the extent
such casualties are covered by insurance required to be maintained by Landlord
hereunder;
(g) Ground lease rental; and
(h) Those costs incurred by Landlord for the matters set forth in
Section 11.3 below
6.2 TAX EXPENSES: In addition to the Base Rent set forth in Section
3, Tenant shall pay its share, which is defined on Page 1, of all real property
taxes applicable to the Lease Term and 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 as reasonably determined by Landlord. 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 Tenant. The term "Tax
Expenses" shall mean and include, without limitation, any form of tax and
assessment (general, special, supplemental, ordinary or extraordinary),
commercial rental tax, payments under any improvement bond or bonds, license,
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, and the Lot, as against Landlord's right to rent or
other income therefrom, 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.
With respect to any assessments or taxes for which Landlord has the right to
elect to make a lump sum payment or cause such assessment or tax to be amortized
and paid over a period of time at a reasonably acceptable interest rate.
Landlord shall only include in the definition of Tax Expense the amortized
portion of such taxes and assessments (including any applicable interest
charges) for purposes of this Lease.
6.3 ADMINISTRATIVE EXPENSES: In addition to the Base Rent set forth
in Section 3 hereof, Tenant shall pay Landlord, without prior notice or demand,
on the first (1st) day of each month throughout the term of this Lease
(including any extensions of such term), as compensation to Landlord for
accounting and management services rendered on behalf of the Building and/or the
Park, one-twelfth (1/12th) of an amount equal to fifteen percent (15%) of the
estimated amount of the aggregate of the Tenant's s-Share of (i) the total
Operating-Expenses and Tax Expenses as described in Sections 6.1 and 6.2 above,
respectively, and (ii) all Common Area Utility Costs for the Park and the
Premises as described in Section 7 below; as such amounts are estimated by
Landlord in accordance with the provisions of Section 6.4 below (collectively,
the "Administrative Expenses"). Tenant's obligations to pay such Administrative
Expenses shall survive the expiration or earlier termination of this Lease.
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6.4 PAYMENT OF EXPENSES: Landlord shall 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, on the
first (1st) day of each month and throughout the remaining months of such
calendar year. Thereafter, Landlord may estimate such expenses as of the
beginning of each calendar year and Tenant shall pay one-twelfth (1/12th) of
such estimated amount as Additional Rent hereunder on the first day of each
month during such calendar year and for each ensuing calendar year throughout
the term of this Lease (including any extensions of the term). By April 30th of
each of the following calendar years, or as soon thereafter as reasonably
possible, including the calendar year after the calendar year in which this
Lease terminates or the term expires, Landlord shall endeavor to 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. Tenant, at its sole cost
and expense through any certified public 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 and not more frequently than once during any calendar
year. Tenant's obligations to pay its share of Operating Expenses and Tax
Expenses shall survive the expiration or earlier termination of this Lease.
6.5 ANNUAL RECONCILIATION: If the term of the Lease expires prior to
the annual reconciliation of expenses, if any, Landlord shall have the right to
reasonably estimate Tenant's share of such expenses, and if Landlord reasonably
determines that an underpayment is due, Tenant hereby agrees that Landlord shall
be entitled to deduct such underpayment from Tenant's Security Deposit. If
Landlord reasonably determines that an overpayment has been made by Tenant,
Landlord shall refund said overpayment to Tenant as soon as practicable
thereafter. 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 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.
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. 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 its share 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 any 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, Tenant shall pay to Landlord, as
Additional Rent, without prior notice or demand, on the first (1st) day of each
month throughout 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 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 its share, which is described on Page 1,
as Additional Rent, without prior notice or demand, on the first (1st) day of
each month throughout the term of this Lease, 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 in the same manner and time periods as specified in
Section 6.4 above and any reconciliation thereof shall also be in the same
manner as specified in Sections 6.4 and 6.5 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 as reasonably determined by
Landlord. 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 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,
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or Tenant's use and occupancy thereof, or as a result directly or indirectly of
any such rationing or restrictions.
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 anytime thereafter) by Tenant to Landlord of
Base Rent, Tenant's share of Operating Expenses, Tax Expenses, Common Area
Utility Costs, and Utility Expenses, Administrative 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 seven
percent (7%) 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 the 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:
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9.1 COMPLIANCE WITH LAWS, RECORDED MATTERS, AND RULES AND REGULATIONS:
The Premises are to be used solely for the uses stated on Page 1 and for no
other uses or purposes without Landlord's prior written consent, which consent
may be given or withheld in Landlord's sole discretion. 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 convenants,
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.
Notwithstanding anything to the contrary in this Lease. Landlord shall be
responsible for any capital repairs to the Premises required in order to comply
with any Laws applicable to the Premises as of the Commencement Date and, in the
event that there are changes in any Laws after the Commencement Date which
require any capital repairs to be made to the Premises. Landlord shall be
responsible for compliance with such Laws and the cost thereof shall be included
in Operating Expenses as provided in paragraph 6 hereof.
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 other tenants or use or allow the
Premises to
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to the contrary in this Lease. Tenant shall have the right to remove any
fixtures, furniture, furnishings, trade fixtures and other personal property
belonging to Tenant
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 Section
11.2 below and subject to the provisions of Section 27 below, Tenant shall, at
----------
Tenant's sole cost and expense , keep and maintain the Premises and the adjacent
areas (including, without limitation, any portion of the Common Area used by
Tenant or Tenant's Representatives) 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 mechanical systems, heating,
ventilation and air conditioning systems exclusively serving the Premises, (b)
all plumbing, electrical wiring and equipment exclusively serving the Premises,
(c) all interior lighting (including, without limitation, light bulbs and/or
ballasts) and exterior lighting serving the Premises or adjacent to the
Premises, (d) all glass, windows, window frames, window casements, skylights,
interior and exterior doors, door frames and door closers, (e) all roll-up
doors, ramps and dock equipment including without limitation, dock bumpers, dock
plates, dock seals, dock levelers and dock lights exclusively serving the
Premises, (f) all tenant signage, (g) lifts for disabled persons exclusively
serving the Premises, (h) sprinkler systems, fire protection systems and
security systems exclusively serving the Premises, (i) all partitions, fixtures,
equipment, interior painting, and interior walls and floors of the Premises and
every part thereof (including, without limitation, any demising walls contiguous
to any portion of the Premises).
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, and (ii) the repairs rendered
necessary by the intentional or negligent acts or omissions of Tenant or
Tenant's Representatives, Landlord agrees, at Landlord's expense, subject to
reimbursement pursuant to Section 6 above, to keep in good repair the plumbing
and mechanical systems not exclusively serving the Premises, any rail spur and
rail crossing, the roof, roof membranes, exterior walls of the Building, signage
(exclusive of tenant signage), and electrical wiring and equipment not
exclusively serving the Premises, exterior lighting, exterior glass, exterior
doors and entrances, exterior window casements, exterior doors and door closers,
exterior painting of the Building (exclusive of 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 exterior to, and not
exclusively serving the Premises. Unless otherwise notified by Landlord, in
writing, that Landlord has elected to procure and maintain the following
described contract(s), Tenant shall procure and maintain (a) the heating,
ventilation and air conditioning systems preventative maintenance and repair
contract(s); such contract(s) to be on a bi-monthly or quarterly basis, as
reasonably determined by Landlord, and (b) the fire and sprinkler protection
services and preventative maintenance and repair contract(s) (including, without
limitation, monitoring services); such contract(s) to be on a bi-monthly or
quarterly basis, as reasonably determined by Landlord. Landlord reserves the
right, but without the obligation to do so, to procure and maintain (i) the
heating, ventilation and air conditioning systems preventative maintenance and
repair contract(s), and/or (ii) the fire and sprinkler protection services and
preventative maintenance and repair contract(s) (including, without limitation,
monitoring services). If Landlord so elects to procure and maintain any such
contract(s), Tenant will reimburse Landlord for the cost thereof in accordance
with the provisions of Section 6 above. If Tenant procures and maintains any of
such contract(s), Tenant will promptly deliver to Landlord a true and complete
copy of (x) each such contract and any and all renewals or extensions thereof,
and (y) each service report or other summary received by Tenant pursuant to or
in connection with such contract(s).
11.3 LANDLORD'S REPAIRS AND MAINTENANCE OBLIGATIONS: Except for repairs
rendered necessary by the intentional or negligent acts or omissions of Tenant
or 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 sole discretion.
11.4 TENANT'S FAILURE TO PERFORM REPAIRS AND MAINTENANCE OBLIGATIONS:
Except for normal maintenance and repair of the items described above, 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
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Landlord shall be named as additional insureds under all of the policies
required in Section 12.1(iii) above. 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 liability policy or 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 to 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 areas 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.
12.4 FAILURE TO TENANT TO PURCHASE AND MAINTAIN INSURANCE: In the event
Tenant does not purchase the insurance required in this Lease or keep the same
in full force and effect throughout the term of this Lease (including any
renewals or extensions), Landlord may, but without obligation to do so, purchase
the necessary insurance and pay the premiums therefor. If Landlord so elects to
purchase such insurance, Tenant shall pay to Landlord, as additional rent, the
amount so paid by Landlord promptly upon Landlord's demand therefor. In
addition, Landlord may recover from Tenant and Tenant agrees to pay, as
additional rent, any and all Enforcement Expenses and damages which Landlord may
sustain by reason of Tenant's failure to obtain and maintain such insurance. If
Tenant fails to maintain any insurance required in this Lease, Tenant shall be
liable for all losses, damages and costs resulting from such failure.
12.5 LANDLORD'S INSURANCE: LANDLORD SHALL OBTAIN AND KEEP IN FORCE
DURING THE TERM OF THIS LEASE A POLICY OF COMBINED SINGLE LIMIT BODILY INJURY
AND PROPERTY DAMAGE INSURANCE, INSURING LANDLORD, AGAINST LIABILITY FOR BODILY
INJURY AND PROPERTY DAMAGE WITH A LIMIT OF LIABILITY OF AT LEAST $2,000,000 PER
OCCURRENCE AND IN THE AGGREGATE. LANDLORD SHALL OBTAIN AND KEEP IN FORCE DURING
THE TERM OF THIS LEASE A POLICY OR POLICIES OF INSURANCE COVERING LOSS OR DAMAGE
TO THE BUILDING, AND THE TENANT IMPROVEMENTS TO THE EXTENT OF LANDLORD'S ACTUAL
INTEREST THEREIN, BUT NOT INCLUDING TENANT'S PROPERTY OR ALTERATIONS OR
IMPROVEMENTS MADE TO THE PREMISES BY OR ON BEHALF OF TENANT (EXCLUDING THE
TENANT IMPROVEMENTS AS LIMITED ABOVE), IN AN AMOUNT OF EIGHTY PERCENT (80%) OF
THE FULL REPLACEMENT VALUE THEREOF EXCLUDING LAND COSTS, EXCAVATION COSTS,
FOOTINGS AND FOUNDATIONS. THE FOREGOING INSURANCE SHALL PROVIDE PROTECTION
AGAINST ALL PERILS WITHIN THE CLASSIFICATION OF FIRE, EXTENDED COVERAGE (AS SUCH
TERM IS USED IN THE INSURANCE INDUSTRY), VANDALISM, MALICIOUS MISCHIEF, AND TO
THE EXTENT AVAILABLE AT COMMERCIALLY REASONABLE RATES (AS SOLELY DETERMINED BY
LANDLORD), FLOOD AND/OR EARTHQUAKE INSURANCE. THE FOREGOING INSURANCE POLICIES
MAY BE PROCURED AND CARRIED PURSUANT TO A BLANKET POLICY OF INSURANCE COVERING
ADDITIONAL PROPERTIES OTHER THAN THE BUILDING. LANDLORD'S COST OF OBTAINING AND
MAINTAINING SUCH INSURANCE POLICIES ARE INCLUDED AS ONE OF THE ITEMS COMPRISING
THE OPERATING EXPENSES.
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, or would have been insured had the waiving party carried the type of
insurance required to be carried by such party under this Lease. 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 uncollectible.
14. LIMITATION OF LIABILITY AND INDEMNIFY: 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
reasonably acceptable to Landlord) and hold Landlord and Landlord's lender(s),
partners, employees, representatives, legal representatives, successors and
assigns (collectively, the "Indemnitees") harmless and indemnify the Indemnitees
from and against 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, Tenant's or Tenant's Representatives' use of the Premises,
Building and/or the Park, or the conduct of Tenant's business, or
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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 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 of 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 for a
permissible assignment in connection with a Permitted Transfer, any and all
options, 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. Notwithstanding
anything to the contrary contained herein, so long as Tenant delivers to
Landlord (1) at least thirty (30) 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 Landlord approves, in writing, of
any change in the proposed use of the subject portion of the Premises, then
Tenant may assign this Lease or sublease any portion of the Premises (X) to any
Related Entity, or (Y) in connection with any merger, consolidation or sale of
substantially all of the assets of Tenant whereby such new entity has an equal
or greater net worth of Tenant as of the date on which any merger, consolidation
or sale is effectuated, without having to obtain the prior written consent of
Landlord thereto (the transactions described in (X) and (Y) above are referred
to herein as a "Permitted Transfers"). For purposes of this Lease the term
"Related Entity" shall mean and refer to any corporation or entity which
controls, is controlled by or is under common control with Tenant, as all of
such terms are customarily used in the industry, and with an equal or greater
net worth as Tenant has as of the proposed transfer date. Any assignment to a
Related Entity shall in no way relieve Tenant of any liability Tenant may have
under this Lease and such assignee or sublessee shall be jointly and severally
liable with Tenant hereunder.
15.2 EXCESS SUBLEASE RENTAL OR ASSIGNMENT CONSIDERATION: In the event
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, as and when
received, 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.
16. AD VALOREM TAXES: Prior to delinquency, Tenant shall pay all taxes
----------------
and assessments levied upon trade fixtures, alterations, additions,
improvements, 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 ar 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
-------------
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
15
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shall be subject and subordinate at all times to: (1) 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 may now exist or hereafter be
executed in any amount for 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, attorn 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; or (d) liable to Tenant for any Security Deposit not actually
received by such successor in interest to the extent any portion or 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 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.
Landlord hereby represents that as of the date on which Landlord and
Tenant execute this Lease there are no deeds of trust, mortgages or ground
leases encumbering, or in force against, any portion of the Premises, the
Building or the Lot other than a Deed of Trust in favor of Mid-Peninsula Bank
(the "Construction Lender") which is currently encumbering and in force against
the Lot. Within forty-five (45) days after the date on which Landlord and Tenant
execute this Lease, Landlord shall use commercially reasonable efforts to cause
the Construction Lender to execute, acknowledge and record in the Official
Records of San Mateo County, California a nondisturbance and attornment
agreement substantially in the form of Exhibit E attached hereto (the "Original
---------
SNDA"). Tenant hereby agrees to also execute, have acknowledged and deliver to
Landlord the Original SNDA within ten (10) business days after the date on which
Landlord and Tenant execute this Lease, Landlord has advised Tenant that at
sometime after the date on which this Lease is executed by the parties Landlord
will obtain a permanent loan which will be secured by a lien of a deed of trust
against the Premises, the Building and/or the Lot. Landlord and Tenant agree
that if Landlord at any time during the term of the Lease causes the Premises,
the Building and/or the Lot to be encumbered by a mortgage, deed of trust or
similar security instrument and the beneficiary thereof requires this Lease and
Tenant's rights and interests in this Lease to be subordinated to such
encumbrance or lien, Landlord will provide to Tenant a subordination,
nondisturbance and attornment agreement in form reasonably acceptable to
Landlord, the subject beneficiary and Tenant.
18. RIGHT OF ENTRY: Tenant grants Landlord or its agents the right to
--------------
enter the Premises at all reasonable times following reasonable prior notice
(except in the event of an emergency) for purposes of inspection, exhibition,
posting of 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 also have
the right to place "for rent" signs during the last nine (9) months of the Term
of this Lease, and ,at any time during the Term of this Lease "for sale" signs
on the outside of the Premises. 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. Landlord shall use commercially
reasonable efforts to abide by security precautions of Tenant to the extent
Landlord actually receives such safety or security regulations, except in the
event of an emergency.
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19. Estoppel Certificate: Tenant shall execute (and acknowledge if
--------------------
required by any lender or ground lessor) and deliver to Landlord, within not
less than 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 encumbrancer 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 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 default and breach of this
Lease by Tenant:
20.1 The abandonment of the Premises by Tenant or 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 or 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 within three (3) days after
Tenant's receipt (in the manner set forth in Section 31.10 below) of written
notice from Landlord that said payment is past due. Tenant agrees that such
written notice by Landlord shall serve as the statutorily required notice under
the law and that Tenant further 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 or law now or
hereafter in effect;
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
(i) thirty (30) days of the date on which Landlord delivers written notice of
such failure to Tenant for all failures other than with respect to Hazardous
Materials, and (ii) ten (10) days of the date on which Landlord delivers written
notice of such failure to Tenant for all failures in any way related to
Hazardous Materials. However, Tenant shall not be in default of its obligations
hereunder if such failure cannot reasonably be cured within such thirty (30) or
ten (10) day period, as applicable, and Tenant promptly commences, and
thereafter diligently proceeds with same to completion, all actions necessary to
cure such failure as soon as is reasonably possible, but in no event shall the
completion of such cure be later than forty-five (45) days after the date on
which Landlord delivers to Tenant written notice of such failure, unless
Landlord, acting reasonably and in good faith, otherwise expressly agrees in
writing to a longer period of time based upon the circumstances relating to such
failure as well as the nature of the failure and the nature of the actions
necessary to cure such failure;
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 by 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
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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;
20.6 Tenant knowingly making any material misrepresentation or omission
by Tenant in any materials delivered by or on behalf of Tenant to Landlord
pursuant to this Lease; or
21. REMEDIES FOR TENANT'S DEFAULT:
-----------------------------
21.1 LANDLORD'S RIGHTS: In the event of Tenant's default or breach of
the 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 costs Landlord incurs in reletting the Premises or any part
thereof, including, without limitation, broker's commissions, expenses of
cleaning, and redecorating, (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, Administrative 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, Administrative 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 receives 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.
Acts 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 of the 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 unamortized 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 (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
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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 defaults or otherwise
breaches 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 or
breach of any provision of this Lease shall not be deemed or construed a waiver
of any other breach or default by Tenant hereunder or of any subsequent breach
or 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 provisions of this Lease,
provided the monthly Base Rent during such hold over period shall be 150% 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 fifty percent (50%) 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 in no event be less than thirty (30) days
after receipt by Landlord of written notice specifying the nature of the
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.
24. PARKING: Tenant shall have a license to use the number of undesignated
-------
and nonexclusive parking spaces set forth on Page 1. 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. Landlord shall not oversubscribe parking.
25. SALE OF PREMISES: In the event of any sale of the Premises by
----------------
Landlord or the cessation otherwise of Landlord's interest therein, Landlord
shall be and is hereby entirely released from any and all of its obligations to
perform or further perform under this Lease and from all liability hereunder
occurring after the date of such sale provided that the Security Deposit is
transferred to such purchaser; 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 only, 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.
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A ground lease or similar long term lease by Landlord of the entire Building, of
which the 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 owner
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. The subsequent acceptance of Rent by Landlord after
breach by Tenant of any covenant or term of this Lease shall not be deemed a
waiver of such breach, 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
sixty (60) days after the date of such damage, in which event the Rent shall be
abated as of the date of such damage. If the Premises shall be so damaged by
fire or other such that, in Landlord's reasonable opinion, restoration or
repairs would require a period of time greater than one hundred eighty (180)
days (excluding any Force Majeure Delays) to substantially complete, then either
Landlord or Tenant may terminate this Lease by delivering written notice thereof
within ten (10) days after Landlord has made such determination. If Landlord or
Tenant, as the case may be, 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 ninety (90) days
after the date of such damage or as soon as reasonably practicable 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 or fixtures and equipment removable by Tenant or any improvements,
alterations or additions installed by or for the benefit of Tenant, other than
the Tenant Improvements, 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 that, subject to the
provisions 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.
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, the Rent shall not be diminished during the
repair of such damage to the extent Landlord does not receive insurance proceeds
for lost rentals and 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 expense is not covered by insurance proceeds. In the event the holder of any
indebtedness secured by the Premises requires that the insurance proceeds be
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 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
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Interest or other Interest of Tenant, provided, however, Tenant shall be
----------------------------------
entitled to attempt to recover from the condemning authority, a separate award
- ------------------------------------------------------------------------------
for Tenant's moving expenses and relocation costs. If a substantial portion of
- -------------------------------------------------
the Premises, Building or the Lot is so Condemned, Landlord at its option may
terminate this Lease. If Landlord does not elect 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:
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29.1 HAZARDOUS MATERIALS DISCLOSURE CERTIFICATE: Prior to executing
this Lease, Tenant has completed, executed and delivered to Landlord the
Hazardous Materials Disclosure Certificate (the "HazMat Certificate"), a copy of
which is attached hereto as Exhibit E and incorporated herein by this reference.
---------
Tenant covenants, represents and warrants to Landlord that the information on
the 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 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.
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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 of threatens
to cause a nuisance upon or waste to any portion of the Premises, the 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 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 at all times during the term of this
Lease 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 the Premises, the Common Areas and/or the parking
lots (to the extent the Common Areas and/or the parking lots are not considered
part of the Premises). The costs of all such inspections, tests and
investigations shall be borne solely by Tenant, if Landlord in its reasonable
-----------------
discretion, determines that Tenant or any of Tenant's representatives are
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responsible for any contamination revealed by such inspections, tests 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,
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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 the Premises, or in any Common Areas or
parking lots (to the extent such areas are not considered part of the Premises)
of which Tenant has knowledge. Tenant, at its sole cost 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 by Tenant or Tenant's representatives whether or not arising from or
related to the intentional or negligent acts 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 so long as
such actions would not potentially have a material adverse long-term or short-
term effect on the Premises, the Building, the Lot or the Park, or any portion
of any of the foregoing. 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 so 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.
29.5 ENVIRONMENTAL INDEMNITY: In addition to Tenant's obligations as
set forth hereinabove, Tenant agrees to, and shall, protect, indemnify, defend
(with counsel acceptable to Landlord) and hold Landlord and Landlord's lenders,
partners, property management company (if other than Landlord), agents,
directors, officers, employees, representatives, contractors, shareholders,
successors and assigns and each of their respective partners, directors,
employees representatives, agents, contractors, shareholders, successors and
assigns harmless from and against any and all claims, judgments, damages,
penalties, fines, liabilities, losses (including, without limitation, diminution
in value of the Premises, the Building, the Lot, the Park, or any portion of any
of the foregoing, 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 by Tenant or Tenant's Representatives on, in or about the Premises, or
in any Common Areas or parking lots (to the extent such areas are not considered
part of the Premises) as a result (directly or indirectly) of the intentional or
negligent acts or omissions of Tenant or Tenant's Representatives. The foregoing
indemnity shall not include any claims, judgments, damages, penalties, fines,
liabilities or losses related in any way to the residual hazardous substances
described in Section 29.7 below. 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 the Park, nor the strict
compliance by Tenant with all Environmental Laws shall excuse Tenant from its
obligations of indemnification pursuant hereto. Tenant's obligations to Landlord
under this Section 29 and the indemnity contained herein shall be without regard
to negligence on Tenant's part with respect to the violation of any
Environmental Law by Tenant or Tenant's Representatives which results in
liability to any of the aforementioned indemnities. Tenant's obligations and
liabilities in connection with the presence of Hazardous Materials on the
Premises, the Building, the Lot , the Park, or any portion of any of the
foregoing shall be limited to the express provisions of this Section 29.
29.6 Survival: Tenant's and Landlord'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's
environmental consultants (acting reasonably and in good faith.) 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 provisions of this Lease with respect to
Hazardous Materials for which Tenant is responsible pursuant to Section 29.5
hereof, including without limitation all Environmental Laws at the expiration or
earlier termination of this Lease, then at Landlord's sole option, Landlord may
require Tenant to hold over possession of the Premises until Tenant can
surrender the Premises to Landlord in the condition in which
22
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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. 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 circumstance and will otherwise be subject to the
provisions of Section 22 of this Lease.
29.7 DISCLOSURE: The land described herein contains residual hazardous
substances. Such condition renders the land and the owner. Tenant or other
possessor of the land subject to requirements, restrictions, provisions, and
liabilities contained in chapter 6.5 and Chapter 6.8 of division 20 of the
Health and Safety Code, as same may be amended from time, and any successor
statutes thereof. This statement is not a declaration that a hazard to public
health, safety and welfare exists.
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 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 and
publicly available audited financial statements of Tenant (including
interim periods following the end of the last fiscal year for which annual
statements are publicly 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 the 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.
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 without 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 or 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 in the Premises and the Building and Tenant agrees to look
solely to the Premises and the Building for of any liability and shall not look
to other assets of Landlord nor seek any recourse against the assets of the
individual partners, directors, officers, shareholders, agents or employees of
Landlord; it being intended that Landlord and the individual partners,
directors, officers, shareholders, agents or employees 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 and from all further liabilities and
expenses hereunder 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 the laws of the
State of California.
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31.7 ATTORNEYS' FEES. In the event any dispute between the parties
result 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.
31.8 ENTIRE AGREEMENT. This Lease supersedes 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 Tenant executes this
Lease, Tenant shall deliver to Landlord an original certificate of status for
Tenant issued by the California Secretary of State or statement of partnership
for Tenant recorded in the county in which the Premises are located, as
applicable, and such other documents as Landlord may reasonably request with
regard to the lawful existence of Tenant. Each person executing this Lease on
behalf of a 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.
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 States mail, certified and postage
prepaid; or (ii) by personal delivery to any employee or agent of Tenant over
the age of eighteen (18) years of age; or (iii) by overnight courier, all of
which shall be addressed to Tenant at the Premises; or (iv) by facsimile at the
facsimile number at the Premises, if any, as provided by Tenant on Page 1 of
this Lease or otherwise provided to Landlord. Notice and/or demand shall be
deemed given upon the earlier of actual receipt, or the date on which
such receipt is refused. Notice and/or demand by facsimile shall be complete
upon transmission over the telephone line. 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,
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 provision 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 Park,
and/or any claim of injury, loss or damage.
31.14 COUNTERCLAIMS. In the event Landlord commences any proceedings
for nonpayment of Base Rent, due hereunder, Tenant shall not interpose any non-
compulsory counterclaim of whatever nature or description in any such
proceedings, provided, however, nothing contained herein shall be deemed or
construed as a waiver of the Tenant's right to assert such claims in any
separate action brought by Tenant or the right to offset the amount of any final
judgment owed by Landlord to Tenant.
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.
32. SIGNS: All signs and graphics of every kind visible in or from public
view or 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
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Criteria as same may exist from time to time 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 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) sign(s) 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. Tenant shall be permitted to install, at its sole cost and
expense, its corporate name on the Building. The size, style, location and
method of installation shall be reasonably determined and approved by Landlord.
33. MORTGAGEE PROTECTION: Upon any breach or 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 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), 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 breach or 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 have
actually received and not refunded the deposit, provided, however, Landlord
-------- -------
shall remain responsible for any deposits not so-transferred. 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 its consent thereto,
provided such modifications do not adversely affect Tenant's rights or
obligations hereunder or the use, occupancy or quiet enjoyment of Tenant
hereunder. If the foregoing occurs, Landlord shall reimburse Tenant for any
reasonable out -of-pocket costs and expenses incurred by Tenant in connection
with such modifications.
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 except as
otherwise expressly provided herein. 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.
25
<PAGE>
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 with
respect to the condition of the Building, Tenant's use of the Premises and for
all improvements to be made to the Premises after the actual Commencement Date
(other than the Tenant Improvements): provided, however, with respect to the
-------- -------
Tenant Improvements Landlord shall be solely responsible for ensuring that the
design of all Tenant Improvements are not in violation of the then applicable
requirements 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 Area 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 particular use of the Premises or any work or alteration
made to the Premises by or on behalf of 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 with
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 Landlord's lender(s), partners, employees, representatives, legal
representatives, successors and assigns (collectively, the "Indemnitees")
harmless and indemnify the Indemnitees from and against all liabilities,
damages, claims, losses, 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 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 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 exist as of the date on which Tenant executes this Lease. All brokerage
commissions payable to the Brokers in connection with the initial term of this
Lease shall be paid by Landlord pursuant to a separate agreement between
Landlord and the Brokers.
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 periods 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.
26
<PAGE>
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, provisions, 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
owning 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.
IN WITNESS WHEREOF, this Lease is executed on the date and year first
written above.
TENANT:
CBT Systems USA, Ltd.,
a Maryland corporation
By: /s/ Signature Illegible
Rune Eliasen
Vice President of Operations
By: /s/ Signature Illegible
Greg Priest
Chief Financial Officer
Date: 3-7-96
LANDLORD:
LINCOLN MENLO VIII LIMITED PARTNERSHIP
A CALIFORNIA LIMITED PARTNERSHIP
By: Lincoln Property Company Management Services Inc.,
As Manager and Agent for Owner
By: /s/ Signature Illegible
Vice President
Date: _____________________
27
<PAGE>
EXHIBIT A - PREMISES
PAGE 1 OF 1
LEASE DATED MARCH 4 1996, BY AND BETWEEN
CBT SYSTEMS USA, LTD.,
A MARYLAND CORPORATION
("TENANT"),
AND
LINCOLN MENLO VIII LIMITED PARTNERSHIP
A CALIFORNIA LIMITED PARTNERSHIP
("LANDLORD")
[CHART OMITTED]
INITIALS:
- --------
TENANT: /s/ Signature Illegible
LANDLORD: ______
<PAGE>
EXHIBIT B TO LEASE AGREEMENT
TENANT IMPROVEMENTS
This exhibit, entitled "Tenant Improvements", is and shall constitute EXHIBIT B
------- -
to that certain Lease Agreement dated March 4, 1996 (the "Lease"), by and
between LINCOLN MENLO VIII LIMITED PARTNERSHIP, A CALIFORNIA LIMITED PARTNERSHIP
("Landlord") and CBT Systems USA, Ltd., a Maryland corporation ("Tenant") for
the leasing of certain premises located in the Willow Park at Building E, 1005
Hamilton Court, Menlo Park, 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.A. Building Improvements, Landlord and Tenant hereby acknowledge and agree
that as of the Lease Date, the Building and, thus, the Premises, have not been
fully constructed. Landlord has commenced the construction of the Building and
certain improvements and additions to the Park related to the construction of
the Building (the "Building Improvements"), which construction is scheduled for
completion on or about April 1, 1996, excluding any Force Majeure Delays.
"Building Improvements" as used in this Lease shall specifically include the
following: (i) the building structure, including foundations, slab on grade,
roof framing, roofing, exterior walls of the building, including exterior doors,
concrete wall panels and glazing; (ii) utilities brought to a central location
within the building, including electrical power, water and sewer; and (iii) fire
sprinkler mains and branch lines with sprinkler heads (excluding modification
required for Tenant Improvements. The term "Building Improvements" specifically
excludes, without limitation, the following: (a) underslab plumbing; (b) finish
carpentry: (c) interior doors, windows and hardware: (d) interior finishes: (e)
drywall partitions: (f) acoustic ceiling: (g) floor and window coverings: (h)
casework: (i) dock equipment (j) plumbing: (k) electrical wiring and
distribution: (l) heating, ventilation and air conditioning: (m) fire sprinkler
finish: (n) security systems: (o) phone and data lines: and (p) insulation: (q)
in-rack fire sprinklers: (r) slab treatment.
1.B. 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.
---------
Landlord shall construct the Building Improvements and Tenant Improvements in
accordance with the Final Drawings therefor, in compliance with all applicable
laws, in a good and workmanlike manner and using new materials of good quality.
<PAGE>
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 Building Improvements as
- ------------
described above, any alternations, 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.
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") which shall be
-------------
prepared by Lincoln Property Company Planning Department and approved by Tenant
and Landlord and 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 March 12, 1996, 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. The cost of the working drawings shall be reasonable and competitive. 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 materially adversely affect Building systems, the
structure of the Building or the safety of the Building and/or its occupants;
(b) would 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
1
<PAGE>
affect the appearance of the Building or the Park; (g) would materially
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
-------
fifteen percent (15%) 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 not 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 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 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 five (5) business days after any
request therefor, all information required by Landlord or Landlord's architect,
engineer or other representatives for completion of the Final Drawings. Tenant
shall approve or disapprove the Final Drawings within three (3) 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 three
(3) business day period, deliver to Landlord written notice of its disapproval
and Tenant shall specify in such written notice, in sufficient detail 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), either as part of the Amortized Excess TI Costs
and together with those other sums amortized over the initial term of the Lease,
or 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, Landlord will put the Final Drawings out for bid to no less
than three (3) licensed, qualified (in Landlord's discretion) and insured
general contractors. Tenant may designate two (2) general contractors to bid the
Work so long as such contractors meet the qualifications required by Landlord.
The Tenant Improvements shall be constructed by the general contractor which
submits (and provides sufficient support therefor, in writing, if requested to
do so by Landlord) the lowest bid, unless otherwise agreed to by Landlord and
Tenant based upon criteria other than price (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
2
<PAGE>
shown in the Final Drawings) building standard materials, quantities and
procedures then in use by Landlord ("Building Standards").
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 (e) any Tenant Delays
(defined in Section 7 below). The Building Improvements and Tenant Improvements
---------
shall be substantially completed on the date that all of the following have
occurred ("Substantial Completion", or "Substantially Completed", or
"Substantially Complete"); (i) if there is a project architect, when the
architect issues a certificate of substantial completion; (ii) Tenant has direct
access to the Premises with all building services and utilities serving the
Premises; (iii) if required, a certificate of occupancy or comparable evidence
of completion has been issued by the appropriate governmental agency for the
Premises; (iv) within two (2) business days of Landlord's request therefor,
Landlord and Tenant have conducted a walk-through of the Premises to describe
all incomplete or defective items; (v) Landlord shall have completed the repair
of all incomplete or defective items found during the walk-through that
materially impair Tenant's use or occupancy of the Premises; and (vi) Landlord
and Tenant shall have prepared a punch-list of all incomplete or defective items
found during the walk-through that do not materially impair Tenant's use or
occupancy of the Premises, the correction of which shall not delay the date on
which the Tenant Improvements shall be considered Substantially Completed. 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), except as
otherwise provided herein, 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.
7. Tenant Delays. If 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 then the Commencement Date shall be that date that the
Tenant Improvements would have been substantially completed but for any such
Tenant Delays and the Expiration Date shall be that date which is sixty (60)
months thereafter: (a) delays actually caused by 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 Sections 3 and 4 above; (c) the failure of Tenant to
----------------
comply with the requirements of Section 10 below that actually causes a delay;
----------
(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; (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, if any,; (f) the performance of any
additional work pursuant to a Change Request (defined
3
<PAGE>
below in Section 11) which is requested by Tenant that actually causes a delay;
----------
(g) the performance of work in or about the Premises by any person, firm or
corporation employed by or on behalf of Tenant that actually causes a delay,
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, will be determined
at a later date (the "Estimated TI Costs"). If the actual Tenant Improvement
------------------
Costs varies from the initial estimate by more than twenty-five percent (25%),
then Landlord may require 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 to Landlord evidence
satisfactory to Landlord, in its reasonable discretion, that Tenant has adequate
financial resources to pay for the Excess Tenant Improvement Costs, as
reasonably determined by Landlord; and/or (d) Tenant 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 seven hundred sixty-nine thousand four hundred forty and 00/100
dollars ($769,440.00), which amount is based on the amount of thirty and 00/100
dollars ($30.00) per rentable square foot for 25,648 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 six
hundred forty-one thousand two hundred and 00/100 dollars ($641,200.00) (the
"Tenant Improvement Allowance") based upon an allowance of twenty-five and
00/100 dollars ($25.00) per rentable square foot for 25,648 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 and warehouse/distribution 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;
(b) All costs of obtaining building permits and other necessary
authorizations and approvals from the City of Menlo Park 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
4
<PAGE>
(f) A construction management fee payable to Landlord in the
amount of five percent (5%) of all direct and indirect costs of
procuring, constructing and installing the Tenant Improvements in
the Premises and the Building.
Notwithstanding anything to the contrary in the Lease or this Exhibit B, the
Tenant Improvement Allowance shall not be used for, the Tenant Improvement Costs
shall not include and, Landlord, at Landlord's sole cost, without reimbursement
from Tenant shall pay for, the following: (i) costs relating to the design or
construction of the Building Improvements, (ii) wages, labor and overhead for
overtime and premium time unless approved by Tenant, (iii) interest and fees for
construction financing, (iv) costs relating to construction or design defects of
the Tenant Improvements and/or Building Improvements.
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, and notice of its election
to either amortize the Excess Tenant Improvement Costs over the initial term of
the Lease or to pay to Landlord such Excess Tenant Improvement Costs in one of
the following described manners:
(a) A portion of the Excess Tenant Improvement Costs up to a maximum
amount of fifty-one thousand two hundred ninety-six and 00/100 dollars
($51,296.00), based on two and 00/100 dollars ($2.00) per rentable
square foot for 25,648 square feet of the Premises, shall be amortized
over the initial term of the Lease at the rate of eleven percent (11%)
per annum and such amortized amount shall be paid by Tenant with, and
as part of, the Rent for the Premises in accordance with the provisions
and requirements of Section 3 of the Lease (the "Amortized Excess TI
Costs"). The portion of the Excess Tenant Improvement Costs in excess
of the Amortized Excess TI Costs shall be paid by Tenant, in cash, to
Landlord 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; or
(b) 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, 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 this Section 11. Prior to commencing any additional work
related to the approved Change Request(s), Landlord shall submit to Tenant for
Tenant's approval or disapproval 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 if and to the
extent the cost of such change order causes the Tenant Improvement Costs to
exceed the Tenant Improvement Allowance. 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, equipment and temporary
services rendered by Landlord and/or Landlord's consultants, and the General
Contractor's price for effecting the change. If Tenant fails to execute or
5
<PAGE>
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 is terminated prior to the 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, including, but not limited to, any costs related to the removal
of all or any portion of the Tenant Improvements and restoration 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, Tenant or Landlord
shall have the right to terminate the Lease, upon written notice to the other
party, if Landlord is unable to obtain a building permit for the Tenant
Improvements within one hundred (100) days from the date the Lease is signed by
Tenant.
13. Tenant Access. Landlord, in Landlord's reasonable discretion and upon
-------------
receipt of a written request from Tenant, may grant Tenant a license to have
access to the Premises prior to the Completion Date to allow Tenant to do other
work required by Tenant to make the Premises ready for Tenant's use and (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 five (5) 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) reasonable
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 invitees 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,
including, 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.
(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 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
the 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.
6
<PAGE>
14. 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.
INITIALS:
- --------
TENANT: /s/ Signature Illegible
LANDLORD:
7
<PAGE>
EXHIBIT C TO LEASE AGREEMENT
RULES & REGULATIONS
This exhibit, entitled "Rules & Regulations", is and shall constitute EXHIBIT C
------- -
to that certain Lease Agreement dated March 4, 1996 (the "Lease"), by and
between LINCOLN MENLO VIII LIMITED PARTNERSHIP, A CALIFORNIA LIMITED PARTNERSHIP
("Landlord") and CBT Systems USA, Ltd., a Maryland corporation ("Tenant") for
the leasing of certain premises located in the Willow Park at Building E, 1005
Hamilton Court, Menlo Park, 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 consent of Landlord.
7. Tenant agrees not to make any duplicate keys without the prior consent of
Landlord.
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.
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.
INITIALS:
- --------
TENANT: /s/ Signature Illegible
LANDLORD: T
-
8
<PAGE>
EXHIBIT D
WILLOW PARK
DECLARATION OF COVENANTS, CONDITIONS AND RESTRICTIONS
PAGE 1 OF 7
This Declaration of Covenants, Conditions and Restrictions (hereinafter
called "Declaration") is made this twenty-fifth day of August 1979, by LINCOLN
PROPERTY COMPANY NO. 238, A CALIFORNIA LIMITED PARTNERSHIP (PHASES 1 & 2);
LINCOLN PROPERTY COMPANY NO. 287, LTD., A CALIFORNIA LIMITED PARTNERSHIP (PHASE
3); LINCOLN PROPERTY COMPANY NO. 355, LTD., A CALIFORNIA LIMITED PARTNERSHIP
(PHASE 4); LINCOLN PROPERTY COMPANY NO. 440, LTD., A CALIFORNIA LIMITED
PARTNERSHIP (PHASE 5); LINCOLN PROPERTY COMPANY NO. 1179, A CALIFORNIA LIMITED
PARTNERSHIP (PHASE 6); LINCOLN PROPERTY COMPANY NO. 2036 LIMITED PARTNERSHIP, A
CALIFORNIA LIMITED PARTNERSHIP (PHASE 7) (hereinafter called "Lincoln Property
Company").
RECITALS
1. Declarant is, or at the time of recording this Declaration
will be, the Owner in fee of all that certain real property which
is situated in the City of Menlo Park, County of San Mateo, State
of California, described on the map (hereinafter called "Map")
entitled "Menlo Industrial Center, Menlo Park, California" which
Map is filed in the office of the Recorder of the County of San
Mateo, State of California, on October 1, 1979, in Book No. 99 of
Maps, at pages 81, 82 and 83.
2. As Owner of the real property described in Paragraph 1 of
these Recitals, Declarant has executed this Declaration for the
purpose of imposing upon all portions of said real property
(other than Parcel E as shown on the Map) a general plan of
improvement for the benefit of said real property (other than
said Parcel E) and its present and future owners. Said real
property (other than Parcel E) is hereinafter called the
"Property."
NOW, THEREFORE, Declarant hereby declares that the Property is
now held, and shall hereafter be held, developed, encumbered,
hypothecated, transferred, sold, leased, conveyed, improved, used
and occupied subject to the covenants, conditions, restrictions
and limitations hereinafter set forth, all of which are declared
to be in furtherance of a plan for the development and operation
of a landscaped business and industrial park and are established
for the purpose of enhancing and protecting the value,
attractiveness and desirability of the Property and every part
thereof. Each of the covenants, conditions, restrictions and
limitations set forth herein shall run with the land, and every
part thereof, and shall burden as well as inure to the benefit of
and pass with each and every portion of the Property hereinafter
developed, encumbered, hypothecated, transferred, sold, leased,
conveyed, improved, used or occupied and shall apply to and bind
any and all parties having or acquiring any right, title, license
or interest in the Property or any part thereof.
ARTICLE I
DEFINITIONS
Unless the context otherwise specifies or requires, the terms
defined in this Article I shall, for all purposes of this
Declaration, have the meanings herein specified.
1.1 Building. "Building" shall mean the principal structure or
--------
structures on any Site, including all garages, outside platforms, outbuildings,
docks and the like.
1.2 Declarant. "Declarant shall mean Lincoln Property Company, its
---------
successors and assigns. Declarant's assigns shall be deemed to include any party
whom Declarant designates, by means of a notice recorded in the Official Records
of San Mateo County, as the party who, from and after the date such notice is
recorded, will perform Declarant's functions under this Declaration.
1.3 Deed of Trust. "Deed of Trust" shall mean, with respect to any
-------------
portion of the property, a duly recorded Deed of Trust, mortgage or other
instrument which created a lien on the portion of the Property is describes.
<PAGE>
PAGE 2 OF 7
1.4 Improvements. "Improvements" shall mean and include without
------------
limitation buildings, outbuildings, pedestrian and vehicle access facilities,
parking areas, loading areas, fences, walls, hedged mass plantings, landscaping,
poles, signs and any structures of any type or kind.
1.5 Owner. "Owner" shall mean any person, firm, corporation or other
-----
legal entity (including Declarant) which owns fee title to a Site, as shown by
the Official Records of the County of San Mateo; provided, however, that the
term "Owner" shall not include a mortgage or beneficiary under a deed of trust
holding a security interest in a Site unless such mortgagee or beneficiary is in
actual physical possession of the Site.
Whenever this Declaration creates or imposes an obligation with
respect to a Site, the Owner of the Site shall be responsible for the timely and
proper performance of the obligation, notwithstanding any delegation of such
responsibility by lease, contract, or otherwise to another party.
1.6 Property. "Property" shall mean that certain real property subject
--------
to the covenants, conditions and restrictions set forth herein, namely, that
real property described on Exhibit A attached hereto and incorporated herein.
1.7 Site. "Site" shall mean a continuous area of land within the
----
Property which is owned of record by the same Owner, whether shown as one parcel
on any recorded map or as a combination of parcels or of portions thereof.
ARTICLE II
REGULATION OF USES
2.1 Permitted Uses. Unless otherwise specifically prohibited herein, or
--------------
by applicable law, any business/industrial use will be permissible if it does
not constitute a nuisance to adjacent Sites. Permitted uses will include, but
not be limited to, manufacturing, warehousing, distribution, cartage,
processing, storage, wholesaling, office, laboratory, professional and research
and development.
2.2 Nuisance. No noxious or offensive activity shall be carried on nor
--------
shall anything be done on any Site which may be or become an annoyance or
nuisance to the Owners or occupants of other Sites, or which will be offensive
to the Owners or occupants of other Sites by reason of odor, fumes, discharge of
any chemical or industrial waste above or below ground, dust, dirt, fly-ash,
smoke, noise, glare or which will be hazardous by reason of danger of fire or
explosion or any other hazard.
2.3 Right of Entry. During reasonable hours and subject to reasonable
--------------
security requirements, Declarant or its authorized representative shall have the
right to enter upon and inspect any Building and/or Site and the Improvements
thereon for the purpose of ascertaining whether or not the provisions of this
Declaration have been or are being complied with and shall not be deemed guilty
of trespass by reason of such entry.
ARTICLE III
REGULATION OF IMPROVEMENTS
3.1 Minimum Setback Lines
---------------------
(a) General. No Improvement and no part thereof shall be placed on
-------
any Site closer to a property line than herein provided. The
following Improvements are specifically excluded from these
setback provisions:
<PAGE>
PAGE 3 OF 7
(1) Roof overhang, subject to the specific approval of Declarant
in writing.
(2) Steps and walks.
(3) Paving and associated curbing, except that vehicle parking
areas shall not be permitted within ten (10) feet of the street
property line or lines.
(4) Fences, except that no fence shall be placed within the
street setback area unless specific approval is given by Declarant in
writing.
(5) Landscaping.
(6) Planters, not to exceed three (3) feet in height.
(7) Railroad spur tracks, switches and bumpers, provided that
the location of such tracks, switches and bumpers is specifically
approved by Declarant in writing.
(8) Displays identifying the Owner, Lessee or occupant, subject
to the specific approval of Declarant in writing.
(b) Setback from interior property lines. No setback is established
from a rear or side interior property line. The interior lot lines for a
corner lot shall be considered to have a real property line.
(c) Setback Street Property Lines. The setback line is established
-----------------------------
as twenty (20) feet from property line on all streets on the property.
3.2 Completion of Construction. After commencement of construction of any
--------------------------
Improvement, the Owner shall diligently prosecute the work thereon to the end
that the Improvement shall not remain in a partly finished condition any longer
than reasonably necessary for the completion thereof.
3.3 No excavation shall be made except in connection with
construction of an Improvement, and upon completion thereof, exposed
openings shall be backfilled and disturbed ground shall be graded and
leveled.
3.4 Landscaping.
-----------
(a) Every Site on which a Building shall have been placed shall
be landscaped according to plans approved as specified herein and
maintained thereafter in a sightly and well-kept condition.
(b) An Owner, Lessee or occupant shall landscape and maintain
unpaved areas between the property lines and the setback lines.
(c) An Owner, Lessee or occupant shall provide hose bibs and
maintenance facilities in the vicinity of the landscaped areas.
(d) Landscape as approved by Declarant shall be installed within
ninety (90) days of occupancy or completion of the Building, whichever
occurs first.
3.5 Site Maintenance. All Improvements on each Site including,
----------------
without limitation, all walks, driveways, fences, parking areas, landscaping and
the exterior of all structures on each Site, shall be maintained free of litter
and debris and in good condition, order and repair. Landscaping shall be kept in
thriving condition, weed-free and neatly trimmed. All undeveloped Sites shall be
kept clean, mowed and in a condition so as not to be a dust or weed problem.
<PAGE>
PAGE 4 OF 7
3.6 Signs and Lighting. No signs or displays shall be created on any
------------------
Site, other than the following:
(a) Signs identifying the name, building and business of any person
or firm occupying a Site, the size, design and color of which has been
specifically approved by Declarant in writing; and
(b) Offering a Site for sale or lease if Declarant has specifically
approved said signs in writing.
All signs and displays shall be located below the roof line of
the building and shall comply with all applicable laws and ordinances.
Lighting shall be restricted to parking and security lights, fire
lighting and low-level sign illumination and floodlighting of buildings or
landscaping. All lighting shall be shielded and contained within property
lines.
3.7 Parking Areas. Adequate parking on a Site shall be provided to
-------------
accommodate all parking needs for employees, visitors and company vehicles.
There shall also be adequate areas provided for truck loading and unloading. The
intent of this provision is to eliminate the need for any on-street parking. If
parking or loading requirements increase as a result of a change in use or
number of employees, additional off-street parking shall be provided to satisfy
the intent of this section.
3.8 Building Regulations. Any building erected on a Site shall conform
--------------------
to the following construction practices:
(a) Exterior walls of sheet or corrugated iron, steel, aluminum or
asbestos will be permitted only upon specific approval in writing by
Declarant.
(b) Exterior walls shall be painted or suitably treated in a
manner acceptable to Declarant.
ARTICLE IV
APPROVAL OF PLANS
4.1 No Improvement shall be erected, placed, altered, maintained
or permitted to remain on any land subject to these restrictions
until plans and specifications showing plot layout, including
parking and all exterior elevations, with materials and colors,
have been submitted to and approved in writing by Declarant. Said
approval shall be in addition to any approvals and/or permits
required by the City of Menlo Park or any other legal entity
having jurisdiction. Such plans and specifications shall be
submitted in writing over the signature of the Owner of Lessee of
the Site or his authorized agent.
4.2 Approval shall be based, among other things, on adequacy of
Site dimensions, adequacy of structural design, conformity and
harmony of external design with neighboring Improvements, effect
of location and use of Improvements on neighboring Sites; proper
facing of main elevation with respect to nearby streets; and
conformity of the plans and specifications to the purpose and
general plan and intent of these restrictions. Declarant shall
not arbitrarily or unreasonably withhold its approval of such
plans and specifications.
4.3 If Declarant fails either to approve or to disapprove such
plans and specifications within thirty (30) days after the same
have been submitted to it, it shall be conclusively presumed that
Declarant has approved said plans and specifications, subject,
however, to the restrictions contained in ARTICLE III hereof.
4.4 Notwithstanding anything to the contrary herein contained,
after the expiration of one year from the date of issuance of a
building permit by municipal or other governmental authority for
any Improvement, said Improvement shall, in favor of purchasers
and encumbrancers in good faith and for
<PAGE>
PAGE 5 OF 7
value, be deemed to be in compliance with all provisions of this ARTICLE IV,
unless actual notice of such non-compliance or non-completion executed by
Declarant shall appear of record in the office of the County Recorder of San
Mateo County, California, or unless legal proceedings shall have been instituted
to enforce compliance or completion.
4.5 Fee. An architectural review fee shall be paid to Declarant at the
---
time plans are submitted for approval based upon the following schedule:
(a) When the plans submitted are prepared by an architect
licensed to practice in the State of California, the architectural
review fee shall be $100.00.
(b) In all other cases, the architectural review fee shall be
$200.00.
ARTICLE V
DURATION AND MODIFICATION AND REPEAL
5.1 Term. This Declaration, every provision hereof and every covenant,
----
conditions and restriction contained herein shall continue in full force and
effect for a period of sixty (60) years from the date hereof.
5.2 Termination and Modification. This Declaration or any provisions
----------------------------
thereof or any covenant, condition or restriction contained herein may be
terminated, extended, modified or amended as to the whole of said property or
any portion thereof, with the written consent of the Owners of sixty-five
percent (65%) in area of the Property; provided that so long as Declarant owns
at least twenty percent (20%) in area of the Property, no such termination,
extension, modification or amendment shall be effective without Declarant's
written approval. No termination, extension, modification or amendment hereof
shall be effective until a written instrument embodying the same has been
executed and recorded in the Official Records of San Mateo County.
ARTICLE VI
ENFORCEMENT
6.1 Abatement and Suit. Violation or breach of any restriction herein
------------------
contained shall give to Declarant the right to enter upon the Property upon or
as to which said violation or breach exists and summarily to abate and remove at
the expense of the Owner, Lessee or occupant thereof any structure, thing or
condition that may be or exist thereon contrary to the intent and meaning of the
provisions hereof, or to prosecute a proceeding at law or in equity against the
person or persons who have violated or are attempting to violate any of these
restrictions to enjoin or prevent them from doing so, to cause said violation to
be remedied or to recover damages for said violation. In addition, every Owner
of a Site shall have the right, in the event of violation or breach of any
restriction herein contained, to prosecute a proceeding at law or in equity
against the person or persons who have violated or are attempting to, violate
any of these restrictions to enjoin or to recover damages for said violation.
All remedies provided herein or at law or in equity shall be cumulative and not
exclusive.
6.2 Deemed to Constitute a Nuisance. The result of every action or
-------------------------------
omission whereby any restriction herein contained is violated in whole or in
part is hereby declared to be and to constitute a nuisance. Every remedy allowed
by law or equity against an Owner, either public or private, shall be applicable
against every such result and may be exercised by Declarant or by any Owner of
property subject hereto. Any costs or expenses paid or incurred by Declarant or
an Owner (collectively referred to as "Declarant" in this Section 6.2) in
abating such nuisance or prosecuting any such remedy (including all reasonable
attorneys' fees and costs of collection), together with interest thereon at the
rate of ten
<PAGE>
PAGE 6 OF 7
percent (10%) per annum, shall be a charge against the Site on which the
nuisance has occurred or is occurring, shall be a continuing lien thereon until
paid, and shall also be the personal obligation of the Owner of such Site when
such charges became due and who committed such breach or violation. In addition
to any other rights or remedies hereunder, Declarant may deliver to the Owner of
the Site on which the nuisance has occurred or is occurring and record with the
San Mateo County Recorder a certificate of notice of claim of lien. If the
violation recited in such lien claim has not been cured to Declarant's
satisfaction and any recited amounts so charged have not been paid within thirty
(30) days thereafter, Declarant or its authorized representative may foreclose
such lien by a sale conducted pursuant to Sections 2924, 2924b and 2924c of the
California Civil Code, as amended from time to time, or other statues applicable
to the exercise of powers of sales in mortgages or Deeds of Trust, or in any
other manner permitted by law. Declarant, through its authorized
representatives, may bid on and acquire any land subject to such lien at any
such foreclosure sale. If the violations recited in such lien claim are timely
cured and any recited amounts timely paid as provided above, Declarant shall
forthwith record an appropriate release of such lien at Declarant's sole
expense.
6.3 Attorneys' Fees. In any legal or equitable proceeding for the
---------------
enforcement or to restrain the violation of this Declaration or any provision
hereof, the losing party or parties shall pay the attorneys' fees of the
prevailing party or parties, in such amount as may be fixed by the court in such
proceedings.
6.4 Failure to Enforce Not a Waiver of Rights. The failure of Declarant
-----------------------------------------
or any Owner to enforce any restriction herein contained shall in no event be
deemed to be a waiver of the right to do so thereafter nor of the right to
enforce any other restriction.
ARTICLE VII
MISCELLANEOUS PROVISIONS
7.1 Assignment of Declarant's Rights and Duties. Declarant may assign any and
-------------------------------------------
all of its rights, powers, reservations and obligations hereunder to any person,
corporation or association. To be effective, any such assignments must be
accepted in writing by the assignee and the acceptance must be recorded in the
Official Records of San Mateo County. To the extent of the assignment, the
assignee shall have the same rights, obligations, duties and powers and be
subject to the same obligations and duties as given to and assumed by Declarant
herein. The term Declarant as used herein includes all such assignees and their
heirs, successors and assigns. Declarant may also resign as Declarant by
recording a written notice of resignation in the Official Records of San Mateo
County and mailing a copy thereof to each then Owner. The resignation shall be
effective on the date it is recorded and Declarant shall thereafter have no
further rights, powers, reservations, obligation or liabilities hereunder. If at
any time Declarant either resigns or ceases to exist without making an
assignment of its authority as Declarant, a successor Declarant may be appointed
in the same manner as this Declaration may be terminated, extended, modified or
amended under Section 2 of ARTICLE IV.
7.2 Constructive Notice and Acceptance. Every person or other entity who now
----------------------------------
or hereafter owns or acquires any right, title or interest in or to any portion
of the Property is and shall be conclusively deemed to have consented and agreed
to every covenant, condition and restriction contained herein, whether or not
any reference to this Declaration is contained in the instrument by which such
person or entity acquired an interest in said property.
7.3 Waiver. Neither Declarant nor its successors or assigns shall be
------
liable to any Owner, Lessee, licensee or occupant of land subject to his
Declarant by reason of any mistake in judgment, negligence, nonfeasance, action
or inaction and/or for the enforcement or failure to enforce any provision of
this Declaration. Every Owner, Lessee, licensee or occupant of any of said
property by acquiring his interest therein agrees that he will not bring any
action or suit against Declarant to recover any damages or to seek equitable
relief because of any mistake in judgment, negligence, nonfeasance, action or
inaction and/or the enforcement or failure to enforce any provision of this
Declaration.
<PAGE>
PAGE 7 OF 7
7.4 Mutuality, Reciprocity, Runs with Land. All covenants,
--------------------------------------
conditions, restrictions and agreements contained herein are made for the
direct, mutual and reciprocal benefit of each and every part and parcel of the
property now or hereafter made subject to this Declaration, shall create
reciprocal rights and obligations between the respective Owners of all parcels
and privity of contract and estate between all grantees of said parcels, their
heirs, successors and assigns, and shall, as to the Owner of each parcel, his
heirs, successors and assigns, operate as covenants running with the land for
the benefit of all other parcels.
7.5 Rights of Beneficiaries. No breach of the restrictions and other
-----------------------
provisions contained herein shall defeat or render invalid the lien of any Deed
of Trust now or hereafter executed upon land subject to these restrictions;
provided, however, that if any portion of said property is sold under a
foreclosure of any mortgage or under the provisions of any deed of trust, any
purchaser at such sale and his successors and assigns shall hold any and all
property so purchased subject to all of the restrictions and other provisions of
this Declaration.
7.6 Paragraph Headings. Paragraph headings, where used herein, are
------------------
inserted for convenience only and are not intended to be a part of this
Declaration or in any way to define, limit or describe the scope and intent to
the particular paragraphs to which they refer.
7.7 Effect of Invalidation. If any provision of this Declaration is
----------------------
held to be invalid by any court, the invalidity of such provision shall not
affect the validity of the remaining provisions hereof.
7.8 Existing Improvements. Improvements which are completely
---------------------
constructed on the date this Declaration is recorded are deemed to satisfy all
the requirements hereof.
7.9 Estoppel Certificate. At the request of an Owner, Declarant shall
--------------------
supply to such Owner or any actual or potential encumbrancer or purchaser of a
Site a written certificate stating that there are no violations hereof, or if
there are any such violations, the nature of such violations. Such certificate
shall be delivered within ten (10) working days after such request by an Owner.
INITIALS:
LESSEE: /s/ Signature Illegible
LESSOR: _______________
<PAGE>
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 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 provisions of
Section 29 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 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:
Landlord: LINCOLN MENLO VIII LIMITED PARTNERSHIP,
A CALIFORNIA LIMITED PARTNERSHIP
c/o Lincoln Property Company Management Services, Inc.
101 Lincoln Centre Drive, Fourth Floor
Foster City, California 94404
Attn: Eileen Griffin
Phone: (415) 571-2200
Name of Tenant: CBT Systems USA, Ltd., a Maryland corporation
---------------------------------------------
Mailing Address: 1005 Hamilton Court, Menlo Park, California 94025
-------------------------------------------------
________________________________________________________________________________
Contact Person, Title and Telephone Number(s): RUNE ELIASEN, V.P. OF OPERATIONS
---------------------------------
Contact Person for Hazardous Waste Materials Management and Manifests and
Telephone Number(s):
________________________________________________________________________________
________________________________________________________________________________
Address of Premises: 1005 Hamilton Court, Menlo Park, California
-------------------------------------------
Length of initial Term: 5 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.
___________________________________________________________________________
___________________________________________________________________________
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 [X]
Chemical Products Yes [ ] No [X]
Other Yes [ ] No [X]
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
1
<PAGE>
(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 [X]
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 [X]
4.2 Has your company filed a biennial or quarterly reports as a hazardous
waste generator? Existing tenants should describe any new reports
filed.
Yes [ ] No [X]
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.
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 [X]
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 [X]
If yes, please describe:______________________________________________
___________________________________________________________________________
___________________________________________________________________________
<PAGE>
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.
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
3
<PAGE>
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 [/]
If yes, please describe. Existing tenants should describe any such problems
or complaints not already disclosed to Landlord 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
emissions 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 Landlord 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) Landlord'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) RUNE ELIASEN, 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:
CBT Systems USA, Ltd.,
a Maryland corporation
By: /s/ Signature Illegible
Title: V.P. of Operations
------------------
Date: 3-7-96
------
INITIALS:
- --------
TENANT: /s/ Signature Illegible
LANDLORD: ______
4
<PAGE>
EXHIBIT F
FIRST AMENDMENT TO LEASE AGREEMENT
CHANGE OF COMMENCEMENT DATE
This First Amendment to Lease Agreement (the "Amendment") is made and entered
into 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 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. The Commencement Date of the Lease shall be _________________.
2. The last day of the Term of the Lease (the "Expiration Date") shall
be _________.
3. 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 $ ________.
4. 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.
5. Definitions: Unless otherwise defined in this Amendment, all terms
-----------
not defined in this Amendment shall have the meaning set forth in the
Lease.
6. 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.
7. 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.
INITIALS:
- --------
TENANT: /s/ Signature Illegible
LANDLORD: __________
<PAGE>
EXHIBIT H
SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT
PAGE 1 OF 2
LEASE DATED MARCH 4, 1996, BETWEEN
CBT SYSTEMS USA, LTD.,
A MARYLAND CORPORATION
("TENANT"),
AND
LINCOLN MENLO VIII LIMITED PARTNERSHIP,
A CALIFORNIA LIMITED PARTNERSHIP
("LANDLORD")
THIS AGREEMENT, made and entered into as of the ___________________, by and
between Mid-Peninsula Bank, a California corporation with its principal office
at 420 Cowper, Palo Alto, California 94301 (hereinafter called "Mortgagee"),
Lincoln Menlo VIII Limited Partnership, a California limited partnership, c/o
Lincoln Property Company Management Services, Inc., As Manager and Agent for
Owner with its principal office at 101 Lincoln Centre Drive, Foster City,
California 94404 (hereinafter called "Landlord") and CBT Systems USA, Ltd., a
Maryland corporation having its principal office at
______________________________________________________ (hereinafter called
"Tenant");
WITNESSETH
WHEREAS, Tenant has by a written lease dated March 4, 1996, and all future
amendments and extensions approved by Mortgagee (hereinafter called the "Lease")
leased from Landlord all or part of certain real estate and improvements thereon
located in the City of Menlo Park, as more particularly described in Exhibit A
attached hereto (the "Demised Premises"); and
WHEREAS, Landlord is encumbering the Demised Premises as security for a
loan from Mortgagee to Landlord (the "Mortgage"); and
WHEREAS, Landlord has previously encumbered the Demised Premises as
security for a loan from Lender to Landlord in the form of a ___________
(hereinafter called the "Mortgage"); and
WHEREAS, Tenant, Landlord and Mortgagee have agreed to the following with
respect to their mutual rights and obligations pursuant to the Lease and the
Mortgage;
NOW, THEREFORE, for and in consideration of Ten Dollars ($10.00) paid by
each party to the other and the mutual covenants and agreements herein contained
and other good and valuable consideration, the receipt whereof is hereby
acknowledged, the parties hereto do hereby covenant and agree as follows:
(1) Tenant's interest in the Lease and all rights of Tenant thereunder,
including any purchase option, if any, shall be and are hereby declared subject
and subordinate to the Mortgage upon the Demised Premises and its terms, and the
term "Mortgage" as used herein shall also include any amendment, supplement,
modification, renewal or replacement thereof.
(2) In the event of any foreclosure of the Mortgage or any conveyance
in lieu of foreclosure, provided that the Tenant shall not then be in material
--------
default beyond any grace period under the Lease and that the Lease shall then be
in full force and effect, then Mortgagee or the purchasers of the Demised
Premises pursuant to a foreclosure or a deed in lieu thereof, as applicable
("Purchaser") shall neither terminate the Lease nor join Tenant in foreclosure
---------
proceedings, nor disturb Tenant's possession, and the Lease shall continue in
full force and effect as a direct lease between Tenant and Mortgagee.
(3) After the receipt by Tenant of notice from Mortgagee of any
foreclosure of the Mortgage or any conveyance of the Demised Premises in lieu of
foreclosure, Tenant will thereafter attorn to and recognize Mortgagee or any
purchaser from Mortgagee at any foreclosure sale or otherwise as its substitute
lessor on the terms and conditions set forth in the Lease.
(4) Tenant shall not prepay any of the rents under the Lease more than one
month in advance except with the prior written consent of Mortgagee.
<PAGE>
EXHIBIT 10.9
- --------------------------------------------------------------------------------
MEMORANDUM OF AGREEMENT OF LEASE ENTERED INTO AT THE CITY AND DISTRICT OF
MONTREAL IN THE PROVINCE OF QUEBEC ON THE ______ DAY OF _____________, 19 ____
(hereinafter referred to as the "Lease")
- --------------------------------------------------------------------------------
BY AND BETWEEN: CITE DE L'ILE DEVELOPMENT INC., a body
politic and corporate, duly incorporated
according to law and having its head
office in the City of Montreal, Province
of Quebec, herein acting and represented
by Douglas Pascal, its President, duly
authorized (hereinafter referred to as
the "Landlord")
AND: NUANCE COMMUNICATIONS LIMITED, a body
politic and corporate, duly incorporated
according to law and having its head
office in the City of Halifax, Province
of Nova Scotia, herein acting and
represented by Araham Smith its Vice
President and CFO duly authorised
(hereinafter referred to as the
"Tenant")
<PAGE>
OFFICE LEASE
------------
INDEX
-----
<TABLE>
<S> <C>
Section I. DEFINITIONS 2
- ------- -
Section II. LEASE 7
- ------- --
Section III. TERMINATION 7
- ------- ---
Section IV. RENT 7
- ------- --
Section V. RENTALS 7
- ------- -
Section VI. REAL ESTATE TAXES, TAX ON CAPITAL AND OPERATING
- ------- --
EXPENSES 8
Section VII. USE OF PREMISES 10
- ------- ---
Section VIII. UTILITIES AND ADDITIONAL CHARGES 10
- ------- ----
Section IX. SERVICES 11
- ------- --
Section X. THERE IS NO SECTION X IN THIS LEASE 12
- ------- -
Section XI. ASSIGNMENT AND SUBLETTING 12
- ------- --
Section XII. READINESS FOR OCCUPATION 15
- ------- ---
Section XIII. TENANT CARE 15
- ------- ----
Section XIV. ALTERATIONS, ADDITIONS, IMPROVEMENTS AND
- ------- ---
REPAIRS 15
Section XV. MAJOR REPAIRS 17
- ------- --
Section XVI. ACCESS TO PREMISES 18
- ------- ---
Section XVII. PROTECTION OF EQUIPMENT 18
- ------- ----
Section XVIII. COMPLIANCE WITH LAWS AND INDEMNIFICATION 18
- ------- -----
Section XIX. SECURITY DEPOSIT 20
- ------- ---
Section XX. FIRE AND DESTRUCTION OF PREMISES 20
- ------- --
Section XXI. NON-RESPONSIBILITY OF LANDLORD 21
- ------- ---
Section XXII. INSURANCE 21
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</TABLE>
<PAGE>
<TABLE>
<S> <C>
Section XXIII. DEFAULT 23
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Section XXIV. MODIFICATION 25
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Section XXV. ADDITIONAL PROVISIONS 26
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Section XXVI. RULES AND REGULATIONS 28
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Section XXVII. MORTGAGES AND SUBORDINATION 29
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Section XXVIII. SCHEDULES 30
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Section XXIX. ENGLISH LANGUAGE 30
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</TABLE>
<PAGE>
2
THIS AGREEMENT WITNESSETH:
SECTION I. DEFINITIONS
- ------- -- -----------
1.01 As used herein, the following expressions shall have the following
meanings:
(a) BASE OPERATING EXPENSES: Operating Expenses incurred for the fiscal
year ended April 30, 1999.
(b) BASE REAL ESTATE TAXES: Real Estate Taxes levied for the calendar
year 1999.
(c) BASE TAX ON CAPITAL: Tax on Capital imposed for the fiscal year
ended April 30, 1999.
(d) BUILDING: the building(s), structure(s) and improvements constructed
on the Land, including Landlord's equipment, systems and fixtures
therein.
(e) BUSINESS DAYS: Mondays to Fridays inclusive, legal and statutory
holidays excepted.
(f) BUSINESS HOURS: 8:00 A.M. to 6:00 P.M. during Business Days or such
other times as may be designated by Landlord from time to time.
(g) COMMENCEMENT DATE: January 1, 2000.
(h) ELECTRICAL AMOUNT: the difference, if any, between nine thousand
seven hundred ninety-six dollars and fifty cents ($9,796.50) per
annum increased in the same ratio as increases in Hydro Quebec rates
(and applicable taxes) occur subsequent to the 1 st day of October,
1999 and nine thousand seven hundred ninety-six dollars and fifty
cents ($9,796.50) per annum.
(i) LAND: that certain emplacement more fully described in SCHEDULE "A".
(j) LEASE YEAR: in respect of the first Lease Year, the period of time
commencing on the Commencement Date and expiring on the last day of
the month of December next following; thereafter, each Lease Year
shall consist of consecutive periods of twelve (12) calendar months.
However, the last Lease Year shall terminate upon the expiration of
the Term or earlier termination of this Lease, as the case may be.
Landlord may in its discretion change the Lease Year from time to
time provided that such change will not increase Tenant's liability
for any amounts payable pursuant to this Lease.
(k) NOTICES: for the purpose of all notices to the Landlord, the
Landlord's address is:
2000 Peel Street, Suite 900,
Montreal, Quebec H3A 2W5
Attention: The President
------------------------
<PAGE>
3
With a copy to:
2000 Peel Street, Suite 900
Montreal, Quebec H3A 2W5
Attention: General Counsel
--------------------------
for the purpose of all notices to the Tenant, the Tenant's address is
at the address of the Premises.
Notwithstanding the foregoing, either of the parties may notify the
other of a change of address in which event all official notices shall
thereafter be sent to the last address of which notice is given. All
notices required or permitted to be given by either Landlord or Tenant
to the other shall be in writing and sent by registered mail (postage
prepaid and return receipt requested) or delivered by bailiff. Delays
shall be computed or measured, as the case may be, from the date of
actual delivery of any notice referred to herein.
(l) OPERATING EXPENSES: all costs, charges and expenses incurred by the
Landlord, without duplication, in connection with the operation,
maintenance and repair of the Land and Building and by way of example
only but without limiting the generality of the foregoing, shall
include the following: heating, ventilating and air-conditioning
costs, maintenance, repairs and replacements; management or
administration fees and expenses (which fees shall be equal to five
percent (5%) of the gross revenue derived by Landlord from the Land
and Building); salaries, wages, medical, surgical, general welfare
benefits (including group life insurance and pension payments),
payroll taxes, workmen's compensation insurance contributions and
unemployment insurance contributions for the employees of the Landlord
(including the Building manager but excluding all executive personnel
of the Landlord to the extent not specifically responsible for the
administration of the Land and Building) engaged in the operation,
administration, maintenance and repair of the Land and Building;
security personnel and systems; electricity (except as charged
separately to tenants), fuel, water (including sewer rental) and other
utilities, taxes (excluding, to avoid duplication, Real Estate Taxes
and Tax on Capital), licenses and fees; insurance costs, premiums and
deductible payments in respect of fire, casualty, liability, property
damage, boiler, loss of rental and such other form or forms of
insurance relating to the Land and Building from time to time in
effect; cleaning, supervision, maintenance, operation and repair
costs, expenses and charges relating to the Land and Building
(including, without limitation, the elevators, the garage and parking
facilities, and other common areas and facilities) and the equipment,
systems and fixtures therein and the making of all necessary repairs,
modifications, renovations or replacements therein and thereto;
building and cleaning supplies; equipment rental; depreciation of
machinery, equipment, facilities and systems which by their nature
require periodic replacement (to be amortised as required in the
immediately following sentence of this paragraph 1.01(l)); cleaning of
windows and exterior curtain walls; cleaning and maintenance of
grounds (including snow removal), gardening and landscaping; garbage
and waste collection and disposal; amounts payable pursuant to service
contracts with independent contractors for maintenance, elevators,
cleaning, refuse removal, security operations and repairs;
expenditures relating to
<PAGE>
4
energy conservation measures or programs; legal and accounting fees
and expenses incurred with respect to the operation of the Land and
Building.
Without limiting the generality of the foregoing, Operating Expenses
includes all capital expenditures relating to the foregoing which in
accordance with generally accepted accounting principles, shall be
amortised on a straight-line basis over the useful life of the
expenditure in question, it being understood that only the amortised
portion plus interest on the unamortised portion of the capital
expenditure, at the lending rate actually charged or chargeable to
Landlord from time to time by its lenders, will be included in
Operating Expenses for each year.
Operating Expenses shall not include:
i) costs or expenses attributable to defects in the original design
or construction of the Building or of remedying construction
inadequacies;
ii) emphyteutic or other rent payable by Landlord under any
emphyteutic lease or other lease of the Building and the Land;
iii) costs of advertising in respect of the Building;
iv) charges for special services rendered or special materials
furnished to other tenants of the Building in excess of those
generally rendered or furnished to such tenants in general;
v) costs and expenses incurred to alter the Building for the
special benefit of particular tenants as opposed to the benefit
of the tenants of the Building in general and costs and expenses
of installing partitions or other improvements for the premises
of particular tenants;
vi) any amount paid by Landlord as a fine or penalty as a result of
a breach of law by Landlord with respect to the Building or the
Land (provided such breach was not caused by or contributed to
by Tenant) or in satisfaction of any judgment or pursuant to any
out of court settlement;
vii) the cost of any renovations, improvements or betterments to the
original structure of the Building which are optional to
Landlord;
viii) any depreciation of the Building or on any original equipment or
fixtures thereof;
ix) costs incurred to enforce the leases of tenants including
Tenant;
x) costs of obtaining any particular products or services in excess
of what they would have been had the supplier thereof dealt with
Landlord at arm's length;
xi) the amount of any sales tax, goods and services tax, value added
tax or other similar tax paid or payable by Landlord for the
purchase of goods and services included in Operating
<PAGE>
5
Expenses which may be available to and claimed by Landlord as a
credit in determining Landlord's net tax liability;
xii) amounts payable by Landlord on account of financing or
refinancing of the Building and Land, including payments of
principal and interest in respect of such financing;
xiii) any cost or expense incurred in connection with the leasing of
space in the Building to any particular tenant, including
brokers fees, commissions, legal fees and expenses, marketing
costs, costs of remodelling space, any tenant inducements,
rent-free periods and other leasing incentives, the cost of
lease take-overs, the cost of market studies and any other fees
and expenses of a similar nature;
xiv) any reserve for bad debt or other loss of rentals;
xv) the cost of acquisition of sculptures, paintings or other works
of art; and
xvi) under reserve of Tenant's obligation to pay its contributions
to Tax on Capital as defined in paragraph 1.01(t), Landlord's
capital gains taxes, corporate income taxes, and profits or
excess profits taxes.
There shall be deducted from Operating Expenses the following items which
would be included therein were it not for the inclusion of this sentence in
this paragraph 1.01(I):
xvii) amounts recovered from tenants of the Building for which they
are responsible as a result of any act, omission, default or
negligence on their part;
xviii) amounts recovered as insurance proceeds or which would have
been recovered as such by Landlord had it not failed to comply
with its insurance obligations;
xix) recoveries by Landlord under warranties or guarantees relating
to the construction of the Building; and
xx) revenues paid to Landlord in consideration of the use of the
common areas and facilities contemplated in Clause 24.03, to
the extent that such revenues do not exceed the aggregate of
the costs, charges and expenses incurred by Landlord in
connection with such common areas and facilities.
(m) PREMISES: those certain Premises substantially as shown outlined in
red on the floor plan(s) hereto attached as SCHEDULE "B" situated on
the second floor of the Building and having a rentable area deemed,
for all intents and purposes, to be nine thousand three hundred thirty
(9,330) square feet.
(n) PROPORTIONATE SHARE: the fraction, expressed as a percentage, whose
numerator is the deemed rentable area of the Premises referred to in
paragraph 1.01(m) and whose denominator is the rentable area of the
Building, excluding the parking and storage areas. The parties declare
<PAGE>
6
that they are satisfied as to such denominator and accordingly deem
the Proportionate Share to be nine and sixty-seven one hundredths
percent (9.67%), for all intents and purposes.
(o) REAL ESTATE BROKER: David Boyd, representing Devencore Ltd.
(p) REAL ESTATE TAXES: all taxes, surtaxes, non-residential taxes,
charges, rates and assessments, general or special, or any other
taxes, rates, assessments, levies and impositions which are now or
which may ever be levied against the Land, Building or the revenues
therefrom for municipal, urban community, school, public betterment,
general, local improvement or other purposes. If the system of
taxation now in effect is altered and any new tax or levy is imposed
or levied upon the Land and Building and/or the owner thereof and/or
the revenues therefrom in substitution for or in addition to all taxes
presently levied or imposed upon immovable, the expression "Real
Estate Taxes" shall include such new tax or levy. If the competent
authorities shall at any time eliminate any tax, rate, assessment or
imposition which compose part of the Real Estate Taxes, Landlord shall
eliminate same from the definition of Real Estate Taxes. To avoid any
doubt, under reserve of Tenant's obligation to pay its contributions
to Tax on Capital as defined in paragraph 1.01(t), Real Estate Taxes
do not include Landlord's capital gains taxes, corporate income taxes,
or profits or excess profits taxes.
(q) RENT:
i) from the Commencement Date until June 30, 2000, an annual rental
of one hundred sixty-seven thousand nine hundred forty dollars
($167,940.00);
ii) from July 1, 2000 until June 30, 2001 an annual rental of one
hundred seventy-two thousand six hundred five dollars
($172,605.00).
(r) SCHEDULES: the following Schedules are attached hereto: "A" -Land
Description, "B" - Premises Description, "D" Rules and Regulations,
"E" - Minimum Standards for Tenant Finishes, "F"- Special Conditions.
(s) SECURITY DEPOSIT: twenty-eight thousand three hundred seventy-eight
dollars and seventy-five cents ($28,378.75).
(t) TAX ON CAPITAL: the aggregate of the portions imputed by Landlord to
the Building and Land of all taxes and excises wholly or partly based
upon or computed as a function of the capital employed in respect of
the Building and Land levied or imposed from time to time upon
whomsoever, calculated as if the party or parties employing the
capital resulting in the levying or imposition thereof had no other
property than the Building and Land, whether characterised as a tax on
capital, a large corporations tax, an income tax or otherwise.
(u) TERM: the period commencing on the Commencement Date and terminating
on the Termination Date.
(v) TERMINATION DATE: June 30, 2001
<PAGE>
7
SECTION II. LEASE
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2.01 Landlord does hereby lease the Premises to the Tenant for the Term.
2.02 Save only for Landlord's work, if any, referred to in Section 14.01 hereof,
Tenant accepts the Premises "as is-where is" and in their present state and
condition.
SECTION III. TERMINATION
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3.01 Subject to paragraph 1 of Schedule F to this Lease, this Lease shall
terminate without notice or demand therefor being necessary on the
Termination Date. Should the Tenant remain in occupation of the Premises
after the expiration of the Lease without having executed a new written
lease with the Landlord, such holding over shall not constitute a renewal
or extension of this Lease. In such event, the Landlord may, at its option,
elect to treat the Tenant as one who has not removed at the end of the Term
and the Landlord shall be entitled to all remedies against the Tenant
provided by law in that situation, or the Landlord may elect, at its
option, to construe such holding over as a tenancy from month to month
subject to all the terms and conditions of this Lease save as to its
duration and save that the Rent payable pursuant to Section IV hereof shall
be two (2) times the Rent payable in the preceding year.
SECTION IV. RENT
- ------- --- ----
4.01 Tenant covenants and agrees to pay the Rent to the Landlord in equal,
consecutive, monthly instalments, in advance on the first day of each
calendar month. In the event the Term of the Lease begins on any day of the
month other than the first day, any Rent or other amount payable hereunder
for such month and for the last month of the Term shall be calculated on a
per diem basis and paid in advance.
4.02 The Rent shall be payable in lawful money of Canada to Landlord at its
offices in Montreal or at such other place or to such other person as may
be specified from time to time by Landlord without any demand therefor
being necessary, the whole without set-off, reduction, deduction,
diminution or compensation whatsoever.
SECTION V. RENTALS
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5.01 Tenant acknowledges that the Rent shall be absolutely net to the Landlord;
save only as herein expressly set forth, Landlord shall not be responsible
for any costs, charges, expenses or outlays of any nature or kind
whatsoever arising from or relating to the Premises, the contents thereof,
or the business carried on therein, and Tenant shall pay all such charges,
impositions, costs and expenses of every nature and kind (including such as
may be incurred by or paid for by Landlord on its behalf) to Landlord's
complete and entire exoneration as well as Tenant's Proportionate Share of
the amount by which Real Estate Taxes, Tax on Capital and Operating
Expenses for each Lease Year exceed the Base Real Estate Taxes, Base Tax on
Capital and Base Operating Expenses, as hereinafter set forth.
<PAGE>
8
5.02 Tenant shall not be responsible for the payment of Landlord's income taxes
(except for Tax on Capital to the extent herein mentioned) and Tenant
shall not be responsible for the payment of principal or interest due
under any hypothec or deed of trust affecting the Land and Building.
SECTION VI. REAL ESTATE TAXES, TAX ON CAPITAL AND OPERATING EXPENSES
- ------- --- --------------------------------------------------------
6.01 Throughout the Term, any renewal thereof and/or holding over thereunder,
the Tenant shall pay as additional rent, for each Lease Year, the Tenant's
Proportionate Share of the amount by which the Real Estate Taxes exceed
the Base Real Estate Taxes. The amount the Tenant is required to pay
pursuant to the foregoing shall be subject to per diem adjustments for any
Lease Year of less than twelve (12) full calendar months.
6.02 For each Lease Year, the Landlord shall invoice the Tenant for the
Tenant's Proportionate Share of the amount by which the Real Estate Taxes
exceed the Base Real Estate Taxes which the Tenant shall pay within thirty
(30) days of receipt or, should actual bills not yet have been received
for such Lease Year, the Landlord shall estimate the amount of the
Tenant's Proportionate Share of the amount by which Real Estate Taxes
exceed the Base Real Estate Taxes (Landlord reserving the right to revise
said estimate from time to time, Landlord acting reasonably) and shall
invoice the Tenant therefor in equal, consecutive instalments which the
Tenant shall pay to Landlord in advance on the first day of each calendar
month. In any event, when actual bills for all or any portion of the Real
Estate Taxes are received, the Landlord shall, within a reasonable delay
thereafter, furnish the Tenant with a statement setting forth such portion
thereof that is payable by the Tenant pursuant to this Section VI. If such
amount is greater or less than the payments on account thereof made by the
Tenant pursuant to this Section VI, appropriate adjustments shall be made
forthwith.
6.03 In addition to Tenant's obligation to pay Landlord's invoice for its
contributions to Real Estate Taxes when actual bills are received, Tenant
shall continue to make the aforementioned monthly instalments on account
of estimated future contributions to Real Estate Taxes on the same basis
or on the basis of Landlord's revised reasonable estimate thereof, as the
case may be, and so on from time to time.
6.04 Any reasonable expenses incurred by the Landlord in obtaining or
attempting to obtain a reduction of Real Estate Taxes shall be added to
and included in the computation of Real Estate Taxes. In the event that
the Tenant shall have paid its Proportionate Share of the amount by which
Real Estate Taxes exceed the Base Real Estate Taxes pursuant to this
Section VI and the Landlord shall thereafter receive a refund of any
portion of the amount so contributed by Tenant, the Landlord shall pay to
the Tenant its Proportionate Share of such refund. However, refunds of
Real Estate Taxes for vacant premises or resulting from reductions of such
taxes attributable to there being or having been vacant space in the
Building shall not be deducted from or otherwise reduce Real Estate Taxes
and the amounts of any credits (applicable against Real Estate Taxes or
other indebtedness) or reductions of such taxes for vacant premises
attributable to there being or having been vacant space in the Building
shall be included in Real Estate Taxes as if such credits or reductions
had not been granted, it being the intention of the parties
<PAGE>
9
that such refunds, credits and reductions shall be for the sole benefit
of the Landlord.
Should the taxation authorities at any time attribute any part of the
Real Estate Taxes to the Premises or the improvements therein, the
Landlord may, on the condition that insofar as the Tenant is concerned,
it treats the parts of the Real Estate Taxes so attributed to the
premises of other tenants in the Building on the same basis, cause the
Tenant to pay for same in addition to Tenant's Proportionate Share of
the amount by which the Real Estate Taxes (to be deducted from the said
Real Estate Taxes the part of the Real Estate Taxes so attributed as
well as the amount, if any, directly attributed by the taxation
authorities to other premises or tenant improvements in the Building)
exceed the Base Real Estate Taxes, the whole in the manner and subject
to the conditions hereinabove set forth. However, any attributions by
the taxation authorities of proportions of any Real Estate Taxes to
such premises for the purpose of determining the amounts of any refunds
or credits of any such taxes for vacant premises or the amounts of any
subsidies regarding any such taxes in favor of certain classes of
tenants, or for other similar purposes, (including, without limitation,
such attributions as are contained in the schedule contemplated in
Section 69 of the Loi sur la fiscalite municipale (R.S.Q., Chapter F-
2.1)) shall be deemed not to be attributions contemplated in the
immediately preceding sentence nor shall they affect Tenant's
obligations to pay Tenant's contributions to Real Estate Taxes.
6.05 Landlord shall have no obligation to contest, appeal, object to or
litigate the levying or imposition of Real Estate Taxes and/or any
valuation imposed with respect thereto and Landlord may settle,
compromise, consent to, waive or otherwise determine in its sole
discretion all matters and things relating thereto. Tenant shall not
itself contest, appeal, object to or litigate the levying or imposition
of Real Estate Taxes.
6.06 Throughout the Term, any renewal thereof and/or holding over
thereunder, the Tenant shall pay as additional rent the Tenant's
Proportionate Share of the amounts by which Operating Expenses and Tax
on Capital respectively exceed the Base Operating Expenses and the Base
Tax on Capital. The amount the Tenant is required to pay pursuant to
the foregoing shall be subject to per diem adjustments for any Lease
Year of less than twelve (12) full calendar months.
6.07 For each Lease Year, Landlord shall estimate the amounts of Operating
Expenses and Tax on Capital and shall invoice Tenant for Tenant's
Proportionate Share of the amounts by which such estimated amounts
respectively exceed the Base Operating Expenses and the Base Tax on
Capital, in equal consecutive monthly instalments which Tenant shall
pay to Landlord in advance on the first day of each calendar month. At
the end of each Lease Year, Landlord shall furnish Tenant with a
statement certified by an independent firm of chartered accountants
setting forth the actual Operating Expenses and Tax on Capital for such
year. If Tenant's contributions to Operating Expenses and Tax on
Capital for that Lease Year are greater or less than the payments
respectively made on account thereof made by Tenant pursuant hereto,
appropriate adjustments shall be made forthwith. Thereafter, Tenant
shall continue to make the aforementioned monthly instalments on
account of estimated contributions to Operating Expenses and Tax on
Capital for the ensuing Lease Year on the same basis or on the basis of
Landlord's revised reasonable estimate of same, as the case may be, and
so on from time to time.
<PAGE>
10
6.08 Notwithstanding anything hereinabove contained, if the Building is less
than fully occupied during any Lease Year, the Landlord shall be
entitled to allocate those portions of the Operating Expenses and Real
Estate Taxes which vary with the extent of the use and occupancy of the
Building (such as, but not limited to, heating, air-conditioning and
ventilating expenses, electricity, cleaning and cleaning supplies, real
estate surtaxes, management or administration fees and expenses) to the
rented space in the Building only and to reduce the Base Operating
Expenses and the Base Real Estate Taxes appropriately, such that the
Tenant shall pay a proportion of the amounts by which Operating
Expenses and Real Estate Taxes respectively exceed the reduced Base
Operating Expenses and the reduced Base Real Estate Taxes, such
proportion to be the ratio that the gross rentable area of the Premises
bears to the gross rentable area of all rented space in the Building,
excluding parking and storage areas. In no event, however, will Tenant
be obliged to pay an amount in virtue of the foregoing which is greater
than the amount the Tenant would have paid as its contributions to
Operating Expenses and Real Estate Taxes had the Building been fully
occupied.
6.09 Failure or delay on the part of the Landlord to avail itself of any of
the provisions of this Section VI shall not constitute any waiver or
renunciation of its rights provided herein.
6.10 Notwithstanding anything contained in this Section VI to the contrary,
Landlord reserves the right to allocate all or any part of the Real
Estate Taxes, Operating Expenses and Tax on Capital between Tenant and
other tenants of the Building in a manner different than that herein
contemplated should such allocation, in Landlord's reasonable
discretion, appear more equitable in the circumstances.
SECTION VII. USE OF PREMISES
- ----------- ---------------
7.01 The Tenant shall use the Premises as general offices and for no other
purpose. Nothing herein shall be so interpreted as to imply that this
Lease is conditional upon the Tenant obtaining any permits or licenses
for the exploitation of such business from any municipal, provincial or
other authority.
SECTION VIII. UTILITIES AND ADDITIONAL CHARGES
- ------- ----- --------------------------------
8.01 The Tenant shall pay as and when due all business, water and service
taxes and other similar rates and taxes which may be levied or imposed
upon the Premises or upon the business carried on therein by Tenant or
the other occupants of the Premises, and also all other rates and taxes
which are or may be payable by any of them. If the mode of collecting
such taxes be so altered as to make the Landlord and/or the proprietor
liable therefor instead of the Tenant, the Landlord will pay such
accounts and the Tenant will repay the Landlord as additional rent on
demand the amount so paid.
8.02 The Landlord (subject to its ability to obtain the same from its
principal supplier) will cause the Premises to be supplied with
electric current for the lighting and power required therein for the
operation of the Tenant's reasonable needs (excluding power required
for heating, ventilating and air-conditioning the Premises, the cost of
which forms part of Operating Expenses), which current the Tenant
hereby agrees to take and receive from the Landlord. For said electric
current, Tenant shall pay an additional annual
<PAGE>
11
rental equal to the Electrical Amount. Said annual rent shall be paid
in equal, consecutive, monthly instalments in advance. The obligations
of the Landlord hereunder shall be subject to any rules or regulations
to the contrary of the Quebec Hydro Electric Commission or any other
municipal or governmental authority. In the event any special lighting
(above Building standard) or equipment (including, but not limited to,
special heating, ventilating, air-conditioning systems, printing
presses, computers and the like) is installed in the Premises or
lighting is used beyond Business Hours or in any other event where
there is reason to believe that excess electricity is being consumed in
the Premises, the Landlord shall have the right to survey or meter (at
the Tenant's expense) the total electrical consumption and the Tenant
shall pay for any excess disclosed by said survey or metering by
appropriate increases in the aforementioned monthly instalments.
8.03 The Tenant shall pay as and when due all license fees, water rates,
sewer rates and other like fees, charges, rates and assessments that
may be levied, charged, rated or assessed against the Premises and/or
the equipment and facilities thereon or therein and/or any property on
the Premises owned or brought thereon by Tenant.
8.04 The Tenant shall pay for the cost of all other utilities consumed or
used within the Premises by Tenant or other occupants thereof, same to
include, without limitation, the cost of water, gas, steam, fuel or
other energy and Tenant shall pay for the cost of all fittings,
machines, apparatus, meters or other things leased in respect thereof
and for all work or services performed by any corporation or commission
in connection with any such utilities.
8.05 Tenant will retain evidence of payment of any charges referred to in
this Section VIII which it pays directly to any public authority for
inspection by Landlord at Tenant's offices during normal business hours
upon reasonable prior notice, the whole for a period of two (2) years
following the due dates for payment of said charges.
SECTION IX. SERVICES
- ---------- --------
9.01 Services
(a) BUSINESS HOURS: The Landlord shall keep the Building open during
Business Hours. The Landlord shall make reasonable provision to
allow Tenant access to the Premises at other times.
(b) CLEANING: The Landlord shall clean the Premises in accordance
with standards for comparable buildings at such time or times
outside Business Hours on Business Days as Landlord may, in its
sole discretion, determine. The Tenant shall leave the Premises
reasonably tidy for purposes of cleaning.
(c) HEATING: The Landlord shall heat the Premises during Business
Hours. The Landlord shall not be responsible for the failure of
heating equipment to perform its functions if such failure is due
to circumstances beyond the control of Landlord. The Tenant shall
be responsible for the failure of heating equipment performing
its function if such failure results from unapproved partitioning
within the Premises, unapproved changes or alterations thereto.
<PAGE>
12
(d) AIR-CONDITIONING: The Landlord shall provide reasonable air-
conditioning service during Business Hours. Any special
requirements or equipment above Building standards shall be at
the Tenant's sole cost and expense.
(e) ELEVATORS: The Landlord shall keep the passenger elevator(s) in
operation during Business Hours. Limited elevator access to the
Premises will be made available at all other times.
(f) LIGHTING: The Landlord shall supply Building standard lighting
fixtures as well as lamps, bulbs, tubes, starters and ballasts on
the Commencement Date. Lamps, bulbs, tubes, starters and ballasts
shall thereafter be replaced by Landlord at Tenant's cost,
Landlord reserving the right to relamp the entire Premises at
Tenant's cost when Landlord, acting reasonably, considers it cost
efficient or otherwise in accordance with sound property
management practice to do so.
(g) PUBLIC WASHROOMS AND FACILITIES: The Landlord shall furnish men's
and women's washroom facilities in the central service core on
each office floor. Said washrooms shall be supplied with soap,
paper supplies and other necessary materials. A chilled water
fountain will also be provided in the central service core on
each office floor.
9.02 Except as provided for in this Section IX, the cost of providing all of
the foregoing services shall form part of Operating Expenses save that
the provision of any services other than the services contemplated in
paragraphs 9.01(b), (e), (f) and (g), if provided outside Business
Hours (to the extent same can be made available upon reasonable prior
notice to Landlord), shall be at the Tenant's sole cost and expense.
The cost of supplies to washrooms contained within the Premises other
than in the central service core shall be for Tenant's account.
SECTION X. THERE IS NO SECTION X IN THIS LEASE
- ------- - -----------------------------------
SECTION XI. ASSIGNMENT AND SUBLETTING
- ------- -- -------------------------
11.01 The Tenant shall not assign this Lease or sublet the Premises or any
part thereof or allow the Premises or any part thereof to be used by
another without the prior written consent of the Landlord, which
consent shall not be withheld without a serious reason. The Landlord's
refusal of consent shall be deemed to have been for a serious reason
(without in any way restricting the Landlord's right to refuse its
consent on other serious grounds) where the assignee or subtenant
proposed by the Tenant is then a tenant of the Building and the
Landlord has or will have during the next ensuing eighteen (18) months
suitable space for rent in the Building, where the nature of the
business to be conducted by the assignee or subtenant conflicts with
exclusive rights granted other tenants or occupants of the Building,
where the prospective assignee or subtenant is a consulate, embassy,
trade commission or other representative of a foreign government, where
the Premises are intended to be used as medical, dental, government or
quasi-government offices, where the proposed assignee or sub-tenant
does not intend to bona fide physically occupy and carry on business
from the Premises or when the proposed assignment or sublease is made
prior to the Tenant commencing to physically and bona fide occupy and
carry on
<PAGE>
13
business from the Premises or where it is reasonably anticipated by the
Landlord that the number of persons visiting the Premises will
substantially increase as a result of the assignment or subletting.
Notwithstanding any contrary provision of this Lease, Tenant shall have
the right, upon prior written notice to Landlord but without the
requirement of obtaining Landlord's prior written consent, to either
assign this Lease or sublet the Premises or any part thereof to an
affiliate of Tenant in which event the same terms, covenants and
conditions as would have applied had Landlord's prior written consent
been required and been granted shall apply to and in respect thereof;
save and except that the Landlord's rights contained in Clause 11.02
shall not apply thereto.
11.02 As an alternative to such consent (and without being obliged or
affecting its other rights), the Landlord shall have the right:
(a) to sublease the Premises from the Tenant (or such part thereof as
Tenant seeks to sublet) under the same terms and conditions set
forth in the agreement with the assignee or subtenant except in
respect of rent which shall be the lesser of the Rent (or a
proportionate amount thereof in the event only a part of the
Premises is intended to be sublet) or the rental payable pursuant
to the assignment or sublease agreement, as the case may be; or
(b) to cancel the Lease for the Premises (or, as the case may be, for
that portion thereof that Tenant seeks to sublet)
the whole as, of and from the date Tenant wishes to assign this Lease
or sublet the Premises or permit their use by another. Landlord shall
exercise the rights herein granted by sending notice thereof to Tenant
within fifteen (15) days following receipt of the notice referred to in
Section 11.04 hereof. It is agreed and understood that in the event
Landlord elects to exercise the rights conferred to it in accordance
with subparagraphs (a) or (b) above in lieu of granting or refusing its
consent to the proposed assignment or sublet, Tenant acknowledges and
accepts that Landlord need not justify its election upon serious or
other grounds. It is expressly agreed and understood that the rights so
conferred to Landlord have been freely given to Landlord by Tenant for
valid commercial reasons. However, if Landlord exercises its right to
cancel the Lease (as set forth in subparagraph (b) above), Tenant may
withdraw its request for consent to the assignment or sublet by written
notice to Landlord to be received no later than ten (10) days following
receipt of Landlord's notice of cancellation, in which case the Lease
will continue in full force and effect; if Tenant does not withdraw its
request within such ten (10) day period, then the Lease will terminate
as hereinabove provided.
11.03 Notwithstanding any assignment, transfer, subletting or permitted use
by another, the Tenant shall remain solidarily responsible with the
assignee, transferee, subtenant or user (and, in the circumstances
contemplated in Section 11.05 hereof, with the party who acquires
control), without benefit of division or discussion, for the payment of
the Rent and all additional rentals and for the performance of all
other obligations of the Tenant under this Lease. The Rent payable by
the Tenant shall be increased by an amount equal to the profit, if any,
derived by Tenant from the sublease, assignment or transfer. For all
purposes hereof, "profit" shall mean the rent, additional rent and
other amounts payable directly or indirectly by the subtenant,
transferee, assignee or user to or for the account of the Tenant in
excess of the Rent and additional rentals payable by Tenant hereunder
including but not limited to all
<PAGE>
14
capital or other sums paid for improvements or otherwise. At Landlord's
sole option and upon written notice to Tenant and to the assignee,
transferee, subtenant or user, as the case may be, and without any
further formality, all rentals, sub-rentals and similar amounts payable
by an assignee, transferee, subtenant or user to Tenant shall be
irrevocably and unconditionally assigned to Landlord such that the
assignee, transferee, subtenant or user shall pay all such sums
directly to Landlord and the amounts so paid will be credited against
Tenant's monetary obligations under this Lease. In no event will this
assignment or any dealings with the assignee, transferee, subtenant or
user have the effect of releasing Tenant from any of its obligations
under this Lease. Furthermore, it is understood that if Landlord does
not collect any subrentals or other amounts from any assignee,
transferee, subtenant or user, Tenant will have no claim or defense
against Landlord in any manner whatsoever. If this Lease is repudiated,
disclaimed or terminated in connection with or as a result of the
bankruptcy or insolvency of the original Tenant or any assignee,
transferee or subtenant, the original Tenant and any assignee,
transferee or subtenant other than the bankrupt or insolvent person or
entity, upon notice from the Landlord given within sixty (60) days of
Landlord's knowledge of such repudiation, disclaimer, or termination,
will enter into a lease with the Landlord for a term expiring on the
date this Lease would have expired but for the repudiation, disclaimer
or termination and upon the terms and conditions which would have
applied during the remainder of the Term had this Lease not been
repudiated, disclaimed or terminated.
11.04 Tenant agrees to provide Landlord with at least thirty (30) days' prior
written notice of the name, address and nature of business of the
proposed assignee, transferee or sublessee, such credit references and
other information as Landlord may reasonably request and a copy of the
draft assignment, transfer or sublease agreement, the execution of
which will be conditional upon Tenant obtaining the Landlord's consent
as hereinabove provided. Landlord may, at its option and as a condition
of giving its consent to an assignment, transfer or subletting, require
that Tenant and the proposed assignee, transferee or sublessee sign a
form of assignment or sublet document (in form and content satisfactory
to Landlord). Tenant agrees to provide Landlord with a copy of the
assignment, transfer or sublease agreement executed by Tenant and the
proposed assignee, transferee or sublessee together with the signed
form of assignment or sublet document hereinafter referred to. Further,
all reasonable costs, charges and expenses incurred by Landlord in
respect of such assignment, transfer or sublet, including an
administrative fee, shall be payable as a condition of the giving of
Landlord's consent.
11.05 The Tenant will not advertise the Premises for the purpose of any
sublease, transfer or assignment without obtaining the prior written
approval of the Landlord to the proposed text, such approval not to be
unreasonably withheld. In no event will the rental rate appear in any
such advertisements. In no event will the Tenant be permitted to place
any signs in or upon the Premises advertising the availability of the
Premises (or any part thereof) for subleasing, assignment or transfer.
<PAGE>
15
SECTION XII. READINESS FOR OCCUPATION
- ------- ---- ------------------------
12.01 The Landlord shall not be liable for damages in the event Landlord's
work, if any, in the Premises has not been completed by a particular
date, it being understood that this Lease shall remain in full force
and effect except that Rent and all other sums payable hereunder shall
be calculated as and from the date that the Landlord's work has been
substantially completed or would have been substantially completed had
the Tenant not delayed the Landlord in the completion of Landlord's
work.
SECTION XIII. TENANT CARE
- ------- ----- -----------
13.01 The Tenant shall maintain and keep the Premises, including all
replacements, alterations, additions and improvements thereto, in good
order and condition and shall, in accordance with the procedures set
forth in Section XIV hereof, perform or cause to be performed all
repairs (other than structural repairs of a non-recurring nature not
caused by Tenant's fault, negligence or breach of any obligation
hereunder or at law) which may from time to time be required therein or
thereto. Nothing contained in the immediately preceding sentence shall
oblige Tenant to repair or replace items which have suffered wear and
tear so long as such items continue to be in acceptable order and
condition. Without limiting the generality of the foregoing and
notwithstanding any legislation to the contrary, throughout the Term,
the Tenant will be required, at its expense, to do all work necessary
to retain the form and destination of the Premises as leased.
13.02 At the expiration or sooner termination of this Lease, Tenant shall
return the Premises to Landlord in the state and condition in which
they are to be maintained and repaired as herein provided.
13.03 The Tenant shall not bring into the Building any machinery, equipment,
article or thing that by reason of weight or size might cause damage
thereto and in no event shall Tenant overload the floors of the
Building.
13.04 In the event Tenant fails to comply with the obligation to maintain,
repair and replace imposed hereunder, the Landlord, after giving
written notice of five (5) days to the Tenant, shall have the right to
carry out such maintenance, repairs and replacements and any and all
costs incurred by the Landlord in so doing, together with a fee equal
to twenty percent (20%) of such costs, shall be payable by the Tenant
to Landlord as additional rental on demand. Notwithstanding the
foregoing, in the event any work or action is urgently required at
times when authorised representatives of Tenant cannot be located,
Landlord may proceed with such reasonable steps as in its discretion
are deemed by it to be necessary for the protection and preservation of
the Premises and Tenant shall reimburse Landlord for the amount
expended as additional rental on demand.
SECTION XIV. ALTERATIONS, ADDITIONS, IMPROVEMENTS AND REPAIRS
- ------- ---- ------------------------------------------------
14.01 Tenant accepts the Premises "as is-where is" in their state and
condition existing on the Commencement Date; save and except that
Landlord shall install, at its expense, a building-standard doorway
separating the Premises from the space adjacent to them. All
improvements, alterations and additions in and to and all repairs
required for the Premises other than the installation
<PAGE>
16
mentioned in the immediately preceding sentence shall be the
responsibility of Tenant and shall be performed at Tenant's sole cost
and expense, the whole subject to the terms and conditions set forth in
this Section XIV.
All architectural plans and specifications setting forth Tenant's work
may be prepared by a designer and/or architect of the Tenant's choice
but shall be subject to Landlord's prior written approval as herein
mentioned. Said plans and specifications shall include, without
limitation, complete working drawings and specifications, floor plans,
interior elevations, interior finishing schedules, special facilities
or installations that affect the Premises and/or Tenant's perimeter
walls, mechanical, plumbing, sprinklers, telephone and electrical work
(including all fixtures, equipment and under floor services where
applicable) and static and dynamic loading of floors. The Tenant plans
and specifications shall be drawn to the same scale as the base
Building working drawings. Tenant shall be responsible to ensure that
the Tenant work, as designed, complies with all relevant laws, by-laws
and regulations as well as with the Building module and structure and
with the Building's mechanical, electrical, plumbing and other systems.
Complete working drawings, plans and specifications shall be submitted
to Landlord within twenty-one (21) days following execution of the
Lease or within such other delay as the Landlord and Tenant have
otherwise agreed. Within ten (10) days following receipt of the
complete working drawings, plans and specifications, Landlord shall
notify Tenant either of its approval thereof or of changes required and
if Landlord notifies Tenant that changes are required, Tenant shall,
within seven (7) days thereafter, submit the necessary amended
drawings, plans and specifications. Failure by Tenant to submit
complete working drawings, plans and specifications within the delays
herein contemplated shall be deemed to be a delay in the completion of
the Premises attributable to Tenant's fault.
14.02 All improvements, alterations, additions or repairs required or
requested by the Tenant may, at the option of Landlord, be carried out
by the Landlord or under the latter's coordination, in which event the
Tenant shall pay for the costs thereof as well as an amount equal to
five percent (5%) of such cost on account of Landlord's overhead and
administration and an amount of five percent (5%) of the aggregate of
the foregoing representing Landlord's coordination and profit. In
addition, the Tenant shall pay for the cost of all architectural,
engineering and/or working drawings prepared to comply with the
Tenant's requirements and for the cost of inputting such working
drawings in any Building computerised design records that may from time
to time be maintained as well as the foregoing fees calculated on the
cost thereof. Payment shall be effected by way of a cash deposit and
progress draws during the course of the work, the specifics of which
shall be established by the Landlord, acting reasonably, from time to
time.
14.03 Should the Landlord elect not to carry out improvements, alterations,
additions or repairs required or requested by the Tenant, the Tenant
shall not itself make any such improvements, alterations, additions or
repairs to the Premises without obtaining all necessary permits from
the appropriate public authorities and without the prior written
consent of the Landlord, pursuant to Section 14.01 hereof. The Tenant
shall be required to submit to the Landlord plans and specifications
(in accordance with the provisions of Section 14.01 hereof and within
the delays therein mentioned) for all such improvements, alterations,
additions or repairs and Tenant shall pay for the cost of inputting
such plans and specifications in any Building computerised design
records that may from time to time be maintained. All such work shall
be done by contractors approved by the Landlord, which approval shall
not be
<PAGE>
17
unreasonably withheld. All such work shall be conditional upon such
contractors paying the cost of temporary services and coordination
during such construction, upon such contractors timing and performing
their work in accordance with such rules and regulations as the
Landlord may from time to time prescribe, upon such contractors
carrying property damage and liability insurance satisfactory to the
Landlord for its operations in the Building and upon the employees of
such contractors not causing any labour trouble by their presence in
the Building. Furthermore, the Tenant shall require that prior to
entering the Premises or performing any work therein, the Tenant's
contractors shall deliver to the Landlord a waiver and release from all
privileges or rights of privilege, all hypothecs or rights of hypothec
and/or other encumbrances that may then or thereafter exist, be
registered or published against any portion of the Land or Building for
work done, labour performed or materials furnished under any contract
and such contractors must agree to furnish to the Landlord a good and
sufficient waiver of privilege, hypothecs and/or other encumbrances for
every subcontractor and supplier furnishing labour and material under
the contract. The Tenant shall be responsible for any costs and
expenses of the Landlord occasioned directly or indirectly by such work
in the Premises. The cost of such improvements, alterations, additions
or repairs shall be the sole responsibility of the Tenant and if any
payment in respect thereof shall be made by the Landlord, the Landlord
hereby reserving the right to do so in its sole discretion, the same
shall be immediately payable by the Tenant on demand as additional
rent. Tenant shall furthermore pay to the Landlord as additional rent
on demand an amount equal to ten percent (10%) of the total cost of all
of such work representing Landlord's fee for administration and
coordination of same.
14.04 All improvements, alterations, additions or repairs to the Premises
(including all lighting installations such as, but not limited to,
spotlights and tracks, all floor finishes of whatsoever nature placed
upon the concrete floor of the Premises, all heating, air-conditioning
and ventilating equipment and systems, all panelling and all window
coverings, built-ins and the like) shall, upon their completion, become
a part of the Premises and the property of the Landlord and shall be
surrendered with the Premises upon termination of this Lease without
any compensation being due therefor; provided, however, that the
Landlord shall have the option, in its sole discretion, to require the
Tenant to remove at the Tenant's cost and under the Landlord's
coordination and direction, all or any of such improvements,
alterations, additions or repairs as may have been made by Tenant or by
Landlord at Tenant's request prior to or during the Term and to restore
the Premises or any part thereof to the condition they were in at the
Commencement Date, reasonable wear and tear only excepted. To avoid any
doubt, such option shall not apply in respect of improvements,
alterations, additions or repairs made to the Premises by any other
tenant.
SECTION XV. MAJOR REPAIRS
- ------- --- -------------
15.01 Should the Landlord effect improvements, alterations, additions or
repairs to the Premises or Building, the Tenant shall permit same to be
performed without being entitled to any indemnity or reduction in
rental or any damages or compensation therefor. All such work shall be
completed by the Landlord with reasonable dispatch and the cost thereof
shall be included in Operating Expenses unless such work is otherwise
Tenant's responsibility hereunder in which event Tenant shall pay for
the full cost thereof.
<PAGE>
18
SECTION XVI. ACCESS TO PREMISES
- ------- --- ------------------
16.01 The Landlord, its agents and representatives may enter the Premises at
all reasonable times following reasonable prior notice thereof to
Tenant (and at any time and without notice being required during an
emergency) to examine their condition and to view their state of
repair, maintain, clean, re-lamp or otherwise and Tenant covenants to
repair according to notice.
16.02 The Tenant shall allow the Premises to be exhibited during normal
business hours to persons interested in acquiring the Land or Building
or advancing money upon the security thereof. During the last six (6)
months of the Term, Tenant shall also allow the Premises to be
exhibited to persons interested in leasing same.
SECTION XVII. PROTECTION OF EQUIPMENT
- ------- ----- -----------------------
17.01 The Tenant shall protect from damage and make all necessary repairs and
replacements to the heating, ventilating and air-conditioning
apparatus, water, gas and drain pipes, water closets, sinks and
accessories thereof in and about the Premises and keep same free from
all obstructions that might prevent their free working and shall give
to the Landlord prompt written notice of any accident to or defects in
same or any of their accessories. On the Commencement Date, Landlord
shall deliver the heating, ventilating and air-conditioning apparatus,
water, gas and drain pipes, water closets, sinks and accessories in or
serving the Premises in a good state of repair and in proper working
condition.
SECTION XVIII. COMPLIANCE WITH LAWS AND INDEMNIFICATION
- ------- ------ ----------------------------------------
18.01 The Tenant will not do or permit anything to be done in, upon or about
the Premises or bring or keep anything therein which will in any way
conflict with the regulations of the fire, police or health departments
or with the rules, regulations, by-laws, ordinances or laws of the
municipality in which the Land and Building are situate, the applicable
burban community (if any), or any governmental authority having
jurisdiction over the Premises or the business conducted therein, all
of which the Tenant undertakes to abide by and conform to.
The Tenant covenants and agrees that it will indemnify and hold
harmless the Landlord, its agents and contractors from and against any
penalty imposed for or damage arising from the breach of any such
rules, regulations, by-laws, ordinances or laws by the Tenant or those
for whom the Tenant is responsible. The Tenant shall not do anything
which would cause the Premises to be in breach of any environmental
legislation including, without limitation, the Environmental Quality
---------------------
Act.
---
18.02 The Tenant shall pay to the Landlord any extra premiums of insurance
that the company or companies insuring the Land and Building may exact
in consequence of the business carried on by the Tenant, of anything
brought into or stored in the Premises by the Tenant, or of the
Tenant's operations. The Tenant shall furthermore protect the Landlord
from claims made by other tenants in the Building in consequence of
their insurance rates being increased as a result of such causes.
<PAGE>
19
The Tenant shall in no event bring into or store in the Premises
anything which may make any insurance carried by the Landlord subject
to cancellation.
18.03 The Tenant shall comply with the requirements of all insurance
companies having policies of any kind whatsoever in effect covering the
Land and Building. In no event shall any inflammable materials or
explosives (except to the extent required by Tenant to carry on its
business and then only as permitted by Landlord's and Tenant's
insurers) be taken into or maintained within the Premises.
18.04 The Tenant shall indemnify and hold harmless the Landlord from and
against all claims, liabilities or payments relating to the use and
occupancy of the Premises by Tenant or the other occupants thereof and,
without limiting the generality of the foregoing, Tenant does hereby
agree to indemnify and hold harmless the Landlord from and against all
claims, liabilities, damages, costs, suits or actions arising from:
(a) any accident, injury (including death) or damage whatsoever or
howsoever caused to any person or persons (including the Tenant,
its employees, agents and invitees, any subtenant or licensee of
the Tenant and all other persons claiming through or under any of
them) or to the property of any such person or persons occurring
during the Term, caused by want of repair to, or by the use or
occupation of the Premises;
(b) any breach, violation or non-performance of any covenant,
condition or agreement set forth in the present Lease on the part
of Tenant to be fulfilled, kept, observed or performed;
(c) the conduct or management of or from any work or thing whatsoever
done, or not done, in or about the Premises by the Tenant, its
agents, employees or contractors, or arising from any act of
negligence by the Tenant or any of its agents, employees or
contractors; and
(d) the failure of the Tenant to fully, faithfully and punctually
comply with all of the legitimate requirements of any public or
quasi-public authority having jurisdiction over the Premises;
provided that Tenant shall not be obliged to indemnify and hold
harmless the Landlord for or against any claims, liabilities or
payments contemplated by this Clause 18.04 to the extent they arise
from Landlord's intentional or gross fault.
18.05 Notwithstanding any express or implicit obligation on the part of
Landlord to insure and further notwithstanding any obligation on the
part of Tenant to contribute to the payment of Landlord's premiums,
Tenant acknowledges that Tenant shall remain responsible for its
negligence and those of all persons for whom it is in law responsible,
that no insurable interest is conferred upon the Tenant under any of
Landlord's insurance policies and that Tenant shall have no right to
recover any proceeds thereunder or claim any right or title to such
proceeds.
<PAGE>
20
SECTION XIX. SECURITY DEPOSIT
- ------- ---- ----------------
19.01 Forthwith upon execution of this Lease, the Tenant shall furnish the
Landlord with the Security Deposit, to be applied on account of the
instalments of Rent and Tenant's estimated contributions to Operating
Expenses, Real Estate Taxes and Tax on Capital attributable to the month
of January 2000 and on account of the instalments of Rent and Tenant's
estimated contributions to Operating Expenses, Real Estate Taxes and Tax
on Capital for the month of July, 2000.
SECTION XX. FIRE AND DESTRUCTION OF PREMISES
- ------- ------------------------------------
20.01 In the event the Building is destroyed or damaged by fire or other cause
and as a result thereof, the Premises will not be able to be used for the
purpose for which they have been leased by Tenant for at least thirty
(30) days following the date of the damage or destruction, Tenant shall
have the option to cancel this Lease by giving Landlord written notice to
such effect within such thirty (30) day delay. In the event that Tenant
exercises this right of cancellation, the Lease shall expire forthwith
and Tenant shall immediately surrender the Premises and all interest
therein to Landlord and shall pay rent only to the date of the damage or
destruction. If Tenant's right to cancel this Lease does not apply in
respect of the damage or destruction or if Tenant has failed to exercise
such right, Landlord shall, within ninety (90) days of the damage or
destruction, give notice to Tenant in writing whether or not Landlord
intends to restore or rebuild substantially the same nature and quality
structure (and this, whether or not the Premises are affected). If
Landlord's notice advises that Landlord has decided not to so restore or
rebuild, this Lease shall expire forthwith and Tenant shall immediately
surrender the Premises and all interest therein to Landlord. In all
events contemplated in this Clause 20.01, rent shall be diminished in
proportion to the extent to and the time during which the Premises cannot
be used for the purpose for which they have been leased by Tenant. In no
event shall Landlord be liable to Tenant for any loss or damage
occasioned by such damage or destruction or by any delays in substantial
completion of any repair or replacement contemplated by this Clause
20.01.
20.02 In the event Landlord elects to restore or rebuild as aforesaid, it is
expressly understood and agreed that the extent of Landlord's obligation
will be to rebuild or restore to substantially the condition in which the
Building and Premises were initially delivered to Tenant as modified to
be consistent with the plans, specifications and design criteria selected
by Landlord at the time of reconstruction. Nothing herein contained shall
be construed to oblige the Landlord to repair or reconstruct any
alterations, improvements or property of the Tenant. On the contrary, all
other improvements in and to the Premises shall be the responsibility of
Tenant who shall be obliged to repair and re-fixture to a standard at
least equivalent to that which existed prior to the date of damage and
destruction, the proceeds of insurance being carried by Tenant in respect
to its property and improvements to be held in trust jointly by Landlord
and Tenant for the purpose of said repair and replacement.
<PAGE>
21
SECTION XXI. NON-RESPONSIBILITY OF LANDLORD
- ------- -----------------------------------
21.01 To the extent permitted by law, the Landlord shall not be liable for any
damage, loss, injury or destruction arising in or upon the Land, Building
or Premises to any property or person nor for any personal injuries
sustained by the Tenant, its officers, servants, employees, agents,
invitees or licensees which may result at any time from any reason or
cause whatsoever, the Tenant hereby covenanting to indemnify the Landlord
of and from all loss, costs, claims or demands in respect of such damage,
loss, injury or destruction. Without limiting the generality of the
foregoing, the Landlord shall not under any circumstances be liable for
any damage resulting from water, steam, rain or snow which may leak into,
issue or flow from the pipes or plumbing or sprinklers or from any other
part of the Building or from any other place or quarter. No event or
occurrence herein contemplated shall be deemed an eviction or disturbance
of the Tenant's enjoyment of the Premises nor render the Landlord liable
in damages to the Tenant nor entitle the Tenant to claim any diminution
in Rent or in any other amount payable hereunder.
21.02 The Landlord shall not be liable for failure to perform any of its
obligations hereunder nor be responsible for any damage resulting from
delays in the construction and/or finishing of the Premises and/or the
interruption or modification of any service or facility provided in the
Building caused or required by strikes, riots, labour controversies,
accidents, fault or delays caused by Tenant or third parties, fuel
shortages, Acts of God or of the Queen's enemies, fire or other casualty,
force majeure, cas fortuit, superior force or any other cause beyond the
--------------------------
Landlord's reasonable control, other than Landlord's financial condition,
and Landlord shall not be responsible for any acts or omissions of any
other tenants or occupants of the Building or other third parties. No
such occurrence or event shall be deemed an eviction or disturbance of
the Tenant's enjoyment of the Premises nor render the Landlord liable in
damages to the Tenant nor entitle the Tenant to claim any diminution in
Rent or other amounts payable hereunder, but in any such event the
Landlord shall without delay take all reasonable steps to remove the
cause of such interruption.
21.03 Without limiting the generality of the foregoing, the Landlord shall not
be liable for any damage of any kind or nature to the Premises or to any
goods, merchandise, stock-in-trade, assets, fixtures, furniture,
accessories or equipment belonging to the Tenant or to the Tenant's
officers, servants, employees, agents, invitees or licensees resulting
from robbery, burglary, theft or acts of violence of any kind, and the
Tenant will hold the Landlord free, clear and harmless from any liability
or loss resulting therefrom.
SECTION XXII. INSURANCE
- ------- ---------------
22.01 Throughout the Term and any renewal thereof, Tenant shall take out and
keep in force:
(a) comprehensive general liability insurance (including blanket
contractual liability coverage) with respect to the business
carried on in or from the Premises and the use and occupancy
thereof for bodily injury and death and damage to property of
others in an amount of at least five million dollars
($5,000,000.00) (indexed annually based upon percentage increases
in the Cost of Living Index - All Items - Canada as determined by
Statistics Canada or its successors) for each
<PAGE>
22
occurrence or such greater amount as Landlord may from time to time
reasonably require;
(b) all-risks insurance including the perils of fire, extended
coverage, leakage from sprinkler and other fire protective devices,
earthquake, collapse and flood in respect to furniture, equipment,
inventory and stock-in-trade, fixtures, (plate glass if
appropriate) and leasehold improvements located within the Premises
and such other property located in or forming part of the Premises,
including all mechanical or electrical systems (or portions
thereof) installed by Tenant in the Premises, the whole for the
full replacement cost (without depreciation) in each such instance;
(c) business interruption insurance in an amount equal to at least one
(1) years' Rent, Tenant's Proportionate Share of Real Estate Taxes,
Operating Expenses and Tax on Capital, and the Electrical Amount or
such greater amount as Landlord may from time to time reasonably
require;
(d) tenants' legal liability insurance in an amount equal to the
replacement cost of the Premises or such greater amount as Landlord
may from time to time reasonably require; and
(e) such additional insurance as Landlord, acting reasonably, may from
time to time require.
22.02 All policies of insurance shall (i) be in form satisfactory to Landlord,
(ii) be placed with insurers acceptable to Landlord, (iii) provide that
they will not be cancelled or permitted to lapse unless the insurer
notifies Landlord in writing at least thirty (30) days prior to the date
of cancellation or lapse, and (iv) be primary and not excess or
contributing with any other insurance available to the Landlord or others
insured thereunder. Each such policy shall name Landlord and any other
party required by Landlord, including but not limited to its property
manager and hypothecary creditors, as an additional insured(s) as its (or
their) interest(s) may appear. Each liability policy will contain a
provision of cross-liability and severability of interests as between
Landlord and Tenant. All other policies referred to above shall contain a
waiver of subrogation rights which Tenant's insurers may have against
Landlord, Landlord's insurers and persons under Landlord's care and
control. Notwithstanding anything contained in this Lease to the
contrary, Tenant hereby releases and waives any and all claims against
Landlord and those for whom Landlord is in law responsible with respect
to occurrences which are or which are required to be insured against by
Tenant hereunder. Tenant shall from time to time furnish Landlord with
certified copies of all such insurance policies and the renewals thereof.
22.03 Should Tenant fail to take out or keep in force such insurance, Landlord
will have the right to do so and to pay the premiums therefor and in such
event Tenant shall repay to Landlord the amount paid as premiums as
additional rental on demand.
22.04 Landlord's property insurance policies shall contain a waiver of
subrogation rights which the insurers under such policies may have
against Tenant, Tenant's insurers and persons under Tenant's care and
control.
<PAGE>
23
SECTION XXIII. DEFAULT
- ------- ------ -------
23.01 In any of the events following, namely:
(a) if the Tenant shall fail to pay the Landlord any instalment of Rent
or any additional rent after it shall have become due and payable
as herein provided and such instalment has not been paid in full
within five (5) days following Landlord's written notice to Tenant
of such failure to pay; provided, however, that Tenant shall no
longer be entitled to the benefit of any such notice of non-payment
in the event that it has failed on at least two (2) occasions in
any period of 365 consecutive days to pay any such instalment after
it shall have become due and payable as herein provided;
(b) if the Tenant shall be declared dissolved, bankrupt or wound-up or
shall make any general assignment for the benefit of its creditors
or take or attempt to take the benefit of any insolvency, winding-
up or bankruptcy legislation or if a petition in bankruptcy or in
winding-up or for reorganisation shall be filed by or granted
against the Tenant or if a receiver or trustee be appointed for or
enter into physical possession of the property of the Tenant, or
any part thereof;
(c) if the Tenant shall assign, sublet or permit the use of the
Premises by others except in a manner herein permitted;
(d) if any seizure is practised against the property of the Tenant in
the Premises;
(e) if the Tenant shall fail to take possession of the Premises or if
the Tenant should vacate or abandon the Premises;
(f) if any insurance carried by the Landlord be cancelled in
consequence of the business carried on by the Tenant or in
consequence of anything brought into or stored in the Premises by
the Tenant;
(g) if the Tenant shall default in the performance of any of its other
obligations under this Lease including, without limitation, the
obligation to pay business and water taxes in a timely manner, or
fail to effect any payment that may result in a charge, lien,
encumbrance or other right on the Land, Building or Premises or the
property located therein or shall violate any of the rules and
regulations hereinafter set forth or hereafter to be established by
the Landlord and such default continues for five (5) days following
receipt of written notice thereof;
this Lease may be resiliated ipso facto at the option of the Landlord
upon written notice to the Tenant to such effect, and this
notwithstanding any legislation to the contrary including without
limitation Article 1863 of the Civil Code of Quebec. It is expressly
agreed that such right of termination shall be in addition and without
prejudice to all other rights and recourses as provided by law or herein,
the Landlord may re-enter and re-let the Premises to whomsoever it may
choose without further notice or demand being necessary and may recover
from the Tenant all amounts due hereunder at the date of such
termination, expenses of such re-letting (including any inducements,
allowances, commissions, repairs, decorating, alterations or improvements
necessitated thereby) and rental for the six (6) months next succeeding
the date of such termination or such longer period as may be allowed by
law, all of which shall immediately become due and payable, the whole
without
<PAGE>
24
diminishing or extinguishing the liability of any guarantor or
indemnifier of the obligations of Tenant under this Lease. As used
herein, the expression "rental" shall mean the Rent, Tenant's
Proportionate Share of Real Estate Taxes, Operating Expenses and Tax on
Capital, the Electrical Amount and all other additional rents payable
hereunder, without prejudice to such claims as Landlord may have from
time to time for loss of rental attributable to any subsequent period or
to any other claims, rights and recourses that Landlord may have in the
circumstances arising from time to time. Any sums received by the
Landlord from or for the account of the Tenant when the Tenant is in
default hereunder may be applied, at the Landlord's option, to the
satisfaction in whole or in part of any obligation of the Tenant then due
hereunder in such manner as the Landlord sees fit and regardless of any
imputation by law or any designation or instruction of the Tenant to the
contrary.
23.02 In the event of the bankruptcy, insolvency or winding-up of the Tenant,
there shall immediately become due and exigible in favour of the
Landlord, on account of the damages, costs and losses (including, without
limitation, loss of rentals and additional rentals) which may be suffered
by the Landlord as a consequence of the bankruptcy, insolvency or
winding-up of the Tenant, an amount equal to the amount of the Security
Deposit or the amount of the letter of credit, as the case may be. The
entitlement of the Landlord to the foregoing amount shall not be affected
or impaired by the bankruptcy, repudiation or disclaimer of this lease or
any other decision taken by any trustee, liquidator, receiver, referee or
any other person appointed under or pursuant to any agreement or by any
court or other body of competent jurisdiction under any bankruptcy,
insolvency, winding-up or other legislation in force from time to time.
The rights of the Landlord under this Section 23.02 are in addition to
and not in substitution for the rights of the Landlord under Section
23.01. In addition to the foregoing and without prejudice to the
Landlord's other rights and recourses hereunder, in the event of the
bankruptcy of the Tenant, there shall immediately become due and exigible
in favour of the Landlord, on account of accelerated rent, an amount
equal to rental and additional rental for a period of three (3) months
next following the bankruptcy or for such longer period of time as may be
allowed by any applicable bankruptcy or insolvency legislation in force
from time to time. Furthermore, in the event of Tenant's continued
occupancy of the Premises after the filing of a proposal or a notice of
intention to file a proposal pursuant to the provisions of the Bankruptcy
and Insolvency Act, S.C. 1992 C-27 and any amendments thereto or
replacements therefor and said continued occupancy commences on a day
which is not the first day of any calendar month, any Rent or other
amounts payable on a monthly basis hereunder for such month and for any
other partial month of the Term shall be calculated on a per diem basis
-- ----
and be paid in advance.
23.03 In the event of any default by Tenant under this Lease or in the
circumstances of Section 23.02 hereof applying, Landlord shall have the
right to immediately draw in full upon any letter of credit held as
security for the fulfilment of Tenant's obligations hereunder or for the
payment of any amounts that may be owing to the Landlord hereunder, and
to retain the amount so drawn as its absolute property or to apply the
same as a cash security deposit pursuant to the provisions of Section
19.01 hereof.
23.04 If Landlord retains the services of a lawyer to enforce the execution of
any of Tenant's obligations under the Lease or to retake possession of
the Premises and Landlord is successful in obtaining enforcement of such
execution or in such retaking of possession, Tenant shall pay to Landlord
on demand, in
<PAGE>
25
addition to judicial costs otherwise payable by Tenant, all extra-
judicial or solicitor and client disbursements and legal fees (which may
be calculated on an hourly basis) incurred by Landlord for the foregoing
purpose. If Tenant retains the services of a lawyer to enforce the
execution of any of Landlord's obligations under the Lease and Tenant is
successful in obtaining enforcement of such execution, Landlord shall pay
to Tenant on demand, in addition to judicial costs otherwise payable by
Landlord, all extra-judicial or solicitor and client disbursements and
legal fees (which may be calculated on an hourly basis) incurred by
Tenant for the foregoing purpose.
SECTION XXIV. MODIFICATION
- ------- ----- ------------
24.01 Notwithstanding any provision of this Lease or any Schedule appended
hereto to the contrary, the Landlord reserves the right at any time and
from time to time to change, alter, modify or expand the Building as the
Landlord in its sole and entire discretion deems expedient, same to
include, without limitation, the right of the Landlord to add additional
floors to the Building, to expand the length or width of the Building,
and/or to change, alter and amend the location, dimensions or
specifications of the pipes, wires, ducts, conduits, utilities,
mechanical systems, common areas and other Building services (including
such as may be contained in the Premises) and the right to block light or
views. The Tenant waives and renounces to any and all claims as a
consequence of the foregoing providing the physical dimensions of the
Premises remain substantially as contemplated herein. No action on the
part of Landlord hereunder shall constitute an eviction hereunder or a
change in the form or destination of the Premises or any diminution of
the peaceable enjoyment by the Tenant. In the event any such change
results in additional land being utilised to service the Building, such
additional land shall be deemed included in the definition of "Land" for
all purposes. In the event any change contemplated herein results in a
change in the rentable area of the Building, the Tenant's Proportionate
Share shall be modified accordingly.
24.02 The Landlord reserves the right to construct other buildings, structures
or improvements on the Land and to make such alterations and/or
improvements to the Building and create such servitudes and other rights
as may be necessary or desirable in order to permit any new structure or
structures to be connected to the Building.
24.03 If Landlord has already established or elects or is obliged to establish
common areas or facilities, including without limitation, a conference
centre or a day care center, in the Building for the benefit and use of
the tenants and their employees, Tenant acknowledges that the rentable
area of the Premises shall at such time or times be deemed to include or
to be increased to include, as the case may be, Tenant's Proportionate
Share of the areas of such common areas or facilities for purposes of
calculating Rent, Tenant's contribution to Real Estate Taxes, Operating
Expenses and Tax on Capital, the Electrical Amount and other additional
rentals owing hereunder.
Tenant shall have the right of use of such common areas and facilities in
common with other tenants of the Building, such use to be governed by
such rules and regulations as may from time to time be established by
Landlord. Landlord reserves the right at any time to discontinue the
existence of any such common areas or facilities in which event the
rentable area of the Premises shall be deemed to be decreased to exclude
therefrom Tenant's Proportionate Share of the area thereof for purposes
of calculating Rent,
<PAGE>
26
Tenant's contributions to Real Estate Taxes, Operating Expenses and Tax
on Capital, the Electrical Amount and other additional rentals owing
hereunder.
SECTION XXV. ADDITIONAL PROVISIONS
- ------- ---- ---------------------
25.01 Additional Provisions
(a) LANDLORD: In the event of any sale or lease of the Building, the
--------
Landlord shall be and hereby is entirely released and relieved from
all covenants and obligations of the Landlord hereunder, provided
such purchaser or lessee agrees to assume and carry out any and all
such covenants and obligations.
(b) AMENDMENT OF LEASE: No assent or consent to changes in or waiver of
------------------
any part of this Lease shall be deemed or taken as made unless the
same be done in writing and attached to or endorsed hereon by
Landlord and Tenant. No covenant or term of the present lease
stipulated in favour of the Landlord or Tenant shall be waived,
except by express written consent of the other, whose forbearance
or indulgence in any regard whatsoever shall not constitute a
waiver of the covenant, term or condition to be performed; and
until complete performance of the said covenant, term or condition,
the creditor thereof shall be entitled to invoke any remedies
available under this Lease or by law despite such forbearance or
indulgence.
(c) LATE PAYMENTS: The acceptance by the Landlord of any post-dated
-------------
cheque or money owing for Rent or additional rent after its due
date is to be considered as a mode of collection only, without
novation of, nor derogation from, any of Landlord's rights,
recourses and actions in virtue of this Lease which demands
punctual payment of all obligations.
All sums owing by Tenant under this Lease not paid when due shall
thereafter bear interest at a rate equivalent to five percent (5%)
per annum above the prime lending rate of The Toronto-Dominion Bank
from time to time in effect. Notwithstanding the foregoing, Real
Estate Taxes, Electrical Amount and any other utility charges or
taxes not paid when due pursuant to the Lease shall bear interest
at a rate equivalent to the greater of five percent (5%) per annum
above the prime lending rate of The Toronto-Dominion Bank from time
to time in effect and the interest on arrears charged by the
relevant public or taxing authorities.
(d) TENANT: All the covenants herein contained shall be deemed to have
------
been made by and with the heirs, executors, administrators and
permitted assigns or successors of each of the parties hereto, and
if more than one Tenant, the covenants herein contained on the part
of the Tenant shall be construed as being several as well as joint
and where necessary reference to the Tenant as being of the
masculine gender or in the singular number shall be construed as
being in the feminine or neuter gender or in the plural number.
(e) BROKERAGE COMMISSION: As part of the consideration for the granting
--------------------
of this Lease, the Tenant represents and warrants that no broker,
agent or other intermediary introduced the parties or negotiated or
was instrumental in negotiating or consummating this Lease other
than the
<PAGE>
27
Real Estate Broker named in Section 1.01 hereof, whose commission
shall be paid by the Tenant.
(f) NOTICES AND DEMANDS: Subsequent to the Commencement Date, any
-------------------
notice or demand given by the Landlord to the Tenant shall be
deemed to be duly given when served upon or mailed to the Tenant at
the address of the Premises. The Tenant elects domicile at the
Premises for the purpose of service of all notices, writs of
summons or other legal documents in any suit at law, action or
proceeding which the Landlord may take under or in connection with
this Lease.
(g) PUBLICATION OF LEASE: The Tenant will not publish this Lease or any
--------------------
extract or summary thereof. Upon the Tenant's request, the Landlord
will execute with the Tenant for registration purposes only a short
form of this Lease in form and substance acceptable to Landlord but
which in any event shall not contain any of the financial
information (including, without limitation, the Rent) set out in
this Lease. Nothing in the short form of lease shall be construed
or interpreted so as to amend in any manner the provisions of this
Lease, the intention of the Landlord and the Tenant being that this
Lease shall govern for all purposes and that the short form of
lease is only to be filed for purposes of conservation and
consultation pursuant to Article 2985 of the Civil Code of Quebec.
The Tenant will radiate and discharge such publication at the
expiry or other termination of this Lease and in the event that it
fails to do so, Landlord may do so at Tenant's expense, and the
Tenant hereby appoints Landlord and any officer or employee of
Landlord (or, as the case may be, Landlord's managing agent for the
Building and any officer or employee of such agent) as its attorney
with the right and power to execute in the name of the Tenant any
such documents as will be required in order to effect such
radiation and discharge.
(h) ADDITIONAL RENT: In addition to Rent, all monies payable pursuant
---------------
to this Lease, as well as all sales, business transfer, goods and
services and value added taxes, rates and duties or similar taxes,
rates and duties which may at any time hereafter be imposed upon or
by reference to the Rent and other sums owing by Tenant hereunder,
shall be payable by Tenant to Landlord immediately when due without
reduction, deduction or compensation whatsoever and shall be
additional rent and collectible as such.
(i) PRIOR AGREEMENTS: The present Lease cancels and supersedes all
----------------
prior leases and agreements, written or otherwise, entered into by
the Landlord and the Tenant regarding the Premises leased
hereunder. This Lease and such rules and regulations as may be
adopted and promulgated by the Landlord from time to time
constitute the entire agreement between the parties.
(j) RIGHTS CUMULATIVE: No right or remedy herein conferred upon or
-----------------
reserved to the Landlord is intended to be exclusive of any other
right or remedy herein or by law provided, but such rights shall be
cumulative and in addition to every other right or remedy herein or
by law provided.
<PAGE>
(k) PERFORMANCE BY THE LANDLORD: If the Tenant fails to pay any sum to
---------------------------
any third party or perform any other obligation under this Lease,
the Landlord may, without notice or mise en demeure to any person,
pay the said sum or perform the said obligation in the place and
stead of the Tenant who shall be thereupon obliged to repay the
said sum and/or reimburse any costs incurred by the Landlord in
performing such obligation, together with a fee equal to twenty
percent (20%) of the amount paid or the costs incurred, as the case
may be, the whole without prejudice to any other rights or
recourses of the Landlord which may accrue in the circumstances.
(l) RENUNCIATION: Tenant hereby renounces to any rights which it may
------------
have or acquire under the Constitut or Tenure System Act, 1977
------------------------------
S.R.Q. Chapter C-64.
(m) SEVERABILITY: If any clause or provision (or any part of any clause
------------
or provision) herein contained shall be adjudged invalid, the same
shall not affect the validity of any other clause or provision of
this Lease (or as the case may be, the remainder of any clause or
provision in which it is found), or constitute any other cause of
action in favour of either party against the other.
(n) GOVERNING LAW: This agreement shall be construed and interpreted in
-------------
accordance with the laws of the Province of Quebec.
(o) CAPTIONS: This captions appearing in this Lease have been inserted
--------
as a matter of convenience and for reference only and in no way
define, limit or enlarge the scope or meaning of this Lease or any
provision thereof.
(p) TIME OF THE ESSENCE: Landlord and Tenant hereby acknowledge that
-------------------
time is of the essence with respect to all delays and dates
mentioned in the Lease.
(q) FREELY NEGOTIATED: The Tenant acknowledges that it has had the
-----------------
opportunity to consult with legal counsel in connection with the
negotiation and execution of this Lease and Tenant further
acknowledges that all provisions of this Lease have been freely and
fully discussed and negotiated and that this Lease does not
constitute a contract of adhesion.
SECTION XXVI. RULES AND REGULATIONS
- ------- ----- ---------------------
26.01 The rules and regulations respecting the Land and Building which are more
fully set forth in Schedule "D" hereto shall, during the Term, be
observed and performed by the Tenant, its officers, servants, employees,
agents, invitees and licensees, and the Landlord shall have the right to
make reasonable alterations and additions to such rules and regulations
and to make such other and further reasonable rules and regulations as in
its judgment may from time to time be required for the safety, care and
cleanliness of the Land and Building including the Premises, and for the
preservation of good order therein, and the same shall be observed and
performed by the Tenant, its officers, servants, employees, agents,
invitees and licensees. The Landlord may waive any one or more of these
rules and regulations for the benefit of any particular tenant or
tenants, but no such waiver by the Landlord shall be construed as a
waiver of the rules and regulations in favour of any other
<PAGE>
29
tenant or tenants nor prevent the Landlord from thereafter enforcing
any rules and regulations against all or any of the tenants in the
Building. Furthermore, the Landlord, acting reasonably, may apply the
rules and regulations in a different manner having regard to the
different nature of businesses carried on by the tenants, within the
Building. The Landlord agrees to notify the Tenant in writing of any
changes in the rules and regulations.
SECTION XXVII. MORTGAGES AND SUBORDINATION
- ------- ------ ---------------------------
27.01 This Lease and all rights of Tenant hereunder shall be subject and
subordinate at all times to any and all underlying leases, mortgages,
hypothecs, deeds of trust or other security interests affecting the
Building and/or the Land which have been executed or which may at any
time hereafter be executed, and any and all extensions and renewals
thereof and substitutions therefor. Tenant agrees to execute any
instrument or instruments which Landlord may deem necessary or desirable
to evidence the subordination of this Lease or to cede priority of its
registration to any or all such underlying leases, mortgages, hypothecs,
deeds of trust or other security interests.
27.02 Tenant covenants and agrees that if by reason of default by Landlord as
lessee under any underlying lease in the performance of any of the terms
or provisions of such underlying lease or by reason of a default under
any mortgage, hypothec, deed of trust or other security interest to which
this Lease is subject or subordinate and Landlord's title is terminated,
it will attorn to the lessor under such underlying lease or the acquirer
of the Building pursuant to any action taken under any such mortgage,
hypothec, deed of trust or other security interest and Tenant will
recognise such lessor or such acquirer as Tenant's lessor under this
Lease.
27.03 Tenant waives the provisions of any statute or rule of law now or
hereafter in effect which may give or purport to give the Tenant any
right of election to terminate this Lease or to surrender possession of
the Premises in the event any such proceeding to terminate the underlying
lease is brought by the lessor under any such underlying lease or any
such action is taken under any such mortgage, hypothec, deed of trust or
other security interest and agrees that this Lease shall not be affected
in any way whatsoever by any such proceedings.
27.04 Tenant agrees to execute and deliver, at any time and from time to time
upon the request of Landlord or of the lessor under any such underlying
lease, or of the holder of any such mortgage, hypothec, deed of trust or
other security interest, any instrument which may be necessary or
appropriate to evidence such attornment. Tenant shall execute and deliver
such instrument (or instruments) within ten (10) Business Days after
being requested to do so and failing which Landlord may do so on Tenant's
behalf.
27.05 Tenant will upon request of Landlord furnish to the lessor under any
underlying lease and/or to each creditor under a mortgage, hypothec, deed
of trust or other security interest and/or to an actual or prospective
purchaser, or emphyteutic lessee of Landlord's rights in and to the Land
and/or Building and/or underlying lease a written statement that this
Lease is in full force and effect and that the Landlord has complied with
all its obligations under this Lease (or state those with which it has
not complied) and any other
<PAGE>
30
reasonable written statement, document or estoppel certificate requested
by any such lessor, creditor, purchaser or lessee.
SECTION XXVIII. SCHEDULES
- ------- ------- ---------
28.01 The Schedules are included in and form an integral part of this Lease.
SECTION XXIX. ENGLISH LANGUAGE
- ------- ----- ----------------
The parties have requested that this agreement of lease be prepared in the
English language. Les parties ont demande que la presente convention de bail
soit redigee en anglais.
IN WITNESS WHEREOF, the parties have signed these presents at the place first
hereinabove mentioned.
CITE DE L'ILE DEVELOPMENTS INC.
(Landlord)
___________________________________ Per:
Witness
___________________________________
Witness
NUANCE COMMUNICATIONS LIMITED
(Tenant)
/s/ Signature Illegible Per: /s/ Signature Illegible
- ----------------------------------- -----------------------------
Witness REBECCA DURDAN OKAHAM SMITH
/s/ Signature Illegible
- -----------------------------------
Witness Toula Vertin
___________________________________ Per: _____________________________
Witness
___________________________________
Witness
<PAGE>
SCHEDULE "A"
The original lot number five thousand eight hundred and ninety one (5,891) on
the official cadastre of the Montreal paroisse, registration division of
Montreal; having an area of six thousand one hundred and ninety nine point 6
square meters (6,199.6m 2). With the building and or improvements erected
thereon. (lot 5891 herein described is defined for these purposes to be "Phase
I").
<PAGE>
Schedule "B"
[CHART OMITTED]
<PAGE>
Schedule "D"
RULES AND REGULATIONS
1. The Tenant shall follow such instructions, if any, as Tenant may from
time to time receive from Landlord relating to the maintenance and care
of the heating, ventilating and air-conditioning equipment contained
within the Premises.
2. The Tenant shall not permit the introduction of any machine or
electrical or mechanical device of a nature to occasion objectionable
noise or vibration or be injurious to the Premises or Building or to
any of the occupants thereof.
3. The Tenant shall not without the written consent of the Landlord use
any electric current except that supplied from the general system
installed in the Building, and the Landlord shall not be responsible in
damages by reason of any failure of such current. If the Landlord
grants the Tenant permission to introduce any special electric power,
telegraphic or telephone connection, the Landlord reserves the right to
direct where and how wires are to be introduced, and without such
direction no boring or cutting shall be permitted. No radio or
television serials shall be installed by Tenant within the Building or
Premises.
4. The Tenant shall keep the Premises in a good state of preservation and
shall not suffer any accumulation of useless property or rubbish
therein. No animals shall be kept in or about the Premises.
5. Any breakage of glass in the Premises shall be charged to the Tenant
unless caused by the Landlords or those for whom the landlord is
representing
6. The Tenant, its employees, clerks or servants, shall not use the
Premises for the purpose of lodging rooms, or for any immoral or
unlawful purpose, and shall not make or permit any improper noises in
the Building or obstruct or interfere in any way with other tenants or
those having business with them, and shall not throw anything out of
the windows or doors or down through the passages or skylights of the
Building.
7. The workmen of the Landlord must be employed by the Tenant at the
Tenant's expense for painting, lettering, interior moving and other
similar work that may be done in the Premises.
8. The Tenant shall not mark, paint, drill into or in any way deface the
walls, ceilings, partitions, floors, wood, stone or iron work, or any
other appurtenance to the Premises.
9. The skylights and/or windows that reflect or admit light into any place
in the Building shall not be covered or obstructed by the Tenant.
10. The sidewalks, entries, passages, halls, elevators and stairways shall
be under the exclusive control of the Landlord and shall not be
obstructed by the Tenant, or used by it for any other purpose than the
ingress and egress to and from its respective offices or places of
business.
11. Furniture, accessories and equipment, as well as bulky articles and
construction materials which the Tenant may require from time to time,
shall be carried to the Premises at such hour and in such manner as the
Landlord may designate, the whole subject to arrangements for adequate
security and supervision, at the cost of Tenant, having been previously
made. The Tenant agrees to pay the Landlord for the use of elevators
and other Building services used in respect to the foregoing in
accordance with the Landlord's prevailing rates from time to time in
effect. Any damages which may be caused to the Building in the carrying
of furniture, bulky articles or construction materials to or from the
Premises shall be the sole responsibility of the Tenant.
12. The Tenant shall not employ any person or persons other than the
janitor staff of the Landlord for the purpose of cleaning and taking
charge of the Premises and for such purposes the janitor of the
Landlord shall be provided with a pass-key and shall be allowed
admission into the Premises.
13. Should a directory board be provided by Landlord in the Building, said
board will be installed in a conspicuous place and its capacity will be
such that it may contain the numbers of rooms and names of the tenants,
however, it shall not include other than the firm name of the Tenant,
same to be provided at the Tenant's cost.
<PAGE>
14. The Landlord shall not be responsible for any damage to the furniture,
effects, goods or equipment of the Tenant while being transported or
moved to and from the Premises or in the elevators, corridors, basement
or other premises of the Landlord.
<PAGE>
Page 2
15. If any sign, advertisement or notice shall be inscribed, painted or
affixed by the Tenant on any part of the Premises or Building without
the prior written consent of the Landlord, the Landlord shall be at
liberty to forthwith remove same at Tenant's expense. Interior signs on
doors will be inscribed, painted or affixed for the Tenant by the
Landlord at the expense of the Tenant and shall be of a size, color and
style acceptable to the Landlord.
16. The Tenant shall not place any additional locks upon any doors of the
Premises without written permission and shall not permit any duplicate
keys to be made therefor, but shall use only additional keys obtained
from the Landlord at the expense of the Tenant. The Tenant shall
surrender to the Landlord at the termination of this Lease all keys to
the Premises and the Building.
17. The Tenant shall not perform any acts which may injure the Premises or
be a nuisance to other tenants of the Building and shall forthwith upon
the request of the Landlord discontinue all acts or practices in
violation of this regulation and repair any damage or injury to the
Premises caused thereby.
18. The Landlord reserves the right to inspect all freight to be brought
into the Building and to exclude from the Building all freight which
violates any of these rules and regulations or the Lease of which these
rules and regulations are a part.
19. The Landlord shall have the right to prohibit any advertising by the
Tenant which, in its opinion, tends to impair the reputation or
character of the Building and upon written notice from the Landlord,
the Tenant shall refrain from or discontinue such advertising.
20. Canvassing, soliciting and peddling in the Building is prohibited and
the Tenant shall co-operate to prevent the same.
21. The Tenant shall have no right to advertise by using the words
"LIQUIDATION SALE", "AUCTION SALE", "FORCED TO VACATE", "GIVING UP
LEASE", or "GIVING UP BUSINESS", or make use of terms and phrases
denoting same or having similar meaning. The Landlord may remove such
signs or advertising without any recourse in damages against the
Landlord which the Tenant herein expressly waives.
22. The Tenant shall not install window shades, venetian blinds, curtains
or drapes of any kind or description without the Landlord's prior
written approval.
23. The Tenant shall not lay linoleum, rubber, cork or other floor
coverings, without Landlord's prior written approval. If Landlord
grants Tenant permission to lay such linoleum, rubber, cork or other
floor coverings, same shall not come in direct contact with the floor
and an interlining of builder's deadening felt shall be first affixed
to the floor by a paste or other adhesive which may be readily removed
with water.
24. If any apparatus used or installed by the Tenant requires a permit as a
condition for installation, the Tenant must file a true copy of such
permit with the Landlord.
25. All persons entering and leaving the Building between the hours of 6:00
p.m. and 8:00 a.m. on Business Days and all persons entering and
leaving the Building on Saturdays, Sundays, and holidays shall register
in the books kept by the Landlord at or near the entrance. Between the
hours of 6:00 p.m. and 8:00 a.m. on Business Days and on Saturdays,
Sundays, and holidays, the Landlord will have the right to prevent any
person from entering or leaving the Building unless provided with a key
to the Premises to which such person seeks entrance, or a pass issued
and signed by the Tenant upon the letterhead of the Tenant and
countersigned by the Landlord. Any persons found in the Building at
such time without such keys or passes will be subject to the
surveillance of the employees and agents of the Landlord.
26. The Tenant undertakes to abide by and participate in any fire drills or
other similar manoeuvres called or arranged by the municipality, fire
department, or the Landlord for the security and protection of the
Building and the tenants thereof.
27. The Landlord shall have the exclusive right to supply and sell or to
cause to be supplied and sold all coffee, soft drinks, cigarettes,
sandwiches and confections and to install or cause to be installed all
vending machines, provided that the Tenant shall have the right to
prohibit all such sales and installations in the Premises by giving
notice in writing to that effect to the Landlord.
<PAGE>
28. The Tenant shall not place any debris, garbage, trash or refuse or
permit the same to be placed or left in or upon any part of the
Building outside of the Premises except areas, if any,
<PAGE>
Page 3
designated by Landlord from time to time for such purposes. If
the Tenant is using perishable articles or generates wet
garbage, the Tenant shall provide suitable storage facilities
approved by the Landlord in writing. Wet garbage shall at no
time be mixed with normal, dry, office waste.
29. The Tenant shall not permit or allow any odours, vapours, steam, water,
vibrations, noises or other undesirable effects to emanate from the
Premises or any equipment or installation therein which, in the
Landlord's opinion, are objectionable or cause any interference with
the safety, comfort or convenience of other tenants and occupants of
the Building by the Tenant or the occupants and tenants thereof or
their agents, servants, invitees or employees.
30. The Tenant undertakes to install and maintain at its cost fire
extinguishers and such other fire protection equipment and fire-warning
devices required or recommended by the Landlord's insurers or any
governmental authority having jurisdiction over the Premises or the
business conducted therein.
31. The Tenant, its employees and agents, shall not smoke in any or all of
the common areas and facilities of the Building which the Landlord may,
from time to time, designate to be non-smoking area.
32. In the event that in accordance with the terms and conditions of the
Lease, exterior parking facilities are provided to Tenant, unless
stipulated expressly to the contrary in the Lease, the Landlord
reserves the right to at any time and from time to time designate the
area or areas within which the Tenant must park and prohibit the Tenant
from parking in any areas other than those so designated.
<PAGE>
Schedule "E"
MINIMUM BUILDING STANDARDS FOR TENANT FINISHES
The tenant acknowledges that the Tenant's finishings of the premises will
conform to the following (minimum) standards:
1. PARTITIONING: Floor to underside of suspended ceiling, 1/2" drywall,
------------
each side of 2-1/2" steel studs complete with sound insulation. All
drywall surfaces are to be taped, sanded, and painted to the Tenant's
choice of colours. Ceiling baffles, as required, to be of similar
construction to partition. Note that where partition meets exterior
wall, removable section of induction unit cabinets must remain free and
removable and insulation must be placed within said unit in same plane
as partition. As well, building standard lead lined, filler panel to be
installed above induction unit between window mullion (no piercing
fasteners) and partition, as well as continuing partition in same plane
above sloped perimeter ceiling band where ceiling baffles are required.
2. DOORS, FRAMES & HARDWARE: The building standard interior doors will be
------------------------
3'0" (three feet, zero inches) 8'6" (eight feet, six inches) high,
mahogany stained oak veneer solid core doors and solid mahogany stained
oak frames 4-3/4" x 1-3/4") building standard stain and lacquer finish
with Sargent building standard heavy duty lock and passage sets and
(minimum) 1-1/2 pairs of 4-1/2" x 4" brushed stainless steel hinges.
Glass sidelights if requested, to be framed as per door frames using 4"
base. Tenant entrance door to be building standard solid mahogany
stained oak or glass doors.
3. ELECTRICAL TELEPHONE OUTLETS: Standard duplex wall-mounted electrical
----------------------------
receptacles and telephone outlets and/or standard floor monuments, all
to be fed from the underfloor electrical/telephone/data raceway system
or ceilings (provided that in an organized conduit ceiling
distribution).
4. FLOORING: All floors to be finished in either building standard 4th
--------
generation, thirty-five (35) oz. nylon carpet, or 12" x 12" plain vinyl
or vinyl composite tiles.
5. BASES: Serged carpet base in carpet areas, vinyl or rubber cove base in
-----
vinyl or vinyl composite tiled areas.
6. LIGHTING: Building standard 18 2/3" x 56" air handling recessed
--------
fluorescent fixture with two warm white tubes. Note that all building
standard lighting is wired using Electroconnect modular wiring.
7. TENANT IDENTIFICATION ON SUB-DIVIDED FLOORS: To be consistent with
-------------------------------------------
building standard tenant identification signage.
8. SPRINKLERS: Sprinkler layouts must conform to City of Montreal
----------
requirements and those of Factory Mutual and heads must be semi-
recessed chrome, except in elevator lobby where the heads are recessed
(Royal Flush).
9. AIR CONDITIONING AND VENTILATION: Normal office air conditioning to be
--------------------------------
handled via air troffers integrated with air handling light fixture
using non-supply fixtures for return air. Special air handling
diffusers, if air quantities dictate, to be reviewed by Landlord.
10. ELEVATOR LOBBY FINISHES - FULL FLOOR OCCUPANCY: Full floor tenants
-------------------------------------------------
shall have the right to select hard finishes in the elevator lobby for
floors, walls and elevator doors that is in conformity with the overall
design of the premises for the entire floor. It is understood that
reconstituted marble or reconstituted granite is not an acceptable
finish. It is understood that the ceiling to be installed in the
elevator
<PAGE>
lobby shall conform to the building standard vaulted design constructed
of one layer of 1/2" drywall taped, sanded and painted with lighting
provided by three centered building standard halogen hanging lights.
THE LANDLORD RESERVES THE RIGHT TO MAKE CHANGES AT HIS DISCRETION WITHOUT
NOTICE.
<PAGE>
SCHEDULE F
----------
SPECIAL CONDITIONS
------------------
1. OPTION TO CANCEL
Provided Tenant is not in default in the performance of its obligations
under this Lease, Tenant has one option to cancel this Lease effective on
October 31, 2000. This option to cancel may only be exercised by written notice
received by Landlord not later than June 30, 2000. If not exercised in such
manner and within such delay, this option cancel shall be deemed conclusively to
have been waived and to be null and void and never to have existed.
IN WITNESS WHEREOF THE PARTIES HERETO HAVE EXECUTED THIS SCHEDULE F ON THE DATE
FIRST MENTIONED IN THE LEASE OF WHICH THIS SCHEDULE F FORMS A PART.
CITE DE L'ILE DEVELOPMENT INC.
______________________________ Per: ______________________________
(Witness) ("Landlord")
- ------------------------------
(Witness)
NUANCE COMMUNICATIONS LIMITED
/s/ Signature Illegible Per: /s/ Signature Illegible
- ------------------------------ ------------------------------
Witness REBECCA JORDAN GRAHAM SMITH
/s/ Signature Illegible
- ------------------------------
Witness Toula Vertin
______________________________ Per: ________________________
Witness ("Tenant")
______________________________Witness
<PAGE>
EXHIBIT 10.10
NUANCE COMMUNICATIONS
VALUE-ADDED RESELLER AGREEMENT
This Value-Added Reseller Agreement ("Agreement") is entered into as of
this 12th day of March, 1998 (the "Effective Date") between Nuance
Communications, a California corporation having a place of business at 1380
Willow Road, Menlo Park, CA 94025 ("Nuance"), and Periphonics Corporation, a
Delaware corporation, having a place of business at 4000 Veterans Memorial
Highway, Bohemia, NY 11716 ("VAR").
This Agreement consists of this page ("Signature Page"), the attached terms and
conditions ("Terms and Conditions"), and the exhibits ("Exhibits") listed and
initialed by each party below. The parties may enter into Exhibits from time to
time, which Exhibits shall be so indicated on this Signature Page, shall be
signed by each party, and shall be attached hereto. All such Exhibits shall be
designated with sequential numerical suffixes, such as A-1, A-2 and A-3.
DATE NUANCE VAR
EXHIBIT A-__ Software _____ _____ _____
EXHIBIT B-__ Full Use License _____ _____ _____
EXHIBIT C-__ Limited Use License _____ _____ _____
EXHIBIT D-__ Professional Services _____ _____ _____
EXHIBIT E-__ Minimum Terms _____ _____ _____
EXHIBIT F-__ Technical Support Services _____ _____ _____
EXHIBIT G-__ Nuance Trademarks _____ _____ _____
EXHIBIT H-__ Purchase Order Form _____ _____ _____
EXHIBIT I__ Amendment _____ _____ _____
EXHIBIT J__ Customer Specific... _____ _____ _____
EXHIBIT K__ Escrow _____ _____ _____
AGREED TO:
NUANCE COMMUNICATIONS [VAR] Periphonics Corporation
BY: /s/ Signature Illegible BY: /s/ Signature Illegible
TITLE: V.P. ?? TITLE: Sr. V.P.-Product
Development
DATE: March 24, 1998 DATE: March 25, 1998
[*] = CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
1
<PAGE>
NUANCE COMMUNICATIONS
VALUE-ADDED RESELLER AGREEMENT
TERMS AND CONDITIONS
1. DEFINITIONS. Capitalized terms used in this Agreement shall have the
following meanings:
"APPLICATION" shall mean the software designated as such in an EXHIBIT D
("PROFESSIONAL SERVICES").
"APPLICATION DOCUMENTATION" shall mean all information provided to VAR by Nuance
which describes the form, features or operation of an Application and which is
contained in a tangible medium, such as written format, tape, magnetic or other
media. Application Documentation shall include any Updates of Application
Documentation which Nuance may make available to VAR pursuant to this Agreement.
"APPLICATION SPECIFICATION" shall mean the technical and performance
specifications for an Application which are contained in and distributed with
the Application Documentation.
"APPLICATION WARRANTY" SHALL MEAN THE WARRANTY PROVIDED BY NUANCE FOR AN
APPLICATION DEVELOPED IN ACCORDANCE WITH EXHIBIT D ("PROFESSIONAL SERVICES") AS
FURTHER DEFINED IN EXHIBIT D ("PROFESSIONAL SERVICES").
"AUTHORIZED GRAMMAR SIZE" shall mean a Grammar of a size for which Nuance has
granted to VAR an Limited Use License pursuant to an EXHIBIT C ("LIMITED USE
LICENSE").
"AUTHORIZED PORTS" shall mean the number of Ports for which Nuance has granted
to VAR an Limited Use License pursuant to an EXHIBIT C ("LIMITED USE LICENSE").
"AUTHORIZED SUBLICENCEES" shall have the meaning assigned to it in SUBSECTION
3.1 ("FULL USE LICENSE") if for a Full Use License or SUBSECTION 3.2 ("LIMITED
USE LICENSE") if for an Limited Use License.
"BASIC TECHNICAL SUPPORT SERVICES" shall have the meaning assigned to it in
SECTION 13 ("TECHNICAL SUPPORT SERVICES").
"CONFIDENTIAL INFORMATION" shall have the meaning assigned to it in SECTION 6.1
("DESIGNATION").
"DESIGNATED EMPLOYEES" shall mean an agreed number of regular employees of VAR,
who shall be identified beforehand and in writing to Nuance by VAR, and who
shall communicate with Nuance concerning the provision of Technical Support
Services as provided in SECTION 13 ("TECHNICAL SUPPORT SERVICES AND IN SERVICE
DATA").
"DESIGNATED MARKET" shall mean certain types of End Users described as such in
an EXHIBIT B ("FULL USE LICENSE") or an EXHIBIT C ("LIMITED USE LICENSE").
"DIALOG DESIGN SERVICES" shall have the meaning assigned to it in EXHIBIT D
("PROFESSIONAL SERVICES").
"DISCLOSING PARTY" shall have the meaning assigned to it in SECTION 6.1
("DESIGNATION").
"DESIGNATED TERRITORY" shall mean worldwide unless another geographical
territory is defined in an EXHIBIT B ("FULL USE LICENSE") or an EXHIBIT C
("LIMITED USE LICENSE").
"DOCUMENTATION" shall mean all information provided to VAR by Nuance which
describes the form, features or operation of the Software and which is contained
in a tangible medium, such as written format, tape, magnetic or other media.
Documentation shall include any Updates of Documentation which Nuance may make
available to VAR pursuant to this Agreement.
2
<PAGE>
"EFFECTIVE DATE" shall have the meaning assigned to it in the first paragraph of
this Agreement.
"END USER" shall mean an entity which acquires an Integrated System, including
the Software therein pursuant to an End User License Agreement, for its own use,
and not for further distribution.
"END USER LICENSE AGREEMENT" shall mean a written license agreement, in a
commercially reasonable form, containing at least the Minimum Terms, and
pursuant to which VAR shall grant sublicenses of the Software which is
incorporated into an Integrated System.
"ERROR" shall have the meaning assigned to it in SECTION 12.1 ("SOFTWARE
WARRANTY").
"EXHIBITS" shall have the meaning assigned to it in the second paragraph of this
Agreement.
"FEES" shall mean Software License Fees, Professional Services Fees, Technical
Support Services Fees, some or all of the foregoing.
"FULL USE LICENSE" shall have the meaning assigned to it in SECTION 3.2 ("FULL
USE LICENSE").
"GRAMMAR DESIGN AND DEVELOPMENT SERVICES" shall have the meaning assigned to it
in EXHIBIT D (PROFESSIONAL SERVICES).
"IN SERVICE DATA" shall mean the audio input to the Software resulting from End
User telephone calls to the Integrated System whether in a pilot, trial or
production use of the Integrated System.
"INTEGRATED SYSTEM" shall mean the VAR product configuration described as such
in an EXHIBIT A ("SOFTWARE").
"KEY" shall mean a numerical or alpha-numerical code which is necessary to gain
access to certain Software on certain media as delivered by Nuance hereunder.
"LIMITED USE LICENSE" shall have the meaning assigned to it in SECTION 3.2
("LIMITED USE LICENSE").
"MINIMUM TERMS" shall mean the End User License Agreement terms described in
EXHIBIT E ("MINIMUM TERMS").
"OBJECT CODE" shall mean computer software programs, not readily perceivable by
humans, and suitable for machine execution without the intervening steps of
interpretation or compilation.
"PORT" shall mean one telecommunications connection which permits input for a
single user into an Integrated System.
"PREMIUM TECHNICAL SUPPORT SERVICES" shall have the meaning assigned to it in
SECTION 13 ("TECHNICAL SUPPORT SERVICES AND IN SERVICE DATA").
"PROFESSIONAL SERVICES FEES" shall mean the Fees for performance of Professional
Services payable by VAR to Nuance as described in an EXHIBIT D ("PROFESSIONAL
SERVICES").
"PURCHASE ORDER" shall have the meaning assigned to it in SECTION 2 ("PURCHASE
ORDERS").
"RECEIVING PARTY" shall have the meaning assigned to it in SECTION 6.1
("DESIGNATION").
"RECOGNITION UNIT" shall mean the recognition power required to understand a
continuous stream of digits in real time with a 1% digit error rate, as
represented by a 100-utterance Nuance-supplied benchmark test set.
"RELEASE" shall mean a new, enhanced or revised iteration of Software, which may
include corrections for Errors, and which is generally designated by Nuance with
a change to one or more numbers to the right of the decimal point in the name of
such Release, such as Release "1.x".
3
<PAGE>
"REPORT" shall have the meaning assigned to it in SECTION 10 ("REPORTS AND RIGHT
TO AUDIT").
"SALE", "SELL", "SELLING" or "SOLD" shall mean, with respect to the Integrated
System, any sublicense of the Software as part of the Integrated System pursuant
to the End User License Agreement, with or without consideration or other
payment to VAR.
"SIGNATURE PAGE" shall have the meaning assigned to it in the second paragraph
of this Agreement.
"SOFTWARE" shall mean the Nuance computer software programs described generally
in an EXHIBIT A, ("SOFTWARE") including Updates, if any, and accompanying
Documentation, and licensed by (a) the Test and Integration License described in
Section 3 of this Agreement; or, (b) execution of an EXHIBIT B ("FULL USE
LICENSE") or EXHIBIT C ("LIMITED USE LICENSE") and as specifically described in
an applicable Purchase Order.
"SOFTWARE LICENSE" shall mean an Limited Use License, a Full Use License, a Test
and Integration License, any or all of the foregoing.
"SOFTWARE LICENSE FEES" shall mean those Fees for an Limited Use License and/or
a Full Use License, payable by VAR to Nuance as described in an EXHIBIT B ("FULL
USE LICENSE") or an EXHIBIT C ("LIMITED USE LICENSE").
"SOURCE CODE" shall mean computer software programs not in machine readable
format and not suitable for machine execution without the intervening steps of
interpretation or compilation.
"SPEECH CHANNEL" shall mean the computer software described as such in an
EXHIBIT B ("FULL USE LICENSE") OR AN EXHIBIT C ("LIMITED USE LICENSE").
"SPECIFICATIONS" shall mean the technical and performance specifications for the
Software which are contained in and distributed with the Documentation.
"SUBSIDIARY" shall mean any entity which is controlled by a party. A party shall
be considered as in control of an entity if that party owns, or directly or
indirectly controls, at least fifty percent (50%) of the voting stock or other
ownership interest of such entity, or if it directly or indirectly possesses the
power to direct or cause the direction of the management and policies of such
entity by any means.
"TECHNICAL SUPPORT SERVICES" shall mean Basic Technical Support Services,
Premium Technical Support Services, either or both.
"TECHNICAL SUPPORT SERVICES FEE" shall mean the annual Fee for Technical Support
Services payable by VAR to Nuance described as such in an EXHIBIT F ("TECHNICAL
SUPPORT SERVICES"), and as may be increased or decreased by Nuance, upon notice
and at Nuance's discretion, subject to Section 9.1.7, upon each anniversary of
the date of this Agreement.
"TERM" shall have the meaning assigned to it IN SECTION 11 ("TERM AND
TERMINATION").
"TERMS AND CONDITIONS" shall have the meaning assigned to it in the second
paragraph of this Agreement.
"TEST AND INTEGRATION LICENSE" shall have the meaning described by Section 3.3.
"TOOLKIT" shall mean the Software known as "Nuance Developer's Toolkit."
"TRADEMARKS" shall mean the trademarks, trade names, and service marks of Nuance
which are described in EXHIBIT G ("NUANCE TRADEMARKS"), and as may be modified
or supplemented upon notice from Nuance.
"UPDATE" shall mean any modification of or addition to the Software or
Documentation, including new Releases but not new Versions, for which Nuance
does not charge an additional fee to licensees who are similarly situated to
VAR.
4
<PAGE>
"VERSION" shall mean a new, enhanced or revised iteration of Software, which may
include corrections for Errors, and which is generally designated by Nuance with
a change to one or more numbers to the left of the decimal point in the name of
such Version, such as Version "X.1".
"WARRANTY PERIOD" shall have the meaning assigned to it in SECTION 12 ("WARRANTY
AND DISCLAIMER").
2. PURCHASE ORDERS.
2.1 ISSUANCE OF PURCHASE ORDERS. VAR may, from time to time during the
Term, issue to Nuance purchase orders which describe the Software Licenses,
Professional Services, Technical Support Services or other goods or services
which VAR wishes to obtain from Nuance ("Purchase Orders"). Purchase Orders
shall be in a form substantially similar to the Purchase Order attached hereto
as EXHIBIT H ("PURCHASE ORDER"). Nuance agrees that VAR may, for purposes of
administrative convenience, use VAR's standard form of purchase order which may
contain pre-printed or other written terms and conditions. The parties
understand and agree that such terms and conditions shall have no effect
whatsoever. VAR agrees that other than as provided in SECTION 2.2 any Purchase
Order form must include the following minimum information: the specific Nuance
Software to be licensed, the number of licenses to be issued (number of copies
of software), the name and address of the Authorized Sublicensee to whom the
Software License will issue, the customer application for which the Software
will be used (if applicable), the number of Ports to be installed (if
applicable), the machine identifier for which the Software is licensed and the
appropriate machine name (i.e., "OSCAR1").
2.2 LIMITATION ON CUSTOMER OR APPLICATION DISCLOSURE. VAR agrees to
disclose the information provided in SECTION 2.1 for any Purchase Order for a
minimum of 90% of VARs Authorized Sublicensees (such percentage being measured
over a 12-month period). VAR may elect to not disclosure the requested
information in the case of the remaining Authorized Sublicensees of VARs for any
reason whatsoever. Nuance and VAR agree to review the required level of Purchase
Order customer/application disclosure at the end of the first twelve (12) months
of this agreement.
2.3 ACCEPTANCE OR REJECTION OF PURCHASE ORDERS. Nuance shall have five (5)
days from the date of receipt of each Purchase Order to accept or reject such
Purchase Order and notify VAR of the acceptance or rejection of such Purchase
Order. Any failure of Nuance to accept or reject a Purchase Order within the
foregoing five (5) day period shall be deemed acceptance thereof. In the event
Nuance accepts a Purchase Order, Nuance shall create and deliver to VAR the
appropriate Key(s) within five (5) business days unless otherwise agreed through
acceptance of the Purchase Order. The parties agree that neither party shall
have any obligation with respect to a rejected Purchase Order.
3. GRANT OF LICENSES.
3.1 Full Use License. In the event that VAR has entered into an EXHIBIT B
("FULL USE LICENSE") and applicable Purchase Order, Nuance hereby grants to VAR
a license ("Full Use License") as follows, and subject to the provisions of such
Exhibit, Purchase Order and this Agreement:
3.1.1 GRANT OF LICENSE. In consideration of all obligations of VAR
hereunder, including without limitation the payment by VAR of Software License
Fees, Nuance hereby grants to VAR a non-exclusive, non-transferable license
(including the right to grant sublicenses to Authorized Sublicensees solely as
described in this SECTION ("FULL USE LICENSE")) to make copies of the Software
solely to integrate such copies into the Integrated System. The foregoing
license includes the right, subject all provisions of this Agreement including
VAR's obligation to pay Software License Fees, to grant sublicenses to such
Software: (W) solely as incorporated into
5
<PAGE>
the Integrated System; (Y) solely to End Users, Subsidiaries and distributors or
value added resellers of Integrated Systems (collectively "Authorized
Sublicensees"), and (Z): (I) if to End Users, solely pursuant to the End User
License Agreement, and (II) if to other Authorized Sublicensees, solely pursuant
to an agreement between VAR and the Authorized Sublicensee with license terms
substantially similar to those in this Agreement. VAR agrees to make such
Software accessible solely as part of the Integrated System, and in no event on
a "stand-alone" or independent basis
3.1.2 COPIES. VAR may make a reasonable number of copies of the
Software for VAR's internal back-up and archival purposes only, provided that
all such copies shall bear the original and unmodified copyright, patent and
other intellectual property markings as when originally delivered by Nuance.
3.2 LIMITED USE LICENSE. In the event that VAR has entered into an EXHIBIT
C ("LIMITED USE LICENSE") and applicable Purchase Order, Nuance hereby grants to
VAR a license ("Limited Use License") as follows, and subject to the provisions
of such Exhibit, Purchase Order and this Agreement:
3.2.1 GRANT OF LICENSE. In consideration of all obligations of VAR
hereunder, including without limitation the payment by VAR of Software License
Fees, Nuance hereby grants to VAR a non-exclusive, non-transferable limited
license (including the right to grant sublicenses to Authorized Sublicensees
solely as described in this SUBSECTION 3.2 ("LIMITED USE LICENSE")) to make
copies of the Software: (A) solely for the Authorized Ports; (B) solely for the
Authorized Grammar Size; and (C) solely to integrate such copies into the
Integrated System. The foregoing license includes the right, subject all
provisions of this Agreement including VAR's obligation to pay Software License
Fees, to grant sublicenses of such Software: (W) solely as incorporated into the
Integrated System; (X) solely to End Users, Subsidiaries and distributors or
value added resellers of Integrated Systems (collectively "Authorized
Sublicensees") within the Designated Market and for their use within the
Designated Territory; and (Z): (I) if to End Users, solely pursuant to the End
User License Agreement, and (II) if to other Authorized Sublicensees, solely
pursuant to an agreement between VAR and the Authorized Sublicensee with license
terms substantially similar to those in this Agreement. VAR agrees to make such
Software accessible solely as part of the Integrated System, and in no event on
a "stand-alone" or independent basis.
3.2.2 COPIES. VAR may make a reasonable number of copies of the
Software for VAR's internal back-up and archival purposes only, provided that
all such copies shall bear the original and unmodified copyright, patent and
other intellectual property markings as when originally delivered by Nuance.
3.3 TEST AND INTEGRATION LICENSE. VAR is hereby granted a no-charge,
royalty-free, non-exclusive, non-transferable license to use the Software for
the purpose of internal testing, analysis, and technical integration with
equipment manufactured by VAR, and/or sales demonstration of the Software,
including the right to make a minimum number of copies of Software for the sole
purpose of facilitating such internal activities by VAR ("Test and Integration
License").
3.4 ADDITIONAL RESTRICTIONS.
3.4.1 NO IMPLIED LICENSES. The Software, including all copies
thereof, are and shall remain at all times the exclusive property of Nuance. VAR
acquires no rights or licenses therein except those expressly granted herein.
3.4.2 NO TRANSFER. Except as expressly provided in this SECTION 3
("GRANT OF LICENSES"), VAR may not market, distribute or
6
<PAGE>
transfer copies of the Software to others or electronically transfer the
Software from one computer to another over a network; except that, VAR may
transfer copies of the Software to a similarly configured back-up system: for
the contingency of primary system failure (redundancy) and routine installation,
warranty and maintenance services. VAR may also transfer licensed copies of the
Software in conjunction with Integrated Systems that are configured in a network
environment.
3.4.3 NO REVERSE ENGINEERING. VAR hereby acknowledges that the
Software contains valuable trade secret and confidential information of Nuance.
VAR agrees not to reverse compile, reverse engineer, reverse assemble, or
otherwise attempt, directly or indirectly, to obtain or create Source Code for
the Software.
3.5 KEYS AND ACCESS. Nuance agrees to provide to VAR those Keys which are
reasonably necessary to permit VAR to gain access to Software contained on media
shipped to VAR and which Software has been properly licensed to VAR pursuant to
a Test and Integration License or an Exhibit and applicable Purchase Order. All
such Keys shall be considered the Confidential Information of Nuance for
purposes of SECTION 6 ("CONFIDENTIAL INFORMATION"). Notwithstanding anything to
the contrary in this Agreement, VAR hereby acknowledges that VAR shall have no
right or license to any Software shipped to VAR on media as provided above which
Software is not properly licensed pursuant to the Test and Integration License
or an Exhibit and applicable Purchase Order, that any such Software is included
therein solely as a matter of administrative convenience, and VAR further agrees
not to attempt to gain access to, or permit any third party to attempt to gain
access to, such Software.
Nuance agrees to work jointly and in good faith with VAR to define a process
that will enable VAR to "self-provision" needed software keys. Such process will
include tracking and audit procedures that are required by Nuance to protect its
intellectual property and to account for license fees payable. Nuance and VAR
agree to make best efforts to define and agree to such a process within 30 days
of the signing of this Agreement and to implement the process as quickly as
practicable thereafter.
3.6 TRADEMARK LICENSE.
3.6.1 GRANT OF LICENSE. Nuance hereby grants to VAR, with the right
to sublicense to Authorized Sublicensees other than End Users, a nonexclusive,
nontransferable limited license to use the Trademarks on copies of the
Integrated System and in advertising and printed materials therefor, provided
that the notices of trademark status as described in EXHIBIT G are displayed
adjacent to and with the first or most prominent use of the Trademarks in each
piece of advertising or printed materials in which such Trademarks appear and
includes the respective legends adjacent to or as a footnote to the Trademarks
as described in EXHIBIT G. EXHIBIT G may be amended from time to time to reflect
the current trademark status of existing marks and to add new trademarks. VAR
agrees to diligently comply with updated trademark requirements as reflected in
amendments to EXHIBIT G.
3.6.2 ("USE OF TRADEMARKS; RESTRICTIONS"). VAR agrees not to use any
other trademark or service mark in close proximity to the Trademarks or combine
such marks so as to effectively create a unitary composite mark without the
prior, written permission of Nuance. VAR agrees to comply with all the foregoing
terms in its catalogs, advertising, packaging and promotional materials relating
to or including the Integrated System and ensure compliance with these terms by
its Authorized Sublicensees (other than End Users).
3.6.3 OWNERSHIP AND QUALITY. VAR acknowledges the ownership of the
Trademarks in Nuance, agrees that it will do nothing inconsistent with such
ownership, agrees to use reasonable efforts to preserve
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Nuance's rights in the Trademarks, and agrees that all uses of the Trademarks by
VAR and Authorized Sublicensees (other than End Users) shall inure to the sole
benefit of Nuance. VAR agrees to cooperate with Nuance and ensure cooperation by
Authorized Sublicensees (other than End Users) in facilitating Nuance's
monitoring and control of the nature and quality of such Integrated System, and
to supply Nuance with specimens of use of the Trademarks upon request. VAR shall
comply, and ensure compliance by Authorized Sublicensees (other than End Users),
with all applicable laws, rules, regulations, and customs with respect to the
Trademarks, and shall notify Nuance immediately and in writing of any
unauthorized use of the Trademarks by any third party. Nuance shall have the
sole right to bring any legal proceeding with respect to any such unauthorized
use.
4. PROFESSIONAL SERVICES. In the event that VAR has entered into an EXHIBIT D
("PROFESSIONAL SERVICES") as indicated on the Signature Page, Nuance agrees to
use its commercially reasonable efforts to develop and deliver to VAR the
Professional Services described therein according to the milestone schedule also
described therein. The content of Exhibit D shall, in all events, include the
following mutually agreed terms: specifications of any deliverable item or work
product, delivery schedule, acceptance criteria, documentation specifications
and warranty period.
4.1 OWNERSHIP. In the event that an Application is developed by Nuance
under the terms of an EXHIBIT D ("PROFESSIONAL SERVICES"), ownership and license
rights will be as defined in the subject exhibit, except that, if such
Application is designated a "work for hire", VAR shall have ownership of such
Application.
5. DELIVERY AND ACCEPTANCE.
5.1 Nuance shall deliver all of the Software ordered by VAR on or before
the date shown on the applicable Order Form. Delivery shall be FOB VAR's
offices, freight prepaid by Nuance, unless otherwise indicated in the Order
Form. Partial deliveries are not authorized.
5.2 Unless modified by an Exhibit J, Software licensed pursuant to a Full
Use License or Limited Use License and executed Purchase Order shall have a test
period of ten (10) days duration, provided, however, that should an acceptance
test failure occur during such ten (10) day period, all subsequent re-testing
shall occur pursuant to an additional ten (10) day period.
5.3 In no event shall any Update delivered by Nuance cause any Software or
Documentation previously accepted by VAR to perform less favorably in any
material respect than as described in the Specifications in effect at the time
of such acceptance.
5.4 Nuance shall use commercially reasonable efforts to (a) minimize the
frequency of new Releases, Updates and Versions by optimal engineering
development, process, controls, and quality assurance procedures; (b) anticipate
and accommodate, to the greatest degree possible, a typical lead-time for
internal testing and evaluation by VAR of 60 days for new Releases, Updates or
Versions.
5.5 VAR shall have the right to order Software, Releases or Versions which
were previously ordered by VAR during the preceding 15 month period or the prior
three releases, whichever is later. Such Software, Releases or Versions, and
their respective Documentation and Updates, shall be identical in form, function
and all other respects, and be fully and effectively supported by Nuance during
the Warranty Period set forth in Section 12.1 and any period of Technical
Support Services described in Exhibit F.
5.6 CUSTOMER SPECIFIC ACCEPTANCE REQUIREMENTS. Any customer specific
acceptance requirements that have been negotiated and agreed upon by the parties
in good faith shall be made solely pursuant to an
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Exhibit J ("Customer Specific Acceptance Requirements").
6. CONFIDENTIAL INFORMATION.
6.1 DESIGNATION. Each party (the "Disclosing Party") may from time to time
during the Term of this Agreement disclose to the other party (the "Receiving
Party") certain non-public information regarding the Disclosing Party's
business, including technical, marketing, financial, personnel, planning, and
other information ("Confidential Information"). The Disclosing Party shall mark
all such Confidential Information in tangible form with the legend
`confidential', `proprietary', or with similar legend. With respect to
Confidential Information disclosed orally, the Disclosing Party shall describe
such Confidential Information as such at the time of disclosure, and shall
confirm such Confidential Information as such in writing within thirty (30) days
after the date of oral disclosure. Regardless of whether so marked, however the
Software itself (in Source Code and Object Code formats), shall be deemed to be
the Confidential Information of Nuance.
6.2 PROTECTION OF CONFIDENTIAL INFORMATION. Except as expressly permitted
by this Agreement, the Receiving Party shall not disclose the Confidential
Information of the Disclosing Party and shall use at least the same degree of
care which the Receiving Party ordinarily uses with respect to its own
proprietary information, but in no event with less than reasonable care. The
Receiving Party shall not use the Confidential Information of the Disclosing
Party for any purpose not expressly permitted by this Agreement, and shall limit
the disclosure of the Confidential Information of the Disclosing Party to the
employees or agents of the Receiving Party who have a need to know such
Confidential Information for purposes of this Agreement, and who are, with
respect to the Confidential Information of the Disclosing Party, bound in
writing by confidentiality terms no less restrictive than those contained
herein. The Receiving Party shall provide copies of such written agreements to
the Disclosing Party upon request; provided, however, that such agreement copies
shall themselves be deemed Confidential Information. 6.3 EXCEPTIONS.
Notwithstanding anything herein to the contrary, Confidential Information shall
not be deemed to include any information which: (A) was already lawfully known
to the Receiving Party at the time of disclosure by the Disclosing Party as
reflected in the written records of the Receiving Party; (B) was or has been
disclosed by the Disclosing Party to a third party without obligation of
confidence; (C) was or becomes lawfully known to the general public without
breach of this Agreement; (D) is independently developed by the Receiving Party
without access to, or use of, the Confidential Information; (E) is approved in
writing by the Disclosing Party for disclosure by the Receiving Party; (F) is
required to be disclosed in order for the Receiving Party to enforce its rights
under this Agreement; or (G) is required to be disclosed by law or by the order
or a court or similar judicial or administrative body; provided, however, that
the Receiving Party shall notify the Disclosing Party of such requirement
immediately and in writing, and shall cooperate reasonably with the Disclosing
Party, at the Disclosing Party's expense, in the obtaining of a protective or
similar order with respect thereto.
6.4 RETURN OF CONFIDENTIAL INFORMATION. The Receiving Party shall return
to the Disclosing Party, destroy or erase all Confidential Information of the
Disclosing Party in tangible form: (A) upon the written request of the
Disclosing Party (except for Software contained in such Confidential
Information); or (B) upon the expiration or termination of this Agreement,
whichever comes first, and in both cases, the Receiving Party shall certify
promptly and in writing that it has done so. Except for the rights expressly
described herein, VAR is not granted any rights to any Nuance patents,
copyrights, trade secrets, trade names, trademarks (whether or not registered),
or any other rights, franchises or licenses.
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7. PROPRIETARY NOTICES.
7.1 REQUIRED NOTICES. VAR agrees that as a condition of its rights
hereunder, each copy of the Software shall contain the same proprietary notices
which appear on or in Software as provided by Nuance to VAR and as otherwise
reasonably required by Nuance.
7.2 UNAUTHORIZED DISTRIBUTION OR COPYING. VAR agrees that: (A)
distributing, copying, duplicating or otherwise reproducing all or any part of
the Software (except as expressly permitted by this Agreement); or (B)
distributing copies of all or any portion of the Software other than in
conjunction with the Integrated System and in strict accordance with this
Agreement, will be considered a material breach of this Agreement. Regardless of
any cure period under any other section of this Agreement, Nuance shall have the
immediate right to seek injunctive relief for breach under this Section. In any
event, and regardless of any other cure period under this agreement, the cure
period for breach under this SECTION 7.2 shall be a maximum of ten (10) days.
8. MARKETING.
8.1 MARKETING OF INTEGRATED SYSTEM. VAR agrees to use its commercial best
efforts to Sell the Integrated System to End Users pursuant to the End User
License. VAR agrees to actively and diligently develop, promote, market, solicit
orders for, maintain and support Integrated Systems in a manner which reflects
favorably on the Nuance Products and the good will and reputation of the
parties.
8.2 COMPETITIVE PRODUCTS. Subject to all terms of this Agreement,
including without limitation the provisions of SECTION 6 ("CONFIDENTIAL
INFORMATION"), and the intellectual property rights of each party, nothing in
this Agreement shall prevent either party from developing or having developed
any goods or services, regardless of their similarity to the goods and services
of the other party, or shall prevent either party from entering into any
agreement with any third party.
8.3 COOPERATIVE SALES EFFORTS. Nuance and VAR agree to cooperative sales
activities as follows:
8.3.1 Nuance and VAR mutually agree that when joint commitments are
made in writing to pursue a specific business opportunity, neither will make a
joint proposal for that business opportunity with any third party except by
prior mutual written agreement between VAR and Nuance.
8.3.2 Nuance may choose to call directly on any prospect as may VAR.
Nuance will determine whether any resulting opportunities represent a joint
opportunity with VAR and if so will seek to involve VAR. However, if Nuance has
reseller relationships with more than one bidder in a competitive procurement,
Nuance will provide equivalent reseller support to all resellers regardless of
which is the installed supplier.
8.3.3 Nuance agrees that it will not undermine VAR's sales efforts by
offering End Users greater discounts for direct sales by Nuance. If a non-
standard discount is required to close a major VAR initiated sales opportunity,
Nuance and VAR agree to jointly review the sales situation to determine if
additional discount is appropriate.
8.3.4 If Nuance's direct sales activity identifies a prospect's
preference for a supplier of voice processing solutions other than VAR based
upon installed base, prior relationships, etc., Nuance will be free to work with
the prospect's preferred supplier.
8.4 COOPERATIVE MARKETING EFFORTS. Nuance and VAR agree to cooperative
marketing activity as follows:
8.4.1 Nuance and VAR agree to meet quarterly (in person or by
conference call) to review market, sales and product requirements and to agree
to needed actions to achieve the objectives of this Agreement.
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[*] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH
RESPECT TO THE OMITTED PORTIONS.
8.4.2 VAR agrees to provide Nuance a quarterly forecast of
anticipated sales and expected revenue. Nuance agrees to provide appropriate
support to VAR's sales efforts (i.e. provide marketing/sales documentation,
accompany VAR on specific customer calls as agreed appropriate, etc.).
8.4.3 Nuance and VAR agree to monthly telephone conference calls
between designated sales management to review the status of sales vs. forecast
and to determine if Nuance support can help VAR and Nuance achieve additional
revenue.
8.4.4 When VAR is the prime contractor to an End User for a specific
project, Nuance will respond to End User requests for information, data or
documentation that are specific to such project solely through VAR, unless
otherwise agreed in writing. VAR agrees to make reasonable efforts to include
Nuance's project manager in project status reviews and meetings which directly
relate to Nuance Software or Professional Services to assure Nuance's
understanding of End User requirements to permit Nuance to develop an
appropriate response in cooperation with VAR for communication to End User by or
through VAR.
8.4.5 VAR shall not describe the Software in a way that implies or
states that it is owned or has been developed by VAR. When referring
specifically to the Software or its underlying technology, VAR will use the
Nuance name or trademarks. VAR may describe a marketing concept such as Large
Vocabulary Recognition (LVR) that includes the Software and software from other
companies without specific reference to Nuance's name or trademarks.
9. INVOICES AND PAYMENTS.
9.1 INVOICES. Nuance shall issue payment invoices from time to time for
Fees and any other amounts due hereunder. VAR shall make payment to Nuance of
all such payment invoices in the lawful money of the United States of America.
9.1.1 PAYMENT FOR SOFTWARE. Payment for Software will be due within
30 days after the end of the calendar month in which the Software was accepted
under Section 5.2, except as provided under PRE-PAYMENTS AND SPECIAL DISCOUNTS
(SECTION 9.1.4). Should payments due be less than [***] for any month, such
amount due will be payable either 30 days after the month in which Periphonics'
total payments outstanding exceed [***], or the end of the Periphonics' fiscal
quarter in which such amount first became due, whichever condition occurs first.
9.1.2 PAYMENT FOR TECHNICAL SUPPORT SERVICES. Subject to the terms
specified in EXHIBIT F, SCHEDULE 1 ("TECHNICAL SUPPORT SERVICES FEE SCHEDULE"),
payment for Technical Support Services shall be made quarterly in advance and
due on the tenth business day of each of the VAR's fiscal quarters. For new
customers that enter into Technical Support Service agreements within the VAR's
fiscal quarter, pro-rata payments for the that current quarter and advance
payment for the succeeding quarter shall both be due at the beginning of the
VAR's succeeding fiscal quarter.
9.1.3 PAYMENT FOR PROFESSIONAL SERVICES OR MISCELLANEOUS FEES AND
SERVICES. Payment for Professional Services shall be made as agreed within an
EXHIBIT D ("PROFESSIONAL SERVICES"). Payment for miscellaneous fees or services
will be due thirty (30) days following the issuance of an invoice from Nuance to
VAR in conformance with the terms of an Exhibit D.
9.1.4 PRE-PAYMENTS AND SPECIAL DISCOUNTS Nuance and VAR agree to a
special discount from Nuance's standard list price based upon VAR's commitment
to make quarterly pre-payments for licenses of Software.
In each of the initial two calendar quarters of this Agreement (January
through March, 1998, and April through June, 1998),
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[*] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH
RESPECT TO THE OMITTED PORTIONS.
VAR will pay Nuance $[***] for licenses to Software at a discount of [***]% off
Nuance's standard list price. Payments are due on March 10, 1998, and June 10,
1998. These payments are non-refundable. Software paid for by VAR will be
immediately delivered by Nuance and will be eligible for sublicense by VAR for
as long a period as may be required for their sale and shipment to customers.
After the initial two calendar quarters VAR may elect to continue such
quarterly pre-payments of $[***], or stop such pre-payments. If VAR stops such
prepayments no further Software will be shipped to VAR until VAR elects one of
two alternatives in writing:
a) Restart quarterly pre-payments which reinstates the special [***]%
discount off Nuance's standard list price, or
b) Order Software on an as needed basis subject to Nuance standard list
price and discount terms specified in the following SECTION 9.1.5. STANDARD
DISCOUNT TERMS.
9.1.5 STANDARD DISCOUNT TERMS VAR will be eligible for the following
discounts off Nuance's standard End User List Price, as described in EXHIBIT A
("SOFTWARE"), for Software and EXHIBIT F ("TECHNICAL SUPPORT SERVICES") for
Technical Support Services, excepting the Stocks & Mutual Funds Grammar Update
Services and Professional Services. The increased levels of discount indicated
are attained based on the non-discounted End User List Price described in
Exhibit A for sales of Software in each twelve month period. The discount is
calculated quarterly. Such List Price sales attained in the immediately
preceding twelve month period will be used to determine the discount applicable
in the then current quarter.
List Price Revenue Earned Discount
- ------------------ ---------------
Less than $[***] [***]%
$500.000 to $[***] [***]%
$1.000.000 to $[***] [***]%
Greater than $[***] [***]%
9.1.6 OTHER DISCOUNTS VAR will receive a 30% discount for customer
training courses provided by Nuance, and for customer contracts for the Stocks
and Mutual Funds Grammar Update Service. Nuance will conduct training courses
for VAR's customers subject to instructor availability. Such courses must
include 12 or more paid enrollments, and if offered at other than Nuance's
training facility. VAR agrees to pay reasonable travel and living expenses for
the instructor(s).
9.1.7 [***] Notwithstanding any provision in this Agreement to
the contrary, in no event shall the Fee billable to VAR under this Agreement be
increased by more than [***] during any 12 month period for previously released
Software. Releases or Versions, including End User List Prices for previously
released Software. Releases or Versions, and related Services Fees. This
provision shall not apply to new Software. Releases or Versions, for which
Nuance shall have sole discretion on pricing.
9.2 EFFECT OF LATE PAYMENT. All late payments of payment invoices by VAR,
not subject to good faith dispute, shall bear interest at a rate of one and one-
half percent (1.5%) per month or partial month during which any sums under such
payment invoices were owed and unpaid, or the highest rate allowed by law,
whichever is lower.
9.3 EFFECT OF NON-PAYMENT. Any failure of VAR to make payment of any
payment invoice in the manner described in this SECTION 9 ("INVOICES AND
PAYMENTS") may, at Nuance's discretion, be considered a material breach of this
Agreement by VAR for purposes
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[*] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH
RESPECT TO THE OMITTED PORTIONS.
of initiating the procedures set forth in paragraph 11.2 of SECTION 11 ("TERM
AND TERMINATION").
10. REPORTS AND RIGHT TO AUDIT.
10.1 REPORTS. Upon Nuance's enabling VAR to self-provision software keys as
described in SECTION 3.5, VAR shall prepare and deliver to Nuance within ten
(10) business days of the last day of each calendar month during the Term a
written report ("Report") which shall include the following information for each
Software License issued to an Authorized Sublicensee: the name of the Authorized
Sublicensee to whom the Software License was issued, the customer application
for which the Software will be used, the number of Ports to be installed, the
machine identifier for which the Software is licensed and appropriate machine
identification information to enable Nuance to track Software Licenses and End
User eligibility for Technical Support Services. Nuance may provide, from time
to time, a form of Report which VAR agrees to follow with respect to carrying
out the foregoing obligations.
VAR shall also report the name and location of any Integrated System licensed
pursuant to a Test and Integration License.
10.2 RIGHT TO AUDIT. VAR shall maintain written records describing the use
and location of all copies of the Software, including without limitation any
such copies in the possession or control of VAR.
VAR shall also maintain a complete, clear, and accurate record of: (A) the
location of each copy of the Software while in VAR's possession; (B) the number,
type, Authorized Sublicensee identity and location for Software Sold or
sublicense in an Integrated System or used internally by VAR during each
calendar month; and (C) any other information which may be reasonably required
by Nuance to determine whether VAR is complying with the terms of this
Agreement. To ensure compliance with the terms of this Agreement, Nuance shall
have the right, at its own expense and exercisable by outside auditors mutually
agreed upon by the parties, to audit and to obtain copies of all such written
records provided such audit does not interfere unreasonably with VAR's day to
day business operations and that such auditors sign VAR's non-disclosure
agreement. Such non-disclosure agreement shall be commercially reasonable and
will not prohibit the auditors from disclosing their findings to Nuance. Nuance
may exercise such right to audit upon reasonable advance notice to VAR, and no
more frequently than one (1) time each calendar year. If any such audit should
disclose any underpayment of Fees, VAR shall promptly pay Nuance such underpaid
amount, together with interest thereon at a rate of one and one-half percent
(1.5%) per month or partial month during which each such amount was owed and
unpaid, or the highest rate allowed by law, whichever is lower. If the amount of
such underpayment exceeds [***] percent ([***]%) of amounts otherwise payable,
then VAR shall immediately reimburse Nuance for Nuance's reasonable and
customary audit expenses up to a maximum of $[***].
11. TERM AND TERMINATION.
11.1 TERM. This Agreement shall remain in effect for an initial period of
three (3) years. At the expiration of the initial 3-year period, this Agreement
shall automatically renew for subsequent one year periods unless either party
provides written notice of an intention not to renew for a given period. Any
given period is subject to earlier termination by either party as hereinafter
provided. Any End User License already entered into by VAR as of the date of the
expiration or termination of this Agreement shall remain in effect provided that
all associated End Users have at all times remained in strict compliance with
the terms of the End User License. Nuance shall continue to provide Level 3
Technical Support Services to VAR for applicable End User Support so long as VAR
continues payment to Nuance of all applicable Technical Support Fees, but in no
event shall VAR enter into any new Technical Support Services agreements with
End Users
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subsequent to the expiration or termination of this Agreement.
11.2 TERMINATION FOR MATERIAL BREACH. Either party may terminate this
Agreement immediately upon written notice for the material breach of the other
party, which material breach has remained uncured for period of thirty (30) days
from the date of delivery of written notice thereof to the breaching party. The
parties expressly understand and agree that any uncured failure of VAR to
undertake the efforts described by SECTION 8.1 may be deemed a material breach
of this Agreement.
11.3 EFFECT. In the event of any termination of this Agreement as provided
in SECTION 11.2 ("TERMINATION FOR MATERIAL BREACH"), and except as further
described below, all licenses granted by Nuance hereunder shall immediately
terminate, and VAR shall immediately return to Nuance all material belonging to
Nuance or its licensors, including without limitation all copies of the Software
and Nuance Confidential Information, and shall promptly certify to Nuance in
writing that VAR has done so. Any End User License already entered into by VAR
as of the date of the foregoing material breach by VAR shall remain in effect
provided that all associated End Users have at all times remained in strict
compliance with the terms of the End User License. Nuance shall continue to
provide Level 3 Technical Support Services to VAR for applicable End User
support so long as VAR continues payment to Nuance of all applicable Technical
Support Services Fees, but in no event shall VAR enter into any new Technical
Support Services agreements with End Users subsequent to such breach. Solely in
the event of a termination of this Agreement for Nuance's material breach, and
in addition to any other available remedies, VAR shall, for a period not to
exceed ninety (90) days have the right to Sell, pursuant to the terms of this
Agreement, any remaining Integrated Systems which were in VAR's inventory on the
date of the foregoing material breach.
12. WARRANTY AND DISCLAIMER.
12.1 SOFTWARE WARRANTY. Nuance warrants that for a period of ninety (90)
days from acceptance of Software pursuant to SECTION 5 ("DELIVERY AND
ACCEPTANCE") (hereinafter the "Warranty Period"), the Software shall meet all of
Nuance's material Specifications for the Software at the time of acceptance for
use on an Integrated System. Each instance in which the Software fails to meet
such material Specifications shall be considered an "Error." If VAR reports to
Nuance any Errors in such Software during the applicable Warranty Period, and
provides such detail as Nuance may reasonably require to permit Nuance to
reproduce such Errors, then Nuance, at its expense, shall modify or replace the
Software, or provide Updates to correct such Errors.
12.2 RIGHT TO LICENSE. Nuance warrants that it has the right to grant the
licenses hereunder and that the grant of any such license will not infringe any
known third party proprietary right.
12.3 DISCLAIMER. THE WARRANTY SET FORTH SUBSECTION 12.1 ("SOFTWARE
WARRANTY") STATES NUANCE'S SOLE AND EXCLUSIVE WARRANTY TO VAR AND ANY THIRD
PARTY CONCERNING THE "SOFTWARE" AND THE EXCLUSIVE REMEDY FOR BREACH OF WARRANTY.
EXCEPT AS EXPRESSLY SET FORTH IN SUBSECTION 12.1 ("SOFTWARE WARRANTY"), THE
"SOFTWARE" IS PROVIDED STRICTLY "AS IS," AND NUANCE MAKES NO ADDITIONAL
WARRANTIES, EXPRESS, IMPLIED, ARISING FROM COURSE OF DEALING OR USAGE OF TRADE,
OR STATUTORY, AS TO THE "SOFTWARE" OR ANY MATTER WHATSOEVER. IN PARTICULAR, ANY
AND ALL WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE AND NON-
INFRINGEMENT (EXCEPT IN ACCORDANCE WITH SECTION 12.2 ARE
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EXPRESSLY EXCLUDED. THIS IS A LIMITED WARRANTY AND IS THE ONLY WARRANTY MADE BY
NUANCE. VAR SHALL NOT HAVE THE RIGHT TO MAKE OR PASS ON, AND SHALL TAKE ALL
MEASURES NECESSARY TO ENSURE THAT NEITHER VAR NOR ANY OF ITS AGENTS OR EMPLOYEES
SHALL MAKE OR PASS ON, ANY EXPRESS OR IMPLIED WARRANTY OR REPRESENTATION ON
BEHALF OF NUANCE OR ITS LICENSORS TO ANY END USER OR THIRD PARTY.
13. TECHNICAL SUPPORT SERVICES AND IN SERVICE DATA.
13.1 PROVISION OF TECHNICAL SUPPORT SERVICES. In the event that VAR has
elected to receive Technical Support Services as indicated on an EXHIBIT F
("TECHNICAL SUPPORT SERVICES"), and has paid all associated Technical Support
Services Fees as invoiced by Nuance, VAR shall be entitled to receive Technical
Support Services as hereinafter described. For purposes of this Agreement,
"Technical Support Services" shall consist of:
13.1.1 The right of VAR's Designated Employees to contact Nuance
by telephone or e-mail and to consult with Nuance regarding the installation,
functions and operation of the Software or Application;
13.1.2 The right of VAR's Designated Employees to contact Nuance
by telephone or e-mail to consult with Nuance regarding Errors in the Software
or Application which Errors have been brought to Nuance's attention by VAR's
Designated Employees;
13.1.3 The right to obtain from Nuance certain Updates for the
Software or Application which Updates are reasonably necessary to correct
reproducible Errors which Errors have been brought to Nuance's attention by
VAR's Designated Employees; or which provide improved or additional functions
which are supplied to other VARs or End Users under a Technical Support Services
agreement.
13.1.4 The right to have Nuance use its commercially reasonable
effort to promptly, thoroughly and competently correct Errors other than those
described above which have been brought to Nuance's attention by VAR's
Designated Employees.
13.2 HOURS AND FACILITIES.
13.2.1 BASIC TECHNICAL SUPPORT SERVICES. If VAR, on behalf of an
End User, has elected to receive Basic Technical Support Services as indicated
on an EXHIBIT F ("TECHNICAL SUPPORT SERVICES"), then VAR shall be entitled to
receive Technical Support Services on behalf of the subject End User as
described in SECTION 13.1 ("PROVISION OF TECHNICAL SUPPORT SERVICES") only
between the hours of 8:30 a.m. and 6:00 p.m., Eastern Time.
13.2.2 PREMIUM TECHNICAL SUPPORT SERVICES. If VAR, on behalf of
an End User, has elected to receive Premium Technical Support Services as
indicated by VAR's signature on an EXHIBIT F ("TECHNICAL SUPPORT SERVICES"),
then VAR shall be entitled to receive Technical Support Services on behalf of
the subject End User as described in SECTION 13.1 ("PROVISION OF TECHNICAL
SUPPORT SERVICES") twenty-four (24) hours per day, seven (7) days a week.
13.3 LIMITATIONS. VAR, on behalf of End User, must elect to receive
Technical Support Services on either all or none of the Software, and may not
elect to receive Technical Support Services on some Software and not on other
Software. Nuance shall have no obligation to provide Technical Support Services
for any Application (except as so provided under an EXHIBIT D "(PROFESSIONAL
SERVICES")) any non-Nuance computer programs, technology or hardware, or any
Software which is not within three Releases of the most recent Version or
Release, or which was first delivered to VAR more than three years earlier
(whichever is later) or for which Nuance has provided Updates which have not
been applied to the Software for a period of
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more than one (1) year from the date of delivery thereof to VAR. Should VAR or
VAR's End User cancel Technical Support Services and subsequently desire to
reinstate such Technical Support Services, VAR shall pay Nuance an amount equal
to the unpaid Technical Support Services Fees that would have been due during
the period in which Technical Support Services were canceled. Any failure of VAR
to pay all Technical Support Service Fees as invoiced by Nuance, and not subject
to good faith dispute, shall, at Nuance's sole option, immediately eliminate any
obligation of Nuance to provide Technical Support Services hereunder.
13.4 ADDITIONAL SERVICES. In the event that VAR desires to obtain from
Nuance additional services with respect to the Software, or any services at all
with respect to any Professional Services, Nuance agrees to negotiate in good
faith for the provision of such services at rates no higher than Nuance's normal
commercial rates, and subject to terms as may be agreed to by the parties and to
be contained in an Exhibit to this Agreement.
13.5 IN SERVICE DATA. Subject to agreement by VAR's End User, which (if
granted) may require Nuance's execution of a non-disclosure agreement acceptable
to VAR's End User, Nuance will be provided reasonable access to In-Service Data
generated through the use of each Integrated System in which Software is
installed. VAR shall use commercial best efforts to negotiate the right to
obtain such In-Service Data, and/or clearly inform the End User in writing that
denial of access to In-Service Data may result in the inability of Nuance to
make essential improvements to the Software's functionality or recognition
accuracy. In cases where the Specifications establish performance criteria which
are predicated upon access to In-Service Data, VAR shall ensure that its own
contract specifications with an End User clearly cite the requirement for In-
Service Data as a condition of achieving such performance by the Software.
Nuance may use this In-Service Data to train, refine, supplement or test its
speech recognition and natural language understanding software, models and
algorithms. The primary use of In-Service Data is to improve the performance of
the Software for the End User. Additionally, resulting improvements to the
Software may be used for the benefit of all users of the Software. Nuance may
not use the content of any such data for any purpose other than that described
in this section.
14. VAR SUPPORT OF END USERS. VAR hereby acknowledges and agrees that Nuance
shall have no responsibility for providing service or assistance to End Users
except as provided under EXHIBIT D ("PROFESSIONAL SERVICES"). VAR agrees that
VAR shall not direct any End Users to contact Nuance directly for Technical
Support Services.
15. INDEMNITIES AND LIMITATION OF LIABILITY.
15.1 INTELLECTUAL PROPERTY INDEMNITY. Nuance agrees to indemnify, defend
and hold harmless VAR from any loss, costs, damages, and reasonable attorneys'
fees resulting from or in connection with any claims or actions by third parties
that the sublicensing or uses permitted hereunder of the Software as delivered
by Nuance infringe any patent, copyright trademark, trade secret or other
proprietary right of any third party, provided that VAR gives Nuance prompt
written notice of each such claim, tenders to Nuance the defense or settlement
of each such claim at Nuance's expense, and cooperates with Nuance, at Nuance's
expense, in defending or settling each such claim. If Nuance receives notice of
an alleged infringement, or if VAR's use of the Software shall be prevented by
permanent injunction, Nuance may, at its sole option and expense, procure for
VAR the right to continue using the Software as provided hereunder, modify the
Software so that it is no longer infringing, or replace the Software with
computer software of equal or superior functional capability or in the case of
trademark infringement, instruct VAR to use an alternative trademark. THE RIGHTS
GRANTED TO VAR
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UNDER THIS SECTION 15.1 ("INTELLECTUAL PROPERTY INDEMNITY") SHALL BE VAR'S SOLE
AND EXCLUSIVE REMEDY AND NUANCE'S SOLE OBLIGATION FOR ANY ALLEGED INFRINGEMENT
OF ANY PATENT, COPYRIGHT, TRADEMARK, OR OTHER PROPRIETARY RIGHT. NUANCE SHALL
HAVE NO LIABILITY TO VAR OR ANY THIRD PARTY IF ANY ALLEGED INFRINGEMENT OR CLAIM
OF INFRINGEMENT IS BASED UPON: (A) ANY "APPLICATION" OR MODIFIED "SOFTWARE"; (B)
USE OF THE "SOFTWARE" IN CONNECTION OR IN COMBINATION WITH EQUIPMENT, DEVICES,
OR SOFTWARE NOT PROVIDED BY NUANCE (IF SUCH INFRINGEMENT OR CLAIM COULD HAVE
BEEN AVOIDED BY THE USE OF OTHER EQUIPMENT, DEVICES OR SOFTWARE), OTHER THAN FOR
USE ON AN "INTEGRATED SYSTEM"; OR (C) THE USE OF "SOFTWARE" OTHER THAN AS
PERMITTED UNDER THIS AGREEMENT OR NOT IN ACCORDANCE WITH THE SPECIFICATIONS OR
USE OF OTHER THAN THE MOST CURRENT RELEASE OR VERSION OF THE "SOFTWARE" (IF SUCH
CLAIM WOULD HAVE BEEN PREVENTED BY THE USE OF SUCH RELEASE OR VERSION).
15.2 VAR INDEMNITY Without limiting Nuance's obligations under Section
15.1, VAR agrees to indemnify, defend and hold harmless Nuance from and against
any losses, costs, or damages (including reasonable attorneys' fees) resulting
from or in connection with any claims by third parties resulting from or in
connection with the use, manufacture, or distribution of Integrated Systems by
VAR and VAR's direct and indirect customers in any country, worldwide, provided
that Nuance gives VAR prompt written notice of any such claim, tenders to VAR
the defense or settlement of any such claim at VAR's expense, and cooperates
with VAR, at VAR's expense, in defending or settling such claim.
15.3 LIMITATION OF LIABILITY NEITHER PARTY WILL BE LIABLE TO THE OTHER
PARTY OR ANY THIRD PARTY FOR ANY LOSS OF USE, INTERRUPTION OF BUSINESS OR ANY
INDIRECT, SPECIAL, INCIDENTAL, PUNITIVE OR CONSEQUENTIAL DAMAGES OF ANY KIND
(INCLUDING LOST PROFITS) REGARDLESS OF THE FORM OF ACTION WHETHER IN CONTRACT,
TORT (INCLUDING NEGLIGENCE), STRICT PRODUCT LIABILITY OR OTHERWISE, EVEN IF THAT
PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. THE FOREGOING
LIMITATION OF LIABILITY IS INDEPENDENT OF ANY EXCLUSIVE REMEDIES FOR BREACH OF
WARRANTY SET FORTH IN THIS AGREEMENT.
16. TAXES. In addition to any other payments due under this Agreement, VAR
agrees to pay, and to indemnify and hold Nuance harmless from, any sales, use,
excise, import or export, value added or similar tax or duty not based on
Nuance's net income, including any penalties and interest, as well as any costs
associated with the collection or withholding thereof, and all governmental
permit fees, license fees and customs and similar fees levied upon the delivery
by Nuance of the Software, which Nuance may incur in respect of this Agreement.
17. GOVERNMENT END USERS. When Selling an Integrated System to a U.S.
Government End User, VAR shall identify the Software in an Integrated System as
a "commercial item," as that term is defined at 48 C.F.R. 2.101 (OCT 1995), and
more specifically shall identify such item as "commercial computer software" and
"commercial computer software documentation," as such terms are used in 48
C.F.R. 12.212 (SEPT 1995). Consistent with 48 C.F.R. 12.212 and 48 C.F.R.
227.7202-1 through 227.7202-4 (JUNE 1995), VAR will provide the Software in any
Integrated System (including related documentation) to U.S.
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Government End Users: (A) only as a commercial end item; and (B) only pursuant
to the End User License Agreement.
18. EXPORT CONTROL. The parties acknowledge that the manufacture and sale of
the Software or Application is subject to the export control laws of the United
States of America, including the U.S. Bureau of Export Administration
regulations, as amended, and hereby agree to obey any and all such laws. The
parties agree not to take any actions that would cause either party to violate
the U.S. Foreign Corrupt Practices Act of 1997, as amended.
19. ESCROW AGREEMENT. Nuance and VAR agree to enter into an escrow agreement in
the form attached hereto as EXHIBIT H and with an escrow agent reasonably
acceptable to both parties. The escrow agreement shall provide for the deposit
and maintenance of the source code for Nuance Products by Nuance and the release
to VAR of the same in the event of a Release Condition. A "Release Condition"
shall mean any of the following occurrences: (a) the filing by Nuance of a
voluntary bankruptcy petition; (b) the filing of an involuntary bankruptcy
petition against Nuance, which involuntary petition is not dismissed within
ninety (90) days of its filing; (c) the dissolution of Nuance, where the rights
and obligations of Nuance under this Agreement have not been assumed by a third
party reasonably capable of carrying out such obligations; or (d) the failure of
Nuance to carry on business in the ordinary course. Nuance shall pay all start-
up, annual, renewal and other fees due to such escrow agent. Regardless of any
release of source code, Nuance will not grant any right or license to VAR to
modify or enhance the Nuance Products.
20. SURVIVAL AND ORDER OF PRECEDENCE. In the event of any expiration or
termination of this Agreement, the provisions OF SECTION 1 ("DEFINITIONS"),
SECTION 6 ("CONFIDENTIAL INFORMATION"), SECTION 9 ("INVOICES AND PAYMENTS"),
SECTION 10 ("REPORTS AND RIGHT TO AUDIT"), SECTION 11.1 ("TERM"), SECTION 11.4
("EFFECT"), SECTION 12 ("WARRANTY AND DISCLAIMER"), SECTION 14 ("VAR SUPPORT OF
END USERS"), SECTION 15 ("INDEMNITIES AND LIMITATION OF LIABILITY"), SECTION 16
("TAXES"), SECTION 20 ("SURVIVAL AND ORDER OF PRECEDENCE") and SECTION 21
("GENERAL"), except SECTION 21.10, shall survive and shall continue to bind the
parties. In the event of any conflict between the terms of this Agreement and
the terms of any Exhibit, the terms of the Exhibit shall control.
21. GENERAL.
21.1 ARBITRATION. All disputes which by statute are not exclusively
subject to court determination, shall be settled before a panel of three
arbitrators meeting in Chicago, Illinois (unless the parties mutually agree to
an alternate venue), in accordance with the Rules of the American Arbitration
Association. The arbitrators shall have the powers of a California Court,
including the power to order discovery and to issue legal or equitable remedies;
their award shall be final and binding. Judgment thereon may be entered,
confirmed and enforced in any court having jurisdiction of the party against
whom enforcement is sought. For the purpose of confirming and/or enforcing the
award of any proceedings, service pursuant to the notice provisions above shall
be sufficient.
21.2 GOVERNING LAW. This Agreement shall be governed in all respects by
the laws of the United States of America and the State of California without
regard to conflicts of law principles. The parties agree that the United Nations
Convention on Contracts for the International Sale of Goods is specifically
excluded from application to this Agreement.
21.3 ATTORNEYS' FEES. In the event any proceeding or lawsuit is brought
by Nuance or VAR in connection with this Agreement, the prevailing party in such
proceeding shall be entitled to receive its costs, expert witness fees and
reasonable attorneys' fees, including costs and fees on appeal.
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21.4 INJUNCTIVE RELIEF. It is understood and agreed that, notwithstanding
any other provisions of this Agreement, breach of the provisions of this
Agreement by VAR will cause Nuance irreparable damage for which recovery of
money damages would be inadequate, and that Nuance shall therefore be entitled
to obtain timely injunctive relief to protect Nuance's rights under this
Agreement in addition to any and all remedies available at law.
21.5 NOTICES. All notices or reports permitted or required under this
Agreement shall be in writing and shall be delivered by personal delivery or by
certified or registered mail, return receipt requested, and shall be deemed
given upon personal delivery or five (5) days after deposit in the mail. Notices
shall be sent to the parties at the addresses described on the Signature Page or
such other address as either party may designate for itself in writing.
21.4 NO AGENCY. Nothing contained herein shall be construed as creating
any agency, partnership, or other form of joint enterprise between the parties.
21.5 FORCE MAJEURE. Neither party shall be liable hereunder by reason of
any failure or delay in the performance of its obligations hereunder (except for
the payment of money) on account of strikes, shortages, riots, insurrection,
fires, flood, storm, explosions, acts of God, war, governmental action, labor
conditions, earthquakes, material shortages or any other cause which is beyond
the reasonable control of such party.
21.6 WAIVER. The failure of either party to require performance by the
other party of any provision hereof shall not affect the full right to require
such performance at any time thereafter; nor shall the waiver by either party of
a breach of any provision hereof be taken or held to be a waiver of the
provision itself.
21.7 SEVERABILITY. In the event that any provision of this Agreement
shall be unenforceable or invalid under any applicable law or be so held by
applicable court decision, such unenforceability or invalidity shall not render
this Agreement unenforceable or invalid as a whole, and, in such event, such
provision shall be changed and interpreted so as to best accomplish the
objectives of such unenforceable or invalid provision within the limits of
applicable law or applicable court decisions.
21.8 USE OF VAR'S NAME. VAR agrees that Nuance may use VAR's name and may
disclose that VAR is a licensee of Nuance products in Nuance advertising,
promotion and similar public disclosures with respect to the Software; provided,
however, that such advertising, promotion or similar public disclosures shall
not indicate that VAR in any way endorses any Nuance products. Nuance agrees
that VAR may use Nuance's name and may disclose that Nuance is a licensor to VAR
in VAR advertising, promotion and similar public disclosures with respect to the
Software; provided, however, that such advertising, promotion or similar public
disclosures shall not indicate that Nuance in any way endorses any VAR products.
21.9 HEADINGS. The section headings appearing in this Agreement are
inserted only as a matter of convenience and in no way define, limit, construe,
or describe the scope or extent of such section or in any way affect this
Agreement.
21.10 ASSIGNMENT. Neither this Agreement nor any rights or obligations of
a Party hereunder may be assigned by that Party in whole or in part without the
prior written approval of the other Party.
21.11 COUNTERPARTS. This Agreement may be executed simultaneously in two
or more counterparts, each of which will be considered an original, but all of
which together will constitute one and the same instrument.
21.12 ENTIRE AGREEMENT. This Agreement together with the Exhibits hereto
completely and exclusively states the agreement of the parties regarding its
subject matter. It
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supersedes, and its terms govern, all prior proposals, agreements, or other
communications between the parties, oral or written, regarding such subject
matter. The terms of any shrink-wrap agreement accompanying any Software
delivered by Nuance hereunder shall, to the extent inconsistent with the terms
of this Agreement, have no effect whatsoever. This Agreement shall not be
modified except by a subsequently dated written amendment or Exhibit signed on
behalf of Nuance and VAR by their duly authorized representatives.
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[*] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH
RESPECT TO THE OMITTED PORTIONS.
EXHIBIT A-__
SOFTWARE
The following Software is subject to the Software License granted pursuant to
the Agreement, and all of the terms and conditions therein, as specifically
licensed in an executed Exhibit B ("Full Use License") or Exhibit C ("Limited
Use License") and applicable Purchase Order. Additional Nuance Software may be
added to the following list by mutual agreement of the parties:
List Price Per Copy (U.S. Dollars)
---------------------------------
Product Name [***] [***]
------------ ------------- ---------------
[***] $[***] $[***]
$[***] $[***]
$[***] $[***]
$[***] [***]
$[***] $[***]
$[***] $[***]
$[***] $[***]
The [***] fee [***] is calculated at [***]% of the total list price license fees
paid by the customer for the [***] subject to the following limits:
[***]
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[*] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH
RESPECT TO THE OMITTED PORTIONS.
Additional Terms:
1. The Nuance Developer's Toolkit may be used solely for application
development and system prototyping. It may not be used in an
operational environment.
2. Sales of the Nuance U.S. Stocks & Mutual Funds Grammar Update Service
do not accrue to the Reseller Discount Table specified in SECTION
9.1.5.
3. All Nuance Products designated as Grammars or applications must be
used solely in connection with the Nuance RecServer.
4. Prices are subject to change, subject to the provisions of Section
9.1.7 of the Agreement. VAR shall have [***] days from the
announcement of a price change by Nuance to implement such change.
Except by written agreement, Nuance will not accept Purchase Orders
that fail to reflect the subject price change after the 90 day
implementation period has passed.
5. Nuance agrees to make available to VAR all Software that is released
as a generally available product to other Nuance vars or end user
customers. Such Software will be made available at its commercial list
price less VAR discount at the general availability date offered to
other Nuance vars or end user customers.
6. Nuance agrees that for existing customers of VAR, and for prospective
customers of VAR for whom proposals are outstanding from VAR prior to
March 1, 1998, that the list price of $[***] may be offered through
December 31, 1999. VAR agrees to provide to Nuance by March 31, 1998,
a list of all such customers and prospective customers for whom
proposals were outstanding prior to March 1, 1998.
Any Software License granted by execution of an Exhibit B ("Full Use License")
or Exhibit C ("Limited Use License") and applicable Purchase Order or the Test
and Integration License shall be valid only when the Software is used as part of
an Integrated System, which shall include as a minimum: for Full Use Licenses,
Periphonics commercially available Interactive Voice Response Systems (hardware
and software, including all system options and features) and the Nuance
Software; and in the case of Limited Use Licenses, Periphonics commercially
available Interactive Voice Response Systems (hardware and software, including
all system options and features), the Periphonics application described in
Exhibit C, and the Nuance Software.
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EXHIBIT B-__
FULL USE LICENSE
Nuance grants to VAR a Full Use License to the Software under the terms and
conditions of the Agreement for the number of copies ordered pursuant to a
Purchase Order accepted by Nuance and attached as a Schedule hereto (each such
Purchase Order to be attached sequentially as Schedule B-1-_). This Full Use
License is only valid for the number of copies of the Software ordered by VAR
pursuant to a Purchase Order accepted by Nuance and for use in an Integrated
System. No other license to the Software is granted and any unauthorized copying
or access to the Software not specifically licensed herein is strictly
prohibited.
NUANCE COMMUNICATIONS [VAR]
By:____________________________ By:______________________________
Title:_________________________ Title:___________________________
Date:__________________________ Date:____________________________
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EXHIBIT C-__
LIMITED USE LICENSE
If so indicated by VAR's and Nuance's initials on the Signature Page and
signatures hereon, and subject to VAR's obligations hereunder including without
limitation VAR's payment of Software License Fees, VAR shall be granted an
Limited Use License as follows:
DESCRIPTION OF SOFTWARE BY NAME, FORMAT AND EXHIBIT
- ---------------------------------------------------
AUTHORIZED GRAMMAR VOLUME:
- -------------------------
AUTHORIZED PORT VOLUME:
- ----------------------
DESCRIPTION OF INTEGRATED SYSTEM:
- --------------------------------
NUANCE COMMUNICATIONS [VAR]
By:_______________________________ By:_________________________________
Title:____________________________ Title:______________________________
Date:_____________________________ Date:_______________________________
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EXHIBIT D
PROFESSIONAL SERVICES
Nuance and VAR agree that when Nuance Professional Services are desired by VAR
that an Exhibit D will be completed for each project or service. Each Exhibit D
shall include but not be limited to the following terms: scope of effort,
schedule for deliverables, acceptance criteria and payment terms.
NUANCE COMMUNICATIONS [VAR]
By:______________________________ By:________________________________
Title:___________________________ Title:_____________________________
Date:____________________________ Date:______________________________
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EXHIBIT E
MINIMUM TERMS
VAR shall ensure that its End Users are not provided Software unless such End
Users first do one of the following:
(a) sign VAR's own software license agreement (or modifications thereto), and
VAR's standard order forms (such as a VAR's "Schedule A" form), containing terms
which substantially communicate the below stipulations with respect to the
Software which is licensed to VAR by Nuance and relicensed by VAR to its End
Users under this Agreement; or,
(b) provide a purchase order or similar signed written agreement to VAR,
referencing a proposal issued by VAR which substantially communicates the below
stipulations with respect to the Software which is licensed to VAR by Nuance and
relicensed by VAR to its End Users under this Agreement.
In either of the above cases, VAR shall ensure that the applicable agreement is
fully enforceable in all jurisdictions in which the Integrated System is Sold.
All sublicenses of the Software shall be non-transferable unless the party to
whom an End User wishes to transfer such license agrees to be bound by the terms
of the original End User License Agreement.
The parties agree that as a condition of the rights and licenses granted by
Nuance hereunder, each End User License shall contain, at a minimum,
substantially the following terms, allowing reasonable modifications to keep
consistent terminology and without materially changing the associated meaning:
1. End User accepts a non-exclusive, non-transferable license to use the
Software that End User obtains from VAR under the Agreement, as follows:
i. to use the Software solely for End User's own internal business
operations on the Integrated System or on a backup system, up to any applicable
number of designated users or other limitation (if any limitation applies). End
User shall not have the right to manufacture, sell, or otherwise commercially
exploit, except in support of End User's own internal business operations, any
product, system, or service based in whole or in part on the Software. End User
agrees it will not sublicense, transfer, pledge, lease, rent, or share its
rights under this Agreement;
ii. to use the Documentation provided with the Software in support of End
User's authorized use of the Software;
iii. to copy the Software for archival or backup purposes; no other copies
shall be made without Nuance's prior written consent. End User may use the
Software on a single backup Integrated System if the production Integrated
System for which they were acquired is rendered inoperable. Under no
circumstances shall End User use the Software on the production Integrated
System and the backup Integrated System simultaneously. End User agrees not to
alter, change, or remove from the Software any identifications, including
copyright and trademark notices, and further agrees to place such markings on
any copies of the Software. All archival and backup copies of the Software are
subject to the terms of this Agreement.
End User shall not copy or use the Software (including the Documentation) except
as otherwise specified in the End User license.
2. Nuance shall retain all right, title and interest in the Software,
including patent, copyright, trade secret, and trademark rights. Except as
otherwise expressly stated in the End User agreement, End User does not acquire
any rights, express or implied, in the Software.
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3. End User shall not cause or permit the reverse engineering, decompilation,
disassembly or other translation of the Software.
4. Foreign Government Agreements. VAR shall take all reasonable steps in
making proposals and agreements with foreign governments other than the United
States which involve the Software and related documentation to ensure that
Nuance's proprietary rights in such Software and related documentation receive
the maximum protection available from such foreign government for commercial
computer software and related documentation developed at private expense.
5. Third Party Beneficiary. VAR shall ensure that each End User agrees that
Nuance is a third-party beneficiary to the End User License Agreement. Such
provisions are made expressly for the benefit of Nuance and are enforceable by
Nuance in addition to VAR.
6. No Warranty. The End User shall agree that VAR'S SUPPLIERS DO NOT MAKE OR
PASS ON TO END USER OR ANY OTHER THIRD PARTY, ANY EXPRESS, IMPLIED OR STATUTORY
WARRANTY OR REPRESENTATION ON BEHALF OF NUANCE, INCLUDING BUT NOT LIMITED TO THE
IMPLIED WARRANTIES OF NON-INFRINGEMENT, TITLE, MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE.
7. Limitation of Liability. The End User shall agree that IN NO EVENT SHALL
VAR'S SUPPLIERS BE LIABLE TO END USER FOR ANY INDIRECT, SPECIAL, CONSEQUENTIAL,
PUNITIVE OR INCIDENTAL DAMAGES, REGARDLESS OF HOW ARISING, REGARDLESS OF THE
CAUSE OF ACTION, IN TORT, CONTRACT OR OTHERWISE, AND REGARDLESS OF WHETHER
ADVISED BEFOREHAND OF THE POSSIBILITY OF SUCH DAMAGES.
8. In-Service Data. Subject to the right of the End User to waive, in writing,
Nuance's right to the In-Service Data, the End User shall provide Nuance with
reasonable access to all In-Service Data generated through the use of each
Integrated System in which the Software is installed. Any such written waiver
shall include all of the terms described in Subsection 13.5 ("In Service Data").
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WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH
RESPECT TO THE OMITTED PORTIONS.
EXHIBIT F-__
TECHNICAL SUPPORT SERVICES
DESCRIPTION OF TECHNICAL SUPPORT SERVICES
- -----------------------------------------
Responsibilities of Nuance and VAR:
VAR shall be responsible for providing Level 1 and Level 2 Technical
Support Services to End Users. Level 1 Technical Support Services means receipt
of all calls from End Users for such services and the determination of the issue
causing the condition reported by the end user. Level 2 Technical Support
Services means resolving any End User issue caused by a defect in the Software
when Nuance has provided electronic notice of the defect and the needed support
action to VAR's Designated Personnel.
Nuance shall be responsible for Level 3 Support to VAR. Level 3 Technical
Support Services means the creation of modifications to the Software which
enable the temporary or permanent resolution of a defect in the Software for
which a resolution has not been electronically distributed to VAR's Designated
Personnel.
Nuance shall provide telephone hot line support to VAR's Designated
Personnel for delivery of Technical Support Services. Nuance's telephone hot
line shall be staffed by technical personnel with a detailed, working knowledge
of the Software.
VAR shall provide Designated Employees who have been trained on the
Software and who are experienced in providing Technical Support Services to End
Users.
Basic Level Support ("Basic Technical Support Services"):
Nuance will provide Technical Support Services to Designated Employees of
VAR on behalf of End Users who have signed Technical Support Agreements with VAR
for Basic Level Technical Support Services. Such End User Technical Support
Services agreements shall provide for service during a nine hour period between
7:30am and 5:30pm local time for the End User.
Premium Level Support ("Premium Technical Support Services"):
Nuance will provide Technical Support Services to Designated Employees of
VAR on behalf of End Users who have signed Technical Support Agreements with VAR
for Premium Level Technical Support Services. Such End User Technical Support
Services agreements shall provide for service twenty-four (24) hours per day,
seven (7) days per week.
Technical Support Services Fees:
Basic Level Technical Support Services fees are equal to [***]% per year of
the license fee for all Software installed at the End User.
Premium Level Technical Support Services fees are equal to [***]% per year
of the license fee for all Software installed at the End User.
Determination of Defect Severity and Response Times:
Upon receipt of a request for Level 3 Technical Support Services from
Designated Employees of VAR, Nuance and VAR's Designated Employees will agree to
the Severity of the specific defect and associated Nuance Response Times as
defined below:
Severity
Severity 1 shall mean an incident in which the defect in the Software has
created a situation in which the End User is unable to do productive work.
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WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH
RESPECT TO THE OMITTED PORTIONS.
Severity 2 shall mean that a major function of the Software is unusable and no
known resolution is available that is mutually acceptable to Nuance and VAR, but
that the user is able to do some production work.
Severity 3 shall mean that there is a loss of function in the Software that does
not seriously affect the End User's operations or schedules. Any defect which
was originally reported as Severity 1 or Severity 2, but which has been
temporarily resolved by a mutually acceptable temporary resolution, shall be
reduced to Severity 3 at the time the temporary resolution has been
electronically distributed to VAR,
Severity 4 shall mean all other defects in the Software other than those falling
within the categories above.
Severity 5 as used herein shall mean requested enhancements to the product.
Response Times Objectives for Acknowledging Incident
Upon receiving notice from Designated Employees of VAR of a defect in the
Software, Nuance shall acknowledge receipt of such notice. Such acknowledgment
shall contain a unique number identifying the particular incident for tracking
purposes. Nuance shall provide VAR with a periodic status update for any defect
reported by VAR identifying each defect by the tracking number assigned to it by
Nuance. Each defect reported by VAR shall remain open until closure is agreed
between Nuance and VAR.
Nuance will acknowledge requests from VAR for Technical Support Services as
follows:
Severity 1 or 2 - less than [***]
Severity 3 through 5 - within [***].
Response Time Objectives for Resolution of Incident Nuance shall make
reasonable commercial efforts to provide a work-around or resolution for the
reported defect in the Software in conformance with the following objectives:
Severity 1: within [***] of receipt of notice of the defect from VAR.
Severity 2: within [***] of receipt of notice of the defect from VAR.
Severity 3, 4, or 5: resolved in a future release of the product
Defect Report Form
Nuance and VAR agree to define a Defect Report Form that is mutually
acceptable and which, as revised or replaced from time to time, shall be the
means used for the transfer of information defining suspected defects for
resolution. Nuance shall provide VAR with an electronic mail address for receipt
of above forms. Notwithstanding the foregoing, in case of a Severity 1 or
Severity 2 incident attributable to the Software, VAR's Designated Personnel may
request Technical Support Services through the telephone hot-line. VAR shall be
provided reasonable access to Nuance's defect database to review the status of
defects related to the Software.
On-Site Assistance
Upon VAR's request and subject to availability, Nuance may furnish
qualified personnel for on-site assistance to VAR and/or Sub-licensees to
resolve defects in the Software. In such event, VAR shall pay Nuance at its then
current time and materials rates for the time of required personnel and
reimburse Nuance for reasonable travel and living expenses of such personnel
incurred in rendering the requested assistance; provided, however, that Nuance
shall not be entitled to payment for the time of its personnel if such
assistance is required to resolve a Severity 1 defect in the Software and
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such defect cannot otherwise be reasonable resolved in a timely manner.
Termination of Support for Products Listed on Exhibit A
In the event that Nuance should terminate support for a specific version or
release of a Nuance product listed in Exhibit A, Nuance's support obligations to
VAR with respect to that product shall terminate at the same time such support
is terminated for other Resellers or Nuance's end users and subject to the same
notice period. In addition, Nuance agrees to support the three previous Releases
of any Nuance product listed in Exhibit A (and licensed to VAR) or all Releases
licensed to VAR within any three year period, whichever is later, as current
under the terms of this Agreement (e.g. upon release of release 6.3 of the
Nuance RecServer, support for release 6.0 and its minor releases, 6.0.1, etc.,
may be terminated.
Miscellaneous Nuance Obligations
Nuance shall provide VAR's Designated Employees initial training in the
installation, maintenance, and operation of the Software.
If a major release or upgrade of any product listed on Exhibit A is made
available for which additional training becomes available, Nuance shall promptly
notify VAR, and as requested by VAR, enroll for up to two (2) Designated
Employees in the next available training course subject to prior enrollment
commitments. Such training shall be made available within 30 days of the
availability of the new release, if possible. The training will be of sufficient
detail to allow VAR's Designated Employees to each their co-workers as
appropriate and will include reproducible course materials.
Nuance will make available to VAR all Nuance tools that are commercially
available to other Value Added Resellers. Tools may be for use in deployment,
configuration, and performance improvement the Software. Nuance will also
provide VAR with reasonable support, under terms to be agreed, in VAR's efforts
to develop its capability to provide call script design, recognition grammar
development, and in-service application debugging and tuning.
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NUANCE COMMUNICATIONS [VAR]
By:___________________________ By:______________________________
Title:________________________ Title:___________________________
Date:_________________________ Date:____________________________
4
<PAGE>
[*] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH
RESPECT TO THE OMITTED PORTIONS.
SCHEDULE 1 TO EXHIBIT F
TECHNICAL SUPPORT SERVICES
FEE SCHEDULE
The Fees for Technical Support Services provided pursuant to the Agreement,
EXHIBIT F ("TECHNICAL SUPPORT SERVICES"), and any applicable Purchase Order
shall be as follows:
For Basic Technical Support Services: [***]% of Software List Price
For Premium Technical Support Services: [***]% of Software List Price
For the purposes of this Agreement, if VAR elects to receive Basic Technical
Support Services, there will be [***]. If VAR elects not to receive Technical
Support Services, [***]. If VAR elects to receive Premium Technical Support
Services, [***].
1
<PAGE>
EXHIBIT G
NUANCE TRADEMARKS
The following trademarks and respective notices are subject to the terms of the
Agreement, specifically Section 3.5 ("Trademark License"), and shall be used in
accordance therewith in conjunction with an applicable Software License:
(1) "Nuance Communications" TM is a trademark of Nuance
Communications.
(2) "RecClient TM and RecServer TM" are trademarks of Nuance
Communications.
(3) "Conversational Transactions" TM is a trademark of Nuance
Communications.
(4) "Nuance BillPayer" TM is a trademark of Nuance
Communications.
Such other symbols and notices as may be prescribed by Nuance from time to time.
1
<PAGE>
EXHIBIT H
AGREEMENT NO. _________________
REFERENCE P.O. NO. _________________
ORDER FORM
----------
This Order is placed by VAR under the Definitive Agreement dated _____________.
The Agreement is incorporated by reference as though set forth in full herein.
The effective date of this Order shall be _____________________.
<TABLE>
<CAPTION>
SOFTWARE
- --------
QUANTITY PRODUCT MACHINE MACHINE PRICE TYPE CUSTOMER NUMBER OF
IDENTIFIERS NAME(S) (PER OF APPLICATION PORTS (IF
COPY) LICENSE (IF APPLICABLE)
APPLICABLE)
<S> <C> <C> <C> <C> <C> <C> <C>
V6.0
Developer's
Toolkit
V6.0 Run-
time Server
License
V6.0 Run-
time Client
License
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
SERVICES
- --------
QUANTITY SERVICE MACHINE MACHINE PRICE LICENSE CUSTOMER NUMBER
IDENTIFIER(S) NAME(S) (PER TYPE APPLICATION OF PORTS
COPY) (IF
APPLICABLE)
<S> <C> <C> <C> <C> <C> <C> <C>
Technical
Support-
Nuance
Toolkit
Technical
Support-
Runtime
Server
Software
Technical
Support-
Runtime
Client
Software
</TABLE>
LOCATION FOR SOFTWARE INSTALLATION CONTACT INFORMATION
- ---------------------------------- -------------------
Technical Contact Person:
___________________________________ ___________________________________
Title:
___________________________________ ___________________________________
Phone Number:
___________________________________ ___________________________________
SPECIFICATION REFERENCE NO./DATE: E-mail:
DATE DELIVERY REQUIRED: ___________________________________
IN WITNESS WHEREOF, the parties hereto have executed this Agreement.
NUANCE COMMUNICATIONS VAR
Authorized Signature:__________________ Authorized
Signature:______________________
Printed Name:__________________________ Printed
Name:______________________________
Title:_________________________________
Title:____________________________
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<PAGE>
EXHIBIT I-___
AMENDMENT
Notwithstanding anything to the contrary in this Agreement, the terms contained
in this EXHIBIT I ("AMENDMENT") shall be in addition to any other terms of the
Agreement, and shall supersede and take precedence over any conflicting terms
therein. Except as expressly modified by this EXHIBIT I ("AMENDMENT"), all terms
of this Agreement shall survive, and shall continue to bind the parties:
1
<PAGE>
EXHIBIT J
CUSTOMER SPECIFIC ACCEPTANCE REQUIREMENTS
Nuance and VAR agree that the following customer specific acceptance
requirements shall apply to the Software in accordance with the Agreement and
this EXHIBIT J.
NUANCE COMMUNICATIONS [VAR]
By:______________________________ By:_________________________________
Title:___________________________ Title:______________________________
Date:____________________________ Date:_______________________________
1
<PAGE>
EXHIBIT K-__
ESCROW
SOURCE CODE ESCROW AGREEMENT
THIS SOURCE CODE ESCROW AGREEMENT ("Escrow Agreement") is entered into as
of this ____ day of _________, 199_ (the "Effective Date") between NUANCE
COMMUNICATIONS, a California corporation having a place of business at 1380
Willow Road, Menlo Park, CA 94025 ("Nuance"), and __________________________, a
_______________ corporation having a place of business at ____
_________________________________ ("VAR"), and __________________________, a
____________ corporation having a place of business at _____
___________________________________("Escrow Agent").
RECITALS
A. Concurrent with the execution of this Escrow Agreement, VAR and Nuance
are entering into a Value-Added Reseller Agreement (the "VAR Agreement")
pursuant to which Nuance has licensed to VAR certain rights with respect to the
Software (as defined in the VAR Agreement);
B. Nuance and VAR now wish to enter into an escrow agreement which
provides for Nuance's deposit of the source code of the Software and related
materials with an escrow agent reasonably satisfactory to VAR and Nuance, and
further that, under circumstances to be specified in this Escrow Agreement, VAR
may obtain the foregoing materials from the Escrow Agent solely for the purpose
of maintaining and supporting properly licensed end users of the Nuance
Software.
NOW, THEREFORE, for good and valuable consideration, the receipt of which
is hereby acknowledged and in consideration of the promises, mutual covenants
and conditions contained herein, the parties agree as follows:
AGREEMENT
1. DEFINITION OF ESCROW MATERIALS. The escrow materials ("Escrow
------------------------------
Materials") to be stored by the Escrow Agent consist of one full copy of the
source code and related documents which pertain to the Software and which are
reasonably necessary to enable a software engineer of ordinary skill to diagnose
and correct Errors in the Software. The Escrow Materials shall also include any
Updates of the Software created by Nuance and deliverable to VAR pursuant to
SECTION 13 ("TECHNICAL SUPPORT SERVICES") of the VAR Agreement.
2. DEPOSIT. Within sixty (60) days of Nuance's delivery to VAR of the
-------
Software in accordance with SECTION 4 ("DELIVERY AND ACCEPTANCE") of the VAR
Agreement, Nuance shall deliver (or shall have already delivered) to the Escrow
Agent a sealed package certified by an authorized officer of Nuance to contain a
complete set of the Escrow Materials as defined in PARAGRAPH 1 ("Definition of
Escrow Materials") hereof, for such Software. Each deposit of the source code
for Software shall constitute a "Deposit".
3. RECEIPT BY ESCROW AGENT. Nuance shall furnish to the Escrow Agent a
-----------------------
packing list in triplicate describing each Deposit made hereunder. The Escrow
Agent shall issue a receipt for each Deposit received and forward copies of such
receipts and packing lists to both VAR and Nuance.
4. STORAGE OF MATERIALS; INSPECTION. The Escrow Agent shall establish
--------------------------------
under its control a receptacle for the purpose of storing the Escrow Materials
in safekeeping in an appropriate physical facility and shall allow the
inspection of the Escrow Materials only upon written authorization from Nuance
or as otherwise directed by a final order of a court of competent jurisdiction;
provided, however, that VAR shall be entitled to not more than one inspection in
any calendar year, and Nuance must be given at least
1
<PAGE>
[*] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH
RESPECT TO THE OMITTED PORTIONS.
ten (10) days' written notice prior to such inspection. Any such inspection
shall be in the presence of an authorized representative of Escrow Agent and
Nuance shall have the right to attend such inspection, at its option. Access to
the Escrow Materials shall be permitted to authorized representatives of Escrow
Agent to the extent necessary for Escrow Agent to perform its obligations
pursuant to this Escrow Agreement.
5. RECORDS. The Escrow Agent agrees to keep complete written records of
-------
the activities undertaken, and materials prepared and delivered to Escrow Agent
(including all Deposits), pursuant to this Escrow Agreement. Nuance or VAR shall
be entitled at reasonable times, during normal business hours, and upon
reasonable notice to Escrow Agent, during the term of this Escrow Agreement to
inspect the records of Escrow Agent with respect to the Escrow Materials. Nuance
shall be entitled upon reasonable notice to Escrow Agent and during normal
business hours to inspect the facilities of Escrow Agent with respect to the
physical status and condition of the Escrow Materials.
6. TERM. This Escrow Agreement shall remain in effect so long as the VAR
----
Agreement is in effect. Upon expiration of this Agreement or the VAR Agreement,
the portion, if any, of the Escrow Materials not previously withdrawn by VAR in
accordance with the terms hereof, shall be redelivered to Nuance and this
Agreement shall thereupon terminate.
7. RELEASE EVENTS. The following events ("Release Events") shall
--------------
constitute events of default by Nuance which give VAR the right to receive for
its own and sole use only, a single copy of the Escrow Materials from the Escrow
Agent pursuant to PARAGRAPH 8 ("Delivery of Escrow Materials to VAR") hereof:
(A) [***]
(B) [***]
8. DELIVERY OF ESCROW MATERIALS TO VAR.
-----------------------------------
(a) Upon the occurrence of either of the Release Events described in
PARAGRAPH 7 ("Release Events") hereof, Escrow Agent agrees and is hereby
specifically authorized to provide the Escrow Materials to VAR upon written
request by VAR. Prior to delivery of the Escrow Materials, (i) VAR must have
given written notice to Escrow Agent of the occurrence of a Release Event, which
notice shall specify the nature of such Release Event; (ii) Escrow Agent must
have transmitted a copy of the VAR notice to Nuance; and (iii) within twenty
(20) days after receipt of the VAR notice from Escrow Agent, Nuance must have
failed to notify Escrow Agent in writing that Nuance disputes VAR's notice.
(b) If Nuance disputes VAR's notice of default, then within thirty
(30) days subsequent to VAR's notice, Nuance must file with Escrow Agent an
affidavit executed by an authorized representative of Nuance stating that no
such Release Event has occurred or that the Release Event has been cured. If
Nuance fails to file such an affidavit, then Escrow Agent shall deliver the
relevant Escrow Materials in accordance with the instructions of VAR. If Nuance
files an affidavit disputing VAR's claim that a Release Event has occurred, then
Escrow Agent shall not deliver the Escrow Materials to either VAR or Nuance
until directed to do so by Nuance and VAR jointly or by an arbitrator, or until
Escrow Agent is ordered to do so by a final order of a court of competent
jurisdiction, and upon such delivery this Escrow Agreement shall
2
<PAGE>
terminate with respect to the Escrow Materials so delivered.
(c) Except as provided in PARAGRAPH 8(D) below, any dispute concerning
the delivery of any or all of the Escrow Materials to VAR by Escrow Agent shall
be settled by arbitration, to take place in Santa Clara or San Francisco County,
California, within thirty (30) days following Nuance's delivery of an affidavit
to Escrow Agent pursuant to PARAGRAPH 8(B) above, in accordance with the then-
prevailing rules of the American Arbitration Association. Depositions may be
taken and discovery obtained in any such arbitration proceedings in accordance
with California Code of Civil Procedure ("CCP") Section 1283.05, which is
incorporated herein by this reference in accordance with the provisions of CCP
Section 1283.1(b). The limitations on subject matter set forth in CCP Section
1283.1 shall be of no force and effect herein. Judgment upon the award rendered
by the arbitrator(s) may be entered in any court having jurisdiction thereof.
(d) Notwithstanding PARAGRAPH 8(C) above, either party shall have the
right to obtain a preliminary judgment on any equitable claim in any court of
competent jurisdiction, where such judgment is necessary to preserve property
and/or proprietary rights under this Escrow Agreement. Such judgment shall
remain effective as long as the terms of the judgment so provide, or until
specifically superseded by the action of the arbitrator(s) as provided in
PARAGRAPH 8(C) above.
9. LICENSE GRANT FOR USE OF ESCROW MATERIALS; CONFIDENTIALITY; LIABILITY
---------------------------------------------------------------------
FOR DISCLOSURE.
- --------------
(a) If, and only if, the Escrow Materials are released to VAR pursuant
to PARAGRAPH 8 ("Delivery of Escrow Materials to VAR") hereof, Nuance hereby
grants VAR the right to use such Escrow Materials solely for the purpose of
maintaining object code versions of the Software for VAR's existing customers as
of the date the VAR Agreement terminates in accordance with SECTION 9 ("TERM AND
TERMINATION") of such Agreement, and for no other reason whatsoever.
(b) VAR acknowledges and agrees that use of the Escrow Materials is
furnished to VAR on a confidential and secret basis for the sole and exclusive
use of VAR, and not for sale, sublicense or disclosure to third parties. In the
event that VAR obtains the Escrow Materials pursuant to the terms hereof, VAR
agrees that it will not (1) publish, disclose or otherwise divulge the Escrow
Materials to any person, except officers or employees of VAR who have entered
into commercially reasonable non-disclosure agreements and need access to the
Escrow Materials to perform their duties, at any time, either during the term or
after the termination of this Escrow Agreement, nor (2) permit its officers or
employees to so divulge any Escrow Materials, without the prior written consent
of an officer of Nuance. Upon receipt of the Escrow Materials, VAR may make one
(1) machine-readable copy of the Escrow Materials solely for backup and archival
purposes. VAR agrees to reproduce and include all copyright and other
proprietary notices appearing in or on any and all Escrow Materials provided to
VAR by Nuance or Escrow Agent on any copy of the Escrow Materials made by VAR.
(c) VAR agrees to take all necessary steps to prevent unauthorized
disclosure of the Escrow Materials, including but not limited to the following:
(1) The building in which VAR uses the Escrow Materials shall have
access restricted to VAR employees and third party agents twenty-four (24) hours
a day;
(2) The Escrow Materials shall be used only in a location within
such building to which access is further restricted to persons authorized to use
the Escrow Materials;
3
<PAGE>
(3) VAR shall prevent telephone, fax, e-mail or other remote
access to the Escrow Materials in such location from other locations;
(4) The Escrow Materials shall be installed only on a single
computer system which is password protected and not connected to any other
computer or printer; further, all Escrow Materials files will be password
protected.
(d) VAR shall be liable to Nuance for all direct and indirect,
consequential, special and incidental damages resulting from any unauthorized
use or disclosure of the Escrow Materials. To the extent, if any, this Paragraph
9(d) is inconsistent or conflicts with any provision of the VAR Agreement, this
Paragraph 9(d) shall be controlling.
(e) The obligations of this PARAGRAPH 9 ("License Grant for Use of
Escrow Materials; Confidentiality; Liability for Disclosure") hereof shall
survive any termination or expiration of this Agreement.
10. DELIVERY SITE. Delivery of the Escrow Materials to VAR, or return of
-------------
the Escrow Materials to Nuance, shall be at the offices of the Escrow Agent at
______________, unless special delivery instructions concerning delivery
elsewhere are furnished to the Escrow Agent by the party authorized hereunder to
receive the Escrow Materials.
11. OBLIGATIONS OF ESCROW AGENT. The Escrow Agent shall be responsible
---------------------------
only for the acceptance, storage, and delivery of the Escrow Materials in
accordance with the terms of this Escrow Agreement and for the exercise of due
diligence in accordance with the high level of care accorded fiduciary
obligations; shall have no obligation or responsibility to verify or determine
that the Escrow Materials deposited with Escrow Agent by Nuance do, in fact,
consist of those items which Nuance is obligated to deliver under this Escrow
Agreement; shall bear no responsibility whatsoever to determine the existence,
relevance, completeness, currency, or accuracy of the Escrow Materials; and
shall be entitled to act in good faith reliance upon any written instruction,
instrument, or signature believed in good faith to be genuine and to assume in
good faith that any person purporting to give any writing, notice, advice, or
written instruction in connection with, or relating to, this Escrow Agreement
has been duly authorized to do so.
If Escrow Agent is uncertain of its duties or rights hereunder, it will
refrain from taking any action other than to safely retain the Escrow Materials
until it is directed otherwise in writing by Nuance and VAR jointly or by final
order of an arbitrator or a court of competent jurisdiction. Except as expressly
provided in this Escrow Agreement, Escrow Agent agrees that it will not divulge
or disclose or otherwise make available to third parties whatsoever, or make any
use whatsoever, of the Escrow Materials, or any information deposited with it by
Nuance in connection with this Escrow Agreement, without the express prior
written consent of Nuance.
12. INDEMNITY. Nuance and VAR jointly and severally agree to defend and
---------
indemnify Escrow Agent and to hold Escrow Agent harmless from and against any
and all claims, actions and suits, whether groundless or otherwise, and from and
against any and all liabilities, losses, damages, costs, charges, penalties,
counsel fees, and any other expense of any other nature, including, without
limitation, settlement costs incurred by Escrow Agent on account of any good
faith act or omission of Escrow Agent, in respect of, or with regard to, this
Escrow Agreement except as to the obligations of Escrow Agent specified in
PARAGRAPHS 4 ("Storage of Materials; Inspection") and 11 ("Obligations of Escrow
Agent") hereof.
13. COMPENSATION. The Escrow Agent shall be compensated as set forth on
------------
Schedule 1 ("Payment Schedule") attached hereto. The payments set forth in
- ----------
Schedule 1 are for Escrow Agent's ordinary services as escrow
- ----------
4
<PAGE>
holder. In the event Escrow Agent is required to perform any additional or
extraordinary services as a result of being escrow holder, including
intervention in any litigation or proceeding, Escrow Agent shall receive, upon
prior written approval of the parties responsible for payment of Escrow Agent's
expenses, reasonable compensation for such services and be reimbursed for such
costs incurred, including reasonable attorneys' fees. All costs and expenses for
establishing and maintaining the escrow including but not limited to Escrow
Agent's compensation and expenses shall be borne by Nuance.
14. DISCHARGE OF ESCROW AGENT. Escrow Agent may resign and be discharged
-------------------------
from its duties or obligations hereunder by giving notice in writing of such
resignation to Nuance and VAR specifying a date when such resignation shall take
effect, which date shall be at least sixty (60) days after the date of receipt
of such notice. Prior to the effective date of such resignation, with the prior
written consent of VAR, which shall not be unreasonably withheld, Nuance shall
arrange for the services of a new escrow agent, and Nuance and VAR agree to
execute and deliver another escrow agreement with such new escrow agent having
substantially the same terms as this Escrow Agreement. Upon Nuance notifying
Escrow Agent of the name and address of the new escrow agent, Escrow Agent
agrees to forward the Escrow Materials to such new escrow agent provided that
Escrow Agent has received payment pursuant to PARAGRAPH 13 ("Compensation").
15. MODIFICATION. These escrow instructions are irrevocable except as they
------------
may be revoked or modified by written consent of VAR, Nuance and the Escrow
Agent, jointly.
16. GOVERNING LAW. This Escrow Agreement shall be construed and
-------------
interpreted in accordance with the laws of the State of California excluding the
application of principles of conflict of laws. Subject to the provisions of
SUBPARAGRAPH 8(C), the State and Federal Courts located in Santa Clara or San
Francisco County shall have sole and exclusive jurisdiction over any dispute
arising hereunder.
17. NOTICE. All notices required by this Escrow Agreement shall be
------
sufficiently given:
(a) upon delivery, if given in person with a signed receipt;
(b) if given by facsimile transmission, upon acknowledgment of receipt
of electronic transmission; or
(c) if given by registered or certified mail (air mail if
international), postage prepaid, return receipt requested, five days after
deposit in the mail in accordance with the provisions hereof. All such notices
shall be addressed as follows:
IF TO VAR:
IF TO NUANCE:
President
Nuance Communications
1380 Willow Road
Menlo Park, CA 94025
IF TO ESCROW AGENT:
or to such other person or address as the parties may from time to time
designate in a writing delivered pursuant to this PARAGRAPH 17 ("Notice").
18. SEVERABILITY. In the event that any provision of this Escrow Agreement
------------
shall be unenforceable or invalid under any applicable law or be so held by
applicable court or arbitration decision, such unenforceability or invalidity
shall not render this Agreement unenforceable or
5
<PAGE>
invalid as a whole, and, in such event, such provision shall be changed and
interpreted so as to best accomplish the objectives of such unenforceable or
invalid provision within the limits of applicable law or applicable court
decisions.
19. WAIVER. The failure of any party hereto to require performance by
------
another party of any provision hereof shall not affect the full right to require
such performance at any time thereafter, nor shall the waiver by any party of a
breach of any provision hereof by any other party be taken or held to be a
waiver of the provision itself.
20. COUNTERPARTS. This Escrow Agreement may be executed in counterparts,
------------
each of which shall be deemed an original, but all of which shall constitute one
and the same instrument.
21. SURVIVAL. The following provisions shall survive any termination of
--------
this Agreement or partial termination of this Agreement with respect to a
portion of the Escrow Materials delivered pursuant to PARAGRAPH 8 ("Delivery of
Escrow Materials to VAR"): PARAGRAPHS 9 ("License Grant for Use of Escrow
Materials; Confidentiality; Liability for Disclosure"), 12 ("Indemnity"), 16
("Governing Law"), 17 ("Notice"), 18 ("Severability"), 19 ("Waiver"), 20
("Counterparts") and 22 ("Entire Agreement").
22. ENTIRE AGREEMENT. This Escrow Agreement, together with any schedule
----------------
hereto, and the VAR Agreement, constitute the entire agreement between the
parties with respect to the subject matter hereof. This Escrow Agreement
supersedes oral, written or other communications concerning the subject matter
of this Escrow Agreement, and shall not be altered, amended, or modified except
in a writing signed by the duly authorized officers of each party hereto.
6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Escrow Agreement to
be executed as of the date and year hereinafter written.
NUANCE COMMUNICATIONS VAR:
By:_______________________________ By:________________________________
Title:____________________________ Title:_____________________________
Date:_____________________________ Date:______________________________
ESCROW AGENT:
[NAME]
By:________________________________________
Title:_____________________________________
Date:______________________________________
7
<PAGE>
Exhibit 10.11
LOAN AND SECURITY AGREEMENT
NUANCE COMMUNICATIONS
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
1 ACCOUNTING AND OTHER TERMS 4
- - --------------------------
2 LOAN AND TERMS OF PAYMENT 4
- - -------------------------
2.1 Credit Extensions 4
2.2 Interest Rate, Payments 5
2.3 Fees 5
3 CONDITIONS OF LOANS 5
- - -------------------
3.1 Conditions Precedent to Initial Credit Extension 5
3.2 Conditions Precedent to all Credit Extensions 5
4 CREATION OF SECURITY INTEREST 6
- - -----------------------------
4.1 Grant of Security Interest 6
5 REPRESENTATIONS AND WARRANTIES 6
- - ------------------------------
5.1 Due Organization and Authorization 6
5.2 Collateral 6
5.3 Litigation 6
5.4 No Material Adverse Change in Financial Statements 7
5.5 Solvency 7
5.6 Regulatory Compliance 7
5.7 Subsidiaries 7
5.8 Full Disclosure 7
6 AFFIRMATIVE COVENANTS 7
- - ---------------------
6.1 Government Compliance 7
6.2 Financial Statements, Reports, Certificates 8
6.3 Inventory; Returns 8
6.4 Taxes 8
6.5 Insurance 8
6.6 Primary Accounts 9
6.7 Financial Covenants 9
6.8 Further Assurances 9
7 NEGATIVE COVENANTS 9
- - ------------------
7.1 Dispositions 9
7.2 Changes in Business, Ownership, Management or Business Locations 9
7.3 Mergers or Acquisitions 9
7.4 Indebtedness 9
7.5 Encumbrance 10
7.6 Distributions; Investments 10
7.7 Transactions with Affiliates 10
7.8 Subordinated Debt 10
7.9 Compliance 10
8 EVENTS OF DEFAULT 10
- - -----------------
8.1 Payment Default 10
8.2 Covenant Default 10
8.3 Material Adverse Change 11
8.4 Attachment 11
8.5 Insolvency 11
</TABLE>
2
<PAGE>
<TABLE>
<S> <C>
8.6 Other Agreements 11
8.7 Judgments 11
8.8 Misrepresentations 11
9 BANK'S RIGHTS AND REMEDIES 11
- - --------------------------
9.1 Rights and Remedies 11
9.2 Power of Attorney 12
9.3 Accounts Collection 12
9.4 Bank Expenses 12
9.5 Bank's Liability for Collateral 13
9.6 Remedies Cumulative 13
9.7 Demand Waiver 13
10 NOTICES 13
- -- -------
11 CHOICE OF LAW, VENUE AND JURY TRIAL WAIVER 13
- -- ------------------------------------------
12 GENERAL PROVISIONS 13
- -- ------------------
12.1 Successors and Assigns 13
12.2 Indemnification 14
12.3 Time of Essence 14
12.4 Severability of Provision 14
12.5 Amendments in Writing, Integration 14
12.6 Counterparts 14
12.7 Survival 14
12.8 Confidentiality 14
12.9 Attorneys' Fees, Costs and Expenses 15
13 DEFINITIONS 15
- -- -----------
13.1 Definitions 15
</TABLE>
3
<PAGE>
THIS LOAN AND SECURITY AGREEMENT dated June 23, 1999, between SILICON
VALLEY BANK ("Bank"), whose address is 3003 Tasman Drive, Santa Clara,
California 95054 and NUANCE COMMUNICATIONS ("Borrower"), whose address is 1380
Willow Road, Menlo Park, California 94025 provides the terms on which Bank will
lend to Borrower and Borrower will repay Bank. The parties agree as follows:
1. ACCOUNTING AND OTHER TERMS
--------------------------
Accounting terms not defined in this Agreement will be construed
following GAAP. Calculations and determinations must be made following GAAP. The
term "financial statements" includes the notes and schedules. The terms
"including" and "includes" always mean "including (or includes) without
limitation," in this or any Loan Document. This Agreement shall be construed to
impart upon Bank a duty to act reasonably at all times.
2 LOAN AND TERMS OF PAYMENT
-------------------------
2.1 CREDIT EXTENSIONS.
Borrower will pay Bank the unpaid principal amount of all Credit
Extensions and interest on the unpaid principal amount of the Credit Extensions.
2.1.1 EQUIPMENT ADVANCES.
(a) Through June 23, 2000 (the "Equipment Availability End Date"),
Bank will make advances ("Equipment Advance" and, collectively, "Equipment
Advances") not exceeding the Committed Equipment Line. The Equipment Advances
may only be used to finance Equipment purchased on or after 90 days before the
respective Equipment Advance and may not exceed 100% of the equipment invoice.
Software licenses, leasehold improvements and other soft costs (consisting of
taxes, shipping, warranty charges, freight discounts and installation expense)
may constitute up to 50% of the aggregate Equipment Advances. Each Equipment
Advance must be for a minimum of $25,000. In addition, the initial Equipment
Advance may be used to purchase Equipment purchased on or after January 1, 1999.
(b) Interest accrues from the date of each Equipment Advance at the
rate in Section 2.2(a) and is payable monthly until the Equipment Availability
End Date occurs.
(c) Equipment Advances outstanding on December 23, 1999 are payable
in 36 equal monthly installments of principal, plus accrued interest, beginning
on January 23, 2000 and ending on December 23, 2002.
(d) Equipment Advances made after December 23, 1999 and outstanding
on the Equipment Availability End Date are payable in 36 equal monthly
installments of principal, plus accrued interest, beginning on the 23rd of each
month following the Equipment Availability End Date and ending on June 23, 2003
(the "Equipment Maturity Date"). Equipment Advances when repaid may not be
reborrowed.
(e) To obtain an Equipment Advance, Borrower must notify Bank (the
notice is irrevocable) by facsimile no later than 3:00 p.m. Pacific time 1
Business Day before the day on which the Equipment Advance is to be made. The
notice in the form of Exhibit B (Payment/Advance Form) must be signed by a
Responsible Officer or designee and include a copy of the invoice for the
Equipment being financed.
2.1.2 CASH MANAGEMENT FACILITY.
Borrower may use up to $250,000 for Bank's Cash Management Services,
which may include merchant services, direct deposit of payroll, business credit
card, and check cashing
4
<PAGE>
services identified in the Cash Management Services Agreement (the "Cash
Management Services"). The Cash Management Facility terminates on the Cash
Management Maturity Date, when all outstanding amounts under the Cash Management
Facility are immediately payable.
2.2 INTEREST RATE, PAYMENTS.
(a) Interest Rate. Equipment Advances accrue interest on the outstanding
principal balance at a per annum rate of 0.75 percentage points above the Prime
Rate. After the occurrence and during the continuance of an Event of Default,
Obligations accrue interest at 5 percent above the rate effective immediately
before the Event of Default. The interest rate increases or decreases when the
Prime Rate changes. Interest is computed on a 360 day year for the actual number
of days elapsed.
(b) Payments. Interest due on the Equipment Advances is payable on the 1st
of each month. Bank may debit any of Borrower's deposit accounts including
Account Number ____________________________ for principal and interest payments
or any amounts Borrower owes Bank under this Agreement. Bank will notify
Borrower when it debits Borrower's accounts. These debits are not a set-off.
Payments (OTHER THAN A WIRE TRANSFER OR IMMEDIATELY AVAILABLE FUNDS) received
after 12:00 noon Pacific time are considered received at the opening of business
on the next Business Day. When a payment is due on a day that is not a Business
Day, the payment is due the next Business Day and additional fees or interest
accrue.
2.3 FEES.
Borrower will pay:
(a) Facility Fee. A fully earned, non-refundable Facility Fee of $5,000
due on the Closing Date; and
(b) Bank Expenses. All Bank Expenses (including reasonable attorneys' fees
and expenses) incurred through and after the date of this Agreement, when due.
3 CONDITIONS OF LOANS
-------------------
3.1 CONDITIONS PRECEDENT TO INITIAL CREDIT EXTENSION.
Bank's obligation to make the initial Credit Extension is subject to the
condition precedent that it receive the agreements, documents and fees it
requires.
3.2 CONDITIONS PRECEDENT TO ALL CREDIT EXTENSIONS.
Bank's obligations to make each Advance, including the initial Advance, is
subject to the following:
(a) timely receipt of any Payment/Advance Form; and
(b) the representations and warranties in Section 5 must be materially
true on the date of the Payment/Advance Form and on the effective date of each
Credit Extension (except to the extent they relate specifically to an earlier
date, in which case such representations and warranties shall continue to have
been true and accurate as of such date) and no Event of Default may have
occurred and be continuing, or result from the Credit Extension. Each Credit
Extension is Borrower's representation and warranty on that date that the
representations and warranties of Section 5 remain true in all material
respects.
5
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4 CREATION OF SECURITY INTEREST
-----------------------------
4.1 GRANT OF SECURITY INTEREST.
Borrower grants Bank a continuing security interest in all presently
existing and later acquired Collateral to secure all Obligations and performance
of each of Borrower's duties under the Loan Documents. Except for Permitted
Liens, any security interest will be a first priority security interest in the
Collateral. Bank may place a "hold" on any deposit account pledged as
Collateral. Notwithstanding the foregoing, the security interest granted herein
does not extend to and the term "Collateral" does not include any license or
contract rights to the extent (i) the granting of a security interest in it
would be contrary to applicable law, or (ii) that such rights are nonassignable
by their terms (but only to the extent such prohibition is enforceable under
applicable law, including, without limitation, Section 9318(4) of the Code)
without the consent of the licensor or other party (but only to the extent such
consent has not been obtained). Except as disclosed on the Schedule, Borrower is
not a party to, nor is bound by, any license or other agreement that prohibits
or otherwise restricts Borrower from granting a security interest in Borrower's
interest in such license or agreement or any other property. Without prior
notice to Bank, Borrower shall not enter into, or become bound by, any such
license or agreement which is reasonably likely to have a material impact on
Borrower's business or financial condition. Borrower shall take such steps as
Bank reasonably requests to obtain the consent of, or waiver by, any person
whose consent or waiver is necessary for such licenses or contract rights to be
deemed "Collateral" and for Bank to have a security interest in it that might
otherwise be restricted or prohibited by law or by the terms of any such license
or agreement, whether now existing or entered into in the future. If the
Agreement is terminated, Bank's lien and security interest in the Collateral
will continue until Borrower fully satisfies its Obligations.
5 REPRESENTATIONS AND WARRANTIES
------------------------------
Borrower represents and warrants as follows:
5.1 DUE ORGANIZATION AND AUTHORIZATION.
Borrower and each Subsidiary is duly existing and in good standing in its
state of formation and qualified and licensed to do business in, and in good
standing in, any state in which the conduct of its business or its ownership of
property requires that it be qualified except for states as to which any failure
so to qualify would not cause a Material Adverse Change.
The execution, delivery and performance of the Loan Documents have been
duly authorized, and do not conflict with Borrower's formation documents, nor
constitute an event of default under any material agreement by which Borrower is
bound. Borrower is not in default under any agreement to which or by which it is
bound in which the default would reasonably be expected to cause a Material
Adverse Change.
5.2 COLLATERAL.
Borrower has good title to the Collateral, free of Liens except Permitted
Liens. All Inventory is in all material respects of good and marketable quality,
free from material defects.
5.3 LITIGATION.
Except as shown in the Schedule, there are no actions or proceedings
pending or, to Borrower's knowledge, threatened by or against Borrower or any
Subsidiary in which a likely adverse decision would reasonably be expected to
cause a Material Adverse Change.
6
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5.4 NO MATERIAL ADVERSE CHANGE IN FINANCIAL STATEMENTS.
All consolidated financial statements for Borrower, and any Subsidiary,
delivered to Bank fairly present in all material respects Borrower's
consolidated financial condition and Borrower's consolidated results of
operations. There has not been any material deterioration in Borrower's
consolidated financial condition since the date of the most recent financial
statements submitted to Bank.
5.5 SOLVENCY.
Borrower is able to pay its debts (including trade debts) as they mature.
5.6 REGULATORY COMPLIANCE.
Borrower is not an "investment company" or a company "controlled" by an
"investment company" under the Investment Company Act. Borrower is not engaged
as one of its important activities in extending credit for margin stock (under
Regulations G, T and U of the Federal Reserve Board of Governors). Borrower has
complied in all material respects with the Federal Fair Labor Standards Act.
Borrower has not violated any laws, ordinances or rules, the violation of which
could would reasonably be expected to cause a Material Adverse Change. None of
Borrower's or any Subsidiary's properties or assets has been used by Borrower or
any Subsidiary or, to the best of Borrower's knowledge, by previous Persons, in
disposing, producing, storing, treating, or transporting any hazardous substance
other than legally. Borrower and each Subsidiary has timely filed all required
tax returns and paid, or made adequate provision to pay, all taxes, except those
being contested in good faith with adequate reserves under GAAP. Borrower and
each Subsidiary has obtained all consents, approvals and authorizations of, made
all declarations or filings with, and given all notices to, all government
authorities that are necessary to continue its business as currently conducted
except where the failure to obtain such consent, approval or authorization to
make such declaration or filing or to give any such notice would not reasonably
be expected to cause a Material Adverse Change.
5.7 SUBSIDIARIES.
Borrower does not own any stock, partnership interest or other equity
securities except for Permitted Investments.
5.8 FULL DISCLOSURE.
No representation, warranty or other statement of Borrower in any
certificate or written statement given to Bank taken together with all such
certificates and written statements given to Bank contains any untrue statement
of a material fact or omits to state a material fact necessary to make the
statements contained in the certificates or statements not misleading (it being
recognized by Bank that the projections and forecasts provided by Borrower in
good faith and based upon reasonable assumptions are not to be viewed as facts
and that actual results during the period or periods covered by any such
projections and forecasts may differ from the projected or forecasted results).
6 AFFIRMATIVE COVENANTS
---------------------
Borrower will do all of the following:
6.1 GOVERNMENT COMPLIANCE.
Borrower will maintain its and all Subsidiaries' legal existence and good
standing in its jurisdiction of formation and maintain qualification in each
jurisdiction in which the failure to so qualify would reasonably be expected to
cause a Material Adverse Change in Borrower's
7
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business or operations. Borrower will comply, and have each Subsidiary comply,
with all laws, ordinances and regulations to which it is subject, noncompliance
with which could have a material adverse effect on Borrower's business or
operations or cause a Material Adverse Change.
6.2 FINANCIAL STATEMENTS, REPORTS, CERTIFICATES.
(a) Borrower will deliver to Bank: (i) as soon as available, but no later
than 30 days after the last day of each month, a company prepared consolidated
balance sheet and income statement covering Borrower's consolidated operations
during the period, in a form and certified by a Responsible Officer acceptable
to Bank; (ii) as soon as available, but no later than 120 days after the last
day of Borrower's fiscal year, audited consolidated financial statements
prepared under GAAP, consistently applied, together with an opinion which is
unqualified or otherwise consented to by Bank on the financial statements from
an independent certified public accounting firm acceptable to Bank; (iii) a
prompt report of any legal actions pending or threatened against Borrower or any
Subsidiary that could result in damages or costs to Borrower or any Subsidiary
of $100,000 or more; and (iv) budgets, sales projections, operating plans or
other financial information Bank requests.
(b) Within 30 days after the last day of each month, Borrower will deliver
to Bank with the monthly financial statements a Compliance Certificate signed by
a Responsible Officer in the form of Exhibit C, together with accounts
receivable and accounts payable agings.
(c) At such times as an Event of Default has occurred and is continuing
Bank has the right to audit Borrower's Collateral at Borrower's expense.
6.3 INVENTORY; RETURNS.
Borrower will keep all Inventory in good and marketable condition, free
from material defects. Returns and allowances between Borrower and its account
debtors will follow Borrower's customary practices as they exist at execution of
this Agreement. Borrower must promptly notify Bank of all returns, recoveries,
disputes and claims, that involve more than $50,000.
6.4 TAXES.
Borrower will make, and cause each Subsidiary to make, timely payment of
all material federal, state, and local taxes or assessments and will deliver to
Bank, on demand, appropriate certificates attesting to the payment.
6.5 INSURANCE.
Borrower will keep its business and the Collateral insured for risks and in
amounts, as Bank requests. Insurance policies will be in a form, with companies,
and in amounts that are satisfactory to Bank. All property policies will have a
lender's loss payable endorsement showing Bank as an additional loss payee and
all liability policies will show the Bank as an additional insured and provide
that the insurer must give Bank at least 20 days notice before canceling its
policy. At Bank's request, Borrower will deliver certified copies of policies
and evidence of all premium payments. So long as no Event of Default has
occurred and is continuing, proceeds payable under any casualty policy will, at
Borrower's option, be payable to Borrower to replace the property subject to the
claim, provided that any such replacement property shall be deemed Collateral in
which Bank has been granted a first priority security interest. If an Event of
Default has occurred and is continuing, then, at Bank's option, all proceeds
payable under any such casualty policy shall be payable to Bank on account of
the Obligations.
8
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6.6 PRIMARY ACCOUNTS.
Borrower will maintain its primary depository and operating accounts with
Bank.
6.7 FINANCIAL COVENANTS.
Borrower will maintain as of the last day of each month:
(i) TANGIBLE NET WORTH. A Tangible Net Worth of at least
$2,000,000.
(ii) LIQUIDITY COVERAGE. A ratio of cash plus 50% of net
Accounts, divided by the aggregate outstanding Equipment Advances of not less
than 2.00 to 1.00.
6.8 FURTHER ASSURANCES.
Borrower will execute any further instruments and take further action
as Bank reasonably requests to perfect or continue Bank's security interest in
the Collateral or to effect the purposes of this Agreement.
7 NEGATIVE COVENANTS
------------------
Borrower will not do any of the following:
7.1 DISPOSITIONS.
Convey, sell, lease, transfer or otherwise dispose of (collectively
"Transfer"), or permit any of its Subsidiaries to Transfer, all or any part of
its business or property, other than Transfers (i) of Inventory in the ordinary
course of business; (ii) of non-exclusive licenses and similar arrangements for
the use of the property of Borrower or its Subsidiaries in the ordinary course
of business; or (iii) of worn-out or obsolete Equipment.
7.2 CHANGES IN BUSINESS, OWNERSHIP, MANAGEMENT OR BUSINESS LOCATIONS.
Engage in or permit any of its Subsidiaries to engage in any business
other than the businesses currently engaged in by Borrower or have a material
change in its ownership of greater than 25% (other than the sale by Borrower of
equity securities of Borrower. Borrower will not, without at least 30 days prior
written notice, relocate its chief executive office or add any new offices or
business locations.
7.3 MERGERS OR ACQUISITIONS.
Merge or consolidate, or permit any of its Subsidiaries to merge or
consolidate, with any other Person, or acquire, or permit any of its
Subsidiaries to acquire, all or substantially all of the capital stock or
property of another Person, except where (i) no Event of Default has occurred
and is continuing or would result from such action during the term of this
Agreement or result in a decrease of more than 25% of Tangible Net Worth; or
(ii) the merger or consolidation is (a) a Subsidiary into another Subsidiary or
(b) a Subsidiary into Borrower.
7.4 INDEBTEDNESS.
Create, incur, assume, or be liable for any Indebtedness, or permit any
Subsidiary to do so, other than Permitted Indebtedness.
9
<PAGE>
7.5 ENCUMBRANCE.
Create, incur, or allow any Lien on any of its property, or assign or
convey any right to receive income, including the sale of any Accounts, or
permit any of its Subsidiaries to do so, except for Permitted Liens, or permit
any Collateral not to be subject to the first priority security interest granted
herein, subject only to Permitted Liens.
7.6 DISTRIBUTIONS; INVESTMENTS.
Directly or indirectly acquire or own any Person, or make any Investment in
any Person, other than Permitted Investments, or permit any of its Subsidiaries
to do so. Pay any dividends or make any distribution or payment or redeem,
retire or purchase any capital stock, except for repurchases of stock from
former employees or directors of Borrower under the terms of applicable
repurchase agreements in an aggregate amount not to exceed $50,000 in the
aggregate in any fiscal year, provided that no Event of Default has occurred, is
continuing or would exist after giving effect to the repurchases.
7.7 TRANSACTIONS WITH AFFILIATES.
Directly or indirectly enter or permit any material transaction with any
Affiliate (other than a Subsidiary) except transactions that are in the ordinary
course of Borrower's business, on terms less favorable to Borrower than would be
obtained in an arm's length transaction with a non-affiliated Person.
7.8 SUBORDINATED DEBT.
Make or permit any payment on any Subordinated Debt, except under the terms
of the Subordinated Debt, or amend any provision in any document relating to the
Subordinated Debt without Bank's prior written consent.
7.9 COMPLIANCE.
Undertake as one of its important activities extending credit to purchase
or carry margin stock, or use the proceeds of any Credit Extension for that
purpose; fail to meet the minimum funding requirements of ERISA, permit a
Reportable Event or Prohibited Transaction, as defined in ERISA, to occur; fail
to comply in any material respect with the Federal Fair Labor Standards Act or
violate any other law or regulation, if the violation could be reasonably
expected to have a material adverse effect on Borrower's business or operations
or cause a Material Adverse Change, or permit any of its Subsidiaries to do so.
8 EVENTS OF DEFAULT
-----------------
Any one of the following is an Event of Default:
8.1 PAYMENT DEFAULT.
If Borrower fails to pay any of the Obligations within 3 days after their
due date. During the additional period the failure to cure the default is not an
Event of Default (but no Credit Extensions will be made during the cure period);
8.2 COVENANT DEFAULT.
If Borrower does not perform any obligation in Section 6 or violates any
covenant in Section 7 or does not perform or observe any other material term,
condition or covenant in this Agreement, any Loan Documents, or in any agreement
between Borrower and Bank and as to any default under a term, condition or
covenant that can be cured, has not cured the default
10
<PAGE>
within 10 days after it occurs, or if the default cannot be cured within 10 days
or cannot be cured after Borrower's attempts within 10 day period, and the
default may be cured within a reasonable time, then Borrower has an additional
period (of not more than 30 days) to attempt to cure the default. During the
additional time, the failure to cure the default is not an Event of Default (but
no Credit Extensions will be made during the cure period);
8.3 MATERIAL ADVERSE CHANGE.
(i) If there occurs a material impairment in the perfection or priority of
the Bank's security interest in the Collateral or in the value of such
Collateral which is not covered by adequate insurance or (ii) if the Bank
determines, based upon information available to it and in its reasonable
judgment, that there is a reasonable likelihood that Borrower will fail to
comply with one or more of the financial covenants in Section 6 during the next
succeeding financial reporting period.
8.4 ATTACHMENT.
If any material portion of Borrower's assets is attached, seized, levied
on, or comes into possession of a trustee or receiver and the attachment,
seizure or levy is not removed in 10 days, or if Borrower is enjoined,
restrained, or prevented by court order from conducting a material part of its
business or if a judgment or other claim becomes a Lien on a material portion of
Borrower's assets, or if a notice of lien, levy, or assessment is filed against
any of Borrower's assets by any government agency and not paid within 10 days
after Borrower receives notice. These are not Events of Default if stayed or if
a bond is posted pending contest by Borrower (but no Credit Extensions will be
made during the cure period);
8.5 INSOLVENCY.
If Borrower becomes insolvent or if Borrower begins an Insolvency
Proceeding or an Insolvency Proceeding is begun against Borrower and not
dismissed or stayed within 30 days (but no Credit Extensions will be made before
any Insolvency Proceeding is dismissed);
8.6 OTHER AGREEMENTS.
If there is a default in any agreement between Borrower and a third party
that gives the third party the right to accelerate any Indebtedness exceeding
$50,000 or that could reasonably expected to cause a Material Adverse Change;
8.7 JUDGMENTS.
If a money judgment(s) in the aggregate of at least $100,000 not covered by
insurance is rendered against Borrower and is unsatisfied and unstayed for 30
days (but no Credit Extensions will be made before the judgment is stayed or
satisfied); or
8.8 MISREPRESENTATIONS.
If Borrower or any Person acting for Borrower makes any material
misrepresentation or material misstatement now or later in any warranty or
representation in this Agreement or in any writing delivered to Bank or to
induce Bank to enter this Agreement or any Loan Document.
9 BANK'S RIGHTS AND REMEDIES
--------------------------
9.1 RIGHTS AND REMEDIES.
When an Event of Default occurs and continues Bank may, without notice or
demand, do any or all of the following:
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(a) Declare all Obligations immediately due and payable (but if an Event
of Default described in Section 8.5 occurs all Obligations are immediately due
and payable without any action by Bank);
(b) Stop advancing money or extending credit for Borrower's benefit under
this Agreement or under any other agreement between Borrower and Bank;
(c) Settle or adjust disputes and claims directly with account debtors for
amounts, on terms and in any order that Bank considers advisable;
(d) Make any payments and do any acts it considers necessary or reasonable
to protect its security interest in the Collateral. Borrower will assemble the
Collateral if Bank requires and make it available as Bank designates. Bank may
enter premises where the Collateral is located, take and maintain possession of
any part of the Collateral, and pay, purchase, contest, or compromise any Lien
which appears to be prior or superior to its security interest and pay all
expenses incurred. Borrower grants Bank a license to enter and occupy any of its
premises, without charge, to exercise any of Bank's rights or remedies;
(e) Apply to the Obligations any (i) balances and deposits of Borrower it
holds, or (ii) any amount held by Bank owing to or for the credit or the account
of Borrower;
(f) Ship, reclaim, recover, store, finish, maintain, repair, prepare for
sale, advertise for sale, and sell the Collateral; and
(g) Dispose of the Collateral according to the Code.
9.2 POWER OF ATTORNEY.
Effective only when an Event of Default occurs and continues, Borrower
irrevocably appoints Bank as its lawful attorney to: (i) endorse Borrower's name
on any checks or other forms of payment or security; (ii) sign Borrower's name
on any invoice or bill of landing for any Account or drafts against account
debtors, (iii) make, settle, and adjust all claims under Borrower's insurance
policies; (iv) settle and adjust disputes and claims about the Accounts directly
with account debtors, for amounts and on terms Bank determines reasonable; and
(v) transfer the Collateral into the name of Bank or a third party as the Code
permits. Bank may exercise the power of attorney to sign Borrower's name on any
documents necessary to perfect or continue the perfection of any security
interest regardless of whether an Event of Default has occurred. Bank's
appointment as Borrower's attorney in fact, and all of Bank's rights and powers,
coupled with an interest, are irrevocable until all Obligations have been fully
repaid and performed and Bank's obligation to provide Credit Extensions
terminates.
9.3 ACCOUNTS COLLECTION.
When an Event of Default occurs and continues, Bank may notify any Person
owing Borrower money of Bank's security interest in the funds and verify the
amount of the Account. Borrower must collect all payments in trust for Bank and,
if requested by Bank, immediately deliver the payments to Bank in the form
received from the account debtor, with proper endorsements for deposit.
9.4 BANK EXPENSES.
If Borrower fails to pay any amount or furnish any required proof of
payment to third persons Bank may make all or part of the payment or obtain
insurance policies required in Section 6.5, and take any action under the
policies Bank reasonably deems prudent. Any reasonable amounts paid by Bank are
Bank Expenses and immediately due and payable, bearing
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<PAGE>
interest at the then applicable rate and secured by the Collateral. No payments
by Bank are deemed an agreement to make similar payments in the future or Bank's
waiver of any Event of Default.
9.5 BANK'S LIABILITY FOR COLLATERAL.
If Bank complies with reasonable banking practices it is not liable for:
(a) the safekeeping of the Collateral; (b) any loss or damage to the Collateral;
(c) any diminution in the value of the Collateral; or (d) any act or default of
any carrier, warehouseman, bailee, or other person. Borrower bears all risk of
loss, damage or destruction of the Collateral.
9.6 REMEDIES CUMULATIVE.
Bank's rights and remedies under this Agreement, the Loan Documents, and
all other agreements are cumulative. Bank has all rights and remedies provided
under the Code, by law, or in equity. Bank's exercise of one right or remedy is
not an election, and Bank's waiver of any Event of Default is not a continuing
waiver. Bank's delay is not a waiver, election, or acquiescence. No waiver is
effective unless signed by Bank and then is only effective for the specific
instance and purpose for which it was given.
9.7 DEMAND WAIVER.
Borrower waives demand, notice of default or dishonor, notice of payment
and nonpayment, notice of any default, nonpayment at maturity, release,
compromise, settlement, extension, or renewal of accounts, documents,
instruments, chattel paper, and guarantees held by Bank on which Borrower is
liable.
10 NOTICES
-------
All notices or demands by any party about this Agreement or any other
related agreement must be in writing and be personally delivered or sent by an
overnight delivery service, by certified mail, postage prepaid, return receipt
requested, or by telefacsimile to the addresses set forth at the beginning of
this Agreement. A party may change its notice address by giving the other party
written notice.
11 CHOICE OF LAW, VENUE AND JURY TRIAL WAIVER
------------------------------------------
California law governs the Loan Documents without regard to principles of
conflicts of law. Borrower and Bank each submit to the exclusive jurisdiction of
the State and Federal courts in Santa Clara County, California.
BORROWER AND BANK EACH WAIVE THEIR RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE
OF ACTION ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY CONTEMPLATED
TRANSACTION, INCLUDING CONTRACT, TORT, BREACH OF DUTY AND ALL OTHER CLAIMS. THIS
WAIVER IS A MATERIAL INDUCEMENT FOR BOTH PARTIES TO ENTER INTO THIS AGREEMENT.
EACH PARTY HAS REVIEWED THIS WAIVER WITH ITS COUNSEL.
12 GENERAL PROVISIONS
------------------
12.1 SUCCESSORS AND ASSIGNS.
This Agreement binds and is for the benefit of the successors and permitted
assigns of each party. Borrower may not assign this Agreement or any rights
under it without Bank's prior written consent which may be granted or withheld
in Bank's discretion. Bank has the right,
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without the consent of or notice to Borrower, to sell, transfer, negotiate, or
grant participation in all or any part of, or any interest in, Bank's
obligations, rights and benefits under this Agreement.
12.2 INDEMNIFICATION.
Borrower will indemnify, defend and hold harmless Bank and its officers,
employees, and agents against: (a) all obligations, demands, claims, and
liabilities asserted by any other party in connection with the transactions
contemplated by the Loan Documents; and (b) all losses or Bank Expenses
incurred, or paid by Bank from, following, or consequential to transactions
between Bank and Borrower (including reasonable attorneys fees and expenses),
except for losses caused by Bank's gross negligence or willful misconduct.
12.3 TIME OF ESSENCE.
Time is of the essence for the performance of all obligations in this
Agreement.
12.4 SEVERABILITY OF PROVISION.
Each provision of this Agreement is severable from every other provision in
determining the enforceability of any provision.
12.5 AMENDMENTS IN WRITING, INTEGRATION.
All amendments to this Agreement must be in writing and signed by Borrower
and Bank. This Agreement represents the entire agreement about this subject
matter, and supersedes prior negotiations or agreements. All prior agreements,
understandings, representations, warranties, and negotiations between the
parties about the subject matter of this Agreement merge into this Agreement and
the Loan Documents.
12.6 COUNTERPARTS.
This Agreement may be executed in any number of counterparts and by
different parties on separate counterparts, each of which, when executed and
delivered, are an original, and all taken together, constitute one Agreement.
12.7 SURVIVAL.
All covenants, representations and warranties made in this Agreement
continue in full force while any Obligations remain outstanding. The obligations
of Borrower in Section 12.2 to indemnify Bank will survive until all statutes of
limitations for actions that may be brought against Bank have run.
12.8 CONFIDENTIALITY.
In handling any confidential information, Bank will exercise the same
degree of care that it exercises for its own proprietary information, but
disclosure of information may be made (i) to Bank's subsidiaries or affiliates
in connection with their present or prospective business relations with
Borrower, (ii) to prospective transferees or purchasers of any interest in the
loans, (iii) as required by law, regulation, subpoena, or other order, (iv) as
required in connection with Bank's examination or audit and (v) as Bank
considers appropriate exercising remedies under this Agreement. Confidential
information does not include information that either: (a) is in the public
domain or in Bank's possession when disclosed to Bank, or becomes part of the
public domain after disclosure to Bank; or (b) is disclosed to Bank by a third
party, if Bank does not know that the third party is prohibited from disclosing
the information.
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12.9 ATTORNEYS' FEES, COSTS AND EXPENSES.
In any action or proceeding between Borrower and Bank arising out of
the Loan Documents, the prevailing party will be entitled to recover its
reasonable attorneys' fees and other costs and expenses incurred, in addition to
any other relief to which it may be entitled.
13 DEFINITIONS
-----------
13.1 DEFINITIONS.
In this Agreement:
"ACCOUNTS" are all existing and later arising accounts, contract
rights, and other obligations owed Borrower in connection with its sale or lease
of goods (including licensing software and other technology) or provision of
services, all credit insurance, guaranties, other security and all merchandise
returned or reclaimed by Borrower and Borrower's Books relating to any of the
foregoing.
"AFFILIATE" of a Person is a Person that owns or controls directly or
indirectly the Person, any Person that controls or is controlled by or is under
common control with the Person, and each of that Person's senior executive
officers, directors, partners and, for any Person that is a limited liability
company, that Person's managers and members.
"BANK EXPENSES" are all reasonable audit fees and expenses and
reasonable costs and expenses (including reasonable attorneys' fees and
expenses) for preparing, negotiating, administering, defending and enforcing the
Loan Documents (including appeals or Insolvency Proceedings).
"BORROWER'S BOOKS" are all Borrower's books and records including
ledgers, records regarding Borrower's assets or liabilities, the Collateral,
business operations or financial condition and all computer programs or discs or
any equipment containing the information.
"BUSINESS DAY" is any day that is not a Saturday, Sunday or a day on
which the Bank is closed.
"CASH MANAGEMENT FACILITY" is defined in Section 2.1.2.
"CASH MANAGEMENT MATURITY DATE" is March 31, 2000.
"CLOSING DATE" is the date of this Agreement.
"CODE" is the California Uniform Commercial Code.
"COLLATERAL" is the property described on Exhibit A.
---------
"COMMITTED EQUIPMENT LINE" is a Credit Extension of up to $2,000,000.
"CONTINGENT OBLIGATION" is, for any Person, any direct or indirect
liability, contingent or not, of that Person for (i) any indebtedness, lease,
dividend, letter of credit or other obligation of another such as an obligation
directly or indirectly guaranteed, endorsed, co-made, discounted or sold with
recourse by that Person, or for which that Person is directly or indirectly
liable; (ii) any obligations for undrawn letters of credit for the account of
that Person; and (iii) all obligations from any interest rate, currency or
commodity swap agreement, interest rate cap or collar agreement, or other
agreement or arrangement designated to protect a Person against fluctuation in
interest rates, currency exchange rates or commodity prices; but "Contingent
Obligation" does not include endorsements in the ordinary course of business.
The amount of a Contingent Obligation
15
<PAGE>
is the stated or determined amount of the primary obligation for which the
Contingent Obligation is made or, if not determinable, the maximum reasonably
anticipated liability for it determined by the Person in good faith; but the
amount may not exceed the maximum of the obligations under the guarantee or
other support arrangement.
"CREDIT EXTENSION" is each Equipment Advance or any other extension of
credit by Bank for Borrower's benefit.
"EQUIPMENT" is all present and future machinery, equipment, tenant
improvements, furniture, fixtures, vehicles, tools, parts and attachments in
which Borrower has any interest.
"EQUIPMENT ADVANCE" is defined in Section 2.1.1.
"EQUIPMENT AVAILABILITY END DATE" is defined in Section 2.1.1.
"EQUIPMENT MATURITY DATE" is defined in Section 2.1.1.
"ERISA" is the Employment Retirement Income Security Act of 1974, and
its regulations.
"GAAP" is generally accepted accounting principles.
"INDEBTEDNESS" is (a) indebtedness for borrowed money or the deferred
price of property or services (other than trade debt incurred in the ordinary
course of business), such as reimbursement and other obligations for surety
bonds and letters of credit, (b) obligations evidenced by notes, bonds,
debentures or similar instruments, (c) capital lease obligations and (d)
Contingent Obligations.
"INSOLVENCY PROCEEDING" are proceedings by or against any Person under
the United States Bankruptcy Code, or any other bankruptcy or insolvency law,
including assignments for the benefit of creditors, compositions, extensions
generally with its creditors, or proceedings seeking reorganization,
arrangement, or other relief.
"INVENTORY" is present and future inventory in which Borrower has any
interest, including merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products intended for sale or
lease or to be furnished under a contract of service, of every kind and
description now or later owned by or in the custody or possession, actual or
constructive, of Borrower, including inventory temporarily out of its custody or
possession or in transit and including returns on any accounts or other proceeds
(including insurance proceeds) from the sale or disposition of any of the
foregoing and any documents of title.
"INVESTMENT" is any beneficial ownership of (including stock,
partnership interest or other securities) any Person, or any loan, advance or
capital contribution to any Person.
"LIEN" is a mortgage, lien, deed of trust, charge, pledge, security
interest or other encumbrance.
"LOAN DOCUMENTS" are, collectively, this Agreement, any note, or notes
or guaranties executed by Borrower or Guarantor, and any other present or future
agreement between Borrower and/or for the benefit of Bank in connection with
this Agreement, all as amended, extended or restated.
"MATERIAL ADVERSE CHANGE" is defined in Section 8.3.
"OBLIGATIONS" are debts, principal, interest, Bank Expenses and other
amounts Borrower owes Bank now or later, including letters of credit and
Exchange Contracts and including interest
16
<PAGE>
accruing after Insolvency Proceedings begin and debts, liabilities, or
obligations of Borrower assigned to Bank.
"PERMITTED INDEBTEDNESS" is:
(a) Borrower's indebtedness to Bank under this Agreement or the Loan
Documents;
(b) Indebtedness existing on the Closing Date and shown on the
Schedule;
(c) Subordinated Debt;
(d) Indebtedness to trade creditors and with respect to surety bonds
and similar obligations incurred in the ordinary course of business;
(e) Indebtedness secured by Permitted Liens;
(f) Indebtedness of Borrower to any Subsidiary and Contingent
Obligations of any Subsidiary with respect to obligations of Borrower (provided
that the primary obligations are not prohibited hereby), and Indebtedness of any
Subsidiary to any other Subsidiary and Contingent Obligations of any Subsidiary
with respect to obligations of any other Subsidiary (provided that the primary
obligations are not prohibited hereby);
(g) Other Indebtedness not otherwise permitted by Section 7.4 not
exceeding Fifty Thousand Dollars ($100,000) in the aggregate outstanding at any
time; and
(h) Extensions, refinancings, modifications, amendments and
restatements of any items of Permitted Indebtedness (a) through (f) above,
provided that the principal amount thereof is not increased or the terms thereof
are not modified to impose more burdensome terms upon Borrower or its
Subsidiary, as the case may be.
"PERMITTED INVESTMENTS" are:
(a) Investments shown on the Schedule and existing on the Closing
Date;
(b) (i) marketable direct obligations issued or unconditionally
guaranteed by the United States or its agency or any State maturing within 1
year from its acquisition, (ii) commercial paper maturing no more than 1 year
after its creation and having the highest rating from either Standard & Poor's
Corporation or Moody's Investors Service, Inc., (iii) Bank's certificates of
deposit issued maturing no more than 1 year after issue, and (iv) any
investments permitted by Borrower's investment policy, as amended from time to
time, provided that such investment policy (and any such amendment thereto) has
been approved by Bank;
(c) Investments consisting of the endorsement of negotiable
instruments for deposit or collection or similar transactions in the ordinary
course of Borrower;
(d) Investments accepted in connection with Transfers permitted by
Section 7.1;
(e) Investments of Subsidiaries in or to other Subsidiaries or
Borrower and Investments by Borrower in Subsidiaries not to exceed $100,000 in
the aggregate in any fiscal year;
(f) Investments consisting of (i) travel advances and employee
relocation loans and other employee loans and advances in the ordinary course of
business, (ii) loans to employees, officers or directors relating to the
purchase of equity securities of Borrower or its Subsidiaries pursuant to
employee stock purchase plans or agreements approved by Borrower's Board of
Directors; (iii) compensation of employees, officers and directors of Borrower
or its Subsidiaries so long as Borrower's board of directors determines that
such compensation is in the best
17
<PAGE>
interests of Borrower; and (iv) after loans to officers and employees approved
by Borrower's board of directors in an aggregate amount not in excess of
$100,000 outstanding at any time.
(g) Investments (including debt obligations) received in connection
with the bankruptcy or reorganization of customers or suppliers and in
settlement of delinquent obligations of, and other disputes with, customers or
suppliers arising in the ordinary course of business;
(h) Investments consisting of notes receivable of, or prepaid royalties
and other credit extensions, to customers and suppliers who are not Affiliates,
in the ordinary course of business; provided that this paragraph (h) shall not
apply to Investments of Borrower in any Subsidiary; and
(i) Joint ventures or strategic alliances in the ordinary course of
Borrower's business consisting of the non-exclusive licensing of technology, the
development of technology or the providing of technical support, provided that
any cash investments by Borrower do not exceed $100,000 in the aggregate in any
fiscal year.
"PERMITTED LIENS" are:
(a) Liens existing on the Closing Date and shown on the Schedule or
arising under this Agreement or other Loan Documents;
(b) Liens for taxes, fees, assessments or other government charges or
levies, either not delinquent or being contested in good faith and for which
Borrower maintains adequate reserves on its Books, if they have no priority over
any of Bank's security interests;
(c) Purchase money Liens (i) on Equipment acquired or held by Borrower
or its Subsidiaries incurred for financing the acquisition of the Equipment, or
(ii) existing on equipment when acquired, if the Lien is confined to the
property and improvements and the proceeds of the equipment;
(d) Leases or subleases and licenses or sublicenses granted in the
ordinary course of Borrower's business, if the leases, subleases, licenses and
sublicenses permit granting Bank a security interest;
(e) Liens incurred in the extension, renewal or refinancing of the
indebtedness secured by Liens described in (a) through (c), but any extension,
renewal or replacement Lien must be limited to the property encumbered by the
existing Lien and the principal amount of the indebtedness may not increase;
(f) Liens arising from judgments, decrees or attachments in
circumstances not constituting an Event of Default under Section 8.4 or 8.7;
(g) Liens in favor of other financial institutions arising in
connection with Borrower's deposit accounts held at such institutions, provided
that Bank has a perfected security interest in the amounts held in such deposit
accounts; and
(h) Other Liens not described above arising in the ordinary course of
business and not having or not reasonably likely to have a material adverse
effect on Borrower and its Subsidiaries taken as a whole.
"PERSON" is any individual, sole proprietorship, partnership, limited
liability company, joint venture, company, trust, unincorporated organization,
association, corporation, institution, public benefit corporation, firm, joint
stock company, estate, entity or government agency.
"PERSON" is any individual, sole proprietorship, partnership, limited
liability company, joint venture, company association, trust, unincorporated
organization, association, corporation,
18
<PAGE>
institution, public benefit corporation, firm, joint stock company, estate,
entity or government agency.
"PRIME RATE" is Bank's most recently announced "prime rate," even if it
is not Bank's lowest rate.
"RESPONSIBLE OFFICER" is each of the Chief Executive Officer, the
President, the Chief Financial Officer and the Controller of Borrower.
"SCHEDULE" is any attached schedule of exceptions.
"SUBORDINATED DEBT" is debt incurred by Borrower subordinated to
Borrower's debt to Bank (and identified as subordinated by Borrower and Bank).
"SUBSIDIARY" is for any Person, or any other business entity of which
more than 50% of the voting stock or other equity interests is owned or
controlled, directly or indirectly, by the Person or one or more Affiliates of
the Person.
"TANGIBLE NET WORTH" is, on any date, the consolidated total assets of
Borrower and its Subsidiaries minus,
-----
(i) any amounts attributable to (a) goodwill, (b) intangible items such as
unamortized debt discount and expense, Patents, trade and service marks and
names, Copyrights and research and development expenses except prepaid expenses,
and (c) reserves not already deducted from assets, and (ii) Total Liabilities.
"TOTAL LIABILITIES" is on any day, obligations that should, under GAAP,
be classified as liabilities on Borrower's consolidated balance sheet, including
all indebtedness, and current portion Subordinated Debt allowed to be paid, but
excluding all other Subordinated Debt.
BORROWER:
Nuance Communications
By: /s/ Signature Illegible
Title: VP & CFD
BANK:
SILICON VALLEY BANK
By: /s/ Signature Illegible
Title: Vice President
19
<PAGE>
EXHIBIT A
---------
The Collateral consists of all of Borrower's right, title and interest
in and to the following:
All goods and equipment now owned or hereafter acquired, including,
without limitation, all machinery, fixtures, vehicles (including motor vehicles
and trailers), and any interest in any of the foregoing, and all attachments,
accessories, accessions, replacements, substitutions, additions, and
improvements to any of the foregoing, wherever located;
All inventory, now owned or hereafter acquired, including, without
limitation, all merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products including such
inventory as is temporarily out of Borrower's custody or possession or in
transit and including any returns upon any accounts or other proceeds, including
insurance proceeds, resulting from the sale or disposition of any of the
foregoing and any documents of title representing any of the above;
All contract rights and general intangibles now owned or hereafter
acquired, including, without limitation, goodwill, trademarks, servicemarks,
trade styles, trade names, patents, patent applications, leases, license
agreements, franchise agreements, blueprints, drawings, purchase orders,
customer lists, route lists, infringements, claims, computer programs, computer
discs, computer tapes, literature, reports, catalogs, design rights, income tax
refunds, payments of insurance and rights to payment of any kind;
All now existing and hereafter arising accounts, contract rights,
royalties, license rights and all other forms of obligations owing to Borrower
arising out of the sale or lease of goods, the licensing of technology or the
rendering of services by Borrower, whether or not earned by performance, and any
and all credit insurance, guaranties, and other security therefor, as well as
all merchandise returned to or reclaimed by Borrower;
All documents, cash, deposit accounts, securities, securities
entitlements, securities accounts, investment property, financial assets,
letters of credit, certificates of deposit, instruments and chattel paper now
owned or hereafter acquired and Borrower's Books relating to the foregoing;
All copyright rights, copyright applications, copyright registrations
and like protections in each work of authorship and derivative work thereof,
whether published or unpublished, now owned or hereafter acquired; all trade
secret rights, including all rights to unpatented inventions, know-how,
operating manuals, license rights and agreements and confidential information,
now owned or hereafter acquired; all mask work or similar rights available for
the protection of semiconductor chips, now owned or hereafter acquired; all
claims for damages by way of any past, present and future infringement of any of
the foregoing; and
All Borrower's Books relating to the foregoing and any and all claims,
rights and interests in any of the above and all substitutions for, additions
and accessions to and proceeds thereof.
Notwithstanding the foregoing, the security interest granted herein
does not extend to and the term "Collateral" does not include any license or
contract rights to the extent (i) the granting of a security interest in it
would be contrary to applicable law, or (ii) that such rights are nonassignable
by their terms (but only to the extent such prohibition is enforceable under
applicable law, including, without limitation, Section 9318(4) of the Code)
without the consent of the licensor or other party (but only to the extent such
consent has not been obtained). Except as disclosed on the Schedule, Borrower is
not a party to, nor is bound by, any license or other agreement that prohibits
or otherwise restricts Borrower from granting a security interest in Borrower's
interest in such license or agreement or any other property. Without prior
notice to Bank, Borrower shall not enter into, or become bound by, any such
license or agreement which is reasonably likely to have a material impact on
Borrower's business or financial condition. Borrower shall take such steps as
Bank reasonably requests to obtain the consent of, or waiver by, any person
whose consent or waiver is necessary for such licenses or contract rights to be
deemed "Collateral" and for Bank to have a security interest in it that might
otherwise be restricted or prohibited by law or by the terms of any such license
or agreement, whether now existing or entered into in the future. If the
Agreement is terminated, Bank's lien and security interest in the Collateral
will continue until Borrower fully satisfies its Obligations.
<PAGE>
EXHIBIT B
---------
LOAN PAYMENT/ADVANCE TELEPHONE REQUEST FORM
DEADLINE FOR SAME DAY PROCESSING IS 3:00 P.M., P.S.T.
<TABLE>
<S> <C>
TO: CENTRAL CLIENT SERVICE DIVISION DATE: ______________________________
FAX#: (408) 496-2426 TIME: ______________________________
FROM: Nuance Communications
---------------------
CLIENT NAME (BORROWER)
REQUESTED BY:
_______________________________________________________________________________
AUTHORIZED SIGNER'S NAME
AUTHORIZED SIGNATURE:
_______________________________________________________________________
PHONE NUMBER:
_______________________________________________________________________________
FROM ACCOUNT #________________ TO ACCOUNT
#___________________________________________________________________
REQUESTED TRANSACTION TYPE REQUESTED DOLLAR AMOUNT
- -------------------------- -----------------------
PRINCIPAL INCREASE (ADVANCE) $________________________________________________
PRINCIPAL PAYMENT (ONLY) $________________________________________________
INTEREST PAYMENT (ONLY) $________________________________________________
PRINCIPAL AND INTEREST (PAYMENT) $________________________________________________
OTHER INSTRUCTIONS:__________________________________________________________________________________________
</TABLE>
All Borrower's representations and warranties in the Loan and Security Agreement
are true, correct and complete in all material respects on the date of the
telephone request for and Advance confirmed by this Borrowing Certificate; but
those representations and warranties expressly referring to another date shall
be true, correct and complete in all material respects as of that date.
BANK USE ONLY
TELEPHONE REQUEST:
- -----------------
The following person is authorized to request the loan payment transfer/loan
advance on the advance designated account and is known to me.
_________________________
- ----------------------------------
Authorized Requester Phone #
_________________________
- ----------------------------------
Received By (Bank) Phone #
__________________________________________
Authorized Signature (Bank)
<PAGE>
EXHIBIT C
COMPLIANCE CERTIFICATE
TO: SILICON VALLEY BANK
3003 Tasman Drive
Santa Clara, CA 95054
FROM: NUANCE COMMUNICATIONS
The undersigned authorized officer of Nuance Communications
("Borrower") certifies that under the terms and conditions of the Loan and
Security Agreement between Borrower and Bank (the "Agreement"), (i) Borrower is
in complete compliance for the period ending ______________ with all required
covenants except as noted below and (ii) all representations and warranties in
the Agreement are true and correct in all material respects on this date.
Attached are the required documents supporting the certification. The Officer
certifies that these are prepared in accordance with Generally Accepted
Accounting Principles (GAAP) consistently applied from one period to the next
except as explained in an accompanying letter or footnotes. The Officer
acknowledges that no borrowings may be requested at any time or date of
determination that Borrower is not in compliance with any of the terms of the
Agreement, and that compliance is determined not just at the date this
certificate is delivered.
PLEASE INDICATE COMPLIANCE STATUS BY CIRCLING YES/NO UNDER "COMPLIES"
COLUMN.
<TABLE>
<CAPTION>
REPORTING COVENANT REQUIRED COMPLIES
------------------ -------- --------
<S> <C> <C>
Monthly financial statements + CC
And A/R and A/P agings Monthly within 30 days Yes No
Annual (Audited) FYE within 120 days Yes No
FINANCIAL COVENANT REQUIRED ACTUAL COMPLIES
------------------ -------- ------ --------
Maintain on a Monthly Basis:
Minimum Tangible Net Worth $2,000,000 $________ Yes No
Minimum Liquidity Coverage* 2.00:1.00 _____:1.00 Yes No
</TABLE>
* A ratio of cash plus 50% of net Accounts, divided by the aggregate
outstanding Equipment Advances.
COMMENTS REGARDING EXCEPTIONS: See Attached.
Sincerely,
Nuance Communications
- ---------------------------------
SIGNATURE
- ---------------------------------
TITLE
- ---------------------------------
DATE
BANK USE ONLY
Received by: __________________________
AUTHORIZED SIGNER
Date: _________________________________
Verified: _____________________________
AUTHORIZED SIGNER
Date: _________________________________
Compliance Status: Yes No
<PAGE>
SILICON VALLEY BANK
PRO FORMA INVOICE FOR LOAN CHARGES
BORROWER: NUANCE COMMUNICATIONS
LOAN OFFICER: CHRIS WAGNER
DATE: JUNE 23, 1999
EQUIPMENT LINE LOAN FEE $5,000.00
CREDIT REPORT 35.00
UCC SEARCH FEE 75.00
UCC FILING FEE 20.00
DOCUMENTATION FEE 750.00
TOTAL FEE DUE $5,880.00
------------- ---------
Please indicate the method of payment:
[_] A check for the total amount is attached.
[X] Debit DDA # __________________ for the total amount.
[_] Loan proceeds
BORROWER:
By: /s/ Signature Illegible
(Authorized Signer)
/s/ Signature Illegible
Silicon Valley Bank (Date)
Account Officer's Signature
<PAGE>
NEGATIVE PLEDGE AGREEMENT
This Negative Pledge Agreement is made as of June 23, 1999 by and
between Nuance Communications ("Borrower") and Silicon Valley Bank ("Bank").
In connection with, among other documents, the Loan and Security Agreement (the
"Loan Documents") being concurrently executed herewith between Borrower and
Bank, Borrower agrees as follows:
1. Except for (i) non-exclusive licenses granted in the ordinary
course of business and exclusive licenses granted for a specific
geographical location or technical field in the ordinary course
of business, and (ii) other transfers not resulting in a Material
Adverse Change (as defined in the Loan Documents), Borrower shall
not sell, transfer, assign, mortgage, pledge, lease, grant a
security interest in, or encumber any of Borrower's intellectual
property, including, without limitation, the following:
a. Any and all copyright rights, copyright applications,
copyright registrations and like protections in each work or
authorship and derivative work thereof, whether published or
unpublished and whether or not the same also constitutes a
trade secret, now or hereafter existing, created, acquired or
held;
b. All mask works or similar rights available for the protection
of semiconductor chips, now owned or hereafter acquired;
c. Any and all trade secrets, and any and all intellectual
property rights in computer software and computer software
products now or hereafter existing, created, acquired or
held;
d. Any and all design rights which may be available to Borrower
now or hereafter existing, created, acquired or held;
e. All patents, patent applications and like protections
including, without limitation, improvements, divisions,
continuations, renewals, reissues, extensions and
continuations-in-part of the same, including without
limitation the patents and patent applications;
f. Any trademark and servicemark rights, whether registered or
not, applications to register and registrations of the same
and like protections, and the entire goodwill of the business
of Borrower connected with and symbolized by such trademarks,
including without limitation;
g. Any and all claims for damages by way of past, present and
future infringements of any of the rights included above,
with the right, but not the obligation, to sue for and
collect such damages for said use or infringement of the
intellectual property rights identified above;
h. All licenses or other rights to use any of the Copyrights,
Patents, Trademarks or Mask Works, and all license fees and
royalties arising from such use to the extent permitted by
such license or rights; and
i. All amendments, extensions, renewals and extensions of any of
the Copyrights, Trademarks, Patents, or Mask Works; and
j. All proceeds and products of the foregoing, including without
limitation all payments under insurance or any indemnity or
warranty payable in respect of any of the foregoing;
<PAGE>
2. It shall be an event of default under the Loan Documents between
Borrower and Bank if there is a breach of any term of this
Negative Pledge Agreement.
3. Capitalized terms used but not otherwise defined herein shall
have the same meaning as in the Loan Documents.
BORROWER:
Nuance Communications
By: /s/ Signature Illegible
Name: Craham v. Smith
Title: VP c CFO
BANK:
SILICON VALLEY BANK
By: /s/ Signature Illegible
Name: Christopher Wagner
Title: VP
2
<PAGE>
CORPORATE BORROWING RESOLUTION
BORROWER: NUANCE COMMUNICATIONS BANK: SILICON VALLEY BANK
1380 WILLOW ROAD 3003 TASMAN DRIVE
MENLO PARK, CA 94025 SANTA CLARA, CA 95054-1191
I, the undersigned Secretary or Assistant Secretary of Nuance Communications
("Borrower"), HEREBY CERTIFY that Borrower is a corporation duly organized and
existing under and by virtue of the laws of the State of California.
I FURTHER CERTIFY that at a meeting of the Directors of Borrower (or by other
duly authorized corporate action in lieu of a meeting), duly called and held, at
which a quorum was present and voting, the following resolutions were adopted.
BE IT RESOLVED, that any one (1) of the following named officers, employees, or
agents of Borrower, whose actual signatures are shown below:
NAMES POSITIONS ACTUAL SIGNATURES
----- --------- -----------------
Ronald A ?? President & CEO /s/ Signature
Illegible
Graham V Smith VP & CFO /s/ Signature
Illegible
_____________________________ _____________________
____________________
_____________________________ _____________________
____________________
acting for and on behalf of Borrower and as its act and deed be, and they hereby
are, authorized and empowered:
BORROW MONEY. To borrow from time to time from Silicon Valley Bank
("Bank"), on such terms as may be agreed upon between the officers of
Borrower and Bank, such sum or sums of money as in their judgment
should be borrowed.
EXECUTE LOAN DOCUMENTS. To execute and deliver to Bank the loan
documents of Borrower, on Bank's forms, at such rates of interest and
on such terms as may be agreed upon, evidencing the sums of money so
borrowed or any indebtedness of Borrower to Bank, and also to execute
and deliver to Bank one or more renewals, extensions, modifications,
refinancings, consolidations, or substitutions for one or more of the
loan documents, or any portion of the loan documents.
GRANT SECURITY. To grant a security interest to Bank in any of
Borrower's assets, which security interest shall secure all of
Borrower's obligations to Bank
NEGOTIATE ITEMS. To draw, endorse, and discount with Bank all drafts,
trade acceptances, promissory notes, or other evidences of indebtedness
payable to or belonging to Borrower or in which Borrower may have an
interest, and either to receive cash for the same or to cause such
proceeds to be credited to the account of Borrower with Bank, or to
cause such other disposition of the proceeds derived therefrom as they
may deem advisable.
LETTERS OF CREDIT. To execute letter of credit applications and other
related documents pertaining to Bank's issuance of letters of credit.
FOREIGN EXCHANGE CONTRACTS. To execute and deliver foreign exchange
contracts, either spot or forward, from time to time, in such amount
as, in the judgment of the officer or officers herein authorized.
<PAGE>
ISSUE WARRANTS. To issue warrants to purchase Borrower's capital stock,
for such class, series and number, and on such terms, as an officer of
Borrower shall deem appropriate.
FURTHER ACTS. In the case of lines of credit, to designate additional
or alternate individuals as being authorized to request advances
thereunder, and in all cases, to do and perform such other acts and
things, to pay any and all fees and costs, and to execute and deliver
such other documents and agreements, including agreements waiving the
right to a trial by jury, as they may in their discretion deem
reasonably necessary or proper in order to carry into effect the
provisions of these Resolutions.
BE IT FURTHER RESOLVED, that any and all acts authorized pursuant to these
Resolutions and performed prior to the passage of these resolutions are hereby
ratified and approved, that these Resolutions shall remain in full force and
effect and Bank may rely on these Resolutions until written notice of their
revocation shall have been delivered to and received by Bank. Any such notice
shall not affect any of Borrower's agreements or commitments in effect at the
time notice is given.
I FURTHER CERTIFY that the persons named above are principal officers of the
Borrower and occupy the positions set opposite their respective names; that the
foregoing Resolutions now stand of record on the books of the Borrower; and that
they are in full force and effect and have not been modified or revoked in any
manner whatsoever.
IN WITNESS WHEREOF, I have hereunto set my hand on June 23, 1999 and attest that
the signatures set opposite the names listed above are their genuine signatures.
CERTIFIED TO AND ATTESTED BY:
X /s/ Signature Illegible
*Secretary or Assistant Secretary
X /s/ Signature Illegible
*NOTE: In case the Secretary or other certifying officer is designated by the
foregoing resolutions as one of the signing officers, this resolution should
also be signed by a second Officer or Director of Borrower.
2
<PAGE>
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<PAGE>
CHART OMITTED
<PAGE>
CHART OMITTED
<PAGE>
CHART OMITTED
<PAGE>
EXHIBIT A
---------
The Collateral consists of all of Borrower's right, title and interest
in and to the following:
All goods and equipment now owned or hereafter acquired, including,
without limitation, all machinery, fixtures, vehicles (including motor vehicles
and trailers), and any interest in any of the foregoing, and all attachments,
accessories, accessions, replacements, substitutions, additions, and
improvements to any of the foregoing, wherever located;
All inventory, now owned or hereafter acquired, including, without
limitation, all merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products including such
inventory as is temporarily out of Borrower's custody or possession or in
transit and including any returns upon any accounts or other proceeds, including
insurance proceeds, resulting from the sale or disposition of any of the
foregoing and any documents of title representing any of the above;
All contract rights and general intangibles now owned or hereafter
acquired, including, without limitation, goodwill, trademarks, servicemarks,
trade styles, trade names, patents, patent applications, leases, license
agreements, franchise agreements, blueprints, drawings, purchase orders,
customer lists, route lists, infringements, claims, computer programs, computer
discs, computer tapes, literature, reports, catalogs, design rights, income tax
refunds, payments of insurance and rights to payment of any kind;
All now existing and hereafter arising accounts, contract rights,
royalties, license rights and all other forms of obligations owing to Borrower
arising out of the sale or lease of goods, the licensing of technology or the
rendering of services by Borrower, whether or not earned by performance, and any
and all credit insurance, guaranties, and other security therefor, as well as
all merchandise returned to or reclaimed by Borrower;
All documents, cash, deposit accounts, securities, securities
entitlements, securities accounts, investment property, financial assets,
letters of credit, certificates of deposit, instruments and chattel paper now
owned or hereafter acquired and Borrower's Books relating to the foregoing;
All copyright rights, copyright applications, copyright registrations
and like protections in each work of authorship and derivative work thereof,
whether published or unpublished, now owned or hereafter acquired; all trade
secret rights, including all rights to unpatented inventions, know-how,
operating manuals, license rights and agreements and confidential information,
now owned or hereafter acquired; all mask work or similar rights available for
the protection of semiconductor chips, now owned or hereafter acquired; all
claims for damages by way of any past, present and future infringement of any of
the foregoing; and
All Borrower's Books relating to the foregoing and any and all claims,
rights and interests in any of the above and all substitutions for, additions
and accessions to and proceeds thereof.
Notwithstanding the foregoing, the security interest granted herein
does not extend to and the term "Collateral" does not include any license or
contract rights to the extent (i) the granting of a security interest in it
would be contrary to applicable law, or (ii) that such rights are nonassignable
by their terms (but only to the extent such prohibition is enforceable under
applicable law, including, without limitation, Section 9318(4) of the Code)
without the consent of the licensor or other party (but only to the extent such
consent has not been obtained). Except as disclosed on the Schedule, Borrower is
not a party to, nor is bound by, any license or other agreement that prohibits
or otherwise restricts Borrower from granting a security interest in Borrower's
interest in such license or agreement or any other property. Without prior
notice to Bank, Borrower's shall not enter into, or become bound by, any such
license or agreement which is reasonably likely to have a material impact on
Borrower's business or financial condition. Borrower shall take such steps as
Bank reasonably requests to obtain the consent of, or waiver by, any person
whose consent or waiver is necessary for such licenses or contract rights to be
deemed "Collateral" and for Bank to have a security interest in it that might
otherwise be restricted or prohibited by law or by the terms of any such license
or agreement, whether now existing or entered into in the future. If the
Agreement is terminated, Bank's lien and security interest in the Collateral
will continue until Borrower fully satisfies its Obligations.
<PAGE>
WILSON SONSINI GOODRICH & ROSATI
PROFESSIONAL CORPORATION
650 PAGE MILL ROAD
PALO ALTO, CALIFORNIA 94304-1050
TELEPHONE 650-493-9300 FACSIMILE 650-493-6811
WWW.WSGR.COM
PALO ALTO, CALIFORNIA
KIRKLAND WASHINGTON
AUSTIN, TEXAS
JOHN ARNOT WILSON
RETIRED
May 5, 1999
Toula Vertin
Director of Finance
Nuance Communications
1380 Willow Road
Menlo Park, CA 94025
Re: LOAN AND SECURITY AGREEMENT BETWEEN NUANCE COMMUNICATIONS AND
SILICON VALLEY BANK
Dear Ms. Vertin:
You have asked us to represent you in connection with the
above-referenced finance transaction (the "Transaction") between Nuance
Communications (the "Company"), and Silicon Valley Bank ("SVB"). As you know,
our firm has represented SVB in the past and will continue to do so in the
future.
Our representation of the Company in the Transaction may give rise to a
conflict of interest, although we have been advised by SVB that it will be
separately represented in the Transaction by other counsel. We are governed by
certain Rules of Professional Conduct promulgated by the State Bar of
California, including Rule 3-310 (a copy of which is attached hereto as Exhibit
A), which rules are relevant to our proposed representation of the Company in
the Transaction. Accordingly, we wish to disclose to you the nature and extent
of our prior relationships with both the Company and SVB and to obtain your
written consent to our participation as your counsel in connection with the
Transaction, including your ratification and acknowledgement of our
participation in this Transaction prior to the date hereof. We are also seeking
a similar written acknowledgement and authorization from SVB with respect to our
representation of the Company in the Transaction in light of our previous
representation of SVB.
We would like you to be aware of the following in connection with your
decision to render your written consent as referred to above:
1. We represent SVB in general corporate and certain lending matters
other than those relating to the Transaction. As a result of our relationship to
SVB, we are in possession of confidential information regarding SVB.
<PAGE>
Page 2
2. We have represented the Company prior to the date hereof and will
continue to represent the Company in general matters. As a result of our
relationship to the Company, we are in or will be in possession of confidential
information regarding the Company and its subsidiaries.
3. You have informed us that you decline to obtain independent counsel
in connection with the Transaction and have asked us to represent you in the
Transaction.
In light of the above-cited rules and the disclosure we have made in
this letter, we hereby request your consent to our acting as your counsel in
connection with the Transaction and to the general representation of all parties
after the conclusion of the Transaction except in the case where a material
conflict would be present (such material conflict to include, without
limitation, any litigation among the parties arising from this Transaction). In
order to effect the foregoing, please complete and execute the enclosed copy of
this letter and send an executed copy to the undersigned.
I would be more than happy to discuss any concerns or questions that
you may have with regard to this matter.
We appreciate your cooperation in this matter.
VERY TRULY YOURS,
WILSON SONSINI GOODRICH & ROSATI
PROFESSIONAL CORPORATION
/s/ Signature Illegible
ANDREW J. HIRSCH
ENCLOSURE
<PAGE>
Page 3
I have read the foregoing, am aware of the possible conflicting
interests in the above mentioned transaction and hereby consent on behalf of the
Company to the representation of the Company by the law firm of Wilson Sonsini
Goodrich & Rosati, P.C. in this transaction.
Date:___________________________ NUANCE COMMUNICATIONS
By:___________________________
Title: _______________________
<PAGE>
Exhibit A
---------
STATE BAR OF CALIFORNIA
RULES OF PROFESSIONAL CONDUCT
-----------------------------
Rule 3-310. AVOIDING THE REPRESENTATION OF ADVERSE INTERESTS
(A) FOR PURPOSES OF THIS RULE:
(1) "Disclosure" means informing the client or former client of
the relevant circumstances and of the actual and reasonably
foreseeable adverse consequences to the client or former
client;
(2) "Informed written consent" means the client's or former
client's written agreement to the representation following
written disclosure;
(3) "Written" means any writing as defined in Evidence Code
section 250.
(B) A member shall not accept or continue representation of a client
without providing written disclosure to the client where:
(1) The member has a legal, business, financial, professional, or
personal relationship with a party or witness in the same
matter; or
(2) The member knows or reasonably should know that:
(a) the member previously had a legal, business,
financial, professional, or personal relationship
with a party or witness in the same matter; and
(b) the previous relationship would substantially affect
the member's representation; or
(3) The member has or had a legal, business, financial,
professional, or personal relationship with another person or
entity the member knows or reasonably should know would be
affected substantially by resolution of the matter; or
(4) The member has or had a legal, business, financial, or
professional interest in the subject matter of the
representation.
(C) A member shall not, without the informed written consent of each
client:
(1) Accept representation of more than one client in a matter in
which the interests of the clients potentially conflict; or
(2) Accept or continue representation of more than one client in a
matter in which the interests of the clients actually
conflict; or
(3) Represent a client in a matter and at the same time in a
separate matter accept as a client a person or entity whose
interest in the first matter is adverse to the client in the
first matter.
(D) A member who represents two or more clients shall not enter into an
aggregate settlement of the claims of or against the clients without
the informed written consent of each client.
<PAGE>
(E) A member shall not, without the informed written consent of the client
or former client, accept employment adverse to the client or former
client where, by reason of the representation of the client or former
client, the member has obtained confidential information material to
the employment.
(F) A member shall not accept compensation for representing a client from
one other than the client unless:
(1) There is no interference with the member's independence of
professional judgment or with the client-lawyer relationship;
and
(2) Information relating to representation of the client is
protected as required by Business and Professions Code section
6068, subdivision (e); and
(3) The member obtains the client's informed written consent,
provided that no disclosure or consent is required if:
(a) such nondisclosure is otherwise authorized by law, or
(b) the member is rendering legal services on behalf of
any public agency which provides legal services to
other public agencies or the public.
<PAGE>
EXHIBIT 10.12
LICENSE AGREEMENT
THIS LICENSE AGREEMENT dated as of December 20, 1994 (the "Effective
Date"), is entered into between SRI INTERNATIONAL, a California nonprofit public
benefit corporation ("SRI"), having a place of business located at 333
Ravenswood Avenue, Menlo Park, California 94025-3493, and Corona Corporation, a
California corporation ("CORONA"), having a place of business located at 333
Ravenswood Avenue, Building 110, Menlo Park, California 94025-3493.
WITNESSETH:
WHEREAS, SRI owns or has rights in certain patent rights, copyrights, and
know-how relating to Speech Recognition Technology (as later defined herein).
WHEREAS, CORONA desires to obtain a license under SRI's rights in such
patent rights, copyrights, and know-how, on the terms and subject to the
conditions of the Agreement.
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
covenants herein contained, the parties hereby agree as follows:
1. DEFINITIONS
--------------
For purposes of the Agreement, the terms defined in this article shall have
the respective meanings set forth below:
1.1 "Affiliate" means, with respect to any Person, any other Person which
directly or indirectly controls, is controlled by, or is under common control
with, such Person. A Person shall be regarded as in control of another Person if
it owns, or directly or indirectly controls, at least fifty percent (50%) of the
voting stock or other ownership interest of the other Person, or if it directly
or indirectly possesses the power to direct or cause the direction of the
management and policies of the other Person by any means whatsoever.
1.2 "CORONA Improvements" means those improvements and/or new developments
in Speech Recognition Technology (including improvements to the SRI Software) in
which CORONA has an ownership or licensable interest (with the right to
sublicense without payment of royalties) and have been or are developed,
authored, conceived, or reduced to practice as of the Effective Date or during
the Exclusive Period. CORONA Improvements shall include inventions, trade
secrets, know-how, CORONA Know-How, discoveries, algorithms, and software (in
both source code and object code). CORONA Improvements shall not include such
improvements and/or new developments developed, authored, conceived, or reduced
to practice by or for CORONA after the Exclusive Period.
1.3 "CORONA Know-How" means (i) information which is not generally known
by the public; and (ii) non-confidential information relating to Speech
Recognition Technology in which CORONA has an ownership or licensable interest
(with the right to sublicense without payment of royalties) as of the Effective
Date or developed or acquired during the Exclusive Period. Such information
includes but is not limited to technical data, trade secrets, algorithms,
formulae, procedures, protocols, rules of thumb, techniques and results of
experimentation and testing, including information contained in any invention
disclosures and/or patent applications which are CORONA Improvements.
Corona License Agreement, December 20, 1994
[*] = CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
1
<PAGE>
1.4 "CORONA Proprietary Rights" means any intellectual property rights
(including copyright(s), patent rights, CORONA Know-How and/or trade secrets) in
the CORONA Improvements in which CORONA has an ownership or licensable interest
(with the right to sublicense without payment of royalties).
1.5 "Cumulative Revenues" means the total of all revenues for the period
specified as recorded in the financial statements of CORONA in accordance with
standard accounting procedures.
1.6 "Exclusive Fields" means Speech Recognition Technology, provided,
however, that Nonexclusive Fields are specifically excluded from the definition
of Exclusive Fields.
1.7 "Exclusive Period" means the period commencing with the Effective
Date and ending on the earlier of December 20, 1999 or a trigger event whereby
CORONA's exclusivity is terminated as described in Paragraphs 5.1, 7.1 and/or
7.2.
1.8 "Existing SRI Software" means SRI Software existing on the Effective
Date in which SRI has an ownership or licensable interest (with the right to
sublicense without the payment of royalties).
1.9 "Existing SRT" means Speech Recognition Technology existing on the
Effective Date in which SRI has an ownership or licensable interest (with the
right to sublicense without the payment of royalties).
1.10 "Nonexclusive Fields" means
(a) Education/training including the use of Speech Recognition
Technology for educational purposes and, in the case of language education,
the use of Speech Recognition Technology for educational and entertainment
purposes.
(b) Language translation including the use of Speech Recognition
Technology in spoken language translation systems from any language to any
language;
(c) Language and/or dialect identification except for telephony
applications; and
(d) Topic spotting when used in conjunction with Speech Recognition
Technology in the context of person-to-person conversation except for
telephony applications.
1.11 "Person" means an individual, corporation, partnership, trust,
business trust, association, joint stock company, joint venture, pool,
syndicate, sole proprietorship, unincorporated organization, governmental
authority or any other form of entity not specifically listed herein.
1.12 "Speech Recognition Technology" means information and know-how,
whether or not patentable, related to the perception by a machine of human
speech, the conversion of such speech to text, and/or the establishment of the
meaning of speech so as to enable the machine to respond to the intentions of
the speaker by template-based methods. Speech Recognition Technology shall
include but not be limited to all forms of:
Corona License Agreement, December 20, 1994
2
<PAGE>
[*] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH
RESPECT TO THE OMITTED PORTIONS.
[***]
1.13 "SRI Software" means the following computer programs and data sets,
in which SRI has an ownership or licensable interest (with the right to
sublicense without the payment of royalties), as further identified in Appendix
A:
[***]
1.14 "SRI Improvements" means those improvements and/or new developments
in Speech Recognition Technology (including improvements to the SRI Software) in
which SRI has an ownership or licensable interest (with the right to sublicense
without the payment of royalties) and which are developed, authored, conceived,
or reduced to practice during the Exclusive Period. SRI Improvements shall
include inventions, trade secrets, know-how, discoveries, algorithms, and
software (in both source code and object code). SRI Improvements shall not
include (a) such improvements and/or new developments
Corona License Agreement, December 20, 1994
3
<PAGE>
developed, authored or invented by or for SRI after the Exclusive Period; and/or
(b) contract deliverables as provided in Paragraph 3.4(d).
1.15 "SRI Know-How" means (i) information which is not generally known by
the public; and (ii) non-confidential information relating to Speech Recognition
Technology in which SRI has an ownership or licensable interest as of the
Effective Date or developed or acquired during the Exclusive Period, whether or
not it is of a confidential nature. Such information includes but is not limited
to technical data, trade secrets, algorithms, formulae, procedures, protocols,
rules of thumb, techniques and results of experimentation and testing, including
information contained in any invention disclosures and/or patent applications
which are SRI Improvements.
1.16 "SRI Patent Rights" means:
(a) The pending United States patent application(s) and patents
listed in Appendix B and all corresponding foreign patent applications
heretofore or hereafter filed or having legal force in any jurisdiction
worldwide owned by or licensed to SRI;
(b) All patent applications that claim any Existing SRT and/or an
SRI Improvement heretofore or hereafter filed or having legal force in any
jurisdiction worldwide in which SRI has ownership or licensable interest
(with the right to sublicense without payment of royalties);
(c) All patents that have issued or in the future issue from the
patent applications described in clauses (a) and (b) above, including
utility, model and design patents and certificates of invention; and
(d) All divisionals, continuations, continuations-in-part,
reissues, renewals, extensions or additions to any such patent applications
and patents; all to the extent and only to the extent that SRI has the
right to grant licenses, immunities or other rights thereunder as of the
Effective Date or during the term of the Agreement.
1.17 "SRI Proprietary Rights" means any intellectual property rights
(including copyright(s), patent rights, know-how and/or trade secrets) in the
Existing SRT and in the SRI Improvements, including but not limited to SRI's
copyright in the SRI Software, SRI Patent Rights and SRI Know-How, in which SRI
has an ownership and/or licensable interest (with the right to sublicense
without payment of royalties).
2. REPRESENTATIONS AND WARRANTIES
---------------------------------
2.1 DISCLAIMER OF WARRANTIES BY SRI. NOTHING IN THE AGREEMENT SHALL BE
-------------------------------
CONSTRUED AS A REPRESENTATION MADE OR WARRANTY GIVEN BY SRI THAT ANY PATENT WILL
ISSUE BASED UPON ANY PENDING PATENT APPLICATION INCLUDED IN THE SRI PATENT
RIGHTS, THAT ANY PATENT INCLUDED IN THE SRI PATENT RIGHTS WHICH ISSUES WILL BE
VALID, OR THAT THE USE OF ANY SRI PATENT RIGHTS, SRI COPYRIGHTS OR SRI KNOW-HOW
WILL NOT INFRINGE THE PATENT OR PROPRIETARY RIGHTS OF ANY OTHER PERSON. SRI
PROVIDES ANY EXISTING SRI SOFTWARE AND ANY SOFTWARE IN THE SRI IMPROVEMENTS
(INCLUDING SOURCE CODE AND OBJECT CODE FORMS) "AS IS." FURTHERMORE, SRI MAKES NO
REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, WITH RESPECT TO THE SRI
PATENT RIGHTS, SRI
Corona License Agreement, December 20, 1994
4
<PAGE>
COPYRIGHTS OR SRI KNOW-HOW, INCLUDING WITHOUT LIMITATION, ANY WARRANTY OF NON-
INFRINGEMENT OF THIRD PARTY RIGHTS OR ANY WARRANTY OF MERCHANTABILITY OR FITNESS
FOR A PARTICULAR PURPOSE.
2.2 LIMITATION OF LIABILITY.
------------------------
(a) SRI: IN NO EVENT SHALL SRI BE LIABLE TO CORONA OR ANY THIRD PARTY FOR
---
ANY INDIRECT, INCIDENTAL, EXEMPLARY, SPECIAL OR CONSEQUENTIAL DAMAGES HOWEVER
CAUSED AND ON ANY THEORY OF LIABILITY, ARISING OUT OF OR RELATED TO THIS
AGREEMENT, INCLUDING BUT NOT LIMITED TO LOSS OF ANTICIPATED PROFITS, EVEN IF SRI
HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. IN NO EVENT SHALL SRI BE
LIABLE FOR COSTS OF PROCUREMENT OF SUBSTITUTE PRODUCTS OR SERVICES. IN NO EVENT
SHALL SRI'S LIABILITY TO CORONA AND ANY THIRD PARTY EXCEED THE AMOUNT OF MONEY
RECEIVED BY SRI FROM CORONA UNDER THIS AGREEMENT.
(b) CORONA: THE FOLLOWING LIMITATION OF LIABILITY FOR CORONA SHALL ONLY
-------
APPLY TO SITUATIONS WHERE SRI HAS LICENSED CORONA IMPROVEMENTS TO THIRD PARTIES
AND CORONA DID NOT CONTRIBUTE TO THE RESULTING LIABILITY: IN SUCH CASES, CORONA
SHALL NOT BE LIABLE TO SRI OR ANY THIRD PARTY FOR ANY INDIRECT, INCIDENTAL,
EXEMPLARY, SPECIAL OR CONSEQUENTIAL DAMAGES HOWEVER CAUSED AND ON ANY THEORY OF
LIABILITY, INCLUDING BUT NOT LIMITED TO LOSS OF ANTICIPATED PROFITS, OR THE
COSTS OF PROCUREMENT OF SUBSTITUTE PRODUCTS OR SERVICES, EVEN IF CORONA HAS BEEN
ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
2.3 DISCLAIMER OF WARRANTIES BY CORONA. NOTHING IN THE AGREEMENT SHALL BE
----------------------------------
CONSTRUED AS A REPRESENTATION MADE OR WARRANTY GIVEN BY CORONA THAT ANY PATENT
WILL ISSUE BASED UPON ANY PENDING PATENET APPLICATION INCLUDED IN THE CORONA
IMPROVEMENTS, THAT ANY PATENT INCLUDED IN THE CORONA IMPROVEMENTS WHICH ISSUES
WILL BE VALID, OR THAT THE USE OF ANY CORONA PATENT RIGHTS, CORONA COPYRIGHTS OR
CORONA KNOW-HOW WILL NOT INFRINGE THE PATENT OR PROPRIETARY RIGHTS OF ANY OTHER
PERSON. CORONA PROVIDES ANY SOFTWARE IN THE CORONA IMPROVEMENTS (INCLUDING
SOURCE CODE AND OBJECT CODE FORMS) "AS IS." FURTHERMORE, CORONA MAKES NO
REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, WITH RESPECT TO THE CORONA
PATENT RIGHTS, CORONA COPYRIGHTS OR CORONA KNOW-HOW, INCLUDING WITHOUT
LIMITATION, ANY WARRANTY OF NON-INFRINGEMENT OF THIRD PARTY RIGHTS OR ANY
WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
Each party hereby represents and warrants to the other party as follows:
2.4 Corporate Existence and Power. Such party (a) is a corporation duly
-----------------------------
organized, validly existing and in good standing under the laws of the state in
which it is incorporated; (b) has the corporate power and authority and the
legal right to own and operate its property and assets, to lease the property
and assets it operates under lease, and to carry on its business as it is now
being conducted and (c) is in compliance with all requirements of applicable
law, except to the extent that any noncompliance would not have
Corona License Agreement, December 20, 1994
5
<PAGE>
a material adverse effect on the properties, business, financial or other
condition of it and would not materially adversely affect its ability to perform
its obligations under the Agreement.
2.5 Authorization and Enforcement of Obligations. Such party (a) has the
--------------------------------------------
corporate power and authority and the legal right to enter into the Agreement
and to perform its obligations hereunder and (b) has taken all necessary
corporate action on its part to authorize the execution and delivery of the
Agreement and the performance of its obligations hereunder. The Agreement has
been duly executed and delivered on behalf of such party, and constitutes a
legal, valid, binding obligation, enforceable against such party in accordance
with its terms.
2.6 No Consents. All necessary consents, approvals and authorizations of
-----------
all governmental authorities and other Persons required to be obtained by such
party in connection with the Agreement have been obtained.
2.7 No Conflict. The execution and delivery of the Agreement and the
-----------
performance of such party's obligations hereunder (a) do not conflict with or
violate any requirement of applicable laws or regulations, and (b) do not
conflict with, or constitute a default under, any contractual obligation of it.
3. LICENSE AND OPTION GRANT
---------------------------
3.1 Exclusive License Grant to CORONA.
---------------------------------
(a) SRI hereby grants and CORONA hereby accepts a royalty-free,
worldwide license in the Exclusive Fields under the SRI Proprietary Rights
to:
(i) With respect to software, reproduce, distribute, use,
make, modify, make derivatives of, and sublicense the Existing SRI
Software (in both source code and object code forms), and any software
in the SRI Improvements (in both source and object code forms), and
sublicense such rights through multiple levels of sublicensees;
(ii) With respect to inventions and know-how, reproduce,
distribute, use, make, modify, and sell products and services based on
the Existing SRT (not including the SRI Software) and/or the SRI
Improvements (not including any software in the SRI Improvements) and
sublicense such rights through multiple levels of sublicensees; and
(iii) Establish trademarks in connection with the Existing SRT
and/or the SRI Improvements, provided that they can not use the mark
"SRI" or any other SRI trademarks.
(b) Notwithstanding the license grant above, in any event that CORONA
discloses such SRI source code in the Exclusive Fields (other than
disclosure to CORONA employees and/or to any independent contractors
employed by CORONA without sublicense rights) CORONA shall promptly provide
written notification of such disclosure to SRI.
(c) These rights shall be exclusive during the Exclusive Period and
nonexclusive and perpetual (subject to Article 5 and Paragraphs 7.1, 7.3
and 7.4) after the termination of the Exclusive Period. If CORONA does not
exercise its
Corona License Agreement, December 20, 1994
6
<PAGE>
right as stated in Paragraph 3.2 below, then such existing license rights
shall remain royalty-free after the end of the Exclusive Period.
3.2 Extension of Exclusivity. So as to extend the Exclusive Period, SRI
------------------------
grants CORONA the first right to negotiate a worldwide, exclusive license in the
Exclusive Fields under the SRI Proprietary Rights to the Existing SRT, Existing
SRI Software and the SRI Improvements. Such option shall expire on June 15,
1999. Both parties agree to make a good faith effort to negotiate a license
agreement under fair and reasonable terms which reflect the commercial potential
of the SRI Proprietary Rights at the time the right is exercised. If CORONA
fails to elect its right or if the parties fail to execute a license agreement
by June 15, 1999, then SRI shall be free to license the SRI Proprietary Rights
nonexclusively in all fields without restriction after the Exclusive Period.
3.3 Nonexclusive License Grant to CORONA. SRI hereby grants and CORONA
------------------------------------
hereby accepts a royalty-free, perpetual (subject to Article 5 and Paragraphs
7.1, 7.3 and 7.4) worldwide license in the Nonexclusive Fields under the SRI
Proprietary Rights to:
(a) Reproduce, distribute, use, make, modify, make derivatives of,
and sublicense the SRI Software (in both source code and object code forms)
and any software in the SRI Improvements (in both source and object code
forms) and sublicense such rights through multiple levels of sublicensees;
and
(b) Reproduce, distribute, use, make, modify, sell and sublicense
products and services based on the Existing SRT (not including the SRI
Software) and/or the SRI Improvements (not including any software in the
SRI Improvements) and sublicense such rights through multiple levels of
sublicensees.
Notwithstanding the license grant above, CORONA shall not disclose (other than
disclosure to CORONA employees and/or to any independent contractors employed by
CORONA without sublicense rights), license for use, or distribute in any manner,
any SRI source code in the Nonexclusive Fields, without the prior written
consent of SRI. Such permission shall not be unreasonably withheld.
3.4 Reservation of Certain Rights. Notwithstanding the foregoing, the
-----------------------------
licenses granted in the Agreement are subject to SRI's retention of the
following rights:
(a) The non-exclusive right of SRI to use the SRI Proprietary Rights
to solicit and execute research contracts from the U.S. Government in
Speech Recognition Technology and in connection therewith, to execute
government-use licenses, regardless of field of use or level of
classification;
(b) Rights to the Japanese Toolkit to the extent granted under an
agreement as amended between SRI and Nippon Data, a subsidiary of Nippon
Telephone and Telegraph dated October 31, 1991.
(c) The non-exclusive right of SRI to use the SRI Proprietary Rights
to solicit and execute commercial research and development contracts in
Speech Recognition Technology, including those research projects which
qualify for government matching funds (e.g. Small Business Technology
Transfer (STTR), Advanced Technology Program (ATP), Technology Reinvestment
Project (TRP)), provided that during the Exclusive Period:
Corona License Agreement, December 20, 1994
7
<PAGE>
(i) SRI shall obtain CORONA's consent if such contracts provide
for deliverables or require licenses in the Exclusive Fields; and
(ii) If SRI solicits and executes research or development
contracts or enters into work for hire arrangements pertaining to Speech
Recognition Technology, SRI shall secure an ownership or licensable
interest to any Speech Recognition Technology developed under such
arrangements so that such technology improvements are within the scope of
this Agreement and CORONA receives rights and access to such technology as
SRI Improvements.
(d) The right to grant to any commercial client which executes a
research and development contract with SRI an exclusive license under such
contract for deliverables which consist of a specific software application
for that commercial client for use in the Nonexclusive Fields.
3.5 License Grant to SRI. CORONA hereby grants and SRI hereby accepts a
--------------------
royalty-free, perpetual (subject to Paragraphs 7.1 and 7.5), non-exclusive,
worldwide license in the Nonexclusive Fields under the CORONA Proprietary
Rights, to:
(a) Reproduce, distribute, use, make, modify, make derivatives of,
and sublicense any software in the CORONA Improvements (in object code form
only) and sublicense such rights through multiple levels of sublicensees;
(b) Reproduce, distribute, use, make, modify, sell, and sublicense
products and services based on the CORONA Improvements (not including any
software in the CORONA Improvements) and sublicense such rights through
multiple levels of sublicensees;
(c) Reproduce, use, make, modify and make derivatives of the source
code in the CORONA Improvements for SRI's own internal research purposes.
(d) Sublicense any CORONA Improvements in source code form:
(i) Only to the U.S. government in connection with research and
development contracts executed with SRI. Consistent with the rights of
a not-for-profit research corporation under the FARS, DFARS, the
Stephenson-Wydler Act and the Baye-Dole Act, SRI shall use reasonable
effort to control and restrict the distribution of CORONA Improvements
to government contractors. Any such sublicense shall be subject to the
confidentiality restrictions described in Section 8; and
(ii) To commercial clients for use in the Nonexclusive Fields
only with the prior written approval of CORONA. Such approval shall
not be unreasonably withheld.
3.6 Technical Assistance.
---------------------
3.6.1 During the term of the Agreement, upon reasonable notice and
during normal business hours, both parties shall provide the other such
technical assistance regarding the Speech Recognition Technology as the
other party reasonably requests to conduct its activities contemplated by
the Agreement.
3.6.2 Each party shall reimburse the other for its standard research
or consulting costs for any such technical assistance, determined in
accordance with its
Corona License Agreement, December 20, 1994
8
<PAGE>
own normal business practice applied on a consistent basis at a billing
rate no less favorable than the best terms offered to their other
commercial research clients. Upon request, each party shall provide the
other with estimates of the anticipated costs of any requested technical
assistance prior to undertaking such technical assistance.
3.6.3 During the term of the Agreement, CORONA shall give SRI first
consideration with regards to third parties to provide any subcontract
research or development services to CORONA regarding the research and
development of potential and actual products and/or services based on
Speech Recognition Technology.
3.7 Government Rights. This Agreement is subject to all of the terms and
-----------------
conditions of Title 35 United States Code Sections 200 through 204, including an
obligation that products resulting from this license which are sold or produced
in the United States be "manufactured substantially in the United States," and
CORONA agrees to take all reasonable action necessary on its part as licensee to
enable SRI to satisfy its obligation thereunder, relating to the Existing SRI
Software, the Existing SRT, and the SRI Improvements.
4. COMPENSATION
---------------
Recognizing that the rights and licenses conveyed herein by each party to
the other constitute due compensation to each party, both parties agree to waive
all license issue fees, minimum royalties, and running royalties (but for those
fees and royalties which may be negotiated upon exercise of the option granted
CORONA in Paragraph 3.2).
5. DILIGENCE OBLIGATIONS
------------------------
CORONA shall be considered viable for purposes of the SRI Exclusive License
if, starting as of the Effective Date and:
(a) As of December 31, 1996, CORONA
(i) has raised no less than Two Million Dollars ($2,000,000) of
capital in addition to any capital provided by SRI; or
(ii) has Cumulative Revenues in an amount no less than One
Million Dollars ($1,000,000);
(b) And, as of December 31, 1997, CORONA has Cumulative Revenues in
an amount no less than Four Million Dollars ($4,000,000); and
(c) As of December 31, 1998, CORONA has Cumulative Revenues in an
amount no less than Eight Million Dollars ($8,000,000); and
(d) As of December 31, 1999, CORONA has Cumulative Revenues in an
amount no less than Thirteen Million Dollars ($13,000,000).
In the event that CORONA fails to meet the viability criteria stated above and
fails to correct such condition within one hundred and twenty (120) days after
receiving written notice thereof from SRI, SRI shall have the right to terminate
SRI's exclusive license to CORONA in the Exclusive Fields as conveyed in
Paragraph 3.1, terminate CORONA's
Corona License Agreement, December 20, 1994
9
<PAGE>
right to extend its exclusivity as conveyed in Paragraph 3.2, and convert
CORONA's license to a royalty-bearing nonexclusive license on a reasonable
industry standard basis. If, after ninety (90) days from SRI's written notice of
termination of exclusivity, the parties have failed to agree on a royalty, the
royalty dispute shall be submitted to binding arbitration as provided in
Paragraph 16.2
6. FINANCIAL REPORTS
--------------------
Within ninety (90) days following the end of each calendar year during the
term of the Agreement, CORONA shall prepare and deliver to SRI a copy of
CORONA's year-end written financial statements prepared for review by the CORONA
board of directors.
7. TERMINATION
--------------
7.1 Termination by CORONA. CORONA may terminate this Agreement by giving
---------------------
SRI notice in writing (by registered or certified mail, return receipt). The
Agreement shall terminate thirty (30) days after SRI's receipt of such notice.
7.2 Bankruptcy. In the event that:
-----------
(a) CORONA voluntarily commences any action or seeks any relief
regarding its liquidation, reorganization, dissolution or similar act or
under any bankruptcy, insolvency or similar law; or
(b) If a proceeding is commenced or an order, judgment or decree is
entered seeking the liquidation, reorganization, dissolution or similar act
or any other relief under any bankruptcy, insolvency or similar law against
CORONA, without its consent, which continues undismissed or unstayed for a
period of sixty (60) days;
then SRI may terminate the exclusivity granted to CORONA by SRI in Paragraph 3.1
and convert the rights and license granted by SRI to CORONA to a royalty-bearing
nonexclusive license with right to sublicense. Surviving are all other terms of
this Agreement, including:
(i) CORONA's obligation to pay any research fees and/or patent
reimbursements outstanding as of the date of termination of exclusivity;
and
(ii) SRI's ability to terminate this Agreement as provided in
Paragraph 7.3.
7.3 Termination by SRI for Cause. SRI may terminate this Agreement upon
-----------------------------
the occurrence of one of the events set forth below if CORONA fails to cure such
breach (or if such breach cannot be cured within such period, fails to commence
good faith efforts to cure the breach) within forty-five (45) days of notice of
such default by SRI:
(a) If CORONA is in material breach of its obligations under this
Agreement;
(b) If CORONA provides false reports under Section 6 in an
intentional or grossly negligent manner; or
(c) If the bankruptcy proceedings described in Paragraph 7.2 continue
undismissed or unstayed for a period of more than one (1) calendar year
after filing.
Corona License Agreement, December 20, 1994
10
<PAGE>
7.4 Effect of Termination under 7.1 and/or 7.3. Surviving the
-------------------------------------------
termination(s) described in Paragraphs 7.1 and/or 7.3 are:
(a) Any obligation accruing prior to such expiration or termination
including the reimbursement of patent expenses;
(b) Any cause of action or claim of CORONA or SRI, accrued or to
accrue, because of any breach or default by the other party;
(c) SRI's license to the CORONA Improvements, as stated in Paragraph
3.5. Such license shall remain irrevocable;
(d) Any sublicense(s) with third party(ies) executed by CORONA prior
to the date of termination provided that such third party(ies) shall pay
all further royalties required in such sublicenses (if any) directly to
SRI; and
(e) The provisions of Paragraphs 2.1, 2.2, 2.3 and Articles 8, 15,
16.
If CORONA establishes or has established a trademark(s) in connection with
the SRI Proprietary Rights, all right, title, interest and ownership of such
trademark(s) shall be assigned to SRI upon termination of this Agreement.
7.5 Termination by CORONA for Cause. If SRI is in material breach of its
--------------------------------
obligations under this Agreement and fails to cure such breach (or if such
breach cannot be cured within such period, fails to commence good faith efforts
to cure the breach) within forty-five (45) days of notice of such default by
CORONA, CORONA may terminate its license grant to SRI under Paragraph 3.5.
Surviving termination by CORONA are:
(a) Any cause of action or claim of CORONA or SRI, accrued or to
accrue, because of any breach or default by the other party;
(b) Any sublicense(s) with third party(ies) executed by SRI prior to
the date of termination provided that such third party(ies) shall pay all
further royalties required in such sublicenses (if any) directly to CORONA;
and
(c) All other terms and conditions of this Agreement but for
Paragraph 3.5.
Corona License Agreement, December 20, 1994
11
<PAGE>
8. PROPRIETARY INFORMATION AND SECRECY
--------------------------------------
8.1 Each party agrees that all information, whether oral, written or in
other recorded form, that is, in the case of tangible items, conspicuously
labeled as "Confidential" or "Proprietary" or, in the case of an oral
disclosure, so identified at the time of such disclosure, and that is received
from the other party pursuant to this Agreement (the "Information"),
(i) Shall be kept confidential by the receiving party by using at
least the same physical and other security measures used for its own
confidential information, but not less than reasonable care and
(ii) Both parties shall use commercially reasonable methods to
protect their own and each others' Information including requiring that the
receiving party and its subcontractors and sublicensees be obligated in
writing to use the same degree of care to hold such Information
confidential as they normally use to preserve and safeguard their own
confidential information, but not less than reasonable care.
For Purposes of this Agreement, Information includes SRI Software, Existing SRI
Software, Existing SRT, SRI Improvements, SRI Know-How, SRI Patent Rights, and
CORONA Know-How, and CORONA Improvements. Nothing herein contained shall be
construed as requiring the receiving party to keep confidential any Information
which:
(a) Has become available to the public through no fault of the
receiving party;
(b) Has been lawfully disclosed to the receiving party, without
restriction, by a third party who at the time of such disclosure was
lawfully in possession of the Information and was lawfully entitled to
divulge same;
(c) Is disclosed by the disclosing party to a third party without
imposing restrictions similar to those contained herein; or
(d) Is independently developed by the receiving party without any
use of Information.
It is understood and agreed that in each instance the receiving party shall have
the burden of proving that any of the above exceptions are applicable.
8.2 Nothing contained herein shall be construed so as to prevent CORONA
from using Information, including, without limitation, SRI Proprietary Rights,
to make, use or sell any product and/or service, or from disclosing information
necessary in the opinion of its counsel to comply with securities laws.
8.3 The obligation to keep Information confidential expressed in this
Article 8 shall survive the termination of this Agreement but shall expire in
respect of any Information five (5) years after receipt by the receiving party
of such Information.
9. IMPROVEMENTS AND OTHER RESEARCH
----------------------------------
9.1 Records. SRI and CORONA shall each maintain laboratory notebooks, in
-------
sufficient detail and in good scientific manner appropriate for copyright and
patent purposes, which shall reflect all work done and results achieved in the
performance of its
Corona License Agreement, December 20, 1994
12
<PAGE>
research and development regarding the SRI Proprietary Rights and CORONA
Improvements.
9.2 Disclosure. During the Exclusive Period,
-----------
(a) Each party shall be obliged to promptly disclose their respective
improvements (SRI Improvements or CORONA Improvements, respectively), to
the other.
(b) SRI and CORONA research staff shall meet quarterly to
(i) Disclose any SRI Improvements and/or CORONA Improvements;
and
(ii) Review for patentability any material which is in
preparation for upcoming public disclosure, whether as technical
publications or oral presentations.
(c) Each party shall provide the other with copies of their technical
papers, prior to publication, at the same time as such papers are submitted
for their own internal management review.
(d) Each party shall promptly disclose to the other any potential
contractual relationships in the area of Speech Recognition Technology for
use in the Nonexclusive Fields.
10. PATENT PROSECUTION AND ABATEMENT OF INFRINGEMENT
----------------------------------------------------
10.1 Ownership of Inventions. The entire right and title in all inventions,
-----------------------
discoveries, processes, methods, compositions, formulae, techniques, information
and data, whether or not patentable, and any patent applications or patents
based thereon, relating to Speech Recognition Technology and conceived in the
performance of the parties' activities during the Agreement ("New Inventions"):
(a) By employees or others acting solely on behalf of SRI, shall be
owned solely by SRI ("SRI New Inventions");
(b) By employees or others acting solely on behalf of CORONA shall
be owned solely by CORONA ("CORONA New Inventions"); and
(c) By employees or others acting jointly on behalf of SRI and
CORONA, shall be owned jointly by SRI and CORONA (the "Joint New
Inventions").
During the Exclusive Period, each party promptly shall disclose to the other
party the making, conception or reduction to practice of New Inventions by
employees or others acting on behalf of such party. SRI and CORONA each hereby
represent that all employees and other Persons acting on its behalf in
performing obligations under the Agreement shall be obligated to assign to the
party on whose behalf they are working all New Inventions conceived by such
employees or other Persons.
10.2 Patent Rights Generally. Subject to the provisions of this article,
-----------------------
SRI shall be responsible for and shall control the preparation, filing,
prosecution, maintenance and enforcement of all patent applications and patents
regarding SRI New Inventions. CORONA shall be responsible for and shall control
the preparation, filing, prosecution,
Corona License Agreement, December 20, 1994
13
<PAGE>
maintenance and enforcement of all patent applications and patents regarding
CORONA New Inventions. SRI and CORONA shall determine by mutual agreement the
party which shall be responsible for and shall control the preparation, filing,
prosecution, maintenance and enforcement of all patent applications and patents
regarding Joint New Inventions. The parties intend that they shall have rights
in the Joint New Inventions the same as in the SRI Proprietary Rights. SRI and
CORONA shall cooperate with the other party and shall execute all lawful papers
and instruments and make all rightful oaths and declarations as may be necessary
in the preparation, filing, prosecution, maintenance and enforcement of all
patent applications and patents as referred to in this section.
10.3 SRI Patent Rights.
------------------
10.3.1 Filing, Prosecution, and Maintenance. SRI shall seek to file
------------------------------------
and prosecute patent applications based on SRI Know-How and/or SRI Improvements
in the United States, Canada, Japan, the European Patent Office (designating the
United Kingdom, France, Germany, Italy and the Netherlands) and such other
countries as the parties mutually agree. SRI shall provide CORONA with copies of
each such patent application as filed, together with notice of its filing date
and serial number, and copies of all office actions and responses thereto. SRI
shall use its good faith efforts to amend any such patent applications to
include claims reasonably requested by CORONA.
10.3.2 Payment of Patent Costs.
-----------------------
(a) During the Exclusive Period,
(i) SRI shall bear all patent prosecution costs and attorneys
fees incurred by SRI in connection with the prosecution of the patent
applications listed in Appendix B;
(ii) CORONA shall pay for patent costs relating to CORONA
Improvements.
(iii) SRI shall disclose to CORONA appropriate invention
disclosures concerning SRI New Inventions and SRI Improvements. CORONA
shall have thirty days to notify SRI if CORONA wishes to pursue and
pay for all related patent expenses and fees pertaining to such SRI
New Inventions and SRI Improvements. If CORONA (a) elects not to
pursue and pay for such patent expenses and fees or (b) fails to
notify SRI of its intent within the required 30 day period, SRI, in
its sole discretion, may elect whether or not to pursue and pay for
such patent prosecution and CORONA shall have no license to SRI patent
rights, exclusive or nonexclusive, under this Agreement for such SRI
New Inventions and SRI Improvements for which SRI elects to apply for
a patent and for which patents are eventually issued, provided however
that SRI shall provide CORONA with a right of first negotiation for a
separate license to such intellectual property on commercially
reasonable terms, and provided however, that royalties due from CORONA
to SRI under such license will be payable upon issuance of a patent to
SRI retroactively for any use by CORONA of such SRI New Inventions and
SRI Improvements prior to the issuance of a patent. Such right of
first negotiation shall expire if a license agreement is not
consummated within ninety days following notification by SRI to CORONA
of SRI's offer to negotiate a license or option.
Corona License Agreement, December 20, 1994
14
<PAGE>
(b) After the Exclusive Period, CORONA shall reimburse a pro-
rated portion of the SRI patent expenses and fees incurred after the
Exclusive Period. Such SRI Patent costs shall be shared equally by all
nonexclusive licensees in direct proportion to the number of patents
licensed by each party. For example if SRI has licensed five patents
to CORONA and SRI has licensed three of those five to one other
company, CORONA shall reimburse SRI patent expenses and fees for the
two patents which have not been otherwise licensed in their entirety
and reimburse one half of the Patent Costs for the remaining three
patents. CORONA shall reimburse SRI within Thirty (30) days of
invoicing unless CORONA believes the fees are incorrect, in which case
CORONA shall have a right to audit SRI's records to determine the
correct fees and the payment period shall be extended another Thirty
(30) days. If CORONA declines to reimburse SRI for its pro-rated
portion of any particular patent costs and attorneys fees after the
Exclusive period, deemed owed and due, SRI may terminate the license
granted to CORONA for such patent application and/or patent and remove
such patent applications and/or patents from the definition of SRI
Proprietary Rights.
10.3.3 Suspected Infringement. Each party shall notify the other
-----------------------
party of any suspected infringement of the subject proprietary rights by a third
party. SRI and CORONA shall meet at a mutually agreeable time and place to
decide how to proceed. If SRI fails to bring suit based on the SRI Patent Rights
within forty-five (45) days of CORONA's request, CORONA may bring suit and, if
necessary, join SRI. The party bringing suit shall retain 75% of the proceeds or
damages awarded after deduction of the payment of costs (including attorney's
fees).
11. NOTICE
----------
All notices, requests, consents and other communications required or
permitted to be given hereunder, shall be in writing and shall be deemed to have
been duly given if delivered personally or sent by prepaid telex, telefax or
telegram, or mailed first-class, postage prepaid by registered or certified mail
(notices sent by telex or telefax, or telegram, shall be deemed to have been
given on the date sent; those mailed shall be deemed to have been given five (5)
days after mailing), as follows, or to such other address as any party shall
designate by notice in writing to the other in accordance herewith:
If to SRI, for
technical matters: SRI International
333 Ravenswood Avenue
Menlo Park, California 94025-3493
Attention:___________________________
If to SRI, for
all other matters: SRI International
333 Ravenswood Avenue
Menlo Park, California 94025-3493
Attention: Contract Administration
If to CORONA, for
technical matters: Corona Corporation
333 Ravenswood Avenue
Menlo Park, California 94025-3493
Attention:______________________________
Corona License Agreement, December 20, 1994
15
<PAGE>
If to CORONA, for
all other matters: Corona Corporation
333 Ravenswood Avenue
Menlo Park, California 94025-3493
Attention: ________________________
12. APPLICABLE LAW
------------------
The Agreement shall be governed by and construed in accordance with the
laws of the State of California, without regard to the conflicts of law
principles thereof, and shall not be governed by the United Nations Convention
on Contracts for the International Sale of Goods.
13. ASSIGNMENT
--------------
This Agreement shall not be assignable by either party hereto, whether
voluntarily, by operation of law, or otherwise, without first having obtained in
writing the consent of the other party, and any such purported assignment,
without the written consent of the other party, shall be null and void.
14. ENTIRE AGREEMENT
--------------------
The Agreement embodies the entire understanding between the parties and
supersedes any prior understanding and agreements between and among them
respecting the subject matter hereof. There are no representations, agreements,
arrangements or understandings, oral or written, between the parties hereto
relating to the subject matter of the Agreement which are not fully expressed
herein. Any modification of this Agreement shall be in writing and shall be
signed by a duly authorized representative of each party.
15. INDEMNIFICATION
-------------------
15.1 Indemnification. CORONA shall indemnify, defend and hold harmless
---------------
SRI, its directors, officers, employees and agents from all losses, liabilities,
damages and expenses (including reasonable attorneys' fees and costs) that they
may suffer as a result of any claims, demands, actions or other proceedings made
or instituted by any third Party or Affiliate against any of them and arising
out of or relating to (a) any negligence, recklessness or intentional act or
omission by or on behalf of CORONA in the performance of its activities
contemplated by the Agreement, or (b) any personal injury to or death of any
person or damage to any property in connection with any act or omission (without
regard to culpable conduct) by or on behalf of CORONA in the performance of its
activities contemplated by the Agreement.
15.2 Indemnification Procedure. A party (the "Indemnitee") that intends to
-------------------------
claim indemnification under this article shall promptly notify CORONA of any
loss, liability, damage or expense, or any claim, demand, action or other
proceeding with respect to which the Indemnitee intends to claim such
indemnification. CORONA's indemnity obligations under this article shall not
apply to amounts paid in any settlement if effected without the consent of
CORONA, which consent shall not be unreasonably withheld or delayed. CORONA
shall not settle or consent to an adverse judgment in any such claim, demand,
action or other proceeding that adversely affects the rights or interests of any
Indemnitee or imposes additional obligations on such Indemnitee, without the
prior express written consent of such Indemnitee. The Indemnitee, its employees
and agents, shall
Corona License Agreement, December 20, 1994
16
<PAGE>
cooperate fully with CORONA and its legal representatives in the investigation
of any action, claim or liability covered by this indemnification.
16. ARBITRATION
---------------
16.1 If a dispute arises out of or relates to this Agreement, or its
breach, and the parties have not been successful in resolving such dispute
through negotiation, the parties agree first to endeavor to settle the dispute
through mediation by submitting the dispute to a sole mediator selected by the
parties, or at any time at the option of a party, to mediation by the American
Arbitration Association ("AAA"), 417 Montgomery Street, San Francisco,
California 94104. Each party shall bear its own expenses and an equal share of
the expenses of the mediator and the fees of the AAA. The parties, their
representatives, other participants and the mediator shall hold the existence,
content and result of mediation in confidence.
16.2 If after ninety (90) days from the first written notice of dispute,
the parties fail to resolve the dispute by written agreement or mediation,
either party may submit the dispute to final and binding arbitration
administered by the AAA, pursuant to the Commercial Arbitration Rules at the
time of submission. California Arbitration Law shall govern except in the event
that a stay is sought pursuant to the California Code of Civil Procedure Section
1281.2(c), in which event the parties agree that the issue shall be resolved
under the United States Arbitration Act. The arbitration shall be held in San
Francisco, California. Unless the parties have agreed upon the selection of an
Arbitrator before then, the AAA shall appoint the Arbitrator as soon as
practical, but in any event within thirty (30) days after the submission to AAA
for binding arbitration. The Arbitrator's award shall be final and binding
determination of the dispute and shall be fully enforceable as an arbitration
award by the California courts in accordance with the California Arbitration
Law. The prevailing party shall be entitled to recover its reasonable attorney's
fees and expenses, including arbitration administration fees, incurred in
connection with such proceeding. The parties, their representatives, other
participants and the mediator shall hold the existence, content and result of
arbitration in confidence.
16.3 Nothing in this Section shall be construed to preclude any party from
seeking injunctive relief in order to protect its rights pending mediation or
arbitration. A request by a party to a court for such injunctive relief shall
not be deemed a waiver of the obligation to mediate or arbitrate.
17. MISCELLANEOUS
-----------------
17.1 U.S. Export Laws and Regulations. Each party hereby acknowledges that
--------------------------------
the rights and obligations of the Agreement are subject to the laws and
regulations of the United States relating to the export of products and
technical information. Without limitation, each party shall comply with all such
laws and regulations.
17.2 No Other Rights. The Agreement shall not be construed to grant any
---------------
license or other rights to CORONA in any patent rights, know-how or other
technology of SRI, except as expressly provided in the Agreement.
17.3 Waivers and Amendments. No change, modification, extension,
----------------------
termination or waiver of the Agreement, or any of the provisions herein
contained, shall be valid unless made in writing and signed by duly authorized
representatives of the parties hereto.
17.4 Severability. Any of the provisions of the Agreement which are
------------
determined to be invalid or unenforceable in any jurisdiction shall be
ineffective to the extent of such invalidity or unenforceability in such
jurisdiction, without rendering invalid or
Corona License Agreement, December 20, 1994
17
<PAGE>
unenforceable the remaining provisions hereof and without affecting the validity
or enforceability of any of the terms of the Agreement in any other
jurisdiction.
17.5 Waiver. The waiver by either party hereto of any right hereunder or
------
the failure to perform or of a breach by the other party shall not be deemed a
waiver of any other right hereunder or of any other breach or failure by said
other party whether of a similar nature or otherwise.
17.6 Taxes.: All sales, use, and other transfer taxes, arising out of this
-------
Agreement and the consummation of the transactions contemplated herein shall be
paid for by Corona.
IN WITNESS WHEREOF, the parties have executed the Agreement as of the date
first set forth above.
SRI INTERNATIONAL
By: /s/ Signature Illegible
Dated: 12/20/94
--------
Title: President and CEO
-----------------
CORONA CORPORATION
By: /s/ Signature Illegible
Dated: 12/20/94
--------
Title: PRESIDENT
---------
Corona License Agreement, December 20, 1994
18
<PAGE>
[*] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH
RESPECT TO THE OMITTED PORTIONS.
[***]
Corona License Agreement, December 20, 1994
<PAGE>
[*] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH
RESPECT TO THE OMITTED PORTIONS.
DR. WILLIAM P. SOMMERS
President and Chief Executive Officer
December 21, 1994
Mr. Ronald Croen
President
Corona Corporation
Building 110
333 Ravenswood Avenue
Menlo Park, CA 94025
LETTER AGREEMENT
Dear Mr. Croen:
As we have discussed, a definition in the license agreement between SRI
International and Corona Corporation dated December 20, 1994 (the "Agreement")
requires further clarification. Please signify your agreement to the following
clarification, on behalf of Corona Corporation by signing and dating both copies
of this Letter Agreement.
The term "Speech Recognition Technology", as used in paragraph 1.12 of the
Agreement, shall specifically exclude
[***]
Sincerely,
/s/ William P. Sommers
William P. Sommers
AGREED AND ACCEPTED:
By /s/ Signature Illegible
Date 12/21/94
--------
SRI INTERNATIONAL
333 Ravenswood Ave. Menlo Park, CA 94025-3493 (415) 859-2951 Facsimile: (415)
859-2624
<PAGE>
EXHIBIT 21.1
Subsidiaries
------------
Nuance Communications, Ltd., a company organized under the laws of the United
Kingdom
Nuance Communications, Ltd., a company organized under the laws of Quebec
Nuance Communications, SARL, a company organized under the laws of France
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
and to all references to our Firm included in or made a part of this
Registration Statement.
/s/ Arthur Andersen LLP
San Jose, California
February 3, 2000
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